PENN MUTUAL VARIABLE LIFE ACCOUNT I, 485BPOS, 1999-04-30

PENN MUTUAL VARIABLE LIFE ACCOUNT I
485BPOS, 1999-04-30

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As filed with the Securities and Exchange Commission on April 30, 1999

Registration No. 33-87276

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM S-6

FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2

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POST-EFFECTIVE AMENDMENT NO. 6

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PENN MUTUAL VARIABLE LIFE ACCOUNT I
(Exact name of trust)

THE PENN MUTUAL LIFE INSURANCE COMPANY
(Name of depositor)
600 Dresher Road
Horsham, Pennsylvania 19044
(Complete address of depositor's principal executive offices)

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Richard F. Plush
Vice President
The Penn Mutual Life Insurance Company
600 Dresher Road
Horsham, PA 19044
(Name and complete address of agent for service)

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Copy to:
Richard W. Grant, Esq.
C. Ronald Rubley
Morgan, Lewis & Bockius LLP
Philadelphia, PA 19103-6993

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It is proposed that this filing will become effective:

|X| Immediately upon filing pursuant to paragraph (b) of Rule 485.
|_| On (date) pursuant to paragraph (b) of Rule 485.
|_| 60 days after filing pursuant to paragraph (a) of Rule 485.
|_| On (date) pursuant to paragraph (a) of Rule 485.

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PENN MUTUAL VARIABLE LIFE ACCOUNT I
THE PENN MUTUAL LIFE INSURANCE COMPANY

Cross Reference to Items Required by Form N-8B-2
<TABLE>
<CAPTION>

N-8B-2 ITEM CAPTION IN PROSPECTUS
- ----------- ---------------------
<S> <C>
1 Cover Page
2 Cover Page
3 Not applicable
4 Additional Information - Sale of Policies
5 Additional Information - Penn Mutual Variable Life Account I
6 Additional Information - Penn Mutual Variable Life Account I
7 Not applicable
8 Not applicable
9 Additional Information - Litigation
10 Basic Information; Additional Information - The Penn Mutual Life Insurance
Company - Penn Mutual Variable Life Account I - The Funds
11 Additional Information - The Funds
12 Additional Information - The Funds
13 Basic Information - What Are the Fees and Charges Under the Policy?
14 Basic Information - What Payments Must Be Made Under the Policy?
15 Basic Information - What Payments Must Be Made Under the Policy?
16 Additional Information - The Funds
17 Basic Information; Additional Information
18 Basic Information
19 Basic Information - How Does Penn Mutual Communicate With Me?
20 Basic Information
21 Basic Information - What Is a Policy Loan?
22 Not applicable
23 Not applicable
24 Not applicable
25 Additional Information - The Penn Mutual Life Insurance Company
26 Basic Information - What Are the Fees and Charges Under the Policy?
27 Additional Information - The Penn Mutual Life Insurance Company
28 Additional Information - The Penn Mutual Life Insurance Company Additional
Information - Penn Mutual Trustees and Officers
29 Not applicable
30 Not applicable
31 Not applicable
32 Not applicable
33 Not applicable
34 Not applicable
35 Additional Information - The Penn Mutual Life Insurance Company
36 Not applicable
37 Not applicable
38 Additional Information - Sale of Policies
39 Additional Information - Sale of Policies

</TABLE>

<PAGE>

<S> <C>
40 Additional Information - Sale of Policies
41 Not applicable
42 Not applicable
43 Not applicable
44 Basic Information - How Will the Value of the Policy Change Over Time?;
Additional Information - More Information About Policy Values
45 Not applicable
46 Basic Information - How Will the Value of the Policy Change Over Time?;
Additional Information - More Information About Policy Values
47 Basic Information; Additional Information - Penn Mutual Variable Life
Account I - The Funds
48 Additional Information - The Penn Mutual Life Insurance Company
49 Not applicable
50 Not applicable
51 Basic Information
52 Additional Information - Penn Mutual Variable Life Account I
53 Additional Information - Federal Income Tax Considerations
54 Not applicable
55 Illustrations
56 Not applicable
57 Not applicable
58 Not applicable
59 Additional Information - Financial Statements

</TABLE>

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PART I

Information Required in Prospectus

<PAGE>

PROSPECTUS

FOR

VARIABLE ESTATEMAX

a last survivor flexible premium adjustable variable life insurance policy

issued by

THE PENN MUTUAL LIFE INSURANCE COMPANY

and funded through

PENN MUTUAL VARIABLE LIFE ACCOUNT I

The Penn Mutual Life Insurance Company

Philadelphia, PA 19172

800-523-0650

The Policy provides life insurance on two insureds and a cash surrender
value that may vary with the investment performance of one or more of the funds
set forth below. These and other Policy provisions are described in this
Prospectus.

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
PENN SERIES FUNDS, INC. MANAGER
Growth Equity Fund Independence Capital Management, Inc.
Value Equity Fund OpCap Advisors
Small Capitalization Fund OpCap Advisors
Emerging Growth Fund RS Investment Management, Inc.
Flexibly Managed Fund T. Rowe Price Associates, Inc.
International Equity Fund Vontobel USA, Inc.
Quality Bond Fund Independence Capital Management, Inc.
High Yield Bond Fund T. Rowe Price Associates, Inc.
Money Market Fund Independence Capital Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
NEUBERGER BERMAN ADVISORS MANAGEMENT TRUST MANAGER
Balanced Portfolio Neuberger Berman Management Incorporated
Limited Maturity Bond Portfolio Neuberger Berman Management Incorporated
Partners Fund Portfolio Neuberger Berman Management Incorporated
- ------------------------------------------------------------------------------------------------------------------------------------
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC. MANAGER
Capital Appreciation Portfolios American Century Investment Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS FUND MANAGER
Equity-Income Portfolio Fidelity Management and Research Company
Growth Portfolio Fidelity Management and Research Company
- ------------------------------------------------------------------------------------------------------------------------------------
FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS FUND II MANAGER
Asset Manager Portfolio Fidelity Management and Research Company
Index 500 Portfolio Fidelity Management and Research Company
- ------------------------------------------------------------------------------------------------------------------------------------
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC. MANAGER
Emerging Markets Equity (International) Portfolio Morgan Stanley Dean Witter Investment Management Inc.

- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Please note that the Securities and Exchange Commission ("SEC") has not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.

May 1, 1999

<PAGE>

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GUIDE TO READING THIS PROSPECTUS

This prospectus contains information that you should know before you buy
the Policy or exercise any of your rights under the Policy. The purpose of this
prospectus is to provide information on the essential features and provisions of
the Policy and the investment options available under the Policy. Your rights
and obligations under the Policy are determined by the language of the Policy
itself. When you receive your Policy, read it carefully.

The prospectus is arranged as follows:

o The first section is called "Basic Information". It is in a question
and answer format. We suggest you read the Basic Information section
before reading any other section of the prospectus.

o The next section contains illustrations of a hypothetical Policy that
help clarify how the Policy works. The "Illustrations" section starts
on page 15.

o After the Illustrations section is the "Additional Information"
section. It gives additional information about Penn Mutual, Penn
Mutual Variable Life Account I and the Policy. It generally does not
repeat information that is in the Basic Information section. A table
of contents for the Additional Information section appears on page 24.

o The financial statements for Penn Mutual and Penn Mutual Variable Life
Account I follow the Additional Information section. They start on
page 37.

o Appendices A through D are after the financial statements. The
Appendices are referred to in the Basic Information section. They
provide specific information and examples to help understand how the
Policy works.

**********

The prospectuses of the funds that accompany this prospectus contains
important information that you should know about the investments that may be
made under the Policy. You should read the relevant prospectus(es) carefully
before you invest.

**********

2
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BASIC INFORMATION

This part of the prospectus provides answers to basic questions that may be
asked about the Policy. Here are the page numbers where the questions and
answers appear.

QUESTION PAGE
- -------- ----

What Is the Policy?..................................................... 4
Who Owns the Policy?.................................................... 4
What Payments Must Be Made Under the Policy?............................ 5
How Will the Value of the Policy Change Over Time?...................... 6
What Are the Fees and Charges Under the Policy?......................... 7
Are There Other Charges That Penn Mutual Could Deduct in the Future?.... 9
How Can I Change My Policy's Investment Allocations?.................... 9
What Is a Policy Loan?.................................................. 10
How Can I Withdraw Money from My Policy?................................ 10
What Is the Timing of Transactions Under the Policy?.................... 11
How Much Life Insurance Coverage Does the Policy Provide?............... 11
Can I Change Insurance Coverage Under My Policy?........................ 12
What Are the Supplemental Benefit Riders That I Can Buy?................ 12
Do I Have the Right to Cancel My Policy?................................ 13
Can I Choose Different Payout Options Under My Policy? ................. 13
How Is the Policy Treated for Federal Income Tax Purposes?.............. 13
How Do I Communicate With Penn Mutual?.................................. 14
How Does Penn Mutual Communicate With Me?............................... 14

3
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WHAT IS THE POLICY?

The Policy provides life insurance on two persons. It is called a "last
survivor" Policy because no insurance proceeds ("death benefit") are payable
until the death of the second of two insureds (the "last surviving insured").
The value of your Policy will increase or decrease based upon the performance of
the investment options you choose. The death benefit may also increase or
decrease based on investment performance. In addition, the Policy allows you to
allocate a part of your policy value to a fixed interest option where the value
will accumulate interest.

While at least one of the two insured persons is alive, you will have
several options under the Policy. Here are some major ones:

o Determine when and how much you pay to us under the Policy

o Determine when and how much to allocate your policy value to
investment options

o Borrow from your Policy

o Change the beneficiary who will receive the death benefit

o Decrease the amount of insurance protection

o Change the death benefit option you have selected under your Policy

o Surrender or partially surrender your Policy for all or part of its
net cash surrender value

o Choose the form in which you would like the death benefit or other
proceeds paid out from your Policy

Most of these options are subject to limits that are explained later in
this prospectus.

If you want to purchase a Policy, you must complete an application and
submit it to one of our authorized agents. We require satisfactory evidence of
insurability, which may include a medical examination of each or one of the
proposed insureds. We evaluate the information provided in accordance with our
underwriting rules and then decide whether to accept or not accept the
application.

The maturity date of your Policy is the policy anniversary nearest the
younger Insured's 100th birthday. If the Policy is still in force on the
maturity date, a maturity benefit will be paid to you. The maturity benefit is
equal to the policy value less any policy loan on the maturity date. Upon the
written request of the owner, this policy will continue in force beyond the
maturity date. Thereafter, the death benefit will be the net policy value.

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WHO OWNS THE POLICY?

You decide who owns the Policy when you apply for it. The owner of the
Policy is the person who can exercise most of the rights under the Policy, such
as the right to choose the death benefit option, the beneficiary, the investment
options, and the right to surrender the Policy. Whenever we have used the term
"you" in this prospectus, we have assumed that the reader is the owner or the
person who has whatever right or privilege we are discussing.

4
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WHAT PAYMENTS MUST BE MADE UNDER THE POLICY?

PREMIUM PAYMENTS

Amounts you pay to us under your Policy are called "premiums" or "premium
payments." The amount we require as your first premium depends on a number of
factors, such as age, sex, rate classification, the amount of insurance
specified in the application, and any supplemental benefits. Sample minimum
initial premiums are shown in Appendix A at the end of this prospectus. Within
limits, you can make premium payments when you wish. That is why the Policy is
called a "flexible premium" Policy.

Additional premiums may be paid in any amount and at any time. A premium
must be at least $25. We may require satisfactory evidence of insurability
before accepting any premium which increases our net amount of risk.

We reserve the right to limit total premiums paid in a policy year to the
planned premiums you select in your application. Also, if you make a premium
payment that exceeds certain other limits imposed under federal tax law, you
could incur a penalty on amount you take out of your policy. We will monitor the
Policy and will attempt to notify you on a timely basis if you are about to
exceed this limit. See HOW IS THIS POLICY TREATED FOR FEDERAL INCOME TAX
PURPOSES? below.

PLANNED PREMIUMS

The Policy Specifications page of your Policy will show the "planned
premium" for the Policy. You choose this amount in the Policy application. We
will send a premium reminder notice to you based upon the planned premium that
you specified in your application. You also chose in your application how often
to pay planned premiums -- annually, semi-annually, quarterly or monthly. You
are not required to pay the planned premium as long as your Policy has
sufficient net cash surrender value to pay Policy charges. You need only pay
enough premium to maintain net cash surrender value sufficient to pay Policy
charges. See FIVE YEAR NO-LAPSE FEATURE and LAPSE AND REINSTATEMENT below.

WAYS TO PAY PREMIUMS

If you pay premiums by check or money order, they must be drawn on a U.S.
bank in U.S. dollars and made payable to The Penn Mutual Life Insurance Company.
Premiums after the first must be sent to our office.

We will also accept premiums:

o by wire or by exchange from another insurance company,

o via an electronic funds transfer program (any owner interested in
making monthly premium payments must use this method), or

o if we agree to it, through a salary deduction plan with your employer.

You can obtain information on these other methods of premium payment by
contacting your Penn Mutual representative or by contacting our office.

FIVE YEAR NO-LAPSE FEATURE

Your Policy will remain in force during the first five policy years,
regardless of investment performance and your net cash surrender value, if:

(a) The total premiums you have paid, less any partial surrenders you made
equals or exceeds

(b) The monthly "no-lapse premium" specified in your Policy, multiplied by
the number of months the Policy has been in force.

5
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The monthly "no-lapse premium" will generally be less than the monthly
equivalent of the planned premium you specified.

The five year no-lapse feature will not apply if the amount borrowed under
your Policy results in excessive indebtedness. See WHAT IS A POLICY LOAN? later
in this section.

LAPSE AND REINSTATEMENT

If the net cash surrender value of your Policy is not sufficient to pay
Policy charges, and the five-year no-lapse feature is not in effect, we will
notify you of how much premium you will need to pay to keep the Policy in force.
You will have a 61 day "grace period" to make that payment. If you don't pay at
least the required amount by the end of the grace period, your Policy will
terminate (i.e., lapse). All coverage under the Policy will then cease.

If the last survivor dies during the grace period, we will pay the death
benefit to your beneficiary less any unpaid Policy charges and outstanding
policy loan.

If the Policy terminates, you can reinstate it within five years from the
beginning of the grace period if both insureds are alive or if one of the
insured died prior to the lapse. You will have to provide evidence that the
insured person (or persons, if both insureds are living) still meets our
requirements for issuing insurance. You will also have to pay a minimum amount
of premium and be subject to the other terms and conditions applicable to
reinstatements, as specified in the Policy.

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HOW WILL THE VALUE OF THE POLICY CHANGE OVER TIME?

From each premium payment you make, we deduct a premium charge. We allocate
the rest to the investment options you have selected (except for the first
premium payment which will be invested in the Penn Series Money Market Fund
during the free look period of time).

Your policy value, which is allocated (or transferred) to the variable
investment options, will vary with the investment performance of the underlying
investment funds.

The amount you allocate to the fixed interest option will earn interest at
a rate we declare from time to time. We guarantee that this rate will be at
least 4%. The current declared rate will appear in the annual statement we will
send to you. If you want to know what the current declared rate is, simply call
or write to us. Amounts you allocate to the fixed interest option will not be
subject to the mortality and expense risk charge described later in this
section. Your policy value will be affected by deductions we make from your
Policy for policy charges.

At any time, your policy value is equal to:

o the net premiums you have paid,

o plus or minus the investment results of the policy value allocated or
transferred to the variable investment options,

o plus interest credited to the amount of your policy value allocated or
transferred to the fixed interest option,

o minus policies charges we deduct, and

o minus partial surrenders you have made.

If you borrow money under your Policy, other factors affect your policy
value. See WHAT IS A POLICY LOAN? described later in this section.

For more information on policy values and the variable and fixed investment
options, see also the Additional Information section of this prospectus.

6
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WHAT ARE THE FEES AND CHARGES UNDER THE POLICY?

PREMIUM CHARGE

o Premium Charge -- 7.5% is deducted from premium payments before allocation
to the investment options. It consists of 2.5% to cover state premium taxes
and 5% to partially compensate us for the expense of selling and
distributing the Policies. For premiums received after the first 15 policy
years, we intend to reduce the rate for the sales charge portion to 3%,
which will result in a total premium charge of 5.5% in those years. We will
notify you in advance if we change our current rates.

MONTHLY DEDUCTIONS

o Insurance Charge -- A monthly charge for the cost of insurance protection.
The amount of insurance risk we assume varies from Policy to Policy and
from month to month. The insurance charge therefore also varies. To
determine the charge for a particular month, we multiply the amount of
insurance for which we are at risk by a cost of insurance rate based upon
an actuarial table. The table in your Policy will show the maximum cost of
insurance rates that we can charge. The cost of insurance rates that we
currently apply are generally less than the maximum rates shown in your
Policy. The table of rates we use will vary by issue age and length of time
the Policy has been in effect and the insurance risk characteristics. We
place insureds in a rate class when we issue the Policy, based on our
examination of information bearing on insurance risk. We currently place
people we insure in the following rate classes: a smoker or nonsmoker
standard rate class, a preferred underwriting class, or a rate class
involving a higher mortality risk (a "substandard class"). Regardless of
the table used, cost of insurance rates generally increase each year that
you own your Policy, as the insured's attained age increases. The charge is
deducted pro-rata from your variable investment and fixed interest
accounts.

o Administrative Charge -- A maximum monthly charge to help cover our
administrative costs. This charge has two parts: (1) a flat dollar charge
of up to $15 (Currently, the flat dollar charge is $15 in the first policy
year and $5 thereafter -- we will notify you in advance if we change our
current rates) and (2) for the first 12 months after the policy date, a
charge based on the initial specified amount of insurance ($0.20 per $1,000
per month of initial specified amount of insurance). Administrative
expenses relate to premium billing and collection, recordkeeping,
processing of death benefit claims, policy loans and Policy changes,
reporting and overhead costs, processing applications and establishing
Policy records. We do not anticipate making any profit from this charge.
The charge is deducted pro-rata from your variable investment and fixed
interest accounts.

o Optional Supplemental benefit charges -- Monthly charges for any optional
supplemental insurance benefits that are added to the Policy by means of a
rider.

DAILY MORTALITY AND EXPENSE RISK CHARGE

We deduct a daily charge from your policy value which is allocated to the
variable investment options. The charge does not apply to fixed interest option.
It is guaranteed not to exceed 0.90% for the duration of the policy. Currently,
the charge is an annual rate of 0.90% of assets of the policy value allocated in
the variable accounts. After the fifteenth policy year, we intend to charge
0.60%. We will notify you in advance if we change our current rates. We may
realize a profit from this charge, and if we do, it will be added to our
surplus.

The mortality risk we assume is the risk that the persons we insure may die
sooner than anticipated and that Penn Mutual will pay an aggregate amount of
death benefits greater than anticipated. The expense risk we assume is the risk
that expenses incurred in issuing and administering the policies and the
Separate Account will exceed the amount we charge for administration.

TRANSFER CHARGE

We reserve the right to impose a $10 transfer charge on any transfer of
policy value among the variable investment options and/or fixed interest option
in excess of the 12 transfers each policy year. We will notify you before
imposing the charge. No transfer charge will be made if the specified amount of
insurance exceeds $4,999,999.

7
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SURRENDER CHARGE

If you surrender your Policy during the first 16 policy years, we will
deduct a surrender charge in calculating the surrender proceeds payable. We
determine the surrender charge by the following formula:

the sum of (a) plus (b), multiplied by (c), where:

(a) = 25% of the lesser of (i) the sum of all premiums paid in the Policy
and (ii) the maximum surrender charge premium (which is an amount
calculated separately for each policy);

(b) = an administrative charge based on the initial specified amount of
insurance and the younger insured's attained age on the policy date
(ranging from $6 at insured's age 20 to $14 at insured's age 60 and
over, per $1,000 of initial specified amount -- for more information
on this charge, see Appendix B at the end of this prospectus); and

SURRENDER FACTOR
SURRENDER DURING POLICY YEAR APPLIED TO (C) IN FORMULA
- --------------------------------------------------------------------------------
1st through 7th 1.00
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8th .90
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9th .80
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10th .70
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11th .60
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12th .50
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13th .40
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14th .30
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15th .20
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16th .10
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17th and later 0
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Under the formula, the surrender charge declines by 10% each policy year
after the seventh, to $0 by the 17th policy year so that, after the 16th policy
year, there is no surrender charge. For policies issued to New York residents,
see the table in Appendix C at the end of this prospectus.

The surrender charge consists of a sales charge component and an
administrative charge component. The sales charge component is to reimburse us
for some of the expenses incurred in the distribution of the Policies. The sales
charge component, together with the sales charge component of the premium
charge, may be insufficient to recover distribution expenses related to the sale
of the Policies. Our unrecovered sales expenses are paid for from our surplus.

The administrative charge component of the surrender charge covers
administrative expenses associated with underwriting and issuing the Policy,
including the costs of processing applications, conducting medical exams,
determining insurability and the Insureds' rate class, and creating and
maintaining Policy records, as well as the administrative costs of processing
surrender requests. We do not anticipate making any profit on the administrative
charge component of the surrender charge.

PARTIAL SURRENDER CHARGE

If you partially surrender your Policy, we will deduct the lesser of $25 or
2% of the amount surrendered. The charge will be deducted from the available net
cash surrender value and will be considered part of the partial surrender. We
also do not anticipate making a profit on this charge.

8
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FEES AND CHARGES OF INVESTMENT FUNDS

The funds must pay investment management fees and other operating expenses.
The fees and expenses are different for each fund. They reduce the investment
return of each fund. Current fees and expenses of the funds are as set forth in
the Additional Information section of this prospectus.

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ARE THERE OTHER CHARGES THAT PENN MUTUAL COULD DEDUCT IN THE FUTURE?

We currently make no charge against policy values to pay federal income
taxes. However, we reserve the right to do so in the event there is a change in
the tax laws. We currently do not expect that any such charge will be necessary.

Under current laws, we may incur state and local taxes (in addition to
premium taxes) in several states. At present, these taxes are not significant.
If there is a material change in applicable state or local tax laws, we reserve
the right to make such deductions for such taxes.

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HOW CAN I CHANGE MY POLICY'S INVESTMENT ALLOCATIONS?

FUTURE PREMIUM PAYMENTS

You may change the investment allocation for future premium payments at any
time. You make your original allocation in the application for your Policy. The
percentages you select for allocating premium payments must be in whole numbers
and must equal 100% in total.

TRANSFERS AMONG EXISTING INVESTMENT OPTIONS

You may also transfer amounts from one investment option to another, and to
and from the fixed interest option. To do so, you must tell us how much to
transfer, either as a percentage or as a specific dollar amount. Transfers are
subject to the following conditions:

o the minimum amount that may be transferred is $250 (or the amount held
under the investment options from which you are making the transfer,
if less);

o if less than the full amount held under an investment option is
transferred, the amount remaining under the investment option must be
at least $250;

o we may defer transfers under certain condition;

o transfers may not be made during the free look period;

o transfers may be made from the fixed interest option only during the
30 day period following the end of each policy year.

DOLLAR COST AVERAGING

This is a program of automatic monthly transfers out of the money market
variable investment option into one or more of the other investment options and
to the fixed interested option. You choose the investment options and the dollar
amount and timing of the transfers. The program is designed to reduce the risks
that result from market fluctuations. It does this by spreading out the
allocation of your money to investment options over a longer period of time.
This allows you to reduce the risk of investing most of your money at a time
when market prices are high. The success of this strategy depends on market
trends. The program allows owners to take advantage of investment fluctuations,
but does not assume a profit or protect against lows in a declining market. To
begin the program, the planned premium for the year must be $600 and the amount
transferred each month must be at least $50. You may discontinue the program at
any time.

ASSET REBALANCING

This is a program that automatically reallocates your policy value among
the variable investment options in accordance with the proportions you
originally specified. Over time, variations in investment results will change
the allocation percentage. On a quarterly basis, the rebalancing program will
periodically transfer your policy value among

9
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the variable investment options to reestablish the percentages you had chosen.
Rebalancing can result in transferring amounts from a variable investment option
with relatively higher investment performance to one with relatively lower
investment performance. The minimum policy value to start the program is $1,000.
If you also have a dollar cost averaging program in effect, the portion of your
policy value invested in the Money Market Fund may not be included in the
Rebalancing Program. You may discontinue the program at any time.

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WHAT IS A POLICY LOAN?

You may borrow up to 90% of your cash surrender value.

Interest charged on a policy loan is 5.0% and is payable at the end of each
policy year. If interest is not paid when due, it is added to the loan. A policy
loan does not reduce your policy value. An amount equivalent to the loan is
withdrawn from the investment options and the fixed interest option on a
prorated basis (unless you designate a different withdrawal allocation when you
request the loan) and is transferred to a special loan account. The special loan
account will earn interest at 4.0% (or more in our discretion). With the
interest we credit to the special loan account, the net cost of the policy loan
is 1%. After the tenth policy year, we intend to credit interest at the rate of
4.75% (which will result in a net policy loan cost of 0.25% in those years).

You may repay all or part of a loan at any time. Upon repayment, an amount
equal to the repayment will be transferred from the special loan account to the
investment options you specify. If you do not specify the allocation for the
repayment, the amount will be allocated in accordance with your current standing
allocation instructions.

The amount of any loan outstanding under your Policy on the death of the
surviving insured will reduce the amount of the death benefit by the amount of
such loan.

If you want a payment to us to be used as a loan repayment, you must
include instructions to that effect. Otherwise, all payments will be assumed to
be premium payments.

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HOW CAN I WITHDRAW MONEY FROM MY POLICY?

FULL SURRENDER

You may surrender your Policy in full at any time. If you do, we will pay
you the policy value, less any policy loan outstanding and less any surrender
charge that then applies. This is called your "net cash surrender value." You
must return your Policy when you request a full surrender.

PARTIAL SURRENDER

You may partially surrender your Policy for net cash surrender value,
subject to the following conditions:

o the net cash surrender value remaining in the Policy after the partial
surrender must exceed $1,000;

o no more than four partial surrenders may be made in a policy year;

o each partial surrender must be at least $250;

o a partial surrender may not be made from an investment option if the
amount remaining under the option is less than $250;

o during the first five policy years, the partial surrender may not
reduce the specified amount of insurance under your Policy to less
than $200,000.

If you elected the Option 1 insurance coverage (see HOW MUCH INSURANCE
COVERAGE DOES MY POLICY PROVIDE? below), a partial surrender will reduce your
specific amount of insurance.

<PAGE>

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WHAT IS THE TIMING OF TRANSACTIONS UNDER THE POLICY?

We will ordinarily pay any death benefit, loan proceeds or partial or full
surrender proceeds, and will make transfers among the investment options and the
fixed interest option, within seven days after receipt at our office of all the
documents required for completion of the transaction. Other than the death
benefit, which is determined as of the date of death, transactions will be based
on values at the end of the valuation period in which we receive all required
instructions and necessary documentation. A valuation period is the period
commencing with the close of the New York Stock Exchange and ending at the close
of the next succeeding business day of the New York Stock Exchange.

A planned premium and an unplanned premium which does not require
evaluation of additional insurance risk will be credited to the Policy and the
net premium will be allocated to the designated investment options based on
values at the end of the valuation period in which we receive the premium.

Any premium requiring evaluation of additional insurance risk will be
allocated to the Penn Series Money Market investment option until our evaluation
of risk and administrative work has been completed and the premium has been
accepted. When accepted, the net premium will be allocated to the investment
options you have designated.

We may defer making a payment or transfer from a variable account
investment option if (1) the disposal or valuation of the Separate Account's
assets is not reasonably practicable because the New York Stock Exchange is
closed for other than a regular holiday or weekend, trading is restricted by the
SEC, or the SEC declares that an emergency exists; or (2) the SEC by order
permits postponement of payment to protect our Policy owners.

We may also defer making a payment or transfer from the fixed interest
option for up to six months from the date we receive the written request.
However, we will not defer payment of a partial surrender or policy loan
requested to pay a premium due on a Penn Mutual Policy. If a payment from the
fixed interest option is deferred for 30 days or more, it will bear interest at
a rate of 3% per year compounded annually while it is deferred.

- --------------------------------------------------------------------------------
HOW MUCH LIFE INSURANCE COVERAGE DOES THE POLICY PROVIDE?

In your application for the Policy, you will tell us how much life
insurance coverage you want on the lives of the two persons to be insured. This
is called the "specified amount" of insurance. The minimum specified amount of
insurance is $200,000.

When the survivor of the insured persons dies, we will pay the death
benefit less the amount of any outstanding policy loan. We offer two different
types of death benefits. You choose which one you want in the application. They
are:

o Option 1 -- The death benefit is the greater of (a) the specified
amount of insurance or (b) the policy value multiplied by the
applicable net single premium factor.

o Option 2 -- The death benefit is the greater of (a) the specified
amount of insurance plus your policy value on the date of death, or
(b) the policy value multiplied by the net single premium factor.

Net single premium factors are based on the insureds' sexes, rate classes
and attained ages on the date of calculation. The factor decreases each policy
anniversary as the insureds' ages increase. A table of net single premium
factors as of each policy anniversary is included in your Policy. A table
illustrating net single premium factors is included in Appendix D at the end of
this prospectus.

In order for the Policy to qualify as "life insurance" for federal income
taxes, it must satisfy the "cash value accumulation test" under Section 7702(b)
of the Internal Revenue Code of 1986, as amended. The test requires that under
the terms of the Policy, the death benefit must be sufficient so that the policy
value does not at any time exceed the net single premium required to pay for the
future benefits provided under the policy. The net single premiums factors
included in your Policy are intended to satisfy the cash value accumulation
test.

If the investment performance of the variable account investment options
you have chosen is favorable, the amount of the death benefit may increase.
However, under Option 1, favorable investment performance will not ordinarily
increase the death benefit for several years and may not increase it at all,
whereas under Option 2, the death benefit will vary directly with the investment
performance of the policy value. To see how and when investment performance may
begin to affect the death benefit, see the Illustrations section of this
prospectus.

11
<PAGE>

Assuming favorable investment performance, the death benefit under Option 2
will tend to be higher than the death benefit under Option 1. On the other hand,
the monthly insurance charge will be higher under Option 2 to compensate us for
the additional insurance risk we take. Because of that, the policy value will
tend to be higher under Option 1 than under Option 2 for the same premium
payments.

- --------------------------------------------------------------------------------
CAN I CHANGE INSURANCE COVERAGE UNDER MY POLICY?

CHANGE OF DEATH BENEFIT OPTION

You may change your insurance coverage from Option 1 to Option 2 and
vice-versa, subject to the following conditions:

o after the change, the specified amount of insurance must be at least
$200,000;

o no change may be made in the first policy year and no more than one
change may be made in any policy year;

o if you request a change from Option 1 to Option 2, we may request
evidence of insurability; if a different rate class is indicated for
the insureds, the requested change will not be allowed.

DECREASE IN SPECIFIED AMOUNT OF INSURANCE

You may decrease the specified amount of insurance, subject to the
following conditions:

o no change may be made in the first policy year;

o no change may be made if it would cause the Policy not to qualify as
insurance under federal income tax law;

o any decrease in the specified amount of insurance must be at least
$10,000 and the specified amount after the decrease must be at least
$200,000.

You may not increase the specified amount of insurance under your Policy.

TAX CONSEQUENCES

See FEDERAL INCOME TAX CONSIDERATIONS in the Additional Information section
of this Prospectus to learn about possible tax consequences of changing your
insurance coverage under the Policy.

- --------------------------------------------------------------------------------
WHAT ARE THE SUPPLEMENTAL BENEFIT RIDERS THAT I CAN BUY?

We offer supplemental benefit riders that may be added to your Policy.
There are monthly charges for the riders, in addition to the charges described
above. If any of these riders are added to your Policy, monthly charges for the
supplemental benefits will be deducted from your policy value as part of the
monthly deduction.

Flexible Period Single Life Term Rider -- provides term insurance covering
the named insured for the designated period.

Policy Split Option -- permits the Policy to be split into two fixed
benefit (nonvariable) policies upon the issuance of a final divorce decree
relating to the two insureds or a change in federal estate tax law that results
in the inability to defer estate taxes until the death of the last surviving
Insured.

Estate Growth Benefit -- provides for automatic annual increase of 3% or 6%
of the initial specified amount of insurance.

Change of Insured -- permits a change in one insured so long as the new
insured has the same insurable relationship to the remaining insured as did the
insured being replaced.

Supplemental Term Insurance -- provides additional death benefit payable on
the death of the last surviving insured if the death occurs during the term of
the Policy.

12
<PAGE>

Guaranteed Continuation of Policy -- guarantees that the Policy will remain
in force and a death benefit will be payable regardless of the sufficiency of
the net cash surrender value of the Policy.

Additional rules and limits apply to these supplemental benefits. All
supplemental benefits may not be available in your state. Please ask your
authorized Penn Mutual representative for further information or contact our
office.

- --------------------------------------------------------------------------------
DO I HAVE THE RIGHT TO CANCEL MY POLICY?

You have the right to cancel your Policy within 10 days after you receive
it or within 45 days after you signed your application (or longer in some
states). This is referred to as the "free look" period. To cancel your Policy,
simply deliver or mail the Policy to our office or to our representative who
delivered the Policy to you.

In most states, you will receive a refund of your policy value as of the
date of cancellation plus the premium charge and the monthly deductions. The
date of cancellation will be the date we receive the Policy.

During the "free look" period, money held under your Policy will be
invested in the Penn Series Money Market Fund.

- --------------------------------------------------------------------------------
CAN I CHOOSE DIFFERENT PAYOUT OPTIONS UNDER MY POLICY?

CHOOSING A PAYOUT OPTION

You may choose to receive proceeds from the Policy as a single sum. This
includes proceeds that become payable because of death or full surrender.
Alternatively, you can elect to have proceeds of $5,000 or more applied to any
of a number of other payment options as set forth in your Policy. Periodic
payments may not be less than $50 each.

CHANGING A PAYMENT OPTION

You can change the payment option at any time before the proceeds are
payable. If you have not made a choice, the payee may change the payment option
within the period specified in the Policy. The person entitled to the proceeds
may elect a payment option as set forth in the Policy.

TAX IMPACT

There may be tax consequences to you or your beneficiary depending upon
which payment option is chosen. You should consult a qualified tax adviser
before making that choice.

- --------------------------------------------------------------------------------
HOW IS THE POLICY TREATED FOR FEDERAL INCOME TAX PURPOSES?

Death benefits paid under life insurance policies are not subject to income
tax. Investment gains from your Policy are not subject to income tax as long as
we do not pay them out to you.

Assuming your Policy is not treated as a "modified endowment contract"
under federal income tax law, distributions from the Policy are generally
treated as first recovering the investment in the Policy and then, only after
the return of all investment in the Policy, as receiving taxable income. Amounts
borrowed under the Policy also are not generally subject to federal income tax
at the time of the borrowing.

However, some of the tax rules change if your Policy is found to be a
"modified endowment contract." This can happen if you have paid more than a
certain amount of premiums in relation to the insurance provided under the
Policy. Under those circumstances, additional taxes and penalties may be payable
for Policy distributions and loans.

For further information about the qualifications of the Policy as life
insurance under federal tax law and the tax consequences of owning a Policy, see
FEDERAL INCOME TAX CONSIDERATIONS IN THE ADDITIONAL INFORMATION section of this
prospectus.

<PAGE>

- --------------------------------------------------------------------------------
HOW DO I COMMUNICATE WITH PENN MUTUAL?

GENERAL RULES

You may mail all checks and money orders for premium payments to The Penn
Mutual Life Insurance Company, Post Office Box 7460, Philadelphia, Pennsylvania,
19172, or express all checks and money orders to The Penn Mutual Life Insurance
Company, Receipts Processing (3V), 600 Dresher Road, Horsham, Pennsylvania,
19044.

Certain requests pertaining to your Policy must be made in writing and be
signed and dated by you. They include the following:

o policy loans in excess of $5,000, and full and partial surrenders,

o change of death benefit option,

o decrease in specified amount of insurance,

o change of beneficiary,

o election of payment option for Policy proceeds,

o tax withholding elections,

o grant of telephone transaction privilege to a third party,

You should mail or express these requests to our office. You should also
send notice of the insured person's death and related documentation to our
office. Communications are not treated as "received" until such time as they are
arrived at our office in proper form. Any communication that arrives after the
close of our business day, or on a day that is not a business day, will be
considered "received" by us on the next following business day. Our business day
currently closes at 5:00 p.m. Eastern Standard Time, but special circumstances
(such as suspension of trading on a major exchange) may dictate an earlier
closing time.

We have special forms that must be used for a number of the requests
mentioned above. You can obtain these forms from your Penn Mutual representative
or by calling our office 800-523-0650. Each communication to us must include
your name, your Policy number and the name of the insured person. We cannot
process any request that doesn't include this required information.

TELEPHONE TRANSACTIONS

You may request transfers among investment options by calling our office.
In addition, if you complete a special authorizing form, you may authorize your
Penn Mutual agent or other third person to act on your behalf in giving us
telephone transfer instructions. We will not be liable for following transfer
instructions communicated by telephone that we reasonably believe to be genuine.
We may require certain identifying information to process a telephone transfer.

The policies are not designed for professional market timing organizations
or other entities that use programmed and frequent transfers among investment
options. For reasons such as that, we reserve the right to change our telephone
transaction policies or procedures at any time. We also reserve the right to
suspend or terminate the privilege altogether.

- --------------------------------------------------------------------------------
HOW DOES PENN MUTUAL COMMUNICATE WITH ME?

At least once each year we will send to you a report showing your current
policy values, premiums paid and deductions made since the last report, any
outstanding policy loans, and any additional premiums permitted under your
Policy. We will also send to you an annual and a semi-annual report for each
Fund underlying a subaccount to which you have allocated policy value, as
required by the 1940 Act. In addition, when you pay premiums (other than by
pre-authorized check), or if you borrow money under your policy, transfer
amounts among the investment options or make partial surrenders, we will send a
written confirmation to you.

<PAGE>

- --------------------------------------------------------------------------------
ILLUSTRATIONS

The tables on the following pages show how values under a hypothetical
Policy change with investment performance over an extended period of time. The
tables illustrate how policy values, net cash surrender values and death
benefits under a Policy covering two insured persons of given ages on the issue
date, would vary over time if planned premiums were paid annually and the return
on the assets in the selected funds were a uniform gross annual rate of 0%, 6%
and 12%. The values would be different from those shown if the returns averaged
0%, 6% or 12%, but fluctuated over and under those averages throughout the years
shown. The tables also show planned premiums accumulated at 5% interest. The
hypothetical investment rates of return are illustrative only and should not be
deemed a representation of past or future investment rates of return. Actual
rates of return for a particular Policy may be more or less than the
hypothetical investment rates of return and will depend on a number of factors
including the investment allocations made by an Owner, prevailing rates and
rates of inflation.

The tables reflect the daily charge against the investments for the
mortality and expense risks we assume, which is equivalent to an effective
annual charge of 0.90% of assets and currently is reduced to 0.60% of assets
after the fifteenth policy year. In addition, the tables assume an average
annual expense ratio of 0.84% of the underlying investment funds available under
the Policies. The average annual expense ratio is based o the expense ratios of
each of the Funds for their last fiscal year. For information on fund expenses,
see the prospectuses on the funds that accompany this Prospectus.

After deduction of fund expenses and the mortality and expense risk charge,
the illustrated gross annual investment rates of return of 0%, 6% and 12% would
correspond to approximate net annual rates of -1.74%, 4.26% and 10.26%,
respectively, and -1.44%, 4.56% and 10.56%, respectively, at current rates after
the fifteenth policy year.

The tables also reflect the deduction of the monthly administrative charge
and the monthly cost of insurance charge for the hypothetical insured persons.
Our current cost of insurance charges and the higher guaranteed maximum cost of
insurance charges we have the contractual right to charge are reflected in
separate tables on the following pages. All the tables reflect the fact that no
charges for federal or state income taxes are currently made against the
investments made under a hypothetical policy and assume no policy loans or
charges for supplemental benefits.

The illustrations are based on our sex distinct rates for standard
nonsmokers. Upon request, we will furnish a comparable illustration based upon
the proposed Insureds' individual circumstances. Such illustrations may assume
different hypothetical rates of return than those illustrated in the following
tables.

<PAGE>

- --------------------------------------------------------------------------------
ILLUSTRATION OF POLICY VALUES
PENN MUTUAL LIFE INSURANCE COMPANY

Male Issue Age: 56 Non-Smoker
Female Issue Age: 53 Non-Smoker
$4,000 ANNUAL PREMIUM
$300,000 SPECIFIED AMOUNT
DEATH BENEFIT OPTION 1
USING CURRENT COST OF INSURANCE RATES
<TABLE>
<CAPTION>

- ------------------------------------------------------------------------------------------------------------------------------------
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
- ------------------------------------------------------------------------------------------------------------------------------------
Premiums
Accumulated
End of at 5% Net Cash Net Cash Net Cash
Policy Interest Policy Surrender Death Policy Surrender Death Policy Surrender Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,200 2,733 0 300,000 2,925 0 300,000 3,118 0 300,000
2 8,610 6,224 1,630 300,000 6,807 2,213 300,000 7,415 2,821 300,000
3 13,241 9,624 5,030 300,000 10,824 6,230 300,000 12,121 7,526 300,000
4 18,103 12,929 8,335 300,000 14,975 10,381 300,000 17,271 12,677 300,000
5 23,208 16,132 11,538 300,000 19,258 14,663 300,000 22,905 18,311 300,000
6 28,568 19,229 14,635 300,000 23,672 19,078 300,000 29,066 24,472 300,000
7 34,196 22,215 17,620 300,000 28,217 23,623 300,000 35,803 31,209 300,000
8 40,106 25,082 20,948 300,000 32,891 28,757 300,000 43,170 39,035 300,000
9 46,312 27,824 24,148 300,000 37,691 34,015 300,000 51,223 47,548 300,000
10 52,827 30,429 27,213 300,000 42,611 39,395 300,000 60,028 56,812 300,000
15 90,630 40,952 40,033 300,000 68,749 67,830 300,000 118,101 117,182 300,000
20 138,877 48,077 48,077 300,000 99,637 99,637 300,000 214,648 214,648 348,694
25 200,454 49,345 49,345 300,000 134,880 134,880 300,000 370,241 370,241 526,610
30 279,043 34,764 34,764 300,000 171,354 171,354 300,000 613,703 613,703 786,943
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes that no policy loans have been made.
(2) Current values reflect current cost of insurance rates, a monthly
administrative charge of $15.00 in year 1 and $5.00 thereafter, and a
mortality and expense risk charge of 0.90% of assets in years 1-15 and 0.60%
thereafter.
(3) Net investment returns are calculated as the hypothetical gross investment
returns less all charges and deductions shown in the prospectus.
(4) Assumes that the premium is paid at the beginning of each policy year.
Values would be different if the premiums are paid with a different
frequency or in different amounts.

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
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE FUND THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.

16
<PAGE>

- --------------------------------------------------------------------------------
ILLUSTRATION OF POLICY VALUES
PENN MUTUAL LIFE INSURANCE COMPANY

Male Issue Age: 56 Non-Smoker
Female Issue Age: 53 Non-Smoker
$13,000 ANNUAL PREMIUM
$1,000,000 SPECIFIED AMOUNT
DEATH BENEFIT OPTION 1
USING CURRENT COST OF INSURANCE RATES
<TABLE>
<CAPTION>

- ------------------------------------------------------------------------------------------------------------------------------------
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
- ------------------------------------------------------------------------------------------------------------------------------------
Premiums
Accumulated
End of at 5% Net Cash Net Cash Net Cash
Policy Interest Policy Surrender Death Policy Surrender Death Policy Surrender Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 13,650 9,222 0 1,000,000 9,858 0 1,000,000 10,497 0 1,000,000
2 27,983 20,693 5,379 1,000,000 22,626 7,312 1,000,000 24,637 9,323 1,000,000
3 43,032 31,864 16,550 1,000,000 35,834 20,520 1,000,000 40,123 24,808 1,000,000
4 58,833 42,719 27,405 1,000,000 49,481 34,166 1,000,000 57,070 41,755 1,000,000
5 75,425 53,239 37,924 1,000,000 63,559 48,245 1,000,000 75,605 60,290 1,000,000
6 92,846 63,407 48,093 1,000,000 78,069 62,754 1,000,000 95,873 80,559 1,000,000
7 111,138 73,205 57,891 1,000,000 93,004 77,689 1,000,000 118,033 102,718 1,000,000
8 130,345 82,613 68,831 1,000,000 108,359 94,577 1,000,000 142,259 128,476 1,000,000
9 150,513 91,602 79,351 1,000,000 124,122 111,871 1,000,000 168,740 156,489 1,000,000
10 171,688 100,141 89,421 1,000,000 140,276 129,556 1,000,000 197,686 186,966 1,000,000
15 294,547 134,500 131,437 1,000,000 225,976 222,914 1,000,000 388,486 385,424 1,000,000
20 451,350 157,478 157,478 1,000,000 326,965 326,965 1,000,000 705,574 705,574 1,146,202
25 651,475 160,885 160,885 1,000,000 441,730 441,730 1,000,000 1,216,970 1,216,970 1,730,949
30 906,890 111,206 111,206 1,000,000 559,004 559,004 1,000,000 2,017,165 2,017,165 2,586,585
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes that no policy loans have been made.
(2) Current values reflect current cost of insurance rates, a monthly
administrative charge of $15.00 in year 1 and $5.00 thereafter, and a
mortality and expense risk charge of 0.90% of assets in years 1-15 and 0.60%
thereafter.
(3) Net investment returns are calculated as the hypothetical gross investment
returns less all charges and deductions shown in the prospectus.
(4) Assumes that the premium is paid at the beginning of each policy year.
Values would be different if the premiums are paid with a different
frequency or in different amounts.

17
<PAGE>

- --------------------------------------------------------------------------------
ILLUSTRATION OF POLICY VALUES
PENN MUTUAL LIFE INSURANCE COMPANY

Male Issue Age: 61 Non-Smoker
Female Issue Age: 57 Non-Smoker
$23,000 ANNUAL PREMIUM
$1,000,000 SPECIFIED AMOUNT
DEATH BENEFIT OPTION 1
USING CURRENT COST OF INSURANCE RATES
<TABLE>
<CAPTION>

- ------------------------------------------------------------------------------------------------------------------------------------
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
- ------------------------------------------------------------------------------------------------------------------------------------
Premiums
Accumulated
End of at 5% Net Cash Net Cash Net Cash
Policy Interest Policy Surrender Death Policy Surrender Death Policy Surrender Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 24,150 18,275 2,267 1,000,000 19,466 3,458 1,000,000 20,658 4,650 1,000,000
2 49,508 38,564 22,556 1,000,000 42,170 26,162 1,000,000 45,920 29,912 1,000,000
3 76,133 58,311 42,303 1,000,000 65,648 49,640 1,000,000 73,576 57,568 1,000,000
4 104,090 77,501 61,493 1,000,000 89,909 73,901 1,000,000 103,852 87,844 1,000,000
5 133,444 96,115 80,107 1,000,000 114,963 98,955 1,000,000 136,996 120,988 1,000,000
6 164,266 114,118 98,110 1,000,000 140,803 124,795 1,000,000 173,271 157,263 1,000,000
7 196,630 131,476 115,468 1,000,000 167,427 151,419 1,000,000 212,972 196,964 1,000,000
8 230,611 148,165 133,758 1,000,000 194,842 180,435 1,000,000 256,448 242,041 1,000,000
9 266,292 164,161 151,355 1,000,000 223,065 210,258 1,000,000 304,093 291,286 1,000,000
10 303,756 179,428 168,222 1,000,000 252,101 240,896 1,000,000 356,346 345,140 1,000,000
15 521,122 246,054 242,852 1,000,000 412,559 409,357 1,000,000 707,864 704,662 1,205,616
20 798,543 300,281 300,281 1,000,000 615,065 615,065 1,000,000 1,284,907 1,284,907 1,901,741
25 1,152,609 319,195 319,195 1,000,000 861,103 861,103 1,140,898 2,191,369 2,191,369 2,903,403
30 1,604,498 252,673 252,673 1,000,000 1,138,495 1,138,495 1,389,389 3,569,177 3,569,177 4,355,726
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes that no policy loans have been made.
(2) Current values reflect current cost of insurance rates, a monthly
administrative charge of $15.00 in year 1 and $5.00 thereafter, and a
mortality and expense risk charge of 0.90% of assets in years 1-15 and 0.60%
thereafter.
(3) Net investment returns are calculated as the hypothetical gross investment
returns less all charges and deductions shown in the prospectus.
(4) Assumes that the premium is paid at the beginning of each policy year.
Values would be different if the premiums are paid with a different
frequency or in different amounts.

18
<PAGE>

- --------------------------------------------------------------------------------
ILLUSTRATION OF POLICY VALUES
PENN MUTUAL LIFE INSURANCE COMPANY

Male Issue Age: 61 Non-Smoker
Female Issue Age: 57 Non-Smoker
$7,000 ANNUAL PREMIUM
$300,000 SPECIFIED AMOUNT
DEATH BENEFIT OPTION 1
USING CURRENT COST OF INSURANCE RATES
<TABLE>
<CAPTION>

- ------------------------------------------------------------------------------------------------------------------------------------
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
- ------------------------------------------------------------------------------------------------------------------------------------
Premiums
Accumulated
End of at 5% Net Cash Net Cash Net Cash
Policy Interest Policy Surrender Death Policy Surrender Death Policy Surrender Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 7,350 5,449 646 300,000 5,807 1,005 300,000 6,167 1,364 300,000
2 15,068 11,585 6,783 300,000 12,671 7,868 300,000 13,800 8,997 300,000
3 23,171 17,558 12,756 300,000 19,768 14,966 300,000 22,157 17,354 300,000
4 31,679 23,364 18,561 300,000 27,103 22,301 300,000 31,306 26,504 300,000
5 40,613 28,995 24,193 300,000 34,679 29,877 300,000 41,323 36,520 300,000
6 49,994 34,443 29,641 300,000 42,493 37,691 300,000 52,286 47,483 300,000
7 59,844 39,697 34,894 300,000 50,545 45,742 300,000 64,286 59,484 300,000
8 70,186 44,749 40,427 300,000 58,837 54,515 300,000 77,428 73,106 300,000
9 81,045 49,593 45,751 300,000 67,375 63,533 300,000 91,831 87,990 300,000
10 92,448 54,217 50,856 300,000 76,161 72,799 300,000 107,630 104,268 300,000
15 158,602 74,424 73,464 300,000 124,735 123,775 300,000 213,901 212,941 364,312
20 243,035 90,936 90,936 300,000 186,104 186,104 300,000 388,319 388,319 574,736
25 350,794 96,902 96,902 300,000 260,624 260,624 345,308 662,307 662,307 877,509
30 488,326 77,422 77,422 300,000 344,555 344,555 420,486 1,078,766 1,078,766 1,316,496
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes that no policy loans have been made.
(2) Current values reflect current cost of insurance rates, a monthly
administrative charge of $15.00 in year 1 and $5.00 thereafter, and a
mortality and expense risk charge of 0.90% of assets in years 1-15 and 0.60%
thereafter.
(3) Net investment returns are calculated as the hypothetical gross investment
returns less all charges and deductions shown in the prospectus.
(4) Assumes that the premium is paid at the beginning of each policy year.
Values would be different if the premiums are paid with a different
frequency or in different amounts.

<PAGE>

- --------------------------------------------------------------------------------
ILLUSTRATION OF POLICY VALUES
PENN MUTUAL LIFE INSURANCE COMPANY

Male Issue Age: 56 Non-Smoker
Female Issue Age: 53 Non-Smoker
$4,000 ANNUAL PREMIUM
$300,000 SPECIFIED AMOUNT
DEATH BENEFIT OPTION 1
USING GUARANTEED COST OF INSURANCE RATES
<TABLE>
<CAPTION>

- ------------------------------------------------------------------------------------------------------------------------------------
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
- ------------------------------------------------------------------------------------------------------------------------------------
Premiums
Accumulated
End of at 5% Net Cash Net Cash Net Cash
Policy Interest Policy Surrender Death Policy Surrender Death Policy Surrender Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,200 2,731 0 300,000 2,923 0 300,000 3,116 0 300,000
2 8,610 6,097 1,502 300,000 6,676 2,082 300,000 7,279 2,685 300,000
3 13,241 9,367 4,773 300,000 10,550 5,956 300,000 11,830 7,236 300,000
4 18,103 12,535 7,941 300,000 14,544 9,950 300,000 16,801 12,207 300,000
5 23,208 15,595 11,001 300,000 18,653 14,059 300,000 22,227 17,633 300,000
6 28,568 18,539 13,944 300,000 22,875 18,280 300,000 28,147 23,552 300,000
7 34,196 21,357 16,763 300,000 27,202 22,608 300,000 34,601 30,007 300,000
8 40,106 24,038 19,903 300,000 31,626 27,491 300,000 41,634 37,499 300,000
9 46,312 26,565 22,889 300,000 36,135 32,459 300,000 49,290 45,615 300,000
10 52,827 28,918 25,702 300,000 40,711 37,495 300,000 57,618 54,402 300,000
15 90,630 37,048 36,130 300,000 63,696 62,777 300,000 111,366 110,447 300,000
20 138,877 35,028 35,028 300,000 83,279 83,279 300,000 193,954 193,954 315,078
25 200,454 9,584 9,584 300,000 88,391 88,391 300,000 317,002 317,002 450,886
30 279,043 0 0 0 51,447 51,447 300,000 488,856 488,856 626,854
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Assumes that no policy loans have been made.
(2) Guaranteed values reflect guaranteed cost of insurance rates, a monthly
administrative charge of $15.00 per month, and a mortality and expense risk
charge of 0.90% of assets.
(3) Net investment returns are calculated as the hypothetical gross investment
returns less all charges and deductions shown in the prospectus.
(4) Assumes that the premium is paid at the beginning of each policy year.
Values would be different if the premiums are paid with a different
frequency or in different amounts.

<PAGE>

- --------------------------------------------------------------------------------
ILLUSTRATION OF POLICY VALUES
PENN MUTUAL LIFE INSURANCE COMPANY

Male Issue Age: 56 Non-Smoker
Female Issue Age: 53 Non-Smoker
$13,000 ANNUAL PREMIUM
$1,000,000 SPECIFIED AMOUNT
DEATH BENEFIT OPTION 1
USING GUARANTEED COST OF INSURANCE RATES
<TABLE>
<CAPTION>

- ------------------------------------------------------------------------------------------------------------------------------------
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
- ------------------------------------------------------------------------------------------------------------------------------------
Premiums
Accumulated
End of at 5% Net Cash Net Cash Net Cash
Policy Interest Policy Surrender Death Policy Surrender Death Policy Surrender Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 13,650 9,216 0 1,000,000 9,853 0 1,000,000 10,491 0 1,000,000
2 27,983 20,547 5,232 1,000,000 22,475 7,160 1,000,000 24,481 9,166 1,000,000
3 43,032 31,556 16,242 1,000,000 35,507 20,192 1,000,000 39,775 24,461 1,000,000
4 58,833 42,224 26,910 1,000,000 48,941 33,627 1,000,000 56,483 41,169 1,000,000
5 75,425 52,529 37,215 1,000,000 62,767 47,453 1,000,000 74,722 59,408 1,000,000
6 92,846 62,445 47,131 1,000,000 76,971 61,657 1,000,000 94,623 79,309 1,000,000
7 111,138 71,943 56,629 1,000,000 91,536 76,222 1,000,000 116,324 101,010 1,000,000
8 130,345 80,979 67,197 1,000,000 106,429 92,646 1,000,000 139,972 126,189 1,000,000
9 150,513 89,503 77,251 1,000,000 121,611 109,359 1,000,000 165,720 153,469 1,000,000
10 171,688 97,444 86,724 1,000,000 137,024 126,304 1,000,000 193,731 183,011 1,000,000
15 294,547 125,031 121,968 1,000,000 214,582 211,519 1,000,000 374,647 371,584 1,000,000
20 451,350 118,812 118,812 1,000,000 281,160 281,160 1,000,000 652,995 652,995 1,060,788
25 651,475 34,696 34,696 1,000,000 300,343 300,343 1,000,000 1,067,130 1,067,130 1,517,825
30 906,890 0 0 0 181,756 181,756 1,000,000 1,645,527 1,645,527 2,110,039
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

- --------------------------------------------------------------------------------
ILLUSTRATION OF POLICY VALUES
PENN MUTUAL LIFE INSURANCE COMPANY

Male Issue Age: 61 Non-Smoker
Female Issue Age: 57 Non-Smoker
$23,000 ANNUAL PREMIUM
$1,000,000 SPECIFIED AMOUNT
DEATH BENEFIT OPTION 1
USING GUARANTEED COST OF INSURANCE RATES
<TABLE>
<CAPTION>

- ------------------------------------------------------------------------------------------------------------------------------------
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
- ------------------------------------------------------------------------------------------------------------------------------------
Premiums
Accumulated
End of at 5% Net Cash Net Cash Net Cash
Policy Interest Policy Surrender Death Policy Surrender Death Policy Surrender Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 24,150 18,260 2,252 1,000,000 19,451 3,443 1,000,000 20,642 4,634 1,000,000
2 49,508 38,380 22,372 1,000,000 41,979 25,971 1,000,000 45,722 29,714 1,000,000
3 76,133 57,915 41,907 1,000,000 65,227 49,219 1,000,000 73,130 57,122 1,000,000
4 104,090 76,833 60,825 1,000,000 89,185 73,177 1,000,000 103,068 87,060 1,000,000
5 133,444 95,097 79,089 1,000,000 113,838 97,830 1,000,000 135,755 119,747 1,000,000
6 164,266 112,660 96,652 1,000,000 139,166 123,158 1,000,000 171,434 155,426 1,000,000
7 196,630 129,461 113,453 1,000,000 165,134 149,126 1,000,000 210,365 194,357 1,000,000
8 230,611 145,421 131,014 1,000,000 191,695 177,288 1,000,000 252,833 238,426 1,000,000
9 266,292 160,448 147,642 1,000,000 218,789 205,983 1,000,000 299,159 286,353 1,000,000
10 303,756 174,439 163,234 1,000,000 246,356 235,151 1,000,000 349,718 338,513 1,000,000
15 521,122 224,354 221,153 1,000,000 388,995 385,793 1,000,000 683,152 679,950 1,163,527
20 798,543 220,653 220,653 1,000,000 532,682 532,682 1,000,000 1,181,682 1,181,682 1,748,961
25 1,152,609 100,925 100,925 1,000,000 669,035 669,035 1,000,000 1,885,944 1,885,944 2,498,736
30 1,604,498 0 0 0 811,468 811,468 1,000,000 2,848,677 2,848,677 3,476,447
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

- --------------------------------------------------------------------------------
ILLUSTRATION OF POLICY VALUES
PENN MUTUAL LIFE INSURANCE COMPANY

Male Issue Age: 61 Non-Smoker
Female Issue Age: 57 Non-Smoker
$7,000 ANNUAL PREMIUM
$300,000 SPECIFIED AMOUNT
DEATH BENEFIT OPTION 1
USING GUARANTEED COST OF INSURANCE RATES
<TABLE>
<CAPTION>

- ------------------------------------------------------------------------------------------------------------------------------------
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
- ------------------------------------------------------------------------------------------------------------------------------------
Premiums
Accumulated
End of at 5% Net Cash Net Cash Net Cash
Policy Interest Policy Surrender Death Policy Surrender Death Policy Surrender Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 7,350 5,444 642 300,000 5,803 1,000 300,000 6,162 1,359 300,000
2 15,068 11,447 6,644 300,000 12,527 7,725 300,000 13,652 8,849 300,000
3 23,171 17,275 12,472 300,000 19,466 14,664 300,000 21,837 17,034 300,000
4 31,679 22,918 18,115 300,000 26,617 21,815 300,000 30,776 25,974 300,000
5 40,613 28,365 23,563 300,000 33,975 29,172 300,000 40,537 35,734 300,000
6 49,994 33,603 28,800 300,000 41,533 36,730 300,000 51,190 46,387 300,000
7 59,844 38,612 33,810 300,000 49,281 44,479 300,000 62,813 58,010 300,000
8 70,186 43,370 39,047 300,000 57,205 52,883 300,000 75,491 71,169 300,000
9 81,045 47,847 44,006 300,000 65,287 61,445 300,000 89,320 85,478 300,000
10 92,448 52,015 48,653 300,000 73,508 70,146 300,000 104,411 101,049 300,000
15 158,602 66,836 65,875 300,000 116,005 115,044 300,000 203,924 202,964 347,319
20 243,035 65,543 65,543 300,000 158,662 158,662 300,000 352,756 352,756 522,100
25 350,794 29,331 29,331 300,000 198,705 198,705 300,000 563,005 563,005 745,940
30 488,326 0 0 0 239,206 239,206 300,000 850,416 850,416 1,037,824
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
This section of the prospectus provides information about Penn Mutual,
Penn Mutual Variable Life Account I, the investment funds and the Policy.
<TABLE>
<CAPTION>

CONTENTS OF THIS SECTION PAGE
- -------------------------------------------------------------------------------------------------
<S> <C>
The Penn Mutual Life Insurance Company....................................................... 25
Year 2000.................................................................................... 25
Penn Mutual Variable Life Account I.......................................................... 25
The Funds.................................................................................... 26
More Information About Policy Values......................................................... 28
Federal Income Tax Considerations............................................................ 29
Sale of the Policies......................................................................... 32
Penn Mutual Trustees and Officers............................................................ 32
State Regulation............................................................................. 34
Additional Information....................................................................... 35
Independent Auditors......................................................................... 35
Experts...................................................................................... 35
Litigation................................................................................... 35
Legal Matters................................................................................ 35
Financial Statements......................................................................... 35
Appendix A --- Minimum Initial Premiums..................................................... A-1
Appendix B --- Administrative Surrender Charges per $1,000 of Initial Specified Amount...... B-1
--- Sample Surrender Charge Premiums for $1,000,000 Specified Amount ............ B-1
Appendix C --- Policies Issued to New York residents........................................ C-1
Appendix D --- Illustrative Net Single Premium Factors...................................... D-1
</TABLE>
24

<PAGE>

- --------------------------------------------------------------------------------
THE PENN MUTUAL LIFE INSURANCE COMPANY

Penn Mutual is a Pennsylvania mutual life insurance company. We were
chartered in 1847 and have been continuously engaged in the life insurance
business since that date. We are authorized to sell insurance in all 50 states
and the District of Columbia. Our corporate headquarters are located at 600
Dresher Road, Horsham, Pennsylvania, 19044, a suburb of Philadelphia. Our
mailing address is The Penn Mutual Life Insurance Company, Philadelphia,
Pennsylvania, 19172.

- --------------------------------------------------------------------------------
YEAR 2000

The services we provide, as well as services provided by other companies,
organizations and governmental entities generally, depend on the smooth
functioning of computer systems. Many computer systems in use today cannot
recognize the Year 2000, and may return to 1900 or some other date after
December 31, 1999. If not corrected, these systems could fail or create
erroneous results. We began addressing the Year 2000 problem actively in 1996.
The effort involves assessing all of our computers, computer programs, and
related equipment, making necessary changes, and assuring that all systems
process dates correctly. We believe that we have designed and implemented an
efficient process for identifying what needs to be changed. Although we cannot
give assurance that we will have no Year 2000 problem, we expect our computer
systems to perform satisfactorily in the Year 2000.

Penn Mutual and the mutual funds that serve as investment options for the
Separate Account have relationships with investment advisers, broker-dealers,
transfer agents, custodians, and other service providers. We are contacting the
funds and their vendors and service providers to obtain reasonable assurances
that such service providers have taken appropriate measures to address the Year
2000 problem. Where practicable, we will assess and attempt to mitigate risks
that the businesses and organizations upon which we depend are not Year 2000
compliant. We cannot, however, give assurance that failure of these firms to
complete adequate preparations in a timely manner will not have an adverse
effect on the Contracts.

The Year 2000 Information and Readiness Disclosure Act passed by Congress
in 1998 encourages businesses and other organizations to provide information
about the readiness of their computer systems. The Act also provides certain
protections to these organizations against potential liability for what they say
about their readiness. We specifically designate the information about our
readiness as readiness disclosure under the protections of the Act.

- --------------------------------------------------------------------------------
PENN MUTUAL VARIABLE LIFE ACCOUNT I

We established Penn Mutual Variable Life Account I (the "Separate
Account") as a separate investment account under Pennsylvania law on January 27,
1987. The Separate Account is registered with the Securities and Exchange
Commission (the "SEC") as a unit investment trust under the Investment Company
Act of 1940 (the "1940 Act") and qualifies as a "separate account" within the
meaning of the federal securities laws.

Net premiums received under the Policy and under other variable life
insurance policies are allocated to subaccounts of the Separate Account for
investment in shares of investment funds. They are allocated in accordance with
instructions from Policy owners.

Income, gains and losses, realized or unrealized, in a subaccount are
credited or charged without regard to any other income, gains or losses of Penn
Mutual. Assets equal to the reserves and other contract liabilities with respect
to the investments held in each subaccount are not chargeable with liabilities
arising out of any other business or account of Penn Mutual. If the assets
exceed the required reserves and other liabilities, we may transfer the excess
to our general account. We are obligated to pay all benefits provided under the
policies.

If investment in a shares of a fund should no longer be possible or, if in
our judgment, becomes inappropriate to the purposes of the policies, or, if in
our judgment, investment in another fund is in the interest of owners, we may
substitute another fund. No substitution may take place without notice to owners
and prior approval of the SEC and insurance regulatory authorities, to the
extent required by the 1940 Act and applicable law.

25
<PAGE>

VOTING SHARES OF THE FUNDS

We are the legal owner of shares of the funds and as such have the right
to vote on all matters submitted to shareholders of the funds. However, as
required by law, we will vote shares held in the Separate Account at regular and
special meetings of shareholders of the funds in accordance with instructions
received from owners. Should the applicable federal securities laws, regulations
or interpretations thereof change so as to permit us to vote shares of the funds
in our own right, we may elect to do so.

To obtain voting instructions from owners, before a meeting we will send
owners voting instruction material, a voting instruction form and any other
related material. The number of shares for which an owner may give voting
instructions is currently determined by dividing the portion of the owner's
policy value allocated to the Separate Account by the net asset value of one
share of the applicable fund. Fractional votes will be counted. The number of
votes for which an owner may give instructions will be determined as of a date
chosen by Penn Mutual but not more than 90 days prior to the meeting of
shareholders. Shares for which no timely instructions are received will be voted
by Penn Mutual in the same proportion as those shares for which voting
instructions are received.

We may, if required by state insurance officials, disregard owner voting
instructions if such instructions would require shares to be voted so as to
cause a change in sub-classification or investment objectives of one or more of
the funds, or to approve or disapprove an investment advisory agreement. In
addition, we may under certain circumstances disregard voting instructions that
would require changes in the investment Policy or investment adviser of one or
more of the funds, provided that we reasonably disapprove of such changes in
accordance with applicable federal regulations. If we ever disregard voting
instructions, we will advise owners of that action and of our reasons for such
action in the next semiannual report. Finally, we reserve the right to modify
the manner in which we calculate the weight to be given to pass-through voting
instructions where such a change is necessary to comply with current federal
regulations or the current interpretation thereof.

- --------------------------------------------------------------------------------
THE FUNDS

Penn Series Funds, Inc., Neuberger Berman Advisors Management Trust,
American Century Variable Portfolios, Inc., Fidelity Investments' Variable
Insurance Products Fund, Fidelity Investments' Variable Insurance Products Fund
II and Morgan Stanley Dean Witter Universal Funds, Inc. are each registered with
the SEC as a diversified open-end management investment company under the 1940
Act. Each is a series-type mutual fund made up of different series or Funds.

The investment objective of each of the Funds available as investment
options under the Policy is set forth below. There is, of course, no assurance
that these objectives will be met.

Penn Series -- Growth Equity Fund -- long-term growth of capital and
increase of future income.

Penn Series -- Value Equity Fund -- maximize total return (capital
appreciation and income).

Penn Series -- Small Capitalization Fund -- capital appreciation.

Penn Series -- Emerging Growth Fund -- capital appreciation.

Penn Series -- Flexibly Managed Fund -- maximize total return (capital
appreciation and income).

Penn Series -- International Equity Fund -- capital appreciation.

Penn Series -- Quality Bond Fund -- highest income over the long term
consistent with the preservation of principal.

Penn Series -- High Yield Bond Fund -- high current income.

Penn Series -- Money Market Fund -- preserve capital, maintain
liquidity and achieve the highest possible level of current income
consistent therewith.

Neuberger Berman -- Limited Maturity Bond Portfolio -- the highest
current income consistent with low risk to principal and liquidity;
a secondary objective -- enhance total return through capital
appreciation when market factors, such as falling interest rates and
rising bond prices, indicate that capital appreciation may be
available without significant risk to principal.

26
<PAGE>

Neuberger Berman -- Balanced Portfolio -- long-term capital growth and
reasonable current income without undue risk to principal.

Neuberger Berman -- Partners Portfolio -- capital growth; Neuberger
Berman reserves the right to make changes in the investment
objectives, but will notify shareholders thirty days in advance of
any proposed material change.

American Century Variable Portfolios -- Capital Appreciation Portfolio
(formerly Growth Portfolio) -- capital growth.

Fidelity Investments' VIP Fund -- Equity-Income Portfolio -- reasonable
income by investing primarily in income-producing equity securities;
in choosing these securities, the Fund will also consider the
potential for capital appreciation; the Fund's goal is to achieve a
yield which exceeds the composite yield on the securities comprising
the Standard & Poor's 500 Composite Stock Price Index.

Fidelity Investments' VIP Fund -- Growth Portfolio -- capital
appreciation.

Fidelity Investments' VIP Fund II -- Asset Manager Portfolio -- high
total return with reduced risk over the long-term.

Fidelity Investments' VIP Fund II -- Index 500 Portfolio -- match the
total return of the S&P 500 while keeping expenses low; the S&P 500
is an index of 500 common stocks, most of which trade on the New
York Stock Exchange.

Morgan Stanley Dean Witter Universal Funds, Inc. -- Emerging Markets
Equity (International) Portfolio -- long term capital appreciation.

THE MANAGERS

Independence Capital Management, Inc. ("Independence Capital Management"),
of Horsham, Pennsylvania, is investment adviser to each of the Penn Series
Funds.

T. Rowe Price Associates, Inc., of Baltimore, Maryland, is investment
sub-adviser to the Penn Series Flexibly Managed Fund and Penn Series High Yield
Bond Fund.

OpCap Advisors (formerly Quest for Value Advisors), of New York, New York,
is investment sub-adviser to the Penn Series Value Equity Fund and the Penn
Series Small Capitalization Fund.

Vontobel USA Inc., of New York, New York, is the investment sub-adviser to
the Penn Series International Equity Fund.

RS Investment Management, Inc. (formerly Robertson Stephens Investment
Management, Inc.), of San Francisco, California, is investment sub-adviser to
the Penn Series Emerging Growth Fund.

Neuberger Berman Management Incorporated, of New York, New York, is the
investment adviser to each series of Advisers Managers Trust underlying the
Neuberger Berman Limited Maturity Bond Portfolio, the Neuberger Berman Balanced
Portfolio and the Neuberger Berman Partner Portfolio.

American Century Investment Management, Inc. ("American Century"), of
Kansas City, Missouri, is the investment adviser to Capital Appreciation
Portfolio.

Fidelity Management & Research Corporation ("FMR"), of Boston,
Massachusetts, is the investment adviser to VIP Fund's Equity Income Portfolio
and Growth Portfolio and VIP Fund II's Asset Manager Portfolio and Index 500
Portfolio. FMR utilizes the services of two subsidiaries on a sub-advisory basis
for foreign securities investments for the Asset Manager Portfolio. These
subsidiaries are Fidelity Management & Research (U.K.) Inc. and Fidelity
Management & Research (Far East) Inc.

Morgan Stanley Dean Witter Investment Management Inc. ("Morgan Stanley
Dean Witter"), of New York, New York, is the investment adviser to Morgan
Stanley Universal Funds' Emerging Markets Equity (International) Portfolio.

27
<PAGE>

Further information about the Funds is contained in the accompanying
prospectuses, which you should read in conjunction with this prospectus.

We have entered into agreements with Penn Series, Neuberger Berman,
American Century Variable Portfolios, Fidelity Investments' VIP Fund, Fidelity
Investments' VIP Fund II and Morgan Stanley Dean Witter governing the Separate
Account's investment in those Funds. The advisers to American Century Variable
Portfolios, Fidelity Investments' VIP Fund, Fidelity Investments' VIP Fund II
and Morgan Stanley Dean Witter Portfolios, or their affiliates, compensate Penn
Mutual for administrative and other services rendered in making shares of the
portfolios available under the Policies.

The shares of Penn Series, Neuberger Berman, American Century Variable
Portfolios, Fidelity Investments' VIP Fund, Fidelity Investments' VIP Fund II
and Morgan Stanley Dean Witter are sold not only to the Separate Account, but to
other separate accounts of Penn Mutual that fund benefits under variable annuity
policies. The shares of Neuberger Berman, American Century Variable Portfolios,
Fidelity Investments' VIP Fund, Fidelity Investments' VIP Fund II and Morgan
Stanley Dean Witter are also sold to separate accounts of other insurance
companies, and may also be sold directly to qualified pension and retirement
plans. It is conceivable that in the future it may become disadvantageous for
both variable life and variable annuity Policy separate accounts (and also
qualified pension and retirement plans) to invest in the same underlying mutual
fund. Although neither we nor Penn Series, Neuberger Berman, American Century
Variable Portfolios, Fidelity Investments' VIP Fund, Fidelity Investments' VIP
Fund II or Morgan Stanley Dean Witter currently perceives or anticipates any
such disadvantage, the Boards of Directors of Penn Series, American Century
Variable Portfolios and Morgan Stanley Dean Witter, respectively, and the Boards
of Trustees of Neuberger Berman, Fidelity Investments' VIP Fund and Fidelity
Investments' VIP Fund II, respectively, will monitor events to determine whether
any material conflict between variable annuity Policyowners and variable life
Policyowners (and also qualified pension and retirement plans with respect to
Neuberger Berman) arises.

Material conflicts could result from such things as: (1) changes in state
insurance laws; (2) changes in federal income tax law; (3) changes in the
investment management of any Fund or of Penn Series, Neuberger Berman, American
Century Variable Portfolios, Fidelity Investments' VIP Fund, Fidelity
Investments' VIP Fund II and Morgan Stanley Dean Witter, respectively; or (4)
differences between voting instructions given by variable annuity Policyowners
and those given by variable life Policyowners. In the event of a material
irreconcilable conflict, we will take the steps necessary to protect our
variable annuity and variable life Policyowners. This could include
discontinuance of investment in a Fund.

- --------------------------------------------------------------------------------
MORE INFORMATION ABOUT POLICY VALUES

On the policy date (the date from which policy years and monthly
anniversaries are measured), the policy value is equal to the initial net
premium. If the policy date and the policy issue date (the date the policy is
issued) are the same day, the policy value is equal to the initial net premium,
less the monthly deduction. On each valuation date (each day the New York Stock
Exchange and our office is open for business) thereafter, the policy value is
the aggregate of the Policy's variable account values and the fixed interest
account value. The policy value will vary to reflect the variable account
values, interest credited to the fixed interest account, policy charges,
transfers, partial surrenders, policy loans and policy loan repayments.

VARIABLE ACCOUNT VALUES

When you allocate an amount to a variable account investment option,
either by net premium allocation or transfer, your Policy is credited with
accumulation units. The number of accumulation units is determined by dividing
the amount allocated to the variable account investment option by the variable
account's accumulation unit value for the valuation period in which the
allocation was made.

The number of accumulation units credited to your Policy for a variable
account investment option will increase when net premiums are allocated to the
variable account, amounts are transferred to the variable account and loan
repayments are credited to the variable account. The number of accumulation
units will decrease when the allocated portion of the monthly deduction is taken
from the variable account, a policy loan is taken from the variable account, an
amount is transferred from the variable account or a partial surrender is made
from the variable account (including the partial surrender charge).

28
<PAGE>

ACCUMULATION UNIT VALUES

An accumulation unit value varies to reflect the investment experience of
the underlying investment fund in which the Policy is invested and the mortality
and expense risk charge assessed against the investment, and may increase or
decrease from one valuation date to the next. The accumulation unit value of
each subaccount of the Separate Account that invests in a fund was arbitrarily
set at $10 when the subaccount was established. For each valuation period after
the date of establishment, the accumulation unit value is determined by
multiplying the value of an accumulation unit for a subaccount for the prior
valuation period by the net investment factor for the subaccount for the current
valuation period.

NET INVESTMENT FACTOR

The net investment factor is an index used to measure the investment
performance of a subaccount from one valuation period to the next. It is based
on the change in net asset value of the fund shares held by the subaccount, and
reflects any dividend or capital gain distributions on fund shares and the
deduction of the daily mortality and expense risk charge.

FIXED ACCOUNT VALUE

On any valuation date, the fixed account value of a Policy is the total of
all net premiums allocated to the fixed account, plus any amounts transferred to
the fixed account, plus interest credited on such net premiums and transferred
amounts, less the amount of any transfers from the fixed account, less the
amount of any partial surrenders taken from the fixed account (including the
partial surrender charges), and less the pro rata portion of the monthly
deduction deducted from the fixed account. If there have been any policy loans,
the fixed account value is further adjusted to reflect the amount in the special
loan account, including transfers to and from the special loan account as loans
are taken and repayments are made, and interest credited on the policy special
loan account.

NET POLICY VALUE

The net policy value on a valuation date is the policy value less the
amount of any policy loan on that date.

CASH SURRENDER VALUE

The cash surrender value on a valuation date is the policy value reduced
by any surrender charge that would be assessed if the Policy were surrendered on
that date. The cash surrender value is used to calculate the loan value.

NET CASH SURRENDER VALUE

The net cash surrender value on a valuation date is equal to the net
policy value reduced by any surrender charge that would be imposed if the Policy
were surrendered on that date. The net cash surrender value is used to calculate
the amount available for partial surrenders. It is the amount received upon a
full surrender of the Policy.

- --------------------------------------------------------------------------------
FEDERAL INCOME TAX CONSIDERATIONS

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 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 on Penn Mutual's understanding of
the present Federal income tax laws as they are currently interpreted by the
Internal Revenue Service (the "IRS"). No representation is made as to the
likelihood of continuation of the present Federal income tax laws or of the
current interpretations by the IRS.

TAX STATUS OF THE POLICY

To qualify as a life insurance contract for federal income tax purposes,
the Policy must meet the definition of a life insurance contract which is set
forth in Section 7702 of the Internal Revenue Code of 1986, as amended (the
"Code"). The manner in which Section 7702 should be applied to certain features
of the Policy offered in this prospectus is not directly addressed by Section
7702 or any guidance issued to date under Section 7702. Nevertheless, Penn
Mutual believes it is reasonable to conclude that the Policy will meet the
Section 7702 definition of a life insurance contract. In the absence of

29
<PAGE>

final regulations or other pertinent interpretations of Section 7702, however,
there is necessarily some uncertainty as to whether a Policy will meet the
statutory life insurance contract definition, particularly if it insures a
substandard risk. If a Policy were determined not to be a life insurance
contract for purposes of Section 7702, such contract would not provide most of
the tax advantages normally provided by a life insurance contract.

If it is subsequently determined that a Policy does not satisfy Section
7702, we may take whatever steps that are appropriate and reasonable to comply
with Section 7702. For these reasons, we reserve the right to restrict Policy
transactions as necessary to attempt to qualify it as a life insurance contract
under Section 7702.

Section 817(h) of the Code requires that the investments of each
Subaccount of the Separate Account must be "adequately diversified" in
accordance with Treasury regulations in order for the Policy to qualify as a
life insurance contract under Section 7702 of the Code (discussed above). The
Separate Account, through the funds, intends to comply with the diversification
requirements prescribed in Treas. Reg. ss. 1.817-5, which affect how the funds'
assets are to be invested. Penn Mutual believes that the Separate Account will
thus meet the diversification requirement, and Penn Mutual will monitor
continued compliance with this requirement.

The IRS has stated in published rulings that a variable contract owner
will be considered the owner of separate account assets if the contract owner
possesses incidents of ownership in those assets, such as the ability to
exercise investment control over the assets. In circumstances where the variable
contract owner is considered the owner of separate account assets, income and
gain from the assets would be includable in the variable contract owner's gross
income. In connection with the issuance of regulations on the phrase "adequate
diversification," the Treasury Department announced in 1984 that guidance would
be given, by way of regulation or ruling, on the "extent to which Policyholders
may direct their investments to particular subaccounts without being treated as
owners of underlying assets." As of the date of this Prospectus, no ruling or
regulation has been issued.

The following discussion assumes that the Policy qualifies as a life
insurance contract for federal income tax purposes.

We believe that the proceeds and cash value increases of a Policy should
be treated in a manner consistent with a fixed-benefit life insurance Policy for
Federal income tax purposes. Thus, the death benefit under the Policy should be
excludable from the gross income of the Beneficiary under Section 101(a)(1) of
the Code.

MODIFIED ENDOWMENT CONTRACTS

The Internal Revenue Code establishes a class of life insurance contracts
designated as "modified endowment contracts," which applies to Policies entered
into or materially changed after June 20, 1988.

Due to the Policy's flexibility, classification as a modified endowment
contract will depend on the individual circumstances of each Policy. In general,
a Policy will be a modified endowment contract if the accumulated premiums paid
at any time during the first seven policy years exceeds the sum of the net level
premiums which would have been paid on or before such time if the Policy
provided for paid-up future benefits after the payment of seven level annual
premiums. The determination of whether a Policy will be a modified endowment
contract after a material change generally depends upon the relationship of the
death benefit and policy value at the time of such change and the additional
premiums paid in the seven years following the material change. At the time a
premium is credited which would cause the Policy to become a modified endowment
contract, we will notify you that unless a refund of the excess premium (with
interest) is requested, your Policy will become a modified endowment contract.
You will have 30 days after receiving such notification to request the refund.

All policies that we or our affiliate issues to the same owner during any
calendar year, which are treated as modified endowment contracts, are treated as
one modified endowment contract for purposes of determining the amount
includable in the gross income under Section 72(e) of the Code.

The rules relating to whether a Policy will be treated as a modified
endowment contract are complex and make it impracticable to adequately describe
in the limited confines of this summary. Therefore, you may wish to consult with
a competent advisor to determine whether a Policy transaction will cause the
Policy to be treated as a modified endowment contract.

30
<PAGE>

DISTRIBUTIONS FROM POLICIES CLASSIFIED AS MODIFIED ENDOWMENT CONTRACTS

Policies classified as a modified endowment contract will be subject to
the following tax rules. First, all distributions, including distributions upon
surrender and partial withdrawals from such a Policy are treated as ordinary
income subject to tax up to the amount equal to the excess (if any) of the
policy value immediately before the distribution over the investment in the
Policy (described below) at such time. Second, loans taken from or secured by,
such a Policy are treated as distributions from such a Policy and taxed
accordingly. Past due loan interest that is added to the loan amount will be
treated as a loan. Third, a 10 percent additional income tax is imposed on the
portion of any distribution from, or loan taken from or secured by, such a
Policy that is included in income except where the distribution or loan is made
on or after the owner attains age 59 1/2, is attributable to the owner's
becoming totally and permanently disabled, or 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.

DISTRIBUTIONS FROM POLICIES NOT CLASSIFIED AS MODIFIED ENDOWMENT CONTRACTS

Distributions from a Policy that is not a modified endowment contract, are
generally treated as first recovering the investment in the Policy (described
below) and then, only after the return of all such investment in the Policy, as
distributing taxable income. An exception to this general rule occurs in the
case of a decrease in the Policy's death benefit or any other change that
reduces benefits under the Policy in the first 15 years after the Policy is
issued and that results in a cash distribution to the owner in order for the
Policy to continue complying with the Section 7702 definitional limits. Such a
cash distribution will be taxed in whole or in part as ordinary income (to the
extent of any gain in the Policy) under rules prescribed in Section 7702.

Loans from, or secured by, a Policy that is not a modified endowment
contract are not treated as distributions. Instead, such loans are treated as
indebtedness of the owner.

Finally, neither distributions (including distributions upon surrender)
nor loans from, or secured by, a Policy that is not a modified endowment
contract are subject to the 10 percent additional tax.

POLICY LOAN INTEREST

Generally, personal interest paid on a loan under a Policy which is owned
by an individual is not deductible. In addition, interest on any loan under a
Policy owned by a taxpayer and covering the life of any individual will
generally not be tax deductible. The deduction of interest on policy loans may
also be subject to the restrictions of Section 264 of the Code. An owner should
consult a tax adviser before deducting any interest paid in respect of a policy
loan.

INVESTMENT IN THE POLICY

Investment in the Policy means: (i) the aggregate amount of any premiums
or other consideration paid for a Policy, minus (ii) the aggregate amount
received under the Policy which is excluded from gross income of the owner
(except that the amount of any loan from, or secured by, a Policy that is a
modified endowment contract, to the extent such amount is excluded from gross
income, will be disregarded), plus (iii) the amount of any loan from, or secured
by, a Policy that is a modified endowment contract to the extent that such
amount is included in the gross income of the owner.

TAXATION OF POLICY SPLIT

The Policy Split Option Rider which we offer permits a Policy to be split
into two other life policies upon the occurrence of a divorce of the joint
insureds or certain changes in federal estate tax law. A Policy split could have
adverse tax consequence. For example, it is not clear whether a Policy split
will be treated as a nontaxable exchange under Section 1031 through 1043 of the
Code. If a Policy split is not treated as a nontaxable exchange, a split could
result in the recognition of taxable income in an amount up to any gain in the
Policy at the time of the split. In addition, it is not clear whether, in all
circumstances, the individual policies that result from a Policy split would be
treated as life insurance contracts for federal income tax purposes and, if so
treated, whether the individual contracts would be classified as modified
endowment contracts. Before you exercise rights provided by the Policy split
option, it is important that you consult with a competent tax advisor regarding
the possible consequences of a Policy split.

31
<PAGE>

OTHER TAX CONSIDERATIONS

The transfer of the Policy or the 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 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 of the owner, may have
generation skipping transfer tax considerations under Section 2601 of the Code.

The individual situation of each owner or beneficiary will determine the
extent, if any, to which federal, state and local transfer taxes may be imposed.
Consult with your tax adviser for specific information in connection with these
taxes.

- --------------------------------------------------------------------------------
SALE OF THE POLICIES

Hornor, Townsend & Kent, Inc. ("HTK"), a wholly-owned subsidiary of Penn
Mutual, acts as a principal underwriter of the Policies. HTK also acts as
principal underwriter for Penn Mutual Variable Annuity Account III, a separate
account also established by Penn Mutual and for PIA Variable Annuity Account I,
a separate account established by The Penn Insurance and Annuity Company, a
wholly-owned subsidiary of Penn Mutual. HTK is a registered broker-dealer under
the Securities Exchange Act of 1934 and a member of the National Association of
Securities Dealers, Inc. The Policy is sold by registered representatives of HTK
who are also appointed and licensed as insurance agents. The Policy may also be
offered through other insurance and securities brokers. Registered
representatives may be paid commissions on a Policy they sell based on premiums
paid in amounts up to 50% of first year premiums, 2% on premiums paid during the
second through fifteenth policy years, and 1.2% on premiums paid after the first
fifteen policy years. Registered representatives may also be paid commissions of
up to 0.25% of policy value. Other allowances and overrides also may be paid.
Registered representatives who meet certain productivity and profitability
standards may be eligible for additional compensation.

For 1998, 1997 and 1996, Penn Mutual received premium payments on the
Policy in the approximate amount of $14,914,087, $11,042,761 and $4,580,00,
respectively, and compensated HTK in the approximate amounts of $77,750,
$73,474, and $34,139, respectively, for its services as principal underwriter.

- --------------------------------------------------------------------------------
PENN MUTUAL TRUSTEES AND OFFICERS

Penn Mutual is managed by a board of trustees. The following table sets
forth the name, address and principal occupations during the past five years of
each of Penn Mutual's trustees.

BOARD OF TRUSTEES
<TABLE>
<CAPTION>

POSITION WITH
NAME AND ADDRESS PENN MUTUAL PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Robert E. Chappell Chairman of the Board Chairman of the Board and Chief Executive Officer (since
The Penn Mutual Life and Chief Executive December 1996), President and Chief Executive Officer
Insurance Company Officer (April 1995-December 1996), President and Chief Operating
Philadelphia, PA 19172 Officer, (January1994 to April 1995), The Penn Mutual Life
Insurance Company.
- ------------------------------------------------------------------------------------------------------------------------------------
Daniel J. Toran President, Chief President and Chief Operating Officer (since January 1997),
The Penn Mutual Life Operating Officer Executive Vice President, (May 1996-January 1997), The Penn
Insurance Company and Trustee Mutual Life Insurance Company; Executive Vice President, The
Philadelphia, PA 19172 New England Mutual Life Insurance Company (prior thereto).

</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Julia Chang Bloch Trustee Visiting Professor, Institute of International Relations in Beijing,
1743 22nd Street, NW China, and distinguished adviser, American Studies Center
Washington, DC 20008 (April 1998 to present); President, US-Japan Foundation (July 1996
to March 1998); Group Executive Vice President, Bank America NT
& SA (June 1993 to June 1996).
- ------------------------------------------------------------------------------------------------------------------------------------
James A. Hagen Trustee Retired (since May 1996), Chairman of the Board, Conrail, Inc.
2040 Montrose Lane (prior thereto).
Wilmington, NC 28405
- ------------------------------------------------------------------------------------------------------------------------------------
Philip E. Lippincott Trustee Retired (since April 1994), Chairman and Chief Executive Officer,
4301 Bayberry Drive Scott Paper Company (prior thereto).
Avalon, NJ 08202
- ------------------------------------------------------------------------------------------------------------------------------------
John F. McCaughan Trustee Retired Chairman (since 1996), Chairman of the Board (prior thereto),
921 Pebble Hill Road Betz Laboratories, Inc.
Doylestown, PA 18901
- ------------------------------------------------------------------------------------------------------------------------------------
Alan B. Miller Trustee Chairman and President, Universal Health Services, Inc.
367 S. Gulph Road
King of Prussia, PA 19406
- ------------------------------------------------------------------------------------------------------------------------------------
Edmond F. Notebaert Trustee President and Chief Executive Officer, The Children's Hospital of
34th & Civic Center Blvd. Philadelphia (since 1987).
Philadelphia, PA 19104
- ------------------------------------------------------------------------------------------------------------------------------------
Robert H. Rock Trustee President, MLR Holdings, LLC (since 1987).
9th Floor
1845 Walnut Street
Philadelphia, PA 19103
- ------------------------------------------------------------------------------------------------------------------------------------
Norman T. Wilde, Jr. Trustee President and Chief Executive Officer, Janney Montgomery Scott
1801 Market Street Inc. (a securities broker/dealer and subsidiary of The Penn Mutual
Philadelphia, PA 19103 Life Insurance Company).
- ------------------------------------------------------------------------------------------------------------------------------------
Wesley S. Williams, Jr., Esq. Trustee Partner, Covington & Burling (law firm).
1201 Pennsylvania Ave., N.W.
P.O. Box 7566
Washington, D.C. 20004
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

The following table sets forth the names, addresses and principal
occupations during the past five years of the senior officers of Penn Mutual
(other than officers who are members of Penn Mutual's Board of Trustees).

SENIOR OFFICERS

NAME PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
John M. Albanese Senior Vice President, Customer Service and Information Systems (since June 1997),
The Penn Mutual Life Vice President, Information Systems Application (prior thereto), The Penn Mutual Life
Insurance Company Insurance Company.
Philadelphia, PA 19172
</TABLE>
33

<PAGE>

<TABLE>
<CAPTION>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Michael A. Biondolillo Senior Vice President, Human Resources (since June 1997); Corporate Vice President and
The Penn Mutual Life General Manager, Human Resources and Quality MG Industries, America (prior thereto).
Insurance Company
Philadelphia, PA 19172
- ------------------------------------------------------------------------------------------------------------------------------------
George W. Bentham Senior Vice President, Career Agency System (since April 1998), The Penn Mutual Life
The Penn Mutual Life Insurance Company, Independent Consultant (1997); Senior Vice President & Chief of
Insurance Company Marketing Officer (1995-1996), American General Life; Vice President,
Philadelphia, PA 19172 Individual Marketing (prior thereto), Alexander Hamilton Life.
- ------------------------------------------------------------------------------------------------------------------------------------
Nancy S. Brodie Executive Vice President and Chief Financial Officer (since December 1995), Senior Vice
The Penn Mutual Life President and Chief Financial Officer (prior thereto), The Penn Mutual Life Insurance
Insurance Company Company.
Philadelphia, PA 19172
- ------------------------------------------------------------------------------------------------------------------------------------
Larry L. Mast Executive Vice President, The Penn Mutual Life Insurance Company (May 1997 to present).
The Penn Mutual Life Formerly Senior Vice President, Lafayette Life Insurance Company (September 1994 to
Insurance Company May 1997); Vice President, Security Benefit Insurance Company (May 1993 to September
Philadelphia, PA 19172 1994); Vice President, Home Life Insurance Company (July 1990 to May 1993); Agency
Manager, The Equitable Life Insurance Company (August 1978 to July 1990).
- ------------------------------------------------------------------------------------------------------------------------------------
Nina M. Mulrooney General Auditor (since November 1991), Vice President, Market Conduct (since December
The Penn Mutual Life 1997), Assistant Vice President, Corporate Accounting and Controls (prior thereto),
Insurance Company The Penn Mutual Life Insurance Company.
Philadelphia, PA 19172
- ------------------------------------------------------------------------------------------------------------------------------------
Harold E. Maude, Jr. Senior Vice President, Independence Financial Network (since July 1996), Vice President,
The Penn Mutual Life Independence Financial Network (prior thereto), The Penn Mutual Life Insurance Company.
Insurance Company
Philadelphia, PA 19172
- ------------------------------------------------------------------------------------------------------------------------------------
Peter M. Sherman Executive Vice President (since December 1998), Chief Investment Officer (since May 1996),
The Penn Mutual Life Senior Vice President (May 1996 to December 1996), Vice President, Investments (January
Insurance Company 1996 to April 1996), Vice President, Fixed Income Portfolio Management (prior thereto),
Philadelphia, PA 19172 The Penn Mutual Life Insurance Company; President, Independence Capital Management,
Inc. (an investment advisory organization and subsidiary of Penn Mutual).
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

- --------------------------------------------------------------------------------
STATE REGULATION

Penn Mutual is subject to regulation by the Department of Insurance of the
Commonwealth of Pennsylvania, which periodically examines our financial
condition and operations. We are also subject to the insurance laws and
regulations of all jurisdictions where we do business. The Policy described in
this prospectus has been filed with and, where required, approved by, insurance
officials in those jurisdictions where it is sold.

We are required to submit annual statements of our operations, including
financial statements, to the insurance departments of the various jurisdictions
where we do business to determine solvency and compliance with applicable
insurance laws and regulations.

34
<PAGE>

- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION

A registration statement under the Securities Act of 1933 has been filed
with the SEC relating to the offering described in this prospectus. This
prospectus does not include all the information set forth in the registration
statement. The omitted information may be obtained at the SEC's principal office
in Washington, D.C. by paying the SEC's prescribed fees.

- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS

Ernst & Young LLP serves as independent auditors of The Penn Mutual Life
Insurance Company and Penn Mutual Variable Life Account I. Their offices are
located at 2001 Market Street, Suite 4000, Philadelphia, PA.

- --------------------------------------------------------------------------------
EXPERTS

Actuarial matters included in this prospectus have been examined by Edward
S. Attarian, FSA, MAAA, Actuary of Penn Mutual, whose opinion is filed as an
exhibit to the Registration Statement.

- --------------------------------------------------------------------------------
LITIGATION
No litigation is pending that would have a material effect upon the
subaccounts or Penn Mutual.

- --------------------------------------------------------------------------------
LEGAL MATTERS

Morgan, Lewis & Bockius, LLP of Philadelphia, Pennsylvania, has provided
advice on certain matters relating to the federal securities laws and the
offering of the Policies.

- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS

The financial statements of the Separate Account and Penn Mutual appear on
the following pages. The financial statements of Penn Mutual should be
distinguished from any financial statements of the Separate Account and should
be considered only as bearing upon Penn Mutual's ability to meet its obligations
under the Policies.

35
<PAGE>

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Penn Mutual Life Insurance Company and Contract Owners of Penn Mutual
Variable Life Account I

We have audited the accompanying statement of assets and liabilities of Penn
Mutual Variable Life Account I (comprising, respectively, Money Market Fund,
Quality Bond Fund, High Yield Bond Fund, Growth Equity Fund, Value Equity Fund,
Flexibly Managed Fund, Small Capitalization Fund, International Equity Fund,
Emerging Growth Fund, Balanced Portfolio, Limited Maturity Bond Portfolio,
Partners Portfolio, Capital Appreciation Portfolio, Equity Income Portfolio,
Growth Portfolio, Asset Manager Portfolio, Index 500 Portfolio, Emerging
Markets Equity Portfolio) as of December 31, 1998 and the related statement of
operations and statements of changes in net assets for the each of the periods
indicated therein. These financial statements are the responsibility of the
management of Penn Mutual Variable Life Account I. Our responsibility is to
express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards 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. Our
procedures included confirmation of securities owned as of December 31, 1998,
by correspondence with the transfer agents. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the portfolios
constituting the Penn Mutual Variable Life Account I at December 31, 1998, the
results of their operations and changes in their net assets for each of the
periods indicted therein, in conformity with generally accepted accounting
principles.

Philadelphia, Pennsylvania ERNST & YOUNG LLP
April 2, 1999

36
<PAGE>

- --------------------------------------------------------------------------------
PENN MUTUAL VARIABLE LIFE ACCOUNT I
STATEMENT OF ASSETS AND LIABILITIES -- DECEMBER 31, 1998

<TABLE>
<CAPTION>
MONEY QUALITY HIGH YIELD GROWTH EQUITY
TOTAL MARKET FUND++ BOND FUND++ BOND FUND++ FUND++
--------------- --------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
INVESTMENT IN COMMON STOCK
Number of Shares .................... 11,334,098 638,649 861,738 489,993
Cost ................................ $235,497,972 $11,334,098 $6,652,404 $8,192,626 $11,729,650
ASSETS:
Investments at Market Value ......... $257,521,685 $11,334,098 $6,641,947 $7,919,370 $15,130,985
Dividends receivable ................ 49,116 49,116 -- -- --
LIABILITIES:
Due to (from) The Penn Mutual
Life Insurance Company ............. 221,956 (36,363) 1,424 1,812 3,933
------------ ----------- ---------- ---------- -----------
NET ASSETS ........................... $257,348,845 $11,419,577 $6,640,523 $7,917,558 $15,127,052
============ =========== ========== ========== ===========
</TABLE>

- --------------------------------------------------------------------------------
PENN MUTUAL VARIABLE LIFE ACCOUNT I
STATEMENT OF OPERATIONS -- FOR THE YEAR ENDED DECEMBER 31, 1998

<TABLE>
<CAPTION>
MONEY QUALITY HIGH YIELD GROWTH EQUITY
TOTAL MARKET FUND++ BOND FUND++ BOND FUND++ FUND++
------------- --------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ............................ $ 4,222,562 $523,576 $ 294,435 $ 615,511 $ 10,136
EXPENSE:
Mortality and expense risk
charges ............................. 1,744,648 90,068 42,394 52,081 86,351
----------- -------- --------- ---------- -----------
Net investment income (loss) ......... 2,477,914 433,508 252,041 563,430 (76,215)
----------- -------- --------- ---------- -----------
REALIZED AND UNREALIZED
GAINS (LOSSES) ON
INVESTMENTS:
Realized gains (losses) from
redemption of fund shares ........... 672,191 -- 5,291 291 11,013
Capital gains distributions .......... 15,495,765 -- 198,445 -- 1,579,046
----------- -------- --------- ---------- -----------
Net realized gains from
investment transactions ............. 16,167,956 -- 203,736 291 1,590,059
Net change in unrealized
appreciation/depreciation of
investments ......................... 6,282,694 -- (14,899) (318,691) 2,350,499
----------- -------- --------- ---------- -----------
Net realized and unrealized
gains (losses) on investments ....... 22,450,650 -- 188,837 (318,400) 3,940,558
----------- -------- --------- ---------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS .......................... $24,928,564 $433,508 $ 440,878 $ 245,030 $ 3,864,343
=========== ======== ========= ========== ===========
</TABLE>

- ----------
++ Investment in Penn Series Funds, Inc.
++++ Investment in Neuberger Berman Advisers Management Trust
++++++ Investment in American Century Variable Portfolios, Inc.
++++++++ Investment in Fidelity Investments' Variable Insurance Products Funds
I and II
++++++++++ Investment in Morgan Stanley Dean Witter Universal Funds, Inc.

The accompanying notes are an integral part of these financial statements.

37
<PAGE>

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FLEXIBLY SMALL EMERGING
VALUE EQUITY MANAGED INTERNATIONAL CAPITALIZATION GROWTH
FUND++ FUND++ EQUITY FUND++ FUND++ FUND++
- -------------- -------------- --------------- ---------------- -------------
<S> <C> <C> <C> <C>

1,585,105 3,017,417 1,218,820 650,958 340,754
$31,453,934 $56,227,637 $19,383,461 $8,691,334 $4,774,068

$35,490,505 $55,248,910 $22,401,909 $8,338,774 $5,939,334
-- -- -- -- --

8,841 12,414 5,512 1,984 1,797
----------- ----------- ----------- ---------- ----------
$35,481,664 $55,236,496 $22,396,397 $8,336,790 $5,937,537
=========== =========== =========== ========== ==========
</TABLE>

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FLEXIBLY SMALL EMERGING
VALUE EQUITY MANAGED INTERNATIONAL CAPITALIZATION GROWTH
FUND++ FUND++ EQUITY FUND++ FUND++ FUND++
- -------------- --------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>

$ 441,858 $ 1,554,726 $ 206,500 $ 52,380 $ --

260,226 409,962 149,839 57,923 29,768
----------- ------------ ----------- -------- -----------
181,632 1,144,764 56,661 (5,543) (29,768)
----------- ------------ ----------- -------- -----------

289,563 246,644 250,872 (4) 9,622
2,887,717 5,538,196 719,716 135,420 790
----------- ------------ ----------- -------- -----------

3,177,280 5,784,840 970,588 135,416 10,412

(904,321) (4,524,890) 2,087,405 (791,507) 1,277,385
----------- ------------ ----------- -------- -----------

2,272,959 1,259,950 3,057,993 (656,091) 1,287,797
----------- ------------ ----------- -------- -----------

$ 2,454,591 $ 2,404,714 $ 3,114,654 ($661,634) $ 1,258,029
=========== ============ =========== ========= ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

38
<PAGE>

- --------------------------------------------------------------------------------
PENN MUTUAL VARIABLE LIFE ACCOUNT I
STATEMENT OF ASSETS AND LIABILITIES -- DECEMBER 31, 1998 (CONT'D.)

- --------------------------------------------------------------------------------
PENN MUTUAL VARIABLE LIFE ACCOUNT I
STATEMENT OF OPERATIONS -- FOR THE YEAR ENDED DECEMBER 31, 1998 (CONT'D.)

<TABLE>
<CAPTION>
LIMITED CAPITAL
BALANCED MATURITY BOND PARTNERS APPRECIATION
PORTFOLIO++++ PORTFOLIO++++ PORTFOLIO++++ PORTFOLIO++++++
--------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ..................................... $ 87,653 $ 49,871 $ 15,266 $ --
EXPENSE:
Mortality and expense risk charges ............ 34,876 7,976 49,221 47,491
---------- --------- ---------- ---------
Net investment income (loss) .................. 52,777 41,895 (33,955) (47,491)
---------- --------- ---------- ---------
REALIZED AND UNREALIZED GAINS (LOSSES) ON
INVESTMENTS:
Realized gains (losses) from redemption of
fund shares .................................. (5,003) 242 5,188 (164,376)
Capital gains distributions ................... 615,658 -- 480,865 304,408
---------- --------- ---------- ---------
Net realized gains from investment transactions 610,655 242 486,053 140,032
Net change in unrealized appreciation/
depreciation of investments .................. (184,479) (13,221) (271,429) (261,202)
---------- --------- ---------- ---------
Net realized and unrealized gains (losses) on
investments .................................. 426,176 (12,979) 214,624 (121,170)
---------- --------- ---------- ---------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS .................... $ 478,953 $ 28,916 $ 180,669 ($ 168,661)
========== ========= ========== =========
</TABLE>

The accompanying notes are an integral part of these financial statements.

39
<PAGE>

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
EMERGING
EQUITY INCOME GROWTH ASSET MANAGER INDEX 500 MARKETS EQUITY
PORTFOLIO++++++++ PORTFOLIO++++++++ PORTFOLIO++++++++ PORTFOLIO++++++++ PORTFOLIO++++++++++
- ------------------- ------------------- ------------------- ------------------- --------------------
<S> <C> <C> <C> <C>

781,731 636,718 204,814 104,596 253,025
$16,956,543 $21,094,184 $3,351,168 $12,706,988 $2,207,943

$19,871,602 $28,569,544 $3,719,433 $14,774,172 $1,799,007
-- -- -- -- --

5,352 7,739 948 4,001 197,389
----------- ----------- ---------- ----------- ----------
$19,866,250 $28,561,805 $3,718,485 $14,770,171 $1,601,618
=========== =========== ========== =========== ==========
</TABLE>

- --------------------------------------------------------------------------------

$ 182,863 $ 80,651 $ 68,039 $ 30,625 $ 8,472

142,405 186,928 24,502 62,991 9,646
----------- ----------- --------- ----------- ---------
40,458 (106,277) 43,537 (32,366) (1,174)
----------- ----------- --------- ----------- ---------

(1,038) 33,351 (1,881) (9,976) 2,392
650,775 2,109,678 204,117 70,934 --
----------- ----------- --------- ----------- ---------
649,737 2,143,029 202,236 60,958 2,392

963,306 5,047,623 136,988 1,980,793 (276,666)
----------- ----------- --------- ----------- ---------

1,613,043 7,190,652 339,224 2,041,751 (274,274)
----------- ----------- --------- ----------- ---------

$ 1,653,501 $ 7,084,375 $ 382,761 $ 2,009,385 ($ 275,448)
=========== =========== ========= =========== =========
</TABLE>

The accompanying notes are an integral part of these financial statements.

40
<PAGE>

- --------------------------------------------------------------------------------
PENN MUTUAL VARIABLE LIFE ACCOUNT I
STATEMENTS OF CHANGES IN NET ASSETS -- FOR THE YEARS ENDED DECEMBER 31, 1998
AND 1997

<TABLE>
<CAPTION>
TOTAL
--------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) .......................... $ 2,477,914 $ 2,286,799
Net realized gains (losses) from investment
transactions ......................................... $ 16,167,956 $ 6,873,413
Net change in unrealized appreciation/
depreciation of investments .......................... $ 6,282,694 $ 8,957,231
------------- ------------
Net increase (decrease) in net assets resulting from
operations ............................................ $ 24,928,564 $ 18,117,443
------------- ------------
VARIABLE LIFE ACTIVITIES:
Purchase payments ..................................... $ 96,529,479 $ 68,853,918
Death benefits ........................................ (121,041) (227,121)
Cost of Insurance ..................................... (14,082,492) (9,134,776)
Net Transfers ......................................... (3,175,599) (1,981,811)
Transfers of Policy Loans ............................. 577,625 571,227
Contract administration charges ....................... (3,850,403) (2,917,736)
Surrender benefits .................................... (5,921,782) (3,480,445)
------------- ------------
Net increase (decrease) in net assets resulting from
variable life activities .............................. 69,955,787 51,683,256
------------- ------------
Total increase (decrease) in net assets ............... 94,884,351 69,800,699
NET ASSETS:
Beginning of year ..................................... 162,464,494 92,663,795
------------- ------------
END OF YEAR ........................................... $ 257,348,845 $162,464,494
============= ============

<CAPTION>
MONEY MARKET FUND++ QUALITY BOND FUND++
---------------------------------- ----------------------------
1998 1997 1998 1997
---------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) .......................... $ 433,508 $ 300,710 $ 252,041 $ 215,998
Net realized gains (losses) from investment
transactions ......................................... -- -- 203,736 7,913
Net change in unrealized appreciation/
depreciation of investments .......................... -- -- (14,899) 32,551
-------------- -------------- ---------- ----------
Net increase (decrease) in net assets resulting from
operations ............................................ 433,508 300,710 440,878 256,462
-------------- -------------- ---------- ----------
VARIABLE LIFE ACTIVITIES:
Purchase payments ..................................... 42,019,252 28,866,480 1,155,232 1,215,245
Death benefits ........................................ (2,035) -- (249) (1,336)
Cost of Insurance ..................................... (1,191,497) (872,326) (259,658) (199,435)
Net Transfers ......................................... (36,872,301) (25,581,701) 1,041,850 458,596
Transfers of Policy Loans ............................. (251) 89,746 10,440 13,339
Contract administration charges ....................... (488,180) (378,302) (42,018) (47,774)
Surrender benefits .................................... (418,927) (145,321) (105,331) (105,819)
-------------- -------------- ---------- ----------
Net increase (decrease) in net assets resulting from
variable life activities .............................. 3,046,061 1,978,576 1,800,266 1,332,816
-------------- -------------- ---------- ----------
Total increase (decrease) in net assets ............... 3,479,569 2,279,286 2,241,144 1,589,278
NET ASSETS:
Beginning of year ..................................... 7,940,008 5,660,722 4,399,379 2,810,101
-------------- -------------- ---------- ----------
END OF YEAR ........................................... $ 11,419,577 $ 7,940,008 $6,640,523 $4,399,379
============== ============== ========== ==========
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
HIGH YIELD BOND FUND++ GROWTH EQUITY FUND++
---------------------------- ------------------------------
1998 1997 1998 1997
------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ........................ $ 563,430 $ 374,009 ($ 76,215) ($ 23,309)
Net realized gains (losses) from investment
transactions ....................................... 291 12,914 1,590,059 811,998
Net change in unrealized appreciation/
depreciation of investments ........................ (318,691) 186,727 2,350,499 691,676
---------- ---------- ---------- ---------
Net increase (decrease) in net assets resulting from
operations .......................................... 245,030 573,650 3,864,343 1,480,365
---------- ---------- ---------- ---------
VARIABLE LIFE ACTIVITIES:
Purchase payments ................................... 1,768,367 1,004,141 2,036,864 1,437,064
Death benefits ...................................... (232) (1,457) (413) (50,472)
Cost of Insurance ................................... (377,793) (250,416) (570,484) (399,675)
Net Transfers ....................................... 1,334,768 818,234 2,177,912 596,566
Transfers of Policy Loans ........................... 8,460 2,899 15,214 29,423
Contract administration charges ..................... (95,903) (62,569) (129,899) (94,210)
Surrender benefits .................................. (220,758) (134,700) (316,681) (244,609)
---------- ---------- ---------- ---------
Net increase (decrease) in net assets resulting from
variable life activities ............................ 2,416,909 1,376,132 3,212,513 1,274,087
---------- ---------- ---------- ---------
Total increase (decrease) in net assets ............. 2,661,939 1,949,782 7,076,856 2,754,452
NET ASSETS:
Beginning of year ................................... 5,255,619 3,305,837 8,050,196 5,295,744
---------- ---------- ---------- ---------
END OF YEAR ......................................... $7,917,558 $5,255,619 $15,127,052 $8,050,196
========== ========== =========== ==========

<CAPTION>
VALUE EQUITY FUND++
--------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ........................ $ 181,632 $ 155,892
Net realized gains (losses) from investment
transactions ....................................... 3,177,280 1,423,465
Net change in unrealized appreciation/
depreciation of investments ........................ (904,321) 2,544,660
------------ ------------
Net increase (decrease) in net assets resulting from
operations .......................................... 2,454,591 4,124,017
------------ ------------
VARIABLE LIFE ACTIVITIES:
Purchase payments ................................... 7,712,812 6,366,819
Death benefits ...................................... (3,109) (70,127)
Cost of Insurance ................................... (2,002,921) (1,349,019)
Net Transfers ....................................... 2,352,575 4,591,570
Transfers of Policy Loans ........................... 129,894 47,924
Contract administration charges ..................... (471,036) (409,821)
Surrender benefits .................................. (800,734) (498,860)
------------ ------------
Net increase (decrease) in net assets resulting from
variable life activities ............................ 6,917,481 8,678,486
------------ ------------
Total increase (decrease) in net assets ............. 9,372,072 12,802,503
NET ASSETS:
Beginning of year ................................... 26,109,592 13,307,089
------------ ------------
END OF YEAR ......................................... $ 35,481,664 $ 26,109,592
============ ============
</TABLE>

- ----------
* For the period from May 1, 1997 (date fund became available for
investment to contract owners) to December 31, 1997.
++ Investment in Penn Series Funds, Inc.
++++ Investment in Neuberger Berman Advisers Management Trust
++++++ Investment in American Century Variable Portfolios, Inc. (TCI
Portfolios, Inc.'s name changed to American Century Variable
Portfolios, Inc. as of May 1, 1997)
++++++++ Investment in Fidelity Investments' Variable Insurance Products Funds
I and II
++++++++++ Investment in Morgan Stanley Dean Witter Universal Funds, Inc.

The accompanying notes are an integral part of these financial statements.

41
<PAGE>

<TABLE>
<CAPTION>
FLEXIBLY MANAGED FUND++
--------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ........................ $ 1,144,764 $ 949,494
Net realized gains (losses) from investment
transactions ....................................... 5,784,840 2,543,108
Net change in unrealized appreciation/
depreciation of investments ........................ (4,524,890) 1,371,189
------------ ------------
Net increase (decrease) in net assets resulting from
operations .......................................... 2,404,714 4,863,791
------------ ------------
VARIABLE LIFE ACTIVITIES:
Purchase payments ................................... 12,234,331 11,469,514
Death benefits ...................................... (17,851) (71,412)
Cost of Insurance ................................... (3,137,840) (2,384,305)
Net Transfers ....................................... 1,345,485 4,080,131
Transfers of Policy Loans ........................... 139,613 217,489
Contract administration charges ..................... (646,642) (635,429)
Surrender benefits .................................. (1,299,724) (1,056,819)
------------ ------------
Net increase (decrease) in net assets resulting from
variable life activities ............................ 8,617,372 11,619,169
------------ ------------
Total increase (decrease) in net assets ............. 11,022,086 16,482,960
NET ASSETS:
Beginning of year ................................... 44,214,410 27,731,450
------------ ------------
END OF YEAR ......................................... $ 55,236,496 $ 44,214,410
============ ============

<CAPTION>
SMALL
INTERNATIONAL EQUITY FUND++ CAPITALIZATION FUND++
-------------------------------- -----------------------------
1998 1997 1998 1997
--------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ........................ $ 56,661 $ 327,027 ($ 5,543) ($ 5,769)
Net realized gains (losses) from investment
transactions ....................................... 970,588 477,764 135,416 305,901
Net change in unrealized appreciation/
depreciation of investments ........................ 2,087,405 167,910 (791,507) 335,317
------------ ----------- --------- ---------
Net increase (decrease) in net assets resulting from
operations .......................................... 3,114,654 972,701 (661,634) 635,449
------------ ----------- --------- ---------
VARIABLE LIFE ACTIVITIES:
Purchase payments ................................... 4,244,414 3,663,296 2,372,356 1,432,627
Death benefits ...................................... (15,627) (5,840) (10,571) --
Cost of Insurance ................................... (1,050,548) (773,212) (505,718) (271,482)
Net Transfers ....................................... 3,160,776 970,906 2,227,491 1,740,303
Transfers of Policy Loans ........................... 65,814 39,319 11,010 1,886
Contract administration charges ..................... (252,405) (242,507) (165,296) (137,928)
Surrender benefits .................................. (633,058) (317,635) (129,707) (87,759)
------------ ----------- --------- ---------
Net increase (decrease) in net assets resulting from
variable life activities ............................ 5,519,366 3,334,327 3,799,565 2,677,647
------------ ----------- --------- ---------
Total increase (decrease) in net assets ............. 8,634,020 4,307,028 3,137,931 3,313,096
NET ASSETS:
Beginning of year ................................... 13,762,377 9,455,349 5,198,859 1,885,763
------------ ----------- --------- ---------
END OF YEAR ......................................... $ 22,396,397 $13,762,377 $8,336,790 $5,198,859
============ =========== ========== ==========
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
EMERGING GROWTH
PORTFOLIO++
----------------------------
1998 1997*
------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ....................... ($ 29,768) ($ 3,056)
Net realized gains (losses) from
investment transactions ........................... 10,412 103,234
Net change in unrealized appreciation/
depreciation of investments ....................... 1,277,385 (112,119)
--------- ---------
Net increase (decrease) in net assets resulting from
operations ......................................... 1,258,029 (11,941)
--------- ---------
VARIABLE LIFE ACTIVITIES:
Purchase payments .................................. 1,376,626 213,011
Death benefits ..................................... -- --
Cost of Insurance .................................. (270,389) (37,401)
Net Transfers ...................................... 2,271,306 1,339,220
Transfers of Policy Loans .......................... 949 1,315
Contract administration charges .................... (117,695) (14,740)
Surrender benefits ................................. (61,482) (9,271)
--------- ---------
Net increase (decrease) in net assets resulting from
variable life activities 3,199,315 1,492,134
--------- ---------
Total increase (decrease) in net assets ............ 4,457,344 1,480,193
NET ASSETS:
Beginning of year .................................. 1,480,193 --
--------- ---------
END OF YEAR ........................................ $5,937,537 $1,480,193
========== ==========

<CAPTION>
LIMITED MATURITY
BALANCED PORTFOLIO++++ BOND PORTFOLIO++++
---------------------------- ----------------------------
1998 1997 1998 1997
------------- ------------- -------------- ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ....................... $ 52,777 $ 24,109 $ 41,895 $ 19,870
Net realized gains (losses) from
investment transactions ........................... 610,655 143,065 242 1,045
Net change in unrealized appreciation/
depreciation of investments ....................... (184,479) 329,788 (13,221) 6,174
---------- ---------- ---------- ---------
Net increase (decrease) in net assets resulting from
operations ......................................... 478,953 496,962 28,916 27,089
---------- ---------- ---------- ---------
VARIABLE LIFE ACTIVITIES:
Purchase payments .................................. 1,068,630 750,229 300,887 129,943
Death benefits ..................................... (2,001) -- -- --
Cost of Insurance .................................. (278,391) (204,934) (58,968) (37,130)
Net Transfers ...................................... 526,196 21,044 318,853 195,109
Transfers of Policy Loans .......................... 83,335 8,450 5,849 136
Contract administration charges .................... (50,297) (46,472) (14,141) (10,627)
Surrender benefits ................................. (163,220) (117,124) (9,313) (20,203)
---------- ---------- ---------- ---------
Net increase (decrease) in net assets resulting from
variable life activities 1,184,252 411,193 543,167 257,228
---------- ---------- ---------- ---------
Total increase (decrease) in net assets ............ 1,663,205 908,155 572,083 284,317
NET ASSETS:
Beginning of year .................................. 3,471,278 2,563,123 656,515 372,198
---------- ---------- ---------- ---------
END OF YEAR ........................................ $5,134,483 $3,471,278 $1,228,598 $ 656,515
========== ========== ========== =========
</TABLE>

The accompanying notes are an integral part of these financial statements.

42
<PAGE>

<TABLE>
<CAPTION>
PARTNERS CAPITAL APPRECIATION
PORTFOLIO++++ PORTFOLIO++++++
---------------------------- ------------------------------
1998 1997* 1998 1997
------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ........................ ($ 33,955) ($ 5,104) ($ 47,491) ($ 48,298)
Net realized gains (losses) from investment
transactions ....................................... 486,053 668 140,032 97,458
Net change in unrealized appreciation/
depreciation of investments ........................ (271,429) 89,588 (261,202) (284,767)
--------- --------- ------------ ---------
Net increase (decrease) in net assets resulting from
operations .......................................... 180,669 85,152 (168,661) (235,607)
--------- --------- ------------ ---------
VARIABLE LIFE ACTIVITIES:
Purchase payments ................................... 2,301,846 386,750 1,577,063 2,020,105
Death benefits ...................................... -- -- (3,745) (1,604)
Cost of Insurance ................................... (484,655) (47,124) (342,552) (421,351)
Net Transfers ....................................... 3,388,292 2,721,133 (1,352,477) (623,011)
Transfers of Policy Loans ........................... 11,914 61,300 35,632 38,426
Contract administration charges ..................... (201,761) (21,320) (53,636) (105,328)
Surrender benefits .................................. (138,687) (33,815) (244,500) (146,305)
--------- --------- ------------ ---------
Net increase (decrease) in net assets resulting from
variable life activities ............................ 4,876,949 3,066,924 (384,215) 760,932
--------- --------- ------------ ---------
Total increase (decrease) in net assets ............. 5,057,618 3,152,076 (552,876) 525,325
NET ASSETS:
Beginning of year ................................... 3,152,076 -- 6,317,023 5,791,698
---------- ---------- ------------- ----------
END OF YEAR ......................................... $8,209,694 $3,152,076 $ 5,764,147 $6,317,023
========== ========== ============ ==========

<CAPTION>
EQUITY INCOME
PORTFOLIO++++++++
--------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ........................ $ 40,458 $ 27,835
Net realized gains (losses) from investment
transactions ....................................... 649,737 527,069
Net change in unrealized appreciation/
depreciation of investments ........................ 963,306 1,460,290
------------ -----------
Net increase (decrease) in net assets resulting from
operations .......................................... 1,653,501 2,015,194
------------ -----------
VARIABLE LIFE ACTIVITIES:
Purchase payments ................................... 4,640,276 3,478,226
Death benefits ...................................... (20,055) (417)
Cost of Insurance ................................... (1,115,035) (658,142)
Net Transfers ....................................... 2,979,305 2,552,951
Transfers of Policy Loans ........................... 25,171 7,118
Contract administration charges ..................... (297,186) (250,922)
Surrender benefits .................................. (430,380) (233,942)
------------ -----------
Net increase (decrease) in net assets resulting from
variable life activities ............................ 5,782,096 4,894,872
------------ -----------
Total increase (decrease) in net assets ............. 7,435,597 6,910,066
NET ASSETS:
Beginning of year ................................... 12,430,653 5,520,587
------------ -----------
END OF YEAR ......................................... $ 19,866,250 $12,430,653
============ ===========
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
GROWTH
PORTFOLIO++++++++
-------------------------------
1998 1997
-------------- ---------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ........................ ($ 106,277) ($ 43,860)
Net realized gains (losses) from investment
transactions ....................................... 2,143,029 304,537
Net change in unrealized appreciation/
depreciation of investments ........................ 5,047,623 2,035,646
----------- ----------
Net increase (decrease) in net assets resulting from
operations .......................................... 7,084,375 2,296,323
----------- ----------
VARIABLE LIFE ACTIVITIES:
Purchase payments ................................... 5,974,648 5,099,758
Death benefits ...................................... (45,153) (24,456)
Cost of Insurance ................................... (1,459,882) (998,857)
Net Transfers ....................................... 2,873,583 1,434,688
Transfers of Policy Loans ........................... 22,413 9,883
Contract administration charges ..................... (385,848) (376,844)
Surrender benefits .................................. (689,227) (260,882)
----------- ----------
Net increase (decrease) in net assets resulting from
variable life activities ............................ 6,290,534 4,883,290
----------- ----------
Total increase (decrease) in net assets ............. 13,374,909 7,179,613
NET ASSETS:
Beginning of year ................................... 15,186,896 8,007,283
----------- -----------
END OF YEAR ......................................... $28,561,805 $15,186,896
=========== ===========

<CAPTION>
ASSET MANAGER INDEX 500
PORTFOLIO++++++++ PORTFOLIO++++++++
---------------------------- -------------------------------
1998 1997 1998 1997*
------------- ------------- --------------- --------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ........................ $ 43,537 $ 22,295 $ (32,366) ($ 4,612)
Net realized gains (losses) from investment
transactions ....................................... 202,236 93,523 60,958 (281)
Net change in unrealized appreciation/
depreciation of investments ........................ 136,988 148,479 1,980,793 86,391
---------- ---------- ----------- ---------
Net increase (decrease) in net assets resulting from
operations .......................................... 382,761 264,297 2,009,385 81,498
---------- ---------- ----------- ---------
VARIABLE LIFE ACTIVITIES:
Purchase payments ................................... 834,804 597,121 4,295,628 551,343
Death benefits ...................................... -- -- -- --
Cost of Insurance ................................... (216,443) (142,702) (664,534) (67,988)
Net Transfers ....................................... 807,683 466,840 7,630,497 1,438,291
Transfers of Policy Loans ........................... 1,050 1,178 9,823 1,000
Contract administration charges ..................... (49,185) (42,870) (335,545) (30,351)
Surrender benefits .................................. (115,461) (27,439) (115,742) (33,134)
---------- ---------- ----------- ---------
Net increase (decrease) in net assets resulting from
variable life activities ............................ 1,262,448 852,128 10,820,127 1,859,161
---------- ---------- ----------- ---------
Total increase (decrease) in net assets ............. 1,645,209 1,116,425 12,829,512 1,940,659
NET ASSETS:
Beginning of year ................................... 2,073,276 956,851 1,940,659 --
---------- ---------- ----------- ----------
END OF YEAR ......................................... $3,718,485 $2,073,276 $14,770,171 $1,940,659
========== ========== =========== ==========
</TABLE>
- ----------
* For the period from May 1, 1997 (date fund became available for
investment to contract owners) to December 31, 1997.
++ Investment in Penn Series Funds, Inc.
++++ Investment in Neuberger Berman Advisers Management Trust
++++++ Investment in American Century Variable Portfolios, Inc. (TCI
Portfolios, Inc.'s name changed to American Century Variable
Portfolios, Inc. as of May 1, 1997)
++++++++ Investment in Fidelity Investments' Variable Insurance Products Funds
I and II
++++++++++ Investment in Morgan Stanley Dean Witter Universal Funds, Inc.

The accompanying notes are an integral part of these financial statements.

43
<PAGE>

<TABLE>
<CAPTION>
EMERGING MARKETS
PORTFOLIO++++++++++
------------------------------
1998 1997*
-------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ...................... ($ 1,174) $ 3,568
Net realized gains (losses) from investment
transactions ..................................... 2,392 20,032
Net change in unrealized appreciation/
depreciation of investments ...................... (276,666) (132,269)
--------- ----------
Net increase (decrease) in net assets resulting from
operations ........................................ (275,448) (108,669)
--------- ----------
VARIABLE LIFE ACTIVITIES:
Purchase payments ................................. 615,443 172,246
Death benefits .................................... -- --
Cost of Insurance ................................. (95,184) (19,277)
Net Transfers ..................................... 612,607 797,319
Transfers of Policy Loans ......................... 1,295 396
Contract administration charges ................... (53,730) (9,722)
Surrender benefits ................................ (28,850) (6,808)
--------- ----------
Net increase (decrease) in net assets resulting from
variable life activities .......................... 1,051,581 934,154
--------- ----------
Total increase (decrease) in net assets ........... 776,133 825,485
NET ASSETS:
Beginning of year ................................. 825,485 --
---------- ----------
END OF YEAR ....................................... $1,601,618 $ 825,485
========== ==========

</TABLE>

The accompanying notes are an integral part of these financial statements.

44
<PAGE>

PENN MUTUAL VARIABLE LIFE ACCOUNT I
- --------------------------------------------------------------------------------

NOTES TO FINANCIAL STATEMENTS

December 31, 1998

NOTE 1. SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies of Penn Mutual Variable Life Account I
(Account I) are as follows:

GENERAL -- Account I was established by The Penn Mutual Life Insurance
Company (Penn Mutual) under the provisions of the Pennsylvania Insurance Law.
Account I is registered under the Investment Company Act of 1940, as amended,
as a unit investment trust. Account I offers units to variable life contract
owners to provide for the accumulation of value and for the payment of
benefits. Account I contains contracts of the Cornerstone VUL, Cornerstone VUL
II, Variable Estate Max and Momentum Builder variable life products. Contract
owners may borrow up to a specified amount depending on the policy value at any
time by submitting a written request for a policy loan. The preparation of the
accompanying financial statements requires management to make estimates and
assumptions that affect the reported values of assets and liabilities as of
December 31, 1998 and the reported amounts from operations and variable life
activities during 1998 and 1997. Actual results could differ from those
estimates. Certain 1997 amounts have been reclassified to conform with 1998
presentation.

INVESTMENTS -- Assets of Account I 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, Small
Capitalization and Emerging Growth Funds; Neuberger Berman Advisers Management
Trust (AMT): Limited Maturity Bond, Balanced and Partners Portfolios; American
Century Variable Portfolios, Inc. (ACI): Capital Appreciation Portfolio;
Fidelity Investments' Variable Insurance Products (Fidelity): Equity Income,
Growth, Asset Manager and Index 500 Portfolios; and Morgan Stanley Dean Witter
Universal Funds, Inc. (Morgan Stanley): Emerging Markets Equity Portfolio. Penn
Series, AMT, ACI, Fidelity and Morgan Stanley are open-end diversified
management investment companies. The investment in shares of these funds or
portfolios 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 -- Penn Mutual is taxed under federal law as a life
insurance company. Account I is part of Penn Mutual's total operations and is
not taxed separately. Under existing federal law, no taxes are payable on
investment income and realized gains of Account I.

DIVERSIFICATION REQUIREMENTS -- Under the provisions of Section 817(h) of
the Internal Revenue Code, a variable annuity contract other than a contract
issued in connection with certain types of employee benefit plans will not be
treated as an annuity contract for federal tax purposes for any period for
which the investments of the segregated asset account on which the contract is
based are not adequately diversified. The Code provides that the "adequately
diversified" requirement may be met if the underlying investments satisfy
either a statutory safe harbor test or diversification requirements set forth
in regulations issued by the Secretary of Treasury. The Internal Revenue
Service has issued regulations under 817(h) of the Code. Penn Mutual believes
that Account I satisfies the current requirements of the regulations, and it
intends that Account I will continue to meet such requirements.

45
<PAGE>

NOTE 2. PURCHASES AND SALES OF INVESTMENTS

The following table shows aggregate cost of shares purchased and proceeds
from sales of each fund or portfolio for the year ended December 31, 1998:

<TABLE>
<CAPTION>
PURCHASES SALES
-------------- --------------
<S> <C> <C>
Money Market Fund .......................... $ 36,054,655 $32,550,918
Quality Bond Fund .......................... 4,363,783 2,107,488
High Yield Bond Fund ....................... 4,563,016 1,581,939
Growth Equity Fund ......................... 6,091,870 1,363,231
Value Equity Fund .......................... 13,092,213 2,816,555
Flexibly Managed Fund ...................... 20,607,570 5,059,318
International Equity Fund .................. 17,810,109 11,263,407
Small Capitalization Fund .................. 4,456,976 527,145
Emerging Growth Fund ....................... 3,852,901 672,705
Limited Maturity Bond Portfolio ............ 797,187 211,784
Balanced Portfolio ......................... 2,576,819 728,784
Partners Portfolio ......................... 5,994,086 663,770
Capital Appreciation Portfolio ............. 1,786,184 2,077,878
Equity Income Portfolio .................... 7,326,892 852,484
Growth Portfolio ........................... 10,298,847 1,967,533
Asset Manager Portfolio .................... 1,825,283 316,669
Index 500 Portfolio ........................ 11,645,446 793,223
Emerging Markets Equity Portfolio .......... 1,534,095 284,124
------------ -----------
Total ...................................... $154,677,932 $65,838,955
============ ===========
</TABLE>

NOTE 3. CONTRACT CHARGES

Operations are charged for mortality and expense risks assumed by Penn
Mutual as follows:

Cornerstone VUL is determined daily at a current annual rate of 0.75%
(guaranteed not to exceed 0.90%) of the average value of Cornerstone VUL;
Cornerstone VUL II is determined daily at a current annual rate guaranteed not
to exceed 0.90% of the average value of Cornerstone VUL II; Variable Estate Max
is determined daily at a current annual rate guaranteed not to exceed 0.90% of
the average value of Variable Estate Max; Momentum Builder is determined daily
at an annual rate of 0.65% of the average value of Momentum Builder.

For each Cornerstone VUL, Cornerstone VUL II and Variable Estate Max
policy, on the date of issue and each monthly anniversary, a monthly deduction
is made from the policy value. The monthly deduction consists of insurance
charges, administrative charges and any charges for additional benefits added
by supplemental agreement to a policy. See original policy documents for
specific charges assessed.

For each Momentum Builder policy, each month on the date specified in the
contract (or on the date the contract is withdrawn in full if other than the
date specified), a $4 contract administration charge, or a lesser amount under
state insurance laws, is deducted from the contract value. See original policy
documents for specific charges assessed.

If a Cornerstone VUL or Cornerstone VUL II policy is surrendered within
the first 11 years, or a Variable Estate Max policy is surrendered within the
first 13 years, a contingent deferred sales charge will be assessed. This
charge will be deducted before any surrender proceeds are paid. See original
policy documents for specific charges assessed.

46
<PAGE>

NOTE 4. UNIT VALUES

As of December 31, 1998, the accumulation Units and accumulation Unit
Values For Variable Life Account I are as follows:

ACCUMULATION ACCUMULATION
UNITS UNIT VALUE
-------------- -------------
MONEY MARKET FUND
Cornerstone VUL 180,163 $ 12.35
Cornerstone VUL II 477,687 $ 11.59
Variable Estate Max 104,128 $ 11.60
Momentum Builder 144,571 $ 16.95
QUALITY BOND FUND
Cornerstone VUL 161,612 $ 14.27
Cornerstone VUL II/Variable Estate Max 303,952 $ 13.41
Momentum Builder 10,559 $ 24.41
HIGH YIELD BOND FUND
Cornerstone VUL 185,358 $ 15.74
Cornerstone VUL II/Variable Estate Max 301,994 $ 14.37
Momentum Builder 24,304 $ 27.19
GROWTH EQUITY FUND
Cornerstone VUL 286,826 $ 28.04
Cornerstone VUL II/Variable Estate Max 239,949 $ 24.30
Momentum Builder 32,676 $ 38.33
VALUE EQUITY FUND
Cornerstone VUL 513,869 $ 24.48
Cornerstone VUL II/Variable Estate Max 1,117,950 $ 20.09
FLEXIBLY MANAGED FUND
Cornerstone VUL 1,210,608 $ 19.23
Cornerstone VUL II/Variable Estate Max 2,031,273 $ 15.67
Momentum Builder 10,945 $ 40.29
INTERNATIONAL EQUITY FUND
Cornerstone VUL 464,576 $ 19.49
Cornerstone VUL II/Variable Estate Max 789,966 $ 16.91
SMALL CAPITALIZATION FUND
Cornerstone VUL 81,463 $ 14.67
Cornerstone VUL II/Variable Estate Max 489,652 $ 14.59
EMERGING GROWTH FUND
Cornerstone VUL 44,758 $ 18.66
Cornerstone VUL II/Variable Estate Max 274,162 $ 18.61
LIMITED MATURITY BOND PORTFOLIO
Cornerstone VUL 11,610 $ 12.67
Cornerstone VUL II/Variable Estate Max 90,231 $ 11.99
BALANCED PORTFOLIO
Cornerstone VUL 138,657 $ 17.72
Cornerstone VUL II/Variable Estate Max 169,155 $ 15.83
PARTNERS PORTFOLIO
Cornerstone VUL 162,349 $ 12.88
Cornerstone VUL II/Variable Estate Max 476,249 $ 12.85
CAPITAL APPRECIATION PORTFOLIO
Cornerstone VUL 283,529 $ 10.60
Cornerstone VUL II/Variable Estate Max 218,719 $ 12.61
EQUITY INCOME PORTFOLIO
Cornerstone VUL 183,634 $ 19.11
Cornerstone VUL II/Variable Estate Max 860,589 $ 19.01
GROWTH PORTFOLIO
Cornerstone VUL 269,190 $ 23.95
Cornerstone VUL II/Variable Estate Max 928,250 $ 23.82

47
<PAGE>

ACCUMULATION ACCUMULATION
UNITS UNIT VALUE
-------------- -------------
ASSET MANAGER PORTFOLIO
Cornerstone VUL 42,834 $ 17.41
Cornerstone VUL II/Variable Estate Max 171,750 $ 17.31
INDEX 500 PORTFOLIO
Cornerstone VUL 133,377 $ 15.54
Cornerstone VUL II/Variable Estate Max 818,962 $ 15.50
EMERGING MARKETS EQUITY PORTFOLIO
Cornerstone VUL 51,104 $ 6.78
Cornerstone VUL II/Variable Estate Max 185,708 $ 6.76

48
<PAGE>

- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS

THE BOARD OF TRUSTEES
THE PENN MUTUAL LIFE INSURANCE COMPANY
PHILADELPHIA, PENNSYLVANIA

We have audited the accompanying consolidated balance sheets of The Penn Mutual
Life Insurance Company and subsidiaries as of December 31, 1998 and 1997, and
the related consolidated income statements, statements of changes in equity,
and statements of cash flows for the years then ended. These consolidated
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. The financial statements of the Company for the year ended December
31, 1996 were audited by other auditors whose report dated January 31, 1997
expressed an unqualified opinion on those statements.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Penn Mutual Life Insurance Company and subsidiaries as of December 31, 1998 and
1997, and the results of their operations and their cash flows for the years
then ended, in conformity with generally accepted accounting principles.

/s/ Ernst & Young LLP

Philadelphia, Pennsylvania
January 29, 1999

49
<PAGE>

- --------------------------------------------------------------------------------
THE PENN MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998 1997
- ------------------------------------------------------------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Debt securities, at fair value .................................... $ 5,500,924 $5,427,652
Equity securities, at fair value .................................. 4,161 12,502
Mortgage loans on real estate ..................................... 38,828 52,996
Real estate, net of accumulated depreciation ...................... 15,791 22,358
Policy loans ...................................................... 638,376 642,989
Short-term investments ............................................ 1,024 43,470
Other invested assets ............................................. 98,571 88,928
----------- ----------
TOTAL INVESTMENTS ................................................ 6,297,675 6,290,895
Cash and cash equivalents ......................................... 24,468 37,064
Investment income due and accrued ................................. 104,208 103,072
Deferred acquisition costs ........................................ 399,742 384,542
Amounts recoverable from reinsurers ............................... 69,583 63,211
Broker/dealer receivables ......................................... 793,522 526,797
Other assets ...................................................... 94,179 92,203
Separate account assets ........................................... 2,302,937 1,869,094
----------- ----------
TOTAL ASSETS ..................................................... $10,086,314 $9,366,878
=========== ==========
LIABILITIES
Reserves for payment of future policy benefits .................... $ 2,761,319 $2,770,015
Other policyholder funds .......................................... 2,835,081 2,973,434
Policyholders' dividends payable .................................. 30,532 35,273
Broker/dealer payables ............................................ 488,783 333,104
Accrued income tax payable: .......................................
Current .......................................................... 34,853 17,476
Deferred ......................................................... 107,781 75,096
Other liabilities ................................................. 383,744 283,666
Separate account liabilities ...................................... 2,302,937 1,869,094
----------- ----------
TOTAL LIABILITIES ................................................ 8,945,030 8,357,158
----------- ----------
EQUITY
Retained earnings ................................................. 944,145 857,711
Accumulated other comprehensive income - unrealized gains ......... 197,139 152,009
----------- ----------
TOTAL EQUITY ..................................................... 1,141,284 1,009,720
----------- ----------
TOTAL LIABILITIES AND EQUITY .................................... $10,086,314 $9,366,878
=========== ==========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

50
<PAGE>

- --------------------------------------------------------------------------------
THE PENN MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996
- --------------------------------------------------------------------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES
Premium and annuity considerations .................................. $ 171,354 $ 195,220 $ 199,821
Policy fee income ................................................... 114,681 102,398 89,349
Net investment income ............................................... 444,697 460,206 475,315
Net realized capital gains/(losses) ................................. 3,912 9,655 (10,078)
Broker/dealer fees and commissions .................................. 331,285 290,005 241,068
Other income ........................................................ 16,491 11,851 11,544
---------- ---------- ----------
TOTAL REVENUE ...................................................... 1,082,420 1,069,335 1,007,019
---------- ---------- ----------
BENEFITS AND EXPENSES
Benefits paid to policyholders and beneficiaries .................... 455,036 480,234 462,412
Policyholder dividends .............................................. 61,369 67,412 67,596
Increase/(decrease) in liability for future policy benefits ......... (12,356) (11,972) 42,652
General expenses .................................................... 211,770 202,731 178,554
Broker/dealer sales expense ......................................... 180,255 160,730 132,724
Amortization of deferred acquisition costs .......................... 42,223 43,223 46,137
---------- ---------- ----------
TOTAL BENEFITS AND EXPENSES ........................................ 938,297 942,358 930,075
---------- ---------- ----------
Income Before Income Taxes .......................................... 144,123 126,977 76,944
---------- ---------- ----------
Income taxes:
Current ............................................................ 49,509 50,061 37,944
Deferred ........................................................... 8,180 3,851 (9,919)
---------- ---------- ----------
NET INCOME ........................................................ $ 86,434 $ 73,065 $ 48,919
========== ========== ==========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

51
<PAGE>

- --------------------------------------------------------------------------------
THE PENN MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

<TABLE>
<CAPTION>
OTHER
COMPREHENSIVE RETAINED TOTAL
FOR THE YEARS ENDED DECEMBER 31, INCOME EARNINGS EQUITY
- --------------------------------------------------------------- --------------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE AT JANUARY 1, 1996 .................................... $ 158,941 $735,727 $ 894,668
Comprehensive Income
Net income for 1996 .......................................... -- 48,919 48,919
Other comprehensive loss, net of tax .........................
Unrealized depreciation of securities, net of reclassification
adjustment .................................................. (73,211) -- (73,211)
----------
Comprehensive Loss ............................................ (24,292)
--------- -------- ----------
BALANCE AT DECEMBER 31, 1996 .................................. 85,730 784,646 870,376
Comprehensive Income
Net income for 1997 .......................................... -- 73,065 73,065
Other comprehensive income, net of tax .......................
Unrealized appreciation of securities, net of reclassification
adjustment .................................................. 66,279 -- 66,279
----------
Comprehensive Income .......................................... 139,344
--------- -------- ----------
BALANCE AT DECEMBER 31, 1997 .................................. 152,009 857,711 1,009,720
Comprehensive Income
Net income for 1998 .......................................... -- 86,434 86,434
Other comprehensive income, net of tax .......................
Unrealized appreciation of securities, net of reclassification
adjustment .................................................. 45,130 -- 45,130
----------
Comprehensive Income .......................................... 131,564
--------- -------- ----------
BALANCE AT DECEMBER 31, 1998 .................................. $ 197,139 $944,145 $1,141,284
========= ======== ==========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

52
<PAGE>

- --------------------------------------------------------------------------------

THE PENN MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996
- ------------------------------------------------------------------------- --------------- --------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income .............................................................. $ 86,434 $ 73,065 $ 48,919
Adjustments to reconcile net income to net cash provided by operations:
Capitalization of policy acquisition costs ............................ (72,356) (64,427) (60,234)
Amortization of deferred acquisition costs ............................ 42,223 43,223 46,137
Policy fees on universal life and investment contracts ................ (120,315) (104,342) (89,349)
Interest credited on universal life and investment contracts .......... 146,081 160,417 171,051
Depreciation and amortization ......................................... 4,750 18,682 11,613
Premiums due and other receivables .................................... (1,293) (7,291) (105)
Realized capital (gains)/losses ....................................... (3,912) (9,655) 10,078
(Increase)/decrease in accrued investment income ...................... (1,136) 60 6,474
(Increase)/decrease in amounts due from reinsurers .................... (6,372) (4,329) (14,200)
Increase/(decrease) in future policy benefit reserves ................. (8,696) (13,358) 58,697
Increase/(decrease) in income tax payable ............................. 25,622 (4,526) 7,798
Other, net ............................................................ 3,805 (6,693) 39,625
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES .......................... 94,835 80,826 236,504
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of investments:
Debt securities available for sale .................................... 1,837,209 1,235,274 927,905
Equity securities ..................................................... 35,496 20,374 25,413
Real estate ........................................................... 9,937 87,875 40,209
Other ................................................................. 18,074 14,355 15,284
Maturity and other principal repayments:
Debt securities available for sale .................................... 496,283 472,474 278,290
Mortgage loans ........................................................ 2,357 61,813 156,643
Cost of investments acquired:
Debt securities available for sale .................................... (2,315,067) (1,772,007) (1,427,048)
Equity securities ..................................................... (26,390) (15,268) (11,752)
Mortgage loans ........................................................ -- -- (36,155)
Real estate ........................................................... (293) (15,600) (8,542)
Other ................................................................. (17,917) (15,503) (8,789)
Change in policy loans, net ............................................. 4,613 13,084 1,234
(Increase)/decrease in short-term investments, net ...................... 42,446 (5,955) 51,290
Purchases of furniture and equipment, net ............................... (9,446) (4,116) (6,449)
------------ ------------ ------------
NET CASH (USED)/PROVIDED BY INVESTING
ACTIVITIES ........................................................ 77,302 76,800 (2,467)
------------ ------------ ------------

</TABLE>

-continued-

The accompanying notes are an integral part of the consolidated financial
statements.

53
<PAGE>

- --------------------------------------------------------------------------------
THE PENN MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996
- ------------------------------------------------------------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Deposits for universal life and investment contracts ............. $ 589,070 $ 653,233 $ 625,816
Withdrawals from universal life and investment contracts ......... (605,821) (552,311) (567,697)
Transfers to separate accounts ................................... (147,708) (236,008) (269,735)
Issuance/(repayment) of debt ..................................... 90,772 24,842 (18,424)
(Increase)/decrease in net broker dealer receivables ............. (111,046) (47,632) 296
---------- ---------- ----------
NET CASH USED BY FINANCING ACTIVITIES ........................ (184,733) (157,876) (229,744)
---------- ---------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS .................... (12,596) (250) 4,293
CASH AND CASH EQUIVALENTS ........................................
Beginning of the year .......................................... 37,064 37,314 33,021
---------- ---------- ----------
End of the year ................................................ $ 24,468 $ 37,064 $ 37,314
========== ========== ==========
</TABLE>

The accompanying notes are an intergal part of the consolidated financial
statements.

54
<PAGE>

- --------------------------------------------------------------------------------
THE PENN MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS OF DOLLARS)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

ORGANIZATION AND BASIS OF PRESENTATION

The Penn Mutual Life Insurance Company was founded and commenced business
in 1847 as a mutual life insurance company. The Company concentrates primarily
on the sale of individual life insurance and annuity products. The primary
products that the Company currently markets are traditional whole life, term
life, universal life, variable life, immediate annuities and deferred
annuities, both fixed and variable. The Company markets its products through a
network of career agents, independent agents, and independent marketing
organizations. The Company is also involved in the broker-dealer business which
offers a variety of investment products and services and is conducted through
the Company's non-insurance subsidiaries. The Company sells its products in all
fifty states and the District of Columbia. The Company is pursuing the sale of
its disability income line of business. This business had total assets of
$226,672 as of December 31, 1998 and premium and annuity considerations of
$16,739 for the year then ended.

The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles and include the
accounts of The Penn Mutual Life Insurance Company, its wholly owned life
insurance subsidiary, The Penn Insurance and Annuity Company ("PIA"), and
non-insurance subsidiaries (principally broker/dealer and investment advisory
subsidiaries) (the "Company"). All significant intercompany accounts and
transactions have been eliminated in consolidation. The preparation of
financial statements requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and notes
to the consolidated financial statements.

NEW ACCOUNTING PRONOUNCEMENTS

As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. (SFAS) 130, "Reporting Comprehensive Income." SFAS No.
130 establishes standards for the reporting and display of comprehensive income
and its components in the financial statements. The initial application of SFAS
No. 130, required the reclassification of prior-year financial statements to
reflect the components of comprehensive income.

During 1998, the Company adopted SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which revised disclosures
about pension and other postretirement benefit plans. As SFAS No. 132 does not
change the measurement or recognition of these plans, its adoption had no
impact on the Company's financial condition or results of operations.

In June 1998, The FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires all derivatives to
be recognized in the statement of financial position as either assets or
liabilities and measured at fair value. The corresponding derivative gains and
losses should be reported based on hedge relationships that exist. Changes in
the fair value of derivatives that are not designated as hedges or that do not
meet the hedge accounting criteria in SFAS No. 133, are required to be reported
in earning. SFAS No. 133 is effective for fiscal years beginning after June 15,
1999. Adoption of SFAS No. 133 is not expected to have a material effect on the
Company's financial condition or results of operations.

INVESTMENTS

Debt securities (bonds, notes, redeemable preferred stocks and
mortgage-backed securities) which might be sold prior to maturity are
classified as available for sale. These securities are carried at fair value,
with the change in unrealized gains and losses reported in other comprehensive
income. Interest on debt securities is credited to income as it is earned. Debt
securities are amortized using the scientific method. These assumptions are
consistent with the current interest rate and economic environments. The
retrospective adjustment method is used to value all securities.

Equity securities are classified as available for sale and carried at fair
value. Dividends on equity securities are credited to income on their
ex-dividend dates.

The Company regularly evaluates the carrying value of debt and equity
securities based on current economic conditions, past credit loss experience
and other circumstances of the investee. A decline in a security's fair value
that is deemed to be other than temporary is treated as a realized loss and a
reduction in the cost basis of the security.

55
<PAGE>

- --------------------------------------------------------------------------------
THE PENN MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(IN THOUSANDS OF DOLLARS)

Mortgage loans on real estate are stated at unpaid principal balances, net
of unamortized discounts and valuation allowances. Valuation allowances on
impaired loans are based on the present value of expected future cash flows
discounted at the loan's original effective interest rate or the collateral
value if the loan is collateral dependent. However, if foreclosure is or
becomes probable, the measurement method used is collateral value.

Investment real estate, which the Company has the intent to hold, is
carried at cost less accumulated depreciation and valuation reserves. The
Company establishes valuation reserves for investment real estate when declines
in value are deemed to be other then temporary based on an analysis of
discounted future cash flows. Properties held for sale are carried at the lower
of depreciated cost or fair value less selling costs. Valuation reserves are
established for properties held for sale when the fair value less estimated
selling costs is below depreciated cost. Real estate acquired through
foreclosure is recorded at the lower of cost or fair value less estimated
selling costs at the time of foreclosure. Depreciation is calculated using the
straight-line method over the estimated useful lives of the real estate.

Policy loans are carried at the unpaid principal balances.

Short-term investments include securities purchased with a maturity date
of 90 days to less than one year. Short-term investments are valued at cost.

Other invested assets primarily include venture capital limited
partnerships which are carried at fair value.

Realized gains and losses are determined by specific identification and
are included in income on the trade date, net of amortization of deferred
acquisition costs. Unrealized gains and losses, net of appropriate taxes and
amortization of deferred acquisition costs, are accounted for as a separate
component of other comprehensive income.

The Company utilizes various financial instruments, such as interest rate
swaps, financial futures and structured notes, to hedge against interest rate
fluctuation. Most of these investments are recorded as accounting hedges using
a valuation method consistent with the valuation method of the assets hedged.
Gains and losses on these instruments are deferred and recognized in the
Consolidated Income Statements over the remaining life of the hedged security.
Changes in the fair value of these instruments are reported as unrealized gains
or losses. Realized gains or losses are recognized when the hedged securities
are sold.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash on hand, money market instruments
and other debt securities with a maturity of 90 days or less when purchased.

OTHER ASSETS

Property and equipment and leasehold improvements are stated at cost, less
accumulated depreciation and amortization. Depreciation is calculated using the
straight-line method over the estimated useful lives of the related assets.
Amortization of leasehold improvements is calculated using the straight-line
method over the lesser of the term of the leases or the estimated useful life
of the improvements. Accumulated depreciation and amortization on property and
equipment and leasehold improvements was $49,816 and $44,329 at December 31,
1998 and 1997, respectively. Related depreciation and amortization expense was
$8,586, $8,183 and $7,510 for the years ended December 31, 1998, 1997 and 1996,
respectively.

Goodwill represents the excess of the cost of the businesses acquired over
the fair value of their net assets. These costs are amortized on a
straight-line basis over not more than 40 years and are included in other
assets in the Consolidated Balance Sheets. Unamortized goodwill amounted to
$16,126 and $16,932 at December 31, 1998 and 1997, respectively. Goodwill
amortization was $806, $808 and $909 for 1998, 1997 and 1996, respectively.

DEFERRED ACQUISITION COSTS

Costs of acquiring new insurance and annuity contracts, which vary with
and are primarily related to the production of new business, have been deferred
to the extent that such costs are deemed recoverable from future gross profits.
Such costs include commissions, certain costs of policy issuance and
underwriting, and certain variable agency expenses.

56
<PAGE>

Deferred acquisition costs related to participating traditional and
universal life insurance policies and annuity products without mortality risk
that include significant surrender charges are being amortized over the lesser
of the estimated or actual contract life in proportion to estimated gross
profits arising principally from interest, mortality and expense margins and
surrender charges. The effects on amortization of deferred acquisition costs of
revisions to estimated gross profits are reflected in earnings in the period
such estimated gross profits are revised. Deferred acquisition costs are
reviewed to determine that the unamortized portion of such costs is recoverable
from future estimated gross profits. Certain costs and expenses reported in the
consolidated income statements are net of amounts deferred.

SEPARATE ACCOUNTS

Separate Account assets and liabilities represent segregated funds
administered and invested by the Company primarily for the benefit of variable
life insurance policyholders and annuity and pension contractholders, including
certain of the Company's benefit plans. The value of the assets in the Separate
Accounts reflects the actual investment performance of the respective accounts
and is not guaranteed by the Company. The carrying value for Separate Account
assets and liabilities approximates the estimated fair value of the underlying
assets.

INSURANCE LIABILITIES AND REVENUE RECOGNITION

Participating Traditional Life and Life Contingent Annuity Products

Future policy benefits include reserves for participating traditional life
insurance and life contingent annuity products and are established in amounts
adequate to meet the estimated future obligations of the policies in force.
Liabilities for participating traditional life products are computed using the
net level premium method, using assumptions for investment yields, mortality,
morbidity and withdrawals, which are consistent with the dividend fund interest
rate and mortality rates used in calculating cash surrender values. Interest
rate assumptions used in the calculation of the liabilities for participating
traditional life products ranged from 2.25% to 4.5%. Premiums are recognized as
income when due. Death and surrender benefits are reported in expense as
incurred.

Liabilities for life contingent annuity products are computed by
estimating future benefits and expenses. Assumptions are based on Company
experience projected at the time of policy issue, with provision for adverse
deviations. Interest rate assumptions range from 2.25% to 13.25%. Premiums are
recognized as income as they are received. Death and surrender benefits are
reported in expense as incurred.

Universal Life Products and Other Annuity Products

Other policyholder funds represent liabilities for universal life and
investment-type annuity products. The liabilities for these products are based
on the contract account value which consists of deposits received from
customers and investment earnings on the account value, less administrative and
expense charges. The liability for universal life products is also reduced by
mortality charges. Liabilities for the non-life contingent annuity products are
computed by estimating future benefits and expenses. Assumptions are based on
Company experience projected at the time of policy issue. Interest rate
assumptions range from 2.0% to 11.25%.

Contract charges assessed against account value for universal life and
investment-type annuities are reflected as policy fee income in revenue.
Interest credited to account values and universal life benefit claims in excess
of fund values are reflected as benefit expense.

Policyholders' Dividends

The majority of the Company's insurance products have been issued on a
participating basis. As of December 31, 1998, participating insurance expressed
as a percentage of insurance in force is 92%, and as a percentage of premium
income is 89%. The amount of policyholders' dividends to be paid is approved
annually by the Board of Trustees. The aggregate amount of policyholders'
dividends is calculated based on actual interest, mortality, morbidity and
expense experience for the year and on management's judgment as to the
appropriate level of equity to be retained by the Company. The carrying value
of this liability approximates the earned amount and fair value at December 31,
1998.

57
<PAGE>

BROKER/DEALER REVENUE RECOGNITION

Broker-dealer transactions in securities and listed options, including
related commission revenue and expense, are recorded on a settlement-date
basis. There would be no material effect on the financial statements if such
transactions were recorded on a trade-date basis.

FEDERAL INCOME TAXES

The Company files a consolidated federal income tax return with its life
and non-life insurance subsidiaries. Federal income taxes are charged or
credited to operations based upon amounts estimated to be payable or
recoverable as a result of taxable operations for the current year. Deferred
income tax assets and liabilities are established to reflect the impact of
temporary differences between the amount of assets and liabilities recognized
for financial reporting purposes and such amounts recognized for tax purposes.
These deferred tax assets or liabilities are measured by using the enacted tax
rates expected to apply to taxable income in the period in which the deferred
tax liabilities or assets are expected to be settled or realized.

REINSURANCE

In the normal course of business, the Company seeks to limit its exposure
to loss on any single insured and to recover a portion of benefits paid by
ceding reinsurance to other insurance enterprises or reinsurers under excess
coverage and coinsurance contracts. The Company has set its retention limit for
acceptance of risk on life insurance policies at various levels up to $1,250.

Insurance liabilities are reported before the effects of reinsurance.
Reinsurance receivables (including amounts related to insurance liabilities)
are reported as assets. Estimated reinsurance receivables are recognized in a
manner consistent with the liabilities related to the underlying reinsured
contracts.

2. INVESTMENTS:

DEBT SECURITIES

The following tables summarize the Company's investment in debt
securities, including redeemable preferred stocks. All debt securities are
classified as available for sale and are carried at estimated fair value.
Amortized cost is net of cumulative writedowns for other than temporary
declines in value of $3,056 and $1,208 as of December 31, 1998 and 1997,
respectively.

<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and U.S. Government and agency
securities ........................................... $ 13,109 $ 1,271 $ -- $ 14,380
States and political subdivisions ..................... 12,094 2,216 -- 14,310
Foreign governments ................................... 24,920 3,323 -- 28,243
Corporate securities .................................. 3,058,066 299,489 4,956 3,352,599
Mortgage and other asset-backed securities ............ 2,006,891 86,271 4,399 2,088,763
----------- --------- ------- -----------
Total bonds ........................................... 5,115,080 392,570 9,355 5,498,295
Redeemable preferred stocks ........................... 2,696 -- 67 2,629
----------- --------- ------- -----------
TOTAL .............................................. $ 5,117,776 $ 392,570 $ 9,422 $ 5,500,924
=========== ========= ======= ===========
</TABLE>

58
<PAGE>

<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and U.S. Government and agency
securities ........................................... $ 107,539 $ 6,302 $ -- $ 113,841
States and political subdivisions ..................... 12,085 569 -- 12,654
Foreign governments ................................... 20,397 3,049 -- 23,446
Corporate securities .................................. 2,854,234 218,145 6,748 3,065,631
Mortgage and other asset-backed securities ............ 2,133,758 76,160 757 2,209,161
----------- --------- ------- -----------
Total bonds ........................................... 5,128,013 304,225 7,505 5,424,733
Redeemable preferred stocks ........................... 3,085 -- 166 2,919
----------- --------- ------- -----------
TOTAL .............................................. $ 5,131,098 $ 304,225 $ 7,671 $ 5,427,652
=========== ========= ======= ===========

</TABLE>

The following tables summarize the amortized cost and estimated fair value
of debt securities, including redeemable preferred stocks, as of December 31,
1998 by contractual maturity.

<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
-------------- --------------
<S> <C> <C>
Years to Maturity:
One or less ........................................ $ 279,580 $ 294,068
After one through five ............................. 357,684 369,099
After five through ten ............................. 566,864 631,968
After ten .......................................... 1,904,061 2,114,397
Mortgage and other asset-backed securities ......... 2,006,891 2,088,763
----------- -----------
Total bonds ...................................... 5,115,080 5,498,295
Redeemable preferred stocks ........................ 2,696 2,629
----------- -----------
TOTAL ............................................ $ 5,117,776 $ 5,500,924
=========== ===========
</TABLE>

<PAGE>

Expected maturities may differ from contractual maturities because certain
borrowers have the right to call or prepay obligations with or without call or
prepayment penalties. Mortgage and other asset-backed securities are presented
separately in the maturity schedule due to the potential for prepayment. The
weighted average life of these securities is 7.1 years.

At December 31, 1998, the Company held $2,088,763 in mortgage and other
asset-backed securities. The structured securities portfolio consists of
commercial and residential mortgage pass-through holdings totaling $1,865,556
and securities backed by credit card receivables, auto loans, home equity and
manufactured housing loans totaling $223,207. These securities follow a
structured principal repayment schedule and are of high credit quality.
Securities totaling $1,512,963 are rated AAA and include $20,394 of
interest-only tranches that were retained from the securitization of the
Company's mortgage loan portfolio.

At December 31, 1998, the largest industry concentration of the Company's
portfolio was investments in the finance industry of $624,768 representing 11%
of the total debt portfolio.

Proceeds during 1998, 1997 and 1996 from sales of available-for-sale
securities were $1,931,269, $1,353,112 and $927,905, respectively. Gross gains
and gross losses realized on those sales were $37,324 and $35,257,
respectively, during 1998, $21,799 and $8,990, respectively, during 1997 and
$15,932 and $6,899, respectively, during 1996.

The Company's investment portfolio of debt securities is predominantly
comprised of investment grade securities. At December 31, 1998 and 1997, debt
securities with amortized cost totaling $192,724 and $198,943, respectively,
were less than investment grade. At December 31, 1998 the Company held
securities with a carrying value of $9,170 which are to be restructured
pursuant to commenced negotiations. At December 31 1997, the Company did not
hold any securities which were either in default as to principal and/or
interest payments, were to be restructured pursuant to commenced negotiations
or were in situations where the borrowers went into bankruptcy subsequent to
acquisition. The Company did not hold any debt securities which were non-income
producing for the preceding twelve months as of December 31, 1998 and 1997.

59
<PAGE>

EQUITY SECURITIES

During 1998, 1997 and 1996, the proceeds from sales of equity securities
amounted to $18,487, $20,374 and $25,413, respectively. The gross gains and
gross losses realized on those sales were $3,095 and $239, $975 and $239 and
$1,369 and $247 for 1998, 1997 and 1996, respectively.

MORTGAGE LOANS

On August 29, 1996, the Company securitized the majority of its mortgage
loan portfolio by transferring the loans to a trust which qualifies as a REMIC
(Real Estate Mortgage Investment Conduit) under the Internal Revenue Code.
Prior to transferring the loans with a principal value of $781,564 and a book
value of $780,942, the loans were written down to a fair market value of
$755,559, and the related reserve of $25,285 was released. The trust issued
sixteen classes of Commercial Mortgage Pass-Through Certificates with a total
par value of $781,564. The certificates evidence the entire beneficial
ownership interest in the trust. The cash flow from the mortgages will be used
to repay the certificates over an average life of 4.28 years. The actual date
on which the principal amount of the notes may be paid in full could be
substantially earlier or later based on performance of the mortgages. The cash
flows of the assets of the trust will be the sole source of payments on the
notes. The Company has not guaranteed these certificates or the mortgage loans
held by the trust. As a result of this transaction, the Company recognized a
loss of $98 upon the transfer of the mortgages to the trust, representing the
difference between the fair market value of the certificates and the book value
of the mortgage loans transferred to the trust.

The Company retained the highest quality classes of certificates with a
par value of $715,126 and a fair market value of $734,326 at the time of the
securitization. As of December 31, 1998, the par value and fair value of these
securities were $460,753 and $475,699, respectively. As of December 31, 1997,
the par value and fair value of these securities were $570,130 and $597,248,
respectively. The Company sold the lowest rated classes of certificates with a
par value of $66,438 and a fair market value of $24,838.

The mortgage loans which were not included in the securitization and were
retained by the Company had a book value of $171,555 with a related reserve of
$21,907 and an estimated fair value of $153,405 on the date of the
securitization. Loans which the Company intended to dispose of within a period
of 6 to 24 months were written down to their estimated net realizable value.
These loans had a book value of $99,817 and an estimated net realizable value
of $81,310 at the time of the securitization. The writedown of $18,507 was
fully offset by a release in mortgage loss reserve. As of December 31, 1998 and
1997, the Company held $0 and $12,368 of these loans, respectively. The Company
intended to hold mortgage loans with a book value of $71,738 on the date of the
securitization through their remaining terms. As of December 31, 1998 and 1997,
the Company continued to hold $42,628 and $44,428 of these mortgages,
respectively. The Company discontinued the origination of commercial mortgage
loans in 1996.

The following tables summarize the carrying value of mortgage loans, by
property type and geographic concentration, at December 31.

1998 1997
------------ -----------
Property Type
Office buildings ............ $ 9,204 $ 20,012
Retail ...................... 5,553 7,862
Dwellings ................... 24,741 25,237
Other ....................... 3,130 3,685
Valuation allowance ......... (3,800) (3,800)
-------- --------
TOTAL ..................... $ 38,828 $ 52,996
======== ========

60
<PAGE>

1998 1997
---------- ----------
Geographic Concentration
Northeast ................... $ 10,273 $ 23,313
Midwest ..................... 5,728 5,922
South ....................... 12,075 12,502
West ........................ 14,552 15,059
Valuation allowance ......... (3,800) (3,800)
-------- --------
TOTAL ..................... $ 38,828 $ 52,996
======== ========

The following table presents changes in the mortgage loan valuation
allowance for the years presented:

1998 1997
---------- ----------
Balance at January 1 .............. $ 3,800 $ 3,400
Provision ......................... -- 400
Charge-offs ....................... -- --
------- -------
BALANCE AT DECEMBER 31 .......... $ 3,800 $ 3,800
======= =======

As of December 31, 1998 and 1997, the Company's mortgage loan portfolio
contained no loans delinquent over 60 days or in foreclosure and there were no
non-income producing mortgage loans for the preceding twelve months.

During 1998 and 1997, the Company did not restructure the terms of any
outstanding mortgages. As of December 31, 1998 and 1997, the mortgage loan
portfolio included $2,555 and $2,834, respectively, of restructured mortgage
loans. Restructured mortgage loans include commercial loans for which the basic
terms, such as interest rate, maturity date, collateral or guaranty have been
changed as a result of actual or anticipated delinquency. Restructures do not
include mortgages refinanced upon maturity at or above current market rates.
Gross interest income on restructured mortgage loans on real estate that would
have been recorded in accordance with the original terms of such loans amounted
to $258 and $298 in 1998 and 1997, respectively. Gross interest income from
these loans included in net investment income totaled $236 and $262 in 1998 and
1997, respectively.

At December 31, 1998, no loans were considered to be impaired. At December
31, 1997, the recorded investment in loans that were considered to be impaired
was $12,368 that, as a result of writedowns, did not have a valuation
allowance. The average recorded investment in impaired loans during the year
ended December 31, 1998 and 1997 was approximately $6,184 and $38,096,
respectively. During 1998 and 1997, $163 and $1,454 was received, respectively,
on these impaired loans which was applied to the outstanding principal balance
or will be applied to principal at the date of foreclosure.

<PAGE>

REAL ESTATE

The following table summarizes the carrying value of the Company's real
estate holdings at December 31.

1998 1997
----------- -----------
Investment ......................... $ 19,111 $ 19,999
Properties held for sale ........... 1,914 7,828
Less: Valuation allowance .......... (5,234) (5,469)
-------- --------
TOTAL ............................ $ 15,791 $ 22,358
======== ========

At December 31, 1998 and 1997, accumulated depreciation on real estate
amounted to $6,218 and $6,498, respectively. Depreciation expense on real
estate totaled $1,071, $5,709 and $6,488 for the years ended December 31, 1998,
1997 and 1996, respectively. During 1997, the Company sold its largest real
estate investment for $65,007 cash to an unrelated buyer. At the date of the
sale, this property had a carrying value of $61,914, net of related reserves,
resulting in a gain of $3,093. During 1996, the Company wrote down the
statement value of this property by $16,000 to its estimated fair value, based
on changes in future valuation assumptions.

61
<PAGE>

OTHER

Investments on deposit with regulatory authorities as required by law were
$7,104 and $7,106 at December 31, 1998 and 1997, respectively.

As of December 31, 1998 and 1997, the Company's investments included
$475,699 and $597,248, respectively, of the tranches retained from the 1996
securitization of the Company's commercial mortgage loan portfolio. These
investments represented 42% and 59% of equity at December 31, 1998 and 1997,
respectively.

3. INVESTMENT INCOME AND CAPITAL GAINS:

The following table summarizes the sources of investment income, excluding
investment gains/(losses), for the year ended December 31.

<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Debt securities ..................... $ 395,628 $ 390,852 $ 356,669
Equity securities ................... 206 1,371 1,313
Mortgages ........................... 4,268 12,098 62,454
Real estate ......................... 2,903 17,519 24,143
Policy loans ........................ 39,760 40,921 40,580
Short-term investments .............. 2,029 2,426 6,052
Other invested assets ............... 11,330 21,268 14,665
Cash and cash equivalents ........... 3 2 44
--------- --------- ---------
Gross investment income ............. 456,127 486,457 505,920
Less: Investment expenses .......... 11,430 26,251 30,605
--------- --------- ---------
Investment income, net .............. $ 444,697 $ 460,206 $ 475,315
========= ========= =========
</TABLE>

The following table summarizes net realized capital gains/(losses) on
investments for the year ended December 31. Net realized capital gains/(losses)
include decreases in valuation allowances of $235, $3,154 and $44,164 in 1998,
1997 and 1996, respectively.

<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- --------------
<S> <C> <C> <C>
Debt securities ..................................... $ 110 $ 12,991 $ 10,412
Equity securities ................................... 2,856 417 1,122
Mortgage loans ...................................... 210 280 (2,821)
Real estate ......................................... 4,148 (684) (22,356)
Other ............................................... (2,109) (811) 3,565
Amortization of deferred acquisition costs .......... (1,303) (2,538) --
-------- -------- ----------
Realized gains/(losses) ............................. $ 3,912 $ 9,655 $ (10,078)
======== ======== ==========
</TABLE>

62
<PAGE>

The following table summarizes the change in unrealized gains and losses
for investments carried at fair value which are reflected in other
comprehensive income for the year ended December 31.

<TABLE>
<CAPTION>
1998 1997 1996
----------- ------------ ---------------
<S> <C> <C> <C>
Unrealized gains/(losses):
Debt securities ................................ $ 86,594 $ 160,850 $ (149,259)
Equity securities .............................. (2,092) 408 (582)
Other .......................................... (2,091) (14,581) (1,545)
--------- --------- -----------
82,411 146,677 (151,386)
--------- --------- -----------
Less:
Deferred policy acquisition costs .............. (12,841) (45,043) 38,324
Deferred income taxes .......................... (24,440) (35,355) 39,851
--------- --------- -----------
Net change in unrealized gains/(losses) ......... $ 45,130 $ 66,279 $ (73,211)
========= ========= ===========
</TABLE>

The following table sets forth the reclassification adjustment required to
avoid double-counting in comprehensive income items that are included as part
of net income for a period that also had been part of other comprehensive
income in earlier periods:

<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- --------------
<S> <C> <C> <C>
Reclassification Adjustments
Unrealized holding gains/(losses) arising during period .............. $ 53,576 $ 71,797 $ (57,160)
Reclassification adjustment for gains included in net income ......... 8,446 5,518 16,051
-------- -------- ----------
Unrealized gains/(losses) on investments, net of
reclassification adjustment ......................................... $ 45,130 $ 66,279 $ (73,211)
======== ======== ==========
</TABLE>

Reclassification adjustments reported in the above table for the years
ended December 31, 1998, 1997 and 1996 are net of income tax expense of $7,679,
$4,519 and $13,350, respectively, and $5,815, $2,875 and $8,740, respectively,
relating to the effects of such amounts on deferred acquisition costs.

63
<PAGE>

4. FAIR VALUE INFORMATION:

The following table summarizes the carrying value and estimated fair value
of the Company's financial instruments as of December 31, 1998 and 1997.

<TABLE>
<CAPTION>
1998 1997
------------------------------- -------------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Debt securities
Available for sale ...................... $ 5,500,924 $ 5,500,924 $ 5,427,652 $ 5,427,652
Equity securities
Common stock ............................ 158 158 3,051 3,051
Non-redeemable preferred stocks ........... 4,003 4,003 9,451 9,451
Mortgage loans ............................ 38,828 42,678 52,996 57,224
Policy loans .............................. 638,376 605,144 642,989 606,681
Cash and cash equivalents ................. 24,468 24,468 37,064 37,064
Short-term investments .................... 1,024 1,024 43,470 43,470
Separate account assets ................... 2,302,937 2,302,937 1,869,094 1,869,094
Other invested assets ..................... 98,571 98,571 88,928 88,928
FINANCIAL LIABILITIES:
Investment-type contracts
Individual annuities .................... $ 1,108,274 $ 1,143,373 $ 1,225,192 $ 1,260,639
Guaranteed investment contracts ......... 39,571 40,556 59,809 61,456
Other group annuities ................... 113,974 115,422 147,061 148,257
Other policyholder funds ................ 1,573,262 1,573,262 1,541,372 1,541,372
----------- ----------- ----------- -----------
Total policyholder funds .................. 2,835,081 2,866,627 2,973,434 3,011,724
Policyholders' dividends payable .......... 30,532 30,532 35,273 35,273
Separate account liabilities .............. 2,302,937 2,302,937 1,869,094 1,869,094

</TABLE>

The estimated fair values for the Company's investments in debt and equity
securities are based on quoted market prices, where available. In situations
where market prices are not readily available, primarily private placements,
fair values are estimated using a formula pricing method based on fair values
of securities with similar characteristics. The estimated fair value of
currently performing mortgage loans is estimated by discounting the cash flows
associated with the investment, using an interest rate currently offered for
similar loans to borrowers with similar credit ratings. Loans with similar
credit quality, characteristics and time to maturity are aggregated for
purposes of discounted cash flow analysis. Assumptions regarding credit risk,
cash flows and discount rates are determined using the available market and
borrower-specific information. The estimated fair value for non-performing
loans is based on the estimated fair value of the underlying real estate, which
is based on recent appraisals or other estimation techniques. The estimated
fair value of policy loans is calculated by discounting estimated future cash
flows using interest rates currently being offered for similar loans. Loans
with similar characteristics are aggregated for purposes of the calculations.
The carrying values of cash, cash equivalents, short-term investments and
separate account assets approximate their fair values. The estimated fair
values for the venture capital limited partnerships are based on values
determined by the partnerships' managing general partners. The resulting
estimated fair values may not be indicative of the value which could be
negotiated in an actual sale.

The fair values of the Company's liabilities for individual annuities,
guaranteed investment contracts and certain group annuities are estimated by
discounting the cash flows associated with the contracts, using an interest
rate currently offered for similar contracts with maturities similar to those
remaining for the contracts being valued. The statement value for certain of
the other group annuities approximates their fair value due to the nature of
the contracts. The statement values of other policyholder funds, policyholders'
dividends payable and separate account liabilities approximate their fair
values.

64
<PAGE>

Currently, disclosure of estimated fair values is not required for all the
Company's assets and liabilities. Therefore, presentation of the estimated fair
value of a significant portion of assets without a corresponding valuation of
liabilities associated with insurance contracts can be misinterpreted. The
estimated fair values of liabilities under all of the Company's contracts are
considered in the overall management of interest rate risk. The continuing
management of the relationship between the maturities of the Company's
investments and the amounts due under insurance contracts reduces the Company's
exposure to changing interest rates.

The Company is exposed to interest rate risk on its interest-sensitive
products. The Company's investment strategy is designed to minimize interest
risk by managing the durations and anticipated cash flows of the Company's
assets and liabilities.

To minimize exposure and reduce risk from exchange and interest rate
fluctuations in the normal course of business, the Company enters into interest
rate swap programs for purposes other than trading. As of December 31, 1998 and
1997, the Company had interest rate swaps with aggregate notional amounts equal
to $95,000 and $105,000, respectively, with average unexpired terms of 8 and 19
months, respectively. Interest rate swap agreements involve the exchange of
fixed and floating rate interest payment obligations without an exchange of the
underlying notional principal amounts. During the term of the swap, the net
settlement amount is accrued as an adjustment to interest income. Gross
unrealized gains and losses, which represent fair value based on dealer-quoted
prices, were $2,248 and $0, respectively, at December 31, 1998 and $5,164 and
$0, respectively, at December 31, 1997. These fair values represent the amount
at risk if the counterparties default and the amount that the Company would
receive to terminate the contracts, taking into account current interest rates
and, where appropriate, the current creditworthiness of the counterparties.

In the normal course of business, the Company loans securities under
arrangements in which collateral is obtained in amounts greater than the
current market value of loaned securities. This collateral is held in the form
of cash, cash equivalents or securities issued or guaranteed by the United
States Government. The Company is at risk to the extent the value of loaned
securities exceeds the value of the collateral obtained. The Company controls
this risk by requiring collateral of the highest quality and requiring that
additional collateral be deposited when the market value of loaned securities
increases in relation to the collateral held or the value of the collateral
held decreases in relation to the value of the loaned securities. The Company
had loaned securities outstanding of $38,144 and $155,356 as of December 31,
1998 and 1997, respectively.

5. INCOME TAXES:

The Company follows the asset and liability method of accounting for
income taxes whereby current and deferred tax assets and liabilities are
recognized utilizing currently enacted tax laws and rates. Deferred taxes are
adjusted to reflect tax rates at which future tax liabilities or assets are
expected to be settled or realized.

65
<PAGE>

Deferred income taxes reflect the impact for financial statement reporting
purposes of temporary differences between the financial statement carrying
amounts and tax bases of assets and liabilities. The significant temporary
differences that give rise to the deferred tax assets and liabilities at
December 31 relate to the following:

1998 1997
----------- -----------
DEFERRED TAX ASSETS
Future policy benefits ................... $ 92,909 $ 88,172
Dividend award ........................... 10,255 11,970
Allowances for investment losses ......... 4,232 3,667
Employee benefit liabilities ............. 29,762 27,979
Other .................................... 18,677 24,728
--------- --------
Total deferred tax asset ............... 155,835 156,516
--------- --------
DEFERRED TAX LIABILITIES
Deferred acquisition costs ............... 135,248 127,495
Unrealized investment gains .............. 105,993 81,553
Other .................................... 22,375 22,564
--------- --------
Total deferred tax liability ........... 263,616 231,612
--------- --------
NET DEFERRED TAX LIABILITY ................ $ 107,781 $ 75,096
========= ========

The federal income taxes attributable to consolidated net income are
different from the amounts determined by multiplying consolidated net income
before federal income taxes by the expected federal income tax rate. The
difference between the amount of tax at the U.S. federal income tax rate of 35%
and the consolidated tax provision is summarized as follows:

<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Tax expense at 35% ................................ $ 50,443 $ 44,442 $ 26,930
Increase/(decrease) in income taxes resulting from:
Differential earnings amount ..................... 2,681 6,942 500
Other ............................................ 4,565 2,528 595
-------- -------- --------
Federal income tax expense/(benefit) .............. $ 57,689 $ 53,912 $ 28,025
======== ======== ========
</TABLE>

As a mutual life insurance company, the Company is subject to Internal
Revenue Code provisions which require mutual, but not stock, life insurance
companies to include the Differential Earnings Amount (DEA) in each year's
taxable income. This amount is computed by multiplying the Company's average
taxable equity base by a prescribed rate, which is intended to reflect the
difference between stock and mutual companies' earnings rates.

The Internal Revenue Service has examined the Company's income tax returns
through the year 1994. Management believes that an adequate provision has been
made for potential assessments.

66
<PAGE>

6. BENEFIT PLANS:

The following table summarizes the funded status and accrued benefit cost
for the Company's defined benefit plans and other postretirement benefit plans:

As of December 31,

<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
------------------------------- -------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Benefit obligation ................................ $ (90,428) $ (84,051) $ (26,439) $ (31,413)
Fair value of plan assets ......................... 53,349 42,783 -- --
---------- ---------- ---------- ----------
Funded Status ..................................... $ (37,079) $ (41,268) $ (26,439) $ (31,413)
========== ========== ========== ==========
Accrued benefit cost recognized in the consolidated
balance sheet .................................... $ (22,530) $ (23,527) $ (44,558) $ (45,143)
</TABLE>

The weighted-average assumptions used to measure the actuarial present
value of the projected benefit obligation were:

<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
----------------------- -----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Discount rate .......................... 6.75% 7.00% 6.75% 7.00%
Expected return on plan assets ......... 8.00% 8.00% -- --
Rate of compensation increase .......... 5.50% 5.50% 5.00% 5.50%
</TABLE>

At December 31, 1998, the assumed health care cost trend rate used in
measuring the accumulated postretirement benefit obligation was 8% in 1999,
grading to 5% in the year 2004. At December 31, 1997, the assumed health care
cost trend rate used in measuring the accumulated postretirement benefit
obligation was 8.5% in 1998, grading to 5.0% in the year 2004. The assumed
health care cost trend rate used at December 31, 1996 in measuring the
accumulated postretirement benefit obligation was 8.5% in 1997, grading to 5.0%
in the year 2004. Assumed health care cost trend rates have a significant
effect on the amounts reported for the health care plans.

<PAGE>

The contributions made and the benefits paid from the plan were:

<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
----------------------- ---------------------
1998 1997 1998 1997
---------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Benefit cost recognized in consolidated income
statement ................................... $ 5,692 $ 5,917 $ 831 $ 1,515
Employer contribution ........................ 6,687 3,006 1,415 2,191
Plan participants' contribution .............. -- -- -- --
Benefits paid ................................ 3,229 3,085 1,415 2,191
</TABLE>

The Company maintains four defined contribution pension plans for
substantially all of its employees and full-time agents. For two plans,
designated contributions of up to 6% or 8% of annual compensation are eligible
to be matched by the Company. Contributions for the third plan are based on
tiered earnings of full-time agents. The last plan, which covers employees of a
subsidiary, are determined on a discretionary basis by the Board of Directors
of that subsidiary. For the years ended December 31, 1998, 1997 and 1996, the
expense recognized for these plans was $9,526, $8,345 and $6,092, respectively.
The estimated fair value of the defined contribution plans' assets at December
31, 1998 and 1997 was $260,706 and $229,378, respectively.

67
<PAGE>

7. REINSURANCE:

The Company has assumed and ceded reinsurance on certain life and annuity
contracts under various agreements. Reinsurance permits recovery of a portion
of losses from reinsurers, although the Company remains primarily liable as the
direct insurer on all risks reinsured. The Company evaluates the financial
strength of potential reinsurers and continually monitors the financial
condition of present reinsurers to ensure that amounts due from reinsurers are
collectible. The table below highlights the amounts shown in the accompanying
financial statements.

<TABLE>
<CAPTION>
ASSUMED CEDED TO
GROSS FROM OTHER OTHER NET
AMOUNT COMPANIES COMPANIES AMOUNT
-------------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1998:
Life Insurance in Force ......... $32,066,821 $5,115,520 $5,954,701 $31,227,640
Premiums ........................ 166,708 10,586 5,940 171,354
Benefits ........................ 457,239 15,710 17,913 455,036
Reserves ........................ 5,594,712 1,688 62,198 5,534,202

DECEMBER 31, 1997:
Life Insurance in Force ......... $31,027,764 $5,217,856 $4,620,599 $31,625,021
Premiums ........................ 190,754 11,189 6,723 195,220
Benefits ........................ 492,857 14,293 26,916 480,234
Reserves ........................ 5,741,456 1,993 59,322 5,684,127

</TABLE>

During 1996, the Company had gross premiums of $196,897, assumed premiums
of $12,745 and ceded premiums of $9,821 and gross benefits of $293,270, assumed
benefits of $16,466 and ceded benefits of $16,808. Reinsurance receivables with
a carrying value of $55,119 and $50,617 were associated with a single reinsurer
at December 31, 1998 and 1997, respectively.

8. COMMITMENTS AND CONTINGENCIES:

The Company and its subsidiaries are respondents in a number of
proceedings, some of which involve extra-contractual damage in addition to
other damages. In addition, 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 are not likely to have a material adverse effect on
the financial position of the Company.

The Company, in the ordinary course of business, extends commitments
relating to its investment activities. As of December 31, 1998, the Company had
outstanding commitments totaling $19,413 relating to these investment
activities. The fair value of these commitments approximates the face amount.

9. STATUTORY INFORMATION:

State insurance regulatory authorities prescribe or permit statutory
accounting practices for calculating net income and capital and surplus which
differ in certain respects from generally accepted accounting principles
(GAAP). The significant differences relate to deferred acquisition costs, which
are charged to expenses as incurred; federal income taxes, which reflect
amounts that are currently taxable; and benefit reserves, which are determined
using prescribed mortality, morbidity and interest assumptions, and which, when
considered in light of the assets supporting these reserves, adequately provide
for obligations under policies and contracts. In addition, the recording of
impairments in the value of investments generally lags recognition under GAAP.

The combined insurance companies' statutory capital and surplus at
December 31, 1998 and 1997 was $495,212 and $435,861, respectively. The
combined insurance companies' net income, determined in accordance with
statutory accounting practices, for the years ended December 31, 1998, 1997 and
1996, was $83,676 $63,613 and $25,905, respectively.

68
<PAGE>

10. YEAR 2000 (UNAUDITED):

The services provided by the Company depend on the smooth functioning of
computer systems. Many computer systems in use today cannot recognize the Year
2000, but revert to 1900 or some other date, due to the manner in which dates
were encoded and calculated earlier in this century. If not corrected, many
computer applications could fail or create erroneous results by or at the Year
2000. Failure of computer systems could affect pricing, account services, and
the handling of investment transactions, among other things. The Company began
preparing for the Year 2000 actively in 1996. The effort involves assessing all
computers, computer programs and related equipment, making necessary changes
and ensuring that all systems process dates correctly. The Company believes
that it has designed and implemented an efficient process for identifying what
needs to be changed and is working to correct and test systems that research
shows will be affected by dates in the Year 2000 and beyond. The Company
expects its computer systems to be Year 2000 compliant.

The Company has relationships with vendors and other service providers
that are not affiliated with the Company. As part of its plan, the Company is
contacting vendors and service providers to obtain assurances that such service
providers have taken appropriate measures to address the Year 2000 issue. The
Company will assess and attempt to mitigate risks where outside service
providers are not Year 2000 ready. However, there is no assurance that the
failure of outside service providers to complete adequate preparations in a
timely manner, which results in systems interruptions or other consequences,
will not have an adverse effect, directly or indirectly, on the Company.

The cost of addressing the Year 2000 issue is significant but not material
to the Company's financial condition or results of operations. The Company will
continue to incur costs in addressing the Year 2000, but does not anticipate
that the costs will be material going forward.

The foregoing statements are designated Year 2000 Readiness Disclosure
within the meaning of The Year 2000 Information and Readiness Disclosure Act
(P.L. 105-271,S.2392).

69
<PAGE>

- --------------------------------------------------------------------------------
APPENDIX A

- --------------------------------------------------------------------------------
MINIMUM INITIAL PREMIUMS

The following table shows for Insureds of varying ages, the minimum
initial annual premium for a Policy with a Basic death benefit of $1,000,000.
The table assumes the Insureds will be placed in a nonsmoker class and that no
supplemental benefits will be added to the base Policy.

MINIMUM INITIAL
AGE OF MALE AGE OF FEMALE PREMIUM
- --------------------------------------------------------------------------------
35 35 $2,802
- --------------------------------------------------------------------------------
40 45 $3,224
- --------------------------------------------------------------------------------
45 45 $3,296
- --------------------------------------------------------------------------------
50 45 $3,376
- --------------------------------------------------------------------------------
55 45 $3,462
- --------------------------------------------------------------------------------
55 55 $4,248
- --------------------------------------------------------------------------------
60 58 $4,687
- --------------------------------------------------------------------------------
65 70 $7,146
- --------------------------------------------------------------------------------
70 62 $6,391
- --------------------------------------------------------------------------------

A-1

<PAGE>

- --------------------------------------------------------------------------------
APPENDIX B

- --------------------------------------------------------------------------------
ADMINISTRATIVE SURRENDER CHARGES PER $1,000 OF INITIAL SPECIFIED AMOUNT

Attained Age of Younger Charge Per Each $1,000 of
Insured on Policy Date Initial Specified Amount
- --------------------------------------------------------------------------------
20-29 $ 6.00
- --------------------------------------------------------------------------------
30-39 $ 8.00
- --------------------------------------------------------------------------------
40-49 $10.00
- --------------------------------------------------------------------------------
50-59 $12.00
- --------------------------------------------------------------------------------
60-over $14.00
- --------------------------------------------------------------------------------

SAMPLE SURRENDER CHARGE PREMIUMS FOR $1,000,000 SPECIFIED AMOUNT
(NS = NONSMOKER; S = SMOKER)

Age of Smoking Age of Smoking Maximum Surrender
Male Status Female Status Charge Premium
- --------------------------------------------------------------------------------
50 NS 45 NS $9,254
- --------------------------------------------------------------------------------
65 NS 65 NS $29,399
- --------------------------------------------------------------------------------
55 S 55 S $16,280
- --------------------------------------------------------------------------------
55 S 45 NS $10,392
- --------------------------------------------------------------------------------
45 NS 45 S $9,040
- --------------------------------------------------------------------------------
35 NS 35 NS $5,364
- --------------------------------------------------------------------------------
70 NS 62 S $25,370
- --------------------------------------------------------------------------------
40 S 45 S $9,044
- --------------------------------------------------------------------------------
65 S 70 NS $31,204
- --------------------------------------------------------------------------------
60 NS 58 NS $16,885
- --------------------------------------------------------------------------------

B-1

<PAGE>

- --------------------------------------------------------------------------------
APPENDIX C

- --------------------------------------------------------------------------------
POLICIES ISSUED TO NEW YORK RESIDENTS

For Policies issued to New York residents, the surrender charge declines
during the 6th through the 14th policy years so that no surrender charge is
deductible during the 15th and later policy years. The surrender factors used to
calculate the surrender charge for such Policies are as follows:

Surrender Factor
Surrender During Applied to (c) in
Policy Year Formula on Page
- --------------------------------------------------------------------------------
1st through 5th 1.00
- --------------------------------------------------------------------------------
6th .90
- --------------------------------------------------------------------------------
7th .80
- --------------------------------------------------------------------------------
8th .70
- --------------------------------------------------------------------------------
9th .60
- --------------------------------------------------------------------------------
10th .50
- --------------------------------------------------------------------------------
11th .40
- --------------------------------------------------------------------------------
12th .30
- --------------------------------------------------------------------------------
13th .20
- --------------------------------------------------------------------------------
14th .10
- --------------------------------------------------------------------------------
15th 0
- --------------------------------------------------------------------------------

C-1
<PAGE>

- --------------------------------------------------------------------------------
APPENDIX D

- --------------------------------------------------------------------------------
ILLUSTRATIVE NET SINGLE PREMIUM FACTORS

For a Policy Issued to a Male Nonsmoker, age 65, standard underwriting
class and Female, Nonsmoker, age 65, standard underwriting class.

65 2.2464 83 1.2787
- --------------------------------------------------------------------------------
66 2.1200 84 1.2557
- --------------------------------------------------------------------------------
67 2.0406 85 1.2348
- --------------------------------------------------------------------------------
68 1.9656 86 1.2159
- --------------------------------------------------------------------------------
69 1.8949 87 1.1987
- --------------------------------------------------------------------------------
70 1.8283 88 1.1831
- --------------------------------------------------------------------------------
71 1.7657 89 1.1686
- --------------------------------------------------------------------------------
72 1.7068 90 1.1550
- --------------------------------------------------------------------------------
73 1.6517 91 1.1421
- --------------------------------------------------------------------------------
74 1.6002 92 1.1295
- --------------------------------------------------------------------------------
75 1.5523 93 1.1171
- --------------------------------------------------------------------------------
76 1.5080 94 1.1044
- --------------------------------------------------------------------------------
77 1.4670 95 1.0913
- --------------------------------------------------------------------------------
78 1.4290 96 1.0778
- --------------------------------------------------------------------------------
79 1.3940 97 1.0643
- --------------------------------------------------------------------------------
81 1.3316 98 1.0520
- --------------------------------------------------------------------------------
80 1.3615 99 1.0321
- --------------------------------------------------------------------------------

D-1
<PAGE>

[GRAPHIC OMITTED]
PENN
MUTUAL
A BETTER WAY OF LIFE

THE PENN MUTUAL
LIFE INSURANCE COMPANY
PM4639 5/99 Philadelphia, PA 19172

<PAGE>

PART II

<PAGE>

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.

UNDERTAKING PURSUANT TO RULE 484 UNDER THE SECURITIES ACT OF 1933

Section 6.2 of the By-laws of The Penn Mutual Life Insurance Company
("Penn Mutual" or the "Company") provides that, in accordance with the
provisions of the Section, the Company shall indemnify trustees and officers
against expenses (including attorneys' fees), judgments, fines, excise taxes and
amounts paid in settlement actually and reasonably incurred in connection with
actions, suits and proceedings, to the extent such indemnification is not
prohibited by law, and may provide other indemnification to the extent not
prohibited by law. The By-laws are filed as Exhibit 6(b) on the Form N-4
Registration Statement of Penn Mutual Variable Annuity Account III filed on
September 30, 1998 (File No. 33-62811).

Pennsylvania law (15 Pa. C.S.A. ss.ss. 1741-1750) authorizes
Pennsylvania corporations to provide indemnification to directors, officers and
other persons.

Penn Mutual owns a directors and officers liability insurance policy
covering liabilities that trustees and officers of Penn Mutual and its
subsidiaries may incur in acting as trustees and officers.

Insofar as indemnification for liability arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, 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 a 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 the 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.

II-1

<PAGE>

REPRESENTATION PURSUANT TO SECTION 26(e)(2)(A)
OF THE INVESTMENT COMPANY ACT OF 1940

Registrant represents that the fees and charges debuted under the Last
Survivor Flexible Premium Adjustable Variable Life Insurance Policy, in the
aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by the Registrant.

CONTENTS OF REGISTRATION STATEMENT

This Registration Statement comprises the following papers and documents:

The facing sheet.
The prospectus consisting of 74 pages. Undertaking to file reports.
Rule 484 Undertaking.
Section 26(e)(2)(A) Representation.
The signatures.

The following exhibits:

1. Copies of all exhibits which would be required by paragraph A of the
instructions as to exhibits in Form N-8B-2 if a Registration Statement
on that Form were currently being filed.

A(1) (a) Resolution of the Board of Trustees of The
Penn Mutual Life Insurance Company
establishing the Penn Mutual Variable Life
Account I. Filed herewith.

(b) Resolution of the Executive Committee of the
Board of Trustees of The Penn Mutual Life
Insurance Company relating to investments
held in Penn Mutual Variable Life Account I.
Filed herewith.

A(2) Not Applicable.

A(3) (a)(1) Distribution Agreement between The
Penn Mutual Life Insurance Company and
Hornor, Townsend & Kent, Inc. Filed
herewith.

(a)(2) Form of Sales Support Agreement between The
Penn Mutual Life Insurance Company and
Hornor, Townsend & Kent, Inc. Filed
herewith.

(b)(1) Form of Agent's Agreement relating to
broker-dealer supervision. Incorporated
herein by reference to Exhibit 3(c) to the
Registration Statement of Penn Mutual
Variable Annuity Account III (File No.
333-62811) on Form N-4 filed on September 3,
1998 (Accession No. 0001036050-98-001504).

II-2

<PAGE>

(b)(2) Form of Broker-Dealer Selling Agreement (for
broker-dealers licensed to sell variable
annuity contracts and/or variable life
insurance contracts under state insurance
laws). Incorporated herein by reference to
Exhibit 3(d) to the Pre-Effective Amendment
to the Registration Statement of Penn Mutual
Variable Annuity Account III (File No.
333-62811) on Form N-4 filed on November 30,
1998 (Accession No. 0001036050-98-002055).

(b)(3) Form of Broker-Dealer Selling Agreement (for
broker-dealers with affiliated corporations
licensed to sell variable annuity contracts
and/or variable life insurance policies
under state insurance laws and companion
Form of Corporate Insurance Agent Selling
Agreement. Incorporated herein by reference
to Exhibit 3(e) to Pre-Effective Amendment
to the Registration Statement of Penn Mutual
Variable Annuity Account III (File No.
333-62825) on Form N-4 on April 27, 1999
(Accession No. 0000950116-99-000834).

A(4) Not Applicable.

A(5) (a)(1) Specimen Last Survivor Flexible Premium
Adjustable Variable Life Insurance Policy
(Sex Distinct). Filed herewith.

(a)(2) Specimen Last Survivor Flexible Premium
Adjustable Variable Life Insurance Policy
(Unisex). Filed herewith.

(a)(3) Specimen Last Survivor Flexible Premium
Adjustable Variable Life Insurance Policy
(New York). Filed herewith.

(b)(1) Flexible Period Single Life Supplemental
Term Insurance Agreement (Sex Distinct).
Filed herewith.

(b)(2) Flexible Period Single Life Supplemental
Term Insurance Agreement (Unisex). Filed
herewith.

(c)(1) Policy Split Option Agreement. Filed
herewith.

(c)(2) Policy Split Option Agreement (New York).
Filed herewith.

(d) Estate Growth Benefit Agreement. Filed
herewith.

(e)(1) Supplemental Exchange Agreement. Filed
herewith.

(e)(2) Supplemental Exchange Agreement (New York).
Filed herewith.

II-3

<PAGE>

(f)(1) Supplemental Term Insurance Agreement (Sex
Distinct). Filed herewith.

(f)(2) Supplemental Term Insurance Agreement
(Unisex). Filed herewith.

(g)(1) Guaranteed Continuation of Policy Agreement
(Sex Distinct). Filed herewith.

(g)(2) Guaranteed Continuation of Policy Agreement
(Unisex). Filed herewith.

A(6) (a) Charter of The Penn Mutual Life Insurance
Company. Incorporated herein by reference to
Exhibit 6(a) to the Registration Statement
of Penn Mutual Variable Annuity Account III
(File No. 333-62811) on Form N-4 filed on
September 3, 1998(Accession No.
0001036050-98-001504).

(b) By-Laws of The Penn Mutual Life Insurance
Company. Incorporated herein by reference to
Exhibit 6(b) to the Registration Statement
of Penn Mutual Variable Annuity Account III
(File No. 333-62811) on Form N-4 filed on
September 3, 1998 (Accession No.
0001036050-98-001504).

A(7) Not Applicable.

A(8) (a) Form of Sales Agreement between The Penn
Mutual Life Insurance Company and Penn
Series Funds, Inc. Filed herewith.

(b)(1) Form of Sales Agreement between The Penn
Mutual Life Insurance Company and Neuberger
& Berman Advisers Management Trust.
Incorporated herein by reference to Exhibit
8(b)(1) to Post Effective Amendment No. 1 to
this Form S-6 Registration Statement filed
on April 29, 1996. (Accession No.
0000950109-96-002471).

(b)(2) Assignment and Modification Agreement
between Neuberger & Berman Management
Incorporated, Neuberger & Berman Advisers
Management Trust and The Penn Mutual Life
Insurance Company. Incorporated herein by
reference to Exhibit 8(b)(2) to Post
Effective Amendment No. 1 to this Form S-6
Registration Statement filed on April 29,
1996. (Accession No. 0000950109-96-002471).

(b)(3) Amendment to Agreement between The Penn
Mutual Life Insurance Company and Neuberger
& Berman Advisers Management Trust.
Incorporated herein by reference to Form S-6
Registration Statement (File No. 33-54662)
for Penn Mutual Variable Life Account I
Post-Effective Amendment No. 5 filed on
April 30, 1997. (Accession No.
0000950109-97-003328).

II-4

<PAGE>

(c) Form of Fund Participation Agreement between
The Penn Mutual Life Insurance Company, TCI
Portfolios, Inc. (renamed American Century
Variable Portfolios, Inc. effective May 1,
1997) and Investors Research Company
(renamed American Century Investment
Management, Inc). Incorporated herein by
reference to Exhibit 8(a) to the
Registration Statement of Penn Mutual
Variable Annuity Account III (File No.
333-62811) on Form N-4 filed on September 3,
1998 (Accession No.
0001036050-98-001504).

(d) Form of Participation Agreement between The
Penn Mutual Life Insurance Company, Variable
Insurance Products Fund and Fidelity
Distributors Corporation. Incorporated
herein by reference to Exhibit 8(d) to the
Registration Statement of Penn Mutual
Variable Annuity Account III (File No.
333-62811) on Form N-4 filed on September 3,
1998 (Accession No. 0001036050-98-001504).

(e) Form of Participation Agreement between The
Penn Mutual Life Insurance Company and
Variable Insurance Products Fund II.
Incorporated herein by reference to Exhibit
8(e) to the Registration Statement of Penn
Mutual Variable Annuity Account III (File
No. 333-62811) on Form N-4 filed on
September 3, 1998 (Accession No.
0001036050-98-001504).

(f) Participation Agreement between The Penn
Mutual Life Insurance Company and Morgan
Stanley Universal Funds, Inc. Incorporated
herein by reference to Exhibit 8(f) to
Post-Effective Amendment No. 22 to the
Registration Statement on Form N-4 of Penn
Mutual Variable Annuity Account III (File
No. 2-77283) on Form N-4 filed on April 29,
1997 (Accession No. 0001021408-97-000161).

A(9) Not applicable.

A(10) (a) Application form for Last Survivor Flexible
Premium Adjustable Variable Life Insurance.
Filed herewith.

(b) Supplemental application form for Last
Survivor Flexible Premium Adjustable
Variable Life Insurance. Filed herewith.

A(11) Memorandum describing issuance, transfer and
redemption procedures. Filed herewith.

2. Opinion and consent of C. Ronald Rubley, Esq., Associate General
Counsel, The Penn Mutual Life Insurance Company, dated April 11, 1995,
as to the legality of the securities being registered. Filed herewith.

3. Opinion and Consent of Edward S. Attarian, FSA, MAAA, Actuary, The Penn
Mutual Life Insurance Company, dated April 23, 1999, as to actuarial
matters pertaining to the securities being registered. Filed herewith.

II-5

<PAGE>

4. (a) Consent of Ernst & Young, LLP. Filed herewith.

(b) Consent of Morgan, Lewis & Bockius LLP. Filed herewith.

5. (a) Powers of Attorney of Robert E. Chapell, James A. Hagen,
Phillip E. Lippincott, John F. McCaughan, Alan B. Miller,
Daniel J. Toran, Norman T. Wilde, Jr., Wesley S. Williams, Jr.
and Nancy S. Brodie. Filed as exhibits and incorporated herein
by reference to Post-Effective Amendment No. 2 to this Form
S-6 Registration Statement of Penn Mutual Variable Life
Account I filed on April 30, 1997. (Accession No.
0000950109-97-003355).

(b) Powers of Attorney of Edmond F. Notebaert and Robert H. Rock.
Filed as exhibits and incorporated herein by reference to
Post-Effective Amendment No. 4 to this Form S-6 Registration
Statement of Penn Mutual Variable Life Account I filed on
April 23, 1998 (Accession No. 0001036050-98-000671).

(c) Power of Attorney of Julia Chang Bloch. Filed as an exhibit
and incorporated herein by reference to Post-Effective
Amendment No. 5 to this Form S-6 Registration Statement of
Penn Mutual Variable Life Account I filed on March 1, 1999
(Accession No. 0000950116-99-000329).

II-6

<PAGE>

SIGNATURES

On its behalf and on behalf of Penn Mutual Variable Life Account I,
Pursuant to the requirements of the Securities Act of 1933, The Penn Mutual Life
Insurance Company 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. 6 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 Township of Horsham and the
Commonwealth of Pennsylvania, on the 28th day of April, 1999.

[SEAL] THE PENN MUTUAL LIFE INSURANCE COMPANY
on its behalf and on behalf of Penn
Mutual Variable Life Account I

Attest: /s/ Laura M. Ritzko By: /s/ Robert E. Chappell
------------------------- -----------------------------
Laura M. Ritzko Robert E. Chappell
Chairman of the Board of Trustees
And Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 6 to the Registration Statement has been signed
below by the following persons in the capacities indicated on the 28th day of
April, 1999.

SIGNATURE TITLE
- --------- -----

/s/ Robert E. Chappell Chairman of the Board of Trustees
- --------------------------- and Chief Executive Officer
Robert E. Chappell

/s/ Nancy S. Brodie Executive Vice President
- --------------------------- and Chief Financial Officer
Nancy S. Brodie

*JULIA CHANG BLOCH Trustee

*JAMES A. HAGEN Trustee

*PHILIP E. LIPPINCOTT Trustee

*JOHN F. McCAUGHAN Trustee

*ALAN B. MILLER Trustee

*EDMOND F. NOTEBAERT Trustee

II-7

<PAGE>

*ROBERT H. ROCK Trustee

*DANIEL J. TORAN Trustee

*NORMAN T. WILDE, JR. Trustee

*WESLEY S. WILLIAMS, JR. Trustee

*By /s/ Robert E. Chappell
------------------------------------
Robert E. Chappell, attorney-in-fact

II-8

<PAGE>

EXHIBIT INDEX

Ex-99.A(1)a Resolution of the Board of Trustees of The Penn Mutual
Life Insurance Company establishing the Penn Mutual
Variable Life Account I.

Ex-99.A(1)b Resolution of the Executive Committee of the Board of
Trustees of The Penn Mutual Life Insurance Company
relating to investments held in Penn Mutual Variable
Life Account I.

EX.99.A(3)(a)(1) Distribution Agreement between the Penn Mutual Life
Insurance Company and Hornor, Townsend & Kent, Inc.

Ex-99.A(3)(a)(2) Form of Sales Support Agreement between The Penn
Mutual Life Insurance Company and Hornor, Townsend &
Kent, Inc.

Ex-99.A(3)(c) Schedule of Sales Commissions.

Ex-99.A(5)(a)(1) Specimen Flexible Premium Adjustable Variable Life
Insurance Policy (Sex Distinct).

Ex-99.A(5)(a)(2) Specimen Last Survivor Flexible Premium Adjustable
Variable Life Insurance Policy (Unisex).

Ex-99.A(5)(a)(3) Specimen Last Survivor Flexible Premium Adjustable
Variable Life Insurance Policy (New York).

Ex-99.A(5)(b)(1) Flexible Period Single Life Supplemental Term
Insurance Agreement (Sex Distinct).

Ex-99.A(5)(b)(2) Flexible Period Single Life Supplemental Term
Insurance Agreement (Unisex).

Ex-99.A(5)(c)(1) Policy Split Option Agreement.

Ex-99.A(5)(c)(2) Policy Split Option Agreement (New York).

Ex-99.A(5)(d) Estate Growth Benefit Agreement.

Ex-99.A(5)(e)(1) Supplemental Exchange Agreement.

Ex-99.A(5)(e)(2) Supplemental Exchange Agreement (New York).

II-9

<PAGE>

Ex-99.A(5)(f)(1) Supplemental Term Insurance Agreement (Sex Distinct).

Ex-99.A(5)(f)(2) Supplemental Term Insurance Agreement (Unisex).

Ex-99.A(5)(g)(1) Guaranteed Continuation of Policy Agreement (Sex
Distinct).

Ex-99.A(5)(g)(2) Guaranteed Continuation of Policy Agreement (Unisex).

Ex-99.A(8)(a) Agreement between The Penn Mutual Life Insurance
Company and Penn Series Funds, Inc.

Ex-99.A(10)(a) Application form for Last Survivor Flexible Premium
Adjustable Variable Life Insurance.

Ex-99.A(10)(b) Supplemental application form for Last Survivor
Flexible Premium Adjustable Variable Life Insurance.

Ex-99.A(11) Memorandum describing issuance, transfer and
redemption procedures.

Ex-99.2 Opinion and consent of C. Ronald Rubley, Esq.,
Associate General Counsel, The Penn Mutual Life
Insurance Company, dated April 11, 1995, as to the
legality of the securities being registered.

Ex-99.3 Opinion and consent of Edward S. Attarian, FSA, MAAA,
Actuary, The Penn Mutual Life Insurance Company,
dated April 23, 1999, as to actuarial matters
pertaining to the securities being registered.

Ex-99.4(a) Consent of Ernst & Young, LLP.

Ex-99.4(b) Consent of Morgan, Lewis & Bockius LLP.

II-10

<PAGE>

THE PENN MUTUAL LIFE INSURANCE COMPANY

EXECUTIVE COMMITTEE

BOARD OF TRUSTEES

Resolution Establishing
Penn Mutual Variable Life Account I

Adopted January 27, 1987

WHEREAS, it is in the interest of the Company to issue variable life
insurance contracts and, in connection therewith, to establish a separate
account pursuant to Pennsylvania insurance laws and to take all action necessary
to comply with all applicable laws and to take all action necessary to comply
with all applicable laws and regulations, it is

RESOLVED, that the Company establish a separate account pursuant to
Section 406.2 of the Pennsylvania Insurance Company Law of 1921, as amended,
designated Penn Mutual Variable Life Account I or such other name as the
officers of the Company deem appropriate (the "Separate Account");

RESOLVED FURTHER, that the Company receive and hold in the Separate
Account (i) amounts arising from premium payments received by the Company under
certain variable life insurance contracts (in accordance with the provisions of
such contract) and (ii) such other assets of the Company as the officers of the
Company may deem prudent and appropriate to support the issuance and maintenance
of variable life insurance contracts;

RESOLVED FURTHER, that the assets held in the Separate Account be
invested and reinvested in shares of Penn Series Funds, Inc., a corporation
registered as an open-end management investment company under the Investment
Company Act of 1940; and

RESOLVED FURTHER, that in connection with the issuance of variable life
insurance contracts, the officers of the Company are hereby authorized to take
all action necessary and appropriate to (i) register the Separate Account as a
unit investment trust under the Investment Company Act of 1940, (ii) register
the variable life insurance contracts under the Securities Act of 1933, in such
amounts as the officers of the Company shall from time to time deem appropriate,
(iii) apply for such exemptions from, and other orders pursuant to, the
Investment Company Act of 1940, as the officers of the Company shall deem
necessary and appropriate, (iv) obtain all necessary licenses and approvals to
offer and sell variable life insurance contracts in the various states and
jurisdictions of the United States and (v) comply with the Investment Company
Act of 1940, the Securities Exchange Act of 1934, the Securities Act of 1933 and
all applicable state and federal laws.

<PAGE>
THE PENN MUTUAL LIFE INSURANCE COMPANY

Executive Committee of the Board of Trustees

April 25, 1995

Investments Held in Penn Mutual Variable Life Account I

for

Flexible Premium Adjustable Variable Life Insurance Policies

WHEREAS, the Company's flexible premium adjustable variable life
insurance policies (the "Policies") currently provide for investments in shares
of Penn Series Funds, Inc., TCI Portfolios, Inc. and Neuberger & Berman Advisers
Management Trust and provide that such investments shall be segregated in Penn
Mutual Variable Life Account I, a separate account established pursuant to
Section 406.2 of the Insurance Company Act of 1921, as amended (the "Separate
Account");

WHEREAS, the Company proposes to offer investments in shares of
Fidelity Investments' Variable Insurance Products Fund and Variable Insurance
Product Fund II as additional investment choices under the Contracts and
proposes to segregate such investments in the Separate Account;

WHEREAS, it is in order to authorize investments in shares of
portfolios of Fidelity Investments' Variable Insurance Products Fund and
Variable Insurance Products Fund II through the Separate Account, it is:

RESOLVED, that the Company is authorized to invest amounts held in the
Separate Account in shares of the following funds or portfolios of the following
registered investment companies, in accordance with instructions from owners of
and payees under the Contracts:

Penn Series Funds, Inc.: Growth Equity Fund
Value Equity Fund
Flexibly Managed Fund
Small Capitalization Fund
International Equity Fund
Quality Bond Fund
High Yield Bond Fund
Money Market Fund

<PAGE>

Neuberger & Berman : Limited Maturity Bond Portfolio
Advisers Management Balance Portfolio
Trust

TCI Portfolios, Inc. : TCI Growth Portfolio

Variable Insurance : Equity-Income Portfolio
Product Fund Growth Portfolio

Variable Insurance : Asset Manager Portfolio
Product Fund II

<PAGE>

DISTRIBUTION AGREEMENT

AGREEMENT made as of the 1st day of December, 1998, between THE PENN
MUTUAL LIFE INSURANCE COMPANY ("Penn Mutual"), a Delaware corporation, and
HORNOR, TOWNSEND & KENT, INC. ("Distributor"), a Pennsylvania corporation.

WITNESSETH:

WHEREAS, Penn Mutual is engaged in the business of issuing variable
annuity contracts and variable life insurance policies ("Contracts") to the
public;

WHEREAS, Distributor is licensed as a life insurance agent of Penn
Mutual under state insurance laws, is registered as a broker-dealer under the
Securities Exchange Act of 1934 and is a member of the National Association of
Securities Dealers, Inc.; and

WHEREAS, Penn Mutual desires to appoint Distributor to distribute its
Contracts and Distributor desires to accept such appointment;

NOW THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties agree as follows:

1. Appointment of Distributor
--------------------------

1.1 Subject to the terms and conditions herein contained, Penn Mutual
appoints Distributor as a nonexclusive distributor of its Contracts.

2. Distribution of Contracts Through Other Agent/Broker-Dealers
------------------------------------------------------------

2.1 Distributor shall use its best efforts to distribute the Contracts
through qualified agent/broker-dealers in states and jurisdictions in which
Distributor may legally do so. Distributor shall assist Penn Mutual in
selecting, providing information to, and monitoring the performance of, such
agent/broker-dealers. Distributor shall distribute the Contracts pursuant to
selling agreements among Penn Mutual, Distributor and qualified
agent/broker-dealers.

3. Compliance With Laws and Regulations
------------------------------------

3.1 Distributor shall strictly comply with all applicable insurance
laws and regulations in distributing Contracts and shall take all reasonable
measures to assure that its officers, directors, employees and other individuals
acting on its behalf comply with the applicable insurance laws and regulations.
<PAGE>

3.2 Distributor shall strictly comply with all applicable securities
laws and regulations and with the rules of the National Association of
Securities Dealers, Inc. in distributing Contracts that are deemed to be
securities within the meaning of applicable securities laws, and shall take all
reasonable measures to assure that its officers, directors, employees and other
individuals acting on its behalf comply with the applicable securities laws,
regulations and rules.

3.3 Penn Mutual shall furnish Distributor with copies of the current
prospectus filed with the Securities and Exchange Commission (and filed with any
state securities regulatory office, if required) and required to be used in
distributing the Contracts.

3.4 Distributor shall not print, publish, distribute or use any
advertisement, sales literature or other writing relating to the Contracts
unless such advertisement, sales literature or other writing shall have first
been approved in writing by Penn Mutual.

4. Miscellaneous
-------------

4.1 Distributor shall cooperate with Penn Mutual in investigating and
settling all claims which may be made against Penn Mutual involving the
distribution of Contracts. Distributor shall promptly forward to Penn Mutual any
notice of claim or relevant information concerning a potential claim which may
come into its possession, and shall promptly forward to Penn Mutual any legal
papers served on Distributor involving such claim.

4.2 Distributor shall indemnify and hold harmless Penn Mutual and each
director and officer of Penn Mutual against any losses, damages, or liabilities,
insofar as such losses, damages, and liabilities arise out of or are based upon
any unauthorized act of Distributor in distributing the Contracts or the failure
of Distributor and its officers, employees and representatives to comply with
the provisions of this Agreement.

4.3 Penn Mutual shall indemnify and hold harmless Distributor and each
director and officer against any losses, damages or liabilities, to which
Distributor or such director or officer becomes subject, under the Securities
Act of 1933 or otherwise, insofar as such losses, damages and liabilities arise
out of or are based upon any inaccurate or inadequate statement in the
Registration Statement for the Contracts.

4.4 This Agreement may be terminated, without cause, by either party
upon thirty days prior written notice. This Agreement may be terminated, for
cause, by either party immediately.

4.5 This Agreement shall be construed in accordance with and governed
by the laws of the Commonwealth of Pennsylvania.

<PAGE>

4.6 This Agreement supercedes and replaces any and all prior
distribution agreements between Penn Mutual and HTK relating to Contracts.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year written
above.

THE PENN MUTUAL LIFE INSURANCE
COMPANY

Attest

/s/ Laura M. Ritzko By /s/ Richard F. Plush
- ---------------------------- ------------------------------------
Secretary Richard F. Plush
Vice President

HORNOR TOWNSEND & KENT, INC.
Attest

/s/ Michael D. Sweeney By /s/ Rohn C. Zimmerman
- ---------------------------- ------------------------------------
Secretary Rohn C. Zimmerman
President

<PAGE>
SALES SUPPORT AGREEMENT

AGREEMENT made as of the 1st day of April, 1999, by and between THE
PENN MUTUAL LIFE INSURANCE COMPANY ("Penn Mutual"), a Pennsylvania Company, and
HORNOR, TOWNSEND & KENT, INC. ("HTK"), a Pennsylvania Corporation.

W I T N E S S E D:

WHEREAS, Penn Mutual is engaged in the business of issuing variable
life insurance policies to the public;

WHEREAS, HTK is licensed as a life insurance agent of Penn Mutual under
state insurance laws, is registered as a broker-dealer under the Securities
Exchange Act of 1934 and is a member of the National Association of Security
Dealers, Inc.; and

WHEREAS, Penn Mutual desires that HTK provide sales support services in
connection with the sale of variable life insurance policies by designated life
insurance agents of Penn Mutual, and HTK desires to provide such services;

NOW THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties agree as follows:

I. Training and Education
----------------------

A. HTK will provide training and educational services to designated life
insurance agents of Penn Mutual in connection with the sale of variable life
insurance policies identified in Schedule I attached hereto (hereinafter
rereferred to as "Policies"). Designated life insurance agents of Penn Mutual
are those life insurance agents who are designated by Penn Mutual and are
associated persons of HTK.

I. Compliance
----------

A. Penn Mutual will furnish HTK with the names of its life insurance agents who
indicate a desire to sell Policies.

A. HTK, after investigation, will select the life insurance agents of Penn
Mutual who are to become qualified under federal and state securities laws and
rules of the NASD to engage in the sale of Policies and will use its best
efforts to cause such life insurance agents to be qualified. Life insurance
agents so qualified will be "persons associated with" HTK under the Securities
Exchange Act of 1934 and the

<PAGE>

applicable rules of the NASD. Upon such qualification of a life insurance agent,
the fact will be certified in writing to Penn Mutual by HTK.

B. Prior to permitting a life insurance agent to sell Policies, Penn Mutual,
HTK, the life insurance agent and the supervisor of the life insurance agent
designated by HTK will enter into a mutually satisfactory agreement pursuant to
which the life insurance agent will acknowledge that he will be an associated
person of HTK in connection with his selling activities relating to Policies,
that such activities will be under the supervision and control of HTK and the
supervisor designated by HTK, and that the life insurance agent's right to
continue to sell Policies is subject to his or her continued compliance with
such agreement and the rules and procedures established by HTK.

A. It is contemplated that other personnel of Penn Mutual will become qualified
as associated persons of HTK in order to carry out securities activities with
respect to the sale of Policies. HTK will train such personnel as requested by
Penn Mutual, and will use its best efforts to cause such personnel to become
qualified as associated persons. Upon such qualification, the fact will be
certified in writing to Penn Mutual by HTK.

A. HTK will fully comply with the requirements of NASD and of the Securities
Exchange Act of 1934 and will supervise diligently the securities activities of
life insurance agents of Penn Mutual who are associated persons of HTK. Upon
request by HTK, Penn Mutual will furnish or request any life insurance agent who
is an associated person to furnish (at Penn Mutual's or the life insurance
agent's expense) such appropriate records that may be necessary to insure
diligent supervision.

A. In the event any associated person falls or refuses to submit to supervision
by HTK in accordance with this Agreement, or otherwise fails to meet the rules
and standards imposed by HTK on the associated person, HTK shall certify such
fact to Penn Mutual and shall immediately notify the associated person that he
or she is no longer authorized to engage in securities activities with respect
to the sale of Policies, and HTK and Penn Mutual shall take whatever additional
action may be necessary to terminate such securities activities of the
associated person.

A. HTK will assume full responsibility for the securities activities of its
associated persons with respect to the sale of Policies and for initial and
continued compliance by itself and its associated persons with applicable
federal and state security laws and rules of the NASD, and in connection
therewith may demand and shall be entitled to receive such assurances from Penn
Mutual as HTK deems appropriate to demonstrate compliance with the Securities
Act of 1933 and the Investment Company Act of 1940.

<PAGE>

A. Compensation and reimbursement of expenses payable to life insurance agents
in connection with sales of Policies shall be paid by Penn Mutual under Penn
Mutual's agency contracts and will not be an expense of HTK. All premiums paid
under Policies by policy owners shall be paid to Penn Mutual and will not be
income to HTK. HTK shall have no interest in any commissions or other
remuneration payable to life insurance agents by Penn Mutual or in any premiums
paid under Policies to Penn Mutual. For regulatory purposes of the NASD and the
Securities Exchange Act of 1934, commissions paid by Penn Mutual shall be
appropriately reflected in the books and records maintained by or on behalf of
HTK.

A. At the request of HTK, some or all of the books and records required to be
maintained by a registered broker-dealer under the Securities Exchange Act of
1934 in connection with the sale of Policies will be maintained by Penn Mutual
as agent for HTK. Penn Mutual agrees that such records are and shall remain the
property of HTK, will be maintained and preserved in conformity with the
requirements of Rules 17a-3 and 17a-4 under the Securities Exchange Act of 1934,
to the extent that such requirements are applicable to the Policies, and will be
subject to examination by the Securities Exchange Commission in accordance with
Section 17(a) of the Securities Exchange Act of 1934.

A. A confirmation with respect to each premium payment made under a Policy will
be sent to the holder of such Policy in accordance with Rule 15cl-4 under the
Securities Exchange Act of 1934.

I. Compensation
------------

A. In payment for the services performed under this Agreement, Penn Mutual shall
compensate HTK as provided in Schedule I attached hereto.

A. The compensation for services provided under this Agreement shall be paid
within 15 days after the end of the calendar month in which premium payments are
accepted by Penn Mutual. Should Penn Mutual for any reason return a premium
payment, HTK shall repay Penn Mutual the total amount of any compensation which
Penn Mutual may have paid to HTK with respect to such purchase payments.

<PAGE>

I. General
-------

A. Schedule I attached to this Agreement shall be signed by the parties to this
Agreement and may be revised from time to time by agreement and signature of the
parties.

A. This Agreement shall continue in effect until terminated. Either party may
terminate the Agreement by giving the other party thirty days prior written
notice.

A. This Agreement supersedes and replaces any and all prior sales support or
similar assignments between Penn Mutual and HTK relating to the same subject
matter.

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year written
above.

Attest THE PENN MUTUAL LIFE
INSURANCE COMPANY

- ------------------------------ By
Secretary Richard F. Plush
Vice President, Products & Programs

Attest HORNOR, TOWNSEND & KENT, INC.

- ------------------------------ By
Secretary Ronald C. Zimmerman
President and Chief Executive Officer
<PAGE>

SCHEDULE I

SALES SUPPORT AGREEMENT DATED APRIL 1, 1999

Compensation Payable by The Penn Mutual Life Insurance Company to
Hornor, Townsend & Kent, Inc.
Pursuant to Section 3 of the Sales Support Agreement
------------------------------------------------------------------

Products Compensation
-------- ------------
Cornerstone VUL I, II and III Flexible 3.75% of total commission paid
Premium Adjustable Variable Life Insurance (first year and renewal)
Policy and Variable EstateMax Last
Survivor Flexible Premium Adjustable
Variable Life Insurance Policies

<PAGE>

THE PENN MUTUAL LIFE INSURANCE COMPANY

Schedule of Commissions
-----------------------

for
---

Last Survivor Flexible Premium Adjustable Variable Life Insurance Policies
--------------------------------------------------------------------------

I. Soliciting Agents

A. Up to 50% of premiums paid in the first policy year and up to
2% of premiums paid in subsequent years.

B. Up to 0.25% of policy value annually.

II. General Agents, Managers and Regional Directors

A. Up to 17% of premiums paid in the first policy year and up to
3% of premiums paid in subsequent policy years. The actual
rate is determined by the issue age of the insured, the sales
distribution system and other policy specific information.

Note: No commissions will be paid on transfers to flexible premium
adjustable variable life insurance policies, in any form, from other
policies issued by The Penn Mutual Life Insurance Company or, its
subsidiary, The Penn Insurance and Annuity Company.

<PAGE>

The Penn Mutual Life Insurance Company
A001040C
Founded 1847

Insureds William Penn $200,000 Specified Amount
Hannah Penn

Policy Number 0 000 0000 May 1, 1995 Policy Date

The Penn Mutual Life Insurance Company agrees, subject to the provisions of this
policy, to pay the Death Benefit to the Beneficiary of the Insured last to die
upon receipt of due proof of the death of both Insureds while this policy is in
force. Penn Mutual also agrees to provide all of the other benefits stated in
this policy.

This contract is made in consideration of the payment of premiums as provided in
this policy.

The provisions on this and the following pages are part of this policy.

Executed on the Date of Issue by The Penn Mutual Life Insurance Company.

/s/ Laura M. Ritzko
Secretary
(sec)
/s/ Robert E. Chappell
Chairman and
Chief Executive Officer

THE DEATH BENEFIT OR DURATION OF COVERAGE MAY INCREASE OR DECREASE DEPENDING ON
THE INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT. THE DEATH BENEFIT WILL NEVER
BE LESS THAN THE SPECIFIED AMOUNT SHOWN ON PAGE 3. THE POLICY'S ACCUMULATION
VALUE IN THE SEPARATE ACCOUNT MAY INCREASE OR DECREASE DEPENDING ON THE
INVESTMENT EXPERIENCE OF THAT ACCOUNT. THE POLICY VALUE IS NOT GUARANTEED.

FREE LOOK PERIOD - This policy may be cancelled by returning it within 45 days
of the date of execution of the application or within 10 days after it is
received by the Owner. It must be returned to Penn Mutual or to the agent
through whom it was purchased. This policy will then be considered void as of
its inception. Any premium paid on it will be refunded.

READ YOUR POLICY CAREFULLY. This policy is a legal contract between the Owner
and Penn Mutual.

Last Survivor
Flexible Premium Adjustable
Variable Life Insurance Policy
o Death Benefit payable at second death prior to Maturity Date
o Adjustable Death Benefit
o Maturity Benefit payable on Maturity Date
o Variable Policy Value
o Flexible premiums payable until maturity date
o Participating
o Supplemental benefits, if any, listed on Page 3

The Penn Mutual Life Insurance Company, Independence Square, Philadelphia,
Pennsylvania 19172
VALJ-94(S)
<PAGE>

A001053I
Guide to Policy Sections

1. Policy Specifications 10. Death and Maturity Benefits
2. Endorsements 11. Surrender of Policy
3. Premiums 12. Transfer to Fixed Account
4. Lapse and Reinstatement 13. Policy Changes
5. The Separate Account 14. General Provisions
6. The Fixed Account 15. Income Payment Options
7. Policy Value 16. Income Payment Option Table
8. Policy Loans
9. Owner and Beneficiary Additional Policy Specifications, any
Supplemental Agreements and a copy of any
applications follow Section 16.

Alphabetical Index

<TABLE>
<CAPTION>
Section Section
<S> <C> <C> <C>
Age........................................ 1,14 Monthly Anniversary............................... 14
Allocation of Net Premiums................. 3 Monthly Deduction................................. 7
Annual Report.............................. 14 Mortality and Expense Risk Charge................. 7
Assignment................................. 9 Net Cash Surrender Value.......................... 11
Beneficiary................................ 1,9 No-Lapse Date..................................... 1,3
Cash Surrender Value....................... 11 No-Lapse Premium.................................. 1,3
Continuation of Insurance.................. 3 Owner............................................. 9
Contract................................... 14 Partial Surrender................................. 11
Cost of Insurance.......................... 7 Policy Date....................................... 1,14
Cost of Insurance Rates.................... 7 Policy Loan Account............................... 8
Date of Issue.............................. 1 Policy Loans...................................... 8
Death Benefit.............................. 10 Policy Value...................................... 7
Deferment of Transactions.................. 14 Premium Charge.................................... 3
Dividends.................................. 14 Premiums.......................................... 1,3
Free Look Period...........................Cover Rate Class........................................ 1
Grace Period............................... 3 Reinstatement..................................... 4
Income Payment Options..................... 15 Schedule of Benefits.............................. 1
Income Payment Option Tables............... 16 Schedule of Premiums.............................. 1
Incontestability........................... 14 Separate Account.................................. 1,5
Indebtedness............................... 8 Service Office.................................... 1
Lapse...................................... 4 Specified Amount.................................. 1
Loan Interest.............................. 8 Subaccounts....................................... 5
Loan Value................................. 8 Suicide Exclusion................................. 10
Maturity Date.............................. 1 Surrender......................................... 11
Maturity Benefit.......................... 10 Surrender Charge.................................. 11
</TABLE>
<PAGE>

1. Policy Specifications

INSUREDS A. WILLIAM PENN $200,000 SPECIFIED AMOUNT
B. HANNAH PENN (INCLUDES POLICY VALUE)

POLICY NUMBER 0 000 0000 MAY 1, 1995 POLICY DATE

AGES A. 35 MALE SMOKER RATE CLASS
AGES B. 35 FEMALE SMOKER

MATURITY DATE MAY 1, 2060
THE DATE OF ISSUE IS THE POLICY DATE

OWNER AND BENEFICIARY AS PROVIDED IN APPLICATION

SEPARATE ACCOUNT: THE PENN MUTUAL VARIABLE LIFE ACCOUNT I
ELIGIBLE INVESTMENT FUNDS: FUNDS AS SPECIFIED IN THE ADDITIONAL
POLICY SPECIFICATIONS

INITIAL ALLOCATION: PENN SERIES MONEY MARKET FUND - 100%
Schedule of Benefits
Description Amount
LAST SURVIVOR FLEXIBLE PREMIUM ADJUSTABLE
VARIABLE LIFE $200,000 SPECIFIED AMOUNT
INSURANCE POLICY
SUPPLEMENTAL TERM INSURANCE AGREEMENT $200,000
FLEXIBLE PERIOD-SINGLE LIFE-SUPPLEMENTAL
TERM INSURANCE AGREEMENT --
(SEE ADDITIONAL SPECIFICATIONS PAGE 18)
GUARANTEED CONTINUATION OF POLICY AGREEMENT --
SUPPLEMENTAL EXCHANGE AGREEMENT --
POLICY SPLIT OPTION AGREEMENT --

MAXIMUM SURRENDER CHARGE PREMIUM $1267.47
PER $1,000 SURRENDER CHARGE FACTOR $8.00
*SEE PAGE 3 CONTD FOR PREMIUM INFORMATION.

Page 3
<PAGE>

Page 3 (Con't)

1. Policy Specifications (Continued)

Schedule of Premiums
THE INITIAL PREMIUM OF $280.00 WAS PAID ON THE POLICY DATE FOR 2 MONTHS.
SUBSEQUENT PREMIUMS ARE PAYABLE MONTHLY AS FOLLOWS.

BEGINNING AS OF PREMIUM
JUL 1,1995 $140.00

THE NO LAPSE PREMIUM IS $71.24
THE NO LAPSE PREMIUM DATE IS MAY 1, 2000
GUARANTEED CONTINUATION OF POLICY PREMIUM $105.62

NOTE: INSURANCE WILL TERMINATE IF THE PREMIUMS PAID AND THE INTEREST CREDITED
ARE INSUFFICIENT TO COVER THE MONTHLY DEDUCTIONS, EXCEPT AS PROVIDED IN
SECTION 3.

THE SCHEDULED PREMIUMS FOR THE FIRST SEVEN YEARS WILL COMPLY WITH OUR
UNDERSTANDING OF THE "7-PAY" PREMIUM AS DEFINED IN TAMRA `88 ASSUMING THAT NO
WITHDRAWALS OR CHANGES IN BENEFITS OCCUR WITHIN THE SEVEN YEAR PERIOD. CONSULT
YOUR TAX ADVISOR BEFORE MAKING A WITHDRAWAL OR CHANGE IN BENEFITS ON THIS
CONTRACT.
<PAGE>

2. Endorsements
A001052E

To be made only by the Company

Page 4
<PAGE>

3. Premiums

A000998P
Payment of Premiums--Premiums are payable while this policy is in force until
the Maturity Date. The first premium is due on the Policy Date. Premiums after
the first may be paid in any amount and at any interval subject to the following
conditions:

(a) No premium payment may be less than $25.
(b) The Company reserves the right to limit total premiums paid in any policy
year to the planned payments for that policy year as shown on Page 3. The
schedule of premiums shown on Page 3 is based on the premium amount and the
interval of payment specified in the application.

Each premium after the first is payable at the Company's Home Office. A receipt
signed by the President or the Secretary will be given on request.

Premium Charge--Each premium payment will be reduced by a percent of premium
charge. The percent of premium charge will be determined by the Company as
described in the Determination of Nonguaranteed Factors provision in Section 7.
In no event will the percent of premium charge be greater than 7.5% of each
premium paid.

Net Premium--Net premium is the amount of any premium payment reduced by the
percent of premium charge.

Allocation of Net Premiums--The initial net premium and any additional premium
paid before the end of the Free Look Period will be allocated to the subaccount
of the Separate Account specified on Page 3 until the end of the Free Look
Period. At the end of such period the assets will be allocated to the
subaccounts of the Separate Account or to the Fixed Account as directed by the
Owner in the application for this policy. Subject to and in accordance with the
provisions of this policy, subsequent net premiums will be allocated as directed
by the Owner to the subaccounts of the Separate Account and the Fixed Account
set forth in the Additional Policy Specifications. The Owner may change the
allocation of future premium payments at any time. Allocations must be in whole
number percentages.

Continuation of Insurance--If all premium payments cease, the insurance provided
under this policy, including benefits provided by any supplemental agreements
attached to this policy, will continue, subject to the Grace Period provision,
in accordance with the provisions of this policy and any such supplemental
agreements for as long as the values in this policy are sufficient to keep it in
force.

No-Lapse Premium--The No-Lapse Premium is the amount stated on Page 3. If, on a
Monthly Anniversary prior to the No-Lapse Date shown on Page 3, the sum of all
premiums paid on this policy, reduced by any partial surrenders, is greater than
or equal to the No-Lapse Premium multiplied by the number of elapsed months
since the Policy Date, this policy will not then lapse as a result of a Net Cash
Surrender Value insufficient to pay the Monthly Deduction for the following
month. This provision will not prevent the termination of this policy when
indebtedness exceeds the Cash Surrender Value in accordance with the
indebtedness provision of the Policy Loans section of this policy.

Grace Period--If, on a Monthly Anniversary prior to the No-Lapse Date shown on
Page 3:

(a) the Net Cash Surrender Value is insufficient to cover the Monthly Deduction
for the following policy month; and
(b) the sum of all premiums paid on this policy, reduced by any partial
surrenders, is less than the No-Lapse Premium shown on Page 3 multiplied by the
number of elapsed months since the Policy Date;

then a grace period of 61 days will be allowed for the payment of a premium
sufficient to keep this policy in force.

A change in the Specified Amount, the addition or deletion of a supplemental
agreement to this policy, or a change in the rate class of either Insured before
the No-Lapse Date shown on Page 3 may result in a change in the No-Lapse
Premium. The No-Lapse Date will not be changed.

If, on a Monthly Anniversary on or after the No-Lapse Date shown on Page 3, the
Net Cash Surrender Value is insufficient to cover the Monthly Deduction for the
following month, a grace period of 61 days will be allowed for the payment of a
premium sufficient to pay the Monthly Deduction.

Notice of the amount of premium required to be paid during the grace period to
keep this policy in force will be sent at the beginning of the grace period to
the last known address of the Owner and of any assignee on record. The grace
period will end 61 days after the notice is sent. This policy will remain in
force during the grace period.

Page 5
<PAGE>

Page 6
A000999P
4. Lapse and Reinstatement

Lapse--If a premium sufficient to keep this policy in force is not paid during
the grace period, this policy will lapse at the end of the grace period. At
lapse this policy will terminate without value and cease to be in force. Any
deduction for the Cost of Insurance after termination will not be considered a
reinstatement of the policy nor a waiver by the Company of the termination.

Reinstatement--This policy may be reinstated within five years after lapse if
(i) both Insureds are still living, or (ii) one Insured is still living and the
death of the other Insured occurred before the date of lapse. A reinstatement is
subject to:

(a) the submission of evidence of insurability satisfactory to the Company for
both Insureds if both are still living;

(b) the payment or reinstatement of any indebtedness which existed at the end of
the grace period; and

(c) the payment of a premium (i) sufficient to cover the Monthly Deductions for
the grace period, (ii) any unpaid No-Lapse Premiums to the date of
reinstatement, and (iii) the Monthly Deductions or, if applicable, the
No-Lapse Premiums for two policy months after reinstatement.

The effective date of a reinstatement will be the date of approval by the
Company of the application for reinstatement. Such application will be attached
to and made a part of the reinstated policy.

The policy value on the date of reinstatement is the sum of:

(a) the policy value at the beginning of the grace period of lapse;
(b) interest on (a) at a rate of 4% per year until the date of reinstatement;
(c) any dividend credited to the policy since the date of lapse;
(d) interest on (c) at a rate of 4% per year until the date of reinstatement;
and
(e) the payment made upon reinstatement reduced by the percent of premium charge

less the sum of:

(a) the Monthly Deductions for the grace period;
(b) interest on (a) at a rate of 4% per year until the date of reinstatement;
and
(c) the Monthly Deduction for the policy month following the date of
reinstatement.

The surrender charge set forth in Section 11 will be applicable to any surrender
of this policy following reinstatement.

Any indebtedness which is reinstated will be subject to loan interest as set
forth in Section 8.

Following reinstatement, the provisions of No-Lapse Premium set forth in Section
3 will again be applicable until the No-Lapse Date shown on Page 3 if sufficient
premium is paid so that, as of the effective date of reinstatement, the sum of
all premiums paid, reduced by any partial surrenders, is greater than the
No-Lapse Premium multiplied by the number of elapsed months since the Policy
Date.

5. The Separate Account

Income and realized and unrealized gains and losses from the assets held in each
subaccount are credited to or charged against the subaccount without regard to
the income, gains or losses in other investment accounts of the Company. Shares
of a mutual fund held in a subaccount will be redeemed at current net asset
value to make transfers, pay benefits and cover applicable charges and
deductions. Any dividend or capital gain distribution from a mutual fund will be
reinvested in shares of that mutual fund.
<PAGE>

5. The Separate Account (Continued)

A001000P
Substitution of Investment--If investment in a subaccount should no longer be
possible or, in the judgement of the Company, investment in a subaccount becomes
inappropriate to the purposes of the policy, or if in the judgement of the
Company, investment in another subaccount or insurance company separate account
is in the interest of owners of this class of policies, the Company may
substitute another subaccount or insurance company separate account.
Substitution may be made with respect to existing investments and the investment
of future net premiums.

Substitution will be subject to the approval of the Insurance Department of the
jurisdiction in which this policy is delivered and all other approvals required
under applicable law.

Transfers--Subject to and in accordance with the provisions of this policy, at
any time after the end of the Free Look Period, amounts may be transferred among
the subaccounts of the Separate Account, provided that:

(a) the minimum amount which may be transferred is $250 or, if less, the full
amount held in the subaccount;
(b) for partial transfers, the amount remaining in a subaccount must be at least
$250; and
(c) the first 12 transfers per policy year will be allowed free of charge;
thereafter, a $10 transfer charge may be deducted from the amount
transferred.

6. The Fixed Account

The Fixed Account--Amounts allocated or transferred to the Fixed Account under
this policy become a part of the general account assets of the Company. Subject
to applicable law and regulation, investment of general account assets is at the
sole discretion of the Company.

Interest--Amounts held in the Fixed Account will be credited with interest at
rates determined by the Company as described in the Determination of
Nonguaranteed Factors provision in Section 7. Different rates will normally
apply to that portion of the Fixed Account representing indebtedness. In no
event will the rate of interest credited be less than an effective annual rate
of four percent compounded annually.

Amounts allocated or transferred to the Fixed Account will be credited with
interest at an effective annual rate declared by the Company. The declared rate
will apply from the date of allocation or transfer through the end of the twelve
month period which begins on the first day of the calendar month in which the
allocation or transfer is made.

Thereafter, interest will be credited on such amount for successive twelve month
periods at the declared effective annual rate then applicable to new allocations
to the account made as of the beginning of each such period.

Transfers--Subject to and in accordance with the provisions of this policy:

(a) amounts may be transferred from one or more subaccounts into the Fixed
Account at any time after the end of the Free Look Period; and
(b) an amount held in the Fixed Account may be transferred to one or more
subaccounts only during the period which is not more than thirty days
immediately following the end of each policy year. Any such transfer must
be at least $250, or if less, the amount held in the Fixed Account
(exclusive of any amount held in the Policy Loan Account). In the event of
a partial transfer, at least $250 must remain in the Fixed Account.
(c) the first 12 transfers per policy year will be allowed free of charge;
thereafter, a $10 transfer charge may be deducted from the
amount transferred

Page 7
<PAGE>

Page 8

A001001P
7. Policy Value

Policy Value-- On the Policy Date the Policy Value is the initial premium paid
less the sum of (a) the percent of premium charge, and (b) the Monthly Deduction
for the first policy month. On each Monthly Anniversary while this policy is in
force, the Policy Value is the sum of (a) the current market value of each
subaccount and (b) the value of the Fixed Account, after deduction of the
Monthly Deduction for the next policy month.

On any date other than the Policy Date or a Monthly Anniversary, the Policy
Value will be the sum of (a) the current market value of each subaccount and (b)
the value of the Fixed Account.

Monthly Deduction--The Monthly Deduction is the sum of:

(a) the Cost of Insurance for the policy month;
(b) the monthly expense charge(s); and
(c) the Cost of Insurance and any other applicable monthly charge for the
policy month for any benefits provided by a supplemental agreement made a
part of this policy.

The Monthly Deductions will be deducted on the Policy Date and on each Monthly
Anniversary from the subaccounts and the Fixed Account on a pro-rata basis.
However, no monthly deductions will be deducted from the Policy Loan Account of
the Fixed Account.

Cost of Insurance--The Cost of Insurance is determined on a monthly basis. The
Cost of Insurance for a policy month is calculated as (a) multiplied by the
result of (b) minus (c) where:

(a) is the Base Cost of Insurance Rate divided by 1,000;
(b) is the Basic Death Benefit at the beginning of the policy month divided by
1.0032737; and
(c) is the Policy Value at the beginning of the policy month before the Monthly
Deduction.

Cost of Insurance Rate--The Base Cost of Insurance Rate is based on policy year
and on the attained age, sex and rate class of each Insured. Cost of Insurance
Rates will be determined by the Company as described in the Determination of
Nonguaranteed Factors provision. However, the rates will not exceed those shown
in the Additional Policy Specifications. Such maximum rates are based on the
1980 Commissioners Standard Ordinary Smoker and Nonsmoker Mortality Tables, Age
Nearest Birthday.

Expense Charges--The actual expense charges will be determined by the Company as
described in the Determination of Nonguaranteed Factors provision. However,
these actual expense charges will not exceed the maximum expense charges stated
below.

The maximum expense charges applicable under this policy are:

(a) a monthly expense charge of $15.00,
(b) a monthly expense charge of $0.20 for each $1,000 of Specified Amount for
the first twelve months following the Policy Date.

Determination of Nonguaranteed Factors--Cost of Insurance Rates, Percent of
Premium Charges, Expense Charges, Mortality and Risk Expense Charges, and
Interest Rates will be determined by the Company based on expectations as to
future mortality, investment, expense and persistency experience. The company
will not adjust such rates or charges as a means of recovering prior losses nor
as a means of distributing prior profits.

Variable Accumulation Values--At any valuation time, the current market value of
a subaccount is determined by multiplying that subaccount's accumulation unit
value times the number of subaccount units held under this policy.

The number of accumulation units is determined by dividing the amount allocated
to the subaccount by the subaccount's accumulation unit value for the Valuation
Date when the allocation is made.

The number of subaccount accumulation units will increase when:

(a) net premiums are allocated to that subaccount;
(b) amounts are transferred to that subaccount; and
(c) policy loans are repaid and credited to that subaccount.

The number of subaccount accumulation units will decrease when:

(a) a pro-rata portion of the monthly deduction is deducted from that
subaccount;
(b) a policy loan is taken from that subaccount;
<PAGE>

7. Policy Value (Continued)

A001002P
(c) policy loan interest is not paid when due and is taken from that subaccount;
(d) an amount is transferred from that subaccount; and
(e) a partial surrender, including the partial surrender charge, is taken from
that subaccount.

Valuation Period--As used in this policy, Valuation Period is the interval from
one valuation time to the next valuation time. Valuation time is the time as of
which each underlying investment company determines the net asset value of its
shares.

Value of Each Accumulation Unit--For each subaccount of the Separate Account,
the value was arbitrarily set at $10 when the subaccount was established. The
value may increase or decrease from one valuation period to the next. For any
valuation period the value is:

The value of an Accumulation Unit for the prior valuation period multiplied by
the Net Investment Factor for that subaccount for the current valuation period.

Net Investment Factor--As used in this policy, Net Investment Factor is an index
used to measure the investment performance of a subaccount from one valuation
period to the next. For any subaccount, the Net Investment Factor for a
valuation period is found by dividing (a) by (b) and subtracting (c):

Where (a) is

The net asset value per share of the mutual fund held in the subaccount, as of
the end of the valuation period plus

The per-share amount of any dividend or capital gain distributions by the mutual
fund if the "ex-dividend" date occurs in the valuation period.

Where (b) is

The net asset value per share of the mutual fund held in the subaccount as of
the end of the last prior valuation period.

Where (c) is

The daily Mortality and Expense Risk Charge set by Penn Mutual. On a annual
basis, such charge will not exceed 0.90% of the daily net asset value of the
Separate Account.

Fixed Account Value--At any valuation time the value of the Fixed Account is

(a) the total of net premiums allocated to the Fixed Account; plus
(b) any transfers to the Fixed Account; plus
(c) any policy loan account (principal and unpaid interest) credited to the
Fixed Account; plus
(d) any repaid policy loan credited to the Fixed Account;
plus
(e) interest credited to the Fixed Account;
less:
(a) the portion of the Monthly Deduction deducted pro-rata from the Fixed
Account;
(b) the amount of any transfers from the Fixed Account;
(c) the amount of any partial surrender, including the partial surrender charge,
taken from the Fixed Account;
(d) the amount of any policy loan taken from the Fixed Account;
(e) unpaid policy loan interest taken from the Fixed Account; and
(f) repaid policy loans deducted from the policy loan account.

Fixed Account Value Reductions--Monthly deductions, transfers and partial
surrenders will reduce the portion of the Fixed Account Value which results from
the most recent allocation to the Fixed Account. A policy loan will be secured
by the portion of the Net Policy Value which results from the most recent
allocation to the Fixed Account.

Computation of Values--All policy values and benefits are equal to or greater
than those required by the law of the jurisdiction in which this policy is
delivered. A detailed statement of the method of computing reserves and Policy
Values has been filed with the insurance supervisory official of that
jurisdiction.

Page 9
<PAGE>

Page 10

A001003P
8. Policy Loans

Policy Loans--The Owner may obtain a loan while this policy is in force during
the life of either Insured. The loan, plus any existing indebtedness, may not be
greater than the Loan Value of this policy on the date of the loan.

Loan Value--The Loan Value of this policy on any date is equal to 90% of the
Cash Surrender Value

Loan Interest--Loans will bear interest at the rate of 5% per year. Loan
interest is due and payable at the end of each policy year. If the interest is
not paid when due, it will be added to the loan. It will then bear interest at
the rate of interest on loans.

Indebtedness--Indebtedness means outstanding loans on this policy plus any loan
interest due or accrued. Indebtedness may be repaid in full or in part at any
time while this policy is in force during the life of either Insured.

Excess Indebtedness -- This policy is the only security for indebtedness on it.
If, at anytime, the indebtedness is greater than the Cash Surrender Value, a
notice of pending termination will be mailed to the last known address of the
Owner and of any assignee on record. If the excess indebtedness is not paid to
the Company, this policy will terminate 61 days after the notice is mailed.

Policy Loan Account--When a loan is made, an amount equal to the amount of the
loan will be withdrawn from the assets held under this policy in subaccounts of
the Separate Account and in the Fixed Account and the amount will be placed in
the Policy Loan Account included within the Fixed Account. Subject to and in
accordance with the provisions of this policy withdrawals will be made from the
subaccounts and the Fixed Account on a pro-rata basis unless otherwise directed
by the Owner. The Policy Loan Account will be credited with interest. The rate
of interest will be determined each year by the Company but will not be less
than a rate of 4% per year compounded annually. Any repayment of indebtedness
will be withdrawn from the Policy Loan Account and reallocated to the
subaccounts and the Fixed Account as directed by the Owner. Except for such
repayment of indebtedness, no transfers or partial surrenders may be made from
the Policy Loan Account.

9. Owner and Beneficiary

Owner--The Owner of this policy is as stated in the application unless changed
by a subsequent owner designation or assignment. While this policy is in force
before the death of the last Insured to die, the Owner may exercise all of the
rights in it without the consent of any other person.

Beneficiary--The Beneficiary of each Insured is as stated in the application
unless changed by a subsequent beneficiary designation on a form provided by the
Company. If no other provision is made, the interest of a Beneficiary who dies
before the death of the last Insured to die will pass to the Owner. If no other
provision is made, a Beneficiary of the first Insured to die shall have no
interest under this policy.

Change of Owner or Beneficiary--The Owner may transfer ownership or change a
Beneficiary by filing a written designation at the Home Office on a form
provided by the Company. The designation will take effect as of the date it is
signed by the Owner, subject to any action taken by the Company prior to the
time that the designation is received at the Home Office. Unless otherwise
stated in a designation, the following rules will apply to terms of kinship:

(a) A legally adopted child of any person will be considered the child of the
adopting parent.
(b) The brothers and sisters of a person will include those who have only one
parent in common with the person, but will not include stepbrothers or
stepsisters.
(c) Any reference to children will not include stepchildren and any reference to
parents will not include stepparents.

Assignment--The Owner may assign this policy while it is in force during the
life of either Insured. The rights of the Owner and of any Beneficiary will be
subject to the rights of an assignee under the terms of an assignment. No
assignment will bind the Company until the original, or a copy signed by the
Owner, on a form provided by the Company, has been filed at the Home Office. The
Company is not responsible for the effect or the validity of any assignment.

<PAGE>

10. Death and Maturity Benefits

Basic Death Benefit--The Basic Death Benefit prior to the Maturity Date will be
as follows:

(a) If the Specified Amount includes the Policy Value, as shown on Page 3, the
Basic Death Benefit will be equal to the greater of:

(1) The Specified Amount; or
(2) The Policy Value multiplied by the Net Single Premium factor from the
table in the Additional Policy Specifications where policy year is
determined from the Policy Date;

(b) If the Specified Amount does not include the Policy Value, as shown on Page
3, the Basic Death Benefit will be equal to the greater of:

(1) The Specified Amount plus the Policy Value; or
(2) The Policy Value multiplied by the Net Single Premium factor from the
table in the Additional Policy Specifications where policy year is
determined from the Policy Date;

Amount of Death Benefit--The Death Benefit payable at the death of the last
Insured to die while this policy is in force will be equal to the sum of:

(a) the Basic Death Benefit on the date of the second death;
(b) any dividend payable at death; and
(c) any benefit provided by a supplemental agreement attached to this policy
and payable because of the death of the last Insured to die;

less the sum of:

(a) any indebtedness on this policy at the time of the death of the last Insured
to die; and
(b) if the second death occurs during a grace period, the past due
Monthly Deductions.

Simultaneous Death--If both Insureds die at the same time or if there is
insufficient evidence that both Insureds died other than at the same time,
one-half of the Death Benefit will be paid to the Beneficiary of each Insured.

Suicide Exclusion--If either Insured dies by suicide, while sane or insane,
within two years from the Date of Issue, the Death Benefit will be limited to
the premiums paid less any indebtedness and any partial surrenders.

If either Insured dies by suicide, while sane or insane, within two years from
the effective date of a reinstatement of this policy, the Death Benefit will be
limited to the premiums paid since the reinstatement less any policy loans and
partial surrenders made since reinstatement.

Notification of Death--If either Insured dies within two years from the Date of
Issue, notice and due proof of that death must be provided to the Company within
one year or as soon thereafter as is reasonably possible.

Payment of Death Benefit--The Death Benefit will be paid to the Beneficiary in
one sum or, if elected, under an income payment option. If part or all of the
Death Benefit is paid in one sum, the Company will pay interest on this sum from
the date of death to the date of payment. The interest rate will be determined
each year by the Company but will not be less than a rate of 3% per year
compounded annually, or such higher rate as may be required by law.

Page 11
<PAGE>

Page 12
A001005P
10.Death and Maturity Benefits (Continued)

Amount of Maturity Benefit--The Maturity Benefit payable if either Insured is
living on the Maturity Date and if this policy is then in force will be equal to
the Net Policy Value on that date. Payment of Maturity Benefit--The Maturity
Benefit will be paid to the Owner in one sum or, if elected, under an Income
Payment Option.

11. Surrender of Policy

Surrender--The Owner may surrender this policy for its Net Cash Surrender Value
by filing a written request with the Company. The Net Cash Surrender Value may
be taken in one sum or it may be left with the Company under an income payment
option. This policy will terminate and cease to be in force if it is surrendered
for one sum.

Net Cash Surrender Value--The Net Cash Surrender Value is the Net Policy Value
decreased by any surrender charge.

Net Policy Value--The Net Policy Value is the Policy Value decreased by any
indebtedness on this policy.

Cash Surrender Value--The Cash Surrender Value is the Policy Value decreased by
any surrender charge.

Surrender Charge--The surrender charge is determined by multiplying (a) times
the sum of (b) plus (c), where:

(a) is the appropriate surrender factor from the table below in which policy
year is determined from the Policy Date; (b) is 25% of the lesser of:
(i) the sum of all premiums paid on this policy; and
(ii) the maximum surrender charge premium as shown on Page 3; and
(c) is the Per $1,000 Surrender Charge Factor shown on Page 3 multiplied by the
initial Specified Amount divided by 1,000.

Policy Surrender
Year Factor

1-7 1.00
8 .90
9 .80
10 .70

Policy Surrender
Year Factor

11 .60
12 .50
13 .40
14 .30
15 .20
16 .10
17 and later 0

Partial Surrender--The Owner may make a partial surrender of this policy for any
portion of the Net Cash Surrender Value which exceeds $1,000 by filing a written
request with the Company. However, no partial surrender may be made for less
than $250 and no more than four partial surrenders may be made under this policy
in any policy year. No partial surrender may be made in the first five policy
years which would reduce the Specified Amount to less than $200,000. A charge of
2% of the amount surrendered, but not more than $25 will be made for each
partial surrender. The charge will be deducted from the available Net Cash
Surrender Value and will be considered part of the partial surrender.

Any partial surrender will reduce the Policy Value by the amount of the partial
surrender. If the Specified Amount includes the Policy Value, the Specified
Amount will also be reduced by the amount of the partial surrender.

Partial surrenders will be deducted from the subaccounts and the Fixed Account
as directed by the Owner, provided that the minimum amount remaining in a
subaccount or the Fixed Account as a result of the allocation is $250. If no
allocation is directed, the partial surrender will be deducted from the
subaccounts and the Fixed Account on a pro-rata basis.

The surrender charge will not be reduced as a result of a partial surrender.
<PAGE>

12. Transfer to Fixed Account

A001006P
At any time within the first 24 policy months while this policy is in force
during the life of either Insured, the Owner may transfer all amounts held in
subaccounts of the Separate Account to the Fixed Account without restriction,
minimum or charge. Following such transfer, no future premiums may be allocated
to subaccounts of the Separate Account and no transfers may be made to the
subaccounts.

13 Policy Changes

Right to Make Change--At any time while this policy is in force after the first
policy year, the Owner may request changes as set forth in this section. Each
change is subject to the conditions stated.

Decrease in Specified Amount--Any decrease in the Specified Amount must be at
least $10,000. The Specified Amount may not be decreased to less than $200,000
or such lower minimum as the Company may establish. No decrease in the Specified
Amount may be made in the first policy year.

Any decrease in the Specified Amount will become effective on the Monthly
Anniversary that coincides with or next follows the receipt by the Company of
the request.

A decrease in the Specified Amount will not cause a reduction in the surrender
charge set forth in Section 11.

Change in Specified Amount Option--If the Specified Amount does not include the
Policy Value, a request may be made to change this policy so that the Specified
Amount includes the Policy Value. The Specified Amount after the change will be
equal to the Specified Amount before the change plus the Policy Value on the
date of the change. The effective date of the change will be the Monthly
Anniversary that coincides with or next follows the date of receipt by the
Company of the request to make the change.

If the Specified Amount includes the Policy Value, a request may be made to
change this policy so that the Specified Amount does not include the Policy
Value. The Specified Amount after the change will be equal to the Specified
Amount before the change less the Policy Value on the date of the change.
Evidence of insurability satisfactory to the Company may be required. Such
evidence will be attached to and made a part of the policy. The effective date
of the change will be the Monthly Anniversary that coincides with or next
follows the date of receipt by the Company of the request to make the change. No
more than one change in the Specified Amount option may be made in any policy
year.

Change of Plan--The Owner may make a request to the Company to change this
policy to another plan of insurance. Any such change will be subject to the
consent of the Company and must comply with the Company's rules.

14. General Provisions

The Contract--This policy and the applications for it constitute the entire
contract. Copies of such applications are attached to this policy. Only the
President, a Vice President, the Secretary, an Actuary or an Associate Actuary
may, on behalf of the Company, modify this policy or waive any of its
conditions. No agent is authorized to modify this contract or to make any
promise as to the future payment of dividends or interest.

Participation -- This policy will participate in divisible surplus while it is
in force except as stated in the Income Payment Options Section. The share of
such surplus, if any, to be apportioned to this policy as a dividend will be
determined each year by the Company. Any dividend will be allocated to
subaccounts of the Separate Account as directed by the Owner, unless the Owner
elects to have it paid in cash. No divisible surplus is expected to be
apportioned to this policy in the foreseeable future.

Page 13
<PAGE>

Page 14
A001007P
14. General Provisions (Continued)

Incontestability--All statements made in any application for this policy are
representations and not warranties. No statement will void this policy or be
used to contest a claim under it unless the statement is contained in a written
application, a copy of which is attached to and made a part of this policy.

This policy will be incontestable with respect to each Insured after it has been
in force during the life of that Insured for two years from the Date of Issue.
Any increase in the Death Benefit will be incontestable with respect to
statements made in the evidence of insurability for change in the Specified
Amount Option after the increase has been in force during the life of an Insured
for two years from its effective date.

This policy will be incontestable with respect to statements made in an
application for reinstatement after it has been in force during the life of an
Insured for two years from the effective date of the reinstatement.

Policy Date--The Policy Date shown on Page 3 is the date from which policy
years, months and anniversaries are determined.

Monthly Anniversary--The Monthly Anniversary is the day in each calendar month
which is the same day of the month as the Policy Date.

Age--The ages shown on Page 3 are the insurance ages of each Insured. This is
the age of each Insured on the birthday nearest the Policy Date. Attained ages
means the insurance ages of the Insureds increased by the number of whole years
and months after the Policy Date.

Misstatement of Age or Sex--If the age or the sex of either Insured has been
misstated, the Death Benefit under this policy will be the amount which would
have been provided by the most recent Cost of Insurance charge at the correct
ages and sexes.

Policy Payments--All payments by the Company under this policy are payable from
the Home Office. The Company may require the return of this policy upon
surrender for the Net Cash Surrender Value or payment of the Death Benefit.

Deferment of Transactions--The Company may defer payment from the subaccounts of
a partial surrender or of the Net Cash Surrender Value, may defer making a loan,
may defer payment of any portion of the Death Benefit in excess of the Specified
Amount and may defer transfer from assets held in subaccounts of the Separate
Account under any of the following conditions:

(a) The New York Stock Exchange is closed (other than customary weekend and
holiday closings).
(b) Trading on the New York Stock Exchange is restricted.
(c) An emergency exists such that it is not reasonably practical to dispose of
securities held in the Separate Account or to determine the value of its
assets.
(d) The Securities and Exchange Commission by order so permits for the
protection of securityholders.

Conditions in (b) and (c) will be decided by, or in accordance with the rules
of, the Securities and Exchange Commission.

The Company may defer payment from the Fixed Account of a partial surrender, of
the Net Cash Surrender Value, or of a policy loan for up to six months from the
date the Company receives a written request. However, a partial surrender or
policy loan to pay a premium due on a policy of the Company will not be
deferred. If a payment is deferred for 30 days or more, it will bear interest at
a rate of 3% per year compounded annually while it is deferred, or such higher
rate as may be required by law.

Annual Report--Each year a report will be sent to the Owner which shows the
current policy values, premiums paid and deductions made since the last report,
and any outstanding policy loans.

Projection of Benefits and Values--Upon request, the Company will provide a
projection of illustrative future Death Benefits and Policy Values. The request
for a projection must be made in writing by the Owner. The Company may charge a
fee for this service. Such fee will not exceed $25.

Deferral of Maturity--Upon the written request of the Owner, this policy will
continue in force beyond the Maturity Date. Thereafter, the Death Benefit will
be the Net Policy Value.
<PAGE>

15. Income Payment Options

A001008P
Election of Income Payment Option--An income payment option may be elected in
place of a one sum payment of any amount payable upon the death of the last
Insured to die or upon surrender.

The Owner may elect an income payment option or change a previous election while
this policy is in force during the life of either Insured. If no election is in
effect on the date that the Death Benefit becomes payable, the person entitled
to such benefit may elect an income payment option. The option must be elected
before any payment has been made and within one year after the date on which the
benefit becomes payable.

The amount applied under an income payment option must be at least $5,000. No
election may provide for income payments of less than $50 each.

Option 1--Interest Income--The Company will hold the amount applied at interest.
Interest will be paid monthly, quarterly, semiannually or annually.

Option 2--Income for a Fixed Period--The Company will pay the amount applied,
with interest, in equal monthly payments for a fixed period. The fixed period
may not be greater than 30 years.

Option 3--Income of a Fixed Amount--The Company will make payments of a fixed
amount until the total amount applied, with interest, has been paid. The
payments may be made monthly, quarterly, semiannually or annually. The final
payment may be less than the fixed amount. The total of the payments to be made
each year must be at least $75 for each $1,000 applied.

Option 4--Life Income--The Company will pay equal monthly payments during the
life of the option annuitant.

Option 6--Life Income with Refund Period--The Company will pay equal monthly
payments during the life of the option annuitant. If necessary, the payments
will continue after the death of the option annuitant until the total of all
payments made, including a smaller final payment, if required, equals the total
amount applied.

Option 7--Joint and Survivor Life Income--The Company will pay equal monthly
payments during the joint life of two option annuitants and thereafter during
the life of the survivor.

Income Amount--Participation--The income under Options 1 and 2 will be based on
interest at a rate of 3% per year compounded annually. The unpaid balance of the
amount applied under Option 3 will be credited with interest at a rate of 3% per
year compounded annually. Options 1, 2 and 3 will participate in divisible
surplus by the payment or crediting of additional interest in such amount, if
any, as determined each year by the Company. Additional interest will increase
the income payments under Options 1 and 2. Additional interest will lengthen the
period during which payments are made under Option 3.

The monthly income under Options 4, 5, 6 and 7 will equal 103% of the monthly
income under a comparable single premium nonparticipating annuity available from
the Company at the time that the income payments are to begin. In no event will
the monthly income under these life income options be less than the income
stated in the Income Payment Option Tables. Options 4, 5, 6 and 7 will not
participate in divisible surplus.

Income Period--The income period under an option will begin on the date of the
death of the last Insured to die or the date of surrender. Income payments under
Options 1 and 3 will be made at the end of the payment interval. Income payments
under Options 2, 4, 5, 6 and 7 will be made at the beginning of the payment
interval.

Option Annuitant--Option annuitant means a natural person on whose life the
income payments under Options 4, 5, 6 and 7 are based. The Company may require
proof of the age and of the continued life of an option annuitant. If the age or
the sex of an option annuitant has been misstated, an appropriate adjustment
will be made in the income payments.

Withdrawal Privilege--Unless the election states otherwise, the payee under an
income payment option may:

(a) before any income payment has been made, withdraw the amount applied under
the option; or
(b) withdraw the present value of the income payments to become due during any
fixed, guaranteed or refund period; or

Page 15

<PAGE>

Page 16

A001009P
15. Income Payment Options (Continued)

There will be no right to withdraw the present value of the income payments
falling due after the guaranteed or refund period under Options 5 and 6. There
will be no right to withdraw the present value of any income payments under
Options 4 and 7.

The Company may defer the payment of the amount withdrawn for up to six months
from the date of a withdrawal request.

Present Value--The present value of the income payments under Option 2 will be
based on interest at a rate of 3% per year compounded annually. The present
value of the remaining income payments during a guaranteed or refund period
under a life income option will be based on interest at a rate set by the
Company at the time income payments are to begin.

Death of Payee--Upon the death of the payee under an income payment option, the
Company will pay the following to the payee's executors or administrators unless
stated otherwise in an election consented to by the Company

(a) the balance of the amount held under Option 1 or 3 plus any accrued
interest; or
(b) the present value of the income payments to become due during
the fixed period under Option 2; or
(c) if the option annuitant under Option 5 or 6 has died, the present value of
the income payments, if any, to become due during the guaranteed or refund
period; or
(d) if any option annuitant under Option 4, 5, 6 or 7 is living, any income
payments as they become due during the option annuitant's life plus, upon
the death of the option annuitant under Option 5 or 6, the present value of
the income payments, if any, to become due during the guaranteed or refund
period.

Assignment--Creditors--The amount applied under an income payment option and the
payments under the option may not be assigned and to the extent permitted by
law, will not be available to anyone who has a claim against the payee.
<PAGE>

16. Income Payment Option Table
A001010P

Amount of income provided by each $1,000 applied under an income payment option
Option 1--Interest Income Option 2--Income for Fixed Period of Years
<TABLE>
<CAPTION>
- --------------------------------------- -------------------------------------------------------------------------------------
Monthly Monthly Monthly
Payment Interval Amount Years Income Years Income Years Income
- --------------------------------------- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $84.47 11 $8.86 21 $5.32
Annually $30.00 2 42.86 12 8.24 22 5.15
3 28.99 13 7.71 23 4.99
Semiannually 14.89 4 22.06 14 7.26 24 4.84
5 17.91 15 6.87 25 4.71
Quarterly 7.42 6 15.14 16 6.53 26 4.59
7 13.16 17 6.23 27 4.47
Monthly 2.47 8 11.68 18 5.96 28 4.37
9 10.53 19 5.73 29 4.27
10 9.61 20 5.51 30 4.18
- --------------------------------------- -------------------------------------------------------------------------------------
Options 4, 5 and 6--Monthly Life Income
The amount of income will be based on the age of the option annuitant on the birthday nearest the date of the first payment.
=================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Option 4 Option 5 Option 6 Option 4 Option 5 Option 6
Age of _________ __________________________________ __________ Age of ____________ ________________________________ __________
Option 20 Year 10 Year 5 Year with Option 20 Year 10 Year 5 Year with
Annui- Life Guaranteed Guaranteed Guaranteed Refund Annui- Life Guaranteed Guaranteed Guaranteed Refund
tant Income Period Period Period Period tant Income Period Period Period Period
Male Female Male Female Male Female Male Female Male Female Male Female Male Female Male Female Male Female Male Female
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
15 and
under $3.00 $2.90 $2.97 $2.87 $2.98$2.88 $2.99 $2.89 $2.96 $2.86 50 $4.48 $4.03 $4.24 $3.93 $4.43 $4.01 $4.47$4.02 $4.25 $3.91
16 3.01 2.91 2.98 2.88 2.99 2.89 3.00 2.90 2.97 2.87 51 4.57 4.11 4.30 3.99 4.51 4.08 4.56 4.09 4.33 3.97
17 3.03 2.92 3.00 2.89 3.01 2.90 3.02 2.91 2.99 2.88 52 4.67 4.19 4.37 4.05 4.60 4.15 4.65 4.17 4.40 4.04
18 3.05 2.94 3.02 2.91 3.03 2.92 3.04 2.93 3.01 2.90 53 4.78 4.27 4.43 4.11 4.70 4.22 4.76 4.24 4.48 4.10
19 3.07 2.96 3.04 2.93 3.05 2.94 3.06 2.95 3.03 2.92 54 4.89 4.35 4.49 4.17 4.80 4.30 4.87 4.33 4.56 4.17

25 3.21 3.07 3.18 3.04 3.19 3.05 3.20 3.06 3.17 3.03 60 5.73 4.98 4.88 4.57 5.50 4.87 5.67 4.93 5.15 4.66
26 3.24 3.09 3.21 3.06 3.22 3.07 3.23 3.08 3.20 3.05 61 5.90 5.11 4.94 4.64 5.64 4.98 5.83 5.06 5.26 4.75
27 3.27 3.11 3.24 3.08 3.25 3.09 3.26 3.10 3.23 3.07 62 6.07 5.25 4.99 4.72 5.78 5.10 6.00 5.19 5.38 4.85
28 3.30 3.14 3.27 3.11 3.28 3.12 3.29 3.13 3.25 3.10 63 6.26 5.39 5.05 4.79 5.93 5.23 6.18 5.33 5.51 4.96
29 3.33 3.16 3.30 3.13 3.31 3.14 3.32 3.15 3.28 3.12 64 6.45 5.55 5.10 4.86 6.09 5.36 6.37 5.48 5.64 5.08

35 3.55 3.33 3.50 3.30 3.53 3.31 3.54 3.32 3.48 3.29 70 7.83 6.71 5.25 5.22 7.03 6.30 7.72 6.62 6.57 5.91
36 3.59 3.36 3.54 3.33 3.57 3.34 3.58 3.35 3.52 3.32 71 8.14 6.95 5.25 5.25 7.20 6.48 7.98 6.85 6.76 6.07
37 3.64 3.40 3.58 3.36 3.62 3.38 3.63 3.39 3.56 3.35 72 8.47 7.20 5.25 5.25 7.37 6.66 8.26 7.10 6.95 6.25
38 3.68 3.43 3.62 3.40 3.66 3.41 3.67 3.42 3.60 3.38 73 8.83 7.47 5.25 5.25 7.54 6.85 8.56 7.36 7.16 6.44
39 3.73 3.47 3.66 3.43 3.71 3.45 3.72 3.46 3.64 3.42 74 9.20 7.76 5.25 5.25 7.71 7.05 8.86 7.65 7.37 6.64

45 4.09 3.74 3.96 3.68 4.05 3.72 4.08 3.73 3.94 3.66 80 and 12.0710.27 5.25 5.25 8.62 8.23 10.95 9.75 8.92 8.15
46 4.16 3.79 4.01 3.72 4.12 3.77 4.15 3.78 4.00 3.70 over
47 4.23 3.85 4.07 3.77 4.19 3.83 4.22 3.84 4.06 3.75
48 4.31 3.91 4.12 3.82 4.27 3.88 4.30 3.90 4.11 3.80
49 4.39 3.97 4.18 3.88 4.34 3.94 4.38 3.96 4.19 3.86
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>

Option 7--Joint and Survivor Monthly Life Income
The amount of income will be based on the ages of the option annuitants on their
respective birthdays nearest the date of the first payment. The table shows
income for certain ages for one male and one female option annuitant. The amount
is shown under the age of the male and opposite the age of the female. Amounts
of income for other combinations of ages or for option annuitants of the same
sex will be furnished upon request.

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Age of Female Age of Male Option Annuitant
Option Annuitant 45 50 55 60 62 65 70 75 80
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
45 $3.40 $3.48 $3.54 $3.60 $3.62 $3.64 $3.67 $3.70 $3.71
50 3.52 3.64 3.74 3.82 3.85 3.89 3.94 3.97 3.99
55 3.65 3.80 3.95 4.08 4.13 4.19 4.27 4.33 4.38
60 3.76 3.96 4.17 4.37 4.44 4.54 4.68 4.79 4.86
62 3.80 4.02 4.26 4.49 4.57 4.69 4.86 5.00 5.09
65 3.85 4.11 4.38 4.67 4.77 4.93 5.15 5.34 5.48
70 3.93 4.22 4.57 4.95 5.10 5.32 5.68 6.00 6.25
75 3.99 4.31 4.72 5.19 5.39 5.70 6.21 6.74 7.18
80 4.03 4.38 4.84 5.39 5.64 6.03 6.75 7.55 8.32
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Page 17
<PAGE>

Additional Policy Specifications

FLEXIBLE PERIOD-SINGLE LIFE-SUPPLEMENTAL TERM INSURANCE AGREEMENT (SLTI-94)

INSURED: HANNAH PENN SPECIFIED AMOUNT
AGE 35 FEMALE $200,000

EFFECTIVE DATE 05/01/95 RATE CLASS
TERMINATION DATE 05/01/2060 SMOKER

POLICY NUMBER 0 000 0000 LAST SURVIVOR FLEXIBLE PREMIUM
ADJUSTABLE VARIABLE LIFE

Page 18
<PAGE>

Page 18A

Additional Policy Specifications

TABLE OF GUARANTEED COST OF INSURANCE RATES PER $1,000

FLEX-PER
POLICY BASE STI STI RATES
YEAR RATE RATE FEMALE
1 $ 0.00042 $ 0.00042 0.1616
2 0.00139 0.00139 0.1741
3 0.00261 0.00261 0.1900
4 0.00413 0.00413 0.2075
5 0.00604 0.00604 0.2275

6 0.00844 0.00844 0.2500
7 0.01153 0.01153 0.2775
8 0.01521 0.01521 0.3034
9 0.01971 0.01971 0.3301
10 0.02504 0.02504 0.3567

11 0.03143 0.03143 0.3843
12 0.03885 0.03885 0.4126
13 0.04759 0.04759 0.4426
14 0.05768 0.05768 0.4735
15 0.06958 0.06958 0.5069

16 0.08329 0.08329 0.5452
17 0.09990 0.09990 0.5836
18 0.11928 0.11928 0.6270
19 0.14265 0.14265 0.6779
20 0.16989 0.16989 0.7296

21 0.20124 0.20124 0.7839
22 0.23692 0.23692 0.8382
23 0.27638 0.27638 0.8889
24 0.31993 0.31993 0.9383
25 0.36812 0.36812 0.9884

26 0.42300 0.42300 1.0435
27 0.48804 0.48804 1.1145
28 0.56484 0.56484 1.2006
29 0.65925 0.65925 1.3167
30 0.76911 0.76911 1.4462

31 0.89631 0.89631 1.5916
32 1.03565 1.03565 1.7355
33 1.18983 1.18983 1.8852
34 1.35141 1.35141 2.0207
35 1.53209 1.53209 2.1730

POLICY NUMBER 0 000 0000
LAST SURVIVOR FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE POLICY
William Penn Hannah Penn
AGE 35 - MALE AGE 35 - FEMALE
<PAGE>

Additional Policy Specifications

TABLE OF GUARANTEED COST OF INSURANCE RATES PER $1,000

FLEX-PER
POLICY BASE STI STI RATES
YEAR RATE RATE FEMALE
36 $ 1.73266 $ 1.73266 2.3346
37 1.97057 1.97057 2.5439
38 2.25402 2.25402 2.8036
39 2.59097 2.59097 3.1205
40 2.98177 2.98177 3.4904

41 3.42691 3.42691 3.9018
42 3.91486 3.91486 4.3454
43 4.43743 4.43743 4.8113
44 4.98902 4.98902 5.2970
45 5.58064 5.58064 5.8178

46 6.23132 6.23132 6.3956
47 6.95750 6.95750 7.0493
48 7.77730 7.77730 7.7969
49 8.69927 8.69927 8.6466
50 9.74909 9.74909 9.6463

51 10.81783 10.81783 10.6471
52 11.98972 11.98972 11.7864
53 13.13376 13.13376 12.8864
54 14.40708 14.40708 14.1327
55 15.63370 15.63370 15.3203

56 16.99635 16.99635 16.6915
57 18.43512 18.43512 18.1571
58 19.99434 19.99434 19.7612
59 21.79275 21.79275 21.5852
60 24.00938 24.00938 23.8305

61 27.26542 27.26542 27.1615
62 32.39183 32.39183 32.3237
63 41.24693 41.24693 41.2120
64 41.66666 41.66666 41.6666
65 41.66666 41.66666 41.6666

POLICY NUMBER 0 000 0000
LAST SURVIVOR FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE POLICY
William Penn Hannah Penn
AGE 35 - MALE AGE 35 - FEMALE

Page 18B
<PAGE>

Page 18C

Additional Policy Specifications
TABLE OF NET SINGLE PREMIUM FACTORS

POLICY ATTAINED NSP POLICY ATTAINED NSP
YEAR AGE FACTOR YEAR AGE FACTOR

1 35 5.6357 33 67 1.7803
2 36 5.4191 34 68 1.7303
3 37 5.2110 35 69 1.6828
4 38 5.0112
5 39 4.8194 36 70 1.6378
37 71 1.5950
6 40 4.6353 38 72 1.5545
7 41 4.4586 39 73 1.5164
8 42 4.2891 40 74 1.4807
9 43 4.1266
10 44 3.9707 41 75 1.4474
42 76 1.4165
11 45 3.8213 43 77 1.3878
12 46 3.6781 44 78 1.3611
13 47 3.5410 45 79 1.362
14 48 3.4096
15 49 3.2838 46 80 1.3127
47 81 1.2908
16 50 3.1633 48 82 1.2702
17 51 3.0480 49 83 1.2511
18 52 2.9378 50 84 1.2334
19 53 2.8324
20 54 2.7318 51 85 1.2172
52 86 1.2023
21 55 2.6357 53 87 1.1885
22 56 2.5441 54 88 1.1755
23 57 2.4566 55 89 1.1633
24 58 2.3732
25 59 2.2936 56 90 1.1514
57 91 1.1398
26 60 2.2176 58 92 1.1283
27 61 2.1451 59 93 1.1165
28 62 2.0760 60 94 1.1042
29 63 2.0103
30 64 1.9480 61 95 1.0912
62 96 1.0777
31 65 1.8889 63 97 1.0643
32 66 1.8331 65 99 1.0321
<PAGE>

Additional Policy Specifications

Eligible Mutual Funds

Penn Series Funds, Inc.
Independence Capital (ICMI) Vontobel USA
Money Market International Equity
Quality Bond
Growth Equity T. Rowe Price
High Yield Bond
Quest for Value Advisors Flexibly Managed
Value Equity
Small Capitalization

TCI Portfolios, Inc. Neuberger & Berman Advisers Management Trust
Twentieth Century Neuberger & Berman
(Investors Research) Limited Maturity Bond Portfolio
TCI Growth Portfolio Balanced Portfolio

Variable Insurance Product Funds Variable Insurance Product Funds II
Fidelity Management Fidelity Management
Equity Income Asset Manager
Growth

Eligible Fixed Interest Option
Penn Mutual General Account

Page 18D
<PAGE>

A001050B
To obtain any of the benefits under this policy, write to Penn Mutual at its
Home Office or to its nearest agent.

Please notify Penn Mutual promptly of any change in address.

Annual Election - Penn Mutual is a mutual life insurance company. It has no
stockholders. The Owner of this policy is a member of Penn Mutual while this
policy is in force during the life of either Insured and before surrender of
this policy.Members have the right to vote in person or by proxy at the annual
election of Trustees held at the Home Office,Independence Square, Philadelphia,
Pennsylvania, on the first Tuesday of March. If more information is desired, it
may be obtained from the Secretary.

Last Survivor
Flexible Premium Adjustable
Variable Life Insurance Policy
o Death Benefit payable at second death prior to
Maturity Date
o Adjustable Death Benefit
o Maturity Benefit Payable on Maturity Date
o Variable Policy Value
o Flexible premiums payable until maturity date
o Participating
o Supplemental benefits, if any, listed on Page 3

The Penn Mutual Life Insurance Company, Independence Square,
Philadelphia, Pennsylvania 19172
VALJ-94(S)

<PAGE>

The Penn Mutual Life Insurance Company
A001041C
Founded 1847

Insureds William Penn $200,000 Specified Amount
Hannah Penn

Policy Number 0 000 0000 May 1, 1995 Policy Date

This contract is made in consideration of the payment of premiums as provided in
this policy.

The provisions on this and the following pages are part of this policy.

Executed on the Date of Issue by The Penn Mutual Life Insurance Company.

/s/ Joseph J. Horvath
General Counsel and Secretary
{{sec}}
/s/ Robert E. Chappell
Chairman and
Chief Executive Officer

READ YOUR POLICY CAREFULLY. This policy is a legal contract between the Owner
and Penn Mutual.
Last Survivor
Flexible Premium Adjustable
Variable Life Insurance Policy
<PAGE>
o Death Benefit payable at second death prior to
Maturity Date
o Adjustable Death Benefit
o Maturity Benefit payable on Maturity Date
o Variable Policy Value
o Flexible premiums payable until maturity date
o Participating
o Supplemental benefits, if any, listed on Page 3

The Penn Mutual Life Insurance Company, Independence Square, Philadelphia,
Pennsylvania 19172
VALJ-94(U)

A001053I
Guide to Policy Sections

Additional Policy Specifications, any
Supplemental Agreements and a copy of
any applications follow Section 16.

Alphabetical Index

Section
Age................................................................. 1,14
Allocation of Net Premiums.......................................... 3
Annual Report....................................................... 14
Assignment.......................................................... 9
Beneficiary......................................................... 1,9
Cash Surrender Value................................................ 11
Continuation of Insurance........................................... 3
Contract............................................................ 14
Cost of Insurance................................................... 7
Cost of Insurance Rates............................................. 7
Date of Issue....................................................... 1
Death Benefit....................................................... 10
Deferment of Transactions........................................... 14
Dividends........................................................... 14
Free Look Period.................................................... Cover
Grace Period........................................................ 3
Income Payment Options.............................................. 15
Income Payment Option Tables........................................ 16
Incontestability.................................................... 14
Indebtedness........................................................ 8
Lapse............................................................... 4
Loan Interest....................................................... 8
Loan Value.......................................................... 8
Maturity Date....................................................... 1
Maturity Benefit.................................................... 10

<PAGE>
Section
Monthly Anniversary................................................. 14
Monthly Deduction................................................... 7
Mortality and Expense Risk Charge................................... 7
Net Cash Surrender Value............................................ 11
No-Lapse Date....................................................... 1,3
No-Lapse Premium.................................................... 1,3
Owner............................................................... 9
Partial Surrender................................................... 11
Policy Date......................................................... 1,14
Policy Loan Account................................................. 8
Policy Loans........................................................ 8
Policy Value........................................................ 7
Premium Charge...................................................... 3
Premiums............................................................ 1,3
Rate Class.......................................................... 1
Reinstatement....................................................... 4
Schedule of Benefits................................................ 1
Schedule of Premiums................................................ 1
Separate Account.................................................... 1,5
Service Office...................................................... 1
Specified Amount.................................................... 1
Subaccounts......................................................... 5
Suicide Exclusion................................................... 10
Surrender........................................................... 11
Surrender Charge.................................................... 11

1. Policy Specifications

INSUREDS A WILLIAM PENN $200,000 SPECIFIED AMOUNT
B. HANNAH PENN (INCLUDES POLICY VALUE)

POLICY NUMBER 0 000 0000 MAY 1, 1995 POLICY DATE

AGES A. 35 SMOKER RATE CLASS
AGES B. 35 SMOKER

MATURITY DATE MAY 1, 2060
THE DATE OF ISSUE IS THE POLICY DATE

OWNER AND BENEFICIARY AS PROVIDED IN APPLICATION

SEPARATE ACCOUNT: THE PENN MUTUAL VARIABLE LIFE ACCOUNT I
ELIGIBLE INVESTMENT FUNDS: FUNDS AS SPECIFIED IN THE ADDITIONAL
POLICY SPECIFICATIONS

INITIAL ALLOCATION: PENN SERIES MONEY MARKET FUND - 100%
<TABLE>
<CAPTION>
Schedule of Benefits
Description Amount
<S> <C>
LAST SURVIVOR FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE $200,000 SPECIFIED AMOUNT
INSURANCE POLICY
SUPPLEMENTAL TERM INSURANCE AGREEMENT $200,000
FLEXIBLE PERIOD-SINGLE LIFE-SUPPLEMENTAL
TERM INSURANCE AGREEMENT --
(SEE ADDITIONAL SPECIFICATIONS PAGE 18)
GUARANTEED CONTINUATION OF POLICY AGREEMENT --
SUPPLEMENTAL EXCHANGE AGREEMENT --
POLICY SPLIT OPTION AGREEMENT --
</TABLE>
MAXIMUM SURRENDER CHARGE PREMIUM $1393.09
PER $1,000 SURRENDER CHARGE FACTOR $8.00
*SEE PAGE 3 CONTD FOR PREMIUM INFORMATION

Page 3
<PAGE>
Page 3 (Con't) 1. Policy Specification (Continued)

Schedule of Premiums

THE INITIAL PREMIUM OF $280.00 WAS PAID ON THE POLICY DATE FOR 2 MONTHS.
SUBSEQUENT PREMIUMS ARE PAYABLE MONTHLY AS FOLLOWS.

BEGINNING AS OF PREMIUM
JUL 1, 1995 $140.00

THE NO LAPSE PREMIUM IS $72.06
THE NO LAPSE PREMIUM DATE IS MAY 1,2000
GUARANTEED CONTINUATION OF POLICY PREMIUM $116.09

NOTE: INSURANCE WILL TERMINATE IF THE PREMIUMS PAID AND THE INTEREST CREDITED
ARE INSUFFICIENT TO COVER THE MONTHLY DEDUCTIONS, EXCEPT AS PROVIDED IN SECTION
3.

<PAGE>

2. Endorsements A001052E

To be made only by the Company

Page 4

<PAGE>

3. Premiums

A001015P
Payment of Premiums--Premiums are payable while this policy is in force until
the Maturity Date. The first premium is due on the Policy Date. Premiums after
the first may be paid in any amount and at any interval subject to the following
conditions:

Each premium after the first is payable at the Company's Home Office. A receipt
signed by the President or the Secretary will be given on request.

Net Premium--Net premium is the amount of any premium payment reduced by the
percent of premium charge.

Grace Period--If, on a Monthly Anniversary prior to the No-Lapse Date shown on
Page 3:

(a) the Net Cash Surrender Value is insufficient to cover the Monthly Deduction
for the following policy month; and
(b) the sum of all premiums paid on this policy, reduced by any partial
surrenders, is less than the No-Lapse Premium shown on Page 3 multiplied by
the number of elapsed months since the Policy Date;

then a grace period of 61 days will be allowed for the payment of a premium
sufficient to keep this policy in force.

Page 5

<PAGE>

Page 6

A001016P

4. Lapse and Reinstatement

(a) the submission of evidence of insurability satisfactory to the Company for
both Insureds if both are still living;
(b) the payment or reinstatement of any indebtedness which existed at the end of
the grace period; and
(c) the payment of a premium (i) sufficient to cover the Monthly Deductions for
the grace period, (ii) any unpaid No-Lapse Premiums to the date of
reinstatement, and (iii) the Monthly Deductions or, if applicable, the
No-Lapse Premiums for two policy months after reinstatement.

The effective date of a reinstatement will be the date of approval by the
Company of the application for reinstatement. Such application will be attached
to and made a part of the reinstated policy.

The policy value on the date of reinstatement is the sum of:

less the sum of:

The surrender charge set forth in Section 11 will be applicable to any surrender
of this policy following reinstatement.

Any indebtedness which is reinstated will be subject to loan interest as set
forth in Section 8.

5. The Separate Account

<PAGE>

5. The Separate Account (Continued)

A001017P
Substitution of Investment--If investment in a subaccount should no longer be
possible or, in the judgement of the Company, investment in a subaccount becomes
inappropriate to the purposes of the policy, or if in the judgement of the
Company, investment in another subaccount or insurance company separate account
is in the interest of owners of this class of policies, the Company may
substitute another subaccount or insurance company separate account.
Substitution may be made with respect to existing investments and the investment
of future net premiums.

Substitution will be subject to the approval of the Insurance Department of the
jurisdiction in which this policy is delivered and all other approvals required
under applicable law.

6. The Fixed Account

Thereafter, interest will be credited on such amount for
successive twelve month periods at the declared effective annual rate then
applicable to new allocations to the account made as of the beginning of each
such period.

Transfers--Subject to and in accordance with the provisions of this policy:

(a) amounts may be transferred from one or more subaccounts into the Fixed
Account at any time after the end of the Free Look Period; and
(b) an amount held in the Fixed Account may be transferred to one or more
subaccounts only during the period which is not more than thirty days
immediately following the end of each policy year. Any such transfer must be
at least $250, or if less, the amount held in the Fixed Account (exclusive
of any amount held in the Policy Loan Account). In the event of a partial
transfer, at least $250 must remain in the Fixed Account.
(c) the first 12 transfers per policy year will be allowed free of charge;
thereafter, a $10 transfer charge may be deducted from the amount
transferred

Page 7

<PAGE>

Page 8

A001018P

7. Policy Value

On any date other than the Policy Date or a Monthly Anniversary, the Policy
Value will be the sum of (a) the current market value of each subaccount and (b)
the value of the Fixed Account.

Monthly Deduction--The Monthly Deduction is the sum of:

Cost of Insurance--The Cost of Insurance is determined on a monthly basis. The
Cost of Insurance for a policy month is calculated as (a) multiplied by the
result of (b) minus (c) where:

Cost of Insurance Rate--The Base Cost of Insurance Rate is based on policy year
and on the attained age and rate class of each Insured. Cost of Insurance Rates
will be determined by the Company as described in the Determination of
Nonguaranteed Factors provision. However, the rates will not exceed those shown
in the Additional Policy Specifications. Such maximum rates are based on the
1980 CSO-SB or 1980 CSO-NB Mortality Tables, Age Nearest Birthday.

The maximum expense charges applicable under this policy are:

(a) a monthly expense charge of $15.00,
(b) a monthly expense charge of $0.20 for each $1,000 of Specified Amount for
the first twelve months following the Policy Date.

The number of accumulation units is determined by dividing the amount allocated
to the subaccount by the subaccount's accumulation unit value for the Valuation
Date when the allocation is made.

The number of subaccount accumulation units will increase when:

(a) net premiums are allocated to that subaccount;
(b) amounts are transferred to that subaccount; and
(c) policy loans are repaid and credited to that subaccount.

The number of subaccount accumulation units will decrease when:

(a) a pro-rata portion of the monthly deduction is deducted from that
subaccount;
(b) a policy loan is taken from that subaccount;

<PAGE>

7. Policy Value (Continued)

A001019P

(c) policy loan interest is not paid when due and is taken from that subaccount;
(d) an amount is transferred from that subaccount; and
(e) a partial surrender, including the partial surrender charge, is taken from
that subaccount.

The value of an Accumulation Unit for the prior valuation period multiplied by
the Net Investment Factor for that subaccount for the current valuation period.

Where (a) is

The net asset value per share of the mutual fund held in the subaccount, as of
the end of the valuation period plus

The per-share amount of any dividend or capital gain distributions by the mutual
fund if the "ex-dividend" date occurs in the valuation period.

Where (b) is

The net asset value per share of the mutual fund held in the subaccount as of
the end of the last prior valuation period.

Where (c) is

The daily Mortality and Expense Risk Charge set by Penn Mutual. On a annual
basis, such charge will not exceed 0.90% of the daily net asset value of the
Separate Account.

Fixed Account Value--At any valuation time the value of the Fixed Account is

(a) the total of net premiums allocated to the Fixed Account; plus
(b) any transfers to the Fixed Account; plus
(c) any policy loan account (principal and unpaid interest) credited to the
Fixed Account; plus
(d) any repaid policy loan credited to the Fixed Account; plus
(e) interest credited to the Fixed Account;
less:
(a) the portion of the Monthly Deduction deducted pro-rata from the Fixed
Account;
(b) the amount of any transfers from the Fixed Account;
(c) the amount of any partial surrender, including the partial surrender charge,
taken from the Fixed Account;
(d) the amount of any policy loan taken from the Fixed Account;
(e) unpaid policy loan interest taken from the Fixed Account; and
(f) repaid policy loans deducted from the policy loan account.

Page 9

<PAGE>

Page 10

A001020P

8. Policy Loans

Loan Value--The Loan Value of this policy on any date is equal to 90% of the
Cash Surrender Value

9. Owner and Beneficiary

<PAGE>

9. Owner and Beneficiary (Continued)

A001021P

10. Death and Maturity Benefits

Basic Death Benefit--The Basic Death Benefit prior to the Maturity Date will be
as follows:

(a) If the Specified Amount includes the Policy Value, as shown on Page 3, the
Basic Death Benefit will be equal to the greater of:

(b) If the Specified Amount does not include the Policy Value, as shown on Page
3, the Basic Death Benefit will be equal to the greater of:

Amount of Death Benefit--The Death Benefit payable at the death of the last
Insured to die while this policy is in force will be equal to the sum of:

less the sum of:

(a) any indebtedness on this policy at the time of the death of the last Insured
to die; and
(b) if the second death occurs during a grace period, the past due Monthly
Deductions.

Page 11

<PAGE>

Page 12

A001022P

10.Death and Maturity Benefits (Continued)

Amount of Maturity Benefit--The Maturity Benefit payable if either Insured is
living on the Maturity Date and if this policy is then in force will be equal to
the Net Policy Value on that date.

Payment of Maturity Benefit--The Maturity Benefit will be paid to the Owner in
one sum or, if elected, under an Income Payment Option.

11. Surrender of Policy

Net Cash Surrender Value--The Net Cash Surrender Value is the Net Policy Value
decreased by any surrender charge.

Net Policy Value--The Net Policy Value is the Policy Value decreased by any
indebtedness on this policy.

Cash Surrender Value--The Cash Surrender Value is the Policy Value decreased by
any surrender charge.

Surrender Charge--The surrender charge is determined by multiplying (a) times
the sum of (b) plus (c), where:

(a) is the appropriate surrender factor from the table below in which policy
year is determined from the Policy Date;
(b) is 25% of the lesser of:
(i) the sum of all premiums paid on this policy; and
(ii) the maximum surrender charge premium as shown on Page 3; and
(c) is the Per $1,000 Surrender Charge Factor shown on Page 3 multiplied by the
initial Specified Amount divided by 1,000.

Policy Surrender
Year Factor

1-7 1.00
8 .90
9 .80
10 .70

Policy Surrender
Year Factor

11 .60
12 .50
13 .40
14 .30
15 .20
16 .10
17 and later 0

The surrender charge will not be reduced as a result of a partial surrender.

<PAGE>

12. Transfer to Fixed Account

A001023P

At any time within the first 24 policy months while this policy is in force
during the life of either Insured, the Owner may transfer all amounts held in
subaccounts of the Separate Account to the Fixed Account without restriction,
minimum or charge. Following such transfer, no future premiums may be allocated
to subaccounts of the Separate Account and no transfers may be made to the
subaccounts.

13. Policy Changes

Any decrease in the Specified Amount will become effective on the Monthly
Anniversary that coincides with or next follows the receipt by the Company of
the request.

A decrease in the Specified Amount will not cause a reduction in the surrender
charge set forth in Section 11.

14. General Provisions

Page 13

<PAGE>

Page 14
A001024P

14. General Provisions (Continued)

Policy Date--The Policy Date shown on Page 3 is the date from which policy
years, months and anniversaries are determined.

Monthly Anniversary--The Monthly Anniversary is the day in each calendar month
which is the same day of the month as the Policy Date.

Misstatement of Age --If the age of either Insured has been misstated, the Death
Benefit under this policy will be the amount which would have been provided by
the most recent Cost of Insurance charge at the correct ages.

Conditions in (b) and (c) will be decided by, or in accordance with the rules
of, the Securities and Exchange Commission.

Annual Report--Each year a report will be sent to the Owner which shows the
current policy values, premiums paid and deductions made since the last report,
and any outstanding policy loans.

Deferral of Maturity--Upon the written request of the Owner, this policy will
continue in force beyond the Maturity Date. Thereafter, the Death Benefit will
be the Net Policy Value.

<PAGE>

15. Income Payment Options

A001025P

Election of Income Payment Option--An income payment option may be elected in
place of a one sum payment of any amount payable upon the death of the last
Insured to die or upon surrender.

The amount applied under an income payment option must be at least $5,000. No
election may provide for income payments of less than $50 each.

Option 1--Interest Income--The Company will hold the amount applied at interest.
Interest will be paid monthly, quarterly, semiannually or annually.

Option 2--Income for a Fixed Period--The Company will pay the amount applied,
with interest, in equal monthly payments for a fixed period. The fixed period
may not be greater than 30 years.

Option 4--Life Income--The Company will pay equal monthly payments during the
life of the option annuitant.

Option 7--Joint and Survivor Life Income--The Company will pay equal monthly
payments during the joint life of two option annuitants and thereafter during
the life of the survivor.

Option Annuitant--Option annuitant means a natural person on whose life the
income payments under Options 4, 5, 6 and 7 are based. The Company may require
proof of the age and of the continued life of an option annuitant. If the age of
an option annuitant has been misstated, an appropriate adjustment will be made
in the income payments.

Withdrawal Privilege--Unless the election states otherwise, the payee under an
income payment option may:

Page 15

<PAGE>

Page 16

A001026P

15. Income Payment Options (Continued)

The Company may defer the payment of the amount withdrawn for up to six months
from the date of a withdrawal request.

(a) the balance of the amount held under Option 1 or 3 plus any accrued
interest; or
(b) the present value of the income payments to become due during the fixed
period under Option 2; or
(c) if the option annuitant under Option 5 or 6 has died, the present value of
the income payments, if any, to become due during the guaranteed or refund
period; or
(d) if any option annuitant under Option 4, 5, 6 or 7 is living, any income
payments as they become due during the option annuitant's life plus, upon
the death of the option annuitant under Option 5 or 6, the present value of
the income payments, if any, to become due during the guaranteed or refund
period.

<PAGE>
16. Income Payment Option Tables

A001027P
Amount of income provided by each $1,000 applied under an income payment option
Option 1--Interest Income Option 2--Income for Fixed Period of Years
<TABLE>
<CAPTION>

Monthly Monthly Monthly
Payment Interval Amount Years Income Years Income Years Income
<S> <C> <C> <C> <C> <C> <C> <C>
1 $84.47 11 $8.86 21 $5.32
Annually $30.00 2 42.86 12 8.24 22 5.15
3 28.99 13 7.71 23 4.99
Semiannually 14.89 4 22.06 14 7.26 24 4.84
5 17.91 15 6.87 25 4.71
Quarterly 7.42 6 15.14 16 6.53 26 4.59
7 13.16 17 6.23 27 4.47
Monthly 2.47 8 11.68 18 5.96 28 4.37
9 10.53 19 5.73 29 4.27
10 9.61 20 5.51 30 4.18
</TABLE>

Options 4, 5 and 6--Monthly Life Income
The amount of income will be based on the age of the option annuitant on the
birthday nearest the date of the first payment.
<TABLE>
<CAPTION>
Option 4 Option 5 Option 6 Option 4 Option 5 Option 6
Age of Age of
Option 20 Year 10 Year 5 Year with Option 20 Year 10 Year 5 Year with
Annui- Life Guaranteed Guaranteed Guaranteed Refund Annui- Life Guaranteed Guaranteed Guaranteed Refund
tant Income Period Period Period Period tant Income Period Period Period Period
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
15 and under $2.90 $2.90 $2.90 $2.90 $2.89 50 $4.09 $3.96 $4.06 $4.08 $3.94
16 2.92 2.91 2.92 2.92 2.91 51 4.16 4.01 4.12 4.15 4.00
17 2.94 2.93 2.93 2.93 2.92 52 4.23 4.07 4.19 4.22 4.06
18 2.95 2.94 2.95 2.95 2.94 53 4.31 4.13 4.27 4.30 4.13
19 2.97 2.96 2.97 2.97 2.95 54 4.39 4.19 4.35 4.38 4.19

20 2.99 2.98 2.98 2.99 2.97 55 4.48 4.25 4.43 4.47 4.26
21 3.00 3.00 3.00 3.00 2.99 56 4.57 4.32 4.51 4.56 4.34
22 3.02 3.01 3.02 3.02 3.01 57 4.67 4.38 4.60 4.65 4.41
23 3.04 3.03 3.04 3.04 3.02 58 4.77 4.45 4.70 4.76 4.50
24 3.06 3.05 3.06 3.06 3.04 59 4.88 4.51 4.80 4.86 4.58

25 3.08 3.07 3.08 3.08 3.06 60 5.00 4.58 4.90 4.98 4.67
26 3.11 3.10 3.10 3.11 3.08 61 5.13 4.65 5.02 5.10 4.77
27 3.13 3.12 3.13 3.13 3.11 62 5.26 4.72 5.13 5.23 4.87
28 3.15 3.14 3.15 3.15 3.13 63 5.41 4.79 5.26 5.37 4.97
29 3.18 3.16 3.17 3.18 3.15 64 5.56 4.85 5.39 5.52 5.08

30 3.20 3.19 3.20 3.20 3.18 65 5.73 4.92 5.52 5.68 5.20
31 3.23 3.22 3.23 3.23 3.20 66 5.90 4.98 5.67 5.84 5.32
32 3.26 3.24 3.26 3.26 3.23 67 6.09 5.04 5.81 6.02 5.45
33 3.29 3.27 3.29 3.29 3.26 68 6.29 5.10 5.97 6.21 5.59
34 3.32 3.30 3.32 3.32 3.28 69 6.50 5.15 6.13 6.41 5.73

35 3.35 3.33 3.35 3.35 3.31 70 6.74 5.20 6.30 6.63 5.89
36 3.39 3.36 3.38 3.39 3.34 71 6.98 5.25 6.47 6.85 6.05
37 3.42 3.40 3.42 3.42 3.38 72 7.25 5.29 6.65 7.10 6.22
38 3.46 3.43 3.46 3.46 3.41 73 7.54 5.33 6.83 7.36 6.40
39 3.50 3.47 3.49 3.50 3.44 74 7.85 5.36 7.02 7.63 6.59

40 3.54 3.50 3.54 3.54 3.48 75 8.18 5.39 7.20 7.92 6.79
41 3.59 3.54 3.58 3.59 3.52 76 8.54 5.42 7.39 8.23 7.00
42 3.63 3.58 3.62 3.63 3.56 77 8.93 5.44 7.58 8.55 7.22
43 3.68 3.62 3.67 3.68 3.60 78 9.35 5.45 7.77 8.89 7.46
44 3.73 3.67 3.72 3.73 3.64 79 9.80 5.47 7.95 9.25 7.71

45 3.78 3.71 3.77 3.78 3.69 80 and 10.28 5.48 8.12 9.63 7.97
46 3.84 3.76 3.82 3.84 3.73 over
47 3.90 3.80 3.88 3.89 3.78
48 3.96 3.85 3.93 3.95 3.83
49 4.02 3.91 3.99 4.02 3.89
</TABLE>
<PAGE>

Option 7--Joint and Survivor Monthly Life Income
The amount of income will be based on the ages of the option annuitants on their
respective birthdays nearest the date of the
first payment. The table shows income for the certain ages for two option
annuitants. Amounts of income for other combinations of ages will be furnished
upon request.

<TABLE>
<CAPTION>
Age of First Age of Second Option Annuitant
Option Annuitant 45 50 55 60 65 70 75 80
<S> <C> <C> <C> <C> <C> <C> <C> <C>
50 $3.50 $3.62 $3.74 $3.83 $3.91 $3.97 $4.02 $4.05
55 3.57 3.74 3.90 4.05 4.18 4.28 4.35 4.41
60 3.64 3.83 4.05 4.26 4.45 4.64 4.77 4.86
65 3.68 3.91 4.18 4.46 4.76 5.03 5.27 5.44
70 3.72 3.97 4.28 4.64 5.03 5.45 5.83 6.15
75 3.74 4.02 4.35 4.77 5.27 5.83 6.42 6.97
80 3.76 4.05 4.41 4.86 5.44 6.15 6.97 7.83
85 3.77 4.06 4.44 4.92 5.56 6.38 7.41 8.60
</TABLE>

Page 17
Additional Policy Specifications

<PAGE>

FLEXIBLE PERIOD-SINGLE LIFE-SUPPLEMENTAL TERM INSURANCE AGREEMENT (SLTI-94)

INSURED: HANNAH PENN SPECIFIED AMOUNT
AGE 35 FEMALE $200,000

EFFECTIVE DATE 05/01/95 RATE CLASS
TERMINATION DATE 05/01/2060 SMOKER

POLICY NUMBER 0 000 0000
LAST SURVIVOR FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE

Page 18

<PAGE>

Page 18A

Additional Policy Specifications

TABLE OF GUARANTEED COST OF INSURANCE RATES PER $1,000
<TABLE>
<CAPTION>
POLICY BASE STI FLEX-PER
YEAR RATE RATE STI RATES
<S> <C> <C> <C>
1 $ 0.00051 $ 0.00051 0.2080
2 0.00169 0.00169 0.2224
3 0.00315 0.00315 0.2410
4 0.00497 0.00497 0.2617
5 0.00725 0.00725 0.2858

6 0.01009 0.01009 0.3131
7 0.01373 0.01373 0.3450
8 0.01810 0.01810 0.3777
9 0.02351 0.02351 0.4144
1O 0.02993 0.02993 0.4525

11 0.03787 0.03787 0.4952
12 0.04703 0.04703 0.5381
13 0.05797 0.05797 0.5850
14 0.07076 0.07076 0.6337
15 0.08595 0.08595 0.6884

16 0.10376 0.10376 0.7425
17 0.12507 0.12507 0.8129
18 0.15059 0.15059 0.8867
19 0.18131 0.18131 0.9712
20 0.21807 0.21807 1.0652

21 0.26061 0.26061 1.1651
22 0.31009 0.31009 1.2719
23 0.36589 0.36589 1.3818
24 0.42929 0.42929 1.4967
25 0.50034 0.50034 1.6160

26 0.58200 0.58200 1.7477
27 0.67786 0.67786 1.8974
28 0.79034 0.79034 2.0669
29 0.92388 0.92388 2.2627
30 1.07804 1.07804 2.4783

31 1.25431 1.25431 2.7122
32 1.44879 1.44879 2.9528
33 1.66315 1.66315 3.2042
34 1.89252 1.89252 3.4575
35 2.14602 2.14602 3.7272
</TABLE>

POLICY NUMBER 0 000 0000
LAST SURVIVOR FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE POLICY
William Penn Hannah Penn
AGE 35 AGE 35

<PAGE>

Additional Policy Specifications

TABLE OF GUARANTEED COST OF INSURANCE RATES PER $1,000
<TABLE>
<CAPTION>
POLICY BASE STI FLEX-PER
YEAR RATE RATE STI RATES
UNISEX
<S> <C> <C> <C>
36 $ 2.42876 $ 2.42876 4.0221
37 2.75040 2.75040 4.3541
38 3.12212 3.12212 4.7360
39 3.54944 3.54944 5.1707
40 4.02911 4.02911 5.6486

41 4.56830 4.56830 6.1753
42 5.14336 5.14336 6.7210
43 5.74438 5.74438 7.2738
44 6.36137 6.36137 7.8257
45 7.00718 7.00718 8.3952

46 7.70202 7.70202 9.0091
47 8.46242 8.46242 9.6861
48 9.30615 9.30615 10.4448
49 10.24255 10.24255 11.2942
50 11.26888 11.26888 12.2295

51 12.31572 12.31572 13.1791
52 13.41190 13.41190 14.1775
53 14.48329 14.48329 15.1494
54 15.66586 15.66586 16.2384
55 16.81983 16.81983 17.3036

56 18.05329 18.05329 18.4550
57 19.34530 19.34530 19.6728
58 20.74244 20.74244 21.0083
59 22.42000 22.42000 22.6307
60 24.52363 24.52363 24.6681

61 27.60880 27.60880 27.7298
62 32.63122 32.63122 32.3720
63 41.39053 41.39053 41.4496
64 41.66666 41.66666 41.6666
65 41.66666 41.66666 41.6666

</TABLE>

POLICY NUMBER 0 000 0000
LAST SURVIVOR FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE POLICY
William Penn Hannah Penn
AGE 35 AGE 35

Page 18B

<PAGE>

Page 18C
TABLE OF NET SINGLE PREMIUM FACTORS
Policy Attained NSP Policy Attained NSP

Year Age Factor Year Age Factor

1 35 5.2118 33 67 1.6767
2 36 5.0115 34 68 1.6333
3 37 4.8191 35 69 1.5924
4 38 4.6344 36 70 1.5537
5 39 4.4571 37 71 1.5173
6 40 4.2870 38 72 1.4831
7 41 4.1237 39 73 1.4511
8 42 3.9671 40 74 1.4213
9 43 3.8169 41 75 1.3936
10 44 3.6729 42 76 1.3680
11 45 3.5349 43 77 1.3444
12 46 3.4028 44 78 1.3225
13 47 3.2762 45 79 1.3020
14 48 3.1551 46 80 1.2827
15 49 3.0391 47 81 1.2647
16 50 2.9282 48 82 1.2477
17 51 2.8221 49 83 1.2319
18 52 2.7208 50 84 1.2172
19 53 2.6240 51 85 1.2037
20 54 2.5318 52 86 1.1911
21 55 2.4439 53 87 1.1794
22 56 2.3602 54 88 1.1682
23 57 2.2805 55 89 1.1575
24 58 2.2048 56 90 1.1471
25 59 2.1327 57 91 1.1367
26 60 2.0642 58 92 1.1261
27 61 1.9991 59 93 1.1149
28 62 1.9374 60 94 1.1032
29 63 1.8789 61 95 1.0906
30 64 1.8237 62 96 1.0774
31 65 1.7717 63 97 1.0642
32 66 1.7227 64 98 1.0520
65 99 1.0321

<PAGE>

Additional Policy Specifications

Eligible Mutual Funds
- ---------------------

Penn Series Funds, Inc.

Independence Capital (ICMI) Vontobel USA
Money Market International Equity
Quality Bond
Growth Equity T. Rowe Price
High Yield Bond
Quest for Value Advisors Flexibly Managed
Value Equity
Small Capitalization

TCI Portfolios, Inc. Neuberger & Berman Advisers Management Trust
Twentieth Century Neuberger & Berman
(Investors Research) Limited Maturity Bond Portfolio
TCI Growth Portfolio Balanced Portfolio

Variable Insurance Product Funds Variable Insurance Product Funds II
Fidelity Management Fidelity Management
Equity Income Asset Manager
Growth

Eligible Fixed Interest Option
------------------------------

Penn Mutual General Account

Page 18D

<PAGE>

A001051B

To obtain any of the benefits under this policy, write to Penn Mutual at its
Home Office or to its nearest agent.

Please notify Penn Mutual promptly of any change in address.

Last Survivor
Flexible Premium Adjustable
Variable Life Insurance Policy
o Death Benefit payable at second death
prior to Maturity Date
o Adjustable Death Benefit
o Maturity Benefit Payable on Maturity Date
o Variable Policy Value
o Flexible premiums payable until maturity date
o Participating
o Supplemental benefits, if any, listed on Page 3

The Penn Mutual Life Insurance Company, Independence Square, Philadelphia,
Pennsylvania 19172
VALJ-94(U)

<PAGE>

The Penn Mutual Life Insurance Company
A001842C
Founded 1847

Insureds William Penn $200,000 Specified Amount
Hannah Penn

Policy Number 0 000 0000 May 1, 1995 Policy Date

This contract is made in consideration of the payment of premiums as provided in
this policy.

The provisions on this and the following pages are part of this policy.

Executed on the Date of Issue by The Penn Mutual Life Insurance Company.

/s/ Joseph J. Horvath
- -------------------------------
General Counsel and Secretary
(sec)

/s/ Robert E. Chappell
- -------------------------------
Chairman and
Chief Executive Officer

READ YOUR POLICY CAREFULLY. This policy is a legal contract between the Owner
and Penn Mutual.

The Penn Mutual Life Insurance Company, Independence Square, Philadelphia,
Pennsylvania 19172
VALJ-94(S)(NY)

<PAGE>

A001053I
Guide to Policy Sections

Alphabetical Index
<TABLE>
<CAPTION>
Section Section
<S> <C> <C> <C>
Age.................................... 1,14 Monthly Anniversary.................... 14
Allocation of Net Premiums............. 3 Monthly Deduction...................... 7
Annual Report.......................... 14 Mortality and Expense Risk Charge...... 7
Assignment............................. 9 Net Cash Surrender Value............... 11
Beneficiary............................ 1,9 No-Lapse Date.......................... 1,3
Cash Surrender Value................... 11 No-Lapse Premium....................... 1,3
Continuation of Insurance.............. 3 Owner.................................. 9
Contract............................... 14 Partial Surrender...................... 11
Cost of Insurance...................... 7 Policy Date............................ 1,14
Cost of Insurance Rates................ 7 Policy Loan Account.................... 8
Date of Issue.......................... 1 Policy Loans........................... 8
Death Benefit.......................... 10 Policy Value........................... 7
Deferment of Transactions.............. 14 Premium Charge......................... 3
Dividends.............................. 14 Premiums............................... 1,3
Free Look Period.......................Cover Rate Class............................. 1
Grace Period........................... 3 Reinstatement.......................... 4
Income Payment Options................. 15 Schedule of Benefits................... 1
Income Payment Option Tables........... 16 Schedule of Premiums................... 1
Incontestability...................... 14 Separate Account....................... 1,5
Indebtedness........................... 8 Service Office......................... 1
Lapse.................................. 4 Specified Amount....................... 1
Loan Interest.......................... 8 Subaccounts............................ 5
Loan Value............................. 8 Suicide Exclusion...................... 10
Maturity Date.......................... 1 Surrender.............................. 11
Maturity Benefit....................... 10 Surrender Charge....................... 11
</TABLE>

<PAGE>

1. Policy Specifications

INSUREDS A. WILLIAM PENN $200,000 SPECIFIED AMOUNT
B. HANNAH PENN (INCLUDES POLICY VALUE)

POLICY NUMBER 0 000 0000 MAY 1, 1995 POLICY DATE

AGES A. 35 MALE SMOKER RATE CLASS
AGES B. 35 FEMALE SMOKER

MATURITY DATE MAY 1, 2060
THE DATE OF ISSUE IS THE POLICY DATE
OWNER AND BENEFICIARY AS PROVIDED IN APPLICATION

SEPARATE ACCOUNT: THE PENN MUTUAL VARIABLE LIFE ACCOUNT I
ELIGIBLE INVESTMENT FUNDS: FUNDS AS SPECIFIED IN THE
ADDITIONAL POLICY SPECIFICATIONS
INITIAL ALLOCATION: PENN SERIES MONEY MARKET FUND - 100%
Schedule of Benefits
Description Amount
LAST SURVIVOR FLEXIBLE PREMIUM ADJUSTABLE VARIBLE LIFE $200,000 SPECIFIED AMOUNT
INSURANCE POLICY
SUPPLEMENTAL EXCHANGE AGREEMENT --
POLICY SPLIT OPTION AGREEMENT --

MAXIMUM SURRENDER CHARGE PREMIUM $1267.47
PER $1,000 SURRENDER CHARGE FACTOR $8.00
*SEE PAGE 3 CONT'D FOR PREMIUM INFORMATION.

FOR THE FIXED ACCOUNT, GUARANTEED EFFECTIVE ANNUAL RATES OF INTEREST: 4% THROUGH
APRIL 30, 1996 ON NET POLICY VALUE RESULTING FROM AMOUNTS ALLOCATED OR
TRANSFERRED TO THE FIXED ACCOUNT THROUGH MAY 31, 1995; OTHERWISE 4%.

Page 3

<PAGE>

Page 3 (Con't)
1. Policy Specifications (continued)

Schedule of Premiums
THE INITIAL PREMIUM OF $280.00 WAS PAID ON THE POLICY DATE FOR 2 MONTHS.
SUBSEQUENT PREMIUMS ARE PAYABLE MONTHLY AS FOLLOWS.

BEGINNING AS OF PREMIUM
JUL 1,1995 $140.00

THE NO LAPSE PREMIUM IS $71.24
THE NO LAPSE PREMIUM DATE IS MAY 1, 2000

THE SCHEDULED PREMIUMS FOR THE FIRST SEVEN YEARS WILL COMPLY WITH OUR
UNDERSTANDING OF THE "7-PAY" PREMIUM AS DEFINED IN TAMRA '88 ASSUMING THAT NO
WITHDRAWALS OR CHANGES IN BENEFITS OCCUR WITHIN THE SEVEN YEAR PERIOD. CONSULT
YOUR TAX ADVISOR BEFORE MAKING A WITHDRAWAL OR CHANGE IN BENEFITS ON THIS
CONTRACT.

NOTE: COVERAGE MAY TERMINATE PRIOR TO THE MATURITY DATE IF THE PREMIUMS PAID AND
THE INVESTMENT RETURN ARE INSUFFICIENT TO COVER THE MONTHLY DEDUCTIONS, EXCEPT
AS PROVIDED IN SECTION 3. THE DURATION OF COVERAGE PROVISION ON PAGE 14 INCLUDES
AN EXPLANATION OF FACTORS WHICH MAY AFFECT THE DURATION OF COVERAGE.

THERE ARE NO DIVIDENDS CURRENTLY PAYABLE ON THIS POLICY NOR ARE ANY EXPECTED TO
BE PAID IN THE FORESEEABLE FUTURE.

THE COMPANY HAS THE RIGHT TO CHANGE THE AMOUNT OF INTEREST CREDITED ON THIS
POLICY, THE AMOUNT OF COST OF INSURANCE, OR THE OTHER EXPENSES ON THIS POLICY,
UP TO THE LIMITATIONS SPECIFIED IN THE POLICY. SUCH CHANGE(S) MAY REQUIRE MORE
PREMIUM TO BE PAID THAN WAS ILLUSTRATED OR THE CASH VALUES MAY BE LESS THAN
THOSE ILLUSTRATED.

<PAGE>

Page 3 (Con't)

1. Policy Specifications (continued) EXPENSE AND SURRENDER CHARGES

The maximum expense charges applicable under this policy are:

(a) a monthly expense charge of $15.00,
(b) a monthly expense charge of $0.20 for each $1,000 of Specified Amount for
the first twelve months following the Policy Date,
(c) a percent of premium charge of 7.5% of each premium paid,
(d) a mortality and expense risk charge of 0.90% of the assets in the Separate
Account. On a daily basis this charge is equal to .002465% of the assets in
the Separate Account.

Surrender Charge--The surrender charge is determined by multiplying (a) times
the sum of (b) plus (c), where:

(a) is the appropriate surrender factor from the table below in which policy
year is determined from the Policy Date;
(b) is 25% of the lesser of:
(i) the sum of all premiums paid on this policy; and
(ii) the maximum surrender charge premium as shown on Page 3; and
(c) is the Per $1,000 Surrender Charge Factor shown on Page 3 multiplied by the
initial Specified Amount divided by 1,000.

Policy Surrender
Year Factor

1-5 1.00
6 .90
7 .80
8 .70
9 .60
10 .50
11 .40
12 .30
13 .20
14 .10
15 and later 0

<PAGE>

2. Endorsements
A001490E

To be made only by the Company

Page 4

<PAGE>

3. Premiums

A003185P
Payment of Premiums--Premiums are payable while this policy is in force until
the Maturity Date. The first premium is due on the Policy Date. Premiums after
the first may be paid in any amount and at any interval subject to the following
conditions:

Each premium after the first is payable at the Company's Home Office. A receipt
signed by the President or the Secretary will be given on request.

Net Premium--Net premium is the amount of any premium payment reduced by the
percent of premium charge.

Continuation of Insurance--The insurance provided under this policy, including
benefits provided by any supplemental agreements attached to this policy, will
continue, subject to the Grace Period provision, in accordance with the
provisions of this policy and any such supplemental agreements for as long as
the values in this policy are sufficient to keep it in force.

Grace Period--If, on a Monthly Anniversary prior to the No-Lapse Date shown on
Page 3:

(a) the Net Cash Surrender Value is insufficient to cover the Monthly Deduction
for the following policy month; and
(b) the sum of all premiums paid on this policy, reduced by any partial
surrenders, is less than the No-Lapse Premium shown on Page 3 multiplied by
the number of elapsed months since the Policy Date;

then a grace period of 61 days will be allowed for the payment of a premium
sufficient to pay the Monthly Deduction.

Notice of the amount of premium required to be paid during the grace period to
keep this policy in force will be sent 45 days before the end of the grace
period to the last known address of the Owner and of any assignee on record.
This policy will remain in force during the grace period.

Page 5

<PAGE>

A003290P
4. Lapse and Reinstatement

Lapse--If a premium sufficient to keep this policy in force is not paid during
the grace period, this policy will lapse at the end of the grace period. At
lapse this policy will terminate without cash surrender value and cease to be in
force. Any deduction for the Cost of Insurance after termination will not be
considered a reinstatement of the policy nor a waiver by the Company of the
termination.

(a) the submission of evidence of insurability satisfactory to the Company for
both Insureds if both are still living;
(b) the payment or reinstatement of any indebtedness which existed at the end of
the grace period; and
(c) the payment of a premium (i) sufficient to cover the Monthly Deductions for
the grace period, and (ii) sufficient to keep the policy in force for two
policy months after reinstatement.

The effective date of a reinstatement will be the date of approval by the
Company of the application for reinstatement. Such application will be attached
to and made a part of the reinstated policy.

The policy value on the date of reinstatement is the sum of:

less the sum of:

The surrender charge set forth in Section 11 will be applicable to any surrender
of this policy following reinstatement.

Any indebtedness which is reinstated will be subject to loan interest as set
forth in Section 8.

5. The Separate Account

The Separate Account--The Separate Account named on Page 3 was established by
the Company for this and other variable life insurance policies. The Separate
Account is divided into subaccounts for the investment of assets in shares of
the funds specified in the Additional Policy Specifications. The Company owns
the assets of the Separate Account. The assets of each subaccount of the
Separate Account equal to the reserves and other contract liabilities with
respect to the subaccount are not chargeable with liabilities arising out of any
other business the Company may conduct. Income and realized and unrealized gains
and losses from the assets held in each subaccount are credited to or charged
against the subaccount without regard to the income, gains or losses in other
investment accounts of the Company. Shares of a mutual fund held in a subaccount
will be redeemed at current net asset value to make transfers, pay benefits and
cover applicable charges and deductions. Any dividend or capital gain
distribution from a mutual fund will be reinvested in shares of that mutual
fund.

Page 6

<PAGE>

5. The Separate Account (Continued)

A003291P
Substitution of Investment--If investment in a subaccount should no longer be
possible or, in the judgement of the Company, investment in a subaccount becomes
inappropriate to the purposes of the policy, or if in the judgement of the
Company, investment in another subaccount or insurance company separate account
is in the interest of owners of this class of policies, the Company may
substitute another subaccount or insurance company separate account.
Substitution may be made with respect to existing investments and the investment
of future net premiums.

Operation of Separate Account--The operation of the Separate Account, including
the substitution of investments, will be subject to the approval of the
Insurance Department of the jurisdiction in which this policy is delivered and
all other approvals required under applicable law.

Dollar Cost Averaging--The Owner may elect Dollar Cost Averaging on the
application for this policy. Any subsequent election must be in a form
acceptable to the Company. This election will indicate the subaccounts of the
Separate Account to which amounts will be transferred and the amounts to be
allocated to each subaccount.

The minimum planned premium required for the year Dollar Cost Averaging is
elected is $600. The amount to be transferred must be at least $50.

Transfers will be made on the fifteenth calendar day of each month. Transfers
will continue until the earliest of the following:

a) The Company receives a request to stop transfers.
b) The subaccount from which transfers are made has insufficient Policy Value to
make the specified transfer.
c) The policy is in the Grace Period.
d) The Company receives notice of the death of the last Insured to die.

Transfers under this provision are not subject to the rules described in the
Transfers provision above.

Asset Rebalancing--The Owner may elect Asset Rebalancing on the application for
this policy. Any subsequent election must be in a form acceptable to the
Company. This election will indicate the subaccounts of the Separate Account to
be included in the rebalancing and the percentage of Policy Value to be
allocated to each specified subaccount. A minimum Policy Value of $1,000 is
required for Asset Rebalancing. If Dollar Cost Averaging is in effect, the
Policy Value in the subaccount from which Dollar Cost Averaging transfers are
made may not be included in Asset Rebalancing. On the last day of each calendar
quarter, or if not a Valuation Date, the first Valuation Date of the following
calendar quarter, the Company will transfer Policy Value among the subaccounts
to the extent necessary to return the allocation to the specified percentages.

6. The Fixed Account

Page 7

<PAGE>

A003292P

6. The Fixed Account (Continued)

Transfers--Subject to and in accordance with the provisions of this policy:

7. Policy Value

On any date other than the Policy Date or a Monthly Anniversary, the Policy
Value will be the sum of (a) the current market value of each subaccount and (b)
the value of the Fixed Account.

Monthly Deduction--The Monthly Deduction is the sum of:

Cost of Insurance--The Cost of Insurance is determined on a monthly basis. The
Cost of Insurance for a policy month is calculated as (a) multiplied by the
result of (b) minus (c) where:

A003293P
Page 8

<PAGE>

7. Policy Value (Continued)

The maximum expense charges applicable under this policy are:

(a) a monthly expense charge of $15.00,
(b) a monthly expense charge of $0.20 for each $1,000 of Specified Amount for
the first twelve months following the Policy Date.

Determination of Nonguaranteed Factors--Cost of Insurance Rates, Percent of
Premium Charges, Expense Charges, Mortality and Expense Risk Charges, and
Interest Rates will be determined by the Company based on expectations as to
future mortality, investment, expense and persistency experience. The company
will not adjust such rates or charges as a means of recovering prior losses nor
as a means of distributing prior profits. Any change in the rates or charges
will be determined in accordance with procedures and standards on file with the
insurance department of the jurisdiction in which this policy is delivered. The
Cost of Insurance Rates, Percent of Premium Charge, Expense Charges and
Mortality and Expense Risk Charges will be reviewed for possible adjustment at
least once every five policy years.

The number of accumulation units is determined by dividing the amount allocated
to the subaccount by the subaccount's accumulation unit value for the Valuation
Date when the allocation is made.

The number of subaccount accumulation units will increase when:

(a) net premiums are allocated to that subaccount;
(b) amounts are transferred to that subaccount; and
(c) policy loans are repaid and credited to that subaccount.

The number of subaccount accumulation units will decrease when:

(a) a pro-rata portion of the monthly deduction is deducted from that
subaccount;
(b) a policy loan is taken from that subaccount;
(c) policy loan interest is not paid when due and is taken from that subaccount;
(d) an amount is transferred from that subaccount; and
(e) a partial surrender, including the partial surrender charge, is taken from
that subaccount.

The value of an Accumulation Unit for the prior valuation period multiplied by
the Net Investment Factor for that subaccount for the current valuation period.

Where (a) is

The net asset value per share of the mutual fund held in the subaccount, as of
the end of the valuation period plus

The per-share amount of any dividend or capital gain distributions by the mutual
fund if the "ex-dividend" date occurs in the valuation period.

Where (b) is

The net asset value per share of the mutual fund held in the subaccount as of
the end of the last prior valuation period.

Where (c) is

The daily Mortality and Expense Risk Charge set by Penn Mutual. On a annual
basis, such charge will not exceed 0.90% of the daily net asset value of the
separate Account.

Page 9

<PAGE>

A003294P

7. Policy Value (Continued)

Fixed Account Value--At any valuation time the value of the Fixed Account is

(a) the total of net premiums allocated to the Fixed Account; plus
(b) any transfers to the Fixed Account; plus
(c) any policy loan account (principal and unpaid interest) credited to the
Fixed Account; plus
(d) any repaid policy loan credited to the Fixed Account; plus
(e) interest credited to the Fixed Account;
less:
(a) the portion of the Monthly Deduction deducted pro-rata from the Fixed
Account;
(b) the amount of any transfers from the Fixed Account;
(c) the amount of any partial surrender, including the partial surrender charge,
taken from the Fixed Account;
(d) the amount of any policy loan taken from the Fixed Account;
(e) unpaid policy loan interest taken from the Fixed Account; and
(f) repaid policy loans deducted from the policy loan account.

8. Policy Loans

Loan Value--The Loan Value of this policy on any date is equal to 90% of the
Cash Surrender Value

Page 10

<PAGE>

A003295P

9. Owner and Beneficiary

Unless otherwise stated in a designation, the following rules will apply to
terms of kinship:

10. Death and Maturity Benefits

Basic Death Benefit--The Basic Death Benefit prior to the Maturity Date will be
as follows:

(a) If the Specified Amount includes the Policy Value, as shown on Page 3, the
Basic Death Benefit will be equal to the greater of:

(b) If the Specified Amount does not include the Policy Value, as shown on Page
3, the Basic Death Benefit will be equal to the greater of:

Amount of Death Benefit--The Death Benefit payable at the death of the last
Insured to die while this policy is in force will be equal to the sum of:

less the sum of:

(a) any indebtedness on this policy at the time of the death of the last Insured
to die; and
(b) if the second death occurs during a grace period, the past due Monthly
Deductions.

Page 11

<PAGE>

A003296P

10. Death and Maturity Benefits (Continued)

Suicide Exclusion--If the second death of an Insured is by suicide within two
years from the Date of Issue, the Death Benefit will be limited to the premiums
paid less any indebtedness and any partial surrenders.

Amount of Maturity Benefit--The Maturity Benefit payable if either Insured is
living on the Maturity Date and if this policy is then in force will be equal to
the Net Policy Value on that date.

Payment of Maturity Benefit--The Maturity Benefit will be paid to the Owner in
one sum or, if elected, under an Income Payment Option.

11. Surrender of Policy

Net Cash Surrender Value--The Net Cash Surrender Value is the Net Policy Value
decreased by any surrender charge.

Net Policy Value--The Net Policy Value is the Policy Value decreased by any
indebtedness on this policy.

Cash Surrender Value--The Cash Surrender Value is the Policy Value decreased by
any surrender charge.

Surrender Charge--The surrender charge is determined by multiplying (a) times
the sum of (b) plus (c), where:

(a) is the appropriate surrender factor from the table below in which policy
year is determined from the Policy Date;
(b) is 25% of the lesser of:
(i) the sum of all premiums paid on this policy; and
(ii) the maximum surrender charge premium as shown on Page 3; and
(c) is the Per $1,000 Surrender Charge Factor shown on Page 3 multiplied by the
initial Specified Amount divided by 1,000.

Policy Surrender
Year Factor

1-5 1.00
6 .90
7 .80
8 .70
9 .60
10 .50
11 .40
12 .30
13 .20
14 .10
15 and later 0

Page 12
<PAGE>

A003297P
11. Surrender of Policy (Continued)

The surrender charge will not be reduced as a result of a partial surrender.

12. Transfer to Fixed Account

13 Policy Changes

The Surrender Charge will not change as a result of a Decrease in the Specified
Amount. No Surrender Charge will be deducted from Policy Value upon a Decrease
in the Specified Amount.

Any decrease in the Specified Amount will become effective on the Monthly
Anniversary that coincides with or next follows the receipt by the Company of
the request.

Page 13

<PAGE>

A003298P
14. General Provisions

This policy will be incontestable after it has been in force during the life of
either Insured for two years from the Date of Issue. Any increase in the Death
Benefit will be incontestable with respect to statements made in the evidence of
insurability for change in the Specified Amount Option after the increase has
been in force during the life of either Insured for two years from its effective
date.

This policy will be incontestable with respect to statements made in an
application for reinstatement after it has been in force during the life of
either Insured for two years from the effective date of the reinstatement.

Duration of Coverage--The duration of coverage under this policy will depend on
the amount, timing and frequency of premium payments; changes in the Specified
Amount or benefits; the interest rates credited or investment return; the cost
of insurance rates charged; and the amount and timing of any partial surrenders
or policy loans.

Policy Date--The Policy Date shown on Page 3 is the date from which policy
years, months and anniversaries are determined.

Monthly Anniversary--The Monthly Anniversary is the day in each calendar month
which is the same day of the month as the Policy Date.

Conditions in (b) and (c) will be decided by, or in accordance with the rules
of, the Securities and Exchange Commission.

The Company may defer payment from the Fixed Account of a partial surrender, of
the Net Cash Surrender Value, or of a policy loan for up to six months

Page 14

<PAGE>

A003299P
14. General Provisions (Continued)

from the date the Company receives a written request. However, a partial
surrender or policy loan to pay a premium due on a policy of the Company will
not be deferred. If a payment is deferred for 10 days or more, it will bear
interest at a rate not less than 3% per year compounded annually while it is
deferred, or such higher rate as may be required by law.

Annual Report--Each year a report will be sent to the Owner which shows the
current policy values, premiums paid and deductions made since the last report,
any outstanding policy loans, and any other information required by the
Superintendent of Insurance.

15. Income Payment Options

Election of Income Payment Option--An income payment option may be elected in
place of a one sum payment of any amount payable upon the death of the last
Insured to die or upon surrender.

The amount applied under an income payment option must be at least $5,000. No
election may provide for income payments of less than $50 each.

Option 1--Interest Income--The Company will hold the amount applied at interest.
Interest will be paid monthly, quarterly, semiannually or annually.

Option 2--Income for a Fixed Period--The Company will pay the amount applied,
with interest, in equal monthly payments for a fixed period. The fixed period
may not be greater than 30 years.

Option 4--Life Income--The Company will pay equal monthly payments during the
life of the option annuitant.

Option 5--Life Income with Guaranteed Period--The Company will pay equal monthly
payments for a stated guaranteed period and thereafter during the life of the
option annuitant. The guaranteed period may be 5 years, 10 years or 20 years. In
the event that the monthly income at any age is the same for different
guaranteed periods, the longest guaranteed period which could have been elected
for the same monthly income at that age will be deemed to have been elected.

Option 7--Joint and Survivor Life Income--The Company will pay equal monthly
payments during the joint life of two option annuitants and thereafter during
the life of the survivor.

Page 15

<PAGE>

A003196P

15. Income Payment Options
(Continued)

Income Period--The income period under an option will begin on the date of the
death of the last Insured to die or the date of surrender. Income payments under
Options 1and 3 will be made at the end of the payment interval. Income payments
under Options 2, 4, 5, 6 and 7 will be made at the beginning of the payment
interval.

Withdrawal Privilege--Unless the election states otherwise, the payee under an
income payment option may:

The Company may defer the payment of the amount withdrawn for up to six months
from the date of a withdrawal request.

(a) the balance of the amount held under Option 1 or 3 plus any accrued
interest; or
(b) the present value of the income payments to become due during the fixed
period under Option 2; or
(c) if the option annuitant under Option 5 or 6 has died, the present value of
the income payments, if any, to become due during the guaranteed or refund
period; or
(d) if any option annuitant under Option 4, 5, 6 or 7 is living, any income
payments as they become due during the option annuitant's life plus, upon
the death of the option annuitant under Option 5 or 6, the present value of
the income payments, if any, to become due during the guaranteed or refund
period.

Page 16

<PAGE>

16. Income Payment Option Table
A003197P
Amount of income provided by each $1,000 applied under an income payment option
<TABLE>
<CAPTION>
Option 1--Interest Income Option 2--Income for Fixed Period of Years

Options 4, 5 and 6--Monthly Life Income
The amount of income will be based on the age of the option annuitant on the
birthday nearest the date of the first payment.
<TABLE>
<CAPTION>
____________________________________________________________________________________________________________________________________
Option 4 Option 5 Option 6 Option 4 Option 5 Option 6
Age of Age of
Option 20 Year 10 Year 5 Year with Option 20 Year 10 Year 5 Year with
Annui- Life Guaranteed Guaranteed Guaranteed Refund Annui- Life Guaranteed Guaranteed Guaranteed Refund
tant Income Period Period Period Period tant Income Period Period Period Period
Male Female Male Female Male Female Male Female Male Female Male Female Male Female Male Female Male Female Male Female
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
15 and
under $3.00 $2.90 $2.97 $2.87 $2.98$2.88 $2.99 $2.89 $2.96 $2.86 50 $4.48 $4.03 $4.24 $3.93 $4.43 $4.01 $4.47$4.02 $4.25 $3.91
16 3.01 2.91 2.98 2.88 2.99 2.89 3.00 2.90 2.97 2.87 51 4.57 4.11 4.30 3.99 4.51 4.08 4.56 4.09 4.33 3.97
17 3.03 2.92 3.00 2.89 3.01 2.90 3.02 2.91 2.99 2.88 52 4.67 4.19 4.37 4.05 4.60 4.15 4.65 4.17 4.40 4.04
18 3.05 2.94 3.02 2.91 3.03 2.92 3.04 2.93 3.01 2.90 53 4.78 4.27 4.43 4.11 4.70 4.22 4.76 4.24 4.48 4.10
19 3.07 2.96 3.04 2.93 3.05 2.94 3.06 2.95 3.03 2.92 54 4.89 4.35 4.49 4.17 4.80 4.30 4.87 4.33 4.56 4.17

20 3.09 2.97 3.06 2.94 3.07 2.95 3.08 2.96 3.05 2.93 55 5.01 4.44 4.56 4.23 4.90 4.38 4.98 4.41 4.65 4.24
21 3.12 2.99 3.09 2.96 3.10 2.97 3.11 2.98 3.08 2.95 56 5.14 4.53 4.62 4.30 5.01 4.47 5.10 4.50 4.74 4.31
22 3.14 3.01 3.11 2.98 3.12 2.99 3.13 3.00 3.10 2.97 57 5.28 4.63 4.69 4.36 5.13 4.56 5.23 4.60 4.84 4.39
23 3.16 3.03 3.13 3.00 3.14 3.01 3.15 3.02 3.12 2.99 58 5.42 4.74 4.75 4.43 5.25 4.66 5.37 4.71 4.94 4.48
24 3.19 3.05 3.16 3.02 3.17 3.03 3.18 3.04 3.15 3.01 59 5.57 4.86 4.81 4.50 5.37 4.76 5.51 4.82 5.04 4.56
25 3.21 3.07 3.18 3.04 3.19 3.05 3.20 3.06 3.17 3.03 60 5.73 4.98 4.88 4.57 5.50 4.87 5.67 4.93 5.15 4.66
26 3.24 3.09 3.21 3.06 3.22 3.07 3.23 3.08 3.20 3.05 61 5.90 5.11 4.94 4.64 5.64 4.98 5.83 5.06 5.26 4.75
27 3.27 3.11 3.24 3.08 3.25 3.09 3.26 3.10 3.23 3.07 62 6.07 5.25 4.99 4.72 5.78 5.10 6.00 5.19 5.38 4.85
28 3.30 3.14 3.27 3.11 3.28 3.12 3.29 3.13 3.25 3.10 63 6.26 5.39 5.05 4.79 5.93 5.23 6.18 5.33 5.51 4.96
29 3.33 3.16 3.30 3.13 3.31 3.14 3.32 3.15 3.28 3.12 64 6.45 5.55 5.10 4.86 6.09 5.36 6.37 5.48 5.64 5.08

30 3.36 3.18 3.33 3.15 3.34 3.16 3.35 3.17 3.31 3.14 65 6.65 5.71 5.15 4.92 6.25 5.50 6.56 5.64 5.78 5.20
31 3.40 3.21 3.36 3.18 3.38 3.19 3.39 3.20 3.34 3.17 66 6.86 5.89 5.20 4.99 6.41 5.65 6.77 5.81 5.92 5.32
32 3.43 3.24 3.39 3.21 3.41 3.22 3.42 3.23 3.37 3.20 67 7.09 6.08 5.24 5.05 6.56 5.80 6.99 6.00 6.07 5.46
33 3.47 3.27 3.43 3.24 3.45 3.25 3.46 3.26 3.41 3.23 68 7.32 6.27 5.25 5.11 6.71 5.96 7.22 6.19 6.23 5.60
34 3.51 3.30 3.46 3.27 3.49 3.28 3.50 3.29 3.44 3.26 69 7.57 6.49 5.25 5.17 6.87 6.13 7.46 6.40 6.40 5.75
35 3.55 3.33 3.50 3.30 3.53 3.31 3.54 3.32 3.48 3.29 70 7.83 6.71 5.25 5.22 7.03 6.30 7.72 6.62 6.57 5.91
36 3.59 3.36 3.54 3.33 3.57 3.34 3.58 3.35 3.52 3.32 71 8.14 6.95 5.25 5.25 7.20 6.48 7.98 6.85 6.76 6.07
37 3.64 3.40 3.58 3.36 3.62 3.38 3.63 3.39 3.56 3.35 72 8.47 7.20 5.25 5.25 7.37 6.66 8.26 7.10 6.95 6.25
38 3.68 3.43 3.62 3.40 3.66 3.41 3.67 3.42 3.60 3.38 73 8.83 7.47 5.25 5.25 7.54 6.85 8.56 7.36 7.16 6.44
39 3.73 3.47 3.66 3.43 3.71 3.45 3.72 3.46 3.64 3.42 74 9.20 7.76 5.25 5.25 7.71 7.05 8.86 7.65 7.37 6.64

40 3.78 3.51 3.71 3.47 3.76 3.49 3.77 3.50 3.68 3.45 75 9.61 8.06 5.25 5.25 7.87 7.25 9.18 7.95 7.60 6.87
41 3.84 3.55 3.75 3.51 3.82 3.53 3.83 3.54 3.73 3.49 76 10.03 8.43 5.25 5.25 8.03 7.44 9.51 8.27 7.83 7.08
42 3.90 3.59 3.80 3.55 3.87 3.57 3.89 3.58 3.78 3.53 77 10.49 8.84 5.25 5.25 8.19 7.64 9.85 8.61 8.08 7.32
43 3.96 3.64 3.85 3.59 3.93 3.62 3.95 3.63 3.83 3.57 78 10.98 9.28 5.25 5.25 8.34 7.84 10.21 8.97 8.35 7.58
44 4.02 3.69 3.90 3.63 3.99 3.67 4.01 3.68 3.88 3.61 79 11.51 9.75 5.25 5.25 8.49 8.04 10.58 9.35 8.62 7.85
45 4.09 3.74 3.96 3.68 4.05 3.72 4.08 3.73 3.94 3.66 80 and 12.07 10.27 5.25 5.25 8.62 8.23 10.95 9.75 8.92 8.15
46 4.16 3.79 4.01 3.72 4.12 3.77 4.15 3.78 4.00 3.70 over
47 4.23 3.85 4.07 3.77 4.19 3.83 4.22 3.84 4.06 3.75
48 4.31 3.91 4.12 3.82 4.27 3.88 4.30 3.90 4.11 3.80
49 4.39 3.97 4.18 3.88 4.34 3.94 4.38 3.96 4.19 3.86
</TABLE>

<PAGE>

Age of Female Age of Male Option Annuitant
Option Annuitant 45 50 55 60 62 65 70 75 80
____________________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
45 $3.40 $3.48 $3.54 $3.60 $3.62 $3.64 $3.67 $3.70 $3.71
50 3.52 3.64 3.74 3.82 3.85 3.89 3.94 3.97 3.99
55 3.65 3.80 3.95 4.08 4.13 4.19 4.27 4.33 4.38
60 3.76 3.96 4.17 4.37 4.44 4.54 4.68 4.79 4.86
62 3.80 4.02 4.26 4.49 4.57 4.69 4.86 5.00 5.09
65 3.85 4.11 4.38 4.67 4.77 4.93 5.15 5.34 5.48
70 3.93 4.22 4.57 4.95 5.10 5.32 5.68 6.00 6.25
75 3.99 4.31 4.72 5.19 5.39 5.70 6.21 6.74 7.18
80 4.03 4.38 4.84 5.39 5.64 6.03 6.75 7.55 8.32
____________________________________________________________________________________________________________________________________
</TABLE>
Page 17
<PAGE>

Additional Policy Specifications

FLEXIBLE PERIOD-SINGLE LIFE-SUPPLEMENTAL TERM INSURANCE AGREEMENT (SLTI-94)

INSURED: HANNAH PENN SPECIFIED AMOUNT
AGE 35 FEMALE $200,000

EFFECTIVE DATE 05/01/95 RATE CLASS
TERMINATION DATE 05/01/2060 SMOKER

POLICY NUMBER 0 000 0000
LAST SURVIVOR FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE

Page 18

<PAGE>

Additional Policy Specifications

TABLE OF GUARANTEED COST OF INSURANCE RATES PER $1,000

POLICY BASE STI FLEX-PER
YEAR RATE RATE STI RATES
FEMALE
1 $ 0.00042 $ 0.00042 0.1616
2 0.00139 0.00139 0.1741
3 0.00261 0.00261 0.1900
4 0.00413 0.00413 0.2075
5 0.00604 0.00604 0.2275

6 0.00844 0.00844 0.2500
7 0.01153 0.01153 0.2775
8 0.01521 0.01521 0.3034
9 0.01971 0.01971 0.3301
1O 0.02504 0.02504 0.3567

11 0.03143 0.03143 0.3843
12 0.03885 0.03885 0.4126
13 0.04759 0.04759 0.4426
14 0.05768 0.05768 0.4735
15 0.06958 0.06958 0.5069

16 0.08329 0.08329 0.5452
17 0.09990 0.09990 0.5836
18 0.11928 0.11928 0.6270
19 0.14265 0.14265 0.6779
20 0.16989 0.16989 0.7296

21 0.20124 0.20124 0.7839
22 0.23692 0.23692 0.8382
23 0.27638 0.27638 0.8889
24 0.31993 0.31993 0.9383
25 0.36812 0.36812 0.9884

26 0.42300 0.42300 1.0435
27 0.48804 0.48804 1.1145
28 0.56484 0.56484 1.2006
29 0.65925 0.65925 1.3167
30 0.76911 0.76911 1.4462

31 0.89631 0.89631 1.5916
32 1.03565 1.03565 1.7355
33 1.18983 1.18983 1.8852
34 1.35141 1.35141 2.0207
35 1.53209 1.53209 2.1730

POLICY NUMBER 0 000 0000
LAST SURVIVOR FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE POLICY
William Penn Hannah Penn
AGE 35 - MALE AGE 35 - FEMALE

Page 18A

<PAGE>

Additional Policy Specifications

TABLE OF GUARANTEED COST OF INSURANCE RATES PER $1,000

POLICY BASE STI FLEX-PER
YEAR RATE RATE STI RATES
FEMALE

36 $ 1.73266 $ 1.73266 2.3346
37 1.97057 1.97057 2.5439
38 2.25402 2.25402 2.8036
39 2.59097 2.59097 3.1205
40 2.98177 2.98177 3.4904

41 3.42691 3.42691 3.9018
42 3.91486 3.91486 4.3454
43 4.43743 4.43743 4.8113
44 4.98902 4.98902 5.2970
45 5.58064 5.58064 5.8178

46 6.23132 6.23132 6.3956
47 6.95750 6.95750 7.0493
48 7.77730 7.77730 7.7969
49 8.69927 8.69927 8.6466
50 9.74909 9.74909 9.6463

51 10.81783 10.81783 10.6471
52 11.98972 11.98972 11.7864
53 13.13376 13.13376 12.8864
54 14.40708 14.40708 14.1327
55 15.63370 15.63370 15.3203

56 16.99635 16.99635 16.6915
57 18.43512 18.43512 18.1571
58 19.99434 19.99434 19.7612
59 21.79275 21.79275 21.5852
60 24.00938 24.00938 23.8305

61 27.26542 27.26542 27.1615
62 32.39183 32.39183 32.3237
63 41.24693 41.24693 41.2120
64 41.66666 41.66666 41.6666
65 41.66666 41.66666 41.6666

POLICY NUMBER 0 000 0000
LAST SURVIVOR FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE POLICY
William Penn Hannah Penn
AGE 35 - MALE AGE 35 - FEMALE

Page 18B
<PAGE>

Additional Policy Specifications
TABLE OF NET SINGLE PREMIUM FACTORS

POLICY ATTAINED NSP POLICY ATTAINED NSP
YEAR AGE FACTOR YEAR AGE FACTOR

1 35 5.6357 33 67 1.7803
2 36 5.4191 34 68 1.7303
3 37 5.2110 35 69 1.6828
4 38 5.0112
5 39 4.8194 36 70 1.6378
37 71 1.5950
6 40 4.6353 38 72 1.5545
7 41 4.4586 39 73 1.5164
8 42 4.2891 40 74 1.4807
9 43 4.1266
10 44 3.9707 41 75 1.4474
42 76 1.4165
11 45 3.8213 43 77 1.3878
12 46 3.6781 44 78 1.3611
13 47 3.5410 45 79 1.3620
14 48 3.4096
15 49 3.2838 46 80 1.3127
47 81 1.2908
16 50 3.1633 48 82 1.2702
17 51 3.0480 49 83 1.2511
18 52 2.9378 50 84 1.2334
19 53 2.8324
20 54 2.7318 51 85 1.2172
52 86 1.2023
21 55 2.6357 53 87 1.1885
22 56 2.5441 54 88 1.1755
23 57 2.4566 55 89 1.1633
24 58 2.3732
25 59 2.2936 56 90 1.1514
57 91 1.1398
26 60 2.2176 58 92 1.1283
27 61 2.1451 59 93 1.1165
28 62 2.0760 60 94 1.1042
29 63 2.0103
30 64 1.9480 61 95 1.0912
62 96 1.0777
31 65 1.8889 63 97 1.0643
32 66 1.8331 64 98 1.0520
65 99 1.0321

Page 18C

<PAGE>

Additional Policy Specifications

Eligible Mutual Funds
- ---------------------

TCI Portfolios, Inc. Neuberger & Berman Advisers Management Trust
Twentieth Century Neuberger & Berman
(Investors Research) Limited Maturity Bond Portfolio
TCI Growth Portfolio Balanced Portfolio

Variable Insurance Product Funds Variable Insurance Product Funds II
Fidelity Management Fidelity Management
Equity Income Asset Manager
Growth

Eligible Fixed Interest Option
------------------------------

Penn Mutual General Account

Page 18D

<PAGE>

A001318B
To obtain any of the benefits under this policy, write to Penn Mutual at its
Home Office or to its nearest agent.

Please notify Penn Mutual promptly of any change in address.

Last Survivor
Flexible Premium Adjustable
Variable Life Insurance Policy
o Death Benefit payable at second death prior
to Maturity Date
o Adjustable Death Benefit
o Maturity Benefit Payable on Maturity Date
o Variable Policy Value
o Flexible premiums payable until maturity
date
o Participating

The Penn Mutual Life Insurance Company, Independence Square, Philadelphia,
Pennsylvania 19172

VALJ-94(S)(NY)

o Supplemental benefits, if any, listed on Page 3

<PAGE>

Rider - Flexible Period-Single Life-Supplemental
A001035R
Term Insurance Agreement

The Penn Mutual Life Insurance Company agrees, subject to the provisions of this
supplemental agreement, to provide the Term Insurance Benefit. The Company also
agrees to provide all of the other benefits which are stated in this agreement.

This agreement is a part of the policy to which it is attached. It is subject to
all of the provisions of the policy unless stated otherwise in this agreement.

Term Insurance Benefit -- The Company will pay the Term Insurance Benefit upon
receipt of due proof of the death of the Named Insured for Single Life Term
Insurance shown in the Additional Policy Specifications, while this agreement is
in force. The amount of the Term Insurance Benefit is the Specified Amount for
Single Life Term Insurance as shown in the Additional Policy Specifications. The
amount of the Term Insurance Benefit may not at any time exceed the Specified
Amount for this policy.

The Term Insurance Benefit payable on the death of the Named Insured will be
paid to the Single Life Term Insurance beneficiary of the Named Insured in one
sum or, if elected, under an income payment option. If part or all of the
benefit is paid in one sum, the Company will pay interest on this sum from the
date of death to the date of payment. The interest rate will be determined each
year by the Company, but will not be less than a rate of 3% per year compounded
annually, or such higher rate as may be required by state law.

Suicide Exclusion--If the Named Insured dies by suicide while sane or insane
within two years from the effective date of this agreement, the Single LifeTerm
Insurance Benefit will be limited to the cost of such benefit.

Beneficiary--The Single Life Term Insurance beneficiary of the Named Insured is
as stated in the application for this agreement unless changed by a subsequent
beneficiary designation. If no other provision is made, the interest of a Single
Life Term Insurance beneficiary who dies before the Named Insured will pass to
the Owner.

Change in Specified Amount--The Specified Amount for Single Life Term Insurance
may be decreased subject to the following conditions:

(a) Any decrease in the Specified Amount for Single Life Term Insurance must be
at least $5,000; and
(b) The Specified Amount for Single Life Term Insurance may not be decreased to
less than $10,000

Monthly Deduction--While this agreement is in force, the Monthly Deduction under
this policy will include the Monthly Deduction for this agreement. The Monthly
Deduction for this agreement is the sum of

(a) the Cost of Insurance for the policy month for the Term Insurance Benefit
under this agreement; and
(b) a monthly charge of $0.10 per $1,000 of
Specified Amount for Single Life Term Insurance for the first 12 months
following the effective date of this agreement.

Cost of Insurance--The Cost of Insurance for the Single Life Term Insurance
under this agreement is determined on a monthly basis. It is calculated as (a)
multiplied by (b) where:

(a) is the Cost of Insurance Rate divided by $1,000 for Term Insurance
applicable to this policy, and
(b) is the Specified Amount for Single Life Term Insurance under this agreement.

The Cost of Insurance Rate for Supplemental Term Insurance is based on the
attained age, sex and rate class of the Named Insured. Cost of Insurance Rates
will be determined by the Company based on expectations as to future mortality,
investment, expense and persistency experience. However, these rates will not
exceed those shown for the policy in the Additional Policy Specifications.

Cost of Insurance Rates will not be adjusted by the Company as a means of
recovering prior losses nor as a means of distributing prior profits.

Computation of Values--All values and benefits in this agreement are equal to or
greater than those required by the law of the jurisdiction in which this policy
is delivered.

<PAGE>

SLTI-94(S)

Flexible Period-Single Life-Supplemental
A001036R
Term Insurance Agreement (continued)

Incontestability--This agreement will be incontestable after it has been in
force during the life of the Named Insured for two years from the effective
date.

This agreement will be incontestable with respect to statements made in an
application for reinstatement after it has been in force during the life of the
Named Insured for two years from the effective date of the reinstatement.

Attained Age -- The attained age of the Named Insured under this agreement is
the age nearest birthday of the Named Insured on the most recent policy
anniversary.

Misstatement of Age or Sex -- If the age or sex of the Named Insured has been
misstated, the Single Life Term Insurance benefit will be the amount which would
have been provided by the most recent Cost of Insurance charge at the correct
age and sex.

Right to Convert Term Insurance--The term insurance under this agreement for a
Named Insured may be converted to a life or endowment policy without evidence of
insurability at any time while such insurance is in force before the earlier of
(i) the policy anniversary nearest to the Named Insured's 70th birthday, and
(ii) the policy anniversary which is three years prior to the Termination Date
for this agreement shown in the Additional Policy Specifications. The Owner must
make a written request for the conversion. On or before the date of conversion,
the Owner must pay the first premium for the new policy.

The new policy will be:

(a) on a plan which insures only the life of the Named Insured;
(b) in the same rate class and subject to the same limitations of risk as the
term insurance on the Named Insured under this agreement;
(c) issued at the age of the Named Insured on the birthday which is nearest to
the date of the conversion;
(d) on the policy form and at the premium rates in use by the Company on the
date of the conversion; and
(e) subject to the Company's rules as to minimum amount, plan of insurance and
age at issue which are in effect on the date of the conversion.

The inclusion of any supplemental agreements in the new policy will be subject
to the consent of the Company and must comply with the rules of the Company.

Termination of Agreement--This agreement will terminate upon :

(a) the Termination Date for this agreement shown in the Additional Policy
Specifications;
(b) lapse of this policy;
(c) surrender of this policy;
(d) conversion of the term insurance under this agreement; or
(e) the Monthly Anniversary which coincides with or next follows (i) receipt by
the Company of a written request by the Owner to terminate this agreement,
and (ii) return of this policy for appropriate endorsement.

Effective Date--The effective date of this agreement is the same as the Date of
Issue of this policy unless another effective date is shown below.

/s/ Robert E. Chappell
- ---------------------------
Chairman and
Chief Executive Officer

<PAGE>

Rider - Flexible Period-Single Life-Supplemental
A001042R
Term Insurance Agreement

This agreement is a part of the policy to which it is attached. It is subject to
all of the provisions of the policy unless stated otherwise in this agreement.

Term Insurance Benefit --The Company will pay the Term Insurance Benefit upon
receipt of due proof of the death of the Named Insured for Single Life Term
Insurance shown in the Additional Policy Specifications, while this agreement is
in force. The amount of the Term Insurance Benefit is the Specified Amount for
Single Life Term Insurance as shown in the Additional Policy Specifications. The
amount of the Term Insurance Benefit may not at any time exceed the Specified
Amount for this policy.

Suicide Exclusion--If the Named Insured dies by suicide while sane or insane
within two years from the effective date of this agreement, the Single Life Term
Insurance Benefit will be limited to the cost of such benefit.

Change in Specified Amount--The Specified Amount for Single Life Term Insurance
may be decreased subject to the following conditions:

(a) Any decrease in the Specified Amount for Single Life Term Insurance must be
at least $5,000; and
(b) The Specified Amount for Single Life Term Insurance may not be decreased to
less than $10,000

(a) the Cost of Insurance for the policy month for the Term Insurance Benefit
under this agreement; and
(b) a monthly charge of $0.10 per $1,000 of Specified Amount for Single Life
Term Insurance for the first 12 months following the effective date of this
agreement.

Cost of Insurance--The Cost of Insurance for the Single Life Term Insurance
under this agreement is determined on a monthly basis. It is calculated as (a)
multiplied by (b) where:

(a) is the Cost of Insurance Rate divided by $1,000 for Term Insurance
applicable to this policy, and
(b) is the Specified Amount for Single Life Term Insurance under this agreement.

The Cost of Insurance Rate for Supplemental Term Insurance is based on the
attained age and rate class of the Named Insured. Cost of Insurance Rates will
be determined by the Company based on expectations as to future mortality,
investment, expense and persistency experience. However, these rates will not
exceed those shown for the policy in the Additional Policy Specifications.

Cost of Insurance Rates will not be adjusted by the Company as a means of
recovering prior losses nor as a means of distributing prior profits.

Computation of Values--All values and benefits in this agreement are equal to or
greater than those required by the law of the jurisdiction in which this policy
is delivered.

<PAGE>

Flexible Period-Single Life-Supplemental
A001043R
Term Insurance Agreement (continued)

Incontestability--This agreement will be incontestable after it has been in
force during the life of the Named Insured for two years from the effective
date.

Attained Age -- The attained age of the Named Insured under this agreement is
the age nearest birthday of the Named Insured on the most recent policy
anniversary.

Misstatement of Age -- If the age of the Named Insured has been misstated, the
Single Life Term Insurance benefit will be the amount which would have been
provided by the most recent Cost of Insurance charge at the correct age.

The new policy will be:

The inclusion of any supplemental agreements in the new policy will be subject
to the consent of the Company and must comply with the rules of the Company.

Termination of Agreement--This agreement will terminate upon :

(a) the Termination Date for this agreement shown in the Additional Policy
Specifications;
(b) lapse of this policy;
(c) surrender of this policy;
(d) conversion of the term insurance under this agreement; or
(e) the Monthly Anniversary which coincides with or next follows (i) receipt
by the Company of a written request by the Owner to terminate this
agreement, and (ii) return of this policy for appropriate endorsement.

Effective Date--The effective date of this agreement is the same as the Date of
Issue of this policy unless another effective date is shown below.

/s/ Robert E. Chappell
- --------------------------
Chairman and
Chief Executive Officer

<PAGE>

Rider -- Policy Split Option Agreement

A001044R
The Penn Mutual Life Insurance Company agrees, subject to the provisions of this
supplemental agreement, to provide the Policy Split Option described below.

This supplemental agreement is a part of the policy to which it is attached. It
is subject to all of the provisions of the policy unless stated otherwise in
this agreement.

Policy Split Option-- Within six months following either of the Events set forth
below, the Owner may exchange this policy for two individual life insurance
policies, one on the life of each of the Insureds under this policy, subject to
the following conditions:

(a) This policy must be in force and must not be in a grace period at the time
of the exchange.
(b) The Owner must make a written application for the exchange.
(c) Each Insured must submit evidence of insurability satisfactory to the
company.
(d) The Owner must submit evidence that one of the Events set forth
below has occurred.
(e) The Owner must make any premium payment which would be
necessary to keep each new policy in force for two months.
(f) The owner must surrender all rights in this policy in exchange for the new
policies.

Events-- This option may be exercised upon the occurrence of either of the
following:

(a) A final divorce decree has been issued dissolving the marriage of the
Insured; or
(b) The Federal Estate Tax Law is changed so that it is not possible to defer
all federal estate taxes until the second death of the Insureds.

New Policies-- The new policies will be Flexible Premium Adjustable Life
Insurance on the policy form which the company would have issued if the new
policies had been issued on the Policy Date.

The Policy Date of the new policies will be the same as the Policy Date of this
policy.

The Specified Amount of each new policy will be equal to one-half of the
Specified Amount of this policy, provided that

(a) The Specified Amounts must comply with the Company's rules as to minimum
amount; and
(b) The Specified Amounts must be such that each new policy will satisfy the
requirements of Section 7702 of the Internal Revenue Code of 1986, as
amended, or as set forth in any applicable successor provision.

The new policies will be subject to the rules of the Company as to amount and
age at issue which were in effect on the Policy Date.

The Policy Value of each new policy on the date of the exchange will be equal to
one-half of the Policy Value of this policy on the date of the exchange. Each
new policy will be subject to one-half of the indebtedness of this policy as of
the date of the exchange.

If a Supplemental Term Insurance Agreement is attached to this policy, a term
insurance rider may be added to each new policy with a Specified Amount equal to
one-half of the Specified Amount of the Agreement attached to this policy,
subject to the Company's rules as to limits, age at issue and availability.

If a Flexible Period- Single Life- Supplemental Term Insurance Agreement is
attached to this policy, a term insurance rider may be added to the new policy
on the life of the Named Insured. The Specified Amount of the term insurance
rider will be equal to the Specified Amount of the agreement attached to this
policy, subject to the Company's rules as to limits, age at issue and
availability.

Other supplemental agreements may be included in each new policy only with the
consent of the Company and subject to the rules of the Company.

Date of Exchange-- The date of the exchange will be the first Monthly
Anniversary of this policy following approval by the Company of the Owner's
application for the exchange.

Incontestability-- This agreement will incontestable after it has been in force
during the life of both Insureds for two years from its date of issue.

<PAGE>

Termination-- This agreement will terminate upon:

A001045R
(a) lapse of this policy;
(b) the first death of an Insured;
(c) surrender of this policy; or
(d) the Maturity Date of this policy.

Effective Date-- The effective date of this agreement is the same as the Date of
Issue of this policy unless another effective date is shown below.

/s/ Robert E. Chappell
- -------------------------------
Chairman and
Chief Executive Officer

<PAGE>

Rider -- Policy Split Option Agreement

A001337R
The Penn Mutual Life Insurance Company agrees, subject to the provisions of this
supplemental agreement, to provide the Policy Split Option described below.

This supplemental agreement is a part of the policy to which it is attached. It
is subject to all of the provisions of the policy unless stated otherwise in
this agreement.

(a) This policy must be in force and must not be in a grace period at the time
of the exchange.
(b) The Owner must make a written application for the exchange.
(c) Each Insured must submit evidence of insurability satisfactory to the
company.
(d) The Owner must submit evidence that one of the Events set forth below has
occurred.
(e) The Owner must make any premium payment which would be necessary to keep
each new policy in force for two months.
(f) The owner must surrender all rights in this policy in exchange for the new
policies.

Events-- This option may be exercised upon the occurrence of either of the
following:

(a) A final divorce or annulment decree has been issued dissolving the marriage
of the Insured; or
(b) The Federal Estate Tax Law is changed so that it is not possible to defer
all federal estate taxes until the second death of the Insureds.

New Policies-- The new policies will be Flexible Premium Adjustable Life
Insurance on the policy form which the company would have issued if the new
policies had been issued on the Policy Date.

The Policy Date of the new policies will be the same as the Policy Date of this
policy.

The Specified Amount of each new policy will be equal to one-half of the
Specified Amount of this policy, provided that

The new policies will be subject to the rules of the Company as to amount and
age at issue which were in effect on the Policy Date.

Other supplemental agreements may be included in each new policy only with the
consent of the Company and subject to the rules of the Company.

Date of Exchange-- The date of the exchange will be the first Monthly
Anniversary of this policy following approval by the Company of the Owner's
application for the exchange.

Incontestability-- This agreement will incontestable after it has been in force
during the life of either Insured for two years from its date of issue.

<PAGE>

Termination-- This agreement will terminate upon:

A001338R
(a) lapse of this policy;
(b) the first death of an Insured;
(c) surrender of this policy; or
(d) the Maturity Date of this policy.

Effective Date-- The effective date of this agreement is the same as the Date of
Issue of this policy unless another effective date is shown below.

/s/ Robert E. Chappell
- ----------------------------
Chairman and
Chief Executive Officer

<PAGE>

Rider -- Estate Growth Agreement -- Automatic
Increases In Specified Amount

The Penn Mutual Life Insurance Company agrees, subject to the provisions of this
agreement, to provide the Estate Growth Benefit.

This supplemental agreement is a part of the policy to which it is attached. It
is subject to all of the provisions of the policy unless stated otherwise in
this agreement.

Estate Growth Benefit -- While this supplemental agreement is in force the
Specified Amount of this policy will automatically be increased on each policy
anniversary beginning with the first policy anniversary and ending with the
earlier of:

(a) the policy anniversary which is nearest to the younger insured's 80th
birthday; and
(b) (i) if the Estate Growth Benefit percentage shown on
Page 3 is 3%, the 33rd anniversary of this policy;
or
(ii) if the Estate Growth Benefit percentage shown on
Page 3 is 6%, the 16th anniversary of this policy.

Each increase in the Specified Amount will be equal to the initial Specified
Amount of this policy multiplied by the Estate Growth Beneift percentage shown
on Page 3.

The Specified Amount shown on Page 3 of the policy to which this agreement is
attached may be increased only by the automatic increases provided by this
supplemental agreement.

Each increase in the Specified Amount will be subject to the following
conditions:

(1) The increase will be in the same premium class for each insured as
applicable to the initial Specified Amount in the policy to which this
agreement is attached.
(2) The increase will be subject to the limitations of risk applicable to the
initial Specified Amount in the policy to which this agreement is attached.
(3) The increase will be at the Cost of Insurance Rate then applicable in the
policy to which this agreement is attached.

Incontestability -- This agreement will be incontestable after it has been in
force during the life of each insured for two yers from its effective date.

Termination -- This agreement will terminate upon the earliest to occur of:

(a) lapse of this policy;
(b) surrender of this policy;
(c) the policy anniversary nearest to the 80th birthday of the younger insured;
(d) (i) if the Estate Growth Benefit percentage shown on Page 3 is 3%, the 33rd
anniversary of this policy; (ii) if the Estate Growth percentage shown on
Page 3 is 6%, the 16th anniversary of this policy;
(e) receipt by Penn Mutual of written request by the Pwner to change the policy
to paid-up life insurance;
(f) receipt by Penn Mutual of written request by the Owner to terminate this
agreement;
(g) receipt by Penn Mutual of written request by the Owner to reduce the
Specified Amount of this policy; and
(h) the date of the second death of an Insured.

Effective Date--The Effective Date of this agreement is the same as the Date of
Issue of this policy unless another Effective Date is shown below.

/s/ Robert E. Chappell
- --------------------------------
Chairman and
Chief Executive Officer

<PAGE>

Rider-- Supplemental Exchange Agreement

A001034R
The Penn Mutual Life Insurance Company agrees, subject to the provisions of this
supplemental agreement, to provide the Exchange Privilege described below.

This supplemental agreement is a part of the policy to which it is attached. It
is subject to all of the provisions of the policy unless stated otherwise in
this agreement.

Exchange Privilege-- This policy may be exchanged for a new policy on the life
of one of the Insureds under this policy and the life of a new Insured subject
to the following conditions:

(a) At the time of the exchange the new Insured must have the same relationship
to the remaining Insured as did the two Insureds in this policy.
(b) The new Insured must submit evidence of insurability satisfactory to the
Company.
(c) This policy must be in force and not be in a grace period at the time of the
exchange.
(d) The new Insured must be at least 20 years of age on the birthday nearest
the Policy Date of this policy.
(e) The difference in the ages of the remaining Insured and the new Insured must
not be greater than 30 years.
(f) The Owner must make a written application for the exchange.
(g) The Owner must make any premium payment which would be necessary to keep
the new policy in force for two months.
(h) The Owner must surrender all rights in this policy in exchange for the new
policy.

New Policy-- The new policy will be on the same plan as this policy. The policy
form will be that which the Company would have used if the new policy had been
issued on the lives of the remaining Insured and the new Insured on the Policy
Date.

The Policy Date of the new policy will be the same as the Policy Date of this
policy. The Date of Issue of the new policy will be the date of the exchange.

The Specified Amount of the new policy will be as stated by the Owner in the
application for the exchange subject to the following conditions:

(a) The Specified Amount must comply with the rules of the Company as to minimum
amount.
(b) The Specified Amount must be such that the new policy will satisfy the
requirements of Section 7702 of the Internal Revenue Code of 1986, as
amended, or as set forth in any applicable successor provision.

The Policy Value of the new policy on the date of the exchange will be equal to
the Policy Value of this policy on such date.

The surrender charges applicable to the new policy will be the surrender charges
applicable to this policy.

The new policy will be subject to the rules of the Company as to age at issue
which were in effect on the Policy Date. The new policy will have a new Maturity
Date.

The new policy will be subject to any assignment of this policy and will be
subject to any Indebtedness on this policy.

Supplemental agreements may be included in the new policy only with the consent
of the Company and subject to the rules of the Company.

Date of Exchange-- The date of the exchange will be the first Monthly
Anniversary of this policy following the approval by the Company of the
application for the exchange. The new policy will be in force beginning on the
date of the exchange. This policy will terminate on the day prior to the date of
the exchange.

Incontestability-- This agreement will be incontestable after it has been in
force during the life of both the Insureds for two years from its Date of Issue.

Termination-- This agreement will terminate upon:

(a) lapse of this policy;
(b) the date of the second death of an Insured;
(c) surrender of this policy; or
(d) The Maturity Date of this policy.

Effective Date-- The effective date of this agreement is the same as the Date of
Issue of this policy unless another effective date is shown below.

/s/ Robert E. Chappell
- -----------------------------
Chairman and
Chief Executive Officer

<PAGE>
Rider-- Supplemental Exchange Agreement

A001339R
The Penn Mutual Life Insurance Company agrees, subject to the provisions of this
supplemental agreement, to provide the Exchange Privilege described below.

This supplemental agreement is a part of the policy to which it is attached. It
is subject to all of the provisions of the policy unless stated otherwise in
this agreement.

Exchange Privilege-- This policy may be exchanged for a new policy on the life
of one of the Insureds under this policy and the life of a new Insured subject
to the following conditions:

(a) The new Insured must submit evidence of insurability satisfactory to the
Company.
(b) This policy must be in force and not be in a grace period at the time of the
exchange.
(c) The new Insured must be at least 20 years of age on the birthday nearest the
Policy Date of this policy.
(d) The difference in the ages of the remaining Insured and the new Insured must
not be greater than 30 years.
(e) The Owner must make a written application for the exchange.
(f) The Owner must make any premium payment which would be necessary to keep the
new policy in force for two months.
(g) The Owner must surrender all rights in this policy in exchange for the new
policy.