<PAGE>
As filed with the Securities and Exchange Commission on February 26, 1999
Registration No. 33-87276
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
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. 5
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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
It is proposed that this filing will become effective:
|_| 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.
|X| On May 1, 1999 pursuant to paragraph (a) of Rule 485.
<PAGE>
PENN MUTUAL VARIABLE LIFE ACCOUNT I
THE PENN MUTUAL LIFE INSURANCE COMPANY
Cross Reference to Items Required by Form N-8B-2
N-8B-2
Item Caption in Prospectus
- ------ ---------------------
1 Cover Page
2 Cover Page
3 Not applicable
4 Additional Information - Sale of the 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 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 the Policies
39 Additional Information - Sale of the Policies
<PAGE>
40 Additional Information - Sale of the 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 Value
45 Not applicable
46 Basic Information - How Will the Value of the Policy Change Over Time?;
Additional Information - More Information About Policy Value
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
<PAGE>
PART I
Information Required in Prospectus
<PAGE>
PROSPECTUS
FOR
VARIABLE ESTATEMAX
a last survivor flexible premium variable life insurance policy
issued by
THE PENN MUTUAL LIFE INSURANCE COMPANY
and funded through
PENN MUTUAL LIFE VARIABLE ACCOUNT I
The Penn Mutual Life Insurance Company
Philadelphia, PA 19172
Phone: 215-956-8000
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>
May 1, 1999
<PAGE>
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 sections start on page 19.
o After the Illustrations sections 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 42.
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.
**********
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.
2
<PAGE>
BASIC INFORMATION
This part of the prospectus provides answers to basic questions 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?..........10
How Can I Change My Policy's Investment Allocations?..........................11
What Is a Policy Loan?........................................................12
How Can I Withdraw Money from My Policy?......................................12
What Is the Timing of Transactions Under the Policy?..........................13
How Much Life Insurance Coverage Does the Policy Provide?.....................13
Can I Change Insurance Coverage Under My Policy?..............................14
What Are the Supplemental Benefit Riders That I Can Buy?......................15
Do I Have the Right to Cancel My Policy?......................................16
Can I Choose Different Payout Options Under My Policy? .......................16
How Is the Policy Treated for Federal Income Tax Purposes?....................17
How Do I Communicate With Penn Mutual?........................................17
How Does Penn Mutual Communicate With Me?.....................................18
3
<PAGE>
What Is the Policy?
The Policy provides life insurance on two persons. The Policy is 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
the variable 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.
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, supplemental benefits and the
planned premium you propose to make. 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. We will monitor the Policy
and will attempt to notify you on a timely basis if the Policy is in jeopardy of
becoming a modified endowment contract under the Internal Revenue Code. See How
Is the 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,
5
<PAGE>
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 the performance of the investments made under your Policy and your
net cash surrender value, if (a) equals or exceeds (b), where
(a) is the total premiums you have paid, less any partial
surrenders you made, and
(b) is the monthly "no-lapse premium" specified in your
Policy, multiplied by the number of months the Policy has been
in force.
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 a loan under your
Policy exceeds the loan limit. See What Is a Policy Loan? below.
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.
How Will the Value of the Policy Change Over Time?
6
<PAGE>
From each premium payment you make, we deduct a premium charge. We
invest the rest in 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 invest in the fixed interest
option will not be subject to the mortality and expense risk charge described
below. 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 premiums you have paid,
o plus or minus the investment results of the policy value
allocated or transferred 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 take a loan on the Policy, your policy value will be computed
somewhat differently. This is discussed under How Can I Borrow Money From My
Policy? below.
For more information on policy values and the variable and fixed
investment options, see the Additional Information section of this prospectus.
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 year, we intend to
reduce the rate for the sales charge portion to 3%, which will
result in a total
7
<PAGE>
premium charge of 5.5% in those years). We will notify you
before your fifteenth policy year if we change our decision to
reduce that rate.
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 attained
age, 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 insureds'
attained ages increases.
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 (the rate for the first policy
year is $15 and we intend to charge $5 per month for years
after the first policy year--we will notify you before any
increase in the flat rate for years after the first policy
year) 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.
o Optional Supplemental benefit charges - Monthly charges for
any optional supplemental insurance benefits that are added to
the Policy by means of a rider. We currently offer a number
of optional riders.
Daily Mortality and Expense Risk Charge
We deduct a daily charge from your policy value which is allocated to
the variable investment options. 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 decide not to reduce the rate for policy years after the fifteenth
as stated. We may realize a profit from this charge, and if we do, it will be
added to our surplus.
8
<PAGE>
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.
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 specified amounts of premiums paid on the Policy, up
to the surrender charge premium (the surrender charge premium
is calculated separately for each Policy -- sample surrender
charge premiums are set forth in Appendix B located at the end
of this prospectus);
(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 attained age 20
to $14 at insured's attained 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
(c) = the applicable surrender factor for the policy year during
which the surrender is made (see table below).
Surrender Factor
Surrender During Policy Year Applied to (c) in Formula
- --------------------------------------------------------------------------------
1st through 7th 1.00
- --------------------------------------------------------------------------------
8th .90
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9th .80
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10th .70
- --------------------------------------------------------------------------------
11th .60
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12th .50
- --------------------------------------------------------------------------------
13th .40
- --------------------------------------------------------------------------------
14th .30
- --------------------------------------------------------------------------------
15th .20
- --------------------------------------------------------------------------------
16th .10
- --------------------------------------------------------------------------------
17th and later 0
- --------------------------------------------------------------------------------
9
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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 recovered 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.
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.
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 deduct a charge in the future for any
such tax or other economic burden that results from the application of tax laws
that we believe are attributable to your Policy and similar other policies. 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.
10
<PAGE>
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 the variable investment
11
<PAGE>
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
reverse can also happen. 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.
What Is a Policy Loan?
You may borrow up to 90% of 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 deducted from the investment options and the fixed interest option on a
prorated basis (unless you designate a different allocation when you request the
loan) and is placed in 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.
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 loans 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:
12
<PAGE>
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.
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.
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.
13
<PAGE>
When the survivor of the insured persons dies, we will pay the death
benefit less the amount of any outstanding policy loan. There are two ways of
calculating the death benefit. 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 II at the end of
this prospectus.
In order for the Policy to qualify as "life insurance" for federal
income tax purposes, 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, as defined in Section 7702(b), 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 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, please see the Illustrations
section of this prospectus.
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.
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.
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:
14
<PAGE>
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.
15
<PAGE>
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.
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 (or longer in
some states) after you receive it. 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 any premiums you have
paid. In some states, we may refund your policy value on the date of
cancellation plus all charges we deducted. 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.
16
<PAGE>
Tax Impact
There may be tax consequences to you or your beneficiary depending upon
which payment option is chosen. You should consult with 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 investments 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.
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.
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, Philadelphia, Pennsylvania 19172, or express
all checks and money orders to The Penn Mutual Life Insurance Company, 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, and full and partial surrenders
o change of allocation among investment options for new premium
payments
o change of death benefit option
o decrease in specified amount of insurance
o change of beneficiary
17
<PAGE>
o election of payment option for Policy proceeds
o tax withholding elections
o election of telephone transaction privilege
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 at 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. If you complete a special authorizing form, you may authorize your Penn
Mutual agent 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?
Each year you will be sent a report showing the current policy values,
premiums paid and deductions made since the last report, any outstanding policy
loans, and any additional premiums permitted under your Policy. You will also be
sent an annual and semi-annual report for the Seperate Account and for each Fund
underlying a subaccount to which you have allocated policy value, as required by
the 1940 Act. In addition, when you pay preimums (other than by pre-authorized
check), or if you take out a policy loan, transfer amounts among the investment
options or make partial surrenders, you will receive a written confirmation.
18
<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 a weighted
average annual expense ratio of ___% of the underlying investment funds
available under the Policies, based on allocations to the variable account
investment options at the end of calendar year 1998. The weighted average annual
expense ratio is generally based on the expense ratios of each of the funds for
the last fiscal year. For information on fund expenses, see the Additional
Information section of 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 ____%, ____% and ____%,
respectively, and ____%, ____% and ____%, 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 the hypothetical Policy Account 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.
19
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Illustration of Policy Values
Penn Mutual Life Insurance Company
Male Issue Age: Non-Smoker
Female Issue Age: Non-Smoker
</TABLE>
$ ANNUAL PREMIUM
$ SPECIFIED AMOUNT
DEATH BENEFIT OPTION 2
USING CURRENT COST OF INSURANCE RATES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Premiums Gross Investment Return Gross Investment Return Gross Investment Return
Accumulated ----------------------- ----------------------- -----------------------
End of at Net Cash Net Cash Net Cash
Policy 5% 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 8,610
3 13,241
4 18,103
5 23,208
6 28,568
7 34,196
8 40,106
9 46,312
10 52,827
15 90,630
20 138,877
25 200,454
30 279,043
</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 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.
20
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Illustration of Policy Values
Penn Mutual Life Insurance Company
Male Issue Age: Non-Smoker
Female Issue Age: Non-Smoker
</TABLE>
$ ANNUAL PREMIUM
$ SPECIFIED AMOUNT
DEATH BENEFIT OPTION 2
USING CURRENT COST OF INSURANCE RATES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Premiums Gross Investment Return Gross Investment Return Gross Investment Return
Accumulated ----------------------- ----------------------- -----------------------
End of at Net Cash Net Cash Net Cash
Policy 5% 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
2 15,068
3 23,171
4 31,679
5 40,613
6 49,994
7 59,844
8 70,186
9 81,045
10 92,448
15 158,602
20 243,035
25 350,794
30 488,326
</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.
21
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Illustration of Policy Values
Penn Mutual Life Insurance Company
Male Issue Age: Non-Smoker
Female Issue Age: Non-Smoker
</TABLE>
$ ANNUAL PREMIUM
$ SPECIFIED AMOUNT
DEATH BENEFIT OPTION 1
USING GUARANTEED COST OF INSURANCE RATES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Premiums Gross Investment Return Gross Investment Return Gross Investment Return
Accumulated ----------------------- ----------------------- -----------------------
End of at Net Cash Net Cash Net Cash
Policy 5% 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 8,610
3 13,241
4 18,103
5 23,208
6 28,568
7 34,196
8 40,106
9 46,312
10 52,827
15 90,630
20 138,877
25 200,454
30 279,043
</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.
- --------------------------------------------------------------------------------
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.
22
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Illustration of Policy Values
Penn Mutual Life Insurance Company
Male Issue Age: Non-Smoker
Female Issue Age: Non-Smoker
</TABLE>
$ ANNUAL PREMIUM
$ SPECIFIED AMOUNT
DEATH BENEFIT OPTION 1
USING GUARANTEED COST OF INSURANCE RATES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Premiums Gross Investment Return Gross Investment Return Gross Investment Return
Accumulated ----------------------- ----------------------- -----------------------
End of at Net Cash Net Cash Net Cash
Policy 5% 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
2 15,068
3 23,171
4 31,679
5 40,613
6 49,994
7 59,844
8 70,186
9 81,045
10 92,448
15 158,602
20 243,035
25 350,794
30 488,326
</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.
- --------------------------------------------------------------------------------
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.
23
<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.
Contents of this Section Page
------------------------ ----
The Penn Mutual Life Insurance Company................................ 25
Year 2000............................................................. 25
Penn Mutual Variable Life Account I................................... 25
The Funds............................................................. 26
More Information About Policy Value................................... 33
Federal Income Tax Considerations..................................... 34
Sale of the Policies.................................................. 38
Penn Mutual Trustee and Officers...................................... 38
State Regulation...................................................... 41
Additional Information................................................ 41
Experts............................................................... 41
Litigation............................................................ 41
Legal Matters......................................................... 41
Financial Statements.................................................. 41
Appendix A - Minimum Initial Annual Premiums.......................... A-1
Appendix B............................................................ B-1
- Administrative Surrender Charges per $1,000 of Initial Specified Amount
- Sample Surrender Charge Premiums for $1,000,000 Specified Amount
Appendix C - Policies Issued to New York residents ................... C-1
Appendix D - Illustrative Net Single Premium Factors.................. D-1
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 depend on the smooth functioning of our 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. This could cause
problems in the handling of securities trades, pricing and account services. We
are working on necessary changes to our systems to prepare for the year 2000 and
expect that our systems will be adapted before that date. We cannot, however,
assure you that we will be successful. In addition, the interaction of our
computers with other non-complying computer systems could cause processing
problems.
Penn Mutual, and the investment funds that serve as investment options
under the Policy, and their affiliates, have relationships with investment
advisers, broker-dealers, transfer agents, custodians and other service
providers that are not affiliated with Penn Mutual. Penn Mutual is contacting
these service providers to obtain assurances that they have taken appropriate
measures to address the "Year 2000" problem. If these parties do not prepare in
a timely manner, it could cause processing problems.
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).
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.
25
<PAGE>
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.
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.
26
<PAGE>
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 to 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.
27
<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.
28
<PAGE>
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.
29
<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.
30
<PAGE>
Fund Expenses
The following tables provide information on fees and expenses of the
investment of funds available under the Policy.
- --------------------------------------------------------------------------------
Penn Series Funds, Inc. (a)
Underlying Fund Annual Expenses (as a % of portfolio avg. net assets)
<TABLE>
<CAPTION>
Management Total
Fees (after Other Fund
waiver) Expenses Expenses
----------- -------- --------
<S> <C> <C> <C>
Growth Equity...............................
Value Equity................................
Small Capitalization .......................
Emerging Growth ...........................
Flexibly Managed............................
International Equity........................
Quality Bond................................
High Yield Bond.............................
Money Market................................
</TABLE>
- -------------------
(a) These expenses are for the last fiscal year. The total expenses of the
Emerging Growth Fund would have been %. if the investment adviser and
administrator of that Fund had not waived part of their fees.
- --------------------------------------------------------------------------------
Neuberger & Berman Advisers Management Trust (a)
Underlying Fund Annual Expenses (as a % of portfolio average net assets)
<TABLE>
<CAPTION>
Management,
Advisory and
Administration Other Total Fund
Fees Expenses Expenses
-------------- -------- ----------
<S> <C> <C> <C>
Limited Maturity Bond.......................
Balanced....................................
Partners Fund...............................
</TABLE>
(a) Neuberger & Berman Advisers Management Trust (the "Trust") is divided into
portfolios ("Portfolios"). Each Portfolio invests in a corresponding series
("Series") of the Trust. This table shows the current expenses paid by each
Portfolio and the Portfolio's share of the current expenses of its Series.
See "Expenses" in the Trust's Prospectus.
- --------------------------------------------------------------------------------
American Century Variable Portfolios, Inc. (a)
Underlying Fund Annual Expenses (as a % of portfolio average net assets)
31
<PAGE>
<TABLE>
<CAPTION>
Management,
Advisory and
Administration Other Total Fund
Fees Expenses Expenses
-------------- -------- ----------
<S> <C> <C> <C>
Capital Appreciation........................ 1.00% None 1.00%
</TABLE>
- -----------
(a) These expenses are for the last fiscal year.
- --------------------------------------------------------------------------------
Fidelity Investments' Variable Insurance Products Fund (a)
Underlying Fund Annual Expenses (as a % of portfolio avg. net assets)
<TABLE>
<CAPTION>
Management Total Fund
Fee Other Expenses Expenses
---------- -------------- ----------
<S> <C> <C> <C>
Equity-Income...............................
Growth......................................
</TABLE>
- -----------
(a) These expenses are for the last fiscal year. Some of the brokerage
commissions paid by the fund reduced the expenses shown in this table. Without
this reduction, total expenses would have been % for the Equity Income
Portfolio and % for the Growth Portfolio.
- --------------------------------------------------------------------------------
Fidelity Investments' Variable Insurance Products Fund II
Underlying Fund Annual Expenses (as a % of portfolio avg. net assets)
<TABLE>
<CAPTION>
Management Total Fund
Fee Other Expenses Expenses
---------- -------------- ----------
<S> <C> <C> <C>
Asset Manager (a)...........................
Index 500 (b)...............................
</TABLE>
- -----------
(a) The expenses presented are for the last fiscal year. Some of the brokerage
commissions paid by the fund reduced the expenses shown in this table. Without
this reduction, total expenses would have been % for the Asset Manager
Portfolio.
(b) These expenses are for the last fiscal year. If the fund's investment
adviser had not voluntarily waived part of its fee, total expenses would have
been % for the Index 500 Portfolio.
- --------------------------------------------------------------------------------
Morgan Stanley Dean Witter Universal Funds, Inc.
Underlying Fund Annual Expenses (as a % of portfolio avg. net assets)
<TABLE>
<CAPTION>
Management Total Fund
Fee Other Expenses Expenses
---------- -------------- ----------
<S> <C> <C> <C>
Emerging Markets Equity (International).....
</TABLE>
- -----------
(a) These expenses are for the last fiscal year.
- --------------------------------------------------------------------------------
32
<PAGE>
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).
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.
33
<PAGE>
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, including the partial surrender charges, taken
from the fixed account, 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 policy
loans 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 and to
determine whether the policy loan is excessive. The loan value is 90% of the
cash surrender 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 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
34
<PAGE>
is reasonable to conclude that the Policy will meet the Section 7702 definition
of a life insurance contract. In the absence of 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.
35
<PAGE>
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 determing the amount included 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.
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.
36
<PAGE>
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.
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
37
<PAGE>
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 certain registered
representatives of HTK who are also appointed and licensed as insurance agents.
The Policy may also be offered through insurance and securities brokers who have
lawfully qualified to sell the Policies. 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 $_____________, $11,042,761 and $4,580,00,
respectively, and compensated HTK in the approximate amounts of $_____________,
$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 December 1996),
The Penn Mutual Life and Chief Executive President and Chief Executive Officer (April 1995-December 1996),
Insurance Company Officer President and Chief Operating Officer (January 1994 to April 1995),
Philadelphia, PA 19172 The Penn Mutual Life Insurance Company.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
Position with
NAME AND ADDRESS Penn Mutual Principal Occupation During Past Five years
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Daniel J. Toran President, Chief President and Chief Operating Officer (since January 1997), Executive
The Penn Mutual Life Operating Officer Vice President (May 1996-January 1997), The Penn Mutual Life Insurance
Insurance Company and Trustee Company Company; Executive Vice President, The New England Mutual Life Insurance
Philadelphia, PA 19172 Company (prior thereto).
- ------------------------------------------------------------------------------------------------------------------------------------
Julia Chang Bloch Trustee Visiting Professor, Institute of International Relations in Beijing,
1743 22nd Street, NW China, and distinguished adviser, American Studies Center (April 1998 to
Washington, DC 20008 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 President, Betz Dearborn Foundation (since March 1996),
Betz Dearborn Foundation Chairman of the Board, Betz Laboratories, Inc. (prior thereto).
200 Witmer Road
Horsham, PA 19044
- ------------------------------------------------------------------------------------------------------------------------------------
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 and Civic Center Blvd. Philadelphia (since 1987).
Philadelphia, PA 19104
- ------------------------------------------------------------------------------------------------------------------------------------
Robert H. Rock Trustee President, MLR Holdings, LLC (since 1987).
1845 Walnut Street - 9th Floor
Philadelphia, PA 19103
- ------------------------------------------------------------------------------------------------------------------------------------
Norman T. Wilde, Jr. Trustee President and Chief Executive Officer, Janney Montgomery Scott Inc.
1801 Market Street (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., NW
P.O. Box 7566
Washington, D.C. 20004
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE>
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
<TABLE>
<CAPTION>
Name Principal Occupation During Past Five years
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
John M. Albanese Senior Vice President, Customer Service and Information Systems (since June 1997), Vice
The Penn Mutual Life President, Information Systems Application (prior thereto), The Penn Mutual Life Insurance
Insurance Company Company.
Philadelphia, PA 19172
- ------------------------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
Nancy S. Brodie Executive Vice President and Chief Financial Officer (since December 1995), Senior Vice
The Penn Mutual Life President and Chief Financial Officer (January 1994 to December 1995), Vice President and
Insurance Company Controller (prior thereto), The Penn Mutual Life Insurance 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 May 1997
Insurance Company); Vice President, Security Benefit Insurance Company (May 1993 to September 1994);
Philadelphia, PA 19172 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 1997),
The Penn Mutual Life Assistant Vice President, Corporate Accounting and Controls, The Penn Mutual Life Insurance Company
Insurance Company (prior thereto).
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 Financial Officer (since May 1996), Senior
The Penn Mutual Life Vice President (May 1996 to December 1996), Vice President, Investments (January 1996 to April
Insurance Company 1996, Vice President, Fixed Income Portfolio Management (prior thereto), The Penn Mutual Life
Philadelphia, PA 19172 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.
40
<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.
Experts
The financial statements of the subaccounts and Penn Mutual at December
31, 1998 and for the year ended December 31, 1998 appearing in this prospectus
and registration statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
Actuarial matters included in this prospectus have been examined by Edward
S. Attarian, FSA, MAAA, Associate 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 the financial
statements of 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.
41
<PAGE>
INSERT REPORT OF INDEPENDENT ACCOUNTANT
AND FINANCIAL STATEMENTS HERE
42
<PAGE>
APPENDIX A
Minimum Initial Annual 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.
Age of Male Age of Female Minimum Initial Annual
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
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
80 1.3615 98 1.0520
- --------------------------------------------------------------------------------
81 1.3316
- --------------------------------------------------------------------------------
82 1.3040 99 1.0321
- --------------------------------------------------------------------------------
C-1
<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) to Post-Effective
Amendment No. 12 to the Form N-4 Registration Statement of Penn Mutual Variable
Annuity Account III filed in April 1990 (File No. 2-77283).
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 41 pages. Undertaking to file reports.
Rule 484 Undertaking.
Section 26(e)(2)(A) Representation.
The signatures.
The following exhibits:
<TABLE>
<S> <C>
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.
Previously filed to the Form S-6 Registration Statement (File No. 33-
11883) for Penn Mutual Variable Life Account I filed on February 10,
1987. To be filed via EDGAR by Amendment in April.
A(2) Not Applicable.
A(3) (a)(1) Distribution Agreement between The Penn Mutual Life Insurance
Company and Hornor, Townsend & Kent, Inc. Previously filed in Pre-
Effective Amendment No. 1 to this Form S-6 Registration Statement
filed on April 13, 1995. To be filed via EDGAR by Amendment in
April.
(a)(2) Sales Support Agreement between The Penn Mutual Life Insurance
Company and Hornor, Townsend & Kent, Inc. Previously filed in Pre-
Effective Amendment No. 1 to this Form S-6 Registration Statement
filed on April 13, 1995. To be filed via EDGAR by Amendment in
April.
(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. 33-
62811) on Form N-4 filed on September 3, 1998(Accession No.
0001036050-98-001504).
(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. 33- 62811) on Form N-4 filed on November 30, 1998
(Accession No. 0001036050-98-002055).
(b)(3) Companion Broker-Dealer Selling Agreement and Corporate Insurance
Agent Selling Agreement. Previously filed in Pre-Effective
Amendment No. 1 to this Form S-6 Registration Statement filed on
April 13, 1995. To be filed via EDGAR by Amendment in April.
(c) Schedule of Sales Commissions. Previously filed in Pre-Effective
Amendment No. 1 to this Form S-6 Registration Statement filed on
April 13, 1995. To be filed via EDGAR by Amendment in April.
A(4) Not Applicable.
A(5) (a)(1) Specimen Last Survivor Flexible Premium Adjustable Variable Life
Insurance Policy (Sex Distinct). Previously filed in Pre-Effective
Amendment No. 1 to this Form S-6 Registration Statement filed on
April 13, 1995. To be filed via EDGAR by Amendment in April.
(a)(2) Specimen Last Survivor Flexible Premium Adjustable Variable Life
Insurance Policy (Unisex). Previously filed in Pre-Effective
Amendment No. 1 to this Form S-6 Registration Statement filed on
April 13, 1995. To be filed via EDGAR by Amendment in April.
(a)(3) Specimen Last Survivor Flexible Premium Adjustable Variable Life
Insurance Policy (New York). Previously filed in Pre-Effective
Amendment No. 1 to this Form S-6 Registration Statement filed on
April 13, 1995. To be filed via EDGAR by Amendment in April.
(b)(1) Flexible Period Single Life Supplemental Term Insurance Agreement
(Sex Distinct). Previously filed in Pre-Effective Amendment No. 1 to
this Form S-6 Registration Statement filed on April 13, 1995. To be
filed via EDGAR by Amendment in April.
(b)(2) Flexible Period Single Life Supplemental Term Insurance Agreement
(Unisex). Previously filed in Pre-Effective Amendment No. 1 to this
Form S-6 Registration Statement filed on April 13, 1995. To be filed via
EDGAR by Amendment in April.
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
(b)(3) Flexible Period Single Life Supplemental Term Insurance Agreement
(New York). Previously filed in Pre-Effective Amendment No. 1 to this
Form S-6 Registration Statement filed on April 13, 1995. To be filed via
EDGAR by Amendment in April.
(c)(1) Policy Split Option Agreement. Previously filed in Pre-Effective
Amendment No. 1 to this Form S-6 Registration Statement filed on
April 13, 1995. To be filed via EDGAR by Amendment in April.
(c)(2) Policy Split Option Agreement (New York). Previously filed in Pre-
Effective Amendment No. 1 to this Form S-6 Registration Statement
filed on April 13, 1995. To be filed via EDGAR by Amendment in
April.
(d) Estate Growth Benefit Agreement. Previouslyfiled in Pre-Effective Amendment
No. 1 to this Form S-6 Registration Statement filed on April 13, 1995.
To be filed via EDGAR by Amendment in April.
(e)(1) Supplemental Exchange Agreement. Previously filed in Pre-Effective
Amendment No. 1 to this Form S-6 Registration Statement filed on
April 13, 1995. To be filed via EDGAR by Amendment in April.
(e)(2) Supplemental Exchange Agreement (New York). Previously filed in
Pre-Effective Amendment No. 1 to this Form S-6 Registration Statement
filed on April 13, 1995. To be filed via EDGAR by Amendment in
April.
(f)(1) Supplemental Term Insurance Agreement (Sex Distinct). Previously
filed in Pre-Effective Amendment No. 1 to this Form S-6 Registration
Statement filed on April 13, 1995. To be filed via EDGAR by
Amendment in April.
(f)(2) Supplemental Term Insurance Agreement (Unisex). Previously filed in
Pre-Effective Amendment No. 1 to this Form S-6 Registration Statement
filed on April 13, 1995. To be filed via EDGAR by Amendment in
April.
(f)(3) Supplemental Term Insurance Agreement (New York). Previously
filed in Pre-Effective Amendment No. 1 to this Form S-6 Registration
Statement filed on April 13, 1995. To be filed via EDGAR by
Amendment in April.
(g)(1) Guaranteed Continuation of Policy Agreement (Sex Distinct).
Previously filed in Pre-Effective Amendment No. 1 to this Form S-6
Registration Statement filed on April 13, 1995. To be filed via EDGAR
by Amendment in April.
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
(g)(2) Guaranteed Continuation of Policy Agreement (Unisex). Previously
filed in Pre-Effective Amendment No. 1 to this Form S-6 Registration
Statement filed on April 13, 1995. To be filed via EDGAR by
Amendment in April.
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. 33-62811) 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. 33-62811) on
Form N-4 filed on September 3, 1998 (Accession No. 0001036050-98-
001504).
A(7) Not Applicable.
A(8) (a) Agreement between The Penn Mutual Life Insurance Company and
Penn Series Funds, Inc. Previously filed in Pre-Effective Amendment
No. 1 to this Form S-6 Registration Statement filed on April 13, 1995.
To be filed via EDGAR by Amendment in April.
(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 is
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).
(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
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C>
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. 33-
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. 33-62811) 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. 33- 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. Previously filed in Pre-Effective Amendment
No. 1 to the Form S-6 Registration Statement (File No. 33-54662) for
Penn Mutual Variable Life Account I filed on March 22, 1993. To be
filed via EDGAR by Amendment in April.
(b) Supplemental application form for Last Survivor Flexible Premium Adjustable
Variable Life Insurance. Previously filed in Pre-Effective Amendment No. 1 to this Form
S-6 Registration Statement filed on April 13, 1995. To be filed via EDGAR by Amendment
in April.
A(11) Memorandum describing issuance, transfer and redemption procedures.
Previously filed in Pre-Effective Amendment No. 1 to this Form S-6
Registration Statement filed on April 13, 1995. To be filed via EDGAR
by Amendment in April.
</TABLE>
II-5
<PAGE>
<TABLE>
<S> <C>
2. Opinion and consent of C. Ronald Rubley, Esq., as to the legality of the securities being registered.
Previously filed in Pre-Effective Amendment No. 1 to this Form S-6 Registration Statement filed on April
13, 1995. To be filed via EDGAR by Amendment in April.
3. Opinion and Consent of Edward S. Attarian, FSA, MAAA, as to actuarial matters pertaining to the securities
being registered. Filed as an exhibit and incorporated herein by reference to Post-Effective
Amendment No. 1 to this Form S-6 Registration Statement filed on April 29, 1996.
(Accession No. 0000950109-96-002471).
4. (a) Consent of Ernst & Young, LLP. To be filed Via EDGAR by Amendment in April.
(b) Consent of Coopers & Lybrand LLP. To be filed Via EDGAR by Amendment in April.
(c) Consent of Morgan, Lewis & Bockius LLP. To be filed Via EDGAR by Amendment in April.
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 herewith.
</TABLE>
- -----------------------
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 has duly caused this Post-Effective Amendment No. 5 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 26th day of
February, 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. Ritkzo By: /s/ Robert E. Chappell
--------------------------- ------------------------------
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. 5 to the Registration Statement has been signed
below by the following persons in the capacities indicated on the 26th day of
February, 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
*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-7
<PAGE>
Exhibit Index
5. (c) Power of Attorney of Julia Chang Bloch
II-8
<PAGE>
The Penn Mutual Insurance Company
Power of Attorney
-----------------
Julia Chang Bloch, whose signature appears below, does hereby
constitute and appoint Robert E. Chappell and Daniel J. Toran, and each of them
severally, her true and lawful attorneys and agents, with power of substitution
and resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorney and agents, and each of them, may deem necessary
or advisable or which may be required to enable The Penn Mutual Life Insurance
Company (the "Company") to comply with the Investment Company Act of 1940 and
the Securities Act of 1933, as amended, and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of the Company's Registration
Statement on Form S-6 (SEC Registration No. 33-87276) pursuant to such Acts,
including specifically, but without liniting the generality of the foregoing,
the power and authority to sign in the name and on behalf of the undersigned as
a trustee and/or officer of the Company such Registration Statement and any and
all amendments and supplements to such Registration Statement filed with the
Securities and Exchange Commission under said Acts, and any other instruments or
documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorneys and agents, and each of them, shall do or cause to be
done by virtue hereof.
Date: April 30, 1998 /s/ Julia Chang Bloch
-----------------------------
Julia Chang Bloch
