<PAGE>
- --------------------------------------------------------------------------------
TO OUR VARIABLE LIFE INSURANCE CONTRACTHOLDERS:
It is my pleasure to present the Semi-Annual reports of Penn Mutual Variable
Life Account I--Cornerstone VUL II & Variable EstateMax, Penn Series Funds,
Inc., Neuberger & Berman Advisers Management Trust, TCI Portfolios, Inc., and
Fidelity Investments Variable Insurance Products Fund and Variable Insurance
Products Fund II for the six-month period ending June 30, 1995.
The first six months of 1995 painted a dramatically different picture from
the first six months of 1994. Who would have imagined that the dark, dismal
performance of the stock market last year would have been transformed into a
robust and rigorous force that sparked life back into stocks this year. And
this dramatic impact was no less noticeable on the bond market as well. With
help from an accommodating Federal Reserve, a strengthening economy and a more
upbeat, positive outlook among investors, the Dow index was pushed to new
record highs.
Two questions loom. Will the stock market continue its stellar performance
for the last six months of 1995? There is no crystal ball for predicting the
future trends of the market, but there are signals of continued growth. Easing
inflationary pressures coupled with higher earnings among America's
corporations today makes the outlook favorable.
Even more important is the second question: does your investment approach
take advantage of the ups and downs of the market. The key lesson is the
ability of investors today to "take the long view." Human nature forces us to
focus on the short term volatility of the market--concentrating on the down
turns more than the upswings. But the real risk of investing is not reaping the
rewards of the market at all; standing on the sidelines waiting for just the
"right" time to invest.
Your CORNERSTONE VUL II & VARIABLE ESTATEMAX policies are designed to help
you maintain a steady, long-term approach to investing. It brings the
experience and expertise of various investment advisors to help you build a
financial plan that best suits your individual needs. And we encourage you to
work with your financial advisor to take full advantage your policy's features
and investment choices.
Percentage changes in accumulation unit values of each of the variable
accounts offered under CORNERSTONE VUL II & VARIABLE ESTATEMAX for the two
month period ending June 30, 1995 are set forth in the accompanying table.
Management discussions of the performance of the funds are included in the
accompanying reports.
We thank you for the opportunity to serve your financial needs. If we can be
of further service, please don't hesitate to contact our VUL service center at
1-800-766-7366, or contact your sales representative directly.
Sincerely,
/s/ Richard Feinstein
Richard Feinstein
Director, Insurance Product Support
- --------------------------------------------------------------------------------
PERCENTAGE CHANGE IN
ACCUMULATION UNIT VALUES
SINCE 05/01/95
<TABLE>
- ------------------------------------------------------------------------------
<S> <C>
T. ROWE PRICE ASSOCIATES, INC.
Flexibly Managed...................................................... 4.55%
High Yield Bond....................................................... 1.01%
QUEST FOR VALUE ADVISORS
(A SUBSIDIARY OF OPPENHEIMER CAPITAL)
Value Equity.......................................................... 7.70%
Small Capitalization.................................................. 5.14%
VONTOBEL USA, INC.
International Equity.................................................. 1.39%
INDEPENDENCE CAPITAL MANAGEMENT, INC.
Growth Equity......................................................... 4.49%
Money Market.......................................................... 0.75%
Quality Bond.......................................................... 4.69%
NEUBERGER & BERMAN MANAGEMENT, INC.
Balanced.............................................................. 6.82%
Limited Maturity Bond................................................. 2.02%
TWENTIETH CENTURY (INVESTORS RESEARCH)
TCI Growth............................................................ 10.07%
FIDELITY INVESTMENTS
Growth................................................................ 13.79%
Asset Manager......................................................... 1.91%
Equity Income......................................................... 4.08%
- ------------------------------------------------------------------------------
</TABLE>
<PAGE>
----------------------------------------------------
PENN MUTUAL
VARIABLE LIFE ACCOUNT I
--CORNERSTONE VUL II
--VARIABLE ESTATEMAX
SEMI-ANNUAL REPORT
JUNE 30, 1995
<PAGE>
- --------------------------------------------------------------------------------
PENN MUTUAL VARIABLE LIFE ACCOUNT I - CORNERSTONE VUL II/VARIABLE ESTATE MAX*
STATEMENT OF ASSETS AND LIABILITIES - JUNE 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
MONEY MARKET QUALITY BOND GROWTH EQUITY VALUE EQUITY
TOTAL FUND+ FUND+ FUND+ FUND+
-------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT IN COMMON
STOCK:
Number of shares......... 560,626 556,691 400 132 576
Identified cost.......... $617,217 $556,691 $4,071 $2,672 $8,876
ASSETS AND LIABILITIES:
Investments at value..... $617,560 $556,691 $4,071 $2,727 $8,936
Dividends receivable..... 1,664 1,664 0 0 0
Due to (from) the Penn
Mutual Life Insurance
Company................. 7,070 7,086 (1) (2) (2)
-------- -------- ------ ------ ------
NET ASSETS............... $626,294 $565,441 $4,070 $2,725 $8,934
-------- -------- ------ ------ ------
Variable life accumulation
units.................... 56,172 389 261 829
-------- ------ ------ ------
Accumulation unit values.. $ 10.07 $10.47 $10.45 $10.77
-------- ------ ------ ------
<CAPTION>
- -----------------------------------------------------------------------------------------
PENN MUTUAL VARIABLE LIFE ACCOUNT I - CORNERSTONE VUL II/VARIABLE ESTATE MAX*
STATEMENT OF OPERATIONS - FOR THE PERIOD OF MAY 1, 1995 (COMMENCEMENT OF
OPERATIONS)
TO JUNE 30, 1995 (UNAUDITED)
MONEY MARKET QUALITY BOND GROWTH EQUITY VALUE EQUITY
TOTAL FUND+ FUND+ FUND+ FUND+
-------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends................ $ 1,692 $ 1,690 $ 0 $ 0 $ 0
EXPENSE:
Mortality and expense
risk charges (Note 3)... 319 302 1 2 2
-------- -------- ------ ------ ------
Net investment income.... 1,373 1,388 (1) (2) (2)
-------- -------- ------ ------ ------
REALIZED AND UNREALIZED
GAINS (LOSSES) ON
INVESTMENTS:
Realized gains (losses)
from redemption of fund
shares (Note 2)......... 13 0 0 10 0
Capital gain distribution
(Note 2)................ 0 0 0 0 0
-------- -------- ------ ------ ------
Net realized gains
(losses)................ 13 0 0 10 0
Net change in unrealized
appreciation/depreciation
of investments.......... 344 0 0 56 60
-------- -------- ------ ------ ------
Net realized and
unrealized gains
(losses) on investments. 357 0 0 66 60
-------- -------- ------ ------ ------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS............... $ 1,730 $ 1,388 $ (1) $ 64 $ 58
-------- -------- ------ ------ ------
</TABLE>
- -----------------------
+ Investment in Penn Series Funds, Inc.
+++ Investment in TCI Portfolios, Inc.
++++ Investment in Fidelity Investments' Variable Insurance Products.
* In addition to the funds and portfolios shown in these statements,
Cornerstone VUL II/Estate Max also offers the Penn Series High Yield Bond
Fund and the Neuberger and Berman Limited Maturity Bond and Balanced
Portfolios. At June 30, 1995 no activity existed in these accounts.
Accordingly, no statements are presented for these accounts.
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FLEXIBLY SMALL
MANAGED INTERNATIONAL CAPITALIZATION GROWTH EQUITY INCOME GROWTH ASSET MANAGER
FUND+ EQUITY FUND+ FUND+ PORTFOLIO+++ PORTFOLIO++++ PORTFOLIO++++ PORTFOLIO++++
-------- ------------- -------------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
2,016 489 114 152 16 29 11
$34,477 $6,481 $1,187 $1,547 $ 274 $ 786 $ 155
$34,571 $6,454 $1,202 $1,668 $ 279 $ 805 $ 156
0 0 0 0 0 0 0
(9) (3) 0 0 1 0 0
------- ------ ------ ------ ------ ------ ------
$34,562 $6,451 $1,202 $1,668 $ 280 $ 805 $ 156
------- ------ ------ ------ ------ ------ ------
3,306 636 114 152 27 71 15
------- ------ ------ ------ ------ ------ ------
$ 10.45 $10.14 $10.51 $11.01 $10.41 $11.38 $10.19
------- ------ ------ ------ ------ ------ ------
- -----------------------------------------------------------------------------------------------
<CAPTION>
FLEXIBLY SMALL
MANAGED INTERNATIONAL CAPITALIZATION GROWTH EQUITY INCOME GROWTH ASSET MANAGER
FUND+ EQUITY FUND+ FUND+ PORTFOLIO+++ PORTFOLIO++++ PORTFOLIO++++ PORTFOLIO++++
-------- ------------- -------------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ 0 $ 0 $ 0 $ 0 $ 2 $ 0 $ 0
9 3 0 0 0 0 0
------- ------ ------ ------ ------ ------ ------
(9) (3) 0 0 2 0 0
------- ------ ------ ------ ------ ------ ------
0 1 0 0 0 2 0
0 0 0 0 0 0 0
------- ------ ------ ------ ------ ------ ------
0 1 0 0 0 2 0
94 (27) 15 121 5 19 1
------- ------ ------ ------ ------ ------ ------
94 (26) 15 121 5 21 1
------- ------ ------ ------ ------ ------ ------
$ 85 $ (29) $ 15 $ 121 $ 7 $ 21 $ 1
------- ------ ------ ------ ------ ------ ------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
- --------------------------------------------------------------------------------
PENN MUTUAL VARIABLE LIFE ACCOUNT I - CORNERSTONE VUL II/VARIABLE ESTATE MAX*
STATEMENTS OF CHANGES IN NET ASSETS - FOR THE PERIOD OF MAY 1, 1995
(COMMENCEMENT OF OPERATIONS) TO JUNE 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
MONEY MARKET QUALITY BOND GROWTH EQUITY VALUE EQUITY
TOTAL FUND+ FUND+ FUND+ FUND+
-------- ------------ ------------ ------------- ------------
1995 1995 1995 1995 1995
-------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss).................. $ 1,373 $ 1,388 $ (1) $ (2) $ (2)
Net realized gain (loss)
from investment
transactions............ 13 0 0 10 0
Net change in unrealized
appreciation/depreciation
of investments.......... 344 0 0 56 60
-------- -------- ------ ------ ------
Net increase (decrease) in
net assets resulting from
operations............... 1,730 1,388 (1) 64 58
-------- -------- ------ ------ ------
VARIABLE LIFE ACTIVITIES:
Purchase payments under
variable life contracts. 635,118 614,501 4,071 582 4,655
Transfers between funds.. (1,211) (44,578) 0 2,868 5,002
Contract administration
charges................. (2,478) (2,101) 0 (62) (62)
Cost of insurance........ (6,865) (3,769) 0 (727) (719)
-------- -------- ------ ------ ------
Net increase (decrease) in
net assets resulting from
variable life activities. 624,564 564,053 4,071 2,661 8,876
-------- -------- ------ ------ ------
Total increase (decrease)
in net assets............ 626,294 565,441 4,070 2,725 8,934
NET ASSETS:
Beginning of period...... 0 0 0 0 0
-------- -------- ------ ------ ------
END OF PERIOD............ $626,294 $565,441 $4,070 $2,725 $8,934
-------- -------- ------ ------ ------
</TABLE>
- -----------------------
+ Investment in Penn Series Funds, Inc.
+++ Investment in TCI Portfolios, Inc.
++++ Investment in Fidelity Investments' Variable Insurance Products.
* In addition to the funds and portfolios shown in these statements,
Cornerstone VUL II/Estate Max also offers the Penn Series High Yield Bond
Fund and the Neuberger and Berman Limited Maturity Bond and Balanced
Portfolios. At June 30, 1995 no activity existed in these accounts.
Accordingly, no statements are presented for these accounts.
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FLEXIBLY SMALL
MANAGED INTERNATIONAL CAPITALIZATION GROWTH EQUITY INCOME GROWTH ASSET MANAGER
FUND+ EQUITY FUND+ FUND+ PORTFOLIO+++ PORTFOLIO++++ PORTFOLIO++++ PORTFOLIO++++
-------- ------------- -------------- ------------ ------------- ------------- -------------
1995 1995 1995 1995 1995 1995 1995
-------- ------------- -------------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ (9) $ (3) $ 0 $ 0 $ 2 $ 0 $ 0
0 1 0 0 0 2 0
94 (27) 15 121 5 19 1
------- ------ ------ ------ ---- ---- ----
85 (29) 15 121 7 21 1
------- ------ ------ ------ ---- ---- ----
4,653 4,653 0 1,699 304 0 0
30,515 2,629 1,376 7 0 815 155
(54) (74) (55) (42) (14) (14) 0
(637) (728) (134) (117) (17) (17) 0
------- ------ ------ ------ ---- ---- ----
34,477 6,480 1,187 1,547 273 784 155
------- ------ ------ ------ ---- ---- ----
34,562 6,451 1,202 1,668 280 805 156
0 0 0 0 0 0 0
------- ------ ------ ------ ---- ---- ----
$34,562 $6,451 $1,202 $1,668 $280 $805 $156
------- ------ ------ ------ ---- ---- ----
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
- -------------------------------------------------------------------------------
PENN MUTUAL VARIABLE LIFE ACCOUNT I - CORNERSTONE VUL II/VARIABLE ESTATE MAX*
NOTES TO FINANCIAL STATEMENTS - JUNE 30, 1995
- -------------------------------------------------------------------------------
NOTE 1.
The significant accounting policies of Penn Mutual Variable Life Account
I - Cornerstone VUL II/Variable Estate Max sub-accounts (Cornerstone
II/Estate Max) are as follows:
GENERAL - Cornerstone II/Estate Max were established by the Penn Mutual
Life Insurance Company (Penn Mutual) under the provisions of the
Pennsylvania Insurance Law. Penn Mutual has structured Cornerstone
II/Estate Max as a unit investment trust registered under the Investment
Company Act of 1940. Cornerstone II/Estate Max offers units to variable
life contractholders to provide for the accumulation of value and for the
payment of benefits.
INVESTMENTS - Assets of Cornerstone II/Estate Max have the ability to
invest in shares of Penn Series Funds, Inc. (Penn Series): Money Market,
Quality Bond, High Yield Bond, Growth Equity, Value Equity, Flexibly
Managed, International Equity Fund and Small Capitalization Funds;
Neuberger and Berman Advisers Management Trust (AMT):
- -------------------------------------------------------------------------------
NOTE 2.
For the period May 1, 1995 (commencement of operations) to June 30, 1995
transactions in Cornerstone II/Estate Max were as follows:
<TABLE>
<CAPTION>
MONEY MARKET QUALITY BOND GROWTH EQUITY VALUE EQUITY
FUND+ FUND+ FUND+ FUND+
------------ ------------ ------------- ------------
1995 1995 1995 1995
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Shares purchased......... 583,013 400 196 578
Shares received from
reinvestment of:
Net investment income... 1,690 0 0 0
-------- ------ ------ ------
Total shares acquired.... 584,703 400 196 578
Shares redeemed.......... (28,012) 0 (64) (2)
-------- ------ ------ ------
Net increase in shares
owned................... 556,691 400 132 576
Shares owned beginning of
period.................. 0 0 0 0
-------- ------ ------ ------
Shares owned end of
period.................. 556,691 400 132 576
-------- ------ ------ ------
Cost of shares acquired.. $584,703 $4,071 $4,004 $8,905
-------- ------ ------ ------
Proceeds from shares
redeemed................ $ 28,012 $ 0 $1,342 $ 29
-------- ------ ------ ------
</TABLE>
The cost of shares redeemed is determined on a last-in, first-out basis.
- -----------------------
+ Investment in Penn Series Funds, Inc.
+++ Investment in TCI Portfolios, Inc.
++++ Investment in Fidelity Investments' Variable Insurance Products.
* In addition to the funds and portfolios shown in these statements,
Cornerstone VUL II/Estate Max also offers the Penn Series High Yield Bond
Fund and the Neuberger and Berman Limited Maturity Bond and Balanced
Portfolios. At June 30, 1995 no activity existed in these accounts.
Accordingly, no statements are presented for these accounts.
- -------------------------------------------------------------------------------
NOTE 3.
Operations are charged for mortality and expense risks assumed by Penn
Mutual as determined daily at a current annual rate guaranteed never to
exceed 0.90% of the average value of Cornerstone II/Estate Max. No
investment expenses are charged to Cornerstone II/Estate Max. On the Issue
Date and each Monthly Anniversary, a contract administration fee is
deducted from the Policy Value. The monthly expense charge is the aggregate
of the following:
(a) a flat charge of $9.00 (currently only $5.00 per month after the
first Policy Year); and
6
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTE 1., CONT'D.
Limited Maturity Bond and Balanced Portfolios; TCI Portfolios, Inc. (TCI):
Growth Portfolio; and Fidelity Investments' Variable Insurance Products
(Fidelity): Equity Income, Growth, and Asset Manager Portfolios. Penn
Series, AMT, TCI, and Fidelity are open-end diversified investment
companies. The shares are carried at market value as determined by the
underlying net asset value of the respective Funds or Portfolios. Dividend
income is recorded on the ex-dividend date. Investment transactions are
accounted for on a trade date basis.
FEDERAL INCOME TAXES - Under current law, no federal income taxes are
imposed on income or gains from investments held in Cornerstone II/Estate
Max.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FLEXIBLY MANAGED INTERNATIONAL EQUITY SMALL CAPITALIZATION GROWTH EQUITY INCOME GROWTH ASSET MANAGER
FUND+ FUND+ FUND+ PORTFOLIO+++ PORTFOLIO++++ PORTFOLIO++++ PORTFOLIO++++
- ---------------- -------------------- -------------------- ------------ ------------- ------------- -------------
1995 1995 1995 1995 1995 1995 1995
- ---------------- -------------------- -------------------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
2,016 576 126 166 16 30 11
0 0 0 0 1 0 0
------- ------ ------ ------ ---- ---- ----
2,016 576 126 166 17 30 11
0 (87) (12) (14) (1) (1) 0
------- ------ ------ ------ ---- ---- ----
2,016 489 114 152 16 29 11
0 0 0 0 0 0 0
------- ------ ------ ------ ---- ---- ----
2,016 489 114 152 16 29 11
------- ------ ------ ------ ---- ---- ----
$34,477 $7,621 $1,314 $1,706 $297 $817 $155
------- ------ ------ ------ ---- ---- ----
$ 0 $1,140 $ 127 $ 159 $ 23 $ 33 $ 0
------- ------ ------ ------ ---- ---- ----
</TABLE>
- -------------------------------------------------------------------------------
NOTE 3., CONT'D.
(b) for the first 12 policy months after the Policy Date, a charge based
on the Initial Specified Amount ($0.10 per $1,000 of Specified
Amount per month); and
(c) for the 12 policy months following the effective date of an increase
in Specified Amount, a charge based on the increase ($0.10 per
$1,000 of the income in Specified Amount).
A copy of the June 30, 1995 semi-annual report of Penn Series, AMT, TCI,
and Fidelity accompanies this report.
7
