<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, 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 policy is 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 for the six 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 12/31/94
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
T. ROWE PRICE ASSOCIATES, INC.
Flexibly Managed....................................................... 12.48%
High Yield Bond........................................................ 9.17%
QUEST FOR VALUE ADVISORS
(A SUBSIDIARY OF
OPPENHEIMER CAPITAL)
Value Equity........................................................... 21.96%
Small Capitalization................................................... 5.17%*
VONTOBEL USA, INC.
International Equity................................................... 1.01%
INDEPENDENCE CAPITAL MANAGEMENT, INC.
Growth Equity.......................................................... 12.86%
Money Market........................................................... 2.34%
Quality Bond........................................................... 12.19%
NEUBERGER & BERMAN
MANAGEMENT, INC.
Balanced............................................................... 15.49%
Limited Maturity Bond.................................................. 5.94%
TWENTIETH CENTURY
(IVESTORS RESEARCH)
TCI Growth............................................................. 19.02%
FIDELITY INVESTMENTS
Growth................................................................. 13.82%*
Asset Manager.......................................................... 1.94%*
Equity Income.......................................................... 4.11%*
- --------------------------------------------------------------------------------
</TABLE>
* For the period beginning 5/1/95
<PAGE>
----------------------------------------------------
PENN MUTUAL
VARIABLE LIFE ACCOUNT I
--CORNERSTONE VUL
SEMI-ANNUAL REPORT
JUNE 30, 1995
<PAGE>
- --------------------------------------------------------------------------------
PENN MUTUAL VARIABLE LIFE ACCOUNT I - CORNERSTONE VUL
STATEMENT OF ASSETS AND LIABILITIES - JUNE 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
MONEY MARKET QUALITY BOND HIGH YIELD GROWTH EQUITY
TOTAL FUND+ FUND+ BOND FUND+ FUND+
----------- ------------ ------------ ---------- -------------
<S> <C> <C> <C> <C> <C>
INVESTMENT IN COMMON
STOCK:
Number of shares......... 5,511,458 3,288,678 180,756 194,525 134,876
Identified cost.......... $33,042,832 $3,288,678 $1,806,170 $1,822,705 $2,618,790
ASSETS AND LIABILITIES:
Investments, at value.... $35,280,095 $3,288,678 $1,840,091 $1,692,367 $2,795,982
Dividends receivable..... 12,767 12,767 0 0 0
Due (to) from the Penn
Mutual
Life Insurance Company.. 79,151 84,188 (271) (287) (373)
----------- ---------- ---------- ---------- ----------
NET ASSETS................ $35,372,013 $3,385,633 $1,839,820 $1,692,080 $2,795,609
----------- ---------- ---------- ---------- ----------
Variable Life Accumulation
Units.................... 317,853 166,088 153,693 233,112
---------- ---------- ---------- ----------
Accumulation unit values.. $ 10.65 $ 11.08 $ 11.01 $ 11.99
---------- ---------- ---------- ----------
<CAPTION>
- --------------------------------------------------------------------------------------------
PENN MUTUAL VARIABLE LIFE ACCOUNT I - CORNERSTONE VUL
STATEMENT OF OPERATIONS - FOR THE SIX MONTHS ENDED JUNE 30, 1995 (UNAUDITED)
MONEY MARKET QUALITY BOND HIGH YIELD GROWTH EQUITY
TOTAL FUND+ FUND+ BOND FUND+ FUND+
----------- ------------ ------------ ---------- -------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends................ $ 105,983 $ 72,546 $ 0 $ 0 $ 0
EXPENSE:
Mortality and expense
risk charges (Note 3)... 116,424 10,120 5,940 5,863 9,272
----------- ---------- ---------- ---------- ----------
Net investment
income/(loss)........... (10,441) 62,426 (5,940) (5,863) (9,272)
----------- ---------- ---------- ---------- ----------
REALIZED AND UNREALIZED
GAINS (LOSSES) ON
INVESTMENTS:
Realized gains (losses)
from redemption of fund
shares.................. (153,642) 0 150 875 276
Capital gain distribution
(Note 2)................ 9,088 0 0 0 0
----------- ---------- ---------- ---------- ----------
Net realized gains
(losses)................ (144,554) 0 150 875 276
Net change in unrealized
appreciation/depreciation
of investments.......... 3,429,369 0 181,212 134,936 293,722
----------- ---------- ---------- ---------- ----------
Net realized and
unrealized gains
(losses) on investments. 3,284,815 0 181,362 135,811 293,998
----------- ---------- ---------- ---------- ----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS......... $ 3,274,374 $ 62,426 $ 175,422 $ 129,948 $ 284,726
----------- ---------- ---------- ---------- ----------
</TABLE>
- -----------------------
(a) For the period from May 1, 1995 (date funds became available for investment
to contractholders) to June 30, 1995.
+ Investment in Penn Series Funds, Inc.
++ Investment in Neuberger & Berman Advisers Management Trust.
+++ Investment in TCI Portfolios, Inc.
++++ Investment in Fidelity Investments' Variable Insurance Products.
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FLEXIBLY INTERNATIONAL SMALL LIMITED
VALUE EQUITY MANAGED EQUITY CAPITALIZATION MATURITY BOND BALANCED
FUND+ FUND+ FUND+ FUND+(A) PORTFOLIO++ PORTFOLIO++
- ------------ ----------- ------------- -------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
260,631 677,395 319,213 2,577 12,403 120,800
$3,291,338 $10,862,453 $4,272,111 $26,635 $173,399 $1,813,692
$4,042,383 $11,617,320 $4,210,422 $27,166 $174,881 $1,982,323
0 0 0 0 0 0
(568) (1,857) (620) (4) (28) (298)
---------- ----------- ---------- ------- -------- ----------
$4,041,815 $11,615,463 $4,209,802 $27,162 $174,853 $1,982,025
---------- ----------- ---------- ------- -------- ----------
309,720 910,077 362,835 2,583 16,304 166,576
---------- ----------- ---------- ------- -------- ----------
$ 13.05 $ 12.76 $ 11.60 $ 10.52 $ 10.72 $ 11.90
---------- ----------- ---------- ------- -------- ----------
- ---------------------------------------------------------------------------------
<CAPTION>
FLEXIBLY SMALL LIMITED
VALUE EQUITY MANAGED INTERNATIONAL CAPITALIZATION MATURITY BOND BALANCED
FUND+ FUND+ EQUITY FUND+ FUND+ PORTFOLIO++ PORTFOLIO++
- ------------ ----------- ------------- -------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
$ 0 $ 0 $ 0 $ 0 $ 4,923 $ 28,275
12,686 37,757 14,172 8 531 6,441
---------- ----------- ---------- ------- -------- ----------
(12,686) (37,757) (14,172) (8) 4,392 21,834
---------- ----------- ---------- ------- -------- ----------
(158,917) 448 897 8 341 516
0 0 0 0 0 9,088
---------- ----------- ---------- ------- -------- ----------
(158,917) 448 897 8 341 9,604
805,075 1,183,990 84,253 531 2,993 204,907
---------- ----------- ---------- ------- -------- ----------
646,158 1,184,438 85,150 539 3,334 214,511
---------- ----------- ---------- ------- -------- ----------
$ 633,472 $ 1,146,681 $ 70,978 $ 531 $ 7,726 $ 236,345
---------- ----------- ---------- ------- -------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
- --------------------------------------------------------------------------------
PENN MUTUAL VARIABLE LIFE ACCOUNT I - CORNERSTONE VUL
STATEMENT OF ASSETS AND LIABILITIES - JUNE 30, 1995 (UNAUDITED) (CONT'D.)
<TABLE>
<CAPTION>
GROWTH EQUITY INCOME GROWTH ASSET MANAGER
PORTFOLIO+++ PORTFOLIO++++(A) PORTFOLIO++++(A) PORTFOLIO++++(A)
------------ ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
INVESTMENT IN COMMON
STOCK:
Number of shares.......... 309,625 6,156 3,794 29
Identified cost........... $2,865,954 $103,317 $ 97,173 $ 417
ASSETS AND LIABILITIES:
Investments, at value..... $3,402,777 $103,981 $101,304 $ 420
Dividends receivable...... 0 0 0 0
Due (to) from the Penn
Mutual
Life Insurance Company... (433) (283) (15) 0
---------- -------- -------- ------
NET ASSETS................ $3,402,344 $103,698 $101,289 $ 420
---------- -------- -------- ------
Variable Life Accumulation
Units.................... 261,101 9,961 8,899 41
---------- -------- -------- ------
Accumulation unit values.. $ 13.03 $ 10.41 $ 11.38 $10.19
---------- -------- -------- ------
<CAPTION>
- --------------------------------------------------------------------------------------------
PENN MUTUAL VARIABLE LIFE ACCOUNT I - CORNERSTONE VUL
STATEMENT OF OPERATIONS - FOR THE SIX MONTHS ENDED JUNE 30, 1995 (UNAUDITED)
(CONT'D.)
GROWTH EQUITY INCOME GROWTH ASSET MANAGER
PORTFOLIO+++ PORTFOLIO ++++(A) PORTFOLIO++++(A) PORTFOLIO++++(A)
------------ ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends................. $ 0 $ 239 $ 0 $ 0
EXPENSE:
Mortality and expense risk
charges (Note 3)......... 13,569 30 35 0
---------- -------- -------- ------
Net investment
income/(loss)............ (13,569) 209 (35) 0
---------- -------- -------- ------
REALIZED AND UNREALIZED
GAINS (LOSSES) ON
INVESTMENTS:
Realized gains (losses)
from redemption of fund
shares................... 1,761 2 1 0
Capital gain distribution
(Note 2)................. 0 0 0 0
---------- -------- -------- ------
Net realized gains
(losses)................. 1,761 2 1 0
Net change in unrealized
appreciation/depreciation
of investments........... 532,952 664 4,131 3
---------- -------- -------- ------
Net realized and
unrealized gains (losses)
on investments........... 534,713 666 4,132 3
---------- -------- -------- ------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS............... $ 521,144 $ 875 $ 4,097 $ 3
---------- -------- -------- ------
</TABLE>
- -----------------------
(a) For the period from May 1, 1995 (date funds became available for investment
to contractholders) to June 30, 1995.
+ Investment in Penn Series Funds, Inc.
++ Investment in Neuberger & Berman Advisers Management Trust.
+++ Investment in TCI Portfolios, Inc.
++++ Investment in Fidelity Investments' Variable Insurance Products.
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
- --------------------------------------------------------------------------------
PENN MUTUAL VARIABLE LIFE ACCOUNT I - CORNERSTONE VUL
STATEMENT OF CHANGES IN NET ASSETS - FOR THE SIX MONTHS ENDED JUNE 30, 1995
(UNAUDITED)
AND THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
TOTAL MONEY MARKET FUND+ QUALITY BOND FUND+
------------------------ ------------------------- ----------------------
1995 1994 1995 1994 1995 1994
----------- ----------- ----------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss).................. $ (10,441) $ 470,587 $ 62,426 $ 48,591 $ (5,940) $ 77,538
Net realized gain (loss)
from investment
transactions............ (144,554) 430,623 0 0 150 (104)
Net change in unrealized
appreciation/depreciation
of investments.......... 3,429,369 (1,161,527) 0 0 181,212 (117,432)
----------- ----------- ----------- ------------ ---------- ----------
Net increase (decrease) in
net assets resulting from
operations............... 3,274,374 (260,317) 62,426 48,591 175,422 (39,998)
----------- ----------- ----------- ------------ ---------- ----------
VARIABLE LIFE ACTIVITIES:
Purchase payments under
variable life contracts. 10,857,693 20,670,872 5,595,794 12,999,822 249,738 496,373
Cost of insurance........ (1,446,694) (1,847,669) (225,384) (292,428) (69,467) (100,019)
Contract administration
charges................. (493,927) (899,656) (77,453) (134,462) (20,673) (44,090)
Policy loans............. 10,804 (15,657) (2) 0 462 (1,020)
Transfers between funds.. (381,372) (459,859) (3,915,310) (11,470,919) 196,512 673,504
Death benefits........... (468,178) (479,837) (29,385) (218,513) (15,094) (14,894)
----------- ----------- ----------- ------------ ---------- ----------
Net increase (decrease) in
net assets resulting from
variable life activities. 8,078,326 16,968,194 1,348,260 883,500 341,478 1,009,854
----------- ----------- ----------- ------------ ---------- ----------
Total increase (decrease)
in net assets............ 11,352,700 16,707,877 1,410,686 932,091 516,900 969,856
NET ASSETS:
Beginning of period...... 24,019,313 7,311,436 1,974,947 1,042,856 1,322,920 353,064
----------- ----------- ----------- ------------ ---------- ----------
END OF PERIOD............ $35,372,013 $24,019,313 $ 3,385,633 $ 1,974,947 $1,839,820 $1,322,920
----------- ----------- ----------- ------------ ---------- ----------
<CAPTION>
HIGH YIELD BOND FUND+ GROWTH EQUITY FUND+ VALUE EQUITY FUND+
------------------------ ------------------------- ----------------------
1995 1994 1995 1994 1995 1994
----------- ----------- ----------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss).................. $ (5,863) $ 135,669 $ (9,272) $ 4,917 $ (12,686) $ 25,459
Net realized gain (loss)
from investment
transactions............ 875 (1,293) 276 42,168 (158,917) 33,327
Net change in unrealized
appreciation/depreciation
of investments.......... 134,936 (241,232) 293,722 (115,169) 805,075 (43,932)
----------- ----------- ----------- ------------ ---------- ----------
Net increase (decrease) in
net assets resulting from
operations............... 129,948 (106,856) 284,726 (68,084) 633,472 14,854
----------- ----------- ----------- ------------ ---------- ----------
VARIABLE LIFE ACTIVITIES:
Purchase payments under
variable life contracts. 339,122 684,427 563,386 896,721 592,742 938,549
Cost of insurance........ (78,146) (125,932) (127,240) (167,630) (150,067) (185,484)
Contract administration
charges................. (23,827) (58,616) (46,433) (86,459) (46,330) (90,563)
Policy loans............. 49 (613) 1,847 162 1,714 (1,679)
Transfers between funds.. (34,524) 539,513 173,773 952,164 609,243 972,181
Death benefits........... (30,243) (16,726) (28,903) (16,620) (21,795) (24,616)
----------- ----------- ----------- ------------ ---------- ----------
Net increase (decrease) in
net assets resulting from
variable life activities. 172,431 1,022,053 536,430 1,578,338 985,507 1,608,388
----------- ----------- ----------- ------------ ---------- ----------
Total increase (decrease)
in net assets............ 302,379 915,197 821,156 1,510,254 1,618,979 1,623,242
NET ASSETS:
Beginning of period...... 1,389,701 474,504 1,974,453 464,199 2,422,836 799,594
----------- ----------- ----------- ------------ ---------- ----------
END OF PERIOD............ $ 1,692,080 $ 1,389,701 $ 2,795,609 $ 1,974,453 $4,041,815 $2,422,836
----------- ----------- ----------- ------------ ---------- ----------
</TABLE>
- -----------------------
+ Investment in Penn Series Funds, Inc.
++ Investment in Neuberger & Berman Advisers Management Trust.
+++ Investment in TCI Portfolios, Inc.
++++ Investment in Fidelity Investments' Variable Insurance Products.
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
- --------------------------------------------------------------------------------
PENN MUTUAL VARIABLE LIFE ACCOUNT I - CORNERSTONE VUL
STATEMENT OF CHANGES IN NET ASSETS - FOR THE SIX MONTHS ENDED JUNE 30, 1995
(UNAUDITED)
AND THE YEAR ENDED DECEMBER 31, 1994 (CONT'D.)
<TABLE>
<CAPTION>
SMALL
FLEXIBLY INTERNATIONAL CAPITALIZATION
MANAGED FUND+ EQUITY FUND+ FUND+
----------------------- --------------------------- --------------
1995 1994 1995 1994 1995(A)
----------- ---------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss).................. $ (37,757) $ 184,935 $ (14,172) $ (418) $ (8)
Net realized gain (loss)
from investment
transactions............ 448 342,547 897 (627) 8
Net change in unrealized
appreciation/depreciation
of investments.......... 1,183,990 (387,282) 84,253 (207,249) 531
----------- ---------- ---------- ---------- -------
Net increase (decrease) in
net assets resulting from
operations............... 1,146,681 140,200 70,978 (208,294) 531
----------- ---------- ---------- ---------- -------
VARIABLE LIFE ACTIVITIES:
Purchase payments under
variable life contracts. 1,620,242 2,169,390 867,363 1,117,070 217
Cost of insurance........ (393,944) (466,174) (180,844) (219,386) (74)
Contract administration
charges................. (132,879) (220,239) (77,092) (119,746) (28)
Policy loans............. 2,309 (9,077) 724 (2,039) 0
Transfers between funds.. 1,715,472 4,217,195 338,006 1,955,296 26,516
Death benefits........... (242,981) (115,056) (61,260) (24,531) 0
----------- ---------- ---------- ---------- -------
Net increase (decrease) in
net assets resulting from
variable life activities. 2,568,219 5,576,039 886,897 2,706,664 26,631
----------- ---------- ---------- ---------- -------
Total increase (decrease)
in net assets............ 3,714,900 5,716,239 957,875 2,498,370 27,162
NET ASSETS:
Beginning of period...... 7,900,563 2,184,324 3,251,927 753,557 0
----------- ---------- ---------- ---------- -------
END OF PERIOD............ $11,615,463 $7,900,563 $4,209,802 $3,251,927 $27,162
----------- ---------- ---------- ---------- -------
<CAPTION>
ASSET
EQUITY INCOME GROWTH MANAGER
GROWTH PORTFOLIO+++ PORTFOLIO++++ PORTFOLIO++++ PORTFOLIO++++
----------------------- ------------- ------------- --------------
1995 1994 1995(A) 1995(A) 1995(A)
----------- ---------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss).................. $ (13,569) $ (9,609) $ 209 $ (35) $ 0
Net realized gain (loss)
from investment
transactions............ 1,761 (467) 2 1 0
Net change in unrealized
appreciation/depreciation
of investments.......... 532,952 (3,826) 664 4,131 3
----------- ---------- ---------- ---------- -------
Net increase (decrease) in
net assets resulting from
operations............... 521,144 (13,902) 875 4,097 3
----------- ---------- ---------- ---------- -------
VARIABLE LIFE ACTIVITIES:
Purchase payments under
variable life contracts. 587,014 877,756 10,436 9,950 0
Cost of insurance........ (141,687) (185,079) (407) (680) 0
Contract administration
charges................. (50,511) (100,801) (191) (251) 0
Policy loans............. 2,193 150 0 0 0
Transfers between funds.. 227,231 1,088,359 92,985 88,173 417
Death benefits........... (33,344) (34,936) 0 0 0
----------- ---------- ---------- ---------- -------
Net increase (decrease) in
net assets resulting from
variable life activities. 590,896 1,645,449 102,823 97,192 417
----------- ---------- ---------- ---------- -------
Total increase (decrease)
in net assets............ 1,112,040 1,631,547 103,698 101,289 420
NET ASSETS:
Beginning of period...... 2,290,304 658,757 0 0 0
----------- ---------- ---------- ---------- -------
END OF PERIOD............ $ 3,402,344 $2,290,304 $ 103,698 $ 101,289 $ 420
----------- ---------- ---------- ---------- -------
</TABLE>
- -----------------------
(a) For the period from May 1, 1995 (date funds bacame available for investment
to contractholders) to June 30, 1995.
+ Investment in Penn Series Funds, Inc.
++ Investment in Neuberger & Berman Advisers Management Trust.
+++ Investment in TCI Portfolios, Inc.
++++ Investment in Fidelity Investments' Variable Insurance Products.
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIMITED MATURITY
BOND PORTFOLIO++ BALANCED PORTFOLIO++
- ------------------------------ -------------------------------------------------------
1995 1994 1995 1994
- --------- -------- ---------- ----------
<S> <C> <C> <C>
$ 4,392 $ 1,135 $ 21,834 $ 2,370
341 219 9,604 14,853
2,993 (1,714) 204,907 (43,691)
- --------- -------- ---------- ----------
7,726 (360) 236,345 (26,468)
- --------- -------- ---------- ----------
10,743 39,149 410,946 451,615
(5,309) (6,437) (73,445) (99,100)
(1,111) (2,087) (17,148) (42,593)
0 0 1,508 (1,541)
78,510 19,152 21,624 593,696
0 (2,009) (5,173) (11,936)
- --------- -------- ---------- ----------
82,833 47,768 338,312 890,141
- --------- -------- ---------- ----------
90,559 47,408 574,657 863,673
84,294 36,886 1,407,368 543,695
- --------- -------- ---------- ----------
$ 174,853 $ 84,294 $1,982,025 $1,407,368
- --------- -------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
- --------------------------------------------------------------------------------
PENN MUTUAL VARIABLE LIFE ACCOUNT I - CORNERSTONE VUL
NOTES TO FINANCIAL STATEMENTS - JUNE 30, 1995
- --------------------------------------------------------------------------------
NOTE 1.
The significant accounting policies of Penn Mutual Variable Life Account
I - Cornerstone VUL sub-accounts (Cornerstone) are as follows:
GENERAL - Cornerstone was established by the Penn Mutual Life Insurance
Company (Penn Mutual) under the provisions of the Pennsylvania Insurance
Law. Penn Mutual has structured Cornerstone as a unit investment trust
registered under the Investment Company Act of 1940. Cornerstone offers
units to variable life contractholders to provide for the accumulation of
value and for the payment of benefits.
INVESTMENTS - Assets of Cornerstone are invested 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 six months ended June 30, 1995 and the year ended December 31, 1994
transactions in Cornerstone were as follows:
<TABLE>
<CAPTION>
HIGH YIELD
MONEY MARKET FUND+ QUALITY BOND FUND+ BOND FUND+
-------------------------- -------------------- ----------------------
1995 1994 1995 1994 1995 1994
-------------- ----------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased........ 3,805,186 8,177,019 41,177 114,845 46,810 135,448
Shares received from
reinvestment of:
Net investment income. 0 53,510 0 9,263 0 17,997
Capital gains
distribution......... 0 0 0 0 0 0
----------- ----------- -------- ---------- ---------- ----------
Total shares acquired... 3,805,186 8,230,529 41,177 124,108 46,810 153,445
Shares redeemed......... (2,402,551) (7,325,340) (6,770) (12,409) (27,322) (28,098)
----------- ----------- -------- ---------- ---------- ----------
Net increase in shares
owned.................. 1,402,635 905,189 34,407 111,699 19,488 125,347
Shares owned beginning
of period.............. 1,886,043 980,854 146,349 34,650 175,037 49,690
----------- ----------- -------- ---------- ---------- ----------
Shares owned end of
period................. 3,288,678 1,886,043 180,756 146,349 194,525 175,037
----------- ----------- -------- ---------- ---------- ----------
Cost of shares acquired. $ 3,805,186 $ 8,230,529 $401,324 $1,206,454 $ 392,473 $1,416,849
----------- ----------- -------- ---------- ---------- ----------
Proceeds from shares
redeemed............... $ 2,402,551 $ 7,325,340 $ 65,588 $ 119,017 $ 225,799 $ 259,068
----------- ----------- -------- ---------- ---------- ----------
<CAPTION>
SMALL
CAPITALIZATION LIMITED MATURITY BALANCED
FUND+ BOND PORTFOLIO++ PORTFOLIO++
-------------- --------------------- ----------------------
1995(A) 1995 1994 1995 1994
-------------- ----------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Shares purchased........ 2,865 8,226 5,190 33,738 69,368
Shares received from
reinvestment of:
Net investment income. 0 362 105 1,908 573
Capital gains
distribution......... 0 0 16 613 946
----------- ----------- -------- ---------- ----------
Total shares acquired... 2,865 8,588 5,311 36,259 70,887
Shares redeemed......... (288) (2,192) (1,820) (12,458) (8,698)
----------- ----------- -------- ---------- ----------
Net increase in shares
owned.................. 2,577 6,396 3,491 23,801 62,189
Shares owned beginning
of period.............. 0 6,007 2,516 96,999 34,810
----------- ----------- -------- ---------- ----------
Shares owned end of
period................. 2,577 12,403 6,007 120,800 96,999
----------- ----------- -------- ---------- ----------
Cost of shares acquired. $ 29,569 $ 118,045 $ 74,539 $ 554,607 $1,035,148
----------- ----------- -------- ---------- ----------
Proceeds from shares
redeemed............... $ 2,942 $ 30,711 $ 25,501 $ 185,163 $ 128,280
----------- ----------- -------- ---------- ----------
</TABLE>
The cost of shares redeemed is determined on a last-in, first-out basis.
- -----------------------
(a) For the Period from May 1, 1995 (date funds became available for investment
to contractholders) to June 30, 1995.
+ Investment in Penn Series Funds, Inc.
++ Investment in Neuberger & Berman Advisers Management Trust.
+++ Investment in TCI Portfolios, Inc.
++++ Investment in Fidelity Investments' Variable Insurance Products.
8
<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.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH EQUITY FUND+ VALUE EQUITY FUND+ FLEXIBLY MANAGED FUND+ INTERNATIONAL EQUITY FUND+
- ---------------------- --------------------------- ------------------------ ----------------------------
1995 1994 1995 1994 1995 1994 1995 1994
- ---------- ----------- ------------- ------------- ------------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
40,061 96,302 81,369 137,357 181,563 354,608 96,973 210,436
0 758 0 2,882 0 14,343 0 967
0 2,260 0 2,709 0 22,539 0 0
- --------- ----------- ---------- ---------- ---------- ---------- ------------- -------------
40,061 99,320 81,369 142,948 181,563 391,490 96,973 211,403
(13,087) (14,075) (11,974) (14,777) (24,314) (10,484) (27,734) (15,491)
- --------- ----------- ---------- ---------- ---------- ---------- ------------- -------------
26,974 85,245 69,395 128,171 157,249 381,006 69,239 195,912
107,902 22,657 191,236 63,065 520,146 139,140 249,974 54,062
- --------- ----------- ---------- ---------- ---------- ---------- ------------- -------------
134,876 107,902 260,631 191,236 677,395 520,146 319,213 249,974
- --------- ----------- ---------- ---------- ---------- ---------- ------------- -------------
$ 781,023 $ 1,888,539 $1,147,577 $1,859,892 $2,927,447 $6,272,280 $ 1,224,609 $ 2,916,818
- --------- ----------- ---------- ---------- ---------- ---------- ------------- -------------
$ 253,637 $ 263,821 $ 174,316 $ 191,657 $ 395,581 $ 168,673 $ 358,355 $ 210,399
- --------- ----------- ---------- ---------- ---------- ---------- ------------- -------------
<CAPTION>
EQUITY ASSET
INCOME GROWTH MANAGER
GROWTH PORTFOLIO+++ PORTFOLIO++++ PORTFOLIO++++ PORTFOLIO++++
- ---------------------- ------------- ------------- -------------
1995 1994 1995(A) 1995(A) 1995(A)
- ---------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
77,919 190,089 6,209 3,806 29
290 12 14 0 0
0 0 0 0 0
- --------- ----------- ---------- ---------- ----------
78,209 190,101 6,223 3,806 29
(17,285) (12,076) (67) (12) 0
- --------- ----------- ---------- ---------- ----------
60,924 178,025 6,156 3,794 29
248,701 70,676 0 0 0
- --------- ----------- ---------- ---------- ----------
309,625 248,701 6,156 3,794 29
- --------- ----------- ---------- ---------- ----------
$ 755,241 $ 1,746,090 $ 104,428 $ 97,489 $ 417
- --------- ----------- ---------- ---------- ----------
$ 177,713 $ 109,957 $ 1,113 $ 318 $ 0
- --------- ----------- ---------- ---------- ----------
</TABLE>
9
<PAGE>
- --------------------------------------------------------------------------------
PENN MUTUAL VARIABLE LIFE ACCOUNT I - CORNERSTONE VUL
NOTES TO FINANCIAL STATEMENTS - JUNE 30, 1995 (CONT'D.)
- --------------------------------------------------------------------------------
NOTE 3.
Operations are charged for mortality and expense risks assumed by Penn
Mutual as determined daily at a current annual rate of 0.75% (guaranteed
never to exceed 0.90%) of the average value of Cornerstone. No investment
expenses are charged to Cornerstone. 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
(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 increase in Specified Amount).
A copy of the June 30, 1995 semi-annual report of Penn Series, AMT, TCI,
and Fidelity accompanies this report.
10
