<PAGE>
Supplement dated April 13, 2000 to the Prospectuses of
Diversifier II, Commander, Pennant Select, Pennant, Variable Estate Max,
Cornerstone VUL I, Cornerstone VUL II and Cornerstone VUL III Variable
Insurance Products dated May 1, 1999, as previously
supplemented through January 28, 2000
On December 23, 1999, The Penn Mutual Life Insurance Company and The Penn
Insurance and Annuity Company (collectively, "Penn Mutual") filed with the U.S.
Securities and Exchange Commission ("SEC") an application (the "Application")
for an exemptive order that would permit the substitution of certain investment
options available to Penn Mutual's variable insurance products with new
investment options (the "Substitutions"). Contract owners and policy holders of
Penn Mutual's variable insurance products were previously notified of the
planned substitutions by a supplement to each product's prospectus dated January
28, 2000.
On April 11, 2000, the SEC published a notice of the filing of the Application,
a preliminary step in granting an exemptive order. If no hearing is requested on
the Application, Penn Mutual expects to effect the Substitutions on May 1, 2000
(the "Substitution Date"). On the Substitution Date certain of the existing
investment options currently available to Penn Mutual's variable insurance
products (the "Replaced Funds") will be replaced by new investment options (the
"New Funds"). The Substitutions are summarized in the following table:
<TABLE>
<CAPTION>
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Manager of
No. Replaced Fund Replaced Fund New Fund Manager of New Fund
---- ------------- ------------- -------- --------------------
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<S> <C> <C> <C> <C>
1 Neuberger Berman Neuberger Berman Penn Series Mid Cap Neuberger Berman
Partners Portfolio Management Inc. Value Fund Management Inc.*
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Neuberger Berman Neuberger Berman Penn Series Limited Independence Capital
2 Limited Maturity Bond Management Inc. Maturity Bond Fund Management, Inc.
Portfolio
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3 Fidelity Investments' Fidelity Management Penn Series Index 500 Wells Capital
Index 500 Portfolio and Research Corp.** Fund Management Inc.*
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4 American Century American Century Penn Series Mid Cap Turner Investment
Capital Appreciation Investment Growth Fund Partners Inc.*
Portfolio Management, Inc.
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</TABLE>
* As sub-adviser retained by Independence Capital Management, Inc., provides
day-to-day portfolio management services to the Fund.
** Sub-advised by Bankers Trust Company.
As of the Substitution Date, shares of the Replaced Funds will be presented for
redemption. The redemptions will be effected through a cash transaction. The
proceeds of the redemptions will then be used to purchase the appropriate number
of shares of the corresponding New Funds. The Substitutions will take place at
relative net asset values, with no change in the value of any contract or policy
and will not affect your rights or our obligations under your contract or
policy. Penn Mutual will bear the costs of the Substitutions.
<PAGE>
Transfers of the contract value or cash value that is invested in any of the
Replaced Funds may be made to any other subaccount available under your contract
or policy without charge for a period beginning on the date of this notice
through 30 days after the Substitution Date. Any such transfer will not be
counted as one of the "free" transfers to which a contract owner or policy
holder may otherwise be entitled.
Immediately following the Substitutions, Penn Mutual expects that the expense
ratios of the New Funds will not exceed the expense ratios of the Replaced
Funds. In some instances, the expense ratios of a New Fund may be lower than the
expense ratio of its corresponding Replaced Fund. In the event that the expense
ratio of a New Fund exceeds that of its corresponding Replaced Fund, Penn Mutual
will waive its fees and/or reimburse expenses such that the New Fund's expense
ratio does not exceed that of its corresponding Replaced Fund's expense ratio.
Penn Mutual will continue any such fee waivers and/or expense reimbursements, as
necessary, until April 30, 2001, except that in the case of the Penn Series
Limited Maturity Bond Fund, Penn Mutual will continue such fee waivers and/or
reimbursements until April 30, 2003. The table below shows the estimated
expenses of the New Funds.
<TABLE>
<CAPTION>
New Fund's New Fund's
New Fund Advisory Fee(1) Expense Ratio(1)
-------- ---------------- ----------------
<S> <C> <C>
Penn Series Mid Cap Value Fund 0.55% of the first $250 0.86%
million of average net
assets, 0.525% of the
next $250 million, 0.50%
of the next $250 million,
0.475% of the next $250
million, 0.45% of the next
$500 million and 0.425% of
average daily net assets in
excess of $1.5 billion
Penn Series Limited Maturity Bond 0.30% 0.56%
Fund
Penn Series Index 500 Fund 0.07%(2) 0.25%(3)
Penn Series Mid Cap Growth Fund 0.70% 1.00%
</TABLE>
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(1) The figures reflect estimated advisory fees and expenses.
(2) Advisory Fees are before any expense waiver reductions.
(3) Expense Ratio includes voluntary fee waivers of 0.06.
Each New Fund will have an investment objective and investment policies that are
similar to its corresponding Replaced Fund. The following table describes the
investment objectives and policies of the New Funds.
<PAGE>
<TABLE>
<CAPTION>
NEW FUND INVESTMENT POLICY INVESTMENT OBJECTIVE
-------- ----------------- --------------------
<S> <C> <C>
Penn Series Mid Cap The Fund will primarily invest in common stocks Growth of capital.
Value Fund issued by medium capitalization companies,
between $1 billion and $8 billion, which the sub-
adviser believes to be undervalued relative to the
stock market.
Penn Series Limited The Fund invests in a diversified portfolio of short Highest available current
Maturity Bond Fund to intermediate term debt securities. The Fund will income consistent with liquidity
invest primarily in investment grade securities. and low risk to principal; total
return is secondary.
Penn Series Index Under normal conditions, the Fund seeks to replicate Total return (capital
500 Fund the return of the S&P 500 Index. appreciation and income) which
corresponds to that of the S&P
500 Index.
Penn Series Mid Cap The Fund will primarily invest in common stocks of Maximize capital appreciation.
Growth Fund issuers that have a market capitalization between $1
billion and $10 billion at the time of purchase that
the sub-adviser believes to have a strong earnings
growth potential.
</TABLE>
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Contract holders and policy owners will receive notification once the
Substitutions have been completed.
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PLEASE READ AND RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE
