<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 25, 2000
REGISTRATION NO. 33-2625/811-4460
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-6
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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POST-EFFECTIVE AMENDMENT NO. 20
PROVIDENT MUTUAL VARIABLE LIFE SEPARATE ACCOUNT
(EXACT NAME OF TRUST)
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
1000 CHESTERBROOK BOULEVARD
BERWYN, PA 19312
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
DEPOSITOR'S TELEPHONE NUMBER, INCLUDING AREA CODE: (302) 452-4000
---------------------
JAMES G. POTTER, JR., ESQ.
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
1000 CHESTERBROOK BOULEVARD
BERWYN, PA 19312
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPIES TO:
STEPHEN E. ROTH, ESQ.
SUTHERLAND ASBILL & BRENNAN LLP
1275 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, DC 20004-2415
It is proposed that this filing will become effective (check appropriate
box)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 2000 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a) of Rule 485
[ ] on pursuant to paragraph (a) of Rule 485
Title of Securities Being Registered:
Interests in Modified Premium Variable Life Insurance Policies
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<PAGE> 2
(ART)
PROSPECTUS
FOR
MODIFIED PREMIUM
VARIABLE LIFE
INSURANCE POLICY
ISSUED BY
PROVIDENT MUTUAL
LIFE INSURANCE COMPANY
OPTIONS
FORM 15732 5.00
<PAGE> 3
PROSPECTUS
MODIFIED PREMIUM VARIABLE LIFE INSURANCE POLICY
ISSUED BY
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
SERVICE CENTER: 300 CONTINENTAL DRIVE, NEWARK, DELAWARE 19713
CORPORATE HEADQUARTERS: 1000 CHESTERBROOK BOULEVARD, BERWYN, PENNSYLVANIA 19312
TELEPHONE: (800) 688-5177
This Prospectus describes a modified premium variable life insurance policy
(the "Policy") offered by Provident Mutual Life Insurance Company ("PMLIC"). The
Policy has an insurance component and an investment component. The primary
purposes of the Policy are to provide insurance coverage for the lifetime of the
Insured and to lessen the economic loss resulting from the Insured's death. The
Policy provides the policyowner (the "Owner") with flexibility as to premium
payments subject to certain required premiums and the ability to choose among
investment alternatives with different investment objectives.
After certain deductions are made, Net Premiums are allocated to the
Provident Mutual Variable Life Separate Account (the "Separate Account"). The
Separate Account has twenty-six subaccounts (the "Subaccounts") available in the
Policy. The Zero Coupon Bond Subaccount invests in units of The Stripped
("Zero") U.S. Treasury Securities Fund, Provident Mutual Series A ("Zero
Trust"). The assets of the other twenty-five subaccounts are used to purchase
shares of a designated corresponding investment Portfolio that is part of one of
the following mutual fund companies:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
VARIABLE INSURANCE
THE MARKET STREET FUND, INC. PRODUCTS FUND
- --------------------------------------------------------------------------------------
<S> <C>
- All Pro Large Cap Growth Portfolio - Equity-Income Portfolio
- All Pro Large Cap Value Portfolio - Growth Portfolio
- All Pro Small Cap Growth Portfolio - High Income Portfolio
- All Pro Small Cap Value Portfolio - Overseas Portfolio
- International Portfolio
- Equity 500 Index Portfolio
- Growth Portfolio
- Aggressive Growth Portfolio
- Managed Portfolio
- Bond Portfolio
- Money Market Portfolio
- --------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
VARIABLE INSURANCE
THE ALGER AMERICAN FUND PRODUCTS FUND II
- --------------------------------------------------------------------------------------
<S> <C>
- Small Capitalization Portfolio - Asset Manager Portfolio
- Contrafund(R) Portfolio
- Investment Grade Bond Portfolio
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</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
NEUBERGER BERMAN
ADVISERS MANAGEMENT TRUST VAN ECK WORLDWIDE INSURANCE TRUST
- --------------------------------------------------------------------------------------
<S> <C>
- Limited Maturity Bond Portfolio - Worldwide Bond Portfolio
- Partners Portfolio - Worldwide Emerging Markets Portfolio
- Worldwide Hard Assets Portfolio
- Worldwide Real Estate Portfolio
- --------------------------------------------------------------------------------------
</TABLE>
The Owner bears the entire investment risk; there is no guaranteed minimum
value.
The accompanying prospectuses for the Funds and the Zero Trust describe the
investment objectives and the attendant risks of the Portfolios. The Cash Value
will reflect monthly deductions and certain other fees and charges. Also, a
surrender charge may be imposed if, during the first 9 policy years the Policy
lapses. Generally, the Policy will remain in force as long as the scheduled
premium payments are made. If the "Special Premium Payment Provision" is in
effect, the Owner will not have to pay the scheduled premiums to keep the Policy
in force.
This Prospectus must be accompanied or preceded by current prospectuses for
the funds. Please read this Prospectus carefully and retain it for future
reference.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
May 1, 2000
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY OF THE POLICY
The Policy................................................ 1
Purpose of the Policy..................................... 1
The Death Benefit......................................... 1
Cash Value................................................ 2
Allocation of Net Premiums................................ 2
Transfers................................................. 2
Loan Privilege............................................ 2
Withdrawal of Excess Cash Value........................... 3
Surrender of the Policy................................... 3
Accelerated Death Benefit................................. 3
Tax Treatment............................................. 3
Illustrations............................................. 3
Charges Assessed Under the Policy......................... 4
Table of Fund Fees and Expenses........................... 5
The Company, Separate Account and Funds..................... 7
Provident Mutual Life Insurance Company................... 7
The Separate Account...................................... 7
The Funds................................................. 8
The Stripped ("Zero") U.S. Treasury Securities Fund,
Provident Mutual Series A.............................. 11
Additional Information About the Funds and Portfolios..... 12
Detailed Description of Policy Provisions................... 13
Death Benefit............................................. 13
Cash Value................................................ 14
Payment and Allocation of Premiums........................ 15
Transfers of Cash Value................................... 19
Policy Duration........................................... 19
Options on Lapse.......................................... 20
Exchange Privileges....................................... 20
Loan Privilege............................................ 21
Withdrawal of Excess Cash Value........................... 22
Surrender Privilege....................................... 23
Accelerated Death Benefit................................. 23
Charges and Deductions...................................... 25
Premium Expense Charge.................................... 25
Surrender Charges......................................... 25
Monthly Deductions........................................ 27
Mortality and Expense Risk Charge......................... 28
Asset Charge Against Zero Coupon Bond Subaccount.......... 28
Charges for Income Taxes.................................. 29
Guarantee of Certain Charges.............................. 29
Other Charges............................................. 29
Other Policy Provisions..................................... 30
Payment of Policy Benefits................................ 30
The Policy................................................ 30
</TABLE>
i
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Ownership................................................. 30
Beneficiary............................................... 31
Change of Owner and Beneficiary........................... 31
Split Dollar Arrangements................................. 31
Assignments............................................... 31
Misstatement of Age and Sex............................... 31
Dividends................................................. 31
Settlement Options........................................ 32
Supplementary Benefits...................................... 32
Federal Income Tax Considerations........................... 33
Introduction.............................................. 33
Tax Status of the Policy.................................. 33
Tax Treatment of Policy Benefits.......................... 33
Special Rules for Pension and Profit-Sharing Plans........ 35
Special Rules for Section 403(b) Arrangements............. 35
Business Uses of the Policy............................... 35
Possible Tax Law Changes.................................. 36
PMLIC's Taxes............................................. 36
Policies Issued in Conjunction with Employee Benefit
Plans..................................................... 36
Legal Developments Regarding Unisex Actuarial Tables........ 36
Voting Rights............................................... 36
Standard & Poor's........................................... 37
Changes to the Separate Account or Funds.................... 38
Changes to Separate Account Operations.................... 38
Changes to Available Portfolios........................... 38
Termination of Participation Agreements................... 38
Officers and Directors of PMLIC............................. 39
Distribution of Policies.................................... 41
Policy Reports.............................................. 42
State Regulation............................................ 42
Legal Proceedings........................................... 42
Experts..................................................... 42
Legal Matters............................................... 42
Definitions................................................. 43
Financial Statements........................................ F-1
Appendix A -- Illustration of Death Benefits, Cash Surrender
Values and Accumulated Premiums............... A-1
Appendix B -- Calculation of Net Investment Factor and Cash
Value of the Policy....................................... B-1
</TABLE>
ii
<PAGE> 6
SUMMARY OF THE POLICY
The following summary of the Policy provisions should be read in
conjunction with the detailed information appearing elsewhere in this
Prospectus. Unless otherwise indicated, the description of the Policy in this
prospectus assumes that the Insured is alive, the Policy is in force and there
is no outstanding loan.
THE POLICY
The Modified Premium Variable Life Insurance Policy (the "Policy") offered
by this Prospectus is issued by Provident Mutual Life Insurance Company
("PMLIC"). The Policy is similar in many ways to a fixed-benefit life insurance
policy. As with a fixed-benefit life insurance policy, the Owner of a Policy
makes premium payments in return for insurance coverage on the person insured.
Also, like many fixed-benefit life insurance policies, the Policy will not lapse
if scheduled premiums are paid and the Policy provides for accumulation of Net
Premiums and a Net Cash Surrender Value which is payable if the Policy is
surrendered during the Insured's lifetime. As with many fixed-benefit life
insurance policies, the Net Cash Surrender Value during the early Policy Years
is likely to be substantially lower than the aggregate premium payments made.
However, the Policy differs from a fixed-benefit life insurance policy in
several important respects. Unlike a fixed-benefit life insurance policy, under
the Policy, the Death Benefit may and the Cash Value will increase or decrease
to reflect the investment performance of any Subaccounts to which Cash Value is
allocated. There is no guaranteed minimum Net Cash Surrender Value. If scheduled
premium payments are not made, then, after a grace period, the Policy will Lapse
without value. (See "Policy Duration"). However, if the "Special Premium Payment
Provision" is in effect, the Owner will not be required to pay scheduled
premiums to keep the Policy in full force. Generally, this provision will take
effect when the Cash Value exceeds a particular amount. (See "Special Premium
Payment Provision"). If a Policy Lapses while loans are outstanding, certain
amounts may become subject to income tax and a 10% penalty tax. (See "Federal
Income Tax Considerations").
The Policy is called "modified premium" because while there is a fixed
schedule for premium payments, the Owner may, subject to certain restrictions,
make additional unscheduled payments.
PMLIC offers 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 the Owner's Subaccount
performance and Policy Account Value. To obtain more information about these
other policies, contact PMLIC's Service Center or the Owner's agent.
The most important features of the Policy, such as charges and deductions,
Death Benefits, and calculation of Policy values, are summarized on the
following pages.
PURPOSE OF THE POLICY
The Policy is designed to provide lifetime insurance benefits and long-term
investment of Cash Value. A prospective Owner should evaluate the Policy in
conjunction with other insurance coverage that he or she may have, as well as
their need for insurance and the Policy's long-term investment potential. It may
not be advantageous to replace existing insurance coverage with the Policy. In
particular, replacement should be carefully considered if the decision to
replace existing coverage is based solely on a comparison of Policy
illustrations.
The Policy is issued for Insureds with Issue Ages 0 to 80. The minimum Face
Amount is $50,000.
THE DEATH BENEFIT
As long as the Policy remains in force, PMLIC will pay the Proceeds to the
Beneficiary upon receipt of due proof of the death of the Insured. The Proceeds
will consist of the Policy's Death Benefit, plus any additional benefits
provided by a supplementary benefit rider, less any outstanding Policy loan and
accrued interest, less any unpaid Monthly Deductions. So long as the required
scheduled premiums are paid, the Death Benefit will not be less than the
applicable Guaranteed Minimum Death Benefit.
1
<PAGE> 7
The Death Benefit is the greatest of:
(1) the applicable Guaranteed Minimum Death Benefit for the Policy;
(2) the Face Amount of the Policy plus the amount by which the Cash Value
on the date of death exceeds the appropriate Special Premium Payment
Single Premium; or
(3) the Cash Value on the date of death times the Death Benefit Factor for
the Insured's sex (if applicable), Attained Age, and Premium Class.
There are two Death Benefit Options under the Policy -- the Basic Death
Benefit Option and the Increasing Death Benefit Option. (The Increasing Death
Benefit Option is subject to certain availability restrictions.) The applicable
Guaranteed Minimum Death Benefit depends upon which Death Benefit you choose.
Under each of the Death Benefit Options, the Guaranteed Minimum Death Benefit is
as follows:
<TABLE>
<S> <C>
Basic Death Benefit Option: the Face Amount of the Policy;
Increasing Death Benefit Option: the Face Amount of the Policy plus the sum of all
unscheduled premiums received by PMLIC as of the date of
death.
</TABLE>
CASH VALUE
The Cash Value in the Subaccounts reflects the investment performance of
the Subaccounts, any Net Premiums allocated to those Subaccounts, any transfers
to or from those Subaccounts, any partial withdrawals from those Subaccounts,
any loans, any loan repayments, any loan interest paid or credited and any
charges assessed in connection with the Policy. The Owner bears the entire
investment risk.
ALLOCATION OF NET PREMIUMS
After deduction of the Premium Expense Charge, Net Premiums are allocated
to one or more of the Subaccounts as selected by the Owner in the application or
by subsequent written notice.
The Separate Account uses its assets to purchase shares of a corresponding
mutual fund Portfolio that is part of one of the following funds: The Market
Street Fund, Inc.; The Alger American Fund; Neuberger Berman Advisers Management
Trust; Van Eck Worldwide Insurance Trust; Variable Insurance Products Fund; and
Variable Insurance Products Fund II (the "Funds", each, a "Fund"). There is no
assurance that the investment objectives of a particular Portfolio will be met.
TRANSFERS
The Owner may transfer Cash Value between and among the Subaccounts.
Transfers between and among the Subaccounts are made as of the date PMLIC
receives the request. PMLIC requires a minimum amount of $100 for each such
transfer. (See "Transfers of Cash Value").
LOAN PRIVILEGE
The Owner may obtain Policy loans in a minimum amount of $300 (or such
lesser minimum as may be required in a particular state) but not exceeding: (1)
for Policy Years 1 through 3, 75% of the Net Cash Surrender Value; and (2) for
Policy Years 4 and thereafter, 90% of the Net Cash Surrender Value. For policies
issued to Virginia residents, the policy loan available in all years will be 90%
of the Net Cash Surrender Value.
At the time of the application for the Policy, the Owner must elect one of
two Policy loan interest rate options -- either a fixed 8% rate per year or
variable rate which will not exceed the greater of 5 1/2% per year or the
Corporate Monthly Bond Yield Average as published by Moody's Investors Service,
Inc.
If interest is not paid when due, it will be added to the outstanding loan
balance. PMLIC transfers Cash Value in an amount equal to the loan to PMLIC's
General Account where it becomes collateral for the loan. The transfer is made
pro-rata from each Subaccount. This collateral earns interest at an effective
annual rate of 1.5% less than the annual rate then being charged for loans. (See
"Loan Privilege").
2
<PAGE> 8
Depending upon the investment performance of the Subaccounts, and the
amounts borrowed, loans may cause a Policy to lapse. Lapse of the Policy with
outstanding loans may result in adverse tax consequences including a 10% penalty
tax. (See "Tax Treatment of Policy Benefits").
WITHDRAWAL OF EXCESS NET CASH VALUE
If the cash surrender value of the Policy exceeds an amount called the
Withdrawal Single Premium (which is the Attained Age net single premium for the
Face Amount of the Policy) the Owner may be able to withdraw such excess Cash
Value of the Policy, subject to certain conditions. A withdrawal will reduce the
Death Benefit, but not below the Guaranteed Minimum Death Benefit. (See
"Withdrawal of Excess Cash Value," below.)
SURRENDER OF THE POLICY
The Owner may at any time surrender the Policy and receive the entire Net
Cash Surrender Value. (See "Surrender Privilege").
ACCELERATED DEATH BENEFIT
Under the Accelerated Death Benefit Rider, an Owner may receive, at his or
her request and upon approval by PMLIC, accelerated payment of part of the
Policy's Death Benefit if the Insured develops a Terminal Illness or is
permanently confined to a Nursing Care Facility (see "Accelerated Death
Benefit").
TAX TREATMENT
PMLIC anticipates that a Policy should generally be deemed a life insurance
contract under Federal tax law. However, due to limited guidance, there is some
uncertainty about the application of the Federal tax law to the Policy,
particularly if the Owner of the Policy pays the full amount of premiums
permitted under the Policy. An Owner of a Policy issued after October 20, 1988
with an extra rating basis may, however, adopt certain self-imposed limitations
on the amount of premiums paid for such a Policy which should cause the Policy
to meet the definition of a life insurance contract. Any Owner contemplating the
adoption of such limitations should consult a tax adviser.
Assuming that a Policy qualifies as a life insurance contract for federal
income tax purposes, a Policyowner should not be deemed to be in constructive
receipt of Cash Value under a Policy until there is a distribution from the
Policy. Moreover, Death Benefits payable under a Policy should be completely
excludable from the gross income of the Beneficiary. As a result, the
Beneficiary generally should not be taxed on these Proceeds. (See "Federal
Income Tax Considerations").
Under certain circumstances, a Policy issued or materially changed after
June 20, 1988 may be treated as a "Modified Endowment Contract." If the Policy
is a Modified Endowment Contract, then all pre-death distributions, including
Policy loans, will be treated first as a distribution of taxable income and then
as a return of basis or investment in the Policy. In addition, prior to age
59 1/2 any such distributions generally will be subject to a 10% penalty tax.
(For further discussion of Modified Endowment Contracts, See "Tax Treatment of
Policy Benefits").
If the Policy is not a Modified Endowment Contract, distributions generally
will be treated first as a return of basis or investment in the contract and
then as disbursing taxable income. Moreover, loans will not be treated as
distributions. Finally, neither distributions nor loans from a Policy that is
not a Modified Endowment Contract are subject to the 10% penalty tax. (See
"Distributions from Policies Not Classified as Modified Endowment Contracts").
ILLUSTRATIONS
Illustrations of Death Benefits, Cash Value and Net Cash Surrender Value in
this prospectus or used in connection with the purchase of a Policy are based on
hypothetical rates of return. These rates are not
3
<PAGE> 9
guaranteed. They are illustrative only and should not be considered a
representation of past or future performance. Actual rates of return may be
higher or lower than those reflected in Policy illustrations, and therefore,
actual Policy values will be different from those illustrated.
CHARGES ASSESSED UNDER THE POLICY
Premium Expense Charge. A Premium Expense Charge will be deducted from
each premium payment. This charge consists of a Premium Tax Charge of 2 1/2% for
state and local premium taxes, a Percent of Premium Sales Charge of 5%, and a
Premium Processing Charge of $1.00. (See "Premium Expense Charge," below.)
Monthly Deductions. On the Policy Date and on each Policy Processing Date
thereafter, the Cash Value is reduced by a Monthly Deduction equal to the sum of
the monthly Cost of Insurance Charge, Monthly Administrative Charge, Minimum
Death Benefit Guarantee Charge, a charge for additional benefits added by rider
and during the first Policy Year, a Policy Charge. The monthly Cost of Insurance
Charge is determined by multiplying the Net Amount at Risk by the applicable
cost of insurance rate(s). The Cost of Insurance Charge will not exceed the
guaranteed maximum Cost of Insurance rates set forth in the Policy based on the
insured's Attained Age, Sex and Premium Class. The Monthly Administrative Charge
is $3.25 plus $0.015 per $1,000 of Face Amount. (See "Monthly Administrative
Charge"). The Minimum Death Benefit Guarantee Charge is $0.01 per $1,000. The
Policy Charge is $5.
Surrender Charge. A Surrender Charge is imposed if the Policy is
surrendered or lapses at any time before the end of the 9th Policy Year. The
total Surrender Charge is the sum of a Contingent Deferred Administrative Sales
Charge which is no greater than $5.00 per $1,000 of Face Amount and a Contingent
Deferred Sales Charge which is no greater than 25% of the scheduled Base Premium
for Policy Year 1 plus 5% of the scheduled Base Premiums in Policy Years 2
through 5. (See "Surrender Charge").
Daily Charges Against the Subaccounts. PMLIC imposes a daily charge for
its assumption of certain mortality and expense risks in connection with the
Policy at an annual rate which is currently 0.60% of the average daily net
assets of each Subaccount. (See "Mortality and Expense Risk Charges"). With
regard to the Zero Coupon Bond Subaccount, PMLIC also imposes a daily charge for
transaction charges associated with the purchase of units of the Zero Trust at
an annual rate which is currently 0.25% of the average daily net assets of the
Subaccount. This charge may be increased in the future but it will not exceed an
annual rate of 0.50%. (See "Asset Charge Against Zero Coupon Bond Subaccount").
4
<PAGE> 10
TABLE OF FUND FEES AND EXPENSES
<TABLE>
<CAPTION>
ALL PRO ALL PRO ALL PRO ALL PRO
LARGE CAP LARGE CAP SMALL CAP SMALL CAP
MARKET STREET FUND, INC. ANNUAL EXPENSES GROWTH VALUE GROWTH VALUE
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------- --------------- ------------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees (Investment
Advisory Fees)................... 0.70% 0.70% 0.90% 0.90%
Other Expenses
(after reimbursement)............ 0.19% 0.21% 0.21% 0.30%
---- ---- ---- ----
Total Fund Annual Expenses......... 0.89% 0.91% 1.11% 1.20%
</TABLE>
<TABLE>
<CAPTION>
EQUITY 500 AGGRESSIVE MONEY
MARKET STREET FUND, INC. ANNUAL EXPENSES INDEX INTERNATIONAL GROWTH GROWTH MANAGED BOND MARKET
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------- --------------- ------------- -------------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees (Investment
Advisory Fees)................... 0.24% 0.75% 0.32% 0.41% 0.40% 0.35% 0.25%
Other Expenses(3).................. 0.04% 0.23% 0.16% 0.16% 0.17% 0.17% 0.15%
---- ---- ---- ---- ---- ---- ----
Total Fund Annual Expenses......... 0.28% 0.98% 0.48% 0.57% 0.57% 0.52% 0.40%
</TABLE>
<TABLE>
<CAPTION>
THE ALGER AMERICAN FUND ANNUAL SMALL
EXPENSES(2) (AS A PERCENTAGE OF CAPITALIZATION
AVERAGE NET ASSETS) PORTFOLIO
- ------------------------------------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees (Investment
Advisory Fees).................... 0.85%
Other Expenses...................... 0.05%
----
Total Fund Annual Expenses.......... 0.90%
</TABLE>
<TABLE>
<CAPTION>
NEUBERGER BERMAN ADVISERS MANAGEMENT LIMITED
TRUST ANNUAL EXPENSES(2) (AS A PERCENTAGE MATURITY PARTNERS
OF AVERAGE NET ASSETS) BOND PORTFOLIO PORTFOLIO
- ----------------------------------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees (Investment
Advisory Fees)................... 0.65% 0.80%
Other Expenses..................... 0.11% 0.07%
---- ----
Total Fund Annual Expenses
(after reimbursement)(1)......... 0.76% 0.87%
</TABLE>
<TABLE>
<CAPTION>
HIGH
EQUITY-INCOME GROWTH INCOME OVERSEAS
VARIABLE INSURANCE PRODUCTS FUND PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
("VIP FUND") ANNUAL EXPENSES(2) (AS A (INITIAL (INITIAL (INITIAL (INITIAL
PERCENTAGE OF AVERAGE NET ASSETS) CLASS) CLASS) CLASS) CLASS)
- ------------------------------------- --------------- ------------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees (Investment
Advisory Fees).................. 0.48% 0.58% 0.58% 0.73%
Other Expenses
(after reimbursement)........... 0.08% 0.07% 0.11% 0.14%
---- ---- ----
Total Fund Annual Expenses
(after reimbursement)(1)........ 0.56% 0.65% 0.69% 0.87%
</TABLE>
<TABLE>
<CAPTION>
ASSET INVESTMENT
MANAGER CONTRAFUND(R) GRADE BOND
VARIABLE INSURANCE PRODUCTS FUND II PORTFOLIO PORTFOLIO PORTFOLIO
("VIP II FUND") ANNUAL EXPENSES(2) (AS A (INITIAL (INITIAL (INITIAL
PERCENTAGE OF AVERAGE NET ASSETS) CLASS) CLASS) CLASS)
- ---------------------------------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees (Investment Advisory
Fees)............................. 0.53% 0.58% 0.43%
Other Expenses
(after reimbursement)............. 0.09% 0.07% 0.11%
---- ---- ----
Total Fund Annual Expenses
(after reimbursement)(1).......... 0.62% 0.65% 0.54%
</TABLE>
5
<PAGE> 11
<TABLE>
<CAPTION>
WORLDWIDE WORLDWIDE WORLDWIDE
VAN ECK WORLDWIDE INSURANCE TRUST WORLDWIDE EMERGING HARD REAL
ANNUAL EXPENSES(2) BOND MARKETS ASSETS ESTATE
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- --------------------------------------- --------------- ------------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees (Investment
Advisory Fees)................... 1.00% 1.00% 1.00% 1.00%
Other Expenses
(after reimbursement)............ 0.22% 0.34% 0.26% 0.44%
---- ---- ---- ----
Total Fund Annual Expenses
(after reimbursement)(1)......... 1.22% 1.34% 1.26% 1.44%
<CAPTION>
MERRILL LYNCH ZERO UST SECURITIES FUND
ANNUAL EXPENSES(2) ZERO COUPON
(AS A PERCENTAGE OF AVERAGE NET ASSETS) 2006 PORTFOLIO
- --------------------------------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees (Investment
Advisory Fees)................... 0.00%
Other Expenses..................... 0.25%
----
Total Fund Annual Expenses......... 0.25%
</TABLE>
- ---------------
(1) For certain portfolios, certain expenses were reimbursed or fees waived
during 1999. It is anticipated that expense reimbursement and fee waiver
arrangements will continue past the current year. Absent the expense
reimbursement, the 1999 Total Annual Expenses would have been 1.21% for the
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 Fund
Overseas Portfolio, 0.63% for the VIP II Fund Asst Manager Portfolio, 0.67%
for the VIP II Fund Contrafund(R) Portfolio, and 3.23% for the Van Eck World
Wide Real Estate Portfolio. Similar expense reimbursement and fee waiver
arrangements were also in place for the other Portfolios and it is
anticipated that such arrangements will continue past the current year.
However, no expenses were reimbursed or fees waived during 1999 for these
Portfolios because the level of actual expenses and fees never exceeded the
thresholds at which the reimbursement and waiver arrangements would have
become operative.
(2) The fee and expense information regarding the Funds was provided by those
Funds. The Merrill Lynch Zero UST Securities Fund, the VIP Fund, the VIP II
Fund, the Neuberger Berman Advisers Management Trust, the Van Eck WIT, and
the Alger American Fund are not affiliated with PMLIC.
(3) 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%.
6
<PAGE> 12
THE COMPANY, SEPARATE ACCOUNT AND FUNDS
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
PMLIC is a mutual life insurance company that was organized as a mutual
life insurance company under Pennsylvania law in 1865. PMLIC is authorized to
transact life insurance and annuity business in 50 States, and the District of
Colombia. On December 31, 1999, PMLIC had consolidated assets of approximately
$9.2 billion.
PMLIC is a member of the Insurance Marketplace Standards Association
("IMSA"), and as such may include the IMSA logo and information about IMSA
membership in its advertisements. Companies that belong to IMSA subscribe to a
set of ethical standards covering the various aspects of sales and service for
individually sold life insurance and annuities.
THE SEPARATE ACCOUNT
The Separate Account is a separate investment account to which assets are
allocated to support the benefits payable under the Policies as well as other
variable life insurance policies PMLIC may issue.
The assets of the Separate Account are owned by PMLIC. However, these
assets are held separate from other assets and are not part of PMLIC's General
Account. The portion of the Separate Account's assets equal to the reserves and
other liabilities under the Policies (and other policies) supported by the
Separate Account are not chargeable with liabilities arising out of any other
business that PMLIC may conduct. PMLIC may transfer to its General Account any
assets of the Separate Account that exceed the reserves and Policy liabilities
of the Separate Account (which will always be at least equal to the aggregate
Cash Value allocated to the Separate Account under the Policies). The income,
gains and losses, realized or unrealized, from the assets allocated to the
Separate Account are credited to or charged against the Separate Account without
regard to other income, gains or losses of PMLIC. PMLIC may accumulate in the
Separate Account the accrued charges for mortality and expense risks and
investment results attributable to assets representing such charges.
The Separate Account is registered with the Securities and Exchange
Commission ("SEC") under the Investment Company Act of 1940 (the "1940 Act") as
a unit investment trust type of investment company. Such registration does not
involve any supervision of the management or investment practices or policies of
the Separate Account by the SEC. The Separate Account meets the definition of a
"Separate Account" under Federal securities laws.
The Separate Account has twenty-six Subaccounts available in the Policy,
twenty-five of which each invest exclusively in Portfolios of Market Street
Fund, Inc. or in Portfolios of one of the other Funds. The Zero Coupon Bond
Subaccount invests in units of the Zero Trust.
The International, Growth, Aggressive Growth, Managed, Bond, Zero Coupon
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, Provident Mutual Variable Zero Coupon 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.
7
<PAGE> 13
<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
Zero Coupon Bond Subaccount........................ Provident Mutual Variable Zero Coupon Bond
Separate Account
Money Market Subaccount............................ Provident Mutual Variable Money Market Separate
Account
</TABLE>
THE FUNDS
The Portfolios are each part of one of six series-type mutual fund
companies (each, a "Fund"): Market Street Fund, Inc.; Neuberger Berman Advisers
Management Trust; The Alger American Fund; Van Eck Worldwide Insurance Trust;
Variable Insurance Products Fund; and Variable Insurance Products Fund II. Each
of the Funds is registered with the SEC under the 1940 Act as an open-end
management investment company. The SEC does not, however, supervise the
management or the investment practices and policies of the Funds or their
Portfolios. The assets of each Portfolio are separate from the assets of other
portfolios of that Fund and each Portfolio has separate investment objectives
and policies. Some of the Funds may, in the future, create additional
Portfolios. The investment experience of each Subaccount depends on the
investment performance of its corresponding Portfolio or the Zero Trust.
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 PMLIC MAKES 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.
The following table summarizes each Portfolio's investment objective(s) and
identifies its investment adviser (and subadviser, if applicable).
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
8
<PAGE> 14
Company; subadvisers are Equinox Capital
Management, Inc., Sanford C. Bernstein & Company,
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.
EQUITY 500 INDEX -- 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.
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.
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
- ---------------
* "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.
9
<PAGE> 15
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.
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.
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
10
<PAGE> 16
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
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.
THE STRIPPED ("ZERO") U.S. TREASURY SECURITIES FUND, PROVIDENT MUTUAL SERIES A
The Zero Coupon Bond Separate Account invests in units of The Stripped
("Zero") U.S. Treasury Securities Fund, Provident Mutual Series A, a unit
investment trust registered with the SEC as such under the 1940 Act. The Zero
Coupon Trust consists of one series with a maturity date of February 15, 2006.
The objective of the Trust is to provide safety of capital and a high yield to
maturity through investment in the fixed series consisting primarily of debt
obligations issued by the United States of America that have been stripped of
their unmatured interest coupons, coupons stripped from debt obligations of the
United States, and receipts and certificates for such stripped debt obligations
and coupons. A brief summary of the securities purchased by the Trust is set
forth below. More detailed information may be found in the current Prospectus
for the Stripped ("Zero") U.S. Treasury Securities Fund, Provident Mutual Series
A which accompanies this Prospectus.
Since the U.S. Treasury securities have been stripped of their unmatured
interests coupons, they are purchased at a deep discount. If held to maturity,
the amounts invested by the Trust would grow to the face value of the U.S.
Treasury securities and therefore, a compound rate of growth to maturity could
be
11
<PAGE> 17
determined for the Trust units at the time of purchase. The rate of return
experienced by Policy Owners however is lower due to the deduction of certain
charges described under "Charges Against the Separate Accounts," especially the
charge for mortality and expense risks and the transaction charge against the
Zero Coupon Bond Separate Account. Because the value of the Trust's units vary
on a daily basis to reflect market values, no net rate of return can be
calculated prospectively for units not held until maturity.
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPFS") serves as
Sponsor for the Trust. Because the series invests in a fixed portfolio, there is
no investment manager. As Sponsor, MLPFS sells units of the Trust to the Zero
Coupon Bond Separate Account. The price of these units includes a transaction
charge which is not paid by the Zero Coupon Bond Separate Account upon
acquisition. Rather, the transaction charge is paid directly by PMLIC to MLPFS
out of PMLIC's General Account assets. The amount of the transaction charge paid
is limited by agreement between PMLIC and MLPFS and will not be greater than
that ordinarily paid by a dealer for similar securities. PMLIC is reimbursed for
the transaction charge paid through a daily asset charge which is made against
the assets of the Sub-Accounts. (See "Asset Charge Against Zero Coupon Bond
Separate Account").
Units of the Trust are disposed of to the extent necessary for PMLIC to
provide benefits and make reallocations under the Policies. MLPFS intends, but
is not contractually obligated, to maintain a secondary market in Trust units.
As long as a secondary market exists, PMLIC will sell such units to MLPFS at the
Sponsor's repurchase price. Otherwise, units will be redeemed at the Trust's
redemption price, which is typically a lower amount.
Thirty days prior to the maturity date of the securities contained in a
series of the Trust, an Owner who has allocated Net Premiums to the Zero Coupon
Bond Separate Account investing in that series will be notified and given the
opportunity to select the account or Subaccount into which the Policy Account
Value attributable thereto should be reallocated. If no instructions are
received from the Owner by PMLIC within the 30-day period, the amount in the
Zero Coupon Bond Separate Account will be transferred to the Money Market
Separate Account.
ADDITIONAL INFORMATION ABOUT THE FUNDS AND PORTFOLIOS
NO ONE CAN ASSURE THAT ANY PORTFOLIO WILL ACHIEVE ITS STATED OBJECTIVES AND
POLICIES.
More detailed information concerning the investment objectives, policies
and restrictions of the Portfolios, the expenses of the Portfolios, the risks
attendant to investing in the Portfolios and other aspects of the Funds'
operations can be found in the current prospectus for each Fund that accompanies
this prospectus and the current Statement of Additional Information for the
Funds. The Funds' prospectuses should be read carefully before any decision is
made concerning the allocation of Net Premium Payments or transfers of Cash
Value among the Subaccounts.
Not all of the Portfolios described in the prospectuses for the Funds are
available with the Policy. Moreover, if investment in the Funds or a particular
Portfolio is no longer possible, in PMLIC's judgment becomes inappropriate for
the purposes of the Policy, or for any other reason in PMLIC's sole discretion,
PMLIC may substitute another fund or portfolio without the Owner's 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 Net
Premiums, or both. However, no such substitution will be made without any
necessary approval of the Securities and Exchange Commission. Furthermore, PMLIC
may close Subaccounts to allocations of Net Premiums or Policy Account Value, or
both, at any time in its sole discretion. Shares of each Fund are purchased and
redeemed at net asset value, without a sales charge.
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
12
<PAGE> 18
of the Fund attributable to the Policies and other policies issued by PMLIC.
These percentages differ, and some advisers (or affiliates) may pay PMLIC more
than others.
Shares of the Funds are sold to separate accounts of insurance companies
that are not affiliated with PMLIC or each other, a practice known as "shared
funding." They are also sold to separate accounts to serve as the underlying
investment for both variable annuity contracts and variable life insurance
policies, a practice known as "mixed funding." As a result, there is a
possibility that a material conflict may arise between the interests of Owners,
whose Cash Values are allocated to the Subaccounts, and of owners of other
contracts or policies whose values are allocated to one or more other separate
accounts investing in any one of the Portfolios. Shares of some of the Funds may
also be sold directly to certain pension and retirement plans qualifying under
Section 401 of the Code. As a result, there is a possibility that a material
conflict may arise between the interests of Owners or owners of other policies
or contracts (including policies issued by other companies), and such retirement
plans or participants in such retirement plans. In the event of any such
material conflicts, PMLIC will consider what action may be appropriate,
including removing the Portfolio as in investment option under the Policies or
replacing the Portfolio with another Portfolio. There are certain risks
associated with mixed and shared funding and with the sale of shares to
qualified pension and retirement plans, as disclosed in each Fund's prospectus.
DETAILED DESCRIPTION OF POLICY PROVISIONS
DEATH BENEFIT
General. As long as the Policy remains in force, the Proceeds of the
Policy will, upon due proof of the Insured's death (and fulfillment of certain
other requirements), be paid to the Beneficiary in accordance with the
designated Death Benefit Option. The Proceeds will be determined as of the date
of the Insured's death and will be equal to:
1. the Death Benefit;
2. plus any additional benefits due under a supplementary benefit rider
attached to the Policy;
3. less any loan and accrued loan interest on the Policy;
4. less any overdue deductions if the death of the Insured occurs during
the Grace Period.
The Proceeds may be paid in cash or under one of the Settlement Options set
forth in the Policy.
Death Benefit Options. The Policy provides two Death Benefit Options.
Under the Basic Death Benefit Option, the Death Benefit is equal to the
greatest of: (1) the Face Amount of the Policy; (2) the Face Amount of the
Policy plus the amount by which the Cash Value of the Policy on the date of
death exceeds the appropriate 7 1/2% Special Premium Payment Single Premium; or
(3) the Cash Value of the Policy on the date of death times the Death Benefit
Factor shown in the Policy for the Insured's sex (if applicable), Attained Age
and premium class. Under the Increasing Death Benefit Option, the Death Benefit
is equal to the greatest of: (1) the Face Amount of the Policy plus the sum of
all unscheduled premiums received by PMLIC as of the date of death; (2) the Face
Amount of the Policy plus the amount by which the Cash Value of the Policy on
the date of death exceeds the appropriate 7 1/2% Special Premium Payment Single
Premium; or (3) the Cash Value of the Policy on the date of death times the
Death Benefit Factor shown in the Policy for the Insured's sex (if applicable),
Attained Age and premium class.
The Death Benefit is increased by the portion of any scheduled premium
payment which applies to a period of time beyond the date of death. The amount
payable is reduced by any policy loans and accrued interest and, if the Insured
dies during the Grace Period, by that part of any required but unpaid scheduled
premium which applies to a period prior to the date of death. The amount
remaining after these adjustments is the Proceeds at death paid to the
beneficiary at the Insured's death.
13
<PAGE> 19
Availability of Death Benefit Options. The Death Benefit Option is chosen
at the time of application for the Policy. If the Policy is issued with the
Basic Death Benefit, the Owner may change to the Increasing Death Benefit only
during the first Policy Year. Once the Increasing Death Benefit has been chosen,
the Owner may not subsequently change to the Basic Death Benefit.
The Guaranteed Minimum. As long as required scheduled premiums are paid,
the Death Benefit is guaranteed never to be less than the applicable Guaranteed
Minimum Death Benefit for the Policy. For a Policy with the Basic Death Benefit,
the Guaranteed Minimum Death Benefit is equal to the Face Amount of the Policy.
For a Policy with the Increasing Death Benefit, the Guaranteed Minimum Death
Benefit is equal to the Face Amount of the Policy plus the sum of all
unscheduled premiums received by PMLIC as of the date of death.
How the Death Benefit May Vary. For purposes of determining the Cost of
Insurance Charge, the Death Benefit is determined on each Policy Processing Day
based on the Cash Value of the Policy (see "How the Cash Value May Vary,"
below). The Death Benefit will be adjusted to the date of death. The Death
Benefit and the Proceeds payable at the Insured's death, therefore, depend on
the Cash Value of the Policy when the Insured dies. Favorable investment
experience and premium payments in excess of scheduled premiums may result in an
increase in the Death Benefit. Unfavorable investment experience may result in
decreases in the Death Benefit, but never less than the Face Amount of the
Policy. The Death Benefit will also vary depending upon whether the Basic Death
Benefit or the Increasing Death Benefit applies.
CASH VALUE
The Cash Value is not guaranteed. Unless there is an outstanding policy
loan, the total Cash Value of the Policy at any time is the sum of the Cash
Values of the Subaccounts. If there is an outstanding loan, the total Cash Value
equals the Cash Value in the General Account attributable to the loan plus the
Cash Values of the Separate Account.
As described below, the Cash Value of each Subaccount may increase or
decrease daily depending on the investment experience of the Subaccounts and the
deduction of charges from the Cash Value. Although the Policy offers the
possibility of Cash Value appreciation, there is no assurance that such will
occur. It is also possible, due to poor investment experience, for the Cash
Value to decline to zero. Therefore, the Owner bears all the investment risk on
the Cash Value.
How the Cash Value May Vary. The Cash Value of each Subaccount on the
Policy Date is the portion of the Net Premium allocated to that Subaccount
reduced by the portion of the monthly deduction on the first Policy Processing
Day allocated to that Subaccount. Thereafter, the Cash Value of each Subaccount
changes on each Valuation Day.
The Cash Value of each Subaccount reflects a number of factors, including
the investment performance of the Portfolio or the Zero Trust, the receipt of
scheduled and unscheduled premium payments, transfers from and to other
Subaccounts, transfers to and from the General Account for a policy loan and
repayment, any withdrawal of excess Cash Value, the monthly deductions from Cash
Value, and the daily charges against the Subaccounts. For a Policy having the
Increasing Death Benefit where unscheduled premiums are paid, the Cash Value may
be slightly lower than that of the same Policy having the Basic Death Benefit.
Net Investment Factor. Each Subaccount has its own Net Investment Factor.
The Net Investment Factor measures the daily investment performance of a
Subaccount. The factor increases to reflect investment income and capital gains,
realized and unrealized, for the securities of the underlying Portfolio or the
Zero Trust. The Factor decreases to reflect any capital losses, realized and
unrealized, for the securities of the underlying Portfolio or the Zero Trust.
The asset charge for mortality and expense risks and the transaction charge
for the Zero Coupon Bond Subaccount is deducted in determining the applicable
Net Investment Factor.
14
<PAGE> 20
A description of how the Net Investment Factor is determined and how it is
reflected in the Cash Value of the Policy is set forth in Appendix B on Page
B-1.
PAYMENT AND ALLOCATION OF PREMIUMS
Scheduled Premiums. Scheduled premiums are payable during the Insured's
lifetime on an annual basis or, if elected, more frequently. The scheduled
premium is a level amount that does not change until the Premium Change Date
(see "Premium Change Date"). If all required scheduled premiums are paid when
due, the Policy will not lapse, even if adverse investment experience results in
no Cash Value. If the Special Premium Payment Provision is in effect, scheduled
premiums do not have to be paid for the policy to stay in full force. (See
"Special Premium Payment Provision".) If that provision is not in effect,
scheduled premiums must be paid to keep the Policy in full force. (See "Grace
Period for Payment of Scheduled Premiums".)
Amount of Scheduled Premiums. The amount of scheduled premiums depends on
the Face Amount of the Policy, the age of the Insured, the Insured's sex and
premium class and the frequency of premium payments. The amount of scheduled
premiums payable on Policies issued in states which require "unisex" policies
(currently Montana) or in conjunction with employee benefit plans depends on all
of the preceding factors except for the sex of the Insured.
For purposes of calculating premium rates, there are three groupings or
"bands" of Face Amount. Each band has a different set of premium rates per
$1,000 of Face Amount. The bands are: $50,000 -- 99,999; $100,000 -- 249,999;
$250,000 and over. Generally, the premium rates per $1,000 of Face Amount will
be lower for Policies in a higher Face Amount band. Premiums generally are
higher for Policies issued for older Insureds. Premiums also are generally
higher for male Insureds than comparable female Insureds. The premium classes
available are Standard, Non-Smoker, Non-Smoker with Extra-Premium and Extra-
Premium. Lower premiums are charged to non-smokers who are at least 22 years of
age (21 years of age for policies issued to residents of Texas). Since there is
no Non-Smoker class for Insureds under the age of 22, shortly before an Insured
attains age 22 (21 in Texas), PMLIC will notify the Insured about possible
classification as a Non-Smoker and send the Insured an Application for Change in
Premium Class. If the Insured does not qualify for the Non-Smoker class or does
not return the application form, the Insured's premium class will remain
Standard and the monthly deduction for cost of insurance will be based on Smoker
Mortality Tables (see "Cost of Insurance"). If the Insured returns the
application and qualifies as a Non-Smoker, the scheduled premium for the Policy
will be reduced and the monthly deduction for cost of insurance will be based on
Non-Smoker Mortality Tables. Additional premiums are charged for a Policy with
an extra-premium class and for any supplementary insurance benefits. In certain
situations, such as term conversions, where less than normal underwriting
expenses are incurred, PMLIC may allow a credit toward the first scheduled
premium.
Representative annual Base Premium amounts payable from the Policy Date
until the Premium Change Date for Non-Smoker and Standard premium classes are
shown in the following table:
<TABLE>
<CAPTION>
$50,000 FACE AMOUNT $100,000 FACE AMOUNT
--------------------- ---------------------
NON-SMOKER STANDARD NON-SMOKER STANDARD
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Male, Issue Age 25.................................. 395.50 503.50 765.00 982.00
Female, Issue Age 35................................ 508.50 594.00 991.00 1,163.00
Male, Issue Age 45.................................. 905.00 1,216.00 1,783.00 2,405.00
Female, Issue Age 55................................ 1,236.50 1,442.00 2,445.00 2,856.00
</TABLE>
Premiums are payable on an annual, semi-annual or quarterly basis. Premiums
are payable monthly under the Automatic Payment Plan where the Owner authorizes
PMLIC to withdraw premiums from the Owner's checking account each month. If
premiums are payable under the Automatic Payment Plan and such plan is
terminated, the premium payment frequency will be changed to quarterly. The
Owner may make deposits into a Premium Deposit Fund Account (PDF Account). If
the Owner has a PDF Account, PMLIC will automatically apply the amount in such
account toward payment of the scheduled premium
15
<PAGE> 21
due on the premium due date. Any amounts held in a PDF Account earn interest at
a fixed rate which will be declared by the Company from time to time.
If scheduled premiums are paid more often than annually, the aggregate
yearly premium will be higher. Although it is not guaranteed that Owners who pay
premiums annually and those who pay more frequently than annually will achieve
the same Cash Values, the higher premium for those who pay premiums more
frequently is intended to decrease the likelihood that the Cash Values for such
Owners will be significantly different than those of annual payors.
Since PMLIC deducts a premium processing charge of $1.00 from each premium
payment, Policies for which premiums are paid more frequently than annually will
incur higher aggregate premium processing charges than Policies with premiums
paid annually (see "Premium Processing Charge").
The following table compares annual and monthly premiums for Insureds who
are in the Non-Smoker premium class. Note that in these examples the sum of 12
monthly premiums for a particular Policy is approximately 106% of the annual
premium for the Policy.
<TABLE>
<CAPTION>
$50,000 FACE AMOUNT $100,000 FACE AMOUNT
------------------- ---------------------
MONTHLY ANNUAL MONTHLY ANNUAL
------- -------- -------- ---------
<S> <C> <C> <C> <C>
Male, Issue Age 25.................................. 34.80 395.50 67.32 765.00
Female, Issue Age 35................................ 44.75 508.50 87.21 991.00
Male, Issue Age 45.................................. 79.64 905.00 156.90 1,783.00
Female, Issue Age 55................................ 108.81 1,236.50 215.16 2,445.00
</TABLE>
Unscheduled Premiums. The Owner may make unscheduled premium payments at
any time, subject to certain minimum and maximum limitations. The minimum
unscheduled premium payment is $25. The maximum unscheduled premium which PMLIC
will accept in any Policy Year, without prior approval, is a multiple of the
scheduled annual Base Premium, based on the Attained Age of the Insured, as
shown in the following table.
<TABLE>
<CAPTION>
MULTIPLE OF SCHEDULED
ATTAINED AGE BASE PREMIUM
- ------------ ---------------------
<S> <C>
0-59 10
60-65 8
66-70 6
71-75 5
76-80 4
81-85 3
86+ 2
</TABLE>
The Owner may plan to pay on a regular basis a premium amount in excess of the
scheduled premium. PMLIC will show this additional amount as payable on the
premium notice. However, only the required scheduled premium shown on such
notice must be paid to keep the Policy in full force.
The Cash Value of the Policy will immediately increase as of the date an
unscheduled premium payment is received. This will increase the likelihood that
the Special Premium Provision will go into effect earlier than it otherwise
would. If unscheduled premium payments are made, the Special Premium Payment
Option may go into effect slightly later for a Policy with the Increasing Death
Benefit than it would for the same Policy with the Basic Death Benefit. Of
course, the Cash Value may subsequently increase or decrease depending upon the
investment experience of the Subaccounts to which the net unscheduled premium is
allocated. Depending upon the circumstances, the Death Benefit may or may not
increase when an unscheduled premium payment is received. If the Special Premium
Payment Provision has been in effect and scheduled premiums have been skipped,
then payment of unscheduled premiums increases the total premiums paid and
therefore can increase the amount of the Surrender Charge.
Premium Change Date. Each Policy sets forth a scheduled premium amount
payable on the Policy Date and on each subsequent premium due date until the
Premium Change Date. Each Policy also sets
16
<PAGE> 22
forth a higher premium amount payable on and after the Premium Change Date. The
Premium Change Date is the Policy Anniversary nearest the Insured's Attained Age
70 or the 15th Policy Year, if later. Because of the premium change feature, the
scheduled premiums payable before the Premium Change Date are lower than would
otherwise be available and PMLIC is able to provide a Guaranteed Minimum Death
Benefit, as long as scheduled premiums are paid when due.
The higher premium amount specified in the Policy which is payable
beginning on the Premium Change Date is based on the following assumptions:
(1) no unscheduled premium payments are made;
(2) maximum cost of insurance charges are deducted in all Policy Years;
and
(3) the net rate of return for the chosen Subaccount is 4 1/2%.
Two months prior to the Premium Change Date, PMLIC will recompute the
scheduled premium amount payable on and after such date, assuming all scheduled
premiums due before the Premium Change Date are paid. If the Owner has made
unscheduled premium payments, if the Cost of Insurance Charges deducted are less
than the maximum charges, if the chosen Subaccount has a net rate of return
greater than 4 1/2%, or if any appropriate combination of these factors occurs,
the amount of scheduled premiums payable on and after the Premium Change Date
will usually be less than the premium amount payable on and after such date as
shown in the Policy; in no event will the premium be greater than that shown in
the Policy. If unscheduled premium payments are made, for a Policy with the
Increasing Death Benefit, the premium payable on and after the Premium Change
Date may be slightly higher than it would be for the same Policy with the Basic
Death Benefit.
Special Premium Payment Provision. If the "Special Premium Payment
Provision" is in effect, the Owner will not be required to pay scheduled
premiums to keep the Policy in full force. Generally, this provision will take
effect when the Cash Value exceeds a particular amount as described in more
detail below.
The Special Premium Payment Provision operates on an annual basis. PMLIC
will notify the Owner if this provision goes into effect and each year that it
stays in effect. To determine whether this provision will take effect for a
Policy Year, PMLIC will calculate whether the Cash Value on the Policy
Processing Day 2 months before each Policy Anniversary, plus any scheduled but
unpaid premiums due before the Policy Anniversary, exceeds an amount called the
Special Premium Payment Single Premium. This is an amount which if paid as one
sum, and given certain assumptions, which are described in the following
paragraph, would be sufficient to purchase a single premium life insurance
policy at the Insured's Attained Age with a face amount equal to the Policy's
Face Amount. If the Cash Value exceeds this amount and if the required scheduled
premiums due before the Policy Anniversary are paid, then the Special Premium
Payment Provision goes into effect on that Policy Anniversary and remains in
effect for one year. The Policy will remain in force for that year, regardless
of whether the Owner makes premium payments or the Cash Value remains greater
than the Special Premium Payment Single Premium (the "SPPSP"). If any premium
payments are paid while the Special Premium Payment Provision is in effect, they
will be considered unscheduled premium payments. Therefore, any premiums for
supplemental benefits and extra-premium class will not be deducted from such
premium payments. Instead, while the Special Premium Payment Provision is in
effect, a portion of the premiums for supplemental benefits and extra-premium
class will be deducted from the Cash Value at the premium frequency in effect
(see "Supplementary Benefit Charge").
The assumptions on which the SPPSP is based are:
(1) Current cost of insurance rates;
(2) Expense charges described herein;
(3) A Death Benefit equal to the applicable Guaranteed Minimum Death
Benefit for the Policy;
17
<PAGE> 23
(4) An amount sufficient to cover the cost of any supplementary
benefits and extra-premium class; and
(5) An assumed interest rate.
The assumed interest rate is 7.5% if the Special Premium Payment Provision
was not in effect for the prior Policy Year, and is 9% if the provision was in
effect for the prior Policy Year. Since the 7.5% assumed interest rate results
in a higher Special Premium Payment Single Premium than when the 9% assumed
interest rate is used, it is possible for the provision to stay in effect when
the factors affecting Cash Value are less favorable than necessary initially to
trigger the provision.
Since the effectiveness of the Special Premium Payment Provision depends on
the amount of Cash Value, it depends upon all the factors that affect Cash
Value, such as the investment experience, the amount and frequency of
unscheduled premium payments, and the level of actual cost of insurance and
other charges. Greater investment performance, payment of unscheduled premiums,
and lower cost of insurance and other charges will each tend to increase the
likelihood that the provision will go into effect. The provision also depends on
the relationship between the Cash Value and the SPPSP, and the SPPSP increases
with the Insured's Attained Age. Therefore, for older Insureds the Cash Value
must be correspondingly higher to trigger this provision.
The time that the Special Premium Payment Provision goes into effect may
also depend upon whether the Policy has the Basic or Increasing Death Benefit
Option. Assuming that unscheduled premium payments have been made, for a Policy
with the Increasing Death Benefit, the Cash Value may be slightly lower and the
SPPSP higher than for the same Policy with the Basic Death Benefit. Therefore,
where unscheduled premium payments have been made, the Special Premium Payment
Provision may go into effect later for a Policy with the Increasing Death
Benefit than it would for the same Policy with the Basic Death Benefit.
For Policies issued to residents of New York State, the determination of
whether the Special Premium Payment Provision will take effect is based on
whether the Cash Value exceeds the greater of the SPPSP and the Special Premium
Payment Tabular Value (the SPPTV).
For a Policy with the Basic Death Benefit, the SPPTV is calculated like the
Cash Value of the Policy except that it is based on the following assumptions:
(1) Guaranteed (maximum) cost of insurance rates;
(2) Expense charges described herein;
(3) A net investment return of 4 1/2%;
(4) Payment of all scheduled premiums when due; and
(5) No unscheduled premium payments or policy loans.
Because these assumptions are more conservative than the assumptions used to
calculate the SPPSP, for New York Policies it is somewhat less likely, under
certain circumstances, that the Special Premium Payment Provision will go into
effect as early as it will for other Policies and New York Policies may require
a higher net rate of return in order for the Special Premium Payment Provision
to remain in effect for a subsequent year.
Automatic Premium Loan. The Owner may elect the Automatic Premium Loan
(APL) provision in the Application for the Policy or by written request after
the Policy is issued. The APL provision will be operative only when premiums are
payable other than monthly. If the APL provision is operative, any scheduled
premium which has not been paid by the end of the Grace Period will be paid by a
policy loan within 7 days after the end of such Grace Period, provided the
Policy has sufficient loan value and the Special Premium Payment Provision is
not in effect.
Allocation of Net Premiums. In the Application for the Policy, the
Applicant elects to have net scheduled premiums (scheduled Base Premiums less
7 1/2% for sales charge and state premium tax charge,
18
<PAGE> 24
see "Premium Expense Charge,") allocated to one or more Subaccounts. No less
than 5% of a Net Premium may be allocated to any chosen Subaccount. The
allocation percentages for the chosen Subaccounts must be in whole numbers. This
initial allocation will remain in effect until changed by written notification
to PMLIC.
The allocation percentages in effect for net scheduled premiums will also
apply to net unscheduled premium payments (unscheduled premium payment less
Premium Expense Charges, see "Premium Expense Charge,") unless PMLIC is notified
that a different allocation is to be used for that particular unscheduled
premium. PMLIC must be notified with each unscheduled premium payment of the
allocation or the percentages for scheduled premiums will be used.
PMLIC will allocate the first Net Premium to the Subaccounts on the later
of the Issue Date of the Policy or the date PMLIC receives the payment at its
Service Center. PMLIC will allocate subsequent Net Premiums to the Subaccounts
as of the date it receives the payment at its Service Center. For premiums paid
under the Automatic Payment Plan (pre-authorized check or Electronic Funds
Transfer), such will be allocated to the Subaccounts on the date PMLIC receives
credit for the funds.
TRANSFERS OF CASH VALUE
Transfers. The Owner may transfer the Cash Value between and among the
Subaccounts by making a written transfer request to PMLIC up to 4 times in each
Policy Year. The amount transferred must be at least $100, unless the total
value in an account is less than $100, in which case the entire amount may be
transferred. The redistribution will be without charge and will be effective as
of the date of receipt of the transfer request at PMLIC's Service Center.
Transfer Right for Change in Investment Policy of a Subaccount. If the
investment policy of a Subaccount is materially changed, the Owner may transfer
the portion of the Cash Value in such Subaccount to another Subaccount without a
transfer charge and without having such transfer count toward the four transfers
permitted without charge during a Policy Year.
Telephone Transfers. Transfers will be made based upon instructions given
by telephone, provided the appropriate election has been made at the time of
application or proper authorization is provided to PMLIC. PMLIC reserves the
right to suspend telephone transfer privileges at any time, for any class of
policies, for any reason.
PMLIC will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine and if it follows such procedures it will
not be liable for any losses due to unauthorized or fraudulent instructions.
PMLIC, however, may be liable for such losses if it does not follow those
reasonable procedures. The procedures PMLIC will follow for telephone transfers
include requiring some form of personal identification prior to acting on
instructions received by telephone, providing written confirmation of the
transaction and making a tape-recording of the instructions given by telephone.
Automatic Asset Rebalancing. Automatic Asset Rebalancing is a feature
which, if elected, authorizes periodic transfers of policy values among
Subaccounts in order to maintain the allocation of such values in percentages
that match the then current premium allocation percentages. Election of this
feature may occur at the time of application or at any time after the Policy is
issued by properly completing the election form and returning it to PMLIC. The
election may be revoked at any time. Rebalancing may be done annually.
Rebalancing will not occur when the total value in the Subaccounts is less than
$1,000. PMLIC reserves the right to suspend Automatic Asset Rebalancing at any
time, for any class of policies, for any reason.
POLICY DURATION
Grace Period for Payment of Scheduled Premiums. A Grace Period of 61 days
from the due date is allowed for payment of scheduled premiums after the first
scheduled premium. If scheduled premiums are paid on or before their due dates
or within the Grace Period, the Policy will remain in full force even if
19
<PAGE> 25
the investment experience of the Subaccounts designated by the Owner has been so
unfavorable that there is no Cash Value. When the Special Premium Payment
Provision is not in effect and the Automatic Premium Loan provision is not
operative, the failure to pay a scheduled premium by the expiration of the Grace
Period will cause the Policy to lapse as of the date the unpaid premium was due.
If the Policy lapses, the Owner can surrender the Policy for its Net Cash
Surrender Value, apply for reinstatement or continue the insurance as Extended
Term Insurance or Reduced Paid Up Insurance.
Reinstatement. The Policy may be reinstated within three years from the
date the unpaid premium was due if it was not surrendered and the Owner provides
evidence of insurability. Payment of a premium will be required equal to the
greater of:
(a) all unpaid scheduled premiums with interest at 6% per year
compounded annually, plus any policy loan and accrued interest as of the
end of the Grace Period; or
(b) 110% of the increase in the cash surrender value resulting from
reinstatement plus all overdue premiums for supplementary insurance
benefits with interest at 6% compounded annually.
Upon reinstatement the Policy will have the same Cash Value and Death Benefit as
if it had not lapsed. The date of reinstatement will be the date PMLIC approves
the application for reinstatement.
OPTIONS ON LAPSE
Extended Term Insurance (ETI). The Net Cash Surrender Value as of the date
this Option is applied, plus monthly deductions made on any Policy Processing
Day on or after the date of lapse, will be used as a single premium to buy
fixed-benefit Extended Term Insurance for the Insured. The amount of insurance
will equal the Death Benefit on the date of lapse minus any loan and accrued
interest as of that date. The term period will be that which the single premium
will provide for the Insured's Attained Age and sex. ETI has a Cash Value but no
loan value. ETI will not be available if the premium class is Non-Smoker with
Extra-Premium or Extra-Premium or the amount of paid up insurance would be
greater than the amount of the ETI.
Reduced Paid Up Insurance (RPU). The Net Cash Surrender Value as of the
date the Option is applied, plus monthly deductions made on any Policy
Processing Day on or after the date of lapse, will be used as a single premium
to buy that amount of fixed-benefit insurance which will continue for the
Insured's lifetime based on the Insured's Attained Age and sex. Reduced Paid Up
Insurance has a loan privilege the same as that available for premium paying
policies.
PMLIC will apply ETI automatically unless it is not available or the Owner
selects another Option. If ETI is not available, RPU will be automatic. A
selected Option will be applied on the date PMLIC receives written request at
its Home Office; PMLIC will apply an automatic Option three months after the
date of lapse. The Option will be effective as of the date of lapse.
EXCHANGE PRIVILEGE
Within 6 months after the effective date of a material change in the
investment policy of any chosen Subaccount, the Owner may exchange the Policy
for a fixed-benefit whole life insurance policy offered by PMLIC on the life of
the Insured.
No evidence of insurability is required to exercise this privilege. The new
policy will have a face amount equal to the Face Amount of the Policy and the
same issue age, issue date and premium class for the Insured as the Policy.
Premiums for the new policy will be based on the rates which were in effect for
the new policy on the Policy Date for the Policy.
The exchange will be subject to an equitable adjustment to reflect
variances, if any, in the Cash Values and dividends of the Policy and the new
policy. The method of calculating the adjustment is filed by PMLIC with the
appropriate state insurance regulatory authorities. Any policy loan and loan
interest must be repaid on or before the effective date of the exchange.
20
<PAGE> 26
LOAN PRIVILEGE
The Owner may borrow from PMLIC using the Policy as sole security for the
loan. The Owner may borrow up to the difference between the Policy's current
Loan Value and any outstanding Policy loan and accrued interest. The minimum
amount of any policy loan is $300 ($200 for Policies issued to residents of
Connecticut), unless used to pay a scheduled premium. During Policy Years 1
through 3, the loan value of the Policy will be 75% of the cash surrender value;
during Policy Year 4 and thereafter it will be 90% of the cash surrender value.
(90% in all years for Policies issued to residents of Virginia).
If on a Policy Anniversary the outstanding Policy loan and accrued interest
exceeds the cash surrender value, the Policy will terminate 31 days after PMLIC
mails notice to the Owner and any assignee of record at their last known
addresses, unless a payment of the amount of such excess is made within that
period. In no event will the required payment exceed the amount of the accrued
loan interest plus all due and unpaid scheduled premiums.
While the Insured is living, the Owner may repay all or a portion of a loan
and accrued interest. The amount of any outstanding policy loan and accrued
interest will be deducted in determining the Net Cash Surrender Value or
Proceeds at death.
Interest Rate. The interest rate charged on Policy loans will be either a
fixed annual rate of 8%, or a variable loan interest rate. The Owner must select
one of these rates in the Application for the Policy. If the fixed rate is
selected, the Owner may later change to the variable rate. Such change will be
effective as of the Policy Anniversary following receipt of written notice by
PMLIC at its Service Center. The Owner is not permitted to change from the
variable rate to the fixed rate.
Interest is due at the end of each Policy Year, on the Policy Anniversary.
If not paid when due, the interest will be added to the loan and bear interest
at the applicable Policy loan interest rate.
Variable Loan Interest Rate. The variable loan interest rate will be
determined by PMLIC to be effective as of the first day of each January, April,
July and October, unless the state in which this Policy is delivered requires
the determination to be made less frequently, such as yearly. The maximum
interest rate will be the greater of 5 1/2% or the Moody's Corporate Bond Yield
Average-Monthly Average Corporates as published by Moody's Investors Service,
Inc., (if this Average is no longer published, a maximum rate set by state law
or by the insurance supervisory official of the state in which the Policy is
delivered will apply), for the calendar month ending two months prior to the
date of change. If the maximum interest rate for the new period is at least
1/2% lower than the loan interest rate currently being charged, the rate for
the new period will be decreased such that it is equal to or less than the
maximum interest rate allowed for such period. If the maximum interest rate for
the new period is at least 1/2% higher than the loan interest rate currently
being charged, PMLIC may, at its discretion, increase the rate for the new
period to a rate that is no higher than the maximum interest rate allowed for
such period. Any decrease in the variable loan rate is required; any increase in
the rate is optional. PMLIC will not necessarily charge the maximum variable
loan interest rate.
Allocation of Loans and Repayments. When a loan is made, a portion of the
Cash Value equal to the amount of the loan is transferred from the Subaccounts
to PMLIC's General Account. Repayment of a loan will result in a transfer back
to the Subaccounts. A loan and any repayment will be allocated among the
Subaccounts based upon the net Cash Value of each Subaccount as of the date the
loan or the repayment is made.
Effect of Loan. A loan taken from, or secured by, a Policy may, in certain
circumstances, have adverse federal income tax consequences (see "Federal Income
Tax Considerations").
The amount maintained in the General Account will not reflect the
investment experience of the Subaccounts during the period the loan is
outstanding. Instead, interest will be credited on each Policy Processing Day on
the loaned amount at an annual rate 1.50% below the 8% or variable interest rate
charged on the Policy loan.
21
<PAGE> 27
A loan, whether or not repaid, will have a permanent effect on the Cash
Value of the Policy and any Death Benefit in excess of the guaranteed minimum.
The effect could be favorable or unfavorable. This is because the investment
experience of the Subaccounts will only apply to the amount remaining in the
Subaccounts and not to the amount transferred to the General Account. If the
investment experience of the Subaccounts is better than the amount being
credited on loaned amounts, the Cash Value and hence Death Benefit in excess of
the guaranteed minimum, will not increase as rapidly as they would have if no
loan had been made. However, if the investment experience of the Subaccounts is
not as good as the rate being credited on loaned amounts, the Cash Value and
excess Death Benefit will be higher than they would have been if no loan had
been made. The longer a loan is outstanding, the greater the effect is likely to
be.
Lapse With Loans Outstanding. The amount of an outstanding loan under a
Policy plus any accrued interest on outstanding loans is not part of Net Cash
Surrender Value. Therefore, the larger the amount of an outstanding loan, the
more likely it is that the Policy could lapse. In addition, if the Policy is not
a Modified Endowment Policy, lapse of the Policy with outstanding loans may
result in adverse tax consequences. (See "Tax Treatment of Policy Benefits".)
WITHDRAWAL OF EXCESS CASH VALUE
The Owner may withdraw excess Cash Value from the Policy if two conditions
are met. First, a cash withdrawal may be made only to the extent that the cash
surrender value (the Cash Value minus any applicable surrender charge) is at
least $300 more than an amount called the "Withdrawal Single Premium", which
depends on the Insured's Attained Age. Second, a cash withdrawal may be made
only if the amount withdrawn does not reduce the Policy's Net Loan Value (loan
value less existing policy loan and accrued interest) to zero. (See "Loan
Privilege".) Upon request, PMLIC will tell the Owner how much may be withdrawn.
No more than four withdrawals may be made in a Policy Year. A withdrawal
cannot be made for less than $300. Withdrawals cannot be repaid except as
premium payments, subject to Premium Expense Charges (see "Premium Expense
Charge"), and any applicable limits on premium payments (see "Payment and
Allocation of Premiums"). If the Owner does not specify an allocation for the
withdrawal, it will be allocated among the Subaccounts based upon the net Cash
Value of each Subaccount on the date of the withdrawal.
Calculation of Withdrawal Single Premium. The Withdrawal Single Premium is
based on:
(1) Current cost of insurance rates;
(2) Expense charges described herein;
(3) A Death Benefit equal to the applicable Guaranteed Minimum Death
Benefit for the Policy;
(4) An interest rate of 7 1/2%; and
(5) An amount sufficient to cover the cost of additional premiums for
supplementary benefits and extra-premium class.
The Withdrawal Single Premium is the same as the Special Premium Payment
Single Premium ("SPPSP") using the 7.5% assumed rate (examples of the 7.5% SPPSP
are listed in Examples A and B), which is used to calculate whether the Special
Premium Payment Provision goes into effect. Generally a withdrawal of excess
cash cannot be made unless the Special Premium Payment Provision is in effect.
There may be limited situations, however, where a cash withdrawal can be made
although the Special Premium Payment Provision is not in effect, because the
cash surrender value may have increased since the SPPSP was last calculated. In
addition, the Special Premium Payment Provision may be in effect during periods
when cash withdrawals may not be made, for several reasons including: (1) the
withdrawal provision depends on whether the cash surrender value exceeds the
Withdrawal Single Premium, whereas the Special Premium Payment Provision depends
on whether a larger amount, the Cash Value, exceeds the SPPSP; (2) the
withdrawal provision is based on the 7.5% SPPSP, whereas a smaller amount, the
9%
22
<PAGE> 28
SPPSP, is used to determine if the Special Premium Payment Provision will remain
in effect for another year once it is in effect; and (3) since the minimum cash
withdrawal is $300, cash withdrawals are permitted only if the cash surrender
value is at least $300 greater than the Withdrawal Single Premium.
For Policies issued to residents of New York State, the amount that may be
withdrawn is based on whether the cash surrender value is at least $300 more
than the greater of the Withdrawal Single Premium and the Withdrawal Tabular
Value.
For a Policy with the Basic Death Benefit, the Withdrawal Tabular Value is
calculated like the Cash Value of the Policy except that it is based on the
following assumptions:
(1) Guaranteed (maximum) cost of insurance rates;
(2) Expense charges described herein;
(3) A net investment return of 4 1/2%;
(4) Payment of all scheduled premiums when due; and
(5) No unscheduled premium payments or policy loans.
Because these assumptions are more conservative than the calculations used to
calculate the Withdrawal Single Premium, for New York Policies, it is somewhat
less likely under certain circumstances that there can be a Withdrawal of Excess
Cash Value.
Effect of Withdrawal. Whenever a withdrawal is made, the Death Benefit
will immediately be recalculated to take into account the reduction in Cash
Value. This will not change the Guaranteed Minimum Death Benefit or the amount
of scheduled premiums payable before the Premium Change Date. The amount of
scheduled premiums after the Premium Change Date may be affected by withdrawals
but in no event will they be greater than the amount set forth in the Policy. A
withdrawal may, under certain circumstances, have adverse federal income tax
consequences. (See "Federal Income Tax Considerations".)
SURRENDER PRIVILEGE
The Policy may be surrendered at any time while the Insured is living for
its Net Cash Surrender Value. The Net Cash Surrender Value is the net Cash Value
(Cash Value minus any policy loan and accrued interest) less any Surrender
Charge. (See "Surrender Charge"). PMLIC will determine the Net Cash Surrender
Value on the date it receives at its Service Center a surrender request signed
by the Owner. Coverage under the Policy will end on the day the Owner mails or
otherwise sends the surrender request to PMLIC. Surrendering the policy may,
under certain circumstances, have adverse federal income tax consequences. (See
"Federal Income Tax Considerations.")
ACCELERATED DEATH BENEFIT
Applicants residing in states that have approved the Accelerated Death
Benefit Rider (the "ADBR") may elect to add it to their Policy at issue, subject
to PMLIC receiving satisfactory additional evidence of insurability. The ADBR is
not yet available in all states and the terms under which it is available may
vary from state-to-state. There is no assurance that the ADBR will be approved
in all states or that it will be approved under the terms described herein.
The ADBR permits the Owner to receive, at his or her request and upon
approval by PMLIC, an accelerated payment of part of the Policy's Death Benefit
when one of the following two events occurs:
1. Terminal Illness. The Insured develops a non-correctable medical
condition which is expected to result in his or her death within 12
months; or
2. Permanent Confinement to a Nursing Care Facility. The Insured has been
confined to a Nursing Care Facility for 180 days and is expected to
remain in such a facility for the remainder of his or her life.
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<PAGE> 29
There is no charge for adding the ADBR to a Policy. However, an
administrative charge, currently $100 and not to exceed $250, will be deducted
from the accelerated death benefit at the time it is paid.
Tax Consequences of The Rider. The Federal income tax consequences
associated with adding the ADBR or receiving the accelerated death benefit are
uncertain. Accordingly, we urge you to consult a tax adviser before adding the
ADBR to your Policy or requesting an accelerated death benefit.
Amount of the Accelerated Death Benefit. The ADBR provides for a minimum
accelerated death benefit payment of $10,000 and a maximum benefit payment equal
to 75% of the Eligible Death Benefit less 25% of any outstanding Policy loans
and accrued interest. The ADBR also restricts the total of the accelerated death
benefits paid from all life insurance Policies issued to an Owner by PMLIC and
its subsidiaries to $250,000. This $250,000 maximum may be increased, as
provided in the ADBR, to reflect inflation. The term Eligible Death Benefit
under the ADBR means:
The Proceeds payable under a Policy if the Insured died at the time a claim
for an accelerated death benefit is approved by PMLIC, minus:
1. any dividend accumulations;
2. any dividends due and not paid;
3. any dividend payable at death if the Insured died at such time;
4. any Premium Refund payable at death if the Insured died at such
time; and
5. any insurance payable under the terms of any other rider attached
to a Policy.
An Owner may request only one accelerated death benefit payment (except to
pay premiums and policy loan interest) and there are no restrictions on the
Owner's use of the benefit. An Owner may elect to receive the accelerated death
benefit payment in a lump sum or in 12 or 24 equal monthly installments. If
installments are elected and the Insured dies before all of the payments have
been made, the present value (at the time of the Insured's death) of the
remaining payments and the remaining Proceeds under the Policy will be paid to
the Beneficiary in a lump sum.
Conditions for Receipt of the Accelerated Death Benefit. In order to
receive an accelerated death benefit payment, a Policy must be in force other
than as Extended Term Insurance and an Owner must submit Due Proof of
Eligibility and a completed claim form to PMLIC at its Service Center. Due Proof
of Eligibility means a written certification (described more fully in the ADBR),
in a form acceptable to PMLIC, from a treating physician stating that the
Insured has a Terminal Illness or is expected to be permanently confined in a
Nursing Care Facility.
PMLIC may request additional medical information from an Owner's physician
and/or may require an independent physical examination (at its expense) before
approving the claim for payment of the accelerated death benefit. PMLIC will not
approve a claim for an accelerated death benefit payment if a Policy is assigned
in whole or in part, if the Terminal Illness or Permanent Confinement is the
result of intentionally self-inflicted injury or if the Owner is required to
elect it in order to meet the claims of creditors or to obtain a government
benefit.
Operation of the Rider. The ADBR provides that the accelerated death
benefit be made in the form of a Policy loan up to the amount of the maximum
loan available under a Policy at the time the claim is approved. Therefore, a
request for an accelerated death benefit payment in an amount less than or equal
to the maximum loan available at that time will result in a Policy loan being
made in the amount of the requested benefit. This Policy loan operates as would
any loan under the Policy.
To the extent that the amount of a requested accelerated death benefit
payment exceeds the maximum available loan amount, the benefit will be advanced
to the Owner and a lien will be placed on the Death Benefit payable under the
Policy (the "death benefit lien") in the amount of this advance. Under the ADBR,
interest will accrue daily, at a rate determined as described in the ADBR, on
the amount of this advance and upon the death of the Insured the amount of the
advance and accrued interest thereon is subtracted from the amount of Insurance
Proceeds at Death.
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<PAGE> 30
Effect on Existing Policy. The Insurance Proceeds at Death otherwise
payable under a Policy at the time of an Insured's death will be reduced by the
amount of any death benefit lien and accrued interest thereon. If the Owner
makes a request for a surrender, a Policy loan or a withdrawal, the Policy's Net
Cash Surrender Value and Loan Value will be reduced by the amount of any
outstanding death benefit lien plus accrued interest. Therefore, depending upon
the size of the death benefit lien, this may result in the Net Cash Surrender
Value and the Loan Value being reduced to zero.
Premiums and Policy loan interest must be paid when due. However, if
requested with the accelerated death benefit claim, future premiums and policy
loan interest may be paid through additional accelerated death benefits.
In addition to lapse under the applicable provisions of the Policy, a
Policy will also terminate on any Policy Anniversary when the death benefit lien
exceeds the Proceeds.
CHARGES AND DEDUCTIONS
Charges will be deducted in connection with the Policy to compensate PMLIC
for (a) providing the insurance benefits set forth in the Policy; (b)
administering the Policy; (c) assuming certain risks in connection with the
Policy; and (d) incurring expenses in distributing the Policy. In the event that
there are any profits from fees and charges deducted under the Policy, including
but not limited to mortality and expense risk charges, such profits could be
used to finance the distribution of contracts.
PREMIUM EXPENSE CHARGE
Prior to allocation of Net Premiums, premiums paid are reduced by a Premium
Expense Charge which consists of:
Premium Tax Charge. Various states and some of their subdivisions impose a
tax on premiums received by insurance companies. A charge is deducted from each
premium payment to compensate PMLIC for paying state premium taxes. This charge
is equal to 2 1/2% of each scheduled Base Premium or unscheduled premium
remaining after the premium processing charge has been deducted. Premium taxes
vary from state to state and the 2 1/2% is the average rate expected to be paid
on premiums received in most states. This charge may be increased in certain
localities when substantial additional premium taxes are assessed.
Sales Charge. A charge of 5% of each scheduled Base Premium or unscheduled
premium remaining after the premium processing charge has been deducted. This
charge is deducted from each premium payment to partially compensate PMLIC for
the cost of selling the Policy (There also is a Contingent Deferred Sales Charge
which is deducted only if the Policy is surrendered or lapses in the first 9
Policy Years. See "Contingent Deferred Sales Charge").
Premium Processing Charge. PMLIC will deduct a charge of $1.00 from each
premium payment to cover the cost of collecting and processing premium payments.
Policies for which premiums are paid annually will therefore incur lower
aggregate premium processing charges than Policies with premiums paid more
frequently.
SURRENDER CHARGES
A Surrender Charge, which consists of a Contingent Deferred Administrative
Charge and a Contingent Deferred Sales Charge, is imposed if the Policy is
surrendered or lapses at any time before the end of the 9th Policy Year.
These Surrender Charges are designed partially to compensate PMLIC for the
cost of administering, issuing and selling the Policy, including agent sales
commissions, the cost of printing the prospectuses and sales literature, any
advertising costs, medical exams, review of applications for insurance,
processing of the applications, establishing policy records and Policy issue.
PMLIC does not expect the Surrender Charges to cover all of these costs. To the
extent that they do not, PMLIC will cover the short-fall from its general
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<PAGE> 31
account assets, which may include profits from the mortality and expense risk
charge and cost of insurance charge.
Contingent Deferred Administrative Charge. The Contingent Deferred
Administrative Charge is as follows:
<TABLE>
<CAPTION>
CHARGE PER $1,000
POLICY YEAR FACE AMOUNT
- ----------- -----------------
<S> <C>
1-5 $5.00
6 4.00
7 3.00
8 2.00
9 1.00
10 0
</TABLE>
Contingent Deferred Sales Charge. The Contingent Deferred Sales Charge is
to partially compensate PMLIC for the cost of selling the Policy.
If the Special Premium Payment Provision has never been in effect as of the
date of surrender or lapse, then the Contingent Deferred Sales Charge is a
percentage of the lesser of:
(i) the total premiums paid, less premium processing charges, to the date
of surrender or lapse; and
(ii) the schedule Base Premiums payable up to such date (scheduled Base
Premiums are total scheduled premiums less premium processing charges
and premiums for supplementary benefits and for extra-premium class);
If the Special Premium Payment Provision has been in effect prior to the
date of surrender or lapse, then the Contingent Deferred Sales Charge is a
percentage of the lesser of:
(i) the total premiums paid, less premium processing charges, to the date
of surrender or lapse; and
(ii) the scheduled Base Premium that would have been payable up to such
date if the Special Premium Payment Provision had never been in
effect.
The maximum Contingent Deferred Sales Charge is an amount equal to 25% of
the first year's scheduled Base Premium, plus 5% of the scheduled Base Premiums
for Policy Year 2, 3, 4 and 5. Expressed differently, this equals 9% of the
total scheduled Base Premiums for Policy Years 1 through 5. The maximum
Contingent Deferred Sales Charge will be applied to Policies that lapse or are
surrendered during Policy Year 5. Thereafter, the Contingent Deferred Sales
Charge will be reduced each year until it becomes zero in Policy Year 10 and
thereafter.
The following table shows the rates that will apply when Policies with
premiums payable annually (and for Insureds with an Issue Age of 65 or less) are
surrendered or lapse.
<TABLE>
<CAPTION>
FOR POLICIES THE CONTINGENT DEFERRED SALES CHARGE WHICH IS EQUAL TO THE
WHICH ARE RATES WILL BE THE FOLLOWING PERCENTAGE OF
SURRENDERED FOLLOWING PERCENTAGE OF THE SCHEDULED PREMIUMS
OR LAPSE DURING ONE SCHEDULED ANNUAL UP TO THE DATE OF
POLICY YEAR PREMIUM SURRENDER OR LAPSE
- --------------- ------------------------------------ -----------------------
<S> <C> <C>
1 25% 25.00%
2 30% 15.00%
3 35% 11.66%
4 40% 10.00%
5 45% 9.00%
6 40% 6.66%
7 30% 4.28%
8 20% 2.50%
9 10% 1.11%
10 and later Zero Zero
</TABLE>
For Insureds whose Issue Age is above 65, the rates that will apply when
Policies with premiums payable annually are surrendered or lapse will be less
than or equal to those shown in the table above.
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<PAGE> 32
For Policies with premiums payable more frequently than annually, the
maximum Contingent Deferred Sales Charge is also 25% of the first year's
scheduled Base Premiums due on or before the date of surrender or lapse plus 5%
of the scheduled Base Premiums for Policy Years 2, 3, 4 and 5 which are payable
on or before the date of surrender or lapse (or the same percentages of total
premiums paid, if less). The charge declines uniformly in Policy Years 6 through
9 until it becomes zero for Policy Years 10 and thereafter. Although the rate of
the Contingent Deferred Sales Charges is the same for annual premium Policies
and Policies with premiums paid more frequently than annually, for Policies
surrendered at the end of a Policy Year, the dollar amount of this charge will
be higher for Policies with premiums paid more frequently than for annual
premium Policies because the total amount of the scheduled premiums is higher.
MONTHLY DEDUCTIONS
Charges will be deducted from the Policy's Cash Value on the Policy Date
and on each Policy Processing Day to compensate PMLIC for administrative
expenses and for the insurance coverage provided by the Policy. The Monthly
Deduction consists of five components -- (a) the Cost of Insurance, (b)
Administration Charge, (c) Minimum Death Benefit Guarantee Charge, (d) First
Year Policy Charge, and (e) Supplementary Benefit Charge. Because portions of
the Monthly Deduction, such as the cost of insurance, can vary from month to
month, the Monthly Deduction may vary in amount from month to month. The Monthly
Deduction is deducted from the Subaccounts based on the proportion that the
Owner's value in the Subaccounts bears to the total unloaned Cash Value of the
Policy.
Cost of Insurance. Because the cost of insurance depends upon several
variables, the cost for each Policy Month can vary. PMLIC will determine the
Monthly Cost of Insurance Charge by multiplying the applicable cost of insurance
rate or rates by the Net Amount at Risk for each Policy Month. If any
unscheduled premium payments are made, this charge may be slightly higher for a
Policy with the Increasing Death Benefit than for the same Policy with the Basic
Death Benefit.
The Net Amount at Risk on any Policy Processing Day is the amount by which
the Death Benefit exceeds the Policy's Cash Value. In calculating the cost of
insurance charge, the rate for the Premium Class on the Policy Processing Day is
applied to the Net Amount at Risk.
Any change in the Net Amount at Risk will affect the total cost of
insurance charges paid by the Owner.
Cost of Insurance Rate. The cost of insurance rate is based on the
Attained Age, Sex, Premium Class of the Insured. The actual Monthly Cost of
Insurance rates will be based on PMLIC's expectations as to future mortality and
expense experience. They will not, however, be greater than the guaranteed
maximum cost of insurance rates set forth in the Policy. The guaranteed maximum
rates are based on the Insured's Attained Age, Sex, Premium Class, and the 1980
Commissioners Standard Ordinary Smoker and Nonsmoker Mortality Table. For
Policies issued in states which require "unisex" policies (currently Montana) or
in conjunction with employee benefit plans, the maximum cost of insurance charge
depends only on the Insured's Age, Premium Class and the 1980 Commissioners
Standard Ordinary Mortality Table NB and SB. Any change in the cost of insurance
rates will apply to all persons of the same Attained Age, Sex, and Premium
Class.
Premium Class. The Premium Class of the Insured will affect the cost of
insurance rates. PMLIC currently places Insureds into standard classes and
classes with extra ratings, which reflect higher mortality risks. In an
otherwise identical Policy, an Insured in the standard class will have a lower
cost of insurance than an Insured in a class with extra rating. The standard
Premium Class is divided into two categories: smoker and nonsmoker. Nonsmoking
Insureds will generally incur lower cost of insurance rates than Insureds who
are classified as smokers in the same Premium Class.
Since the nonsmoker designation is not available for Insured under Attained
Age 22 (21 in Texas), shortly before an Insured attains age 22, PMLIC will
notify the Insured about possible classification as a nonsmoker and will send
the Insured an Application for Change in Premium Class. If the Insured does
27
<PAGE> 33
not qualify as a nonsmoker or does not return the application, cost of insurance
rates will be based on the Premium Class 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.
Administration Charge. A Monthly Administration Charge of $3.25 and $0.015
per $1,000 of Face Amount is deducted from the Cash Value on the Policy Date and
each Policy Processing Day as part of the Monthly Deduction. This charge is
intended to reimburse PMLIC for ordinary administrative expenses expected to be
incurred, including record keeping, processing claims and certain Policy
changes, preparing and mailing reports, and overhead costs.
Minimum Death Benefit Guarantee Charge. This charge compensates PMLIC for
the risk it assumes by guaranteeing that, no matter how unfavorable investment
experience may be, as long as required scheduled premiums are paid when due the
Death Benefit will never be less than the Face Amount of the Policy if the Basic
Death Benefit applies and the Face Amount of the Policy plus the sum of
unscheduled premiums received by PMLIC as of the date of death if the Increasing
Death Benefit applies. This charge is equal to $0.01 per $1,000 of the
applicable Guaranteed Minimum Death Benefit. For a Policy with a Guaranteed
Minimum Death Benefit of $50,000, the deduction will be $0.50 per month or $6.00
per year.
First Year Policy Charge. A charge of $5.00 will be deducted on each of
the first 12 Policy Processing Days. This charge in conjunction with the
Contingent Deferred Administrative Charge compensates PMLIC for expenses, other
than sales expenses, incurred in conjunction with issuance of the Policy.
Supplementary Benefit Charge. If the Special Premium Payment Provision is
in effect, charges for any supplementary benefits or for extra-premium class
will be deducted on each Policy Processing Day a scheduled premium otherwise
would be due. These charges will be 92.5% of the premiums otherwise payable for
these benefits.
MORTALITY AND EXPENSE RISK CHARGE
A daily charge will be deducted from the value of the net assets of the
Subaccounts to compensate PMLIC for mortality and expense risks assumed in
connection with the Policy. This charge will be deducted at an annual rate of
0.60% (or a daily rate of 0.001644) of the average daily net assets of each
Subaccount. The mortality risk assumed by PMLIC is that Insureds may live for a
shorter time than projected and, therefore, greater death benefits than expected
will be paid in relation to the amount of premiums received. The expense risk
assumed is that expenses incurred in issuing and administering the Policies will
exceed the administrative charges provided in the Policy.
If the mortality and expense risk charge proves insufficient, PMLIC will
provide for all death benefits and expenses and any loss will be borne by PMLIC.
Conversely, PMLIC will realize a gain from this charge to the extent all money
collected from this charge is not needed to provide for benefits and expense
under the Policies.
ASSET CHARGE AGAINST ZERO COUPON BOND SUBACCOUNT
PMLIC makes an additional daily asset charge against the assets of the Zero
Coupon Bond Subaccount. This charge is to reimburse PMLIC for transaction
charges paid directly by PMLIC to Merrill Lynch, Pierce, Fenner & Smith on the
sale of Zero Trust units to the Zero Coupon Bond Subaccount. PMLIC pays these
amounts from General Account assets. The amount of the asset charge currently is
equivalent to an effective annual rate of 0.25% (.000685% per day) of the
average daily net assets of each Subaccount. This amount may be increased in the
future, but in no event will it exceed an effective annual rate of 0.50%
(.001370% per day).
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<PAGE> 34
CHARGE FOR INCOME TAXES
PMLIC currently does not charge the Separate Account for its corporate
federal income taxes. However, PMLIC may make such a charge in the future if
there are any taxes that are attributable to that account. Charges for other
applicable taxes attributable to the account also may be made.
GUARANTEE OF CERTAIN CHARGES
PMLIC guarantees that it will not increase the charges deducted from
premiums, and the charge to the Separate Account for mortality and expense
risks.
OTHER CHARGES
The Separate Account purchases shares of the Funds and the Zero Trust at
net asset value. The net asset value of those shares reflect management fees and
expenses already deducted from the assets of the Funds' and Zero Trust's
Portfolios. The fees and expenses for the Funds, the Zero Trust and their
Portfolios are described briefly in connection with a general description of
each Fund and the Zero Trust. More detailed information is contained in the
Prospectuses of the Funds and the Zero Trust which are attached to or accompany
this Prospectus.
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<PAGE> 35
OTHER POLICY PROVISIONS
PAYMENT OF POLICY BENEFITS
Proceeds under a Policy will ordinarily be paid to the Beneficiary within
seven days after PMLIC receives proof of the Insured's death at its Service
Center and all other requirements are satisfied. Proceeds will be paid in a
single sum unless an alternative settlement option has been selected.
If Proceeds are payable in a single sum, interest at the annual rate of 3%
or any higher rate declared by PMLIC or required by law is paid on the Proceeds
from the date of death until payment is made.
Any amounts payable as a result of surrender, withdrawal of excess cash
value or Policy loan will ordinarily be paid within seven days of receipt of
written request at PMLIC's Service Center in a form satisfactory to PMLIC.
For Policies sold in New York State, if the amount payable as a result of
surrender, withdrawal of excess Cash Value or a Policy loan is not mailed or
delivered to the Owner within 10 working days of receipt by PMLIC of the
request, interest will be added to such amount at the rate required by New York
law.
Generally, the amount of a payment from the Subaccounts will be determined
as of the date of receipt by PMLIC of all required documents. However, PMLIC may
defer the determination or payment of such amounts if the date for determining
such amounts falls within any period during which: (1) the disposal or valuation
of a Subaccount's assets is not reasonably practicable because the New York
Stock Exchange is closed or conditions are such that, under the SEC's rules and
regulations, trading is restricted or an emergency is deemed to exist; or (2)
the SEC by order permits postponement of such actions for the protection of
PMLIC policyholders. PMLIC will allow interest, at a rate of 3% a year, on any
payment PMLIC defers for 30 days or more as described above.
The Owner may decide the form in which Proceeds will be paid. During the
Insured's lifetime, the Owner may arrange for the Proceeds to be paid in a lump
sum or under a Settlement Option. These choices are also available upon
surrender of the Policy for its Net Cash Surrender Value and for payment of the
Cash Value upon maturity of the Policy. If no election is made, payment will be
made in a lump sum. The Beneficiary may also arrange for payment of the Proceeds
in a lump sum or under a Settlement Option. If the Beneficiary is changed, any
prior arrangements with respect to the Payment Option will be cancelled.
THE POLICY
The Policy and the application(s) attached thereto are the entire contract.
Only statements made in the applications can be used to void the Policy or deny
a claim. PMLIC assumes that all statements in an application are made to the
best of the knowledge and belief of the person(s) who made them, and, in the
absence of fraud, those statements are considered representations and not
warranties. PMLIC relies on those statements when it issues or changes a Policy.
Only the President or a Vice President of PMLIC can agree to change or waive any
provisions of the Policy and only in writing. As a result of differences in
applicable state laws, certain provisions of the Policy may vary from state to
state.
OWNERSHIP
The Owner is the Insured unless a different Owner is named in the
application or thereafter changed. While the Insured is living, the Owner is
entitled to exercise any of the rights stated in the Policy or otherwise granted
by PMLIC. If the Insured and Owner are not the same, and the Owner dies before
the Insured, these rights will vest in the estate of the Owner, unless otherwise
provided.
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<PAGE> 36
BENEFICIARY
The Beneficiary is designated in the application for the Policy, unless
thereafter changed by the Owner during the Insured's lifetime by written notice
to PMLIC. Any Proceeds for which there is not a designated Beneficiary surviving
at the Insured's death are payable in a single sum to the Insured's executors or
administrators.
CHANGE OF OWNER OR BENEFICIARY
As long as the Policy is in force, the Owner or Beneficiary may be changed
by written request in a form acceptable to PMLIC. If two or more persons are
named as Beneficiaries, those surviving the Insured will share the Proceeds
equally, unless otherwise stated. The change will take effect as of the date it
is signed, whether or not the Insured is living when the request is received by
PMLIC. PMLIC will not be responsible for any payment made or action taken before
it receives the written request. A change in the Policy's ownership may have
federal income tax consequences. (see "Tax Treatment of Policy Benefits.")
SPLIT DOLLAR ARRANGEMENTS
The Owner or Owners may enter into a Split Dollar Arrangement between each
other or another person or persons whereby the payment of premiums and the right
to receive the benefits under the Policy (i.e., Net Cash Surrender Value or
Policy Proceeds) are split between the parties. There are different ways of
allocating such rights.
For example, an employer and employee might agree that under a Policy on
the life of the employee, the employer will pay the premiums and will have the
right to receive the Net Cash Surrender Value. The employee may designate the
Beneficiary to receive any Death Proceeds in excess of the Net Cash Surrender
Value. If the employee dies while such an arrangement is in effect, the employer
would receive from the Death Proceeds the amount which he would have been
entitled to receive upon surrender of the policy and the employee's Beneficiary
would receive the balance of the proceeds.
No transfer of Policy rights pursuant to a Split Dollar Arrangement will be
binding on PMLIC unless in writing and received by PMLIC.
The parties who elect to enter into a Split Dollar Arrangement should
consult their own tax advisers regarding the tax consequences of such an
arrangement.
ASSIGNMENTS
The Owner may assign any and all rights under the Policy. No assignment
binds PMLIC unless in writing and received by PMLIC at its Service Center. PMLIC
assumes no responsibility for determining whether an assignment is valid and the
extent of the assignee's interest. All assignments will be subject to any Policy
loan. The interest of any Beneficiary or other person will be subordinate to any
assignment. A Beneficiary may not commute, encumber, or alienate Policy
benefits, and to the extent permitted by applicable law, such benefits are not
subject to any legal process for the payment of any claim against the payee.
Assignment of the Policy may have adverse tax consequences. (See "Tax Treatment
of Policy Benefits.")
MISSTATEMENT OF AGE AND SEX
If the Insured's age or sex has been misstated in the application, the
Death Benefit and any benefits provided by riders will be such as the most
recent Monthly Deductions would have provided at the correct age and sex. No
adjustment will be made to the Cash Value.
DIVIDENDS
The Policy is participating; however, no dividends are expected to be paid
on the Policy. If dividends are ever declared, they will be paid under one of
the following options:
(a) Paid in cash; or
(b) Applied as a scheduled or unscheduled Net Premium.
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<PAGE> 37
The Owner must choose an option at the time the application for the Policy
is signed. If no option is chosen, any dividend will be applied as a Net Premium
payment. The Owner may change the option by giving written notice to PMLIC.
For Policies sold in New York State, if dividends are ever declared they
will be paid under one of the options above, or left to accumulate at interest
or used to buy paid-up additions, as chosen by the Owner.
SETTLEMENT OPTIONS
In lieu of a single sum payment on death or surrender, an election may be
made to apply the proceeds under any one of the fixed-benefit Settlement Options
provided in the Policy. A guaranteed interest rate of 3% per year applies to all
Options. Additional interest may be declared each year by PMLIC in its sole
discretion. The options are briefly described below. Please refer to the Policy
for more details.
Proceeds at Interest Option. Left on deposit to accumulate with PMLIC with
interest payable at a rate of at least 3% per year.
Installments of a Specified Amount Option. Payable in equal installments
until proceeds applied under the Option and interest on the unpaid balance at 3%
per year and any additional interest are exhausted.
Installments for a Specified Period Option. Payable in the number of equal
monthly installments set forth in the election. Payments may be increased by
additional interest which would increase the installments certain. The
guaranteed interest rate is 3% per year.
Life Income Option. Payable in equal monthly installments during the
payee's life. Payments will be made either with or without a guaranteed minimum
number. If there is to be a minimum number of payments, they will be for either
120 or 240 months or until the proceeds applied under the Option are exhausted,
as elected.
Joint and Survivor Life Income. Payable in equal monthly installments,
during the joint lives of the payee and one other person and during the life of
the survivor. The minimum number of payments will be for either 120 or 240
months, as elected.
Alternate Life Income Option. Proceeds may be taken as a life income with
the amount of the payments depending on the non-participating single premium
immediate annuity rates at the time payments begin.
SUPPLEMENTARY BENEFITS
In addition to the ADB rider, the following riders offer other
supplementary benefits. Most are subject to various age and underwriting
requirements and, unless otherwise indicated, must be purchased when the Policy
is issued. The cost of each rider is included in the monthly deduction.
Disability Waiver of Premium. Providing that in the event of the Insured's
total disability before the Policy Anniversary nearest the Insured's 60th
birthday and continuing for at least 90 days (where permitted), PMLIC will waive
all scheduled premiums after the commencement and during the continuance of such
disability. PMLIC may offer a 180 day extended waiting period for certain
Insured who do not qualify for the normal 90 day period.
Accidental Death Benefit. Providing for an additional fixed amount of
Death Benefit in the event the Insured dies from accidental bodily injury before
the Policy Anniversary nearest the Insured's 70th birthday.
Guaranteed Purchase Option. Providing that the Owner may purchase
additional insurance on the Insured's life at specified times without evidence
of insurability and under certain other circumstances.
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<PAGE> 38
FEDERAL INCOME TAX CONSIDERATIONS
INTRODUCTION
The following summary provides a general description of the federal income
tax considerations associated with the Policy and does not purport to be
complete or to cover all tax situations. This discussion is not intended as tax
advice. Counsel or other competent tax advisors should be consulted for more
complete information. This discussion is based upon PMLIC's understanding of the
present federal income tax laws. No representation is made as to the likelihood
of continuation of the present federal income tax laws or as to how they may be
interpreted by the Internal Revenue Service.
TAX STATUS OF THE POLICY
A Policy must satisfy certain requirements set forth in the Internal
Revenue 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
contacts. The manner in which these requirements are to be applied to certain
features of the Policy is not directly addressed by the Internal Revenue Code,
and there is limited guidance. PMLIC believes that a Policy should satisfy the
applicable requirements. In the absence of pertinent interpretations, however,
there is some uncertainty about the application of these requirements to the
Policy, particularly if the Owner pays the full amount of premiums permitted
under the Policy.
In certain circumstances, owners of variable life insurance contracts have
been considered for federal income tax purposes to be the owners of the assets
of the separate account supporting their contracts due to their ability to
exercise investment control over those assets. Where this is the case, the
contract owners have been currently taxed on income and gains attributable to
the separate account assets. There is little guidance in this area, and some
features of the Policies, such as the flexibility of an Owner to allocate
premium payments and the Cash Value and the narrow investment objective of
certain Portfolios, have not been explicitly addressed in published rulings.
While PMLIC believes that the Policies do not give Owners investment control
over Separate Account assets, PMLIC reserves the right to modify the Policies as
necessary to prevent an Owner from being treated as the owner of the Separate
Account assets supporting the Policy.
In addition, the Code requires that the investments of the Separate Account
be "adequately diversified" in order for the Policies to be treated as life
insurance contracts for federal income tax purposes. It is intended that the
Separate Account, through the Portfolios, will satisfy these diversification
requirements.
The following discussion assumes that the Policy will qualify as a life
insurance contract for federal income tax purposes.
TAX TREATMENT OF POLICY BENEFITS
In General. PMLIC believes that the death benefit under a Policy should be
excludible from the gross income of the beneficiary.
Federal, state and local transfer, estate, inheritance, and other tax
consequences of ownership or receipt of Policy proceeds depend on the
circumstances of each Owner or beneficiary. A tax adviser should be consulted on
these consequences.
Generally, the Owner will not be deemed to be in constructive receipt of
the Cash Value until there is a distribution. When distributions from a Policy
occur, or when loans are taken out from or secured by a Policy, the tax
consequences depend on whether the Policy is classified as a "Modified Endowment
Contract."
Modified Endowment Contracts. Under the Internal Revenue Code, certain
life insurance contracts are classified as "Modified Endowment Contracts," with
less favorable tax treatment than other life insurance contracts. Due to the
flexibility of the Policies as to premiums and benefits, the individual
33
<PAGE> 39
circumstances of each Policy will determine whether it is classified as a
Modified Endowment Contract. The rules are too complex to be summarized here,
but generally depend on the amount of premiums paid during the first seven
Policy years or seven years following a material change to the Policy. Certain
changes in a Policy after it is issued could also cause it to be classified as a
Modified Endowment Contract. A 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 Modified Endowment Contract. A current or
prospective Owner should consult with a competent adviser to determine whether a
Policy transaction will cause the Policy to be classified as a Modified
Endowment Contract.
Distributions Other Than Death Benefits from Modified Endowment
Contracts. Policies classified as Modified Endowment Contracts are subject to
the following tax rules:
- All distributions other than death benefits from a Modified Endowment
Contract, including distributions upon surrender and withdrawals, are
treated first as distributions of gain taxable as ordinary income and as
tax-free recovery of the Owner's investment in the Policy only after all
gain has been distributed.
- Loans taken from or secured by a Policy classified as a Modified
Endowment Contract are treated as distributions and taxed in same manner
as surrenders and withdrawals.
- A 10 percent additional income tax is imposed on the amount subject to
tax except where the distribution or loan is made when the Owner has
attained age 59 1/2 or is disabled, or where the distribution is part of
a series of substantially equal periodic payments for the life (or life
expectancy) of the Owner or the joint lives (or joint life expectancies)
of the Owner and the Owner's beneficiary or designated beneficiary.
If a Policy becomes a Modified Endowment Contract, distributions that occur
during the contract year will be taxed as distributions from a Modified
Endowment Contract. In addition, distributions from a Policy within two years
before it becomes a Modified Endowment Contract will be taxed in this manner.
This means that a distribution made from a Policy that is not a Modified
Endowment Contract could later become taxable as a distribution from a Modified
Endowment Contract.
Distributions Other Than Death Benefits from Policies that are not Modified
Endowment Contracts. Distributions other than death benefits from a Policy that
is not classified as a Modified Endowment Contract are generally treated first
as a recovery of the Owner's investment in the Policy and only after the
recovery of all investment in the Policy as taxable income. However, certain
distributions which must be made in order to enable the Policy to continue to
qualify as a life insurance contract for Federal income tax purposes if Policy
benefits are reduced during the first 15 Policy years may be treated in whole or
in part as ordinary income subject to tax.
Loans from or secured by a Policy that is not a Modified Endowment Contract
are generally not treated as distributions.
Finally, neither distributions from nor loans from or secured by a Policy
that is not a Modified Endowment Contract are subject to the 10 percent
additional income tax.
Investment in the Policy. The Owner's investment in the Policy is
generally the aggregate premium payments. When a distribution is taken from the
Policy, the Owner's investment in the Policy is reduced by the amount of the
distribution that is tax-free.
Policy Loans. If a Policy loan is outstanding when a Policy is surrendered
or lapses, or when benefits are paid at a Policy's maturity date, the amount of
the outstanding indebtedness will be added to the amount distributed and will be
taxed accordingly. In general, interest on a Policy loan will not be deductible.
Before taking out a Policy loan, an Owner should consult a tax adviser as to the
tax consequences.
Multiple Policies. All Modified Endowment Contracts that are issued by
PMLIC (or its affiliates) to the same Owner during any calendar year are treated
as one Modified Endowment Contract for purposes of determining the amount
includible in the Owner's income when a taxable distribution occurs.
34
<PAGE> 40
Accelerated Death Benefit Rider. The Federal income tax consequences
associated with the Accelerated Death Benefit rider are uncertain. Owners should
consult a qualified tax adviser about the consequences of requesting payment
under this rider.
SPECIAL RULES FOR PENSION AND PROFIT-SHARING PLANS
If a Policy is purchased by a pension or profit-sharing plan, or similar
deferred compensation arrangement, the Federal, state and estate tax
consequences could differ. A competent tax adviser should be consulted in
connection with such a purchase.
The amounts of life insurance that may be purchased on behalf of a
participant in a pension or profit-sharing plan are limited. The current cost of
insurance for the net amount at risk is treated as a "current fringe benefit"
and must be included annually in the plan participant's gross income. PMLIC
reports this cost (generally referred to as the "P.S. 58" cost) to the
participant annually. If the plan participant dies while covered by the plan and
the Policy proceeds are paid to the participant's beneficiary, then the excess
of the death benefit over the Policy Account Value is not taxable. However, the
cash value will generally be taxable to the extent it exceeds the participant's
cost basis in the Policy. Policies owned under these types of plans may be
subject to restrictions under the Employee Retirement Income Security Act of
1974 ("ERISA"). You should consult a qualified adviser regarding ERISA.
Department of Labor ("DOL") regulations impose requirements for participant
loans under retirement plans covered by ERISA. Plan loans must also satisfy tax
requirements to be treated as nontaxable. Plan loan requirements and provisions
may differ from Policy loan provisions. Failure of plan loans to comply with the
requirements and provisions of the DOL regulations and of tax law may result in
adverse tax consequences and/or adverse consequences under ERISA. Plan
fiduciaries and participants should consult a qualified adviser before
requesting a loan under a Policy held in connection with a retirement plan.
SPECIAL RULES FOR 403(b) ARRANGEMENTS
If a Policy is purchased in connection with a Section 403(b) tax-sheltered
annuity program, the "Special Rules for Pension and Profit-Sharing Plans"
discussed above may be applicable. In addition, premiums, distributions and
other transactions with respect to the Policy must be administered, in
coordination with Section 403(b) annuity, to comply with the requirements of
Section 403(b) of the Code. A competent tax adviser should be consulted.
BUSINESS USES OF THE POLICY
Businesses can use the Policy in various arrangements, including
nonqualified deferred compensation or salary continuance plans, split dollar
insurance plans, executive bonus plans, tax exempt and nonexempt welfare benefit
plans, retiree medical benefit plans and others. The tax consequences of such
plans may vary depending on the particular facts and circumstances. If an Owner
is purchasing the Policy for any arrangement the value of which depends in part
on its tax consequences, he or she should consult a qualified tax adviser. In
recent years, moreover, Congress has adopted new rules relating to life
insurance owned by businesses. Any business contemplating the purchase of a new
Policy or a change in an existing Policy should consult a tax adviser.
OTHER TAX CONSIDERATIONS
The transfer of the Policy or designation of a beneficiary may have
federal, state, and/or local transfer and inheritance tax consequences,
including the imposition of gift, estate, and generation-skipping transfer
taxes. For example, the transfer of the Policy to, or the designation as a
beneficiary of, or the payment of proceeds to, a person who is assigned to a
generation which is two or more generations below the generation assignment of
the owner may have generation skipping transfer tax consequences under federal
tax law. The individual situation of each owner or beneficiary will determine
the extent, if any, to which federal, state, and local transfer and inheritance
taxes may be imposed and how ownership or receipt of
35
<PAGE> 41
Policy proceeds will be treated for purposes of federal, state and local estate,
inheritance, generation skipping and other taxes.
POSSIBLE TAX LAW CHANGES
Although the likelihood of legislative changes is uncertain, there is
always the possibility that the tax treatment of the Policy could change by
legislation or otherwise. Consult a tax adviser with respect to legislative
developments and their effect on the Policy.
PMLIC'S TAXES
Under current Federal income tax law, PMLIC is not taxed on the Separate
Account's operations. Thus, currently PMLIC does not deduct charges from the
Separate Account for its Federal income taxes. PMLIC reserves the right to
charge the Separate Account for any future Federal income taxes that it may
incur.
Under current laws in several states, PMLIC may incur state and local taxes
(in addition to premium taxes). These taxes are not now significant and we are
not currently charging for them. If they increase, PMLIC may deduct charges for
such taxes.
POLICIES ISSUED IN CONJUNCTION WITH EMPLOYEE BENEFIT PLANS
Policies may be acquired in conjunction with employee benefit plans ("EBS
Policies"), including the funding of qualified pension plans meeting the
requirements of Section 401 of the Code. For EBS Policies, the maximum mortality
rates used to determine the monthly Cost of Insurance Charge are based on the
Commissioners' 1980 Standard Ordinary Mortality Tables NB and SB. Under these
Tables, mortality rates are the same for male and female Insureds of a
particular Attained Age and Premium Class. (See "Monthly Deductions.")
Illustrations reflecting the premiums and charges for EBS Policies will be
provided upon request to purchasers of such Policies. There is no provision for
misstatement of sex in the EBS Policies. Also, the rates used to determine the
amount payable under a particular Settlement Option will be the same for male
and female Insureds. (See "Settlement Options.")
LEGAL DEVELOPMENTS REGARDING UNISEX ACTUARIAL TABLES
In 1983, the United States Supreme Court held in Arizona Governing
Committee v. Norris that optional annuity benefits provided under an employee's
deferred compensation plan could not, under Title VII of the Civil Rights Act of
1964, vary between men and women on the basis of sex. In that case, the Court
applied its decision only to benefits derived from contributions made on or
after August 1, 1983. Subsequent decisions of lower federal courts indicate that
in other factual circumstances the Title VII prohibition of sex-distinct
benefits may apply at an earlier date. In addition, legislative, regulatory, or
decisional authority of some states may prohibit use of sex-distinct mortality
tables under certain circumstances. The Policies offered by this Prospectus
(other than Policies issued in states which require "unisex" policies (currently
Montana) and EBS Policies are based upon actuarial tables which distinguish
between men and women and, thus, the Policy provides different benefits to men
and women of the same age. Accordingly, employers and employee organizations
should consider, in consultation with legal counsel, the impact of these
authorities on any employment-related insurance or benefits program before
purchasing the Policy and in determining whether an EBS Policy is appropriate.
VOTING RIGHTS
All of the assets held in the Subaccounts of the Separate Account will be
invested in shares of corresponding portfolios of the Funds. (The organizational
documents of the Trust do not contemplate meetings of holders of Trust units nor
any action taken by vote of such holders). The Funds do not hold routine annual
shareholders' meetings. Shareholders' meetings will be called whenever each Fund
believes that it is necessary to vote to elect the Board of Directors of the
Fund and to vote upon certain other matters that are required by the 1940 Act to
be approved or ratified by the shareholders of a mutual fund. PMLIC is the legal
owner of Fund shares and as such has the right to vote upon any matter that may
be voted upon at a shareholders' meeting. However, in accordance with its view
of present applicable law,
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<PAGE> 42
PMLIC will vote the shares of the Funds at meetings of the shareholders of the
appropriate Fund or Portfolio in accordance with instructions received from
Owners. Fund shares held in each Subaccount for which no timely instructions
from policyowners are received will be voted by PMLIC in the same proportion as
those shares in that Subaccount for which instructions are received.
Each Owner having a voting interest will be sent proxy material and a form
for giving voting instructions. Owners may vote, by proxy or in person, only as
to the Portfolios that correspond to the Subaccounts in which their Policy
values are allocated. The number of shares held in each Subaccount attributable
to a Policy for which the Owner may provide voting instructions will be
determined by dividing the Policy's value in that account by the net asset value
of one share of the corresponding Portfolio as of the record date for the
shareholder meeting. Fractional shares will be counted. For each share of a
Portfolio for which Owners have no interest, PMLIC will cast votes, for or
against any matter, in the same proportion as Owners vote.
If required by state insurance officials, PMLIC may disregard voting
instructions if such instructions would require shares to be voted so as to
cause a change in the investment objectives or policies of one or more of the
Portfolios, or to approve or disapprove an investment policy or investment
adviser of one or more of the Portfolios. In addition, PMLIC may disregard
voting instructions in favor of changes initiated by an Owner or the Fund's
Board of Directors provided that PMLIC's disapproval of the change is reasonable
and is based on a good faith determination that the change would be contrary to
state law or otherwise inappropriate, considering the portfolio's objectives and
purposes, and the effect the change would have on PMLIC. If PMLIC does disregard
voting instructions, it will advise Owners of that action and its reasons for
such action in the next semi-annual report to Owners.
STANDARD & POOR'S
Standard & Poor's(R), S&P 500(R), Standard & Poor's 500 and 500 are
trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by
PMLIC and the Market Street Fund, Inc. ("Market Street"). Neither the Policy nor
the Equity 500 Index Portfolio is sponsored, endorsed, sold or promoted by
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P").
S&P makes no representation or warranty, express or implied, to the owners
of the Policy and the Equity 500 Index Portfolio or any member of the public
regarding the advisability of investing in securities generally or in the Policy
and the Equity 500 Index Portfolio particularly or the ability of the S&P 500
Index to track general stock market performance. S&P's only relationship to
PMLIC and Market Street is the licensing of certain trademarks and trade names
of S&P and of the S&P 500 Index which is determined, composed and calculated by
S&P without regard to PMLIC, Market Street, the Policy, or the Equity 500 Index
Portfolio. S&P has no obligation to take the needs of PMLIC, Market Street, or
the owners of the Policy or the Equity 500 Index Portfolio into consideration in
determining, composing or calculating the S&P 500 Index. S&P is not responsible
for and has not participated in the determination of the prices and amount of
the Policy or the Equity 500 Index Portfolio or the timing of the issuance or
sale of the Policy or the Equity 500 Index Portfolio or in the determination or
calculation of the equation by which the Policy or the Equity 500 Index
Portfolio are to be converted into cash. S&P has no obligation or liability in
connection with the administration, marketing or trading of the Policy or the
Equity 500 Index Portfolio.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P,
INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY
ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR
IMPLIED, AS TO RESULTS TO BE OBTAINED BY PMLIC, MARKET STREET, OWNERS OF THE
POLICY AND THE EQUITY 500 INDEX PORTFOLIO, OR ANY OTHER PERSON OR ENTITY FROM
THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS
OR IMPLIED WARRANTIES AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P 500 INDEX OR
ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT
SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR
CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES.
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<PAGE> 43
CHANGES TO THE SEPARATE ACCOUNT OR FUNDS
CHANGES TO SEPARATE ACCOUNT OPERATIONS
The voting rights described in this Prospectus are created under applicable
Federal securities laws and regulations. If these laws or regulations change to
eliminate the necessity to solicit voting instructions from Owners or restrict
such voting rights, PMLIC reserves the right to proceed in accordance with any
such changed laws or regulations.
PMLIC also reserves the right, subject to compliance with applicable law,
including approval of Owners, if so required: (1) to transfer assets supporting
the Policies from one Subaccount to another Subaccount or from the Separate
Account to another separate account, (2) to create additional separate accounts
or subaccounts, or combine or remove Subaccounts from the Separate Account, (3)
to operate the Separate Account or one or more of the Subaccounts as a
management investment company under the 1940 Act, or in any other form permitted
by law; (4) to deregister the unit investment trust under the 1940 Act; and (5)
to modify the provisions of the Policies to comply with applicable laws.
CHANGES TO AVAILABLE PORTFOLIOS
It is possible that PMLIC may determine that one or more of the Portfolios
or a series of the Zero Coupon Trust may become unsuitable for investment by the
corresponding Subaccount because of a change in investment policy, or a change
in the tax laws, or because the shares or units are no longer available for
investment or for any other reasonable cause. In that event, PMLIC may seek to
substitute the shares of another Portfolio or of a Portfolio of a Fund not
currently available under the Policies. If required by law, the approval of the
SEC and possibly one or more state insurance departments would be obtained.
Each of the Funds sells its shares to the Separate Account in accordance
with the terms of a participation agreement between it and PMLIC. The
termination provisions of those agreements vary. Should an agreement between
PMLIC and a Fund terminate, the Separate Account will not be able to purchase
additional shares of that Fund. In that event, Owners would no longer be able to
allocate Cash Value or Net Premium Payments to Subaccounts investing in
Portfolios of that Fund. Additionally, in certain circumstances, it is possible
that a Fund may refuse to sell its shares to the Separate Account despite the
fact that the participation agreement between the Fund and PMLIC has not been
terminated. In such an event, PMLIC will not be able to honor requests of Owners
to allocate their Cash Value or Net Premium Payments to Subaccounts investing in
shares of Portfolios of that Fund.
TERMINATION OF PARTICIPATION AGREEMENTS
The participation agreements pursuant to which the Funds sell their shares
to Subaccounts of the Separate Account contain varying provisions regarding
termination. The following summarizes those provisions:
The Alger American Fund. The Agreement with The Alger American Fund
provides for termination: 1) by either party on 60 days written notice to
the other; 2) by Alger if the Policies cease to qualify as annuity
contracts or life insurance policies under the Code or the Policies are not
registered, issued or sold in accordance with applicable laws; 3) by any
party in the event of a material irreconcilable conflict; 4) by PMLIC in
the event that formal proceedings are initiated against Alger or the
distributor by the SEC or another regulator; 5) by PMLIC in the event the
Portfolio or trust fails to meet the diversification requirements; 6) by
PMLIC if shares are not reasonably available; 7) by PMLIC if shares of the
Portfolio are not registered, issued or sold in accordance with applicable
laws or applicable law precludes the use of such shares; 8) by PMLIC if
Alger fails to qualify as a regulated investment company under Subchapter M
of the Code; or 9) by Alger's principal underwriter if it determines that
PMLIC has suffered a material adverse change in its business, operation,
financial condition or prospects.
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<PAGE> 44
Variable Insurance Products Fund and Variable Insurance Products Fund
II. The Agreements provide for termination 1) upon six months' advance
notice by either party, 2) at PMLIC's option if shares of the Fund are not
reasonably available to meet requirements of the policies, 3) at PMLIC's
option if shares of the Fund are not registered, issued, or sold in
accordance with applicable laws, if the Fund ceases to qualify as a
regulated investment company under the Code or for a Portfolio of the Fund
in the event such Portfolio fails to meet diversification requirements
under the Code, 4) at the option of the Fund or its principal underwriter
if it determines that PMLIC has suffered material adverse changes in its
business or financial condition or is subject to material adverse
publicity, 5) at the option of PMLIC if the Fund has suffered material
adverse changes in its business or financial condition or is a subject of
material adverse publicity, or 6) at the option of the Fund or its
principal underwriter if PMLIC decides to make another mutual fund
available as a funding vehicle for its policies.
Neuberger Berman Advisers Management Trust. This Agreement may be
terminated by either party on six months' written notice to the other.
Van Eck Worldwide Insurance Trust. The agreement with Van Eck Trust
provides for termination 1) by PMLIC, Van Eck Trust or Van Eck Trust's
Distributor upon six months prior written notice or in the event that
formal proceedings are initiated against the other party by the SEC or
another regulator, 2) by PMLIC or Van Eck Trust in the event that shares of
Van Eck Trust subject to the agreement are not registered, offered or sold
in conformity with applicable law or such law precludes the use of Trust
shares, 3) by PMLIC upon reasonable notice if shares of one of the then
available Portfolios of Van Eck Trust are not longer available or upon
sixty days notice if PMLIC should substitute shares of another fund or Fund
for those of Van Eck Trust, 4) by PMLIC if a Portfolio fails to meet the
diversification and other requirements of the Internal Revenue Code, or
PMLIC reasonably believes it may fail to do so, 5) upon assignment of the
agreement unless both parties agree to the assignment in writing.
PMLIC'S EXECUTIVE OFFICERS AND DIRECTORS
PMLIC is 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
PMLIC's 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.
</TABLE>
39
<PAGE> 45
<TABLE>
<CAPTION>
NAME AND POSITION PRINCIPAL OCCUPATION DURING THE PAST FIVE YEARS
----------------- -----------------------------------------------
<S> <C>
Nicholas DeBenedictis
Director............................. 1993 to present -- Chairman of Philadelphia Suburban
231 Gold 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
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.
</TABLE>
40
<PAGE> 46
<TABLE>
<CAPTION>
NAME AND POSITION PRINCIPAL OCCUPATION DURING THE PAST FIVE YEARS
----------------- -----------------------------------------------
<S> <C>
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.
PMLIC holds the Separate Account's assets physically segregated and apart
from the general account. PMLIC maintains 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 PMLIC's
officers and employees has been issued by Reliance Insurance Company.
DISTRIBUTION OF POLICIES
Applications for the Policies are solicited by agents who are licensed by
state insurance authorities to sell PMLIC's variable life insurance policies,
and who are also registered representatives of 1717 Capital Management Company
("1717") or registered representatives of broker/dealers who have Selling
Agreements with 1717 or registered representatives of broker/dealers who have
Selling Agreements with such broker/dealers. 1717, whose address is Christiana
Executive Campus, P.O. Box 15626, Wilmington, Delaware 19850, is a registered
broker/dealer under the Securities Exchange Act of 1934 (the "1934 Act") and a
member of the National Association of Securities Dealers, Inc. (the "NASD").
1717 was organized under the Laws of Pennsylvania on January 22, 1969, and is an
indirect wholly-owned subsidiary of PMLIC. 1717 acts as the principal
underwriter of the Policies (as well as other variable life policies) pursuant
to an Underwriting Agreement to which the Separate Account, 1717 and PMLIC are
parties. 1717 is also the principal underwriter of variable annuity contracts
issued by PMLIC and variable life insurance policies and variable annuity
contracts issued by Provident Mutual Life and Annuity Company of America, a
wholly-owned subsidiary of PMLIC. 1717 receives no compensation as principal
underwriter of the Policies. The Policies are offered and sold only in those
states where their sale is lawful.
The insurance underwriting and the determination of a proposed Insured's
Premium Class and whether to accept or reject an application for a Policy is
done by PMLIC. PMLIC will refund any premiums paid if a Policy ultimately is not
issued or will refund the applicable amount if the Policy is returned under the
Free-Look provision.
Agents are compensated for sales of the Policies on a commission and
service fee basis and with other forms of compensation. During the first Policy
Year, agent commissions will not be more than 50% of the premiums paid. Agent
commissions will not be more than 7% of premiums paid for Policy Year 2 and 5%
for years 3 through 10. If the Special Premium Payment Provision is in effect,
the maximum percent of an unscheduled premium payment which is payable to the
agent is 7% for such premiums received during Policy Year 2 and 5% for those
received during Policy Years 3 through 10; for unscheduled premium payments
greater than an amount equal to two years' scheduled premiums, the maximum
percent of such excess amount which is payable to the agent is 2%. If the
Special Premium Payment Provision is not in effect, the maximum percent of an
unscheduled premium payment which is payable to the agent is 2%. Agents may also
receive expense allowances. Agents may also receive compensation 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.
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<PAGE> 47
POLICY REPORTS
At least once each Policy Year a statement will be sent to the Owner
describing the status of the Policy, including setting forth the Face Amount,
the current Death Benefit, any Policy loans and accrued interest, the current
Cash Value, the value in each Subaccount, premiums paid since the last report,
charges deducted since the last report, any partial withdrawals since the last
report, and the current Net Cash Surrender Value. In addition, a statement will
be sent to an Owner showing the status of the Policy following the transfer of
amounts from one Subaccount to another (excluding automatic rebalancing of Cash
Value), the taking a loan, a repayment of a loan, a partial withdrawal and the
payment of any premiums (excluding those paid by bank draft or otherwise under
the Automatic Payment Plan). An Owner may request that a similar report be
prepared at other times. PMLIC may charge a reasonable fee for such requested
reports and may limit the scope and frequency of such requested reports.
An Owner will be sent a semi-annual report containing the financial
statements of each Portfolio in which he or she is invested.
STATE REGULATION
PMLIC is subject to regulation and supervision by the Insurance Department
of the Commonwealth of Pennsylvania which periodically examines its affairs. It
is also subject to the insurance laws and regulations of all jurisdictions where
it is authorized to do business. A copy of the Policy form has been filed with,
and where required approved by, insurance officials in each jurisdiction where
the Policies are sold. PMLIC is required to submit annual statements of its
operations, including financial statements, to the insurance departments of the
various jurisdictions in which it does business for the purposes of determining
solvency and compliance with local insurance laws and regulations.
LEGAL PROCEEDINGS
PMLIC and its subsidiaries, like other life insurance companies, are
involved in lawsuits, including class action lawsuits. In some class action and
other lawsuits involving insurers, substantial damages have been sought and/or
material settlement payments have been made. Although the outcome of any
litigation cannot be predicted with certainty, PMLIC believes that as of the
date of this Prospectus there are no pending or threatened lawsuits that are
reasonably likely to have a material adverse impact on the Separate Account or
PMLIC.
EXPERTS
The Financial Statements listed on Page F-1, have been included in this
Prospectus, in reliance on the reports of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
Actuarial matters included in the Prospectus have been examined by Scott V.
Carney, FSA, MAAA, Vice President and Actuary of PMLIC, as stated in his opinion
filed as an exhibit to the Registration Statement.
LEGAL MATTERS
Sutherland Asbill & Brennan LLP of Washington, D.C. has provided advice
relating to certain aspects of federal securities law applicable to the issue
and sale of the Policies. James G. Potter, Jr., Esq., General Counsel of
Provident Mutual Life Insurance Company, has provided advice on certain matters
relating to the laws of Pennsylvania regarding the Policies and PMLIC's issuance
of the Policies.
42
<PAGE> 48
DEFINITIONS
APPLICATION................... The application the Owner must complete to
purchase a Policy plus all forms required by
PMLIC or applicable law.
ATTAINED AGE.................. The Issue Age of the Insured plus the number of
full Policy Years since the Policy Date.
BASE PREMIUM.................. Total scheduled premium minus the premium
processing charge and any premium for
supplementary benefits and extra-premium class.
BENEFICIARY................... The person(s) or entity(ies) designated to
receive all or some of the Insurance Proceeds
when the Insured dies. The Beneficiary is
designated in the application or if
subsequently changed, as shown in the latest
change filed with PMLIC. If no Beneficiary
survives and unless otherwise provided, the
Insured's estate will be the Beneficiary.
CASH VALUE.................... The total amount invested under the Policy. It
is the sum of the Cash Values in the
Subaccounts. If there is an outstanding policy
loan, the Cash Value in the General Account
will be added to the Cash Value of the
Subaccounts to determine the Cash Value of the
Policy.
DEATH BENEFIT................. The greatest of: (1) the applicable Guaranteed
Minimum Death Benefit for the policy; (2) the
Face Amount plus the amount by which the Cash
Value on the date of death exceeds the
appropriate Special Premium Payment Single
Premium; or (3) the Cash Value on the date of
death times the appropriate Death Benefit
Factor. This amount is adjusted to determine
the Proceeds at death which is paid to the
beneficiary.
FACE AMOUNT................... The Face Amount is specified in the Policy. If
scheduled premiums are paid when due and there
are no outstanding policy loans, this will be
the minimum Death Benefit.
GRACE PERIOD.................. The 61-day period allowed for payment of a
premium following the date PMLIC mails notice
of the amount required to keep the Policy in
force.
INSURED....................... The person upon whose life the Policy is
issued.
ISSUE AGE..................... The age of the Insured at his or her birthday
nearest the Policy Date. The Issue Age is
stated in the Policy.
LOAN VALUE.................... The maximum amount that may be borrowed under
the Policy.
MINIMUM FACE AMOUNT........... The Minimum Face Amount is $50,000.
MONTHLY DEDUCTIONS............ The amount deducted from the Cash Value on each
Policy Processing Day. It includes the Cost of
Insurance Charge, Administration Charge,
Minimum Death Benefit Guarantee Charge, First
Year Policy Charge, and the Supplementary
Benefit Charge.
NET AMOUNT AT RISK............ The amount by which the Death Benefit exceeds
the Policy Account Value.
43
<PAGE> 49
NET CASH SURRENDER VALUE...... The Cash Surrender Value minus any outstanding
Policy loans and accrued interest.
NET PREMIUMS.................. The remainder of a Base Premium after Deduction
of the 7 1/2% charge for sales load and state
premium tax or the remainder of an unscheduled
premium after deduction of the Premium Expense
Charge.
OWNER......................... The person(s) or entity(ies) entitled to
exercise the rights granted in the Policy.
POLICY ANNIVERSARY............ The same day and month as the Policy Date in
each later year.
POLICY DATE................... The date set forth in the Policy that is used
to determine Policy Years and Policy Processing
Days. The Policy Date is generally the same as
the Issue Date but may be another date mutually
agreed upon by PMLIC and the proposed Insured.
POLICY ISSUE DATE............. The date on which the Policy is issued. It is
used to measure suicide and contestable
periods.
POLICY PROCESSING DAY......... The day in each calendar month which is the
same day of the month as the Policy Date. The
first Policy Processing Day is the Policy Date.
POLICY YEAR................... A year that starts on the Policy Date or on a
Policy Anniversary.
PREMIUM CLASS................. The classification of the Insured for cost of
insurance purposes. The classes are: standard,
with extra rating, non-smoker, nonsmoker with
extra rating.
PREMIUM EXPENSE CHARGE........ The amount deducted from a premium payment
which consists of the Premium Processing
Charge, the Sales Charge, and the State and
Local Premium Tax Charge.
PROCEEDS...................... The net amount to be paid to the Beneficiary
when the Insured dies or when the Policy is
surrendered.
SPECIAL PREMIUM PAYMENT SINGLE
PREMIUM..................... An amount used to determine whether the Owner
is required to pay scheduled premiums to keep
the Policy in full force.
SEPARATE ACCOUNT.............. The Provident Mutual Variable Life Separate
Account.
SERVICE CENTER................ The Technology and Service Center located at
300 Continental Drive, Newark, Delaware 19713.
SUBACCOUNT.................... A division of the Separate Account. The assets
of each Subaccount are invested exclusively in
a corresponding Portfolio that is part of one
of the Funds.
SURRENDER CHARGE.............. The amount deducted from the Policy Account
Value upon lapse or surrender of the Policy
during the first 9 Policy Years.
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 the Separate Account's portfolio of
securities to materially affect the value of
the Separate Account.
VALUATION PERIOD.............. The time between two successive Valuation Days.
Each Valuation Period includes a Valuation Day
and any non-Valuation Day or consecutive
non-Valuation Days immediately preceding it.
44
<PAGE> 50
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> 51
- --------------------------------------------------------------------------------
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> 52
- --------------------------------------------------------------------------------
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> 53
- --------------------------------------------------------------------------------
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> 54
- --------------------------------------------------------------------------------
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> 55
- --------------------------------------------------------------------------------
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> 56
- --------------------------------------------------------------------------------
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> 57
- --------------------------------------------------------------------------------
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> 58
- --------------------------------------------------------------------------------
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> 59
- --------------------------------------------------------------------------------
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> 60
- --------------------------------------------------------------------------------
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> 61
- --------------------------------------------------------------------------------
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> 62
- --------------------------------------------------------------------------------
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> 63
- --------------------------------------------------------------------------------
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> 64
- --------------------------------------------------------------------------------
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> 65
- --------------------------------------------------------------------------------
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> 66
- --------------------------------------------------------------------------------
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> 67
- --------------------------------------------------------------------------------
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> 68
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------
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> 69
- --------------------------------------------------------------------------------
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> 70
- --------------------------------------------------------------------------------
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> 71
- --------------------------------------------------------------------------------
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> 72
- --------------------------------------------------------------------------------
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> 73
- --------------------------------------------------------------------------------
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> 74
- --------------------------------------------------------------------------------
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> 75
- --------------------------------------------------------------------------------
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> 76
- --------------------------------------------------------------------------------
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> 77
- --------------------------------------------------------------------------------
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> 78
- --------------------------------------------------------------------------------
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> 79
- --------------------------------------------------------------------------------
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> 80
- --------------------------------------------------------------------------------
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> 81
- --------------------------------------------------------------------------------
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> 82
- --------------------------------------------------------------------------------
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> 83
- --------------------------------------------------------------------------------
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> 84
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
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> 85
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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> 86
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------
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> 87
- --------------------------------------------------------------------------------
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> 88
- --------------------------------------------------------------------------------
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> 89
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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> 90
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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> 91
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- --------------------------------------------------------------------------------------------------------------------------
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> 92
- --------------------------------------------------------------------------------
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> 93
- --------------------------------------------------------------------------------
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> 94
- --------------------------------------------------------------------------------
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> 95
- --------------------------------------------------------------------------------
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> 96
- --------------------------------------------------------------------------------
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> 97
- --------------------------------------------------------------------------------
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> 98
- --------------------------------------------------------------------------------
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> 99
- --------------------------------------------------------------------------------
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> 100
- --------------------------------------------------------------------------------
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> 101
- --------------------------------------------------------------------------------
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> 102
- --------------------------------------------------------------------------------
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> 103
- --------------------------------------------------------------------------------
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> 104
- --------------------------------------------------------------------------------
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> 105
- --------------------------------------------------------------------------------
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> 106
- --------------------------------------------------------------------------------
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> 107
- --------------------------------------------------------------------------------
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> 108
- --------------------------------------------------------------------------------
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> 109
- --------------------------------------------------------------------------------
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> 110
- --------------------------------------------------------------------------------
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> 111
- --------------------------------------------------------------------------------
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> 112
- --------------------------------------------------------------------------------
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> 113
[This Page Intentionally Left Blank]
<PAGE> 114
PROVIDENT MUTUAL
LIFE INSURANCE COMPANY
AND SUBSIDIARIES
REPORT ON AUDIT OF CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, 1997
<PAGE> 115
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> 116
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> 117
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> 118
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> 119
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> 120
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
F-71
<PAGE> 121
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to conform with the current year presentation, including short-term investments
reclassified as cash and cash equivalents.
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
F-72
<PAGE> 122
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
F-73
<PAGE> 123
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
primarily of guaranteed investment contracts (GICs) and single premium and
flexible premium annuity contracts.
Benefit reserves and policyholder contract deposits on these products are
determined following the retrospective deposit method and consist of policy
values that accrue to the benefit of the policyholder, before deduction of
surrender charges.
PREMIUMS, CHARGES AND BENEFITS
Traditional Life Insurance and Accident and Health Insurance Products
Premiums for individual life policies are recognized when due; premiums for
accident and health and all other policies are reported as earned
proportionately over their policy terms.
Benefit claims (including an estimated provision for claims incurred but
not reported), benefit 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.
F-74
<PAGE> 124
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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
F-75
<PAGE> 125
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
contracts. The estimated fair value of all assets without a corresponding
revaluation of all liabilities associated with insurance contracts can be
misinterpreted.
The following notes summarize the major methods and assumptions used in
estimating the fair values of financial instruments:
INVESTMENT SECURITIES
Bonds, common stocks and preferred stocks are valued based upon quoted
market prices, where available. If quoted market prices are not available, as in
the case of private placements, fair values are based on quoted market prices of
comparable instruments (see Note 3).
MORTGAGE LOANS
Mortgage loans are valued using discounted cash flow analyses, using
interest rates currently being offered for loans with similar terms to borrowers
of similar credit quality. For mortgage loans classified as nonperforming, the
fair value was set equal to the lesser of the unpaid principal balance or the
market value of the underlying property.
POLICY LOANS
Policy loans are issued with either fixed or variable interest rates,
depending upon the terms of the policies. For those loans with fixed 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> 126
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> 127
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> 128
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> 129
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> 130
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> 131
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> 132
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> 133
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> 134
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> 135
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> 136
APPENDIX A
ILLUSTRATIONS OF DEATH BENEFITS,
CASH SURRENDER VALUES AND ACCUMULATED PREMIUMS
Tables on Pages A-3 to A-12 illustrate the Death Benefit and Cash Surrender
Value of the Policy and are provided to assist in the comparison of the Policy
with other variable life policies issued by PMLIC or other companies. The
illustrations show how the Death Benefit and the cash surrender value
(reflecting the deduction of the Premium Expense Charge and the Surrender
Charge, if any), may vary over an extended period of time for different issue
ages and premium classes, assuming hypothetical rates of investment return of
the Subaccounts equivalent to constant gross annual rates of 0%, 6% and 12%. The
tables on Pages A-3 to A-12 are for males and females at certain ages, for
various Face Amounts and Non-Smoker premium class. These illustrations assume
the payment of scheduled premiums only and thus are applicable for Policies with
either the Basic Death Benefit or Increasing Death Benefit.
The amounts shown are as of the end of each Policy Year. The tables on
Pages A-3 to A-6, A-11 and A-12 assume that the current monthly cost of
insurance rates and the current transaction charge for the Zero Coupon Bond
Subaccount will be charged for the entire period illustrated while the tables on
Pages A-7 to A-10 are based on guaranteed (maximum) cost of insurance rates and
the maximum transaction charge for the Zero Coupon Bond Subaccount. The amounts
shown in all tables reflect daily charges for mortality and expense risks
equivalent to an effective annual charge of 0.60%, and in addition, reflect an
averaging of certain other asset charges that may be assessed under the Policy,
depending upon how premiums are allocated. The total of the asset charges
reflected in the illustrations, including the 0.60% mortality and expense risk
charge listed above, is 1.39% for the illustrations on Pages A-3 to A-6, A-11
and A-12 and 1.40% for the Illustrations on Pages A-7 to A-10. The total charge
is based on an assumption that an Owner allocates the Policy values equally
among each available Subaccount.
These asset charges reflect an investment advisory fee of 0.62% which
represents an average of the fees incurred by the Portfolios during the most
recent fiscal year and expenses of 0.17% which is based on an average of the
actual expenses incurred by the Portfolios during the most recent fiscal year.
For certain Portfolios, certain expenses were reimbursed or fees waived
during 1999. It is anticipated that expense reimbursement and fee waiver
arrangements will continue past the current year. Absent the expense
reimbursement, the 1999 Total Annual Expenses would have been 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 Fund Overseas Portfolio, 0.63% for the VIP II Fund Asset Manager Portfolio,
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 such arrangements will continue past the current year. However, no expenses
were reimbursed or fees waived during 1999 for these Portfolios because the
level of actual expenses and fees never exceeded the thresholds at which the
reimbursement and waiver arrangements would have become operative. In the event
that reimbursements or fee waivers do not continue for any Portfolio in future
years, the Portfolio's actual expenses would increase and this would likely
increase the average expense figure on which the illustrations are based. See
"Table of Fund Fees and Expenses", for more information about such
reimbursements.
The tables also reflect the fact that no charges for Federal or state
income taxes are currently made against the Subaccounts. If such a charge is
made in the future, it would take a higher gross annual rate of return to
produce the same Policy values.
The second column of each table shows the amount to which the premiums
would accumulate if an amount equal to those premiums were invested to earn
interest, after taxes, at 5% compounded annually.
The illustrations also provide information about the premiums payable on
and after the Premium Change Date. The tables illustrate the Policy values that
would result if scheduled premiums are paid
A-1
<PAGE> 137
when due and the year, if any, in which the Special Premium Payment Provision
initially goes into effect. That year is shown by use of an asterisk (*). If the
Special Premium Payment Provision goes into effect for a Policy Year not shown
in the illustration, the asterisk is shown for the first Policy Year illustrated
after it goes into effect.
The Tables on Pages A-11 and A-12 illustrate the Death Benefit and cash
surrender value of the Policy with the Basic Death Benefit and the Increasing
Death Benefit, respectively. In addition to the assumptions regarding
hypothetical rates of investment return for the Subaccounts and charges and
expenses, these illustrations are for a male, age 35 having a Policy with a
$100,000 Face Amount and an unscheduled premium of $10,000 when the Policy is
purchased. The year in which the Special Premium Payment Provision goes into
effect under each Death Benefit Option is also shown.
Upon request, PMLIC will provide a comparable illustration of future
benefits under the Policy based upon the Insured's Age, sex, if applicable,
Premium Class, and frequency of premium payments requested.
For Policies issued in states requiring "unisex" policies (currently
Montana) or in conjunction with employee benefit plans, PMLIC will furnish upon
request illustrations based on unisex cost of insurance rates, and the Insured's
age. PMLIC reserves the right to charge a reasonable fee for this service to
persons who request more than one policy illustration during a policy year.
A-2
<PAGE> 138
PROVIDENT MUTUAL -- MODIFIED PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 25
$100,000 FACE AMOUNT (GUARANTEED DEATH BENEFIT)
$765 INITIAL SCHEDULED PREMIUM FOR NON-SMOKERS(1)
USING CURRENT COST OF INSURANCE CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT CASH SURRENDER VALUE
------------------------------------------- -------------------------------------------
PREMIUMS ASSUMING HYPOTHETICAL GROSS(3) ASSUMING HYPOTHETICAL GROSS(3)
END OF ACCUMULATED ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
POLICY AT 5 PCT. INT. ------------------------------------------- -------------------------------------------
YEAR PER YEAR(2) 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS
- ------ -------------- ------------ ------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 803 100,000 100,000 100,000 0 0 0
2 1,647 100,000 100,000 100,000 170 264 363
3 2,532 100,000 100,000 100,000 606 793 996
4 3,462 100,000 100,000 100,000 1,038 1,350 1,703
5 4,438 100,000 100,000 100,000 1,464 1,936 2,488
6 5,464 100,000 100,000 100,000 2,061 2,727 3,538
7 6,540 100,000 100,000 100,000 2,688 3,583 4,719
8 7,670 100,000 100,000 100,000 3,306 4,469 6,004
9 8,857 100,000 100,000 100,000 3,914 5,383 7,401
10 10,103 100,000 100,000 100,248 4,511 6,326 8,923
11 11,412 100,000 100,000 101,300 4,919 7,121 10,402
12 12,785 100,000 100,000 102,473 5,315 7,946 12,028*
13 14,228 100,000 100,000 103,780 5,695 8,799 13,815
14 15,743 100,000 100,000 105,236 6,060 9,682 15,778
15 17,333 100,000 100,000 106,858 6,407 10,594 17,935
16 19,003 100,000 100,000 108,664 6,737 11,536 20,304
17 20,756 100,000 100,273 110,672 7,047 12,506 22,905
18 22,597 100,000 100,650 112,907 7,336 13,506 25,763
19 24,530 100,000 101,023 115,392 7,603 14,534 28,903
20 26,560 100,000 101,394 118,156 7,849 15,593* 32,354
25 38,337 100,000 103,146 150,145 8,666 21,316 55,404
30 53,367 100,000 104,564 212,243 8,551 27,680 91,484
35 72,550 100,000 105,409 293,959 6,892 34,399 146,979
40 97,032 100,000 105,372 405,221 2,863 41,216 231,555
45 128,279 100,000 104,101 555,967 0 47,549 358,688
50 175,144 100,000 107,537 766,990 0 59,144 547,849
55 234,957 100,000 110,581 1,065,157 0 70,231 825,702
</TABLE>
(1) If premiums are paid more frequently than annually the payments would be
$393.98 semiannually, $200.43 quarterly, or $67.32 monthly. The death
benefits and cash surrender values shown would be affected by the more
frequent premium payments. The annual premium on the Premium Change Date
assuming current cost of insurance charges will be as follows: $2,105
assuming a 0 pct. rate of return; $1,969 assuming a 6 pct. rate of return;
and $765 assuming a 12 pct. rate of return.
(2) The premiums accumulated at 5% interest in Column 2 are those payable if the
gross investment return is 6%.
(3) Assumes no Policy loan has been made.
It is emphasized that the hypothetical investment rates of return shown
above and elsewhere in this prospectus are illustrative only and should not be
deemed a representation of past or future investment rates of return. Actual
rates of return may be more or less than those shown and will depend on a number
of factors, including the separate accounts chosen by an owner. The Death
Benefit, Cash Surrender Value and premium on the premium change date for a
Policy would be different from those shown if the actual rates of return average
0%, 6%, and 12% over a period of years, but also fluctuated above or below those
averages for individual Policy years. No representations can be made by PMLIC
that these hypothetical rates of return can be achieved for any one year or
sustained over any period of time.
A-3
<PAGE> 139
PROVIDENT MUTUAL -- MODIFIED PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE ISSUE AGE 35
$100,000 FACE AMOUNT (GUARANTEED DEATH BENEFIT)
$991 INITIAL SCHEDULED PREMIUM FOR NON-SMOKERS(1)
USING CURRENT COST OF INSURANCE CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT CASH SURRENDER VALUE
------------------------------------------- -------------------------------------------
PREMIUMS ASSUMING HYPOTHETICAL GROSS(3) ASSUMING HYPOTHETICAL GROSS(3)
END OF ACCUMULATED ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
POLICY AT 5 PCT. INT. ------------------------------------------- -------------------------------------------
YEAR PER YEAR(2) 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS
- ------ -------------- ------------ ------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,041 100,000 100,000 100,000 0 0 0
2 2,133 100,000 100,000 100,000 509 641 779
3 3,280 100,000 100,000 100,000 1,115 1,378 1,662
4 4,485 100,000 100,000 100,000 1,702 2,139 2,633
5 5,750 100,000 100,000 100,000 2,267 2,925 3,697
6 7,078 100,000 100,000 100,000 3,010 3,936 5,065
7 8,472 100,000 100,000 100,000 3,779 5,019 6,595
8 9,936 100,000 100,000 100,000 4,524 6,127 8,249
9 11,474 100,000 100,000 100,000 5,246 7,262 10,043
10 13,088 100,000 100,000 100,429 5,945 8,425 11,991
11 14,783 100,000 100,000 101,805 6,423 9,417 13,907
12 16,563 100,000 100,000 103,342 6,879 10,443 16,009*
13 18,431 100,000 100,000 105,056 7,316 11,503 18,318
14 20,393 100,000 100,000 106,966 7,732 12,600 20,854
15 22,454 100,000 100,000 109,094 8,127 13,733 23,641
16 24,617 100,000 100,000 111,461 8,499 14,905 26,704
17 26,888 100,000 100,140 114,095 8,848 16,115 30,069
18 29,273 100,000 100,617 117,023 9,171 17,362 33,769
19 31,777 100,000 101,090 120,277 9,465 18,645 37,833
20 34,407 100,000 101,561 123,895 9,732 19,967* 42,302
25 49,662 100,000 103,812 162,447 10,571 27,166 72,198
30 69,133 100,000 105,645 232,224 10,268 35,320 119,089
35 93,983 100,000 106,733 324,850 7,684 43,959 191,088
40 128,506 100,000 109,183 450,836 4,817 55,295 300,557
45 172,568 100,000 110,621 624,069 0 66,034 462,273
</TABLE>
(1) If premiums are paid more frequently than annually the payments would be
$510.37 semiannually, $259.64 quarterly, or $87.21 monthly. The death
benefits and cash surrender values shown would be affected by the more
frequent premium payments. The annual premium on the Premium Change Date
assuming current cost of insurance charges will be as follows: $1,767
assuming a 0 pct. rate of return; $1,475 assuming a 6 pct. rate of return;
and $991 assuming a 12 pct. rate of return.
(2) The premiums accumulated at 5% interest in Column 2 are those payable if the
gross investment return is 6%.
(3) Assumes no Policy loan has been made.
It is emphasized that the hypothetical investment rates of return shown
above and elsewhere in this prospectus are illustrative only and should not be
deemed a representation of past or future investment rates of return. Actual
rates of return may be more or less than those shown and will depend on a number
of factors, including the separate accounts chosen by an owner. The Death
Benefit, Cash Surrender Value and premium on the premium change date for a
Policy would be different from those shown if the actual rates of return average
0%, 6%, and 12% over a period of years, but also fluctuated above or below those
averages for individual Policy years. No representations can be made by PMLIC
that these hypothetical rates of return can be achieved for any one year or
sustained over any period of time.
A-4
<PAGE> 140
PROVIDENT MUTUAL -- MODIFIED PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 45
$100,000 FACE AMOUNT (GUARANTEED DEATH BENEFIT)
$1,783 INITIAL SCHEDULED PREMIUM FOR NON-SMOKERS(1)
USING CURRENT COST OF INSURANCE CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT CASH SURRENDER VALUE
PREMIUMS ------------------------------------------- -------------------------------------------
END OF ACCUMULATED ASSUMING HYPOTHETICAL GROSS(3) ASSUMING HYPOTHETICAL GROSS(3)
POLICY AT 5 PCT. INT. ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR(2) 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS
---- ----------- ------------ ------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,872 100,000 100,000 100,000 230 313 397
2 3,838 100,000 100,000 100,000 1,337 1,579 1,831
3 5,902 100,000 100,000 100,000 2,405 2,883 3,401
4 8,069 100,000 100,000 100,000 3,432 4,226 5,121
5 10,345 100,000 100,000 100,000 4,416 5,606 7,004
6 12,734 100,000 100,000 100,000 5,634 7,304 9,347
7 15,243 100,000 100,000 100,000 6,891 9,127 11,975
8 17,877 100,000 100,000 100,000 8,095 10,982 14,817
9 20,643 100,000 100,000 100,000 9,240 12,869 17,894
10 23,548 100,000 100,000 100,000 10,321 14,781 21,227
11 26,597 100,000 100,000 100,349 11,054 16,439 24,567
12 29,799 100,000 100,000 102,857 11,716 18,122 28,210
13 33,161 100,000 100,000 105,662 12,309 19,833 32,186*
14 36,692 100,000 100,000 108,792 12,830 21,574 36,528
15 40,398 100,000 100,000 112,279 13,271 23,342 41,270
16 44,290 100,000 100,000 116,163 13,627 25,133 46,448
17 48,377 100,000 100,000 120,487 13,888 26,945 52,106
18 52,668 100,000 100,000 125,294 14,044 28,774 58,287
19 57,174 100,000 100,000 130,636 14,082 30,613 65,039
20 61,904 100,000 100,000 136,571 13,987 32,457 72,415
25 89,352 100,000 100,000 187,230 11,086 41,694 120,793
30 129,559 100,000 103,936 270,645 7,726 55,543* 193,318
35 180,874 100,000 109,822 387,075 0 69,471 300,058
</TABLE>
(1) If premiums are paid more frequently than annually the payments would be
$918.25 semiannually, $467.15 quarterly, or $156.90 monthly. The death
benefits and cash surrender values shown would be affected by the more
frequent premium payments. The annual premium on the Premium Change Date
assuming current cost of insurance charges will be as follows: $2,947
assuming a 0 pct. rate of return; $2,675 assuming a 6 pct. rate of return;
and $1,783 assuming a 12 pct. rate of return.
(2) The premiums accumulated at 5% interest in Column 2 are those payable if the
gross investment return is 6%.
(3) Assumes no Policy loan has been made.
It is emphasized that the hypothetical investment rates of return shown
above and elsewhere in this prospectus are illustrative only and should not be
deemed a representation of past or future investment rates of return. Actual
rates of return may be more or less than those shown and will depend on a number
of factors, including the separate accounts chosen by an owner. The Death
Benefit, Cash Surrender Value and premium on the premium change date for a
Policy would be different from those shown if the actual rates of return average
0%, 6%, and 12% over a period of years, but also fluctuated above or below those
averages for individual Policy years. No representations can be made by PMLIC
that these hypothetical rates of return can be achieved for any one year or
sustained over any period of time.
A-5
<PAGE> 141
PROVIDENT MUTUAL -- MODIFIED PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE ISSUE AGE 55
$100,000 FACE AMOUNT (GUARANTEED DEATH BENEFIT)
$2,445 INITIAL SCHEDULED PREMIUM FOR NON-SMOKERS(1)
USING CURRENT COST OF INSURANCE CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT CASH SURRENDER VALUE
PREMIUMS ------------------------------------------- -------------------------------------------
END OF ACCUMULATED ASSUMING HYPOTHETICAL GROSS(3) ASSUMING HYPOTHETICAL GROSS(3)
POLICY AT 5 PCT. INT. ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR(2) 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS
---- ----------- ------------ ------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 2,567 100,000 100,000 100,000 485 599 713
2 5,263 100,000 100,000 100,000 1,969 2,298 2,641
3 8,093 100,000 100,000 100,000 3,403 4,053 4,758
4 11,065 100,000 100,000 100,000 4,792 5,871 7,090
5 14,186 100,000 100,000 100,000 6,135 7,755 9,659
6 17,462 100,000 100,000 100,000 7,772 10,048 12,833
7 20,903 100,000 100,000 100,000 9,474 12,525 16,415
8 24,515 100,000 100,000 100,000 11,110 15,059 20,306
9 28,308 100,000 100,000 100,000 12,667 17,641 24,534
10 32,291 100,000 100,000 100,000 14,134 20,264 29,130
11 36,472 100,000 100,000 102,692 15,162 22,585 33,782
12 40,863 100,000 100,000 106,303 16,090 24,948 38,854*
13 45,474 100,000 100,000 110,337 16,919 27,359 44,393
14 50,315 100,000 100,000 114,839 17,650 29,827 50,451
15 55,398 100,000 100,000 119,857 18,277 32,356 57,083
16 60,991 100,000 100,000 125,438 19,339 35,183 64,341
17 66,864 100,000 100,000 131,638 20,264 38,077 72,279
18 73,031 100,000 100,000 138,519 21,024 41,026 80,950
19 79,506 100,000 100,000 146,153 21,582 44,021 90,412
20 86,304 100,000 100,925 154,621 21,903 47,037 100,733
25 125,750 100,000 106,736 225,721 18,924 62,149* 167,201
</TABLE>
(1) If premiums are paid more frequently than annually the payments would be
$1,259.18 semiannually, $640.59 quarterly, or $215.16 monthly. The death
benefits and cash surrender values shown would be affected by the more
frequent premium payments. The annual premium on the Premium Change Date
assuming current cost of insurance charges will be as follows: $3,039
assuming a 0 pct. rate of return; $2,689 assuming a 6 pct. rate of return;
and $2,445 assuming a 12 pct. rate of return.
(2) The premiums accumulated at 5% interest in Column 2 are those payable if the
gross investment return is 6%.
(3) Assumes no Policy loan has been made.
It is emphasized that the hypothetical investment rates of return shown
above and elsewhere in this prospectus are illustrative only and should not be
deemed a representation of past or future investment rates of return. Actual
rates of return may be more or less than those shown and will depend on a number
of factors, including the separate accounts chosen by an owner. The Death
Benefit, Cash Surrender Value and premium on the premium change date for a
Policy would be different from those shown if the actual rates of return average
0%, 6%, and 12% over a period of years, but also fluctuated above or below those
averages for individual Policy years. No representations can be made by PMLIC
that these hypothetical rates of return can be achieved for any one year or
sustained over any period of time.
A-6
<PAGE> 142
PROVIDENT MUTUAL -- MODIFIED PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 25
$100,000 FACE AMOUNT (GUARANTEED DEATH BENEFIT)
$765 INITIAL SCHEDULED PREMIUM FOR NON-SMOKERS(1)
USING GUARANTEED MAXIMUM COST OF INSURANCE CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT CASH SURRENDER VALUE
PREMIUMS ------------------------------------------- -------------------------------------------
END OF ACCUMULATED ASSUMING HYPOTHETICAL GROSS(3) ASSUMING HYPOTHETICAL GROSS(3)
POLICY AT 5 PCT. INT. ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR(2) 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS
---- ----------- ------------ ------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 803 100,000 100,000 100,000 0 0 0
2 1,647 100,000 100,000 100,000 168 262 361
3 2,532 100,000 100,000 100,000 603 790 993
4 3,462 100,000 100,000 100,000 1,035 1,347 1,698
5 4,438 100,000 100,000 100,000 1,460 1,931 2,482
6 5,464 100,000 100,000 100,000 2,056 2,720 3,530
7 6,540 100,000 100,000 100,000 2,682 3,576 4,709
8 7,670 100,000 100,000 100,000 3,299 4,460 5,992
9 8,857 100,000 100,000 100,000 3,906 5,372 7,386
10 10,103 100,000 100,000 100,000 4,502 6,313 8,904
11 11,412 100,000 100,000 100,896 4,908 7,106 10,380
12 12,785 100,000 100,000 102,038 5,303 7,928 12,003*
13 14,228 100,000 100,000 103,310 5,682 8,779 13,786
14 15,743 100,000 100,000 104,729 6,045 9,659 15,745
15 17,333 100,000 100,000 106,309 6,391 10,568 17,896
16 19,003 100,000 100,000 108,071 6,720 11,506 20,259
17 20,756 100,000 100,000 110,031 7,027 12,473 22,854
18 22,597 100,000 100,000 112,215 7,315 13,469 25,705
19 24,530 100,000 100,302 114,643 7,580 14,495 28,836
20 26,560 100,000 100,619 117,345 7,824 15,552 32,278
25 38,337 100,000 102,031 149,742 8,629 21,265* 55,255
30 53,367 100,000 102,961 211,549 8,499 27,635 91,185
35 72,550 100,000 103,076 292,543 6,737 34,346 146,271
40 97,032 100,000 101,962 401,256 2,168 40,963 229,289
45 128,279 100,000 100,000 545,003 0 46,669 351,614
50 175,742 100,000 100,984 739,187 0 57,532 527,991
55 236,318 100,000 102,059 1,001,100 0 67,159 776,046
</TABLE>
(1) If premiums are paid more frequently than annually the payments would be
$393.98 semiannually, $200.43 quarterly, or $67.32 monthly. The death
benefits and cash surrender values shown would be affected by the more
frequent premium payments. The annual premium on the Premium Change Date
assuming current cost of insurance charges will be as follows: $2,105
assuming a 0 pct. rate of return; $2,072 assuming a 6 pct. rate of return;
and $765 assuming a 12 pct. rate of return.
(2) The premiums accumulated at 5% interest in Column 2 are those payable if the
gross investment return is 6%.
(3) Assumes no Policy loan has been made.
It is emphasized that the hypothetical investment rates of return shown
above and elsewhere in this prospectus are illustrative only and should not be
deemed a representation of past or future investment rates of return. Actual
rates of return may be more or less than those shown and will depend on a number
of factors, including the separate accounts chosen by an owner. The Death
Benefit, Cash Surrender Value and premium on the premium change date for a
Policy would be different from those shown if the actual rates of return average
0%, 6%, and 12% over a period of years, but also fluctuated above or below those
averages for individual Policy years. No representations can be made by PMLIC
that these hypothetical rates of return can be achieved for any one year or
sustained over any period of time.
A-7
<PAGE> 143
PROVIDENT MUTUAL -- MODIFIED PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE ISSUE AGE 35
$100,000 FACE AMOUNT (GUARANTEED DEATH BENEFIT)
$991 INITIAL SCHEDULED PREMIUM FOR NON-SMOKERS(1)
USING GUARANTEED MAXIMUM COST OF INSURANCE CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT CASH SURRENDER VALUE
PREMIUMS ------------------------------------------- -------------------------------------------
END OF ACCUMULATED ASSUMING HYPOTHETICAL GROSS(3) ASSUMING HYPOTHETICAL GROSS(3)
POLICY AT 5 PCT. INT. ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR(2) 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS
---- ----------- ------------ ------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,041 100,000 100,000 100,000 0 0 0
2 2,133 100,000 100,000 100,000 507 639 777
3 3,280 100,000 100,000 100,000 1,112 1,375 1,659
4 4,485 100,000 100,000 100,000 1,698 2,135 2,628
5 5,750 100,000 100,000 100,000 2,262 2,920 3,691
6 7,078 100,000 100,000 100,000 3,004 3,928 5,056
7 8,472 100,000 100,000 100,000 3,771 5,009 6,583
8 9,936 100,000 100,000 100,000 4,514 6,115 8,234
9 11,474 100,000 100,000 100,000 5,235 7,247 10,023
10 13,088 100,000 100,000 100,000 5,932 8,407 11,967
11 14,783 100,000 100,000 100,696 6,408 9,397 13,881
12 16,563 100,000 100,000 102,145 6,860 10,416 15,978
13 18,431 100,000 100,000 103,763 7,286 11,465 18,277*
14 20,393 100,000 100,000 105,567 7,687 12,543 20,797
15 22,454 100,000 100,000 107,580 8,060 13,652 23,561
16 24,617 100,000 100,000 109,822 8,404 14,790 26,591
17 26,888 100,000 100,000 112,320 8,716 15,958 29,914
18 29,273 100,000 100,000 115,099 8,994 17,155 33,558
19 31,777 100,000 100,000 118,189 9,233 18,377 37,552
20 34,407 100,000 100,000 121,627 9,431 19,627 41,932
25 49,662 100,000 100,636 159,900 9,801 26,331 71,066
30 69,133 100,000 101,222 226,682 8,771 33,736 116,247
35 93,983 100,000 100,671 313,741 4,895 41,229 184,553
40 130,148 100,000 102,490 429,975 0 52,467* 286,650
45 176,306 100,000 103,046 585,369 0 62,845 433,607
</TABLE>
(1) If premiums are paid more frequently than annually the payments would be
$510.37 semiannually, $259.64 quarterly, or $87.21 monthly. The death
benefits and cash surrender values shown would be affected by the more
frequent premium payments. The annual premium on the Premium Change Date
assuming current cost of insurance charges will be as follows: $1,767
assuming a 0 pct. rate of return; $1,758 assuming a 6 pct. rate of return;
and $991 assuming a 12 pct. rate of return.
(2) The premiums accumulated at 5% interest in Column 2 are those payable if the
gross investment return is 6%.
(3) Assumes no Policy loan has been made.
It is emphasized that the hypothetical investment rates of return shown
above and elsewhere in this prospectus are illustrative only and should not be
deemed a representation of past or future investment rates of return. Actual
rates of return may be more or less than those shown and will depend on a number
of factors, including the separate accounts chosen by an owner. The Death
Benefit, Cash Surrender Value and premium on the premium change date for a
Policy would be different from those shown if the actual rates of return average
0%, 6%, and 12% over a period of years, but also fluctuated above or below those
averages for individual Policy years. No representations can be made by PMLIC
that these hypothetical rates of return can be achieved for any one year or
sustained over any period of time.
A-8
<PAGE> 144
PROVIDENT MUTUAL -- MODIFIED PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 45
$100,000 FACE AMOUNT (GUARANTEED DEATH BENEFIT)
$1783 INITIAL SCHEDULED PREMIUM FOR NON-SMOKERS(1)
USING GUARANTEED MAXIMUM COST OF INSURANCE CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT CASH SURRENDER VALUE
PREMIUMS ------------------------------------------- -------------------------------------------
END OF ACCUMULATED ASSUMING HYPOTHETICAL GROSS(3) ASSUMING HYPOTHETICAL GROSS(3)
POLICY AT 5 PCT. INT. ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR(2) 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS
- ------ -------------- ------------ ------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,872 100,000 100,000 100,000 228 311 395
2 3,838 100,000 100,000 100,000 1,334 1,575 1,826
3 5,902 100,000 100,000 100,000 2,399 2,876 3,394
4 8,069 100,000 100,000 100,000 3,424 4,216 5,110
5 10,345 100,000 100,000 100,000 4,405 5,594 6,990
6 12,734 100,000 100,000 100,000 5,620 7,288 9,327
7 15,243 100,000 100,000 100,000 6,874 9,106 11,949
8 17,877 100,000 100,000 100,000 8,075 10,957 14,784
9 20,643 100,000 100,000 100,000 9,216 12,837 17,852
10 23,548 100,000 100,000 100,000 10,293 14,743 21,176
11 26,597 100,000 100,000 100,000 11,021 16,394 24,505
12 29,799 100,000 100,000 100,971 11,675 18,065 28,145
13 33,161 100,000 100,000 103,624 12,250 19,756 32,116
14 36,692 100,000 100,000 106,590 12,743 21,466 36,446*
15 40,398 100,000 100,000 109,898 13,144 23,188 41,168
16 44,290 100,000 100,000 113,588 13,444 24,919 46,318
17 48,377 100,000 100,000 117,700 13,633 26,653 51,935
18 52,668 100,000 100,000 122,276 13,696 28,382 58,062
19 57,174 100,000 100,000 127,367 13,615 30,095 64,743
20 61,904 100,000 100,000 133,027 13,370 31,782 72,028
25 89,352 100,000 100,000 184,724 9,012 39,563 119,176
30 131,009 100,000 100,000 262,736 1,765 51,827 187,668
35 184,175 100,000 100,000 366,848 0 63,494 284,378
</TABLE>
(1) If premiums are paid more frequently than annually the payments would be
$918.25 semiannually, $467.15 quarterly, or $156.90 monthly. The death
benefits and cash surrender values shown would be affected by the more
frequent premium payments. The annual premium on the Premium Change Date
assuming current cost of insurance charges will be as follows: $2,947
assuming a 0 pct. rate of return; $2,925 assuming a 6 pct. rate of return;
and $1,783 assuming a 12 pct. rate of return.
(2) The premiums accumulated at 5% interest in Column 2 are those payable if the
gross investment return is 6%.
(3) Assumes no Policy loan has been made.
It is emphasized that the hypothetical investment rates of return shown
above and elsewhere in this prospectus are illustrative only and should not be
deemed a representation of past or future investment rates of return. Actual
rates of return may be more or less than those shown and will depend on a number
of factors, including the separate accounts chosen by an owner. The Death
Benefit, Cash Surrender Value and premium on the premium change date for a
Policy would be different from those shown if the actual rates of return average
0%, 6%, and 12% over a period of years, but also fluctuated above or below those
averages for individual Policy years. No representations can be made by PMLIC
that these hypothetical rates of return can be achieved for any one year or
sustained over any period of time.
A-9
<PAGE> 145
PROVIDENT MUTUAL -- MODIFIED PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE ISSUE AGE 55
$100,000 FACE AMOUNT (GUARANTEED DEATH BENEFIT)
$2,445 INITIAL SCHEDULED PREMIUM FOR NON-SMOKERS(1)
USING GUARANTEED MAXIMUM COST OF INSURANCE CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT CASH SURRENDER VALUE
PREMIUMS ------------------------------------------- -------------------------------------------
END OF ACCUMULATED ASSUMING HYPOTHETICAL GROSS(3) ASSUMING HYPOTHETICAL GROSS(3)
POLICY AT 5 PCT. INT. ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR(2) 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS
- ------ -------------- ------------ ------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 2,567 100,000 100,000 100,000 395 506 618
2 5,263 100,000 100,000 100,000 1,783 2,101 2,433
3 8,093 100,000 100,000 100,000 3,117 3,741 4,419
4 11,065 100,000 100,000 100,000 4,399 5,431 6,598
5 14,186 100,000 100,000 100,000 5,628 7,174 8,993
6 17,462 100,000 100,000 100,000 7,145 9,310 11,966
7 20,903 100,000 100,000 100,000 8,718 11,615 15,316
8 24,515 100,000 100,000 100,000 10,213 13,955 18,940
9 28,308 100,000 100,000 100,000 11,614 16,318 22,859
10 32,291 100,000 100,000 100,000 12,907 18,694 27,099
11 36,472 100,000 100,000 100,000 13,742 20,736 31,356
12 40,863 100,000 100,000 100,436 14,456 22,787 36,023
13 45,474 100,000 100,000 103,933 15,050 24,852 41,123
14 50,315 100,000 100,000 107,846 15,524 26,937 46,690*
15 55,398 100,000 100,000 112,215 15,872 29,042 52,773
16 61,350 100,000 100,000 117,082 16,627 31,737 59,420
17 67,600 100,000 100,000 122,496 17,212 34,470 66,676
18 74,163 100,000 100,000 128,508 17,588 37,222 74,587
19 81,053 100,000 100,000 135,184 17,706 39,973 83,201
20 88,288 100,000 100,000 142,598 17,517 42,709 92,575
25 130,267 100,000 100,000 205,487 10,183 56,098 152,212
</TABLE>
(1) If premiums are paid more frequently than annually the payments would be
$1,259.18 semiannually, $640.59 quarterly, or $215.16 monthly. The death
benefits and cash surrender values shown would be affected by the more
frequent premium payments. The annual premium on the Premium Change Date
assuming current cost of insurance charges will be as follows: $3,039
assuming a 0 pct. rate of return; $3,031 assuming a 6 pct. rate of return;
and $2,445 assuming a 12 pct. rate of return.
(2) The premiums accumulated at 5% interest in Column 2 are those payable if the
gross investment return is 6%.
(3) Assumes no Policy loan has been made.
It is emphasized that the hypothetical investment rates of return shown
above and elsewhere in this prospectus are illustrative only and should not be
deemed a representation of past or future investment rates of return. Actual
rates of return may be more or less than those shown and will depend on a number
of factors, including the separate accounts chosen by an owner. The Death
Benefit, Cash Surrender Value and premium on the premium change date for a
Policy would be different from those shown if the actual rates of return average
0%, 6%, and 12% over a period of years, but also fluctuated above or below those
averages for individual Policy years. No representations can be made by PMLIC
that these hypothetical rates of return can be achieved for any one year or
sustained over any period of time.
A-10
<PAGE> 146
PROVIDENT MUTUAL -- MODIFIED PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 35
$100,000 FACE AMOUNT (GUARANTEED DEATH BENEFIT)
$1,143 INITIAL SCHEDULED PREMIUM FOR NON-SMOKERS(1)
WITH $10,000 UNSCHEDULED PREMIUM PAID AT POLICY ISSUE
USING CURRENT COST OF INSURANCE CHARGES
WITH BASIC DEATH BENEFIT
<TABLE>
<CAPTION>
DEATH BENEFIT CASH SURRENDER VALUE
PREMIUMS ------------------------------------------- -------------------------------------------
END OF ACCUMULATED ASSUMING HYPOTHETICAL GROSS(3) ASSUMING HYPOTHETICAL GROSS(3)
POLICY AT 5 PCT. INT. ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR(2) 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS
- ------ -------------- ------------ ------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 11,700 100,723 101,324 101,925 9,098 9,699 10,300
2 13,485 101,007 102,275 103,614 9,719* 10,987* 12,327*
3 15,360 101,187 103,192 105,426 10,322 12,328 14,562
4 17,328 101,321 104,136 107,441 10,907 13,721 17,026
5 19,394 101,407 105,106 109,678 11,471 15,169 19,742
6 21,564 101,445 106,103 112,165 12,228 16,887 22,949
7 23,843 101,430 107,127 114,925 13,021 18,717 26,516
8 26,235 101,363 108,179 117,991 13,791 20,607 30,419
9 28,747 101,241 109,259 121,393 14,538 22,556 34,690
10 31,384 101,063 110,369 125,189 15,261 24,567 39,368
11 34,154 100,824 111,506 136,347 15,744 26,426 44,268
12 37,062 100,524 112,672 147,912 16,201 28,349 49,635
13 40,115 100,160 113,867 160,417 16,630 30,337 55,507
14 43,321 100,000 115,092 173,415 17,032 32,392 61,934
15 46,687 100,000 116,346 186,892 17,401 34,516 68,964
16 50,221 100,000 117,630 200,833 17,737 36,709 76,654
17 53,932 100,000 118,940 216,044 18,035 38,970 85,056
18 57,829 100,000 120,278 231,811 18,289 41,299 94,232
19 61,921 100,000 121,644 249,136 18,496 43,694 104,241
20 66,217 100,000 123,036 267,148 18,648 46,153 115,150
25 91,143 100,000 130,464 372,423 18,484# 59,454 186,211
30 122,956 100,000 138,644 515,430 16,240 74,488 294,531
35 163,558 100,000 147,638 708,943 10,389 91,086 457,382
40 215,378 100,000 157,527 979,596 3,427 109,134 699,711
45 281,514 100,000 168,655 1,361,839 0 128,304 1,055,689
</TABLE>
(1) If premiums are paid more frequently than annually the payments would be
$588.65 semiannually, $299.47 quarterly, or $100.58 monthly. The death
benefits and cash surrender values shown would be affected by the more
frequent premium payments. The annual premium on the Premium Change Date
assuming current cost of insurance charges will be as follows: $2,239
assuming a 0 pct. rate of return; $1,143 assuming a 6 pct. rate of return;
and $1,143 assuming a 12 pct. rate of return.
(2) The premiums accumulated at 5% interest in Column 2 are those payable if the
gross investment return is 6%.
(3) Assumes no Policy loan has been made.
# First year shown in which Special Premium Payment Provision ceases to be in
effect.
It is emphasized that the hypothetical investment rates of return shown
above and elsewhere in this prospectus are illustrative only and should not be
deemed a representation of past or future investment rates of return. Actual
rates of return may be more or less than those shown and will depend on a number
of factors, including the separate accounts chosen by an owner. The Death
Benefit, Cash Surrender Value and premium on the premium change date for a
Policy would be different from those shown if the actual rates of return average
0%, 6%, and 12% over a period of years, but also fluctuated above or below those
averages for individual Policy years. No representations can be made by PMLIC
that these hypothetical rates of return can be achieved for any one year or
sustained over any period of time.
A-11
<PAGE> 147
PROVIDENT MUTUAL -- MODIFIED PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 35
$100,000 FACE AMOUNT
$1,143 INITIAL SCHEDULED PREMIUM FOR NON-SMOKERS(1)
WITH $10,000 UNSCHEDULED PREMIUM PAID AT POLICY ISSUE
USING CURRENT COST OF INSURANCE CHARGES
WITH INCREASING DEATH BENEFIT
<TABLE>
<CAPTION>
DEATH BENEFIT CASH SURRENDER VALUE
PREMIUMS ------------------------------------------- -------------------------------------------
END OF ACCUMULATED ASSUMING HYPOTHETICAL GROSS(3) ASSUMING HYPOTHETICAL GROSS(3)
POLICY AT 5 PCT. INT. ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR(2) 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS
- ------ -------------- ------------ ------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 11,700 110,000 110,000 110,000 9,082 9,682 10,283
2 13,485 110,000 111,143 111,143 9,687 10,953* 12,292*
3 15,360 110,000 112,286 112,286 10,273 12,272 14,507
4 17,328 110,000 113,429 113,429 10,840 13,642 16,950
5 19,394 110,000 114,572 114,572 11,386 15,063 19,642
6 21,564 110,000 115,715 115,715 12,125 16,751 22,825
7 23,843 110,000 116,858 116,858 12,897 18,548 26,369
8 26,235 110,000 118,001 118,001 13,646 20,400 30,249
9 28,747 110,000 119,144 119,144 14,369 22,306 34,501
10 31,384 110,000 120,287 124,541 15,066 24,271 39,164
11 34,154 110,000 121,430 135,651 15,522 26,078 44,043
12 37,062 110,000 122,573 147,165 15,947 27,942 49,384
13 40,115 110,000 123,716 159,614 16,342 29,867 55,230
14 43,321 110,000 124,859 172,554 16,704 31,852 61,626
15 46,687 110,000 126,002 185,970 17,030 33,897 68,623
16 50,221 110,000 127,145 199,847 17,320 36,005 76,277
17 53,932 110,000 128,288 214,987 17,567 38,173 84,641
18 57,829 110,000 129,431 230,681 17,766 40,398 93,773
19 61,921 110,000 130,574 247,926 17,912 42,679 103,734
20 66,217 110,000 131,717 265,853 17,998 45,012 114,592
25 91,143 110,000 137,432 370,628 17,381 57,483 185,314
30 122,956 110,000 143,147 512,947 14,404 71,265 293,112
35 163,558 110,000 148,862 705,521 7,295 86,025 455,174
40 215,378 110,000 154,577 974,857 0 101,498 696,326
45 281,514 110,000 160,292 1,355,235 0 117,247 1,050,569
</TABLE>
(1) If premiums are paid more frequently than annually the payments would be
$588.65 semiannually, $299.47 quarterly, or $100.58 monthly. The death
benefits and cash surrender values shown would be affected by the more
frequent premium payments. The annual premium on the Premium Change Date
assuming current cost of insurance charges will be as follows: $2,239
assuming a 0 pct. rate of return; $1,143 assuming a 6 pct. rate of return;
and $1,143 assuming a 12 pct. rate of return.
(2) The premiums accumulated at 5% interest in Column 2 are those payable if the
gross investment return is 6%.
(3) Assumes no Policy loan has been made.
It is emphasized that the hypothetical investment rates of return shown
above and elsewhere in this prospectus are illustrative only and should not be
deemed a representation of past or future investment rates of return. Actual
rates of return may be more or less than those shown and will depend on a number
of factors, including the separate accounts chosen by an owner. The Death
Benefit, Cash Surrender Value and premium on the premium change date for a
Policy would be different from those shown if the actual rates of return average
0%, 6%, and 12% over a period of years, but also fluctuated above or below those
averages for individual Policy years. No representations can be made by PMLIC
that these hypothetical rates of return can be achieved for any one year or
sustained over any period of time.
A-12
<PAGE> 148
APPENDIX B
CALCULATION OF NET INVESTMENT FACTOR
AND CASH VALUE OF THE POLICY
Following is a description of how the Net Investment Factor is calculated
and how the Net Investment Factor is used to determine the Cash Value of the
Policy.
Net Investment Factor. Each Separate Account has its own Net Investment
Factor. The Net Investment Factor of the Separate Account for a Valuation Period
is a. divided by b., minus c. and minus d., where:
a. is:
1. the value of the assets in the Separate Account for the
preceding Valuation Period; plus
2. the investment income and capital gains, realized or unrealized,
credited to those assets during the Valuation Period for which the Net
Investment Factor is being determined; minus
3. the capital losses, realized or unrealized, charged against
those assets during the Valuation Period; minus
4. any amount charged against the Separate Account for taxes, or
any amount PMLIC sets aside during the Valuation Period as a reserve for
taxes attributable to the operation or maintenance of the Separate
Account; and
b. is the value of the assets for the preceding Valuation Period; and
c. is a charge no greater than 0.60% per year (.001644% for each day
in the Valuation Period) for mortality and expense risks; and
d. is a charge, for the Zero Coupon Bond Subaccount only, no greater
than 0.50% per year (.001370% for each day in the Valuation Period) for
transaction charges associated with the purchase of units.
The charges in c. and d. are expressed as a percentage of assets in the
Account at the beginning of each day during the Valuation Period.
Calculation of Cash Value. When the first net scheduled premium is
allocated to the Separate Account, the Cash Value of each Subaccount on the
Policy Date will equal the Net Premium allocated to that Subaccount minus the
first monthly deduction allocated to that Subaccount. Thereafter, on each
Valuation Day, the Cash Value of each Subaccount will equal:
1. the Cash Value of the Subaccount on the previous Valuation Day
times the Net Investment Factor for the current Valuation Period;
2. plus any Net Premiums received during the current Valuation Period
which are allocated to that Separate Account;
3. plus any Cash Value which, during the current Valuation Period;
a. is transferred to the Separate Account from the General Account
when any loan amount is repaid, including interest credited to loaned
amounts; and
b. is transferred to the Subaccount from another Subaccount when
requested by the Owner;
4. minus any Cash Value which, during the current Valuation Period:
a. is transferred from the Separate Account to the General Account
when the Owner borrows on the Policy or fails to pay interest when due;
and
b. is transferred from the Subaccount to another Subaccount when
requested by the Owner;
5. plus any dividends credited to the Separate Account during the
current Valuation Period;
B-1
<PAGE> 149
6. minus the monthly deductions allocated to the Separate Account
during the current Valuation Period;
7. minus any partial withdrawal during the current Valuation Period
which are allocated to the Separate Account.
The Cash Value of the Policy is equal to: (a) the sum of the Cash Value of
each Subaccount; plus (b) the Cash Value in the General Account attributable to
any outstanding policy loans.
B-2
<PAGE> 150
PART II
OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
Article VIII of PMLIC's By-Laws provides, in part:
To the fullest extent permitted by law, the Company shall indemnify
any present, former or future Director, officer, or employee of the Company
or any person who may serve or has served at its request as officer or
Director of another corporation of which the Company is a creditor or
stockholder, against the reasonable expenses, including attorney's fees,
necessarily incurred in connection with the defense of any action, suit or
other proceeding to which any of them is made a party because of service as
Director, officer or employee of the Company or such other corporation, or
in connection with any appeal therein, and against any amounts paid by such
Director, officer or employee in settlement of, or in satisfaction of a
judgement or fine in, any such action or proceeding, except expenses
incurred in defense of or amounts paid in connection with any action, suit
or other proceeding in which such Director, officer or employee shall be
adjudged to be liable for negligence or misconduct in the performance of
his duty.
Insofar as indemnification or liability arising under the Securities Act of
1933 may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provision, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that any claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the registrant
in the successful defense of any action, suit, or proceeding) is asserted by
such director, officer, or controlling person in connection with securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
REPRESENTATION OF REASONABLENESS
Provident Mutual Life Insurance Company hereby represents that the fees and
charges deducted under the Policy, in the aggregate, are reasonable in relation
to the services rendered, the expenses expected to be incurred, and the risks
assumed by Provident Mutual Life Insurance Company.
II-1
<PAGE> 151
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The Prospectus consisting of 148 pages.
The undertaking to file reports.
Rule 484 undertaking.
Representations pursuant to Rule 6e-3(T).
The signatures.
The following exhibits:
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS
--------
<S> <C>
1.A.1.a. Resolution adopted by the Board of Directors of Provident
Mutual Life Insurance Company authorizing establishment of
the Provident Mutual Variable Growth Separate Account,
Provident Mutual Variable Money Market Separate Account,
Provident Mutual Variable Bond Separate Account, Provident
Mutual Variable Managed Separate Account, and Provident
Mutual Variable Zero Coupon Bond Separate Account(2)
1.A.1.b. Resolution of the Board of Directors of Provident Mutual
Life Insurance Company establishing the Provident Mutual
Variable Aggressive Growth Separate Account(2)
1.A.1.c. Resolution of the Board of Directors of Provident Mutual
Life Insurance Company establishing the Provident Mutual
Variable International Separate Account(2)
1.A.1.d. Resolution of the Board of Directors of Provident Mutual
Life Insurance Company establishing the Provident Mutual
Variable Separate Account(2)
1.A.1.e. Resolution of the Board of Directors of Provident Mutual
Life Insurance Company Approving Creation of additional
Subaccounts of Provident Mutual Variable Separate Account(2)
1.A.1.f. Resolution of the Board of Directors of Provident Mutual
Life Insurance Company Approving Reorganization of the
Provident Mutual Variable Growth Separate Account, Provident
Mutual Variable Money Market Separate Account, Provident
Mutual Variable Bond Separate Account, Provident Mutual
Variable Zero Coupon Bond Separate Account, Provident Mutual
Variable Aggressive Growth Separate Account, Provident
Mutual Variable International Separate Account, Provident
Mutual Variable Separate Account(3)
1.A.2. None
1.A.3.a.i. Underwriting Agreement(2)
1.A.3.a.ii. Amendment to Underwriting Agreement(2)
1.A.3.a.iii. Amendment to Underwriting Agreement(2)
1.A.3.a.iv. Amendment to Underwriting Agreement(2)
1.A.3.a.vi. Amendment to Underwriting Agreement(2)
1.A.3.b.i. PPGA's Agreement and Supplements(2)
1.A.3.b.ii. PPA's Agreement and Supplements(2)
1.A.3.b.iii. PGA's Agreement and Supplements(2)
1.A.3.b.iv. Special Agent's Career Agreement and Supplement(2)
1.A.3.b.v. Special Agent's Agreement(2)
1.A.3.b.vi. Corporate Agent's Agreement and Supplement(2)
1.A.3.c.i. PPGA Commission Schedules(2)
1.A.3.c.ii. PPA Commission Schedules(2)
</TABLE>
II-2
<PAGE> 152
<TABLE>
<CAPTION>
EXHIBITS
--------
<S> <C>
1.A.3.c.iii. PGA Commission Schedules(2)
1.A.3.c.iv. Commission Schedules for Variable Life Insurance Products
for Agents under Special Career Agent's Career Agreement(2)
1.A.3.c.v. Commission Schedules for Variable Life Insurance Products
for Agents under Special Agent's Agreement(2)
1.A.3.c.vi. Commission Schedules for Variable Life Insurance Products
for Corporate Agents with Special Agent's Career
Agreement(2)
1.A.3.d. Form of Selling Agreement between 1717 Capital Management
Company and Broker/Dealers(2)
1.A.4. None
1.A.5. Modified Premium Variable Life Insurance Policy Forms (C111,
C111A, C112 & C112A)(2)
1.A.5.a. Disability Waiver of Premium Rider -- at issue (C545)(2)
1.A.5.b. Disability Waiver of Premium Rider -- after issue (C550)(2)
1.A.5.c. Guaranteed Purchase Option Rider (C645)(2)
1.A.5.d. Variable Loan Interest Rate Rider (C744VL)(2)
1.A.5.e. Qualify as part of Section 403(b) Rider (C827)(2)
1.A.5.f. Accelerated Death Benefit Rider (C/D904)(2)
1.A.5.g. Change from Fixed to Variable Loan Interest Rate Rider
(14918VL)(2)
1.A.5.h. Increasing Death Benefit Rider (C310)(2)
1.A.6.a. Charter of Provident Mutual Life Insurance Company(2)
1.A.6.b. By-Laws of Provident Mutual Life Insurance Company(2)
1.A.7. None
1.A.8. Sponsorship Agreement between Provident Mutual Life
Insurance Company and MLPFS for Zero Coupon Trust(2)
1.A.9. None
1.A.10. Form of Application(2)
1.A.10.a. Supplemental Application for Modified Premium(2)
a.A.10.b. Initial Allocation Selection(2)
2. See Exhibit 1.A.5.
3.A. Consent of James G. Potter, Jr., Esquire
3.B. Consent of Sutherland Asbill & Brennan LLP
4. None
5. Inapplicable
6. Consent of Scott V. Carney, FSA, MAAA
7. Consent of PricewaterhouseCoopers LLP, Independent
Accountants
8. Description of Provident Mutual Life Insurance Company's
Issuance, Transfer and Redemption Procedures for Policies
9. Powers of Attorney(2)
10.a. Participation Agreement by and among Market Street Fund,
Inc., Provident Mutual Life Insurance Company and PML
Securities, Inc.(2)
10.b. Participation Agreement among Variable Insurance Products
Fund, Fidelity Distributors Corporation and Provident Mutual
Life Insurance Company(2)
10.c. Participation Agreement among Variable Insurance Products
Fund II, Fidelity Distributors Corporation and Provident
Mutual Life Insurance Company(2)
</TABLE>
II-3
<PAGE> 153
<TABLE>
<CAPTION>
EXHIBITS
--------
<S> <C>
10.d. Sales Agreement between Neuberger & Berman Advisers
Management Trust and Provident Mutual Life Insurance
Company(2)
10.e. Participation Agreement among The Alger American Fund,
Provident Mutual Life Insurance Company, and Fred Alger and
Company Incorporated(2)
27. Inapplicable
</TABLE>
- ---------------
(1) Incorporated herein by reference to Post-Effective Amendment No. 5, filed on
May 1, 1998, File No. 33-65512.
(2) Incorporated herein by reference to Post-Effective Amendment No. 18, filed
on May 1, 1998, File No. 33-2625.
(3) Incorporated herein by reference to Post-Effective Amendment No. 1, filed on
April 25, 2000, File No. 333-71763.
II-4
<PAGE> 154
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Provident Mutual Variable Life Separate Account, certifies that it meets the
requirements of Securities Act Rule 485(b) for effectiveness of this
Registration Statement and has duly caused this Post-Effective Amendment No. 20
to the Registration Statement to be signed on its behalf by the undersigned
thereunto duly authorized, and its seal to be hereunto affixed and attested, all
in the City of Berwyn and Commonwealth of Pennsylvania, on the 24th day of
April, 2000.
PROVIDENT MUTUAL VARIABLE LIFE SEPARATE ACCOUNT
<TABLE>
<S> <C>
(Registrant)
By: PROVIDENT MUTUAL LIFE INSURANCE COMPANY
(Depositor)
Attest: /s/ JAMES G. POTTER, JR. By: /s/ ROBERT W. KLOSS
----------------------------------------------- -------------------------------------------------
JAMES G. POTTER, JR. ROBERT W. KLOSS
Chief Executive Officer
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
(Depositor)
Attest: /s/ JAMES G. POTTER, JR. By: /s/ ROBERT W. KLOSS
---------------------------------------------- -------------------------------------------------
JAMES G. POTTER, JR. ROBERT W. KLOSS
Chief Executive Officer
</TABLE>
II-5
<PAGE> 155
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 20 to the Registration Statement has been signed
below by the following persons in the capacities indicated on April 24, 2000.
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<C> <S> <C>
/s/ ROBERT W. KLOSS Director, Chairman, President
- ------------------------------------------------ and Chief Executive Officer
ROBERT W. KLOSS (Principal Executive Officer)
/s/ MARY LYNN FINELLI Executive Vice President and
- ------------------------------------------------ Chief Financial Officer
MARY LYNN FINELLI (Principal Financial Officer)
/s/ LINDA M. SPRINGER Vice President and Controller
- ------------------------------------------------ (Principal Accounting Officer)
LINDA M. SPRINGER
* Director
- ------------------------------------------------
EDWARD R. BOOK
* Director
- ------------------------------------------------
DOROTHY M. BROWN
* Director
- ------------------------------------------------
ROBERT J. CASALE
* Director
- ------------------------------------------------
NICHOLAS DEBENEDICTIS
* Director
- ------------------------------------------------
PHILIP C. HERR, II
* Director
- ------------------------------------------------
J. RICHARD JONES
* Director
- ------------------------------------------------
JOHN P. NEAFSEY
* Director
- ------------------------------------------------
CHARLES L. ORR
</TABLE>
II-6
<PAGE> 156
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<C> <S> <C>
* Director
- ------------------------------------------------
HAROLD A. SORGENTI
*By: /s/ JAMES G. POTTER, JR.
------------------------------------------
JAMES G. POTTER, JR.
Attorney-in-fact
pursuant to Power of Attorney
</TABLE>
II-7
<PAGE> 157
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS PAGE
-------- ----
<S> <C> <C>
3.A. Consent of James G. Potter, Jr., Esquire
3.B. Consent of Sutherland Asbill & Brennan LLP
6. Consent of Scott V. Carney, FSA, MAAA
7. Consent of PricewaterhouseCoopers LLP, Independent
Accountants
8. Description of Provident Mutual Life Insurance Company's
Issuance, Transfer and Redemption Procedures for Policies
</TABLE>
<PAGE> 1
Exhibit 3.A.
[PROVIDENT MUTUAL LIFE INSURANCE COMPANY LETTERHEAD]
April 24, 2000
Provident Mutual Life Insurance Company
1000 Chesterbrook Boulevard
Berwyn, PA 19312
Directors:
I hereby consent to the reference to my name under the caption "Legal Matters"
in the Prospectus filed as part of the Post-Effective Amendment No. 20 of the
Registration Statement on Form S-6 (File No. 33-2625) for the Provident Mutual
Variable Life Separate Account.
Sincerely,
/s/ James G. Potter, Jr.
- ------------------------
James G. Potter, Jr., General Counsel
<PAGE> 1
Exhibit 3.B.
[Sutherland Asbill & Brennan LLP Letterhead]
April 24, 2000
Board of Directors
Provident Mutual Life Insurance Company
1050 Westlakes Drive
Berwyn, PA 19312
RE: PROVIDENT MUTUAL LIFE INSURANCE COMPANY PROVIDENT MUTUAL
VARIABLE LIFE SEPARATE ACCOUNT FILE NO. 33-2625
Directors:
We hereby consent to the reference to our name under the
caption "Legal Matters" in the Statement of Additional Information filed as part
of the Post-Effective Amendment No. 20 of the Registration Statement on Form S-6
for Provident Mutual Variable Life Separate Account (File No. 33-2625). In
giving this consent, we do not admit that we are in the category of persons
whose consent is required under Section 7 of the Securities Act of 1933.
Sincerely,
SUTHERLAND ASBILL & BRENNAN LLP
By: /s/ Stephen E. Roth
-----------------------------------------
Stephen E. Roth
<PAGE> 1
Exhibit 6.
[PROVIDENT MUTUAL LIFE INSURANCE COMPANY LETTERHEAD]
April 24, 2000
Provident Mutual Life Insurance Company
1000 Chesterbrook Boulevard
Berwyn, PA 19312
Directors:
I hereby consent to the reference to my name under the caption "Experts" in the
Prospectus filed as part of the Post-Effective Amendment No. 20 of the
Registration Statement on Form S-6 (File No. 33-2625) for the Provident Mutual
Variable Life Separate Account.
Sincerely,
/s/Scott V. Carney
- ----------------------------------
Scott V. Carney, FSA, MAAA Actuary
<PAGE> 1
[PROVIDENT MUTUAL LIFE INSURANCE COMPANY LETTERHEAD]
Exhibit 7.
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion, in this Post-Effective Amendment No. 20 to
the Registration Statement under the Securities Act of 1933, as amended, filed
on Form S-6 (File No. 33-2625) for the Provident Mutual Variable Separate
Accounts (Growth, Money Market, Bond, Zero Coupon Bond, Aggressive Growth,
International and Variable), of the following reports:
1. Our report dated February 7, 2000 on our audits of the financial
statements of Provident Mutual Life Insurance Company and Subsidiaries
as of December 31, 1999 and 1998 and for each of the three years in
the period ended December 31, 1999.
2. Our report dated February 23, 2000 on our audits of the financial
statements of the Provident Mutual Variable Separate Accounts (Growth,
Money Market, Bond, Aggressive Growth, International, Zero Coupon Bond
and Variable) as of December 31, 1999 and for each of the three years
in the period ended December 31, 1999.
We also consent to the reference to our Firm under the caption "Experts".
PRICEWATERHOUSECOOPERS LLP
Philadelphia, Pennsylvania
April 24, 2000
<PAGE> 1
Exhibit 8
Description of PMLIC's Issuance, Transfer
and Redemption Procedures for Policies
Pursuant to Rule 6e-2(b)(12)(ii)
Set forth below is the information called for under Rule 6e-2(b)(12)(ii) under
the Investment Company Act of 1940 ("1940 Act"). That rule provides an
exemption for separate accounts, their investment advisers, principal
underwriters and sponsoring insurance company from Section 22(d), 22(e), and
27(c)(1) of the 1940 Act, and Rule 22(c)-1 promulgated thereunder for issuance,
transfer and redemption procedures under variable life insurance policies to the
extent necessary to comply with Rule 6e-2, state administrative law or
established administrative procedures of the life insurance company. In order
to qualify for the exemption, procedures must be reasonable, fair and not
discriminatory and they must be disclosed in the registration statement filed
by the separate account.
PMLIC's Separate Accounts (the Growth Separate Account, the Money Market
Separate Account, the Bond Separate Account, the Managed Separate Account and
the Zero Coupon Bond Separate Account) are registered under the 1940 Act.
Procedures described herein apply equally to each Separate Account. For
purposes of this description, procedures are defined in terms of one Account
except where a discussion of all or any particular Account is necessary.
PMLIC believes its procedures meet the requirements of Rule 6e-2(b)(12)(ii) and
states the following:
1. Because of the insurance nature of PMLIC's variable life insurance
policies ("policies") and due to the requirements of state insurance laws, the
procedures necessarily differ in significant respects from procedures for
mutual funds and contractual plans for which the 1940 Act was designed.
2. In structuring its procedures to comply with Rule 6e-2, state
insurance laws and administrative procedures of PMLIC, it has attempted to
comply with the intendment of the 1940 Act, to the extent deemed feasible.
3. In general, state insurance laws require that PMLIC's procedures be
reasonable, fair and not discriminatory.
4. Because of the nature of the insurance product, it is often difficult
to determine precisely when PMLIC's procedures deviate from those required under
Sections 22(d), 22(e), or 27(c)(1) of the 1940 Act or Rule 22c-1 thereunder.
Accordingly, set out below is a summary of the principal policy provisions and
procedures which may be deemed to constitute, either directly or indirectly,
such a deviation. The summary, while comprehensive, does not attempt to treat
each and every procedure or variation which might occur and does include certain
procedural steps which do not constitute deviations from the above-cited
Sections or Rule.
<PAGE> 2
I. "Redemption Procedures":
Surrender and Related Transactions
This section will outline those procedures which differ in certain significant
respects from redemption procedures for mutual funds and contractual plans.
PMLIC's policies provide for the payment of monies to a policyholder or
beneficiary upon presentation of a policy. The principal difference between
PMLIC's "redemption" procedures and those in a mutual fund or contractual plan
context is that the payee will not receive a pro rata or proportionate share of
the Account's assets within the meaning of the 1940 Act. The amount received by
the payee will depend upon the particular benefit for which the policy is
presented, including, for example, the net cash surrender value or proceeds at
death. There are also certain policy provisions -- such as the loan privilege --
under which the policy will not be presented to PMLIC but which will affect the
policyholder's benefits and involve a transfer of the assets supporting the
policy reserve out of the Account. Finally, state insurance law may require
that certain requirements be met before PMLIC is permitted to make payments to
the payee.
a. Surrender for Net Cash Surrender Value
A policyholder may surrender the policy for its net cash surrender value at any
time while the insured is living. PMLIC will pay the net cash surrender value
within seven days after receipt, at its Home Office, of the policy and a signed
request for surrender. Computations with respect to the investment experience
of the Account will be made at the close of trading on the New York Stock
Exchange on each day during which the New York Stock Exchange is open for
trading. This will enable PMLIC to pay a net cash surrender value on surrender
based on the next computed value after a request is received. The surrender is
effective on the date the policyholder transmits the request to PMLIC.
The net cash surrender value at any time in the first nine policy years is the
net cash value (cash value less any outstanding policy loan and accrued
interest), minus a surrender charge, consisting of a contingent deferred
administrative charge and a contingent deferred sales charge. The net cash
surrender value on surrender at the end of the 9th year or later is the net
cash value.
The contingent deferred administrative charge is $5 per $1000 of face amount
for surrenders in policy years 1 through 5; this charge is reduced by $1 per
$1000 of face amount in each policy year after the fifth. The contingent
deferred administrative charge is designed to recover, as far as possible, the
administrative expenses, such as underwriting expenses, incurred in connection
with issuance of a policy. As a result, in the early months after issue, there
may be no net cash surrender value if only scheduled premiums are paid.
In no event will the contingent deferred sales charge upon surrender be greater
than 25% of scheduled base premiums due in policy year 1, plus 5% of the
scheduled base premiums due in policy years 2 through 5. For the purpose of
computing this limit PMLIC uses the lesser of scheduled base premiums payable
to the date of surrender or lapse and total premiums paid (less premium
processing charges)
-2-
<PAGE> 3
to such date. For this purpose scheduled base premium is the scheduled premium
less premium processing charge and premiums for supplementary benefits and
"extra-premium" risks. The maximum contingent deferred sales charge in contract
years 6 through 10 is the maximum charge at the end of the fifth contract year,
reduced as explained in the prospectus and each policy.
After nine full policy years the contingent deferred sales charge and the
contingent deferred administrative charge are zero.
PMLIC will make the payment of the net cash surrender value out of its general
account and, at the same time, transfer assets from the Account to the general
account in an amount equal to the investment base in the Account.
In lieu of payment of the net cash surrender value in a single sum upon
surrender of a policy, an election may be made to apply all or a portion of the
proceeds under one of the fixed benefit payment options described in the
policies or, with the approval of PMLIC, a combination of options. The election
may be made by the policyholder during his or her lifetime, or, if no election
is in effect at his or her death, by the beneficiary. An option in effect at
death may not be changed to another form of benefit after death. The fixed
benefit settlement options are subject to the restrictions and limitations set
forth in the policies.
b. Withdrawal of Excess Cash Value
A policyholder may withdraw excess cash value from the policy if two conditions
are met. First, a cash withdrawal may be made only to the extent that the cash
surrender value (the cash value minus any applicable surrender charge) is at
least $300 more than an amount called the "Withdrawal Single Premium" which
depends on the insured's attained age. Second, a cash withdrawal may be made
only if the amount withdrawn does not reduce the policy's net loan value (loan
value less existing policy loan and accrued interest) to zero.
No more than four withdrawals may be made in a policy year. A withdrawal cannot
be made for less than $300. Withdrawals cannot be repaid except as premium
payments, subject to premium expense charges, and any applicable limits on
premium payments.
Whenever a withdrawal is made, the death benefit will immediately be
recalculated to take into account the reduction in cash value. This will not
change the guaranteed minimum death benefit or the amount of scheduled premiums
payable before the premium change date. The amount of scheduled premiums after
the premium change date may be affected by withdrawals but in no event will
they be greater than the amount set forth in the policy.
c. Death Claims
PMLIC will pay a death benefit to the beneficiary within seven days after
receipt, at its Home Office, of the policy, due proof of death of the insured,
and all other requirements necessary to make payment.
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<PAGE> 4
c. Death Claims
PMLIC will pay a death benefit to the beneficiary within seven days after
receipt, at its Home Office, of the policy, due proof of death of the insured,
and all other requirements necessary to make payment.
There are two Death Benefit Options under the policy. Under the Basic Death
Benefit Option, the death benefit is equal to the greatest of: (1) the face
amount of the policy; (2) the face amount of the policy plus the amount by
which the cash value of the policy on the date of death exceeds the 7 1/2%
Special Premium Payment Single Premium; or (3) the cash value of the policy on
the date of death times the Death Benefit Factor shown in the policy for the
insured's sex, if applicable, attained age and premium class. Under the
Increasing Death Benefit Option, the death benefit is equal to the greatest of:
(1) the face amount of the policy plus the sum of unscheduled premiums received
by PMLIC as of the date of death; (2) the face amount of the policy plus the
amount by which the cash value of the policy on the date of death exceeds the
7 1/2% Special Premium Payment Single Premium; or (3) the cash value of the
policy on the date of death times the Death Benefit Factor shown in the policy
for the insured's sex, if applicable, attained age and premium class.
As long as required scheduled premiums are paid, the death benefit is
guaranteed never to be less than the applicable Guaranteed Minimum Death
Benefit (GMDB) for the policy. For a policy with the Basic Death Benefit the
GMDB is equal to the face amount of the policy. For a policy with the
Increasing Death Benefit, the GMDB is equal to the face amount of the policy
plus the sum of unscheduled premium payments received by PMLIC as of the date
of death. Under either option, the death benefit in excess of the applicable
GMDB depends on the cash value of the policy when the insured dies.
The Death Benefit Option is chosen at the time of application for the policy.
If the policy is issued with the Basic Death Benefit, the owner may change to
the Increasing Death Benefit only during the first policy year. Once the
Increasing Death Benefit has been chosen, the owner may not subsequently change
to the Basic Death Benefit.
To determine the proceeds at death payable to the beneficiary, the death
benefit will be adjusted to reflect any premiums paid past the date of death,
any insurance benefits added by rider, any outstanding policy loans or loan
interest and any premium due if death occurs during the grace period. The
proceeds at death also reflects interest from the date of death to the date of
payment.
PMLIC will make payment of the death benefit out of its general account, and
will transfer assets from the Account to the general account in an amount equal
to the investment base in that Account determined without regard to the GMDB.
In lieu of payment of the death benefit in a single sum, a settlement option may
be elected as described immediately above with respect to surrender for net
cash surrender value.
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<PAGE> 5
d. Exchange of Policy
PMLIC's policies provide that the policyholder, with 24 months of issuance, or
within 6 months after the effective date of a material change in the investment
policy of a chosen Account, may exchange the policy, without submission of new
evidence of insurability, for a permanent fixed benefit insurance policy ("new
policy") provided premiums are duly paid and any outstanding policy loan, plus
accrued interest, is repaid prior to the effective date of the exchange. The new
policy will have a level face amount equal to the face amount of the policy and
the same issue age, issue date and premium class for the insured as the policy.
Premiums for the new policy will be based on the premium rates for the new
policy which were in effect on the policy date. There is currently more than
one policy into which an owner may exchange. The premiums under the new policy
currently may be higher or lower than premiums under the policy depending upon
the age, sex and premium class of the insured.
This exchange privilege is designed to permit the policyholder to change his or
her mind ab initio and obtain a fixed benefit policy based on the original
issue age for the policy -- just as if the policyholder had originally decided
to buy fixed benefit insurance.
The exchange will be subject to an equitable adjustment to reflect variances,
if any, in the premiums, cash values and dividends between the policy and the
new policy. The exchange will also be subject to an adjustment to reflect the
investment experience of the chosen Accounts on the policy's cash value.
PMLIC will transfer assets from the Account to the general account in an amount
equal to the investment base in the Account.
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<PAGE> 6
e. Default and Options on Lapse
Unless the Special Premium Payment Provision is in effect or the Automatic
Premium Loan provision is operative, a premium not paid on or before its due
date is in default. The policy, however, provides for a 61-day grace period for
the payment of each premium after the first. The insurance continues in force
during the grace period and a policy's benefits will not be affected if the
premium is paid during the grace period. But, if the insured dies during the
grace period, the portion of the premium due which is applicable to the period
from the premium due date to the date of death is deducted from the death
benefit. If a premium is not paid by the end of its grace period, the policy
will lapse as of the premium due date.
Within 3 months after the date of default, if a policy is not surrendered, the
cash surrender value less any loans and loan interest may be applied to
purchase an option for continued insurance. The options are for reduced paid-up
whole life insurance and extended term insurance. Under the policy, the
extended term insurance option will be the automatic option if no other
election is made. However, that option is available only if the premium class
is non-smoker or standard. If the policy premium class is non-smoker with
extra-premium or extra premium, paid-up insurance will be the automatic option.
Both options are for fixed life insurance and neither option requires the
further payment of premiums.
If the insured dies after the grace period ends but within 3 months after the
date of default without selecting one of the available options, the death
benefit will be the greater of the benefit under reduced paid-up insurance
calculated as of the date of death and extended term, except in those cases
where extended term is not an available option.
A selected option will be applied on the date PMLIC receives written request at
its Home Office; PMLIC will apply an automatic option three months after the
date of lapse. The option will be effective as of the date of lapse.
The reduced paid-up insurance option provides a fixed and level amount of
paid-up whole life insurance. The amount of coverage will be that which the net
cash surrender value as of the date the option is applied, plus monthly
deductions made on any Policy Processing Day on or after the date of lapse,
will purchase.
The extended term insurance option provides a fixed and level amount of term
insurance equal to the death benefit (less any unpaid loan and loan interest)
as of the date of lapse. The insurance coverage under this option will continue
for as long a period as the net cash surrender value as of the date the option
is applied, plus monthly deductions made on any policy processing day on or
after the date of lapse, will, when used as a single premium, buy.
Under both options, the net cash surrender value is used as a net single
premium for the Insured's age as of the date of lapse to purchase the insurance
provided by the option.
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<PAGE> 7
A policy continued under either option may be surrendered for its net cash
surrender value while the Insured is living. Loans are available under the
reduced paid-up insurance option, but not under the extended term insurance
option.
f. Policy Loan
A policyholder may borrow from PMLIC using the policy as sole security. The
owner may borrow up to the difference between the policy's current loan value
and any outstanding policy loan and accrued interest. During policy years 1
through 3 the loan value of the policy is 75% of the cash surrender value;
thereafter the loan value is 90% of the policy's cash surrender value. The cash
surrender value for this purpose will be the cash surrender value computed on
the date a written request for a loan is received by PMLIC. Payment of the loan
from PMLIC's general account will be made to the policyholder within seven days
of receipt. Interest accrues daily either at a fixed annual rate of 8% or, if a
policyholder has elected to have a variable loan interest rate applied to loans
made under the policy, at the variable loan interest rate then applicable to the
loan. Except when used to pay premiums, a new loan will not be permitted unless
it is at least $300. Any unpaid premium then due will be deducted from the
policy loan. The owner may repay all or a portion of any loan and accrued
interest while the Insured is living and the policy is in force.
If the policyholder elects to have a variable loan interest rate applied to
policy loans, interest on the loan will accrue daily at an annual rate PMLIC
determines at the beginning of each January, April, July and October (the
determination is made on a less frequent basis in some states). The interest
rate will not exceed the greater of (1) Moody's Corporate Bond Yield
Average-Monthly Average Corporates as published by Moody's Investors Service,
Inc., (if the average is no longer published, a substantially similar average
established by the insurance supervisory official of the state where the policy
is delivered will be used) or (2) 5 1/2%.
When a loan is taken out, a portion of the investment base equal to the loan is
transferred from the Account to PMLIC's general account, and repayment of a
loan will result in a transfer back to the Account. Loans and any repayments
will be allocated among the Accounts based upon the net cash value in each
Account as of the date the loans or the repayments are made. The amount
maintained in the general account will not be credited with the investment
earnings of the Account during the period the loan is outstanding. Instead,
interest will be credited daily at an effective annual rate 1.5% below the 8%
or variable interest rate charged on the policy loan. Therefore, a policy's
death benefit above the guaranteed minimum and a policy's cash value are
permanently affected by any loan whether or not repaid in whole or in part.
The amount of any outstanding loan plus accrued loan interest is subtracted
from the death benefit or the cash surrender value on payment.
If on the policy anniversary the outstanding loan plus loan interest accrued
exceeds the cash surrender value, the policy will terminate 31 days after
notice has been mailed by PMLIC to the policyholder and any assignee of record
at their
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<PAGE> 8
last known addresses, unless payment of the amount of such excess is made within
that period.
g. Redistributions Among Accounts
------------------------------
A policyholder may redistribute the amount provided for investment in the
Accounts up to 4 times a year without PMLIC's consent. The redistribution will
be effective as of the date of receipt of the written transfer request at
PMLIC's Home Office. PMLIC reserves the right to require the amount transferred
to be at least $100 (or the entire Account balance, if smaller). If a transfer
would leave less than $100 in an Account, PMLIC reserves the right to transfer
the entire balance.
h. Right of Withdrawal Procedures
------------------------------
PMLIC policies provide that the policyholder, within 45 days after signing Part
I of the policy application, within 10 days after receipt of the policy or
within 10 days after the mailing of the Notice of Withdrawal Right, whichever is
latest, may return the policy and receive a refund. The refund is equal to the
total cash value of the Accounts when the request is received, plus: (1) any
premium expense charges which were deducted from premiums: (2) monthly
deductions made on any Policy Processing Day; and (3) daily charges against the
Accounts and fees and expenses for the Fund. Such a provision is required under
the insurance laws of a number of states (PMLIC will refund the premiums paid if
such is required by state law).
i. Rewrite Privilege
-----------------
Pursuant to an administrative procedure of PMLIC known as "rewriting," PMLIC
policyholders may substitute another policy currently offered by PMLIC for a
policy issued within the six month period immediately preceding the date of
rewrite. The new policy will typically have the same face amount as the original
policy. The original policy will be deemed to be void and the new policy will be
backdated to the issue date of the original policy in accordance with PMLIC's
standard backdating procedures. There is currently more than one policy into
which a policyholder may rewrite.
j. Refund of Excess Premiums for Modified Endowment Contracts
----------------------------------------------------------
At the time a premium is credited which would cause the policy to become a
Modified Endowment Contract (MEC), PMLIC will notify the policyowner that unless
a refund of the excess premium is requested by the policyowner, the policy will
become a MEC. The policyowner will have 30 days after receiving such notice to
request the refund. The excess premium paid (with any required interest or
earnings) will be returned to the policyowner upon receipt by PMLIC of the
request. The amount refunded will be deducted from the Separate Accounts in the
same proportion as the premium was allocated to the Separate Accounts.
II. "Public Offering Price": Purchase and Related Transactions
-- Section 22(d) and Rule 22(c)-1
---------------------------------------------------------
This section outlines those principal policy provisions and administrative
procedures which might be deemed to constitute, either directly or indirectly, a
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<PAGE> 9
"purchase" transaction. Because of the insurance nature of the policies, the
procedures involved necessarily differ in certain significant respects from the
purchase procedures for mutual funds and contractual plans. The chief
differences revolve around the premium rate structure and the insurance
underwriting (i.e., evaluation of risk) process. There are also certain policy
provisions--such as loan repayment--which do not result in the issuance of a
policy but which require certain repayments by the policyholder and involve a
transfer of assets supporting the policy reserve into the Account.
a. Premium Schedules and Underwriting Standards
--------------------------------------------
Premiums for PMLIC's policies will not be the same for all policyholders. The
chief reason is that the principle of pooling and distribution of mortality
risks is based upon the assumption that each policyholder pays a premium
commensurate with the insured's mortality risk which is actuarially determined
based upon factors such as age, sex, health and occupation. In the context of
life insurance, a uniform premium (or "public offering price") for all insureds
would discriminate unfairly in favor of those insureds representing greater
mortality risks to the disadvantage of those representing lesser risks.
Accordingly, although there will be no uniform "public offering price" for all
policyholders, there will be a single "price" for all policyholders in a given
actuarial category.
Lower scheduled premiums will be charged for non-smokers who are at least 22
years of age and who are standard risks in other respects. Additional scheduled
premiums will be charged for a policy involving "extra-premium" class or for
supplementary benefits.
In setting its premium rates, PMLIC will take into consideration actuarial
estimates of death and surrender benefits, expenses, investment experience and
an amount to be contributed to PMLIC's surplus. In addition, the amount of
premiums will depend upon the face amount of the policy, the age and sex of the
person insured and the frequency of premium payments. If payments are made on
other than an annual basis, the aggregate gross premium amounts for a policy
year will be higher.
The policies will be offered and sold pursuant to established premium schedules
and underwriting standards and in accordance with state insurance laws. The
underwriting standards and premium processing practices followed by PMLIC are
similar to those followed in connection with the offer and sale of fixed-benefit
life insurance, modified where necessary to meet the requirements of the federal
securities laws. State insurance laws prohibit unfair discrimination among
policyholders, but recognize that premiums must be based upon factors such as
age, sex, health and occupation. The prospectus specifies scheduled premiums for
illustrative ages. In addition, the scheduled premiums to be paid by the
policyholder will be specified in the policy.
If scheduled premiums are paid when due, PMLIC guarantees to keep the policy in
force and to provide at least the Guaranteed Minimum Death Benefit regardless of
investment performance, unless there is an outstanding policy loan. The
policyholder will have the option of paying more than the scheduled premiums by
making unscheduled premium payments in order to increase the cash value as of
the date such payment is received by PMLIC and hence increase the likelihood
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<PAGE> 10
that the payment of a scheduled premium may not be required to keep the policy
in full force. Favorable investment experience, less than maximum cost of
insurance and other charges by PMLIC and payment of unscheduled premiums will
each tend to increase the likelihood that the Special Premium Payment Provision
will go into effect, thereby allowing the policyholder to skip a premium
payment and still have the policy remain in full force.
Scheduled premiums on the policy are payable during the insured's lifetime on
an annual, semi-annual, quarterly or monthly basis on due dates set forth in
the policy. If paid more often than annually, the aggregate annual premium will
be higher.
b. Application and Initial Premium Processing
Upon receipt of a completed application from a proposed policyholder PMLIC will
follow certain insurance underwriting (i.e., evaluation of risks) procedures
designed to determine whether the applicant is insurable. This process may
require that further information be provided by the proposed insured before a
determination can be made.
The date on which a policy is issued is referred to as the issue date. The issue
date represents the commencement of the suicide and contestable periods for
purposes of the policies. The first net scheduled premium will generally be
credited to the Accounts and the benefits will begin to vary with investment
experience on the later of the issue date or the date the initial premium is
received. Insurance coverage will also typically begin on the later of the
issue date or the date the full initial premium is received. PMLIC may,
however, provide temporary life insurance coverage, the death benefit of which
shall not exceed $500,000, prior to the policy's issue date, provided the full
initial premium has been paid.
The policy date is the date used to determine the policy anniversary date. In
addition, the insurance age of the insured will be determined as of that date.
The policyholder determines the policy date. In no case may the policy date be
more than six months prior to the issue date.
c. Anniversary and Premium Processing
Whenever a premium is received, PMLIC will subtract $1 and 7 1/2% of the rest
of the premium. What is left will be invested in the chosen Accounts as of the
date received.
d. Payment of Premiums Under Automatic Premium Plan
Premiums may be paid monthly under the Automatic Premium Plan (APP) where the
policyowner authorizes PMLIC to withdraw premiums from the policyowners
checking account each month. The premiums are paid either through "checks"
drawn on the policyowners account or via electronic funds transfer (EFT). For
all policyowners who elect APP, net premiums will be credited to the policy on
the same date of each month (currently it is anticipated that this will be the
18th of each month; if the 18th falls on a weekend day or holiday, it
ordinarily will be on the next following business day). The net premium will be
allocated to the Separate Accounts on the day the "check" or draft is created.
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<PAGE> 11
e. Refund of Excess Premiums for Modified Endowment Contracts
----------------------------------------------------------
See I(j) above
f. Reinstatement
-------------
A policy not surrendered for its net cash surrender value may be reinstated
within three years from the date of default in accordance with the policy. To
reinstate, the policyholder generally must submit a written application for
reinstatement and pay PMLIC the greater of:
(a) all unpaid scheduled premiums with interest at 6% per year compounded
annually, plus any policy loan and accrued interest as of the end of
the grace period; or
(b) 110% of the increase in the cash surrender value resulting from
reinstatement plus all overdue premiums for supplementary insurance
benefits with interest at 6% compounded annually.
Evidence of insurability satisfactory to PMLIC at the time of reinstatement is
required. Upon reinstatement the policy will have the same cash value and death
benefit as if default had not occurred. The date of reinstatement will be the
date PMLIC approves the application for reinstatement. The amount required for
reinstatement will be placed in PMLIC's general account and the amount required
to support the reinstated benefits will be transferred to the chosen Accounts.
g. Repayment of Loan
-----------------
A loan made under PMLIC's policies may be repaid while the insured is living and
the policy is in force with an amount equal to the monies borrowed plus interest
either at a fixed annual rate of 8% or, if policyholder has elected to have a
variable loan interest rate applied to loans under the policy, at the variable
loan interest rate then applicable to the loan.
Upon repayment of a policy loan a transfer will be made from general account to
the Accounts is an amount equal to the repaid loan. The repayment will be
allocated among the Accounts based on the net cash value in each Account as of
the date of the repayment.
b. Correction of Misstatement of Age or Sex
----------------------------------------
If PMLIC discovers that the Insured's stated age or sex is not correct, the face
amount of the policy will be corrected to that which the scheduled premium would
have purchased at the correct age and sex. PMLIC will recalculate the cash value
from the issue date using mortality charges based on the insured's correct age
and sex and the corrected face amount. The death benefit will be determined
based on this recalculated cash value.
i. Redistributions Into Accounts
-----------------------------
This is the other side of the transaction described in I(g) above.
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<PAGE> 12
METHOD OF COMPUTING ADJUSTMENTS IN
PAYMENTS AND CASH VALUES UPON
CONVERSION TO FIXED BENEFIT POLICIES
PURSUANT TO RULE 6e-2(b)(13)(v)(B)
-------------------------------------
Set forth below is an explanation of the method that PMLIC will follow in making
a cash adjustment when a policy is exchanged for a fixed benefit insurance
policy pursuant to Rule 6e-2(b)(13)(v)(B).
At any time during the first 24 months after a policy is issued, so long as the
policy is not in default, the policyholder may exchange it for a fixed benefit
whole life insurance policy on the insured's life issued by PMLIC. No evidence
of insurability is required to exercise this privilege. The new policy will
have a face amount equal to the face amount of the policy and the same issue
age, issue date and premium class for the insured as the policy. Premiums for
the new policy will be based on the rates which were in effect for the new
policy on the policy date for the policy. The exchange will be subject to an
equitable adjustment to reflect variances, if any, in the cash values and
dividends of the policy and the new policy. The adjustment in cost will be (1)
- - (2) - (3) - (4):
(1) Gross premiums on the new policy accumulated at interest.
(2) Dividends on the new policy accumulated at interest.
(3) Premium expense charges on the policy accumulated at interest.
(4) Cash value of the policy.
Such adjustment will be payable by the policyholder if positive and payable to
the policyholder if negative. If there is an outstanding loan on the policy,
the loan plus accrued interest must be repaid in addition to the adjustment in
cost. The rate of interest used for the accumulations will be the variable loan
interest rate then in effect
At the time of the exchange, PMLIC will transfer assets from the Account to the
general account equal to the applicable reserve.
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