485BPOS 1 a08-10365_14485bpos.htm 485BPOS

As filed with the Securities and Exchange Commission on April 24, 2008

Registration No. 33-54662

811-05006

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-6

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Pre-Effective Amendment No.

Post-Effective Amendment No. 23

REGISTRATION STATEMENT UNDER THE INVESTMENT

COMPANY ACT OF 1940

Amendment No. 6

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)

Susan T. Deakins

Vice President and Chief Actuary

The Penn Mutual Life Insurance Company

600 Dresher Road

Horsham, Pennsylvania 19044

(Name and complete address of agent for service)

Copy to:

Michael Berenson

Morgan, Lewis & Bockius LLP

1111 Pennsylvania Avenue, NW

Washington, DC 20004

Approximate Date of Proposed Public Offering:

It is proposed that this filing will become effective (check appropriate box):

o Immediately upon filing pursuant to paragraph (b) of Rule 485.

x On May 1, 2008 pursuant to paragraph (b) of Rule 485.

o 60 days after filing pursuant to paragraph (a) of Rule 485.

o On (date) pursuant to paragraph (a) of Rule 485.

PROSPECTUS

FOR

CORNERSTONE VUL II

a flexible premium adjustable variable life insurance policy issued by

THE PENN MUTUAL LIFE INSURANCE COMPANY

and funded through

PENN MUTUAL VARIABLE LIFE ACCOUNT I

The Penn Mutual Life Insurance Company

Philadelphia, PA 19172

800-523-0650

The Policy provides life insurance and a cash surrender value that varies with the investment performance of one or more of the funds set forth below. The Policy also provides a fixed account in which amounts may be held to accumulate interest. The life insurance (or death benefit) provided under the Policy will never be less than the amount specified in the Policy.

Penn Series Funds, Inc.		Manager
Money Market Fund		Independence Capital Management, Inc.
Limited Maturity Bond Fund		Independence Capital Management, Inc.
Quality Bond Fund		Independence Capital Management, Inc.
High Yield Bond Fund		T. Rowe Price Associates, Inc.
Flexibly Managed Fund		T. Rowe Price Associates, Inc.
Growth Stock Fund		T. Rowe Price Associates, Inc.
Large Cap Value Fund		Lord, Abbett & Co. LLC
Large Cap Growth Fund		ABN AMRO Asset Management, Inc.
Index 500 Fund		Wells Capital Management Incorporated
Mid Cap Growth Fund		Turner Investment Partners, Inc.
Mid Cap Value Fund		Neuberger Berman Management Inc.
Strategic Value Fund		Lord, Abbett & Co. LLC
Small Cap Growth Fund		Bjurman, Barry & Associates
Small Cap Value Fund		Goldman Sachs Asset Management, L.P.
International Equity Fund		Vontobel Asset Management, Inc.
REIT Fund		Heitman Real Estate Securities LLC
Large Core Growth Fund		Wells Capital Management Incorporated
Large Core Value Fund		Eaton Vance Management
SMID Cap Growth Fund		Wells Capital Management Incorporated
SMID Cap Value Fund		AllianceBernstein L.P.
Emerging Markets Equity Fund		Van Kampen Asset Management
Small Cap Index Fund		SSgA Funds Management, Inc.
Developed International Index Fund		SSgA Funds Management, Inc.
Balanced Fund		Independence Capital Management, Inc.
Aggressive Allocation Fund		Independence Capital Management, Inc.
Moderately Aggressive Allocation Fund		Independence Capital Management, Inc.
Moderate Allocation Fund		Independence Capital Management, Inc.
Moderately Conservative Allocation Fund		Independence Capital Management, Inc.
Conservative Allocation Fund		Independence Capital Management, Inc.
Neuberger Berman Advisers Management Trust		Manager
Balanced Portfolio		Neuberger Berman Management Inc.
Fidelity Investments’ Variable Insurance Products Fund		Manager
Equity-Income Portfolio		Fidelity Management & Research Company
Growth Portfolio		Fidelity Management & Research Company

Fidelity Investments’ Variable Insurance Products Fund II		Manager
Asset Manager Portfolio		Fidelity Management & Research Company
Van Kampen’s The Universal Institutional Funds, Inc.		Manager
Emerging Markets Equity (International) Portfolio		Van Kampen

Please note that the Securities and Exchange Commission has not approved or disapproved these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

May 1, 2008

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:

· Pages 4 to 5 provide a summary of the benefits and risks of the Policy.

· Pages 6 to 13 provide tables showing fees and charges under the Policy.

· Pages 14 to 16 provide tables showing fees and expenses of the funds underlying the Policy.

· Pages 17 to 39 provide additional information about the Policy, in question and answer format.

· Pages 40 to 42 provide information about The Penn Mutual Life Insurance Company (“Penn Mutual”), Penn Mutual Variable Life Account I (the “Separate Account”) and the underlying investment funds in which Policy reserves may be allocated.

· Appendices A and B, which are at the end of the prospectus and are referred to in the answers to questions about the Policy, provide specific information and examples to help you understand how the Policy works.

**********

The prospectuses of the funds that accompany this prospectus contain 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.

SUMMARY OF THE BENEFITS AND RISKS OF THE POLICY

The following is a summary of the benefits and the risks of the Policy. Please read the entire Prospectus before you invest.

Benefit Summary

The Policy provides life insurance on you or another individual you name. 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.

Death Benefit – While the Policy is in effect, we will pay the beneficiary the death benefit less the amount of any outstanding loan when the insured dies. We offer two different types of death benefit options under the Policy. You choose which one you want in the application.

Premium Flexibility – Amounts you pay to us under your Policy are called “premiums” or “premium payments.” 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.

Free Look Period – You have the right to cancel your Policy within 10 days after you receive it or within 45 days after you signed your application. 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.

Three Year No-Lapse Feature – Your Policy will remain in force during the first three policy years, regardless of investment performance and your net cash surrender value, if the total premiums you have paid, less any partial surrenders you made, equal or exceeds the “no-lapse premium” specified in your Policy, multiplied by the number of months the Policy has been in force.

Investment Options – The Policy allows you to allocate your policy value to the different investment options listed on pages 1 and 2 of this prospectus.

Fixed Interest Option – In addition to the investment options described above, the Policy allows you to allocate your policy value to a fixed interest account. The amount you allocate to the fixed interest account will earn interest at a rate we declare from time to time. We guarantee that this rate will be at least 4%.

Transfers – Within limitations, you may transfer investment amounts from one investment account to another, and to and from the fixed interest option. In addition, the Policy offers two automated transfer programs – dollar-cost averaging and asset rebalancing.

Loans – You may take a loan on your Policy. You may borrow up to 90% of your cash surrender value. The minimum amount you may borrow is $250. Interest charged on a policy loan is 5.0% and is payable at the end of each policy year. You may repay all or part of a loan at any time.

applies (if any). This is called your “net cash surrender value.” In addition, you may make partial withdrawals (subject to limitations) from your net cash surrender value.

Taxes – Death benefits paid under life insurance policies are not subject to income tax. Investment gains from your Policy are not taxed as long as the gains remain in the Policy. If the Policy is not treated as a “modified endowment contract” under federal income tax law, depending on the policy year when the distribution is made, distributions from the Policy may be treated first as the return of investments in the Policy and then, only after the return of all investment in the Policy, as distribution of taxable income.

Riders – For an additional charge, Penn Mutual offers supplemental benefit riders that may be added to your Policy. If any of these riders are added, monthly charges for the supplemental benefits will be deducted from your policy value as part of the monthly deduction.

Risk Summary

Suitability – The Policy is designed to provide life insurance and should be used in conjunction with long-term financial planning. The Policy is not suitable as a short-term savings vehicle. You will pay a surrender charge should you surrender your Policy within the first 11 policy years.

Investment Performance – The value of your Policy, which is invested in underlying investment funds, will vary with the investment performance of the funds. There is risk that the investment performance of the funds that you select may be unfavorable or may not perform up to your expectations, which may decrease the value of your net cash surrender value. A comprehensive discussion of the investment risks of each of the investment funds may be found in the prospectus for each of the funds. Before allocating money to a fund, please read the prospectus for the fund carefully.

Lapse – Your Policy may terminate, or “lapse,” if the net cash surrender value of the Policy is not sufficient to pay policy charges (including payment of interest on any loan that may be outstanding under the Policy), the three year no-lapse feature is not in effect, and you do not make additional premium payments necessary to keep the Policy in force. We will notify you of how much premium you will need to pay to keep the Policy in force. Subject to certain conditions, if the Policy terminates, you can apply to reinstate it within five years from the beginning of the grace period if the insured is alive.

Access to Cash Value – If you fully surrender your Policy for cash within the first 11 policy years or within 11 years of an increase in the specified amount of insurance, you will incur a surrender charge at a rate specified for the year of surrender. Also, a partial surrender of your Policy for cash will be subject to an administrative charge. In addition, any increase to your specified amount will have an 11 year surrender charge schedule attached to it.

Taxes – The federal income tax law that applies to life insurance companies and to the Policy is complex and subject to change. Changes in the law could adversely affect the current tax advantages of purchasing the Policy. The information in this prospectus is based on our understanding of the present federal income tax laws as they are currently interpreted by the Internal Revenue Service. We reserve the right to make changes in the Policy in the event of a change in the tax law for the purpose of preserving the current tax treatment of the Policy. You may wish to consult counsel or other competent tax adviser for more complete information.

FEE TABLES

The following tables summarize fees and expenses that a policy owner may pay when buying, owning and surrendering the Policy.(1) The first table describes the fees and expenses that a policy owner may pay at the time he or she buys the Policy, surrenders the Policy, or transfers cash value between investment options.

Transaction Fees

Charge	When Charge is Deducted	Amount Deducted
Maximum Sales Charge (load)	When a premium is paid.	4.0% of all premiums paid in excess of the “maximum surrender charge premium”(2) in the first policy year and for all premiums paid in policy years two and later.(3)
Premium and Federal (DAC) Taxes	When a premium is paid.	2.5% of all premiums paid in excess of the “maximum surrender charge premium.”(2)
Maximum Deferred Sales Charge (load) if the Policy is surrendered within the first seven policy years	When the Policy is surrendered.	25% of the lesser of (i) premiums paid and (ii) the “maximum surrender charge premium.”(2), (4)
Charge for a representative non-tobacco male insured, age 45	When the Policy is surrendered.	25% of the lesser of (i) premiums paid and (ii) $13.67 per $1,000 of specified amount. (2),(4)
Other Surrender Charges apply if the Policy is surrendered within the first 11 policy years, or within 11 years of any increase in the amount of insurance specified in your Policy. (5/)
Minimum Charge	When the Policy is surrendered.	$1 per $1,000 of initial specified amount of insurance or increase in specified amount of insurance, for insured age 9 or younger at the date of issue or increase.
Maximum Charge	When the Policy is surrendered.	$7 per $1,000 of initial specified amount of insurance or increase in specified amount of insurance for insured age 60 or older at the date of issue or increase.
Charge for a representative non-tobacco male insured, age 45	When the Policy is surrendered.	$5 per $1,000 of initial specified amount of insurance or increase in specified amount of insurance, for insured age 45 at the date of the issue or increase.

Charge	When Charge is Deducted	Amount Deducted
Partial Surrender Charge	When you partially surrender your Policy.	Lesser of $25 or 2.0% of the amount surrendered.
Transfer Charge
Current Charge	When you make a transfer.	$0.00(6)
Guaranteed Maximum Charge	When you make a transfer.	$10.00
Loans (7)
Gross Interest Charge	End of each policy year.	Annual rate of 5.0% (before credit from interest paid on collateral held in special loan account).
Net Interest Charge(8)	End of each policy year.	Annual rate of 1.0% (after credit from interest paid on collateral held in special loan account).(9)

(1). See What Are the Fees and Charges Under the Policy? in this prospectus for additional information.

(2). The “maximum surrender charge premium” is determined separately for each Policy, and takes into account the individual underwriting characteristics of the insured. The “maximum surrender charge premium” is stated in each Policy .

(3). The sales charge imposed on premiums (load) is currently reduced to 2.25% of all premiums paid in excess of the maximum surrender charge premium in the first policy year and for all premiums paid in policy years two and later.

(4). Commencing in the eighth (8) policy year and continuing through the eleventh policy year, the deferred sales charge decreases each year, after which there is no longer a charge.

(5). The “other surrender charge” under the Policies vary depending on the age of the insured. More information concerning the “other surrender charge” is stated in each Policy. Commencing in the eighth policy year and continuing through the eleventh policy year, the surrender charge decreases each year in proportional amounts, after which there is no longer a charge; and commencing eight years after any increase in the specified amount of insurance and continuing through the end of eleven years after the increase, the surrender charge decreases each year in proportional amounts, after which there is no longer a charge.

(6). No transaction fee is currently imposed for making a transfer among investment funds and/or the fixed interest option. We reserve the right to impose a $10 fee in the future on any transfer that exceeds twelve transfers in a policy year (except in the case of transfers of $5,000,000 or more).

(7). You may borrow up to 90% of your cash surrender value. The minimum amount you may borrow is $250. An amount equivalent to the loan is withdrawn from subaccounts of the Separate Account and the fixed interest option on a prorated basis (unless you designate a different withdrawal allocation when you request the loan) and is transferred to a special loan account as collateral for the loan. See What Is a Policy Loan? in this prospectus for additional information about Policy Loans.

(8). “Net Interest Charge” means the difference between the amount of interest we charge on the loan and the amount of interest we credit to your Policy in the special loan account.

(9.) After the tenth (10) policy year, we intend to credit interest to the special loan account at the rate of 4.75% (which will result in a Net Interest Charge of 0.25% in those years).

The next table describes charges that a policy owner may pay periodically during the time the Policy is owned. The charges do not include fees and expenses incurred by the funds that serve as investment options under the Policy.

Periodic Charges Under the Policy Not Including Operating Expenses of Underlying Investment Funds
Policy Charges	When Charge is Deducted	Amount Deducted
Cost of Insurance Charges(1):
Current Charges	Monthly	Minimum of $0.0399 to maximum of $21.5319, per $1,000 of net amount at risk.
Guaranteed Maximum Charges	Monthly	Minimum of $0.0566 to maximum of $83.333, per $1,000 of net amount at risk.
Charge for a representative non-tobacco male insured, age 45
Current Charges	Monthly	$0.1567 per $1,000 of net amount at risk.
Guaranteed Maximum Charges	Monthly	$0.2767 per $1,000 of net amount at risk.
Mortality and Expense Risk Charge:
Mortality and Expense Risk Charge	Daily	0.90% annually from the policy value that is allocated to the funds.(2)
Administrative Fees:	Monthly	The charge has three parts:

		(a) $9.00.(3)

		(b) For the first 12 months following the policy date, $0.10 per $1,000 of initial specified amount of insurance.

		(c)For the first 12 months following an increase in the specified amount of insurance, $0.10 per $1,000 of the increase in specified amount of insurance.

(1). The cost of insurance charges under the Policies vary depending on the individual circumstances of the insured, such as sex, age and risk classification. The charges also vary depending on the amount of insurance specified in the Policy and the policy year in which the charge is deducted. The table shows the lowest and the highest cost of insurance charges for an insured, based on our current rates and on guaranteed maximum rates for individuals in standard risk classifications. The table also shows the cost of insurance charges under a Policy issued to an individual who is representative of individuals we insure. Your Policy will state the guaranteed maximum cost of insurance charges. More detailed information concerning your cost of insurance charges is available from our administrative offices upon request. Also, before you purchase the Policy, we will provide you with hypothetical illustrations of policy values based upon the insured’s age and risk classification, the death benefit option selected, the amount of insurance specified in the Policy, planned periodic premiums, and riders requested. The net amount at risk referred to in the tables is based upon the difference between the current death benefit provided under the Policy and the current value of the Policy. For additional information on cost of insurance charges, see What Are the Fees and Charges Under the Policy? – Monthly Deductions – Cost of Insurance in this prospectus.

(2). After the fifteenth (15) policy year, the charge is reduced to 0.60% annually. See What Are the Fees and Charges Under the Policy? – Daily Mortality and Expense Risk Charge in this prospectus for additional information about this charge.

(3). This sub-part of the charge is $9.00 during the first policy year and $5.00 thereafter.

The next table describes charges that a policy owner may pay periodically for various Optional Supplemental Benefit Riders to the Policy. They are in addition to the charges applicable under the base Policy. The charges do not include fees and expenses incurred by the funds that serve as investment options under the Policy.

Periodic Charges Under Optional Supplemental Benefit Riders Not Including Operating Expenses of Underlying Investment Funds
Supplemental Benefit Rider/Charges	When Charge Is Deducted	Amount Deducted
1. *Accidental Death Benefit:*
Cost of Insurance(1)
Current Charges	Monthly	Minimum of $0.0533 to maximum of $0.1108, per $1,000 of accidental death benefit.
Guaranteed Maximum Charges	Monthly	Minimum of $0.0533 to maximum of $0.1108, per $1,000 of accidental death benefit.
Charge for a representative non-tobacco male insured, age 45
Current Charges	Monthly	$0.0592 per $1,000 of accidental death benefit.
Guaranteed Maximum Charges	Monthly	$0.0592 per $1,000 of accidental death benefit.
2. Additional Insured Term Insurance Agreement:
Cost of Insurance Charges(1)
Current Charges	Monthly	Minimum of $0.0425 to maximum of $3.0371, per $1,000 of additional insured term insurance benefit.
Guaranteed Maximum Charges	Monthly	Minimum of $0.0816 to maximum of $4.2109, per $1,000 of additional insured term insurance benefit.
Charge for a representative non-tobacco male insured, age 45
Current Charges	Monthly	$0.2229 per $1,000 of additional insured term insurance benefit.
Guaranteed Maximum Charges	Monthly	$0.2767 per $1,000 of additional insured term insurance benefit.
Administrative Charges
First year of Agreement	Monthly	$0.10 per $1,000 of additional insured term insurance benefit.
First year of increase in term insurance benefit under Agreement	Monthly	$0.10 per $1,000 of additional insured term insurance benefit.

Supplemental Benefit Rider/Charges	When Charge Is Deducted	Amount Deducted
3. *Children’s Term Insurance Agreement:*
Cost of Insurance Charges(1)
Current Charges	Monthly	$0.15 per $1,000 of children’s term insurance benefit.
Guaranteed Maximum Charges	Monthly	$0.24 per $1,000 of children’s term insurance benefit.
4. *Disability Waiver of Monthly Deduction:*
Cost of Insurance Charges(1)
Current Charges	Monthly	Minimum of $0.0092 to maximum of $0.3192, per $1,000 of net amount at risk.
Guaranteed Maximum Charges	Monthly	Minimum of $0.117 to maximum of $0.5992, per $1,000 of net amount at risk.
Charge for a representative non-tobacco male insured, age 45
Current Charges	Monthly	$0.0275 per $1,000 of net amount at risk.
Guaranteed Maximum Charges	Monthly	$0.0508 per $1,000 of net amount at risk.

Supplemental Benefit Rider/Charges	When Charge Is Deducted	Amount Deducted
5. *Disability Waiver of Monthly* Deduction and Disability Monthly Premium Deposit Agreement:
Disability Waiver of Monthly Deduction Part of Agreement
Cost of Insurance Charges(1)
Current Charges	Monthly	Minimum of $0.0092 to maximum of $0.3192, per $1,000 of net amount at risk.
Guaranteed Maximum Charges	Monthly	Minimum of $0.0117 to maximum of $0.5992, per $1,000 of net amount at risk.
Charge for a representative non-tobacco male insured, age 45
Current Charges	Monthly	$0.0275 per $1,000 of net amount at risk.
Guaranteed Maximum Charges	Monthly	$0.0508 per $1,000 of net amount at risk.
Disability Monthly Premium Deposit Part of Agreement
Cost of Insurance Charges(1)
Current Charges	Monthly	Minimum of $0.03 to maximum of $0.96 of the stipulated premium in the Policy.
Guaranteed Maximum Charges	Monthly	Minimum of $0.03 to maximum of $0.96 of the stipulated premium in the Policy.
Charge for a representative non-tobacco male insured, age 45
Current Charges	Monthly	$0.12 per $1,000 of net amount at risk.
Guaranteed Maximum Charges	Monthly	$0.12 per $1,000 of net amount at risk.
6. *Guaranteed Continuation of Policy:*
Cost of Insurance	Monthly	$0.01 per $1,000 of specified amount of insurance.

Supplemental Benefit Rider/Charges	When Charge Is Deducted	Amount Deducted
7. Guaranteed Option to Increase Specified Amount:
Cost of Insurance Charges(1)
Current Charges	Monthly	Minimum of $0.0425 to maximum of $0.145, per $1,000 of guaranteed option amount.
Guaranteed Maximum Charges	Monthly	Minimum of $0.0425 to maximum of $0.145, per $1,000 of guaranteed option amount.
Charge for a representative non-tobacco male insured, age 25
Current Charges	Monthly	$	0.1058 per $1,000 of guaranteed option amount.
Guaranteed Maximum Charges	Monthly	$	0.1058 per $1,000 of guaranteed option amount.
8. *Supplemental Term Insurance Agreement:*
Cost of Insurance Charges(1)
Current Charges	Monthly	Minimum of $0.0441 to maximum of $16.4756, per $1,000 of net amount at risk attributable to the term insurance benefit.
Guaranteed Maximum Charges	Monthly	Minimum of $0.0566 to maximum of $25.4788, per $1,000 of net amount at risk attributable to the term insurance benefit.
Charge for a representative non-tobacco male insured, age 45
Current Charges	Monthly	$0.2229 per $1,000 of net amount at risk attributable to the term insurance benefit.
Guaranteed Maximum Charges	Monthly	$0.2767 per $1,000 of net amount at risk attributable to the term insurance benefit.
Administrative Charges
First year of Agreement	Monthly	$0.10 per $1,000 of additional insured term insurance benefit.
First year of increase in term insurance benefit under Agreement	Monthly	$0.10 per $1,000 of additional insured term insurance benefit.

Supplemental Benefit Rider/Charges	When Charge Is Deducted	Amount Deducted
9. *Supplemental Exchange Agreement:*
Current Charges	Monthly	No charge.
Guaranteed Maximum Charges	Monthly	No charge.
10. *Accelerated Death Benefit:*
Administrative Charge
Current Charge	When Benefit is Exercised	One time charge of 12 months’ worth of policy charges on the accelerated amount, plus an interest adjustment, which is equal to 12 months worth of interest on the accelerated amount based on a rate that is the greater of (a) the current 90-day Treasury bill rate, or (b) the current policy loan rate.
Guaranteed Maximum Charge	When Benefit is Exercised	One time charge of 12 months’ worth of policy charges on the accelerated amount, plus an interest adjustment, which is equal to 12 months worth of interest on the accelerated amount based on a rate that is the greater of (a) the current 90-day Treasury bill rate, or (b) the current policy loan rate.

1. The cost of insurance charges under the Riders vary depending on the individual circumstances of the insured, such as sex, age and risk classification. The charges also vary depending on the amount of insurance specified in the Rider and the year in which the charge is deducted. The table shows the lowest and the highest cost of insurance charges for an insured, based on current rates and on guaranteed maximum rates for individuals in standard risk classification. The table also shows the cost of insurance charges under a Rider issued to an individual who is representative of individuals we insure. The specifications pages of a Rider will indicate the guaranteed maximum cost of insurance charge applicable to your Policy. More detailed information concerning your cost of insurance charges is available from our administrative offices upon request. Also, before you purchase the Policy, we will provide you with hypothetical illustrations of policy values based upon the insured’s age and risk classification, the death benefit option selected, the amount of insurance specified in the Policy, planned periodic premiums, and riders requested. The net amount at risk referred to in the table is based upon the difference between the current benefit provided under the Rider and the current policy value allocated to the Rider. For additional information about the Riders, see What Are the Supplemental Benefit Riders That I Can Buy? in this prospectus.

The next table shows the minimum and maximum total operating expenses of funds whose shares may be held in subaccounts of the Separate Account under the Policy. Fee and expense information for each fund is contained in the tables following this table.

		Minimum:		Maximum:
Maximum and Minimum Total Fund Operating Expenses (expenses that are deducted from assets of fund companies, including management fees and other expenses)		0.35	%	1.60	%

The following table provides more specific detail about the total fund operating expenses for each fund.

Penn Series Funds, Inc.

Underlying Fund Annual Expenses (as a % of portfolio average net assets)

	Management Fees		Other Expenses		Acquired Fund Fees and Expenses		Total Fund Expenses		Fee Waivers		Net Fund Expenses
Money Market(1)	0.20	%	0.30	%	0.00	%	0.50	%	0.00	%	0.50	%
Limited Maturity Bond(1)	0.30	%	0.30	%	0.01	%(3)	0.61	%	0.00	%	0.61	%
Quality Bond(1)	0.33	%	0.27	%	0.00	%	0.60	%	0.00	%	0.60	%
High Yield Bond(1)	0.50	%	0.34	%	0.00	%	0.84	%	0.00	%	0.84	%
Flexibly Managed(1)	0.60	%	0.23	%	0.00	%	0.83	%	0.00	%	0.83	%
Growth Stock(1)	0.63	%	0.31	%	0.00	%	0.94	%	0.00	%	0.94	%
Large Cap Value(1)	0.60	%	0.28	%	0.00	%	0.88	%	0.00	%	0.88	%(6)
Large Cap Growth(1)	0.55	%	0.32	%	0.00	%	0.87	%	0.00	%	0.87	%(6)
Index 500(1)	0.07	%	0.28	%	0.00	%	0.35	%	0.00	%	0.35	%(6)
Mid Cap Growth(1)	0.70	%	0.31	%	0.00	%	1.01	%	0.00	%	1.01	%(6)
Mid Cap Value(1)	0.55	%	0.28	%	0.00	%	0.83	%	0.00	%	0.83	%(6)
Strategic Value(1)	0.72	%	0.34	%	0.00	%	1.06	%	0.00	%	1.06	%(6)
Small Cap Growth(1)	0.74	%	0.28	%	0.00	%	1.02	%	0.00	%	1.02	%
Small Cap Value(1)	0.85	%	0.30	%	0.00	%	1.15	%	0.00	%	1.15	%
International Equity(1)	0.85	%	0.33	%	0.00	%	1.18	%	0.00	%	1.18	%(6)
REIT(1)	0.70	%	0.29	%	0.00	%	0.99	%	0.00	%	0.99	%
Large Core Growth	0.56	%	0.27	%(2)	0.00	%	0.83	%	0.19	%(5)	0.64	%
Large Core Value	0.46	%	0.27	%(2)	0.00	%	0.73	%	0.19	%(5)	0.54	%
SMID Cap Growth	0.75	%	0.30	%(2)	0.00	%	1.05	%	0.00	%	1.05	%
SMID Cap Value	0.95	%	0.30	%(2)	0.00	%	1.25	%	0.11	%(5)	1.14	%
Emerging Markets Equity	1.25	%	0.40	%(2)	0.02	%	1.67	%	0.07	%(5)	1.60	%
Small Cap Index	0.30	%	0.35	%(2)	0.00	%	0.65	%	0.10	%(5)	0.55	%
Developed International Index	0.30	%	0.37	%(2)	0.00	%	0.67	%	0.08	%(5)	0.59	%
Balanced	0.00	%	0.22	%(2)	0.45	%(4)	0.67	%	0.05	%(5)	0.62	%
Aggressive Allocation	0.10	%	0.23	%(2)	1.10	%(4)	1.43	%	0.13	%(5)	1.30	%
Moderately Aggressive Allocation	0.10	%	0.23	%(2)	0.99	%(4)	1.32	%	0.11	%(5)	1.21	%
Moderate Allocation	0.10	%	0.23	%(2)	0.94	%(4)	1.27	%	0.10	%(5)	1.17	%
Moderately Conservative Allocation	0.10	%	0.23	%(2)	0.85	%(4)	1.18	%	0.07	%(5)	1.11	%
Conservative Allocation	0.10	%	0.23	%(2)	0.75	%(4)	1.08	%	0.06	%(5)	1.02	%

(1) These expenses are for the fiscal year ended December 31, 2007.

(2) These expenses are based on estimated amounts for the current fiscal year.

(3) Acquired Fund Fees and Expenses reflect the fees and expenses that were incurred indirectly by the Fund through its investments in other investment companies in the prior fiscal year.

(4) Acquired Fund Fees and Expenses reflect the estimated amount of the fees and expenses that will be incurred indirectly by the Fund through its investments in the underlying funds during the current fiscal year.

(5) The Administrative and Corporate Services Agent has contractually agreed under the administrative and corporate services agreement to waive a portion of its fees and/or reimburse expenses to the extent necessary to keep total operating expenses of certain funds from exceeding the amounts shown below. This agreement is limited to a Fund’s direct operating expenses and, therefore, does not apply to acquired fund fees and expenses (excluding the Balanced Fund), which are indirect expenses incurred by each Fund through its investments in the underlying funds. Further, this agreement continues indefinitely so long as the Board of Directors, including a majority of the Directors who are not “interested persons” of the Company, approves it at least annually.

Large Core Growth		0.64%
Large Core Value		0.54%
SMID Cap Value		1.14%
Emerging Markets Equity		1.58%
Small Cap Index		0.55%
Developed International Index		0.59%
Balanced		0.62%
Aggressive Allocation		0.20%
Moderately Aggressive Allocation		0.22%
Moderate Allocation		0.23%
Moderately Conservative Allocation		0.26%
Conservative Allocation		0.27%

(6) Certain sub-advisers have directed certain portfolio trades to a broker. A portion of the commissions paid to that broker has been recaptured by the Funds. The total expenses for the Funds after the recapture (not including each Fund’s acquired fund fees and expenses) were:

Large Cap Value	0.86	%
Large Cap Growth	0.83	%
Mid Cap Growth	0.97	%
Mid Cap Value	0.79	%
Strategic Value	1.04	%
International Equity	1.16	%

Neuberger Berman Advisers Management Trust (a)

Underlying Fund Annual Expenses (as a % of portfolio average net assets)

	Management Fee		Other Expenses		Total Fund Expenses

Balanced	0.55	%	0.61	%	1.16	%

(a) These expenses are for the fiscal year ended December 31, 2007.

Fidelity Investments’ Variable Insurance Products Fund (a)

Underlying Fund Annual Expenses (as a % of portfolio average net assets)

	Management Fee		Other Expenses		Total Fund Expenses

Equity-Income	0.46	%	0.09	%	0.55	%
Growth	0.56	%	0.09	%	0.65	%

(a)	These expenses are for the fiscal year ended December 31, 2007. Some of the brokerage commissions paid by the funds reduced the expenses shown in this table. With these reductions, net total expenses were 0.54% for the Equity-Income Portfolio and 0.64% for the Growth Portfolio .

Fidelity Investments’ Variable Insurance Products Fund II (a)

Underlying Fund Annual Expenses (as a % of portfolio average net assets)

	Management Fee		Other Expenses		Total Fund Expenses

Asset Manager	0.51	%	0.12	%	0.63	%

(a) These expenses are for the fiscal year ended December 31, 2007. Some of the brokerage commissions paid by the fund reduced the expenses shown in this table. With these reductions, net total expenses were 0.62%.

Van Kampen’s The Universal Institutional Funds, Inc. (a)

Underlying Fund Annual Expenses (as a % of portfolio average net assets)

	Management Fee		Other Expenses		Acquired Fund Fees and Expenses		Total Fund Expenses

Emerging Markets Equity (International)	1.21	%	0.37	%	0.02	%	1.60	%

(a) These expenses are for the fiscal year ended December 31, 2007.

Please review these tables carefully. They show the expenses that you pay directly and indirectly when you purchase a Policy. Your expenses include Policy expenses and the expenses of the Funds that you select. The prospectuses of Penn Series Funds, Inc., Neuberger Berman Advisers Management Trust, Fidelity Investments’ Variable Insurance Products Fund, Fidelity Investments’ Variable Insurance Products Fund II and Van Kampen’s The Universal Institutional Funds, Inc. accompany this prospectus. These prospectuses contain additional information regarding these Funds’ expenses.

QUESTIONS AND ANSWERS

This part of the prospectus provides answers to important questions about the Policy. The questions, and answers to the questions, are on the following pages.

Question		Page

What Is the Policy?		18
Who Owns the Policy?		18
What Payments Must I Make Under the Policy?		19
How Are Amounts Credited to the Separate Account?		21
How Much Life Insurance Does the Policy Provide?		21
Can I Change Insurance Coverage Under the Policy?		22
What Is the Value of My Policy?		23
How Can I Change the Policy’s Investment Allocations?		24
What Are the Fees and Charges Under the Policy?		26
What Are the Supplemental Benefit Riders That I Can Buy?		29
What Is a Policy Loan?		32
How Can I Withdraw Money From the Policy?		32
Can I Choose Different Payout Options Under the Policy?		33
How Is the Policy Treated Under Federal Income Tax Law?		34
Are There Other Charges That Penn Mutual Could Deduct in the Future?		37
How Do I Communicate With Penn Mutual?		37
What Is the Timing of Transactions Under the Policy?		38
How Does Penn Mutual Communicate With Me?		38
Do I Have the Right to Cancel the Policy?		39

What Is the Policy?

The Policy provides life insurance on you or another individual you name. The value of your Policy will increase or decrease based upon the performance of the investment funds you choose. The death benefit may also increase or decrease based on investment performance but will never be less than the amount specified in your Policy. The Policy also allows you to allocate your policy value to subaccounts of the Separate Account (which hold shares of the funds listed on the first two pages of this prospectus) and to a fixed interest account where the value will accumulate interest.

You will have several options under the Policy. Here are some major ones:

· Determine when and how much you pay to us

· Determine when and how much to allocate to subaccounts of the Separate Account and to the fixed account

· Borrow money

· Change the beneficiary

· Change the amount of insurance protection

· Change the death benefit option you have selected

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

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

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

If you want to purchase a Policy, you must complete an application and submit it to one of our authorized agents. We require satisfactory evidence of insurability, which may include a medical examination. We evaluate the information provided in accordance with our underwriting rules and then decide whether to accept or not accept the application. Insurance coverage under the Policy is effective on the policy date after we accept the application.

The maturity date of a Policy is the policy anniversary nearest the insured’s 95th birthday. If the Policy is still in force on the maturity date, a maturity benefit will be paid. The maturity benefit is equal to the policy value less any policy loan, including any capital interest on any such loan (“Net Policy Value”) on the maturity date. Upon written request of the owner, the Policy will continue in force beyond the maturity date. Thereafter, the death benefit will be the Net Policy Value.

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 you are the owner or the person who has whatever right or privilege we are discussing.

What Payments Must I Make Under the Policy?

Premium Payments

Amounts you pay to us under your Policy are called “premiums” or “premium payments.” The amount we require as your first premium depends on a number of factors, such as age, sex, rate classification, the amount of insurance specified in the application, and any supplemental benefits. Sample minimum initial premiums (also referred to as no-lapse 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 at risk.

We reserve the right to limit total premiums paid in a policy year to the planned premiums you select in your application. Federal tax law limits the amount of premium payments you may make in relation to the amount of life insurance provided under the Policy. We will not accept or retain a premium payment that exceeds the maximum permitted under federal tax law. See How Is the Policy Treated Under Federal Income Tax Law? in this prospectus.

If you make a premium payment that exceeds certain other limits imposed under federal tax law, your Policy could become a “modified endowment contract” under the Code; you could incur a penalty on the amount you take out of a “modified endowment contract.” We will monitor your Policy and will endeavor to notify you on a timely basis if you are about to exceed this limit and the Policy is in jeopardy of becoming a “modified endowment contract” under the Code. See How Much Life Insurance Does the Policy Provide? and How Is the Policy Treated Under Federal Income Tax Law? in this prospectus.

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 choose 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 value to pay policy charges. See Three Year No-Lapse Feature and Lapse and Reinstatement below.

Ways to Pay Premiums

If you pay premiums by check, your check 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 as follows: 1) checks sent by mail: The Penn Mutual Life Insurance Company, Payment Processing Center, P.O. Box 7460, Philadelphia, PA 19101-7460, and 2) checks sent by overnight delivery: The Penn Mutual Life Insurance Company, Payment Processing Center, L/B 7460, Route 38 & East Gate Drive, Moorestown, NJ 08057.

We will also accept premiums:

· by wire or by exchange from another insurance company,

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

· 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.

Three Year No-Lapse Feature

Your Policy will remain in force during the first three policy years, regardless of investment performance 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 “no-lapse premium” specified in your Policy, multiplied by the number of months the Policy has been in force.

If you increase the specified amount of insurance under your Policy during the first three policy years, we will extend the three year no-lapse provision to three years after the effective date of the increase.

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

The three year no-lapse feature will not apply if the amount borrowed under your Policy results in a policy loan amount in excess of the maximum loan amount. See What Is a Policy Loan? in this prospectus.

Lapse and Reinstatement

If the net cash surrender value of your Policy is not sufficient to pay policy charges, and the three 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” from the date we notify you 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 you die during the grace period, we will pay the death benefit to your beneficiary less any unpaid policy charges and outstanding policy loans.

If the Policy terminates, you can apply to reinstate it within five years from the beginning of the grace period if the insured is alive. You will have to provide evidence that the insured person 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.

Premiums Upon an Increase in the Specified Amount

If you increase the specified amount of insurance, you may wish to pay an additional premium or make a change in planned premiums. See Can I Change Insurance Coverage Under the Policy? in this prospectus. We will notify you if an additional premium or a change in planned premiums is necessary.

How Are Amounts Credited to the Separate Account?

From each premium payment you make, we deduct a premium charge. We allocate the rest to the investment options you have selected (except, in some states, the initial net premium will be allocated to the Penn Series Money Market Fund subaccount during the free look period).

When a payment is allocated to a subaccount of the Separate Account, or transferred from one subaccount of the Separate Account to another, accumulation units of the receiving subaccount are credited to the Policy. The number of accumulation units credited is determined by dividing the amount allocated or transferred by the value of an accumulation unit of the subaccount for the current valuation period. A valuation period is the period from one valuation of Separate Account assets to the next.

For each subaccount of the Separate Account, the value of an accumulation unit was set at $10 when the subaccount was established and is valued each day shares of the fund held in the subaccount are valued (normally as of the close of business each day the New York Stock Exchange is opened for business). It is valued by multiplying the accumulation unit value for the prior valuation period by the net investment factor for the current valuation period.

The net investment factor is an index used to measure the investment performance of each subaccount of the Separate Account from one valuation period to the next. The net investment factor is determined by dividing (a) by (b), where

(a) is the net asset value per share of the fund held in the subaccount, as of the end of the current valuation period, plus the per share amount of any dividend or capital gain distributions by the fund if the “ex-dividend date” occurs in the valuation period and the deduction of the daily mortality and expense risk charge; and

(b) is the net asset value per share of the fund held in the subaccount as of the end of the last prior valuation period.

How Much Life Insurance Does the Policy Provide?

In your application for the Policy, you tell us how much life insurance coverage you want on the life of the insured. This is called the “specified amount” of insurance. The minimum specified amount of insurance that you can purchase is $50,000.

Death Benefit Options

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

· Option 1 - The death benefit is the greater of (a) the specified amount of insurance, or (b) the “applicable percentage” of the policy value on the date of the insured’s death.

· 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 “applicable percentage” of the policy value on the date of the insured’s death.

The “applicable percentage” is 250% when the insured has attained age 40 or less and decreases to 100% when the insured attains age 95. A table showing the “applicable percentages” for attained ages 0 to 95 is included as Appendix B.

If the investment performance of the variable account investment options you have chosen is favorable, the amount of the death benefit may increase. However, under Option 1, favorable investment performance will not ordinarily increase the death benefit for several years and may not increase it at all, whereas under Option 2, the death benefit will vary directly with the investment performance of the policy value.

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

Can I Change Insurance Coverage Under the 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:

· after the change, the specified amount of insurance must be at least $50,000;

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

· 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 insured, the requested change will not be allowed.

Changes in the Specified Amount of Insurance

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

· you must submit an application along with evidence of insurability acceptable to Penn Mutual;

· you must return your Policy so we can amend it to reflect the increase;

· any increase in the specified amount must be at least $10,000; and

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

If you increase the specified amount within the first three policy years, the three year no-lapse period will be extended.

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

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

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

· no decrease may be made within one year of an increase in the specified amount; and

· any decrease in the specified amount of insurance must be at least $5,000, and the specified amount after the decrease must be at least $50,000.

Tax Consequences of Changing Insurance Coverage

See How Is the Policy Treated Under Federal Income Tax Law? in this prospectus to learn about possible tax consequences of changing your insurance coverage under the Policy.

What Is the Value of My Policy?

Your policy value, which is allocated (or transferred) to subaccounts of the Separate Account in accordance with your direction, will vary with the investment performance of the shares of the funds held in the subaccount.

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 3%. The current declared rate will appear in the annual statement we will send to you. If you want to know what the current declared rate is, simply call or write to us. Amounts you allocate to the fixed interest option will not be subject to the mortality and expense risk charge described later in this section. Your policy value will be affected by deductions we make from your Policy for policy charges.

At any time, your policy value is equal to:

· the net premiums you have paid;

· plus or minus the investment results in the part of your policy value allocated to subaccounts of the Separate Account;

· plus interest credited to the amount in the part of your policy value (if any) allocated to the fixed interest option;

· minus policy charges we deduct; and

· minus partial surrenders you have made.

If you borrow money under your Policy, other factors affect your policy value. See What Is a Policy Loan? in this prospectus.

How Can I Change the 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:

· 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);

· 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;

· we may defer transfers under certain conditions;

· transfers may not be made during the free look period; and

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

The Policy is not designed for individuals and professional market timing organizations that use programmed and frequent transfers among investment options. We therefore may restrict market timing when we believe it is in the interest of all of our policy owners to do so. However, we may not be able to detect all market timing and may not be able to prevent frequent transfers, and any possible harm caused, by those we do detect. We will notify you in writing in a timely manner of any actions we take to restrict your ability to make transfers.

Frequent Trading Risks

We did not design this variable life policy and the available subaccounts to accommodate market timing or frequent transfers between the subaccounts. Frequent exchanges among subaccounts and market timing by policy owners can reduce the long—term returns of the underlying funds. The reduced returns could adversely affect the policy owners, annuitants, insureds or beneficiaries of any variable annuity or variable life insurance contract issued by any insurance company with respect to values allocated to the underlying fund. Frequent exchanges may reduce the underlying fund’s performance by increasing costs paid by the fund (such as brokerage commissions); they can disrupt portfolio management strategies; and they can have the effect of diluting the value of the shares of long term shareholders in cases in which fluctuations in markets are not fully priced into the fund’s net asset value.

The insurance–dedicated funds available through the subaccounts generally cannot detect individual policy owner exchange activity because they are owned primarily by insurance company separate accounts that aggregate exchange orders from owners of individual contracts. Accordingly, the funds are dependent in large part on the rights, ability and willingness of the participating insurance companies to detect and deter short–term trading by policy owners.

As outlined below, we have adopted policies regarding frequent trading, but there is the risk that these policies and procedures concerning frequent trading will prove ineffective in whole or in part in detecting or preventing frequent trading. As a result of these limitations, some policy owners may be able to engage in frequent trading, while other policy owners will bear the affects of such frequent trading. Please review the underlying funds’ prospectuses for specific information about the funds’ short–term trading policies and risks.

Frequent Trading Policies

We have adopted policies and procedures designed to discourage frequent trading as described below. We intend to monitor on an ongoing basis the operation of these policies and procedures and may, at any time without notice to policy owners, revise them in any manner not inconsistent with the terms of the Policy. If requested by the investment adviser and/or sub-adviser of an underlying fund, we will consider additional steps to discourage frequent trading. In addition, we reserve the right to reject any purchase payment or exchange request at any time for any reason.

We have adopted certain procedures to detect frequent trading. If it appears that market timing activity is occurring or the transfer frequency would be expected to have a detrimental impact on the affected funds, the following steps will be taken on a uniform basis:

1. A letter is sent to the policy owner and to the registered representative associated with the Policy reiterating the policy with respect to frequent transfers and urging a cessation of any market timing or frequent transfer activity.

2. If market timing or frequent transfer activity continues after the initial letter, a second letter is sent requiring that all subsequent transfer requests be submitted in writing containing the policy owner’s original signature. Thereafter, any attempt to make a transfer request electronically, telephonically or by facsimile will be rejected.

3. Any Policies which have been the subject of a letter referred to in paragraph 1 or 2 will be subject to special monitoring to determine whether the potentially detrimental frequent trading has ceased.

Dollar Cost Averaging

This program automatically makes monthly transfers from the money market variable investment option to one or more of the other investment options and to the fixed interest 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 assure a profit or protect against loss 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 elect to participate in the program when you apply for your Policy or, after you have owned your Policy, by completing an election form or by calling our office. You may discontinue the program at any time.

Asset Rebalancing

chosen. Rebalancing can result in transferring amounts from a variable investment option with relatively higher investment performance to one with relatively lower investment performance. The minimum policy value to start the program is $1,000. If you also have a dollar cost averaging program in effect, the portion of your policy value invested in the Money Market Fund may not be included in the rebalancing program. You may elect to participate in the program when you apply for your Policy or, after you have owned your Policy, by completing an election form or by calling our office. You may discontinue the program at any time.

What Are the Fees and Charges Under the Policy?

Premium Charge

· Premium Charge - 6.5% (currently reduced to 4.75% for all premiums paid in excess of the maximum surrender charge premium in the first policy year and for all premiums paid in policy years two and later) is deducted from premium payments before allocation to the investment options. It consists of 2.5% to cover state premium taxes and 4% (currently reduced to 2.25% for all premiums paid in excess of the maximum surrender charge) to partially compensate us for the expense of selling and distributing the Policies. We will notify you in advance if we change our current rates.

Monthly Deductions

· 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 and the insurance risk characteristics. We place insureds in a rate class when we issue the Policy and when an increase in coverage is effective, based on our examination of information bearing on insurance risk. We currently place people we insure in the following rate classes: a tobacco, a non-tobacco or preferred non-tobacco rate class, or a rate class involving a higher mortality risk (a “substandard class”). Insureds age 19 and under are placed in a rate class that does not distinguish between tobacco and non-tobacco rates. In all states except New Jersey, they are assigned to a tobacco class at age 20 unless they have provided satisfactory evidence that they qualify for a non-tobacco class. When an increase in the specified amount of insurance is requested, we determine whether a different rate will apply to the increase based on the age of the insured on the effective date of the increase and the risk class of the insured on that date. The charge is deducted pro-rata from your variable investment and fixed interest accounts.

· Administrative Charge - A maximum monthly charge to help cover our administrative costs. This charge has three parts: (1) a flat dollar charge of up to $9.00 (currently, the flat dollar charge is $9.00 in the first policy year and $5.00 thereafter — we will notify you in advance if we change our current rates); (2) for the first 12 months after the policy date, a charge based on the initial specified amount of insurance ($0.10 per $1,000 per month of initial specified amount of insurance); and (3) for the first 12 months after an increase in the specified amount of insurance, a charge based on the increase ($0.10 per $1,000 increase in the 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. The charge is deducted pro-rata from your variable investment and fixed interest accounts.

Daily Mortality and Expense Risk Charge

A daily charge to cover mortality and expense risk. We deduct a daily charge from your policy value which is allocated to the variable investment options. The charge does not apply to the fixed interest option. It is guaranteed not to exceed 0.90% annually for the duration of the Policy. Our current charge is 0.90% annually of assets of the policy value allocated in the variable accounts. After the fifteenth policy year, we intend to charge 0.60% annually. We will notify you in advance if we change our current rates. We may realize a profit from the charge, and if we do, it will become part of our surplus. The mortality risk we assume is the risk that the persons we insure may die sooner than anticipated and that Penn Mutual will pay an aggregate amount of death benefits greater than anticipated. The expense risk we assume is the risk that expenses incurred in issuing and administering the policies and the Separate Account will exceed the amount we charge for administration.

Optional Supplemental Benefit Charges

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

Transfer Charge

We reserve the right to impose a $10 charge on any transfer of policy value among investment funds and/or the fixed interest option if the transfer exceeds 12 transfers in a policy year. We will notify policy owners in advance if we decide to impose the charge. We will not impose a charge on any transfer made under dollar cost averaging or asset rebalancing. Also, we will not impose a charge on any transfer which exceeds $4,999,999.

Surrender Charge

If you surrender your Policy within the first 11 policy years or within 11 years of an increase in the specified amount of insurance under your Policy, we will deduct a surrender charge from your policy value.

With respect to a surrender within the first 11 policy years, the surrender charge equals (a) plus (b), multiplied by (c), where:

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

(b) is an administrative charge based on the initial amount of insurance and the insured’s age at the issue date (ranging from $1.00 up to attained age 9 to $7.00 at attained age 60 and over, per $1,000 of initial specified amount of insurance); and

With respect to a surrender within 11 years of an increase in the specified amount of insurance under your Policy, the surrender charge is based on the amount of the increase and on the attained age of the insured at the time of the increase. The charge equals (a) multiplied by (b), where:

(a) is an administrative charge based on the increase in the initial amount of insurance and the insured’s attained age on the effective date of the increase (ranging from $1.00 up to attained age

9 to $7.00 at attained age 60 and over, per $1,000 of increase in specified amount of insurance); and

(b) is the applicable surrender factor from the table below, assuming for this purpose only that the first policy year commences with the policy year in which the increase in specified amount of insurance becomes effective.

Surrender During Policy Year		Surrender Factor
1st through 7th		1.00
8th		0.80
9th		0.60
10th		0.40
11th		0.20
12th and later		0.00

If the Policy is surrendered within the first 11 policy years, the surrender charge consists of a sales charge component and an administrative charge component. The sales charge component is to reimburse us for some of the expenses incurred in the distribution of the Policies. The sales charge component, together with the sales charge component of the premium charge, may be insufficient to recover distribution expenses related to the sale of the Policies. Our unrecovered sales expenses are paid for from our surplus. The administrative charge component covers administrative expenses associated with underwriting and issuing the Policy, including the costs of processing applications, conducting medical exams, determining insurability and the insured’s rate class, and creating and maintaining policy records, as well as the administrative costs of processing surrender requests.

If the Policy is surrendered after the first 11 years, but within 11 years of an increase in the specified amount of insurance, the surrender charge consists solely of an administrative charge for administrative expenses associated with the increase in the specified amount of insurance.

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.

Reduction of Charges

This Policy is available for purchases by corporations and other groups or sponsoring organizations on a case basis. We reserve the right to reduce the premium charge or any other charges on certain cases, where it is expected that the amount or nature of such cases will result in savings of sales, underwriting, administrative or other costs. Eligibility for these reductions and the amount of reductions may be determined by a number of factors, including but not limited to, the number of lives to be insured, the total premiums expected to be paid, total assets under management for the policy owner, the nature of the relationship among the insured individuals, the purpose for which the Policies are being purchased, the expected persistency of the Policies and any other circumstances which we believe to be relevant to the expected reduction of expenses.

We also reserve the right to reduce premium charges or any other charges under a Policy where it is expected that the issuance of the Policy will result in savings of sales, underwriting, administrative or other costs. In particular, we would expect such savings to apply, and our expenses to be reduced, whenever a Policy is issued in exchange for another life insurance policy issued or administered by us.

Some of these reductions may be guaranteed, and others may be subject to withdrawal or modification by us. All reductions will be uniformly applied, and they will not be unfairly discriminatory against any person.

What Are the Supplemental Benefit Riders That I Can Buy?

We offer supplemental benefit riders that may be added to your Policy. If any of these riders are added, the monthly charges for the supplemental benefits will be deducted from your policy value, in addition to the charges paid under the base Policy.

Accidental Death Benefit Agreement

This Agreement provides an additional death benefit if the insured’s death results from accidental causes as defined in the Agreement. This Agreement is not available for all Policies. The cost of insurance rates for this Agreement is based on the age, gender and rate class of the insured. You may add this Agreement to your base Policy only at the time you purchase your Policy. This Agreement is not available if you choose the Guaranteed Continuation of Policy Rider. The benefits provided under the Agreement are subject to the provisions in the Agreement.

Additional Insured Term Insurance Agreement

This Agreement provides term insurance on other persons in addition to the insured, in amounts specified in the Additional Policy Specification in the Policy. If the named insured in the Policy dies, the term insurance on the additional insured person will continue for 90 days during which time it may be converted into permanent insurance. The term insurance may be converted to a life policy without evidence of insurability.

Under the Agreement, we will deduct the cost of insurance charges from the cash value of the Policy and a separate charge of $0.10 per $1,000 of specified amount of insurance for each additional insured during the first twelve months of the Agreement. If the specified amount of insurance has increased for an additional insured, we will deduct a charge of $0.10 per $1,000 of the increased specified amount during the first twelve months of the increase. The cost of insurance rates are based on the age, gender and rate class of the additional insured. This Agreement can be elected at any time, as long as the insured meets our underwriting requirements, and it is not available if you choose the Guaranteed Continuation of Policy Rider. The benefits provided under the Agreement are subject to all of the provisions in the Policy.

Children’s Term Insurance Agreement

This Agreement provides term insurance on one or more children of the insured of the Policy in amounts specified in the Additional Policy Specifications in the Policy. If the named insured in the Policy dies, the term insurance on the insured child will continue until the anniversary of the Policy nearest the insured child’s twenty-third birthday, and we will waive the cost of insurance for the term insurance. On the anniversary of the Policy nearest the child’s twenty-third birthday, the Agreement may be converted without evidence of insurability to a new life insurance policy.

Under the Agreement, we will deduct a cost of insurance charge. The cost of insurance charge is a flat monthly charge of $0.15 per $1,000 of rider specified amount without regard to the number of children, their ages, or gender. The cost of insurance rate will not exceed $0.24 per $1,000 of rider specified amount per month. This Agreement can be elected at any time. The benefits provided by the Agreement are subject to the provisions in the Agreement.

Disability Waiver of Monthly Deduction Agreement

This Agreement provides a waiver of the monthly deductions from the value of the policy value upon disability of the insured. The cost of insurance charges for this benefit are based upon the insurance provided under the Policy and the value of the Policy. The rates are based on the attained age, gender and rate class of the insured. The rates will not exceed those set forth in the Additional Policy Specifications in the Policy. Monthly deductions for this benefit are made until the policy anniversary nearest the insured’s sixty-fifth birthday. This Agreement can be elected at any time, as long as the insured meets underwriting requirements. The benefits provided under this Agreement are subject to the provisions of the Agreement.

Disability Waiver of Monthly Deduction and Disability Monthly Premium Deposit Agreement

This Agreement provides a waiver of the monthly deductions from the policy value and payment by us of a stipulated premium upon disability of the insured. The stipulated premium is stated in the Policy. The cost of insurance for waiver of the monthly deductions is based on the insurance provided by the base Policy and the value of the Policy. The cost of insurance for the monthly premium deposit is based on the amount of the stipulated premium. The cost of insurance rates is based on the issue age, gender and rate class of the insured. The rates will not exceed the rates shown in the Additional Policy Specifications section of the Policy. This Agreement can be elected at any time, as long as the insured meets underwriting requirements. This benefit is subject to the provisions in the Agreement.

Guaranteed Continuation of Policy Agreement

This Agreement provides that the insurance provided under the Policy will not lapse even if the cash surrender value of the Policy goes to zero, as long as the sum of the gross premiums paid less the sum of partial withdrawals, policy loans and unpaid interest equals or exceeds the “total guaranteed continuation of policy premium.” The “total guaranteed continuation of policy premium” is based upon issue age, gender, rate class, other policy benefits and the death benefit option chosen, and is stated in the Policy. If the insured is disabled, and premiums are being paid pursuant to a Disability Monthly Premium Deposit Agreement, the “total guaranteed continuation of policy premium” is the stipulated premium defined in that Agreement. While this Agreement is in force, the allocation or transfer of amounts to subaccounts of the Separate Account may be restricted. The monthly charge for this Agreement is $0.01 per $1,000 of the specified amount of insurance in the Policy. You may add this Agreement to your base Policy only at the time you purchase your Policy. This Agreement is not available with either the Accidental Death Benefit Rider or the Additional Insured Term Insurance Rider. This benefit is subject to the provisions in the Agreement.

Guaranteed Option to Increase Specified Amount Agreement

This Agreement provides the owner of the Policy with the option to increase the specified amount of insurance in the Policy without providing evidence of insurability. The option may be exercised as of any of the regular option dates or as of any alternative option date. The regular option dates are the anniversaries of the Policy nearest the insured’s birthday at ages 22, 25, 28, 31, 34, 37 and 40. In addition, subject to certain conditions, the option may be exercised on the ninetieth day following marriage of the insured, live birth of a child of the insured and legal adoption by the insured of a child less than 18 years of age. The cost of insurance charge for the Agreement is based on the attained age, gender and rate class of the insured. The cost of insurance rates for this Agreement, combined with the cost of insurance rates in the Policy, will not exceed the rates shown in the Additional Policy Specifications in the Policy. You may add this Agreement to your base Policy only at the time you purchase your Policy. This option is subject to the provisions in the Agreement.

Supplemental Term Insurance Agreement

This Agreement adds a term insurance benefit to the Policy. The term insurance benefit may not exceed four times the amount of insurance specified in the policy. The benefits provided under the Agreement are subject to all of the provisions in the Policy.

Under the Agreement, we will deduct the cost of insurance charges from the cash value of the Policy and a separate charge of $0.10 per $1,000 of specified amount of insurance for the first twelve months of the Agreement. If the specified amount of insurance has increased, we will deduct a charge of $0.10 per $1,000 of the increased specified amount during the first twelve months of the increase. The cost of insurance rates are based on the age, gender and rate class of the additional insured.

The monthly deductions under the Policy will include a cost of insurance charge for the term insurance added by the Agreement. The cost of insurance rates for the term insurance will not exceed those shown for the Agreement in the Additional Policy Specifications in the Policy.

You may add this Agreement to your base Policy only at the time you purchase your Policy.

Supplemental Exchange Agreement

The Agreement provides that within one year following termination of a business relationship, which existed between the owner of the Policy and the insured at the time the Policy was issued, the Policy may be exchanged for a new Policy on the life of a new insured, subject to conditions set forth in the Agreement, including the new insured must have the same business relationship to the owner as the insured under the Policy to be exchanged, the new insured must submit satisfactory evidence of insurability, the Policy to be exchanged must be in force and not in a grace period, the owner must make a written application for the exchange and the owner must surrender all rights in the Policy to be exchanged. This Agreement is automatically added to corporate-owned Policies.

Accelerated Death Benefit Agreement

The Accelerated Death Benefit Rider provides the insured access to a portion of death benefit while the insured is living. The following provisions apply:

· The amount of death benefit proceeds you can access must be at least $10,000, but no more than the lesser of 50% of the total death benefit amount or $250,000. In New Jersey and South Carolina, the maximum limit is $100,000 per policy. In New York, the amount of benefit that you can access will be not less than $50,000 or 25% of the face amount, and cannot exceed 50% of the face amount.

· The insured must be diagnosed by a licensed physician of the United States as being terminally ill with a life expectancy of 12 months or less (24 months or less in Massachusetts). The physician may not be the owner, insured, beneficiary, or relative of the insured.

· Penn Mutual reserves the right, at its own expense, to seek additional medical opinions in order to determine benefit eligibility.

The amount you access under this Agreement will reduce the death benefit that is payable under the base Policy upon the death of the insured.

adjustment. The interest adjustment equals 12 months’ worth of interest on the accelerated amount based on a rate that is the greater of (a) the current 90-day Treasury bill rate, or (b) the current policy loan rate.

General Rules and Limitations

Additional rules and limitations 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.

What Is a Policy Loan?

You may borrow up to 90% of your cash surrender value. The minimum amount you may borrow is $250.

Interest charged on a policy loan is 5% and is payable at the end of each policy year. If interest is not paid when due, it is added to the loan. An amount equivalent to the loan is withdrawn from subaccounts of the Separate Account and the fixed interest option on a prorated basis (unless you designate a different withdrawal allocation when you request the loan) and is transferred to a special loan account. Amounts withdrawn from the investment options cease to participate in the investment experience of the Separate Accounts. The special loan account will earn interest at 4% (or more at 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.

If your Policy lapses (see What Payments Must Be Paid Under the Policy?) and you have a loan outstanding under the Policy, you may have to pay federal income tax on the amount of the loan, to the extent there is gain in the Policy. See How Is the Policy Treated Under Federal Income Tax Law? in this prospectus.

The amount of any loan outstanding under your Policy on the death of the insured will reduce the amount of the death benefit by the amount of such loan. The outstanding loan amount is deducted in determining net cash surrender value of the Policy.

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 the Policy?

Full Surrender

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

Partial Surrender

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

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

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

· each partial surrender must be at least $250;

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

· during the first five policy years, the partial surrender may not reduce the specified amount of insurance under your Policy to less than $50,000.

If you elect Death Benefit Option 1 (see How Much Life Insurance Does the Policy Provide? in this prospectus), a partial surrender may reduce your specific amount of insurance – by the amount by which the partial surrender exceeds the difference between (a) the death benefit provided under the Policy, and (b) the specified amount of insurance. If you have increased the initial specified amount, any reduction will be applied to the most recent increase.

Partial surrenders reduce the policy value and net cash surrender value by the amount of the partial surrender.

Partial surrenders will be deducted from subaccounts of the Separate Account and the fixed account in accordance with your directions. In the absence of such direction, the partial surrender will be deducted from subaccounts and/or the fixed account on a pro-rata basis.

Can I Choose Different Payout Options Under the 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, including payment of interest on the proceeds payable, interest income, income for a fixed period, life income, life income for guaranteed period, life income with refund period, joint and survivor life income. Periodic payments may not be less than $50 each.

Changing a Payment Option

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

Tax Impact of Choosing a Payment Option

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

How Is the Policy Treated Under Federal Income Tax Law?

Death benefits paid under contracts that qualify as life insurance policies under federal income tax law are not subject to income tax. Investment gains credited to such policies are not subject to income tax as long as they remain in the Policy. 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 the return of investment in the Policy and then, only after the return of all investment in the Policy, as distribution of taxable income. Amounts borrowed under the Policy also are not generally subject to federal income tax at the time of the borrowing. 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 qualifying as life insurance. 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 of the Internal Revenue Code of 1986, as amended (the “Code”).

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

owners may direct their investments to particular subaccounts without being treated as owners of the underlying shares. The Internal Revenue Service (“IRS”) has issued Revenue Ruling 2003-91, in which it ruled that the ability to choose among 20 subaccounts and make not more than one transfer per month without charge did not result in the owner of a policy being treated as the owner of the assets in the subaccount under the investment control doctrine.

The ownership rights under the Policies are similar to, but different in certain respects from, those described by the IRS in Revenue Ruling 2003-91 and other rulings in which it was determined that policy owners were not owners of the subaccount assets. Although we do not believe this to be the case, these differences could result in Policy owners being treated as the owners of the assets of the subaccounts under the Policies. We, therefore, reserve the right to modify the Policies as necessary to attempt to prevent the owners of the Policies from being considered the owners of a pro rata share of the assets of the subaccounts under the Policies. In addition, it is possible that when regulations or additional rulings are issued, the Policies may need to be modified to comply with them.

IRC Qualification

Your Policy will be treated as a life insurance contract under federal income tax law if it passes the Guideline Premium/Cash Value Corridor Test.

· Under the guideline premium requirement, the sum of the premiums paid under the Policy may not at any time exceed the greater of the guideline single premium or the sum of the guideline level premiums, for the benefits promised under the Policy. Under the cash value corridor requirement, the death benefit at any time must be equal to or greater than the applicable percentage of policy value specified in the Internal Revenue Code.

The Guideline Premium/Cash Value Corridor Test limits the amount of premium that may be paid under the Policy.

Modified Endowment Contracts

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

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

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

The rules relating to whether your 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.

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 59½, 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.

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 your 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.

Other Tax Considerations

The transfer of your Policy or the designation of a beneficiary may have federal, state, and/or local transfer and inheritance tax consequences, including the imposition of gift, estate and generation-skipping transfer taxes. For example, the transfer of the Policy to, or the designation as beneficiary of, or the payment of proceeds to, a person who is assigned to a generation which is two or more generations below the generation of the owner, may have generation skipping transfer tax considerations under Section 2601 of the Code.

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

“IRS”). The summary is not intended as tax advice. 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.

Are There Other Charges That Penn Mutual Could Deduct in the Future?

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.

How Do I Communicate With Penn Mutual?

General Rules

You may mail all checks for premium payments to The Penn Mutual Life Insurance Company, Payment Processing Center, P.O. Box 7460, Philadelphia, Pennsylvania, 19101-7460, or express all checks to The Penn Mutual Life Insurance Company, Payment Processing Center, L/B 7460, Route 38 & East Gate Drive, Moorestown, NJ 08057.

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

· policy loans in excess of $25,000, and full and partial surrenders;

· change of death benefit option;

· changes in specified amount of insurance;

· change of beneficiary;

· election of payment option for policy proceeds; and

· tax withholding elections.

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 have 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 ends at 5:00 p.m. Eastern 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 does not include this required information.

Telephone Transactions

You or the agent of record (pursuant to your instructions) may request transfers among investment options and may change allocations of future premium payments by calling our office. In addition, if you complete a special authorization form, you may authorize a third person, other than the agent of record, to act on your behalf in giving us telephone transfer instructions. We will not be liable for following transfer instructions, including instructions from the agent of record, communicated by telephone that we reasonably believe to be genuine. We also reserve the right to suspend or terminate the privilege altogether at any time. We may require certain identifying information to process a telephone transfer.

What Is the Timing of Transactions Under the Policy?

Planned premium payments and unplanned premium payments which do not require evaluation of additional insurance risk will be credited to the Policy and the net premium will be allocated to the subaccounts of the Separate Account based on values at the end of the valuation period in which we receive the payment. A valuation period is the same as the valuation period of the shares of the funds held in subaccounts of the Separate Account. Loan, partial surrender and full surrender transactions will be based on values at the end of the valuation period in which we receive all required instructions and necessary documentation. In order to receive a day’s closing price, instructions sent by facsimile transmission must be received by our fax server prior to the close of regular trading on that day. Telephone instructions must be received in full, containing all required information and confirmed back to the caller prior to the close of regular trading in order to receive that day’s closing price. Death benefits will be based on values as of the date of death.

We will ordinarily pay the death benefit, loan proceeds and partial or full surrender proceeds, within seven days after receipt at our office of all the documents required for completion of the transaction.

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 Does Penn Mutual Communicate With Me?

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

Do I Have the Right to Cancel the Policy?

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

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

In some states, you will receive a refund of any premiums you have paid. In these states money held under your Policy will be allocated to the Penn Series Money Market investment option during the “free look” period. At the end of the period, the money will be transferred to the investment options you have chosen.

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 issue and sell life insurance and annuities 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.

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 investment funds. They are allocated in accordance with instructions from policy owners.

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

If investment in 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 INVESTMENT 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 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.

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

PricewaterhouseCoopers LLP serves as independent registered public accounting firm for Penn Mutual and the Separate Account. Their offices are located at 2001 Market Street, Suite 1700, Philadelphia, PA 19103.

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.

DISTRIBUTION ARRANGEMENTS

Penn Mutual has a distribution agreement with Hornor, Townsend & Kent, Inc. (“HTK”) to act as principal underwriter for the distribution and sale of the Policies. HTK is affiliated with Penn Mutual and is located at 600 Dresher Road, suite C1C, in Horsham, Pennsylvania, 19044. HTK sells the Policies through its sales representatives. HTK has also entered into selling agreements with other broker-dealers who in turn sell the Policies through their sales representatives. HTK is registered as a broker-dealer with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as well as with the securities commissions in the states in which it operates, and is a member of the Financial Industry Regulatory Authority (“FINRA”).

Penn Mutual enters into selling agreements with HTK and other broker-dealers whose registered representatives are authorized by state insurance and securities departments to solicit applications for the Policies. Sales and renewal compensation are paid to these broker-dealers for soliciting applications as premium-based commission, asset-based commission (sometimes referred to as “trails” or “residuals”), or a combination of the two. Registered representatives may be paid commissions on a Policy they sell based on premiums paid in amounts up to 53.5% of first year premiums of sales (up to 50% for a VUL II policy), 3% on premiums paid during the second through fifteenth policy years, and 1.2% on premiums paid after the first fifteen policy years. In lieu of the renewal commissions just described, registered representatives can opt to receive 1% of premiums paid during the second through tenth policy years, 0% of the premiums paid after the first ten policy years, and an asset-based commission equivalent to an annualized rate of 0.10% of gross policy value during the second through tenth policy years, and a 0.25% of gross policy value after the first ten policy years.

In addition to or partially in lieu of commission, Penn Mutual may also make override payments and pay expense allowances and reimbursements, bonuses, wholesaler fees, and training and marketing allowances. Such payments may offset broker-dealer expenses in connection with activities they are required to perform, such as educating personnel and maintaining records. Registered representatives

may also receive non-cash compensation such as expense-paid educational or training seminars involving travel within and outside the U.S. or promotional merchandise.

Such additional compensation may give Penn Mutual greater access to registered representatives of the broker-dealers that receive such compensation. While this greater access provides the opportunity for training and other educational programs so that your registered representative may serve you better, this additional compensation also may afford Penn Mutual a “preferred’’ status at the recipient broker-dealer (along with other product vendors that provide similar support) and offer some other marketing benefit such as website placement, access to registered representative lists, extra marketing assistance, or other heightened visibility and access to the broker-dealer’s sales force that otherwise influences the way that the broker-dealer and the registered representative market the Policies.

Finally, within certain limits imposed by FINRA, registered representatives who are associated with HTK, as a Penn Mutual broker-dealer affiliate, may qualify for sales incentive programs and other benefits sponsored by Penn Mutual. These HTK registered representatives are also agents of Penn Mutual and upon achievement of specified annual sales goals may be eligible for compensation in addition to the amounts stated above, including bonuses, fringe benefits, financing arrangements, conferences, trips, prizes and awards.

All of the compensation described in this section, and other compensation or benefits provided by Penn Mutual or its affiliates, may be more or less than the overall compensation on similar or other products and may influence your registered representative or broker-dealer to present this Policy rather than other investment options.

Individual registered representatives typically receive a portion of the compensation that is paid to the broker-dealer in connection with the Policy, depending on the agreement between the registered representative and their broker-dealer firm. Penn Mutual is not involved in determining that compensation arrangement, which may present its own incentives or conflicts. You may ask your registered representative how he/she will be compensated for the transaction.

FINANCIAL STATEMENTS

The financial statements of the Separate Account and the consolidated financial statements of Penn Mutual appear in a statement of additional information, which may be obtained from The Penn Mutual Life Insurance Company, Attn: SAI Request, Philadelphia, PA, 19172. Or you can call toll-free at 1-800-523-0650. The consolidated 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.

APPENDIX A

SAMPLE MINIMUM INITIAL PREMIUMS

The following table shows for insureds of varying ages, the minimum initial premium for a Policy with a basic death benefit indicated. This table assumes the Insured will be placed in a nonsmoker class and that no supplemental benefits will be added to the base Policy.

Issue Age of Insured	Sex of Insured	Basic Death Benefit		Minimum Initial Premium
25	M	$	50,000	$	289.00
30	F	$	75,000	$	459.00
35	M	$	75,000	$	651.00
40	F	$	100,000	$	931.00
45	M	$	100,000	$	1,368.00
50	F	$	100,000	$	1,456.00
55	M	$	100,000	$	2,257.00
60	F	$	75,000	$	1,787.00
65	M	$	75,000	$	2,950.00
70	F	$	50,000	$	2,117.00

A-1

APPENDIX B

APPLICABLE PERCENTAGES

Attained Age	Percentage	Attained Age	Percentage
0–40	250	61	128
41	243	62	126
42	236	63	124
43	229	64	122
44	222	65	120
45	215	66	119
46	209	67	118
47	203	68	117
48	197	69	116
49	191	70	115
50	185	71	113
51	178	72	111
52	171	73	109
53	164	74	107
54	157	75–90	105
55	150	91	104
56	146	92	103
57	142	93	102
58	138	94	101
59	134	95	100
60	130

B-1

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STATEMENT OF ADDITIONAL INFORMATION

A free copy of the Statement of Additional Information (“SAI”), dated May 1, 2008, which includes financial statements of Penn Mutual and the Separate Account, and additional information on Penn Mutual, the Separate Account and the Policy, may be obtained from The Penn Mutual Life Insurance Company, Attn: SAI Request, Philadelphia, PA, 19172. Or you can call toll-free at
1-800-523-0650. The SAI is incorporated by reference into this Prospectus and, therefore, legally forms a part of this Prospectus.

In addition, you can also request, free of charge, a personalized illustration of death benefits, cash surrender values and cash values by contacting The Penn Mutual Life Insurance Company, Customer Service Group, Philadelphia, PA, 19172. Or you can call toll-free at 1-800-523-0650.

Information about the Penn Mutual Variable Life Account I, including the SAI, may be obtained from the Securities and Exchange Commission in any of the following ways: (1) in person: you may review and copy documents in the Commission’s Public Reference Room in Washington, D.C. (for information call 1-202-551-8090); (2) on-line: you may retrieve information from the Commission’s web site at “http://www.sec.gov”; or (3) by mail: you may request documents, upon payment of a duplicating fee, by electronic request at publicinfo@sec.gov or by writing to Securities Exchange Commission, Public Reference Section, 100 F Street, NE, Washington, D.C. 20549-0102.

Penn Mutual Variable Life Account I’s Investment Company Act registration number is 811-05006.

PROSPECTUS

FOR

CORNERSTONE VUL III

a flexible premium adjustable variable life insurance policy issued by

THE PENN MUTUAL LIFE INSURANCE COMPANY

and funded through

PENN MUTUAL VARIABLE LIFE ACCOUNT I

The Penn Mutual Life Insurance Company

Philadelphia, PA 19172

800-523-0650

Penn Series Funds, Inc.		Manager
Money Market Fund		Independence Capital Management, Inc.
Limited Maturity Bond Fund		Independence Capital Management, Inc.
Quality Bond Fund		Independence Capital Management, Inc.
High Yield Bond Fund		T. Rowe Price Associates, Inc.
Flexibly Managed Fund		T. Rowe Price Associates, Inc.
Growth Stock Fund		T. Rowe Price Associates, Inc.
Large Cap Value Fund		Lord, Abbett & Co. LLC
Large Cap Growth Fund		ABN AMRO Asset Management, Inc.
Index 500 Fund		Wells Capital Management Incorporated
Mid Cap Growth Fund		Turner Investment Partners, Inc.
Mid Cap Value Fund		Neuberger Berman Management Inc.
Strategic Value Fund		Lord, Abbett & Co. LLC
Small Cap Growth Fund		Bjurman, Barry & Associates
Small Cap Value Fund		Goldman Sachs Asset Management, L.P.
International Equity Fund		Vontobel Asset Management, Inc.
REIT Fund		Heitman Real Estate Securities LLC
Large Core Growth Fund		Wells Capital Management Incorporated
Large Core Value Fund		Eaton Vance Management
SMID Cap Growth Fund		Wells Capital Management Incorporated
SMID Cap Value Fund		AllianceBernstein L.P.
Emerging Markets Equity Fund		Van Kampen Asset Management
Small Cap Index Fund		SSgA Funds Management, Inc.
Developed International Index Fund		SSgA Funds Management, Inc.
Balanced Fund		Independence Capital Management, Inc.
Aggressive Allocation Fund		Independence Capital Management, Inc.
Moderately Aggressive Allocation Fund		Independence Capital Management, Inc.
Moderate Allocation Fund		Independence Capital Management, Inc.
Moderately Conservative Allocation Fund		Independence Capital Management, Inc.
Conservative Allocation Fund		Independence Capital Management, Inc.
Neuberger Berman Advisers Management Trust		Manager
Balanced Portfolio		Neuberger Berman Management Inc.
Fidelity Investments’ Variable Insurance Products Fund		Manager
Equity-Income Portfolio		Fidelity Management & Research Company
Growth Portfolio		Fidelity Management & Research Company

Fidelity Investments’ Variable Insurance Products Fund II		Manager
Asset Manager Portfolio		Fidelity Management & Research Company
Van Kampen’s The Universal Institutional Funds, Inc.		Manager
Emerging Markets Equity (International) Portfolio		Van Kampen

May 1, 2008

Guide to Reading this Prospectus

The prospectus is arranged as follows:

· Pages 3 to 5 provide a summary of the benefits and risks of the Policy.

· Pages 6 to 14 provide tables showing fees and charges under the Policy.

· Pages 15 to 17 provide tables showing fees and expenses of the funds underlying the Policy.

· Pages 18 to 41 provide additional information about the Policy, in question and answer format.

· Pages 41 to 44 provide information about The Penn Mutual Life Insurance Company (“Penn Mutual”), Penn Mutual Variable Life Account I (the “Separate Account”) and the underlying investment funds in which Policy reserves may be allocated.

**********

SUMMARY OF THE BENEFITS AND RISKS OF THE POLICY

The following is a summary of the benefits and the risks of the Policy. Please read the entire Prospectus before you invest.

Benefit Summary

Premium Flexibility – Amounts you pay to us under your Policy are called “premiums” or “premium payments.” 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.

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

Three Year No-Lapse Feature – Your Policy will remain in force during the first three policy years, regardless of investment performance and your net cash surrender value, if the total premiums you have paid, less any partial surrenders you made, equal or exceeds the “no-lapse premium” specified in your Policy, multiplied by the number of months the Policy has been in force.

Investment Options – The Policy allows you to allocate your policy value to the different investment options listed on pages 1 and 2 of this prospectus.

Loans – You may take a loan on your Policy. You may borrow up to 90% of your cash surrender value. The minimum amount you may borrow is $250. Interest charged on a policy loan is 4.0% and is payable at the end of each policy year. You may repay all or part of a loan at any time.

Surrenders and Withdrawals – You may surrender your Policy in full at any time. If you do, we will pay you the Policy value, less any Policy loan outstanding and less any surrender charge that then applies (if any). This is called your “net cash surrender value.” In addition, you may make partial withdrawals (subject to limitations) from your net cash surrender value.

Riders – For an additional charge, Penn Mutual offers supplemental benefit riders that may be added to your Policy. If any of these riders are added, monthly charges for the supplemental benefits will be deducted from your policy value as part of the monthly deduction.

Risk Summary

FEE TABLES

Transaction Fees
Charge	When Charge is Deducted	Amount Deducted
Maximum Sales Charge (load)	When a premium is paid.	4.0% of premium payments.(2)
Premium and Federal (DAC) Taxes	When a premium is paid.	3.5% of premium payments.
Maximum Deferred Sales Charge (load) if the Policy is surrendered within the first 11 policy years	When the Policy is surrendered.	25% of the lesser of (i) premiums paid and (ii) the “maximum surrender charge premium.”(3)
Charge for a representative non-tobacco male insured, age 45	When the Policy is surrendered.	25% of the lesser of (i) premiums paid and (ii) $13.67 per $1,000 of specified amount.(3)
Additional Surrender Charges apply if the Policy is surrendered within the first 11 policy years, or within 11 years of any increase in the amount of insurance specified in your Policy(4)
Minimum Charge	When the Policy is surrendered.	$1 per $1,000 of initial specified amount of insurance or increase in specified amount of insurance, for insured age 9 or younger at the date of issue or increase.
Maximum Charge	When the Policy is surrendered.	$7 per $1,000 of initial specified amount of insurance or increase in specified amount of insurance, for insured age 60 or older at the date of issue or increase.
Charge for a representative non-tobacco male insured, age 45	When the Policy is surrendered.	$5 per $1,000 of initial specified amount of insurance or increase in specified amount of insurance, for insured age 45 at the date of issue or increase.
Partial Surrender Charge	When you partially surrender your Policy.	Lesser of $25 or 2.0% of the amount surrendered.
Transfer Charge
Current Charge	When you make a transfer.	$0.00(5)
Guaranteed Maximum Charge	When you make a transfer.	$10.00

Charge	When Charge is Deducted	Amount Deducted
Loans (6)
Gross Interest Charge	End of each policy year.	Annual rate of 4.0% (before credit from interest paid on collateral held in special loan account).
Net Interest Charge (7)	End of each policy year.	Annual rate of 1.0% (after credit from interest paid on collateral held in special loan account).(8)

(1) See What Are the Fees and Charges Under the Policy? in this prospectus for additional information.

(2) The sales charge imposed on premiums (load) is currently reduced to 2.25% for all premiums paid in excess of the maximum surrender charge.

(3) The “maximum surrender charge premium” is determined separately for each Policy, and takes into account the individual underwriting characteristics of the insured. The “maximum surrender charge premium” is stated in each Policy. Commencing in the eighth policy year and continuing through the eleventh policy year, the deferred sales charge decreases each year, after which there is no longer a charge.

(4) The “other surrender charge” under the Policies vary depending on the age of the insured. More information concerning the “other surrender charge” is stated in each Policy. Commencing in the eighth policy year and continuing through the eleventh policy year, the surrender charge decreases each year in proportional amounts, after which there is no longer a charge; and commencing eight years after any increase in the specified amount of insurance and continuing through the end of eleven years after the increase, the surrender charge decreases each year in proportional amounts, after which there is no longer a charge.

(5) No transaction fee is currently imposed for making a transfer among investment funds and/or the fixed interest option. We reserve the right to impose a $10 fee in the future on any transfer that exceeds twelve transfers in a policy year (except in the case of transfers of $5,000,000 or more).

(6) You may borrow up to 90% of your cash surrender value. The minimum amount you may borrow is $250. An amount equivalent to the loan is withdrawn from subaccounts of the Separate Account and the fixed interest option on a prorated basis (unless you designate a different withdrawal allocation when you request the loan) and is transferred to a special loan account as collateral for the loan. See What Is a Policy Loan? in this prospectus for additional information about Policy Loans.

(7) “Net Interest Charge” means the difference between the amount of interest we charge on the loan and the amount of interest we credit to your Policy in the special loan account.

(8) On a guaranteed basis, after the tenth policy year, we will credit interest to the special loan account at the rate of 3.75% (which will result in a Net Interest Charge of 0.25% in those years.)

Periodic Charges Under the Policy Not Including Operating Expenses of Underlying Investment Funds
Policy Charges	When Charge is Deducted	Amount Deducted
Cost of Insurance Charges(1):
Current Charges	Monthly	Minimum of $0.0399 to maximum of $21.5319, per $1,000 of net amount at risk.
Guaranteed Maximum Charges	Monthly	Minimum of $0.0566 to maximum of $83.333, per $1,000 of net amount at risk.
Charge for a representative non-tobacco male insured, age 45
Current Charges	Monthly	$0.1567 per $1,000 of net amount at risk.
Guaranteed Maximum Charges	Monthly	$0.2767 per $1,000 of net amount at risk.
Mortality and Expense Risk Charge:
Mortality and Expense Risk Charge	Daily	0.90% annually from the policy value that is allocated to the funds.(2)
Administrative Fees:	Monthly	The charge has three parts: (a)$9.00.(3) (b)For the first 12 months following the policy date, $0.10 per $1,000 of initial specified amount of insurance. (c)For the first 12 months following an increase in the specified amount of insurance, $0.10 per $1,000 of the increase in specified amount of insurance.

(1)		The cost of insurance charges under the Policies vary depending on the individual circumstances of the insured, such as sex, age and risk classification. The charges also vary depending on the amount of insurance specified in the Policy and the policy year in which the charge is deducted. The table shows the lowest and the highest cost of insurance charges for an insured, based on our current rates and on guaranteed maximum rates for individuals in standard risk classifications. The table also shows the cost of insurance charges under a Policy issued to an individual who is representative of individuals we insure. Your Policy will state the guaranteed maximum cost of insurance charges. More detailed information concerning your cost of insurance charges is available from our administrative offices upon request. Also, before you purchase the Policy, we will provide you with hypothetical illustrations of policy values based upon the insured’s age and risk classification, the death benefit option selected, the amount of insurance specified in the Policy, planned periodic premiums, and riders requested. The net amount at risk referred to in the tables is based upon the difference between the current death benefit provided under the Policy and the current value of the Policy. For additional information on cost of insurance charges, see What Are the Fees and Charges Under the Policy? – Monthly Deductions – Cost of Insurance in this prospectus.
(2)		The charge is currently reduced to 0.45% annually. See What Are the Fees and Charges Under the Policy? – Daily Mortality and Expense Risk Charge in this prospectus for additional information about this charge.

(3)		This sub-part of the charge is currently reduced to $8.00.

Periodic Charges Under Optional Supplemental Benefit Riders Not Including Operating Expenses of Underlying Investment Funds
	When Charge Is
Supplemental Benefit Rider/Charges	Deducted	Amount Deducted
1.Accidental Death Benefit:
Cost of Insurance(1)
Current Charges	Monthly	Minimum of $0.0533 to maximum of $0.1108, per $1,000 of accidental death benefit.

Guaranteed Maximum Charges	Monthly	Minimum of $0.0533 to maximum of $0.1108, per $1,000 of accidental death benefit.
Charge for a representative non-tobacco male insured, age 45
Current Charges	Monthly	$0.0592 per $1,000 of accidental death benefit.

Guaranteed Maximum Charges	Monthly	$0.0592 per $1,000 of accidental death benefit.
2. *Additional Insured Term Insurance Agreement:*
Cost of Insurance Charges(1)
Current Charges	Monthly	Minimum of $0.0559 to maximum of $3.0371, per $1,000 of additional insured term insurance benefit.

Guaranteed Maximum Charges	Monthly	Minimum of $0.0816 to maximum of $4.2109, per $1,000 of additional insured term insurance benefit.
Charge for a representative non-tobacco male insured, age 45
Current Charges	Monthly	$0.2645 per $1,000 of additional insured term insurance benefit.

Guaranteed Maximum Charges	Monthly	$0.2767 per $1,000 of additional insured term insurance benefit.
Administrative Charges
First year of Agreement	Monthly	$0.10 per $1,000 of additional insured term insurance benefit.
First year of increase in term insurance benefit under Agreement	Monthly	$0.10 per $1,000 of additional insured term insurance benefit.

	When Charge Is
Supplemental Benefit Rider/Charges	Deducted	Amount Deducted
3. Business Accounting Benefit(2):
Administrative Charges
First eleven years of the Policy	Monthly	$0.03 per $1,000 of original specified amount of insurance.
First eleven years after an increase in the specified amount of insurance	Monthly	$0.03 per $1,000 of increase in specified amount of insurance.
4. *Children’s Term Insurance Agreement:*
Cost of Insurance Charges(1)
Current Charges	Monthly	$0.15 per $1,000 of children’s term insurance benefit.

Guaranteed Maximum Charges	Monthly	$0.24 per $1,000 of children’s term insurance benefit.
5. *Disability Waiver of Monthly Deduction:*
Cost of Insurance Charges(1)
Current Charges	Monthly	Minimum of $0.0092 to maximum of $0.3192, per $1,000 of net amount at risk.

Guaranteed Maximum Charges	Monthly	Minimum of $0.0117 to maximum of $0.5992, per $1,000 of net amount at risk.
Charge for a representative non-tobacco male insured, age 45
Current Charges	Monthly	$0.0275 per $1,000 of net amount at risk.
Guaranteed Maximum Charges	Monthly	$0.0508 per $1,000 of net amount at risk.
6. *Disability Waiver of Monthly Deduction and Disability Monthly Premium Deposit Agreement:*
Disability Waiver of Monthly Deduction Part of Agreement
Cost of Insurance Charges(1)
Current Charges	Monthly	Minimum of $0.0092 to maximum of $0.3192, per $1,000 of net amount at risk.

Guaranteed Maximum Charges	Monthly	Minimum of $0.0117 to maximum of $0.5992, per $1,000 of net amount at risk.

	When Charge Is
Supplemental Benefit Rider/Charges	Deducted	Amount Deducted
Charge for a representative non-tobacco male insured, age 45
Current Charges	Monthly	$0.0275 per $1,000 of net amount at risk.

Guaranteed Maximum Charges	Monthly	$0.0508 per $1,000 of net amount at risk.
Disability Monthly Premium Deposit Part of Agreement
Cost of Insurance Charges(1)
Current Charges	Monthly	Minimum of $0.03 to maximum of $0.96, per $1,000 of the stipulated premium in the Policy.

Guaranteed Maximum Charges	Monthly	Minimum of $0.03 to maximum of $0.96, per $1,000 of the stipulated premium in the Policy.
Charge for a representative non-tobacco male insured, age 45
Current Charges	Monthly	$0.12 per $1,000 of the stipulated premium in the Policy.

Guaranteed Maximum Charges	Monthly	$0.12 per $1,000 of the stipulated premium in the Policy.
7. *Guaranteed Continuation of Policy:*
Cost of Insurance	Monthly	$0.01 per $1,000 of specified amount of insurance.
8. *Guaranteed Option to Extend Maturity Date:*
Cost of Insurance Charges(1)
Current Charges	Monthly	No charge.

Guaranteed Maximum Charges	Monthly	Minimum of $2.80 to maximum of $6.30, per $1,000 of net amount at risk.
Charge for a representative non-tobacco male insured, age 45
Current Charges	Monthly	No charge.

Guaranteed Maximum Charges	Monthly	$0 per $1,000 of net amount at risk.
9. *Guaranteed Option to Increase Specified Amount:*
Cost of Insurance Charges(1)
Current Charges	Monthly	Minimum of $0.0425 to maximum of $0.145, per $1,000 of guaranteed option amount.

	When Charge Is
Supplemental Benefit Rider/Charges	Deducted	Amount Deducted
Guaranteed Maximum Charges	Monthly	Minimum of $0.0425 to maximum of $0.145, per $1,000 of guaranteed option amount.
Charge for a representative non-tobacco male insured, age 25
Current Charges	Monthly	$0.1058 per $1,000 of guaranteed option amount.

Guaranteed Maximum Charges	Monthly	$0.1058 per $1,000 of guaranteed option amount.
10. *Return of Premium Term Insurance:*
Cost of Insurance Charges(1)
Current Charges	Monthly	Minimum of $0.0559 to maximum of $26.1662, per $1,000 of term insurance.

Guaranteed Maximum Charges	Monthly	Minimum of $0.0816 to maximum of $83.3333, per $1,000 of term insurance.
Charge for a representative non-tobacco male insured, age 45
Current Charges	Monthly	$0.1592 per $1,000 of term insurance.

Guaranteed Maximum Charges	Monthly	$0.2767 per $1,000 of term insurance.
11. *Supplemental Term Insurance Agreement(*3):
Cost of Insurance Charges(1)
Current Charges	Monthly	Minimum of $0.0441 to maximum of $26.1662, per $1,000 of net amount at risk attributable to the term insurance benefit.

Guaranteed Maximum Charges	Monthly	Minimum of $0.0566 to maximum of $83.3333, per $1,000 of net amount at risk attributable to the term insurance benefit.
Charge for a representative non-tobacco male insured, age 45
Current Charges	Monthly	$0.1592 per $1,000 of net amount at risk attributable to the term insurance benefit.

Guaranteed Maximum Charges	Monthly	$0.2767 per $1,000 of net amount at risk attributable to the term insurance benefit.

	When Charge Is
Supplemental Benefit Rider/Charges	Deducted	Amount Deducted
Administrative Charges
First year of Agreement	Monthly	$0.10 per $1,000 of additional insured term insurance benefit.
First year of increase in term insurance benefit under Agreement	Monthly	$0.10 per $1,000 of additional insured term insurance benefit.
12. *Supplemental Exchange Agreement:*
Current Charges	Monthly	No charge.

Guaranteed Maximum Charges	Monthly	No charge.
13. *Accelerated Death Benefit:*
Administrative Charge
Current Charge	When Benefit is Exercised	One time charge of 12 months’ worth of policy charges on the accelerated amount, plus an interest adjustment, which is equal to 12 months worth of interest on the accelerated amount based on a rate that is the greater of (a) the current 90-day Treasury bill rate, or (b) the current policy loan rate.

Guaranteed Maximum Charge	When Benefit is Exercised	One time charge of 12 months’ worth of policy charges on the accelerated amount, plus an interest adjustment, which is equal to 12 months worth of interest on the accelerated amount based on a rate that is the greater of (a) the current 90-day Treasury bill rate, or (b) the current policy loan rate.

(1) The cost of insurance charges under the Riders vary depending on the individual circumstances of the insured, such as sex, age and risk classification. The charges also vary depending on the amount of insurance specified in the Rider and the year in which the charge is deducted. The table shows the lowest and the highest cost of insurance charges for an insured, based on current rates and on guaranteed maximum rates for individuals in standard risk classifications. The table also shows the cost of insurance charges under a Rider issued to an individual who is representative of individuals we insure. The specifications pages of a Rider will indicate the guaranteed maximum cost of insurance charge applicable to your Policy. More detailed information concerning your cost of insurance charges is available from our administrative offices upon request. Also, before you purchase the Policy, we will provide you with hypothetical illustrations of policy values based upon the insured’s age and risk classification, the death benefit option selected, the amount of insurance specified in the Policy, planned periodic premiums, and riders requested. The net amount at risk referred to in the table is based upon the difference between the current benefit provided under the Rider and the current policy value allocated to the Rider. For additional information about the Riders, see What Are the Supplemental Benefit Riders That I Can Buy? in this prospectus.

(2) This rider is not available to all persons. See What Are the Supplemental Benefit Riders That I Can Buy? – Business Accounting Benefit in this prospectus for additional information.

segment, then to any segments resulting from increases in the term insurance benefit in the order of the increases, then to the initial specified amount segment, and then to any segments resulting from increases in the specified amount in the order of the increases. Any increase in the death benefit in order to maintain the required minimum margin between the death benefit and the policy value will be allocated to the most recent increase in the specified amount in the Policy.

		Minimum:		Maximum:
Maximum and Minimum Total Fund Operating Expenses (expenses that are deducted from assets of fund companies, including management fees and other expenses)		0.35	%	1.60	%

The following table provides more specific detail about the total fund operating expenses for each fund.

Penn Series Funds, Inc.

Underlying Fund Annual Expenses (as a % of portfolio average net assets)

	Management Fees		Other Expenses		Acquired Fund Fees and Expenses		Total Fund Expenses		Fee Waivers		Net Fund Expenses

Money Market(1)	0.20	%	0.30	%	0.00	%	0.50	%	0.00	%	0.50	%
Limited Maturity Bond(1)	0.30	%	0.30	%	0.01	%(3)	0.61	%	0.00	%	0.61	%
Quality Bond(1)	0.33	%	0.27	%	0.00	%	0.60	%	0.00	%	0.60	%
High Yield Bond(1)	0.50	%	0.34	%	0.00	%	0.84	%	0.00	%	0.84	%
Flexibly Managed(1)	0.60	%	0.23	%	0.00	%	0.83	%	0.00	%	0.83	%
Growth Stock(1)	0.63	%	0.31	%	0.00	%	0.94	%	0.00	%	0.94	%
Large Cap Value(1)	0.60	%	0.28	%	0.00	%	0.88	%	0.00	%	0.88	%(6)
Large Cap Growth(1)	0.55	%	0.32	%	0.00	%	0.87	%	0.00	%	0.87	%(6)
Index 500(1)	0.07	%	0.28	%	0.00	%	0.35	%	0.00	%	0.35	%
Mid Cap Growth(1)	0.70	%	0.31	%	0.00	%	1.01	%	0.00	%	1.01	%(6)
Mid Cap Value(1)	0.55	%	0.28	%	0.00	%	0.83	%	0.00	%	0.83	%(6)
Strategic Value(1)	0.72	%	0.34	%	0.00	%	1.06	%	0.00	%	1.06	%(6)
Small Cap Growth(1)	0.74	%	0.28	%	0.00	%	1.02	%	0.00	%	1.02	%
Small Cap Value(1)	0.85	%	0.30	%	0.00	%	1.15	%	0.00	%	1.15	%
International Equity(1)	0.85	%	0.33	%	0.00	%	1.18	%	0.00	%	1.18	%(6)
REIT(1)	0.70	%	0.29	%	0.00	%	0.99	%	0.00	%	0.99	%
Large Core Growth	0.56	%	0.27	%(2)	0.00	%	0.83	%	0.19	%(5)	0.64	%
Large Core Value	0.46	%	0.27	%(2)	0.00	%	0.73	%	0.19	%(5)	0.54	%
SMID Cap Growth	0.75	%	0.30	%(2)	0.00	%	1.05	%	0.00	%	1.05	%
SMID Cap Value	0.95	%	0.30	%(2)	0.00	%	1.25	%	0.11	%(5)	1.14	%
Emerging Markets Equity	1.25	%	0.40	%(2)	0.02	%	1.67	%	0.07	%(5)	1.60	%
Small Cap Index	0.30	%	0.35	%(2)	0.00	%	0.65	%	0.10	%(5)	0.55	%
Developed International Index	0.30	%	0.37	%(2)	0.00	%	0.67	%	0.08	%(5)	0.59	%
Balanced	0.00	%	0.22	%(2)	0.45	(4)%	0.67	%	0.05	%(5)	0.62	%
Aggressive Allocation	0.10	%	0.23	%(2)	1.10	(4)%	1.43	%	0.13	%(5)	1.30	%
Moderately Aggressive Allocation	0.10	%	0.23	%(2)	0.99	(4)%	1.32	%	0.11	%(5)	1.21	%
Moderate Allocation	0.10	%	0.23	%(2)	0.94	(4)%	1.27	%	0.10	%(5)	1.17	%
Moderately Conservative Allocation	0.10	%	0.23	%(2)	0.85	(4)%	1.18	%	0.07	%(5)	1.11	%
Conservative Allocation	0.10	%	0.23	%(2)	0.75	(4)%	1.08	%	0.06	%(5)	1.02	%

(1) These expenses are for the fiscal year ended December 31, 2007.

(2) These expenses are based on estimated amounts for the current fiscal year.

(3) Acquired Fund Fees and Expenses reflect the fees and expenses that were incurred indirectly by the Fund through its investments in other investment companies in the prior fiscal year.

Large Core Growth	0.64	%
Large Core Value	0.54	%
SMID Cap Value	1.14	%
Emerging Markets Equity	1.58	%
Small Cap Index	0.55	%
Developed International Index	0.59	%
Balanced	0.62	%
Aggressive Allocation	0.20	%
Moderately Aggressive Allocation	0.22	%
Moderate Allocation	0.23	%
Moderately Conservative Allocation	0.26	%
Conservative Allocation	0.27	%

Large Cap Value	0.86	%
Large Cap Growth	0.83	%
Mid Cap Growth	0.97	%
Mid Cap Value	0.79	%
Strategic Value	1.04	%
International Equity	1.16	%

Neuberger Berman Advisers Management Trust (a)

Underlying Fund Annual Expenses (as a % of portfolio average net assets)

	Management Fee		Other Expenses		Total Fund Expenses

Balanced	0.55	%	0.61	%	1.16	%

(a) These expenses are for the fiscal year ended December 31, 2007.

Fidelity Investments’ Variable Insurance Products Fund (a)

Underlying Fund Annual Expenses (as a % of portfolio average net assets)

	Management Fee		Other Expenses		Total Fund Expenses

Equity-Income	0.46	%	0.09	%	0.55	%
Growth	0.56	%	0.09	%	0.65	%

(a) These expenses are for the fiscal year ended December 31, 2007. Some of the brokerage commissions paid by the funds reduced the expenses shown in this table. With these reductions, net total expenses were 0.54% for the Equity-Income Portfolio and 0.64% for the Growth Portfolio.

Fidelity Investments’ Variable Insurance Products Fund II (a)

Underlying Fund Annual Expenses (as a % of portfolio average net assets)

	Management Fee		Other Expenses		Total Fund Expenses

Asset Manager	0.51	%	0.12	%	1.60	%

Van Kampen’s The Universal Institutional Funds, Inc. (a)

Underlying Fund Annual Expenses (as a % of portfolio average net assets)

		Management Fee		Other Expenses		Acquired Fund Fees and Expenses		Total Fund Expenses
Emerging Markets Equity (International)		1.21	%	0.37	%	0.02	%	1.60	%

(a) These expenses are for the fiscal year ended December 31, 2007.

Please review these tables carefully. They show the expenses that you pay directly and indirectly when you purchase a Policy. Your expenses include policy expenses and the expenses of the Funds that you select. The prospectuses of Penn Series Funds, Inc., Neuberger Berman Advisers Management Trust, Fidelity Investments’ Variable Insurance Products Fund, Fidelity Investments’ Variable Insurance Products Fund II and Van Kampen’s The Universal Institutional Funds, Inc. accompany this prospectus. These prospectuses contain additional information regarding these Funds’ expenses.

QUESTIONS AND ANSWERS

This part of the prospectus provides answers to important questions about the Policy. The questions, and answers to the questions, are on the following pages.

Question		Page

What Is the Policy?		19

Who Owns the Policy?		19

What Payments Must I Make Under the Policy?		20

How Are Amounts Credited to the Separate Account?		22

How Much Life Insurance Does the Policy Provide?		22

Can I Change Insurance Coverage Under the Policy?		23

What Is the Value of My Policy?		24

How Can I Change the Policy’s Investment Allocations?		25

What Are the Fees and Charges Under the Policy?		27

What Are the Supplemental Benefit Riders That I Can Buy?		30

What Is a Policy Loan?		34

How Can I Withdraw Money From the Policy?		34

Can I Choose Different Payout Options Under the Policy?		35

How Is the Policy Treated Under Federal Income Tax Law?		36

Are There Other Charges That Penn Mutual Could Deduct in the Future?		39

How Do I Communicate With Penn Mutual?		39

What Is the Timing of Transactions Under the Policy?		40

How Does Penn Mutual Communicate With Me?		41

Do I Have the Right to Cancel the Policy?		41

What Is the Policy?

You will have several options under the Policy. Here are some major ones:

· Determine when and how much you pay to us

· Determine when and how much to allocate to subaccounts of the Separate Account and to the fixed account

· Borrow money

· Change the beneficiary

· Change the amount of insurance protection

· Change the death benefit option you have selected

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

· 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.

The maturity date of a Policy is the policy anniversary nearest the insured’s 100th birthday. If the Policy is still in force on the maturity date, a maturity benefit will be paid. The maturity benefit is equal to the policy value less any policy loan, including any capitalized interest on any such loan (“Net Policy Value”) on the maturity date. Upon written request of the owner, the Policy will continue in force beyond the maturity date. Thereafter, the death benefit will be the Net Policy Value.

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 you are the owner or the person who has whatever right or privilege we are discussing.

What Payments Must I Make Under the Policy?

Premium Payments

We reserve the right to limit total premiums paid in a policy year to the planned premiums you select in your application. If you have chosen to qualify your Policy as life insurance under the Guideline Premium\Cash Value Corridor Test of the Internal Revenue Code, federal tax law limits the amount of premium payments you may make in relation to the amount of life insurance provided under the Policy. We will not accept or retain a premium payment that exceeds the maximum permitted under federal tax law. See How Is the Policy Treated Under Federal Income Tax Law? in this prospectus.

Planned Premiums

Ways to Pay Premiums

We will also accept premiums:

· by wire or by exchange from another insurance company,

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

· 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.

Three Year No-Lapse Feature

Your Policy will remain in force during the first three policy years, regardless of investment performance 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 “no-lapse premium” specified in your Policy, multiplied by the number of months the Policy has been in force.

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

Lapse and Reinstatement

If you die during the grace period, we will pay the death benefit to your beneficiary less any unpaid policy charges and outstanding policy loans.

Premiums Upon an Increase in the Specified Amount

How Are Amounts Credited to the Separate Account?

(b) is the net asset value per share of the fund held in the subaccount as of the end of the last prior valuation period.

How Much Life Insurance Does the Policy Provide?

Death Benefit Options

· Option 1 - The death benefit is the greater of (a) the specified amount of insurance, or (b) the “applicable percentage” of the policy value on the date of the insured’s death.

The “applicable percentages” depend on the life insurance qualification test you chose on the application. If you chose the Guideline Premium Test/Cash Value Corridor Test, the “applicable

percentage” is 250% when the insured has attained age 40 or less and decreases to 100% when the insured attains age 100. For the Cash Value Accumulation Test, the “applicable percentages” will vary by attained age and the insurance risk characteristics. Tables showing “applicable percentages” are included in Appendix B.

Can I Change Insurance Coverage Under the 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:

· after the change, the specified amount of insurance must be at least $50,000;

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

· 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 insured, the requested change will not be allowed.

Changes in the Specified Amount of Insurance

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

· you must submit an application along with evidence of insurability acceptable to Penn Mutual;

· you must return your Policy so we can amend it to reflect the increase;

· any increase in the specified amount must be at least $10,000; and

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

If you increase the specified amount within the first three policy years, the three year no-lapse period will be extended.

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

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

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

· no decrease may be made within one year of an increase in the specified amount; and

· any decrease in the specified amount of insurance must be at least $5,000 and the specified amount after the decrease must be at least $50,000.

Exchange of Policies

For a Policy issued in a business relationship, you may obtain a rider that permits you to exchange the Policy for a new Policy covering a new insured in the same business relationship, subject to the terms of the rider. See What Are the Supplemental Benefits That I Can Buy? – Supplemental Exchange Agreement in this prospectus.

Tax Consequences of Changing Insurance Coverage

See How Is the Policy Treated Under Federal Income Tax Law? in this prospectus to learn about possible tax consequences of changing your insurance coverage under the Policy.

What Is the Value of My Policy?

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 3.0%. The current declared rate will appear in the annual statement we will send to you. If you want to know what the current declared rate is, simply call or write to us. Amounts you allocate to the fixed interest option will not be subject to the mortality and expense risk charge described later in this section. Your policy value will be affected by deductions we make from your Policy for policy charges.

At any time, your policy value is equal to:

· the net premiums you have paid;

· plus or minus the investment results in the part of your policy value allocated to subaccounts of the Separate Account;

· plus interest credited to the amount in the part of your policy value (if any) allocated to the fixed interest option;

· minus policy charges we deduct; and

· minus partial surrenders you have made.

If you borrow money under your Policy, other factors affect your policy value. See What Is a Policy Loan? in this prospectus.

How Can I Change the Policy’s Investment Allocations?

Future Premium Payments

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:

· 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);

· 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;

· we may defer transfers under certain conditions;

· transfers may not be made during the free look period; and

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

Frequent Trading Risks

We did not design this variable life policy and the available subaccounts to accommodate market timing or frequent transfers between the subaccounts. Frequent exchanges among subaccounts and market timing by policy owners can reduce the long–term returns of the underlying funds. The reduced returns could adversely affect the policy owners, annuitants, insureds or beneficiaries of any variable annuity or variable life insurance contract issued by any insurance company with respect to values allocated to the underlying fund. Frequent exchanges may reduce the underlying fund’s performance by increasing costs paid by the fund (such as brokerage commissions); they can disrupt portfolio management strategies; and they can have the effect of diluting the value of the shares of long term shareholders in cases in which fluctuations in markets are not fully priced into the fund’s net asset value.

The insurance–dedicated funds available through the subaccounts generally cannot detect individual policy owner exchange activity, because they are owned primarily by insurance company separate accounts that aggregate exchange orders from owners of individual contracts. Accordingly, the funds are dependent in large part on the rights, ability and willingness of the participating insurance companies to detect and deter short–term trading by policy owners.

Frequent Trading Policies

Dollar Cost Averaging

This program automatically makes monthly transfers from the money market variable investment option to one or more of the other investment options and to the fixed interest 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 assure a profit or protect against loss 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 elect to participate in the program when you apply for your Policy or, after you have owned your Policy, by completing an election form or by calling our office. You may discontinue the program at any time.

Asset Rebalancing

What Are the Fees and Charges Under the Policy?

Premium Charge

· Premium Charge – 7.5% (currently reduced to 5.75% of all premiums paid in excess of the maximum surrender charge premium in the first policy year and for all premiums paid in policy year two and later) is deducted from premium payments before allocation to the investment options. It consists of 3.5% to cover state premium taxes and the federal income tax burden (DAC tax) that we expect will result from the receipt of premiums and 4.0% (currently reduced to 2.25% for all premiums paid in excess of the maximum surrender charge) to partially compensate us for the expense of selling and distributing the Policies. State premium taxes range from 0.5% to 3.5%; some states do not impose premium taxes. We will notify you in advance if we change our current rates.

Monthly Deductions

· 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 and the insurance risk characteristics. Regardless of the table used, cost of insurance rates generally increase each year that you own your Policy, as the insured’s attained age increases. We place insureds in a rate class when we issue the Policy and when an increase in coverage is effective, based on our examination of information bearing on insurance risk. We currently place people we insure in the following rate classes: a tobacco, a non-tobacco or preferred non-tobacco rate class, or a rate class involving a higher mortality risk (a “substandard class”). Insureds age 19 and under are placed in a rate class that does not distinguish between tobacco and non-tobacco. In all states except New Jersey, they are assigned to a tobacco class at age 20 unless they have provided satisfactory evidence that they qualify for a non-tobacco class. When an increase in the specified amount of insurance is requested, we determine whether a different rate will apply to the increase based on the age of the insured on the effective date of the increase and the risk class of the insured on that date. The charge is deducted pro-rata from your variable investment and fixed interest accounts.

· Administrative Charge – A monthly charge to help cover our administrative costs. This charge has two parts: (1) a flat dollar charge of up to $9 (currently, the flat charge is $8 - we will notify you in advance if we change our current rates); and (2) for the first 12 months after the policy date, a charge based on the initial specified amount of insurance ($0.10 per $1,000 per month of initial specified amount of insurance), and for the first 12 months after an increase in the specified amount of insurance, a charge based on the increase ($0.10 per $1,000 increase in the 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. The charge is deducted pro-rata from your variable investment and fixed interest accounts.

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

Daily Mortality and Expense Risk Charge

A daily charge to cover mortality and expense risk. We deduct a daily charge from your policy value which is allocated to the variable investment options. The charge does not apply to the fixed interest option. It is guaranteed not to exceed 0.90% annually for the duration of the policy. Our current charge is 0.45% annually. We will notify you in advance if we change our current rates. We may realize a profit from the charge, and if we do, it will become part of our surplus. The mortality risk we assume is the risk that the persons we insure may die sooner than anticipated and that Penn Mutual will pay an aggregate amount of death benefits greater than anticipated. The expense risk we assume is the risk that expenses incurred in issuing and administering the Policies and the Separate Account will exceed the amount we charge for administration.

Transfer Charge

Surrender Charge

With respect to a surrender within the first 11 policy years, the surrender charge equals (a) plus (b), multiplied by (c), where:

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

(a) is an administrative charge based on the increase in the initial amount of insurance and the insured’s attained age on the effective date of the increase (ranging from $1.00 up to attained age

9 to $7.00 at attained age 60 and over, per $1,000 of increase in specified amount of insurance); and

Surrender During Policy Year		Surrender Factor
1st through 7th		1.00
8th		0.80
9th		0.60
10th		0.40
11th		0.20
12th and later		0.00

Partial Surrender Charge

If you partially surrender your Policy, we will deduct the lesser of $25 or 2.0% 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.

Reduction of Charges

What Are the Supplemental Benefit Riders That I Can Buy?

Accidental Death Benefit Agreement

Additional Insured Term Insurance Agreement

Under the Agreement, we will deduct the cost of insurance charges from the cash value of the Policy, and a separate charge of $0.10 per $1,000 of specified amount of insurance for each additional insured during the first twelve months of the Agreement. If the specified amount of insurance has increased for an additional insured, we will deduct a charge of $0.10 per $1,000 of the increased specified amount during the first twelve months of the increase. The cost of insurance rates are based on the age, gender and rate class of the additional insured. This Agreement can be elected at any time, as long as the insured meets our underwriting requirements, and it is not available if you choose the Guaranteed Continuation of Policy Rider. The benefits provided under the Agreement are subject to all of the provisions in the Policy.

Business Accounting Benefit Agreement

This Agreement provides enhanced early year cash surrender values for Policies sold in certain limited corporate markets and is not for sale in the individual markets. The higher cash surrender is attained through a waiver of all surrender charges. To be eligible for this Agreement (i) Policies must be corporate owned, (ii) the corporation must be at least a partial beneficiary, and (iii) the Policies must be in support of a corporate sponsored non-qualified deferred compensation plan with a minimum of five insureds under the plan. Under this Agreement, during the first eleven policy years we will deduct a monthly charge of up to $0.03 per $1,000 of original specified amount of insurance and a monthly charge of up to $0.03 per $1,000 of increases in the specified amount of insurance during the first eleven policy years after the increase. Decreases in coverage do not affect the charge for this Agreement. The $0.03 per $1,000 charge will continue to be applied based on the higher original and/or increased specified amount. This charge will be included in the no-lapse premium calculation. If the Agreement is terminated by the owner of the Policy, the Agreement is terminated with respect to insurance coverages

provided under the Policy and all applicable surrender charges would resume. You may add this Agreement to your base Policy only at the time you purchase your Policy. The benefits provided under the Agreement are subject to all provisions of the Agreement.

Children’s Term Insurance Agreement

This Agreement provides term insurance on one or more children of the insured of the Policy in amounts specified in the Additional Policy Specifications in the Policy. If the named insured in the Policy dies, the term insurance on the insured child will continue until the anniversary of the Policy nearest the insured child’s twenty-third birthday and we will waive the cost of insurance for the term insurance. On the anniversary of the Policy nearest the child’s twenty-third birthday, the Agreement may be converted without evidence of insurability to a new life insurance policy.

Disability Waiver of Monthly Deduction Agreement

Disability Waiver of Monthly Deduction and Disability Monthly Premium Deposit Agreement

Guaranteed Continuation of Policy Agreement

subaccounts of the Separate Account may be restricted. The monthly charge for this Agreement is $0.01 per $1,000 of the specified amount of insurance in the Policy. You may add this Agreement to your base Policy only at the time you purchase your Policy. This Agreement is not available with any of the following riders: Accidental Death Benefit; Additional Insured Term Insurance; or Return of Premium Term Insurance. This benefit is subject to the provisions in the Agreement.

Guaranteed Option to Extend Maturity Date Agreement

This Agreement provides the owner of the Policy with an option to continue the insurance past the maturity date stated in the Policy without evidence of insurability. During the maturity extension period, new policy loans will not be made and premium payments will not be accepted unless required to prevent lapse. Although the Agreement extends the maturity date of the Policy, it does not extend the maturity or termination date of other agreements and riders attached to the Policy (other than the Supplemental Term Insurance Agreement). The cost of insurance charge for this Agreement is based on the attained age and rate class of the insured. The cost of insurance rates for this Agreement, combined with the cost of insurance rates in the Policy, will not exceed the rates shown in the Additional Policy Specifications section of the Policy. This Agreement can be elected at any time prior to age 90. The option to extend the maturity date is subject to the provisions in the Agreement.

Guaranteed Option to Increase Specified Amount Agreement

Return of Premium Term Insurance Agreement

This Agreement provides term insurance equivalent to the sum of all premiums paid under the Policy up to the most recent monthiversary less any amount credited to the Policy under a waiver of premium or waiver of monthly deductions agreement. The cost of insurance charge for this Agreement include the cost of insurance charge for the term insurance provided under the Agreement and the cost of insurance charge for a waiver of monthly deductions if a Waiver of Monthly Deduction Agreement is attached. The cost of insurance rates for the Agreement are based on the age, gender and rate class of the insured. The rates will not exceed the rates shown for this Agreement in the Additional Policy Specifications in the Policy. You may add this Agreement to your base Policy only at the time you purchase your Policy. This Agreement is not available if you choose the Guaranteed Continuation of Policy Rider. The term insurance provided under the Agreement is subject to the provisions of the Agreement.

Supplemental Term Insurance Agreement

Under the Agreement, we will deduct the cost of insurance charges from the cash value of the Policy, and a separate charge of $0.10 per $1,000 of specified amount of insurance for the first twelve months of the Agreement. If the specified amount of insurance has increased, we will deduct a charge of $0.10 per $1,000 of the increased specified amount during the first twelve months of the increase. The cost of insurance rates are based on the age, gender and rate class of the additional insured.

You may add this Agreement to your base Policy only at the time you purchase your Policy.

Supplemental Exchange Agreement

The Agreement provides that within one year following termination of a business relationship, which existed between the owner of the Policy and the insured at the time the Policy was issued, the Policy may be exchanged for a new Policy on the life of a new insured, subject to conditions set forth in the Agreement, including the new insured must have the same business relationship to the owner as the insured under the Policy to be exchanged, the new insured must submit satisfactory evidence of insurability, the Policy to be exchanged must be in force and not in a grace period, the owner must make a written application for the exchange, the owner must make premium payments under the new Policy to keep it in force at least two months, the owner must surrender all rights in the Policy to be exchanged. This Agreement is automatically added to corporate-owned Policies.

Accelerated Death Benefit Agreement

The Accelerated Death Benefit Rider provides the insured access to a portion of death benefit while the insured is living. The following provisions apply:

· Penn Mutual reserves the right, at its own expense, to seek additional medical opinions in order to determine benefit eligibility.

The amount you access under this Agreement will reduce the death benefit that is payable under the base Policy upon the death of the insured.

General Rules and Limitations

What Is a Policy Loan?

You may borrow up to 90% of your cash surrender value. The minimum amount you may borrow is $250.

Interest charged on a policy loan is 4.0% and is payable at the end of each policy year. If interest is not paid when due, it is added to the loan. An amount equivalent to the loan is withdrawn from subaccounts of the Separate Account and the fixed interest option on a prorated basis (unless you designate a different withdrawal allocation when you request the loan) and is transferred to a special loan account. Amounts withdrawn from the investment options cease to participate in the investment experience of the Separate Account. The special loan account is guaranteed to earn interest at 3.0% during the first ten policy years and 3.75% thereafter. With the interest we credit to the special loan account, the net cost of the policy loan is 1.0% during the first ten policy years and 0.25% thereafter.

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 the Policy?

Full Surrender

Partial Surrender

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

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

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

· each partial surrender must be at least $250;

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

· during the first five policy years, the partial surrender may not reduce the specified amount of insurance under your Policy to less than $50,000.

Partial surrenders reduce the policy value and net cash surrender value by the amount of the partial surrender.

Can I Choose Different Payout Options Under the 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 including payment of interest on the proceeds payable, interest income, income for a fixed period, life income, life income for guaranteed period, life income with refund period, joint and survivor life income. Periodic payments may not be less than $50 each.

Changing a Payment Option

How Is the Policy Treated Under Federal Income Tax Law?

The IRS has stated in published rulings that a variable life insurance policy owner will be considered the owner of the related separate account assets if the policy owner possesses incidents of ownership in those assets, such as the ability to exercise investment control over the assets. In circumstances where the policy owner is considered the owner of separate account assets, income and gain from the assets would be includable in the policy owner’s gross income. The Treasury Department has indicated that in regulations or additional revenue rulings under Section 817(d), (relating to the definition of a variable life insurance policy), it will provide guidance on the extent to which policy owners may direct their investments to particular subaccounts without being treated as owners of the underlying shares. The Internal Revenue Service (“IRS”) has issued Revenue Ruling 2003-91 in which it ruled that the ability to choose among 20 subaccounts and make not more than one transfer per month without charge did not result in the owner of a policy being treated as the owner of the assets in the subaccount under the investment control doctrine.

IRC Qualification

Your Policy will be treated as a life insurance contract under federal income tax law if it passes either one or the other of two tests — a cash value accumulation test or a guideline premium/cash value corridor test. At the time of issuance of the Policy, you choose which test you want to be applied. It may not thereafter be changed. If you do not choose the test to be applied to your Policy, the Guideline Premium/Cash Value Corridor Test will be applied.

· Cash Value Accumulation Test - Under the terms of the Policy, the policy value may not at any time exceed the net single premium cost (at any such time) for the benefits promised under the Policy.

· Guideline Premium/Cash Value Corridor Test - The Policy must at all times satisfy a guideline premium requirement and a cash value corridor requirement. Under the guideline premium requirement, the sum of the premiums paid under the Policy may not at any time exceed the greater of the guideline single premium or the sum of the guideline level premiums, for the benefits promised under the Policy. Under the cash value corridor requirement, the death benefit at any time must be equal to or greater than the applicable percentage of policy value specified in the Internal Revenue Code.

The Cash Value Accumulation Test does not limit the amount of premiums that may be paid under the Policy. If you desire to pay premiums in excess of those permitted under the Guideline Premium/Cash Value Corridor Test, you should consider electing to have your Policy qualify under the Cash Value Accumulation Test. However, any premium that would increase the net amount at risk is subject to evidence of insurability satisfactory to us. Required increases in the minimum death benefit due to growth in the policy value will generally be greater under the Cash Value Accumulation Test than under the Guideline Premium/Cash Value Corridor Test.

The Guideline Premium/Cash Value Corridor Test limits the amount of premium that may be paid under the Policy. If you do not desire to pay premiums in excess of those permitted under Guideline Premium/Cash Value Corridor Test limitations, you should consider electing to have your Policy qualify under the Guideline Premium/Cash Value Corridor Test.

Modified Endowment Contracts

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.

Policy Loan Interest

Investment in the Policy

Tax Consequences of the Guaranteed Option to Extend Maturity Date

The Guaranteed Option to Extend Maturity Date that we offer allows the policy owner to extend the original maturity date by 20 years. An extension of maturity could have adverse tax consequences. Before you exercise your rights under this option, you should consult with a competent tax advisor regarding the possible tax consequences of an extension of maturity.

Other Tax Considerations

The foregoing is a summary of the federal income tax considerations associated with the Policy and does not purport to cover all possible situations. The summary is based on our understanding of the present federal income tax laws as they are currently interpreted by the Internal Revenue Service (the “IRS”). The summary is not intended as tax advice. 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.

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 on investment gains. However, we reserve the right to do so in the event there is a change in the tax laws. We currently do not expect that any such charge will be necessary.Under current laws, we may incur state and local taxes (in addition to premium taxes) in several states. At present, these taxes are not significant. If there is a material change in applicable state or local tax laws, we reserve the right to make such deductions for such taxes.

How Do I Communicate With Penn Mutual?

General Rules

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

· policy loans in excess of $25,000, and full and partial surrenders;

· change of death benefit option;

· changes in specified amount of insurance;

· change of beneficiary;

· election of payment option for policy proceeds; and

· tax withholding elections.

Telephone Transactions

What Is the Timing of Transactions Under the Policy?

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 3.0% per year compounded annually while it is deferred.

How Does Penn Mutual Communicate With Me?

Do I Have the Right to Cancel the Policy?

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

THE PENN MUTUAL LIFE INSURANCE COMPANY

PENN MUTUAL VARIABLE LIFE ACCOUNT I

Investment Company Act of 1940 (the “1940 Act”) and qualifies as a “separate account” within the meaning of the federal securities laws.

VOTING SHARES OF THE INVESTMENT FUNDS

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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.

DISTRIBUTION ARRANGEMENTS

Penn Mutual enters into selling agreements with HTK and other broker-dealers whose registered representatives are authorized by state insurance and securities departments to solicit applications for the Policies. Sales and renewal compensation are paid to these broker-dealers for soliciting applications as premium-based commission, asset-based commission (sometimes referred to as “trails” or “residuals”), or a combination of the two. Registered representatives may be paid commissions on a Policy they sell based on premiums paid in amounts up to 53.5% of first year premiums of sales, 3% on premiums paid during the second through fifteenth policy years, and 1.2% on premiums paid after the first fifteen policy years. In lieu of the renewal commissions just described, registered representatives can opt to receive 1% of premiums paid during the second through tenth policy years, 0% of the premiums paid after the first ten policy years, and an asset-based commission equivalent to an annualized rate of 0.10% of gross policy value during the second through tenth policy years, and a 0.25% of gross policy value after the first ten policy years.

FINANCIAL STATEMENTS

APPENDIX A

Sample Minimum Initial Premiums

The following table shows for insureds of varying ages, the minimum initial premium for a Policy with a basic death benefit indicated. This table assumes the insureds will be placed in a nonsmoker class and that no supplemental benefits will be added to the base Policy.

Issue Age of Insured	Sex of Insured	Base Death Benefit		Minimum Initial Premium
25	M	$	50,000	$	286
30	F	$	75,000	$	390
35	M	$	75,000	$	448
40	F	$	100,000	$	640
45	M	$	100,000	$	827
50	F	$	100,000	$	975
55	M	$	100,000	$	1,377
60	F	$	75,000	$	1,155
65	M	$	75,000	$	2,022
70	F	$	50,000	$	1,327

A-1

APPENDIX B

Applicable Percentages Under the Guideline Premium / Cash Value Corridor Test

Attained Age	Percentage		Attained Age	Percentage		Attained Age	Percentage		Attained Age	Percentage		Attained Age	Percentage
0-40	250	%	51	178	%	62	126	%	73	109	%	84	105	%
41	243	%	52	171	%	63	124	%	74	107	%	85	105	%
42	236	%	53	164	%	64	122	%	75	105	%	86	105	%
43	229	%	54	157	%	65	120	%	76	105	%	87	105	%
44	222	%	55	150	%	66	119	%	77	105	%	88	105	%
45	215	%	56	146	%	67	118	%	78	105	%	89	105	%
46	209	%	57	142	%	68	117	%	79	105	%	90	105	%
47	203	%	58	138	%	69	116	%	80	105	%	91	104	%
48	197	%	59	134	%	70	115	%	81	105	%	92	103	%
49	191	%	60	130	%	71	113	%	82	105	%	93	102	%
50	185	%	61	128	%	72	111	%	83	105	%	94-99	101	%

B-1

Sample Applicable Percentages Under the Cash Value Accumulation Test

Male-Non-Smoker

Attained Age	Percentage		Attained Age	Percentage		Attained Age	Percentage		Attained Age	Percentage		Attained Age	Percentage
0-19	N/A		36	417.61	%	53	240.32	%	69	156.24	%	85	119.81	%
20	699.48	%	37	403.76	%	54	233.12	%	70	152.83	%	86	118.55	%
21	679.26	%	38	390.40	%	55	226.22	%	71	149.57	%	87	117.38	%
22	659.36	%	39	377.52	%	56	219.61	%	72	146.49	%	88	116.28	%
23	639.73	%	40	365.11	%	57	213.30	%	73	143.58	%	89	115.23	%
24	620.39	%	41	353.15	%	58	207.25	%	74	140.85	%	90	114.21	%
25	601.33	%	42	341.65	%	59	201.45	%	75	138.30	%	91	113.20	%
26	582.53	%	43	330.57	%	60	195.91	%	76	135.91	%	92	112.17	%
27	564.06	%	44	319.91	%	61	190.60	%	77	133.67	%	93	111.08	%
28	545.97	%	45	309.63	%	62	185.53	%	78	131.57	%	94	109.92	%
29	528.29	%	46	299.75	%	63	180.70	%	79	129.58	%	95	108.65	%
30	511.04	%	47	290.24	%	64	176.09	%	80	127.70	%	96	107.27	%
31	494.24	%	48	281.10	%	65	171.71	%	81	125.91	%	97	105.80	%
32	477.93	%	49	272.29	%	66	167.55	%	82	124.22	%	98	104.25	%
33	462.11	%	50	263.82	%	67	163.60	%	83	122.64	%	99	102.60	%
34	446.78	%	51	255.67	%	68	159.83	%	84	121.17	%	100	100.00	%
35	431.94	%	52	247.84	%

Female Non-Smoker

	Attained Age	Percentage		Attained Age	Percentage		Attained Age	Percentage		Attained Age	Percentage		Attained Age	Percentage
	0-19	N/A		36	468.31	%	53	270.97	%	69	171.23	%	85	122.77	%
	20	796.54	%	37	452.83	%	54	262.85	%	70	166.87	%	86	121.08	%
	21	771.20	%	38	437.93	%	55	255.03	%	71	162.66	%	87	119.50	%
	22	746.54	%	39	423.58	%	56	247.50	%	72	158.63	%	88	118.03	%
	23	722.57	%	40	409.78	%	57	240.24	%	73	154.80	%	89	116.64	%
	24	699.24	%	41	396.51	%	58	233.24	%	74	151.16	%	90	115.32	%
	25	676.63	%	42	383.77	%	59	226.46	%	75	147.74	%	91	114.03	%
	26	654.62	%	43	371.51	%	60	219.89	%	76	144.52	%	92	112.76	%
	27	633.28	%	44	359.71	%	61	213.54	%	77	141.49	%	93	111.49	%
	28	612.56	%	45	348.34	%	62	207.41	%	78	138.64	%	94	110.17	%
	29	592.47	%	46	337.38	%	63	201.52	%	79	135.95	%	95	108.79	%
	30	572.99	%	47	326.82	%	64	195.89	%	80	133.39	%	96	107.34	%
	31	554.12	%	48	316.63	%	65	190.51	%	81	130.98	%	97	105.82	%
	32	535.83	%	49	306.81	%	66	185.37	%	82	128.71	%	98	104.26	%
	33	518.10	%	50	297.34	%	67	180.47	%	83	126.58	%	99	102.60	%
	34	500.93	%	51	288.22	%	68	175.76	%	84	124.60	%	100	100.00	%
	35	484.36	%	52	279.43	%	85

B-2

Sample Applicable Percentages Under the Cash Value Accumulation Test

Male Smoker

Attained Age	Percentage		Attained Age	Percentage		Attained Age	Percentage		Attained Age	Percentage		Attained age	Percentage
0-19	N/A		36	342.96	%	53	206.34	%	69	144.93	%	85	118.30	%
20	567.36	%	37	331.98	%	54	201.00	%	70	142.45	%	86	117.35	%
21	551.35	%	38	321.41	%	55	195.91	%	71	140.09	%	87	116.44	%
22	535.65	%	39	311.26	%	56	191.05	%	72	137.84	%	88	115.56	%
23	520.14	%	40	301.52	%	57	186.43	%	73	135.71	%	89	114.71	%
24	504.81	%	41	292.18	%	58	182.01	%	74	133.71	%	90	113.85	%
25	489.67	%	42	283.23	%	59	177.78	%	75	131.84	%	91	112.97	%
26	474.70	%	43	274.66	%	60	173.72	%	76	130.10	%	92	112.04	%
27	459.94	%	44	266.46	%	61	169.84	%	77	128.48	%	93	111.02	%
28	445.46	%	45	258.59	%	62	166.14	%	78	126.96	%	94	109.89	%
29	431.30	%	46	251.07	%	63	162.61	%	79	125.52	%	95	108.65	%
30	417.48	%	47	243.85	%	64	159.26	%	80	124.15	%	96	107.27	%
31	404.05	%	48	236.93	%	65	156.08	%	81	122.84	%	97	105.80	%
32	391.02	%	49	230.29	%	66	153.08	%	82	121.59	%	98	104.25	%
33	378.39	%	50	223.92	%	67	150.23	%	83	120.42	%	99	102.60	%
34	366.17	%	51	217.79	%	68	147.52	%	84	119.32	%	100	100.00	%
35	354.36	%	52	211.94	%

Female Smoker

Attained Age	Percentage		Attained Age	Percentage		Attained Age	Percentage		Attained Age	Percentage		Attained Age	Percentage
0-19	N/A		36	413.45	%	53	247.46	%	69	163.93	%	85	121.86	%
20	700.22	%	37	400.10	%	54	240.74	%	70	160.19	%	86	120.34	%
21	677.90	%	38	387.29	%	55	234.28	%	71	156.56	%	87	118.94	%
22	656.20	%	39	375.01	%	56	228.06	%	72	153.07	%	88	117.61	%
23	635.13	%	40	363.24	%	57	222.06	%	73	149.74	%	89	116.35	%
24	614.65	%	41	351.98	%	58	216.25	%	74	146.59	%	90	115.11	%
25	594.81	%	42	341.22	%	59	210.60	%	75	143.63	%	91	113.90	%
26	575.52	%	43	330.93	%	60	205.10	%	76	140.85	%	92	112.70	%
27	556.84	%	44	321.06	%	61	199.75	%	77	138.24	%	93	111.46	%
28	538.74	%	45	311.58	%	62	194.58	%	78	135.78	%	94	110.17	%
29	521.19	%	46	302.46	%	63	189.59	%	79	133.44	%	95	108.79	%
30	504.21	%	47	293.69	%	64	184.82	%	80	131.22	%	96	107.34	%
31	487.80	%	48	285.25	%	65	180.27	%	81	129.11	%	97	105.82	%
32	471.91	%	49	277.11	%	66	175.93	%	82	127.12	%	98	104.26	%
33	456.54	%	50	269.27	%	67	171.78	%	83	125.23	%	99	102.60	%
34	441.67	%	51	261.73	%	68	167.79	%	84	123.48	%	100	100.00	%
35	427.33	%	52	254.46	%

B-3

[THIS PAGE INTENTIONALLY LEFT BLANK]

STATEMENT OF ADDITIONAL INFORMATION

1-800-523-0650. The SAI is incorporated by reference into this Prospectus and, therefore, legally forms a part of this Prospectus.

Penn Mutual Variable Life Account I’s Investment Company Act registration number is 811-05006.

PROSPECTUS

FOR

CORNERSTONE VUL IV

a flexible premium adjustable variable life insurance policy issued by

THE PENN MUTUAL LIFE INSURANCE COMPANY

and funded through

PENN MUTUAL VARIABLE LIFE ACCOUNT I

The Penn Mutual Life Insurance Company

Philadelphia, PA 19172

800-523-0650

Penn Series Funds, Inc.		Manager
Money Market Fund		Independence Capital Management, Inc.
Limited Maturity Bond Fund		Independence Capital Management, Inc.
Quality Bond Fund		Independence Capital Management, Inc.
High Yield Bond Fund		T. Rowe Price Associates, Inc.
Flexibly Managed Fund		T. Rowe Price Associates, Inc.
Growth Stock Fund		T. Rowe Price Associates, Inc.
Large Cap Value Fund		Lord, Abbett & Co. LLC
Large Cap Growth Fund		ABN AMRO Asset Management, Inc.
Index 500 Fund		Wells Capital Management Incorporated
Mid Cap Growth Fund		Turner Investment Partners, Inc.
Mid Cap Value Fund		Neuberger Berman Management Inc.
Strategic Value Fund		Lord, Abbett & Co. LLC
Small Cap Growth Fund		Bjurman, Barry & Associates
Small Cap Value Fund		Goldman Sachs Asset Management, L.P.
International Equity Fund		Vontobel Asset Management, Inc.
REIT Fund		Heitman Real Estate Securities LLC
Large Core Growth Fund		Wells Capital Management Incorporated
Large Core Value Fund		Eaton Vance Management
SMID Cap Growth Fund		Wells Capital Management Incorporated
SMID Cap Value Fund		AllianceBernstein L.P.
Emerging Markets Equity Fund		Van Kampen Asset Management
Small Cap Index Fund		SSgA Funds Management, Inc.
Developed International Index Fund		SSgA Funds Management, Inc.
Balanced Fund		Independence Capital Management, Inc.
Aggressive Allocation Fund		Independence Capital Management, Inc.
Moderately Aggressive Allocation Fund		Independence Capital Management, Inc.
Moderate Allocation Fund		Independence Capital Management, Inc.
Moderately Conservative Allocation Fund		Independence Capital Management, Inc.
Conservative Allocation Fund		Independence Capital Management, Inc.
Neuberger Berman Advisers Management Trust		Manager
Balanced Portfolio		Neuberger Berman Management Inc.
Fidelity Investments’ Variable Insurance Products Fund		Manager
Equity-Income Portfolio		Fidelity Management & Research Company
Growth Portfolio		Fidelity Management & Research Company

Fidelity Investments’ Variable Insurance Products Fund II		Manager
Asset Manager Portfolio		Fidelity Management & Research Company
Van Kampen’s The Universal Institutional Funds, Inc.		Manager
Emerging Markets Equity (International) Portfolio		Van Kampen

May 1, 2008

Guide to Reading this Prospectus

The prospectus is arranged as follows:

· Pages 3 to 4 provide a summary of the benefits and risks of the Policy.

· Pages 5 to 15 provide tables showing fees and charges under the Policy.

· Pages 16 to 18 provide tables showing fees and expenses of the funds underlying the Policy.

· Pages 19 to 49 provide additional information about the Policy, in question and answer format.

· Pages 49 to 52 provide information about The Penn Mutual Life Insurance Company (“Penn Mutual”), Penn Mutual Variable Life Account I (the “Separate Account”) and the underlying investment funds in which Policy reserves may be allocated.

· Appendices A, B, C and D, which are at the end of the prospectus and are referred to in the answers to questions about the Policy, provide specific information and examples to help you understand how the Policy works.

**********

SUMMARY OF THE BENEFITS AND RISKS OF THE POLICY

The following is a summary of the benefits and the risks of the Policy. Please read the entire Prospectus before you invest.

Benefit Summary

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

Investment Options – The Policy allows you to allocate your policy value to the different investment options listed on pages 1 and 2 of this prospectus.

Transfers – Within limitations, you may transfer investment amounts from one investment account to another and to and from the fixed interest option. In addition, the Policy offers three automated transfer programs – two dollar cost averaging programs and one asset rebalancing program.

Loans – You may take a loan on your Policy. You may borrow up to 95% of your cash surrender value. The minimum amount you may borrow is $250. Interest charged on a policy loan is 4.0% and is payable at the end of each policy year. You may repay all or part of a loan at any time.

Surrenders and Withdrawals – You may surrender your Policy in full at any time. If you do, we will pay you the Policy value, less any Policy loan outstanding and less any surrender charge that then applies (if any). This is called your “net cash surrender value.” In addition, you may make partial withdrawals (subject to limitations) from your net cash surrender value.

Risk Summary

FEE TABLES

Transaction Fees

Charge	When Charge is Deducted	Amount Deducted
Maximum Sales Charge (load)	When a premium is paid.	4.0% of premium payments.(2)
Premium and Federal (DAC) Taxes	When a premium is paid.	3.5% of premium payments.
Maximum Deferred Sales Charge (load) if the Policy is surrendered within the first 11 policy years	When the Policy is surrendered.	25% of the lesser of (i) premiums paid and (ii) the “maximum surrender charge premium.”(3)
Charge for a representative non-tobacco male insured, age 45	When the Policy is surrendered.	25% of the lesser of (i) premiums paid and (ii) $14.35 per $1,000 of specified amount.(3)
Additional Surrender Charges apply if the Policy is surrendered within the first 11 policy years, or within 11 years of any increase in the amount of insurance specified in your Policy(4)

Minimum Charge	When the Policy is surrendered.	$1 per $1,000 of initial specified amount of insurance or increase in specified amount of insurance, for insured age 9 or younger at the date of issue or increase.

Maximum Charge	When the Policy is surrendered.	$7 per $1,000 of initial specified amount of insurance or increase in specified amount of insurance, for insured age 60 or older at the date of issue or increase.
Charge for a representative non-tobacco male insured, age 45	When the Policy is surrendered.	$5 per $1,000 of initial specified amount of insurance or increase in specified amount of insurance, for insured age 45 at the date of issue or increase.
Partial Surrender Charge	When you partially surrender your Policy.	Lesser of $25 or 2.0% of the amount surrendered.
Transfer Charge

Current Charge	When you make a transfer.	$0.00(5)

Guaranteed Maximum Charge	When you make a transfer.	$10.00

Charge	When Charge is Deducted	Amount Deducted
Loans(6)
Gross Interest Charge	End of each policy year.	Annual rate of 4.0% (before credit from interest paid on collateral held in special loan account).
Net Interest Charge(7)	End of each policy year.	Annual rate of 1.0% (after credit from interest paid on collateral held in special loan account).(8)

(1) See What Are the Fees and Charges Under the Policy? in this prospectus for additional information.

(2) The sales charge imposed on premiums (load) is currently reduced to 1.5%.

(3) The “maximum surrender charge premium” is determined separately for each Policy and takes into account the individual underwriting characteristics of the insured. The “maximum surrender charge premium” is stated in each Policy. Commencing in the eighth policy year and continuing through the eleventh policy year, the deferred sales charge decreases each year, after which there is no longer a charge.

(6) You may borrow up to 95% of your cash surrender value. The minimum amount you may borrow is $250. An amount equivalent to the loan is withdrawn from subaccounts of the Separate Account and the fixed interest option on a prorated basis (unless you designate a different withdrawal allocation when you request the loan) and is transferred to a special loan account as collateral for the loan. See What Is a Policy Loan? in this prospectus for additional information about Policy Loans.

(7) “Net Interest Charge” means the difference between the amount of interest we charge on the loan and the amount of interest we credit to your Policy in the special loan account.

(8) The special loan account is guaranteed to earn interest at 3.0% during the first ten policy years and 3.75% thereafter (4.0% thereafter in New York). On a guaranteed basis, the Net Interest Charge during the first ten policy years is 1.0% and 0.25% thereafter (0.0% thereafter in New York). The special loan account currently earns interest at 3.0% during the first ten policy years and 4.0% thereafter. On a current basis, the Net Interest Charge during the first ten policy years is 1.0% and 0.0% thereafter.

Periodic Charges Under the Policy
Not Including Operating Expenses of Underlying Investment Funds

Policy Charges	When Charge is Deducted	Amount Deducted
Cost of Insurance Charges(1):
Current Charges	Monthly	Minimum of $0.0093 to maximum of $22.9004, per $1,000 of net amount at risk.
Guaranteed Maximum Charges	Monthly	Minimum of $0.0566 to maximum of $83.3333, per $1,000 of net amount at risk.
Charge for a representative non-tobacco male insured, age 45

Current Charges	Monthly	$0.2217 per $1,000 of net amount at risk.

Guaranteed Maximum Charges	Monthly	$0.2767 per $1,000 of net amount at risk.
Mortality and Expense Risk Charge:
Mortality and Expense Risk Face Amount Charge	Monthly	For first 120 months following policy date, the charges range from a minimum of $0.07 per $1,000 of initial specified amount of insurance for female age 5 or under, up to a maximum of $0.29 per $1,000 of initial specified amount of insurance, for male age 85 or older. A similar charge applies to an increase in the specified amount of insurance, for the first 120 months following the increase.(2)
Charge for a representative non-tobacco male insured, age 45

Current Charges	Monthly	$0.18 per $1,000 of initial specified amount of insurance.

Guaranteed Maximum Charges	Monthly	$0.18 per $1,000 of initial specified amount of insurance.
Mortality and Expense Risk Asset Charge	Monthly	0.60% annually of the first $50,000 of policy value and 0.30% annually of the policy value in excess of that amount.(3)
Administrative Charges:	Monthly	$9.00(4)

(1) The cost of insurance charges under the Policies vary depending on the individual circumstances of the insured, such as sex, age and risk classification. The charges also vary depending on the amount of insurance specified in the Policy and the policy year in which the charge is deducted. The table shows the lowest and the highest cost of insurance charges for an insured, based on our current rates and on guaranteed maximum rates for individuals in standard risk classifications. The table also shows the cost of insurance charges under a Policy issued to an individual who is representative of individuals we

insure. Your Policy will state the guaranteed maximum cost of insurance charges. More detailed information concerning your cost of insurance charges is available from our administrative offices upon request. Also, before you purchase the Policy, we will provide you with hypothetical illustrations of policy values based upon the insured’s age and risk classification, the death benefit option selected, the amount of insurance specified in the Policy, planned periodic premiums, and riders requested. The net amount at risk referred to in the tables is based upon the difference between the current death benefit provided under the Policy and the current value of the Policy. For additional information on cost of insurance charges, see What Are the Fees and Charges Under the Policy? – Monthly Deductions – Cost of Insurance in this prospectus.

(2) The mortality and expense risk face amount charges are currently reduced. During the first 60 months following the policy date, the charges range from $0.06 per $1,000 of initial specified amount of insurance for females age 7 and under and up to $0.29 per $1,000 of initial specified amount of insurance for males age 74 and older. For months 61 through 120 following the policy date, the charges range from $0.03 per $1,000 of initial specified amount of insurance for females age 7 and under and up to $0.15 per $1,000 of initial specified amount of insurance for males age 74 and older. The charge on an additional specified amount of insurance is similarly reduced.

(3) This charge is currently reduced, for the first 120 months following the policy date, to 0.45% annually of the first $25,000 of policy value and 0.15% annually of the policy value in excess of that amount. After the first 120 months following the policy date, the charge is currently reduced to zero. See What Are the Fees and Charges Under the Policy? – Monthly Deductions – Mortality and Expense Risk Change in this prospectus for additional information about this charge.

(4) The charge is currently reduced to $8.00.

Periodic Charges Under Optional Supplemental Benefit Riders
Not Including Operating Expenses of Underlying Investment Funds

Supplemental Benefit Rider/Charges	When Charge Is Deducted	Amount Deducted
1. *Accidental Death Benefit:*
Cost of Insurance(1)
Current Charges	Monthly	Minimum of $0.0533 to maximum of $0.1108, per $1,000 of accidental death benefit.
Guaranteed Maximum Charges	Monthly	Minimum of $0.0533 to maximum of $0.1108, per $1,000 of accidental death benefit.
Charge for a representative non-tobacco male insured, age 45

Current Charges	Monthly	$0.0592 per $1,000 of accidental death benefit.

Guaranteed Maximum Charges	Monthly	$0.0592 per $1,000 of accidental death benefit.

Supplemental Benefit Rider/Charges	When Charge Is Deducted	Amount Deducted
2. *Additional Insured Term Insurance Agreement:*
Cost of Insurance Charges(1)
Current Charges	Monthly	Minimum of $0.0499 to maximum of $3.0371, per $1,000 of additional insured term insurance benefit.

Guaranteed Maximum Charges	Monthly	Minimum of $0.0816 to maximum of $4.2109, per $1,000 of additional insured term insurance benefit.
Charge for a representative non-tobacco male insured, age 45

Current Charges	Monthly	$0.2283 per $1,000 of additional insured term insurance benefit.

Guaranteed Maximum Charges	Monthly	$0.2767 per $1,000 of additional insured term insurance benefit.
Administrative Charges
First year of Agreement	Monthly	$0.10 per $1,000 of additional insured term insurance benefit.
First year of increase in term insurance benefit under Agreement	Monthly	$0.10 per $1,000 of additional insured term insurance benefit.
3. *Business Accounting Benefit*(2):
Administrative Charges
First eleven years of the Policy	Monthly	$0.03 per $1,000 of original specified amount of insurance.
First eleven years after an increase in the specified amount of insurance	Monthly	$0.03 per $1,000 of increase in specified amount of insurance.

Supplemental Benefit Rider/Charges	When Charge Is Deducted	Amount Deducted
4. *Children’s Term Insurance Agreement:*
Cost of Insurance Charges(1)
Current Charges	Monthly	$0.15 per $1,000 of children’s term insurance benefit.

Guaranteed Maximum Charges	Monthly	$0.24 per $1,000 of children’s term insurance benefit.
5. *Disability Waiver of Monthly Deduction:*
Cost of Insurance Charges(1)
Current Charges	Monthly	Minimum of $0.0092 to maximum of $0.3192, per $1,000 of net amount at risk.

Guaranteed Maximum Charges	Monthly	Minimum of $0.0117 to maximum of $0.5992, per $1,000 of net amount at risk.
Charge for a representative non-tobacco male insured, age 45

Current Charges	Monthly	$0.0275 per $1,000 of net amount at risk.

Guaranteed Maximum Charges	Monthly	$0.0508 per $1,000 of net amount at risk.
6. *Disability Waiver of Monthly Deduction and Disability Monthly Premium Deposit Agreement:*
Disability Waiver of Monthly Deduction Part of Agreement
Cost of Insurance Charges(1)
Current Charges	Monthly	Minimum of $0.0092 to maximum of $0.3192, per $1,000 of net amount at risk.

Guaranteed Maximum Charges	Monthly	Minimum of $0.0117 to maximum of $0.5992, per $1,000 of net amount at risk.
Charge for a representative non-tobacco male insured, age 45

Current Charges	Monthly	$0.0275 per $1,000 of net amount at risk.

Guaranteed Maximum Charges	Monthly	$0.0508 per $1,000 of net amount at risk.
Disability Monthly Premium Deposit Part of Agreement
Cost of Insurance Charges(1)
Current Charges	Monthly	Minimum of $0.03 to maximum of $0.96, per $1,000 of the stipulated premium in the Policy.

Supplemental Benefit Rider/Charges	When Charge Is Deducted	Amount Deducted
Guaranteed Maximum Charges	Monthly	Minimum of $0.03 to maximum of $0.96, per $1,000 of the stipulated premium in the Policy.
Charge for a representative non-tobacco male insured, age 45

Current Charges	Monthly	$0.12 per $1,000 of the stipulated premium in the Policy.

Guaranteed Maximum Charges	Monthly	$0.12 per $1,000 of the stipulated premium in the Policy.
7. *Guaranteed Continuation of Policy:*
Cost of Insurance	Monthly	$0.01 per $1,000 of specified amount of insurance.
8. *Guaranteed Option to Extend Maturity Date:*
Cost of Insurance Charges(1)

Current Charges	Monthly	No charge.

Guaranteed Maximum Charges	Monthly	Minimum of $2.80 to maximum of $6.30, per $1,000 of net amount at risk.
Charge for a representative non-tobacco male insured, age 45

Current Charges	Monthly	No charge.

Guaranteed Maximum Charges	Monthly	$0 per $1,000 of net amount at risk.
9. *Guaranteed Option to Increase Specified Amount:*
Cost of Insurance Charges(1)
Current Charges	Monthly	Minimum of $0.0425 to maximum of $0.145, per $1,000 of guaranteed option amount.

Guaranteed Maximum Charges	Monthly	Minimum of $0.0425 to maximum of $0.145, per $1,000 of guaranteed option amount.
Charge for a representative non-tobacco male insured, age 25

Current Charges	Monthly	$0.1058 per $1,000 of guaranteed option amount.

Guaranteed Maximum Charges	Monthly	$0.1058 per $1,000 of guaranteed option amount.

Supplemental Benefit Rider/Charges	When Charge Is Deducted	Amount Deducted
10. *Guaranteed Withdrawal Benefit Agreement:*
Current Charges	Monthly	0.60% annually of the policy value allocated to the Separate Account.

Guaranteed Maximum Charges	Monthly	1.00% annually of the policy value allocated to the Separate Account.
11. *Return of Premium Term Insurance:*
Cost of Insurance Charges(1)
Current Charges	Monthly	Minimum of $0.0244 to maximum of $22.9004, per $1,000 of term insurance.
Guaranteed Maximum Charges	Monthly	Minimum of $0.0816 to maximum of $83.3333, per $1,000 of term insurance.
Charge for a representative non- tobacco male insured, age 45
Current Charges	Monthly	$0.2217 per $1,000 of term insurance.
Guaranteed Maximum Charges	Monthly	$0.2767 per $1,000 of term insurance.

Supplemental Benefit Rider/Charges	When Charge Is Deducted	Amount Deducted
12. Supplemental Term Insurance Agreement(3):
Cost of Insurance Charges(1)
Current Charges	Monthly	Minimum of $0.0070 to maximum of $22.9004, per $1,000 of net amount at risk attributable to the term insurance benefit.

Guaranteed Maximum Charges	Monthly	Minimum of $0.0566 to maximum of $83.3333, per $1,000 of net amount at risk attributable to the term insurance benefit.
Charge for a representative non-tobacco male insured, age 45

Current Charges	Monthly	$0.0250 per $1,000 of net amount at risk attributable to the term insurance benefit.

Guaranteed Maximum Charges	Monthly	$0.2767 per $1,000 of net amount at risk attributable to the term insurance benefit.
Mortality and Expense Risk Face Amount Charge
Current Charges	Monthly	No charge.
Guaranteed Maximum Charge	Monthly	For the first 120 months following policy date, the charges range from a minimum of $0.12 per $1,000 of the term insurance benefit, for female age 5 or under, up to a maximum of $0.34 per $1,000 of the term insurance benefit, for male age 85 or older. A similar charge applies to an increase in the term insurance benefit, for the first 120 months following the increase.
Charge for a representative non-tobacco male insured, age 45

Current Charges	Monthly	$0.00 per $1,000 of the term insurance benefit

Guaranteed Maximum Charges	Monthly	$0.23 per $1,000 of the term insurance benefit

Supplemental Benefit Rider/Charges	When Charge Is Deducted	Amount Deducted
13. Supplemental Exchange Agreement:
Current Charges	Monthly	No charge.

Guaranteed Maximum Charges	Monthly	No charge.
14.Overloan Protection Benefit Agreement:
Administrative Charge
Current Charge	When Benefit is Exercised	One time charge of 3.5% of policy value.
Guaranteed Maximum Charge	When Benefit is Exercised	One time charge of 3.5% of policy value.
15.Accelerated Death Benefit:
Administrative Charge
Current Charge	When Benefit is Exercised	One time charge of 12 months worth of policy charges on the accelerated amount, plus an interest adjustment, which is equal to 12 months worth of interest on the accelerated amount based on a rate that is the greater of (a) the current 90-day Treasury bill rate, or (b) the current policy loan rate.

Guaranteed Maximum Charge	When Benefit is Exercised	One time charge of 12 months worth of policy charges on the accelerated amount, plus an interest adjustment, which is equal to 12 months worth of interest on the accelerated amount based on a rate that is the greater of (a) the current 90-day Treasury bill rate, or (b) the current policy loan rate.

(2) This rider is not available to all persons. See What Are the Supplemental Benefit Riders That I Can Buy? – Business Accounting Benefit in this prospectus for additional information.

(3) For purposes of determining the allocation of net amount at risk between the specified amount of insurance in the Policy, and the term insurance benefit, the policy value will be allocated as follows: first to the initial term insurance benefit segment, then to any segments resulting from increases in the term insurance benefit in the order of the increases, then to the initial specified amount segment, and then to any segments resulting from increases in the specified amount in the order of the increases. Any increase in the death benefit in order to maintain the required minimum margin between the death benefit and the policy value will be allocated to the most recent increase in the specified amount in the Policy.

	Minimum:		Maximum:
Maximum and Minimum Total Fund Operating Expenses
(expenses that are deducted from assets of fund companies, including management fees and other expenses)	0.35	%	1.60	%

The following table provides more specific detail about the total fund operating expenses for each fund.

Penn Series Funds, Inc.

Underlying Fund Annual Expenses (as a % of portfolio average net assets)

	Management Fees		Other Expenses		Acquired Fund Fees and Expenses		Total Fund Expenses		Fee Waivers		Net Fund Expenses

Money Market(1)	0.20	%	0.30	%	0.00	%	0.50	%	0.00	%	0.50	%
Limited Maturity Bond(1)	0.30	%	0.30	%	0.01	%(3)	0.61	%	0.00	%	0.61	%
Quality Bond(1)	0.33	%	0.27	%	0.00	%	0.60	%	0.00	%	0.60	%
High Yield Bond(1)	0.50	%	0.34	%	0.00	%	0.84	%	0.00	%	0.84	%
Flexibly Managed(1)	0.60	%	0.23	%	0.00	%	0.83	%	0.00	%	0.83	%
Growth Stock(1)	0.63	%	0.31	%	0.00	%	0.94	%	0.00	%	0.94	%
Large Cap Value(1)	0.60	%	0.28	%	0.00	%	0.88	%	0.00	%	0.88	%(6)
Large Cap Growth(1)	0.55	%	0.32	%	0.00	%	0.87	%	0.00	%	0.87	%(6)
Index 500(1)	0.07	%	0.28	%	0.00	%	0.35	%	0.00	%	0.35	%
Mid Cap Growth(1)	0.70	%	0.31	%	0.00	%	1.01	%	0.00	%	1.01	%(6)
Mid Cap Value(1)	0.55	%	0.28	%	0.00	%	0.83	%	0.00	%	0.83	%(6)
Strategic Value(1)	0.72	%	0.34	%	0.00	%	1.06	%	0.00	%	1.06	%(6)
Small Cap Growth(1)	0.74	%	0.28	%	0.00	%	1.02	%	0.00	%	1.02	%
Small Cap Value(1)	0.85	%	0.30	%	0.00	%	1.15	%	0.00	%	1.15	%
International Equity(1)	0.85	%	0.33	%	0.00	%	1.18	%	0.00	%	1.18	%(6)
REIT(1)	0.70	%	0.29	%	0.00	%	0.99	%	0.00	%	0.99	%
Large Core Growth	0.56	%	0.27	%(2)	0.00	%	0.83	%	0.19	%(5)	0.64	%
Large Core Value	0.46	%	0.27	%(2)	0.00	%	0.73	%	0.19	%(5)	0.54	%
SMID Cap Growth	0.75	%	0.30	%(2)	0.00	%	1.05	%	0.00	%	1.05	%
SMID Cap Value	0.95	%	0.30	%(2)	0.00	%	1.25	%	0.11	%(5)	1.14	%
Emerging Markets Equity	1.25	%	0.40	%(2)	0.02	%	1.67	%	0.07	%(5)	1.60	%
Small Cap Index	0.30	%	0.35	%(2)	0.00	%	0.65	%	0.10	%(5)	0.55	%
Developed International Index	0.30	%	0.37	%(2)	0.00	%	0.67	%	0.08	%(5)	0.59	%
Balanced	0.00	%	0.22	%(2)	0.45	%(4)	0.67	%	0.05	%(5)	0.62	%
Aggressive Allocation	0.10	%	0.23	%(2)	1.10	%(4)	1.43	%	0.13	%(5)	1.30	%
Moderately Aggressive Allocation	0.10	%	0.23	%(2)	0.99	%(4)	1.32	%	0.11	%(5)	1.21	%
Moderate Allocation	0.10	%	0.23	%(2)	0.94	%(4)	1.27	%	0.10	%(5)	1.17	%
Moderately Conservative Allocation	0.10	%	0.23	%(2)	0.85	%(4)	1.18	%	0.07	%(5)	1.11	%
Conservative Allocation	0.10	%	0.23	%(2)	0.75	%(4)	1.08	%	0.06	%(5)	1.02	%

(1) These expenses are for the fiscal year ended December 31, 2007.

(2) These expenses are based on estimated amounts for the current fiscal year.

(3) Acquired Fund Fees and Expenses reflect the fees and expenses that were incurred indirectly by the Fund through its investments in other investment companies in the prior fiscal year.

Large Core Growth		0.64%
Large Core Value		0.54%
SMID Cap Value		1.14%
Emerging Markets Equity		1.58%
Small Cap Index		0.55%
Developed International Index		0.59%
Balanced		0.62%
Aggressive Allocation		0.20%
Moderately Aggressive Allocation		0.22%
Moderate Allocation		0.23%
Moderately Conservative Allocation		0.26%
Conservative Allocation		0.27%

Large Cap Value	0.86	%
Large Cap Growth	0.83	%
Mid Cap Growth	0.97	%
Mid Cap Value	0.79	%
Strategic Value	1.04	%
International Equity	1.16	%

Neuberger Berman Advisers Management Trust (a)

Underlying Fund Annual Expenses (as a % of portfolio average net assets)

	Management Fee		Other Expenses		Total Fund Expenses

Balanced	0.55	%	0.61	%	1.16	%

(a) These expenses are for the fiscal year ended December 31, 2007.

Fidelity Investments’ Variable Insurance Products Fund (a)

Underlying Fund Annual Expenses (as a % of portfolio average net assets)

	Management Fee		Other Expenses		Total Fund Expenses

Equity-Income	0.46	%	0.09	%	0.55	%
Growth	0.56	%	0.09	%	0.65	%

Fidelity Investments’ Variable Insurance Products Fund II (a)

Underlying Fund Annual Expenses (as a % of portfolio average net assets)

	Management Fee		Other Expenses		Total Fund Expenses

Asset Manager	0.51	%	0.12	%	0.63	%

Van Kampen’s The Universal Institutional Funds, Inc. (a)

Underlying Fund Annual Expenses (as a % of portfolio average net assets)

	Management Fee		Other Expenses		Acquired Fund Fees and Expenses		Total Fund Expenses

Emerging Markets Equity (International)	1.21	%	0.37	%	0.02	%	1.60	%

(a) These expenses are for the fiscal year ended December 31, 2007.

QUESTIONS AND ANSWERS

This part of the prospectus provides answers to important questions about the Policy. The questions, and answers to the questions, are on the following pages.

Question		Page

What Is the Policy?		21
Who Owns the Policy?		21
What Payments Must I Make Under the Policy?		22
How Are Amounts Credited to the Separate Account?		24
How Much Life Insurance Does the Policy Provide?		24
Can I Change Insurance Coverage Under the Policy?		25
What Is the Value of My Policy?		26
How Can I Change the Policy’s Investment Allocations?		27
What Are the Fees And Charges Under the Policy?		29
What Are the Supplemental Benefit Riders That I Can Buy?		33
What Is a Policy Loan?		42
How Can I Withdraw Money From the Policy?		43
Can I Choose Different Payout Options Under the Policy?		43
How Is the Policy Treated Under Federal Income Tax Law?		44
Are There Other Charges That Penn Mutual Could Deduct in the Future?		48
How Do I Communicate With Penn Mutual?		48
What Is the Timing of Transactions Under the Policy?		49
How Does Penn Mutual Communicate With Me?		49
Do I Have the Right to Cancel the Policy?		50

What Is the Policy?

You will have several options under the Policy. Here are some major ones:

· Determine when and how much you pay to us

· Determine when and how much to allocate to subaccounts of the Separate Account and to the fixed account

· Borrow money

· Change the beneficiary

· Change the amount of insurance protection

· Change the death benefit option you have selected

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

· 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.

The maturity date of a Policy is the policy anniversary nearest the insured’s 100th birthday. If the Policy is still in force on the maturity date, a maturity benefit will be paid. The maturity benefit is equal to the policy value less any policy loan, including any capitalized interest on any such loan (“Net Policy Value”), on the maturity date. Upon written request of the owner, the Policy will continue in force beyond the maturity date. Thereafter, the death benefit will be the Net Policy Value.

Who Owns the Policy?

What Payments Must I Make Under the Policy?

Premium Payments

Planned Premiums

Ways to Pay Premiums

We will also accept premiums:

· by wire or by exchange from another insurance company,

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

· 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.

Three Year No-Lapse Feature

Your Policy will remain in force during the first three policy years, regardless of investment performance 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 “no-lapse premium” specified in your Policy, multiplied by the number of months the Policy has been in force.

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

Lapse and Reinstatement

If you die during the grace period, we will pay the death benefit to your beneficiary less any unpaid policy charges and outstanding policy loans.

Premiums Upon an Increase in the Specified Amount

How Are Amounts Credited to the Separate Account?

(b) is the net asset value per share of the fund held in the subaccount as of the end of the last prior valuation period.

How Much Life Insurance Does the Policy Provide?

Death Benefit Options

· Option 1 - The death benefit is the greater of (a) the specified amount of insurance, or (b) the “applicable percentage” of the policy value on the date of the insured’s death.

The “applicable percentages” depend on the life insurance qualification test you chose on the application. If you chose the Guideline Premium Test/Cash Value Corridor Test, the “applicable percentage” is 250% when the insured has attained age 40 or less and decreases to 100% when the insured

attains age 100. For the Cash Value Accumulation Test, the “applicable percentages” will vary by attained age and the insurance risk characteristics. Tables showing “applicable percentages” are included in Appendix B.

Can I Change Insurance Coverage Under the 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:

· after the change, the specified amount of insurance must be at least $50,000;

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

· 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 insured, the requested change will not be allowed.

Changes in the Specified Amount of Insurance

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

· you must submit an application along with evidence of insurability acceptable to Penn Mutual;

· you must return your Policy so we can amend it to reflect the increase;

· any increase in the specified amount must be at least $10,000; and

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

If you increase the specified amount within the first three policy years, the three year no-lapse period will be extended.

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

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

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

· no decrease may be made within one year of an increase in the specified amount; and

· any decrease in the specified amount of insurance must be at least $5,000 and the specified amount after the decrease must be at least $50,000.

Exchange of Policies

Tax Consequences of Changing Insurance Coverage

See How Is the Policy Treated Under Federal Income Tax Law? in this prospectus to learn about possible tax consequences of changing your insurance coverage under the Policy.

What Is the Value of My Policy?

At any time, your policy value is equal to:

· the net premiums you have paid;

· plus or minus the investment results in the part of your policy value allocated to subaccounts of the Separate Account;

· plus interest credited to the amount in the part of your policy value (if any) allocated to the fixed interest option;

· minus policy charges we deduct; and

· minus partial surrenders you have made.

If you borrow money under your Policy, other factors affect your policy value. See What Is a Policy Loan? in this prospectus.

How Can I Change the Policy’s Investment Allocations?

Future Premium Payments

Transfers Among Existing Investment Options

· 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);

· 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;

· we may defer transfers under certain conditions;

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

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

· the maximum amount that may be transferred out of the fixed interest option is limited to the greater of $5,000 or 25% of the accumulated value of the fixed interest option; and

· the amount that may be transferred excludes any amount held in the policy loan account.

Frequent Trading Risks

management strategies; and they can have the effect of diluting the value of the shares of long term shareholders in cases in which fluctuations in markets are not fully priced into the fund’s net asset value.

Frequent Trading Policies

Dollar Cost Averaging

This program automatically makes monthly transfers from the money market variable investment option to one or more of the other investment options and to the fixed interest 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 assure a profit or protect against loss 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 elect to

participate in the program when you apply for your Policy or, after you have owned your Policy, by completing an election form or by calling our office. You may discontinue the program at any time.

Dollar Cost Averaging Account – Twelve-Month Fixed Account

This program allows you to allocate all or a portion of a premium payment to the twelve-month dollar cost averaging fixed account, where it is automatically re-allocated each month to one or more of the variable investment options that you select. Premium payments may be allocated to the account at any time. The amount you allocate to the twelve-month dollar cost averaging fixed account will earn interest for a twelve-month period at a rate we declare monthly. In addition, you are permitted to take loans on or withdraw money from the funds available in the account. The account operates on a twelve-month cycle beginning on the 15th of the month following your allocation of a premium payment to the account. Thereafter, on the 15th of each month during the cycle, an amount is transferred from the account to the variable investment option(s) you selected. The account terminates when the Policy lapses or is surrendered, on the death of the last insured, at the end of the twelve-month cycle or at your request. Upon termination of the account, all funds in the account are allocated to other investment options based upon your instructions.

The purposes and benefits of the program are similar to the money market account dollar cost averaging program offered under the Policy. You may elect to participate in the program when you apply for your Policy or, after you have owned your Policy, by completing an election form or by calling our office. You may discontinue the program at any time. No more than one dollar cost averaging program may be in effect at any one time.

Asset Rebalancing

This program automatically reallocates your policy value among subaccounts of the Separate Account 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 subaccounts to reestablish the percentages you had chosen. Rebalancing can result in transferring amounts from a variable investment option with relatively higher investment performance to one with relatively lower investment performance. The minimum policy value to start the program is $1,000. If you also have one of the dollar cost averaging programs in effect, the portion of your policy value in either of the dollar cost averaging accounts may not be included in the rebalancing program. You may elect to participate in the program when you apply for your Policy or, after you have owned your Policy, by completing an election form or by calling our office. You may discontinue the program at any time.

What Are the Fees and Charges Under the Policy?

Premium Charge

· Premium Charge – 7.5% (currently reduced to 5.0% of all premiums paid) is deducted from premium payments before allocation to the investment options. It consists of 3.5% to cover state premium taxes and the federal income tax burden (DAC tax) that we expect will result from the receipt of premiums and 4% (currently reduced to 1.5% of all premiums paid) to partially compensate us for the expense of selling and distributing the Policies. State premium taxes range from 0.5% to 3.5%; some states do not impose premium taxes. We will notify you in advance if we change our current rates.

Monthly Deductions

· Insurance Charge – A monthly charge for the cost of insurance protection. The amount of insurance risk we assume varies from Policy to Policy and from month to month. The insurance charge therefore also varies. To determine the charge for a particular month, we multiply the amount of insurance for which we are at risk by a cost of insurance rate based upon an actuarial table. The table in your Policy will show the maximum cost of insurance rates that we can charge. The cost of insurance rates that we currently apply are generally less than the maximum rates shown in your Policy. The table of rates we use will vary by issue age, policy duration, and the insurance risk characteristics. We place insureds in a rate class when we issue the Policy and when an increase in coverage is effective, based on our examination of information bearing on insurance risk. We currently place people we insure in the following rate classes: a tobacco, a preferred tobacco, non-tobacco, preferred non-tobacco or preferred plus non-tobacco rate class. We may also place certain people in a rate class involving a higher mortality risk than the tobacco class (a “substandard class”). Insureds age 19 and under are placed in a rate class that does not distinguish between tobacco and non-tobacco rates. In all states except New Jersey, they are assigned to a tobacco class at age 20 unless they have provided satisfactory evidence that they qualify for a non-tobacco class. When an increase in the specified amount of insurance is requested, we determine whether a different rate will apply to the increase based on the age of the insured on the effective date of the increase and the risk class of the insured on that date. In accordance with our rules, you may specify the investment options from which the charge is deducted (except the twelve-month dollar cost averaging fixed account). If any particular investment option has insufficient funds to cover your specified percentage deduction, the charge will be deducted pro-rata from each of your investment options. You may exercise this option when you apply for your Policy or, after you have owned your Policy, by completing an election form or by calling our office. If you do not specify investment options, the charge is deducted pro-rata from your variable investment and fixed interest options (except the twelve-month dollar cost averaging fixed account). Deductions will be taken from the twelve-month dollar cost averaging fixed account only when there are no funds available under the variable investment and fixed interest options.

· Administrative Charge – A monthly charge to help cover our administrative costs. This charge is a flat dollar charge of up to $9 (currently, the flat charge is $8 - we will notify you in advance if we change our current rates). 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. In accordance with our rules, you may specify the investment options from which the charge is deducted (except the twelve-month dollar cost averaging fixed account). If any particular investment option has insufficient funds to cover your specified percentage deduction, the charge will be deducted pro-rata from each of your investment options. You may exercise this option when you apply for your Policy or, after you have owned your Policy, by completing an election form or by calling our office. If you do not specify investment options, the charge is deducted pro-rata from your variable investment and fixed interest options (except the twelve-month dollar cost averaging fixed account). Deductions will be taken from the twelve-month dollar cost averaging fixed account only when there are no funds available under the variable investment and fixed interest options.

· Mortality and Expense Risk Charge – A monthly charge to cover mortality and expense risks. 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. We will notify you in advance if we change our current rates. We may realize a profit from the charges, and if we do, it will become part of our surplus.

This charge has two parts:

(1) Mortality and Expense Risk Face Amount Charge. For the first 120 months after the policy date we will deduct the charge based on the initial specified amount of insurance, and for the first 120 months after any increase in the specified amount we will deduct the charge based on the increase. The charge is equal to the current rate stated in Appendix C to this prospectus times each $1,000 of the initial and the increased specified amount of insurance. The charge varies with the issue age of the insured or the age of the insured on the effective date of the increase. Current and guaranteed rates for the specified amount component are shown in Appendix C. In accordance with our rules, you may specify the investment options from which the charge is deducted (except the twelve-month dollar cost averaging fixed account). If any particular investment option has insufficient funds to cover your specified percentage deduction, the charge will be deducted pro-rata from each of your investment options. You may exercise this option when you apply for your Policy or, after you have owned your Policy, by completing an election form or by calling our office. If you do not specify investment options, the charge is deducted pro-rata from your variable investment and fixed interest options (except the twelve-month dollar cost averaging fixed account). Deductions will be taken from the twelve-month dollar cost averaging fixed account only when there are no funds available under the variable investment and fixed interest options.

(2) Mortality and Expense Risk Asset Charge. The current charge during the first 120 months after the policy date is equivalent to an annual effective rate of 0.45% of the first $25,000 of policy value, plus an annual rate of 0.15% of the policy value in excess of $25,000. In addition, the current mortality and expense risk asset charge is zero beyond the first 120 months after the policy date. The guaranteed charge for all Policies is equivalent to an annual effective rate of 0.60% of the first $50,000 of policy value, plus an annual rate of 0.30% of the policy value in excess of $50,000. The charges are deducted pro-rata from your variable investment accounts.

· Optional Supplemental Benefit Charges – Monthly charges for any optional supplemental insurance benefits that are added to the Policy by means of a rider.

Transfer Charge

Surrender Charge

With respect to a surrender within the first 11 policy years, the surrender charge equals (a) plus (b), multiplied by (c), where:

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

(a) is an administrative charge based on the increase in the initial amount of insurance and the insured’s attained age on the effective date of the increase (ranging from $1.00 up to attained age 9 to $7.00 at attained age 60 and over, per $1,000 of increase in specified amount of insurance); and

Surrender During Policy Year		Surrender Factor
1st through 7th		1.00
8th		0.80
9th		0.60
10th		0.40
11th		0.20
12th and later		0.00

Partial Surrender Charge

Reduction of Charges

What Are the Supplemental Benefit Riders That I Can Buy?

Accidental Death Benefit Agreement

This Agreement provides an additional death benefit if the insured’s death results from accidental causes as defined in the Agreement. This Agreement is not available for all Policies. The cost of insurance rates for this Agreement is based on the age, gender and rate class of the insured. You may add this Agreement to your base Policy only at the time you purchase your Policy. This Agreement is not available if you choose either the Guaranteed Withdrawal Benefit Rider or the Guaranteed Continuation of Policy Rider. The benefits provided under the Agreement are subject to the provisions in the Agreement.

Additional Insured Term Insurance Agreement

Under the Agreement, we will deduct the cost of insurance charges from the cash value of the Policy, and a separate charge of $0.10 per $1,000 of specified amount of insurance for each additional insured during the first twelve months of the Agreement. If the specified amount of insurance has increased for an additional insured, we will deduct a charge of $0.10 per $1,000 of the increased specified amount during the first twelve months of the increase. The cost of insurance rates are based on the age, gender and rate class of the additional insured. This Agreement can be elected at any time, as long as the insured meets our underwriting requirements, and it is not available if you choose either the Guaranteed Withdrawal Benefit Rider or the Guaranteed Continuation of Policy Rider. The benefits provided under the Agreement are subject to all of the provisions in the Agreement.

Business Accounting Benefit Agreement

Children’s Term Insurance Agreement

This Agreement provides term insurance on one or more children of the insured of the Policy in amounts specified in the Additional Policy Specifications in the Policy. If the named insured in the Policy dies, the term insurance on the insured child will continue until the anniversary of the Policy nearest the insured child’s twenty-third birthday and we will waive the cost of insurance for the term insurance. On the anniversary of the Policy nearest the child’s twenty-third birthday, the Agreement may be converted without evidence of insurability to a new life insurance policy.

Disability Waiver of Monthly Deduction Agreement

underwriting requirements. The benefits provided under this Agreement are subject to the provisions of the Agreement.

Disability Waiver of Monthly Deduction and Disability Monthly Premium Deposit Agreement

Guaranteed Continuation of Policy Agreement

This Agreement provides that the insurance provided under the Policy will not lapse even if the cash surrender value of the Policy goes to zero, as long as the sum of the gross premiums paid less the sum of partial withdrawals, policy loans and unpaid interest equals or exceeds the “total guaranteed continuation of policy premium.” The “total guaranteed continuation of policy premium” is based upon issue age, gender, rate class, other policy benefits and the death benefit option chosen and is stated in the Policy. If the insured is disabled, and premiums are being paid pursuant to a Disability Monthly Premium Deposit Agreement, the “total guaranteed continuation of policy premium” is the stipulated premium defined in that Agreement. While this Agreement is in force, the allocation or transfer of amounts to subaccounts of the Separate Account may be restricted. The monthly charge for this Agreement is $0.01 per $1,000 of the specified amount of insurance in the Policy. You may add this Agreement to your base Policy only at the time you purchase your Policy. This Agreement is not available with any of the following riders: Accidental Death Benefit; Additional Insured Term Insurance; Guaranteed Withdrawal Benefit; or Return of Premium Term Insurance. This benefit is subject to the provisions in the Agreement.

Guaranteed Option to Extend Maturity Date Agreement

Guaranteed Option to Increase Specified Amount Agreement

marriage of the insured, live birth of a child of the insured and legal adoption by the insured of a child less than 18 years of age. The cost of insurance charge for the Agreement is based on the attained age, gender and rate class of the insured. The cost of insurance rates for this Agreement, combined with the cost of insurance rates in the Policy, will not exceed the rates shown in the Additional Policy Specifications in the Policy. You may add this Agreement to your base Policy only at the time you purchase your Policy. This Agreement is not available if you choose the Guaranteed Withdrawal Benefit Rider. This option is subject to the provisions in the Agreement.

Guaranteed Withdrawal Benefit Agreement

This Agreement provides the owner with the ability to receive guaranteed withdrawal amounts from the Benefit Base, upon satisfaction of a Waiting Period. You may add the Agreement to your base Policy only at the time you purchase your Policy. Penn Mutual reserves the right to make the availability of this Agreement contingent upon the investment of the entire policy value according to an asset allocation program established by Penn Mutual for the entire period the Agreement is in effect. At the present time, no asset allocation program will be required for this Agreement. If we require an asset allocation program in the future, the asset allocation program will only apply to new purchasers of this Agreement. The benefits are subject to the provisions in the Agreement.

The Waiting Period ends on the earlier of:

(a) the fifteenth policy anniversary; and

(b) the policy anniversary nearest the Insured’s attainment of age 70.

Guaranteed Withdrawal Period – The Guaranteed Withdrawal Period will begin on the date of the first withdrawal after the end of the Waiting Period. The Guaranteed Withdrawal Period must begin by the policy anniversary nearest the Insured’s attainment of age 70 and will end at the Insured’s attainment of age 85. At the time the Guaranteed Withdrawal Period commences, if the Death Benefit Option 2 was in effect, the death benefit option will automatically be changed to Option 1.

Benefit Base – The Benefit Base establishes the total guaranteed withdrawal amount as well as the Guaranteed Annual Withdrawal Amount as defined below. The Benefit Base is the greater of (a) or (b) below, where:

(a) is the Net Policy Value on the last policy anniversary date which is 5 years prior to the date at which the Guaranteed Withdrawal Period begins, less cumulative withdrawals made during the period between (1) and (2), where:

(1) is the day after the last policy anniversary which is 5 years prior to the date at which the Guaranteed Withdrawal Period begins; and

(2) is the date at which the Guaranteed Withdrawal Period begins.

(b) is the value of the Guaranteed Withdrawal Account, as defined below, as of the first day of the Guaranteed Withdrawal Period.

Once the Guaranteed Withdrawal Period commences the Benefit Base will not be increased by any additional premiums paid, but the Benefit Base will be increased by any policy loan repayments.

Guaranteed Withdrawal Account – The Guaranteed Withdrawal Account is defined as (a) minus (b) minus (c) minus (d), where:

(a) are Premiums Credited to the Guaranteed Withdrawal Account, accumulated at the Guaranteed Withdrawal Account Rate, which is currently 0.50% compounded monthly (an effective annual rate of 6%);

(b) are partial surrenders taken during the Waiting Period accumulated at the Guaranteed Withdrawal Account Rate, compounded monthly;

(c) is the Guaranteed Withdrawal Benefit No-Lapse Premium, accumulated at the Guaranteed Withdrawal Account Rate compounded monthly; and

(d) the outstanding amount of policy indebtedness.

The accumulations of values using the Guaranteed Withdrawal Account Rate that are listed above accumulate until the first day of the Guaranteed Withdrawal Period.

Premiums Credited to the Guaranteed Withdrawal Account equal the lesser of (1) and (2), minus (3), where:

(1) are the cumulative premiums paid into the Policy;

(2) is the Maximum Monthly Guaranteed Withdrawal Account Premium, which is equal to 1/12 of the Policy’s guideline annual premium, multiplied by the number of months since the Policy Date; and

(3) is the cumulative premiums previously credited to the Guaranteed Withdrawal Account.

Guaranteed Annual Withdrawal Amount – The Guaranteed Withdrawal Benefit guarantees that you can take withdrawals each policy year up to the Guaranteed Annual Withdrawal Amount. The initial Guaranteed Annual Withdrawal Amount is equal to the Guaranteed Annual Withdrawal Percentage, which is currently 10%, multiplied by the initial Benefit Base.

Total withdrawals in a policy year that do not exceed the Guaranteed Annual Withdrawal Amount will reduce the Benefit Base by the amount of the withdrawals.

Effect of Withdrawals on Guaranteed Annual Withdrawal Amount – Cumulative withdrawals in a policy year that do not exceed the Guaranteed Annual Withdrawal Amount will not change the Guaranteed Annual Withdrawal Amount in subsequent policy years. Any withdrawal that exceeds the remaining Guaranteed Annual Withdrawal Amount for that policy year (an “Excess Withdrawal”) will reduce the Guaranteed Annual Withdrawal Amount in subsequent years in a proportional manner. The reduction is determined by multiplying the Guaranteed Annual Withdrawal Amount by the ratio of (a) to (b) where

(a) is the amount of the Excess Withdrawal; and

(b) is the Net Policy Value immediately prior to the Excess Withdrawal.

The resulting Guaranteed Annual Withdrawal Amount for subsequent years cannot exceed the remaining Benefit Base after the effect of withdrawals as described below.

Effect of Withdrawals on Benefit Base – The Benefit Base is reduced, on a dollar-for-dollar basis, by the amount of withdrawals in a policy year that do not exceed the Guaranteed Annual Withdrawal Amount, until the Benefit Base is reduced to zero. Once the Guaranteed Annual Withdrawal Amount has been withdrawn in a policy year, any Excess Withdrawals reduce the Benefit Base until it is reduced to zero in a proportional manner. The reduction is determined by multiplying the Benefit Base by the ratio of (a) to (b) where:

(a) is the amount of the Excess Withdrawal; and

(b) is the Net Policy Value immediately prior to the Excess Withdrawal.

Guaranteed Withdrawal Benefit No-Lapse Guarantee – Penn Mutual agrees that the Policy to which this Agreement is attached will remain in force up to the Guaranteed Withdrawal Benefit No-Lapse Date which is the policy anniversary nearest the insured’s attained age 70, if the following conditions are satisfied:

(a) The Insured is alive;

(b) The Agreement is in force;

(d) The Guaranteed Withdrawal Benefit No-Lapse Premium Requirement is satisfied.

Remaining Guaranteed Withdrawal Benefit Payments If Policy Lapses Without Value – If the Net Cash Surrender Value is reduced to zero and any Guaranteed Withdrawal Benefits are due after the end of the Waiting Period, such Remaining Guaranteed Withdrawal Benefit Payments will be made as described below. In this situation the only provisions of the Policy and this Agreement that remain in effect are those that are associated with the Remaining Guaranteed Withdrawal Benefit Payments.

In the policy year in which the Net Cash Surrender Value is reduced to zero, the Remaining Guaranteed Withdrawal Benefit Payment made in that year is equal to the Guaranteed Annual Withdrawal Amount not yet withdrawn. In subsequent policy years, the Remaining Guaranteed Withdrawal Benefit Payment is the Guaranteed Annual Withdrawal Amount in effect as of the date that the Net Cash Surrender Value is reduced to zero or any remaining Benefit Base, if less.

Remaining Guaranteed Withdrawal Benefit Payments are made once each policy year.

If the total Remaining Guaranteed Withdrawal Benefit Payments due each policy year are less than $100, the Remaining Guaranteed Withdrawal Benefit Payments will be commuted and a lump sum will be paid equal to the remaining Benefit Base.

If the Net Cash Surrender Value is reduced to zero during the Waiting Period, no guaranteed withdrawal benefits are paid under this Agreement.

If the Overloan Protection Benefit Agreement is also attached to this Policy, the Remaining Guaranteed Withdrawal Benefit Payments as provided by this Agreement will continue to be made.

Guaranteed Withdrawal Benefit No-Lapse Premium – The Guaranteed Withdrawal Benefit No-Lapse Premium is based on the Insured’s gender, issue age, underwriting class, the death benefit option, and other supplemental benefits attached to this Policy.

Guaranteed Withdrawal Benefit No-Lapse Premium Requirement – The Guaranteed Withdrawal Benefit No-Lapse Premium Requirement on a Monthly Anniversary prior to the Guaranteed Withdrawal Benefit No-Lapse Date is satisfied if the sum of all premiums reduced by any partial surrenders, policy

loans, and unpaid loan interest as of that Monthly Anniversary is greater than or equal to the cumulative Guaranteed Withdrawal Benefit No-Lapse Premiums as of that Monthly Anniversary.

A change in the Specified Amount, the addition or deletion of a supplemental agreement to this Policy, a change in the underwriting class of the Insured, or a change in the death benefit option prior to the Guaranteed Withdrawal Benefit No-Lapse Date may result in a change to subsequent Guaranteed Withdrawal Benefit No-Lapse Premiums. These changes will not affect the Guaranteed Withdrawal Benefit No-Lapse Date.

If on a Monthly Anniversary the Guaranteed Withdrawal Benefit No-Lapse Premium Requirement is not satisfied, a grace period of 61 days will be allowed for the payment of a premium sufficient to maintain the Guaranteed Withdrawal Benefit No-Lapse Premium Requirement. If the amount required to keep the Guaranteed Withdrawal Benefit No-Lapse Guarantee in-force is not paid by the end of the grace period, the Guaranteed Withdrawal Benefit No-Lapse Guarantee will terminate and cannot be reinstated. The Guaranteed Withdrawal Benefit may continue even though the Guaranteed Withdrawal Benefit No-Lapse Guarantee is no longer in effect.

Monthly Deduction – While this Agreement is in force, the Monthly Deduction under the Policy will include the Monthly Deduction for this Agreement. The Monthly Deduction for this Agreement is equal to the Guaranteed Withdrawal Benefit Charge multiplied by the policy value that is allocated to the subaccounts within the Separate Account. The Guaranteed Withdrawal Benefit Charge is currently equivalent to an annual effective rate of 0.60% of policy value, and the maximum charge is equivalent to an annual effective rate of 1.00% of policy value.

Termination of Agreement - This Agreement will terminate upon:

a) the policy anniversary nearest the Insured’s attainment of age 85;

b) surrender of this Policy;

c) lapse of this Policy and no guaranteed withdrawal benefits are due;

d) the date of death of the Insured;

e) withdrawals have been taken after the end of the Waiting Period and the Benefit Base is reduced to zero;

f) the policy anniversary nearest the Insured’s attainment of age 70 when no withdrawals were taken after the end of the Waiting Period;

g) an elective increase in face amount after the Guaranteed Withdrawal Period had commenced;

h) payment of any accelerated death benefit amount; or

i) the Monthly Anniversary which coincides with or next follows (i) the receipt at Penn Mutual’s home office of a written request by the owner to terminate this Agreement, and (ii) the return of this Policy for the appropriate endorsement after the end of the Waiting Period.

Electing this Agreement Limits the Availability of Other Supplemental Benefit Riders – If you choose this Guaranteed Withdrawal Benefit Agreement, you will not be able to elect the following riders:

· Accidental Death Benefit;

· Guaranteed Option to Increase Specified Amount;

· Guaranteed Continuation of Policy;

· Return of Premium Term Insurance; or

· Additional Insured Term Insurance.

Return of Premium Term Insurance Agreement

This Agreement provides term insurance equivalent to the sum of all premiums paid under the Policy up to the most recent monthiversary less any amount credited to the Policy under a waiver of premium or waiver of monthly deductions agreement. The cost of insurance charge for this Agreement include the cost of insurance charge for the term insurance provided under the Agreement and the cost of insurance charge for a waiver of monthly deductions if a Waiver of Monthly Deduction Agreement is attached. The cost of insurance rates for the Agreement are based on the age, gender and rate class of the insured. The rates will not exceed the rates shown for this Agreement in the Additional Policy Specifications in the Policy. You may add this Agreement to your base Policy only at the time you purchase your Policy. This Agreement is not available if you choose either the Guaranteed Withdrawal Benefit Rider or the Guaranteed Continuation of Policy Rider. The term insurance provided under the Agreement is subject to the provisions of the Agreement.

Supplemental Term Insurance Agreement

This Agreement adds term insurance to the death benefit provided under the Policy. The Agreement modifies the death benefit options (as provided in the Policy) as follows.

Option 1 – The death benefit is the greater of (a) the sum of the amount of insurance specified in the Policy and the amount of term insurance added by the Agreement, or (b) the “applicable percentage” of the policy value on the date of the insured’s death.

Option 2 – The death benefit is the greater of (a) the sum of the amount of insurance specified in the Policy, the amount of term insurance added by the Agreement and the policy value on the date of the insured’s death, or (b) the “applicable percentage” of the policy value on the date of the insured’s death.

Additional information on the death benefit options may be found under How Much Life Insurance Does the Policy Provide? in this prospectus.

The amount of term insurance added by the Agreement may, upon written application and receipt by us of satisfactory evidence of insurability, be increased by no less than $5,000.

The monthly deductions under the Policy may include a mortality and expense risk face amount charge applied to the amount of term insurance added to the Policy by the Agreement. We are not currently applying the charge to term insurance added by the Agreement, but may do so in the future. If a mortality and expense risk face amount charge is applied to term insurance added by the Agreement, it will not exceed the charges shown in the Additional Policy Specifications in the Policy. Guaranteed maximum mortality and expense risk face amount charges for term insurance added by the Agreement are shown in Appendix D.

It may be to your economic advantage to add life insurance protection to the Policy through the Agreement. The total current charges that you pay for your insurance will be less with term insurance added by the Agreement. It also should be noted, however, that the guaranteed maximum charges under

the Policy will be higher with a portion of the insurance added by the Agreement than they would be if all of the insurance were provided under the base Policy.

You may add this Agreement to your base Policy only at the time you purchase your Policy.

Supplemental Exchange Agreement

The Agreement provides that within one year following termination of a business relationship, which existed between the owner of the Policy and the insured at the time the Policy was issued, the Policy may be exchanged for a new Policy on the life of a new insured, subject to conditions set forth in the Agreement, including the new insured must have the same business relationship to the owner as the insured under the Policy to be exchanged, the new insured must submit satisfactory evidence of insurability, the Policy to be exchanged must be in force and not in a grace period, the owner must make a written application for the exchange, the owner must make premium payments under the new Policy to keep it in force at least two months, and the owner must surrender all rights in the Policy to be exchanged. This Agreement is automatically added to corporate-owned Policies.

Overloan Protection Benefit Agreement

This Agreement allows the policyholder to access the cash value from the Policy, while providing him or her with a reduced paid-up policy in the event that the loan-to-surrender value equals or exceeds 96%. The Agreement is subject to certain conditions, including that the insured’s attained age is 75 or older, the Policy has been in force for a minimum for 15 years and the non-taxable withdrawals must equal the total premiums paid. If the conditions of the Agreement are satisfied, the Policy will automatically become a reduced paid-up life insurance policy. The death benefit will equal 105% of the policy value at the time of exercise. The Agreement is subject to a one-time charge of 3.5% of the policy value, which is imposed when the benefit is exercised.

Certain changes are made to the Policy as a result of the benefit being exercised, including

· the transfer of all values in the subaccounts of the Separate Account to the fixed income account, which will then be credited with interest;

· all supplemental agreements attached to the Policy will be terminated, except for the Option to Extend the Maturity Date agreement;

· no additional premium payments, partial surrenders, policy loans or policy loan repayments will be allowed; and

· no further changes may be made to the Policy.

This Agreement can be elected at any time. The benefit provided under the Agreement is subject to the provisions of the Agreement.

Accelerated Death Benefit Agreement

The Accelerated Death Benefit Rider provides the insured access to a portion of death benefit while the insured is living. The following provisions apply:

maximum limit is $100,000 per policy. In New York, the amount of benefit that you can access will be not less than $50,000 or 25% of the face amount, and cannot exceed 50% of the face amount.

· Penn Mutual reserves the right, at its own expense, to seek additional medical opinions in order to determine benefit eligibility.

The amount you access under this Agreement will reduce the death benefit that is payable under the base Policy upon the death of the insured.

The Accelerated Death Benefit is automatically added to all base Policies with a face amount greater than $50,000 and issued after January 1, 1996. The cost of this benefit is incurred only at the time of exercise and is equal to 12 months’ worth of policy charges on the accelerated amount, plus an interest adjustment. The interest adjustment equals 12 months’ worth of interest on the accelerated amount based on a rate that is the greater of (a) the current 90-day Treasury bill rate, or (b) the current policy loan rate.

General Rules and Limitations

What Is a Policy Loan?

You may borrow up to 95% of your cash surrender value. The minimum amount you may borrow is $250.

Interest charged on a policy loan is 4.0% and is payable at the end of each policy year. If interest is not paid when due, it is added to the loan. An amount equivalent to the loan is withdrawn from subaccounts of the Separate Account and the fixed interest option on a prorated basis (unless you designate a different withdrawal allocation when you request the loan) and is transferred to a special loan account. Amounts withdrawn from the investment options cease to participate in the investment experience of the Separate Account. The special loan account is guaranteed to earn interest at 3.0% during the first ten policy years and 3.75% thereafter (4.0% thereafter in New York). On a current basis, the special loan account will earn interest at 3.0% during the first ten policy years and 4.0% thereafter.

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 the Policy?

Full Surrender

Partial Surrender

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

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

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

· each partial surrender must be at least $250;

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

· during the first five policy years, the partial surrender may not reduce the specified amount of insurance under your Policy to less than $50,000.

Partial surrenders reduce the policy value and net cash surrender value by the amount of the partial surrender.

Can I Choose Different Payout Options Under the Policy?

Choosing a Payout Option

income for guaranteed period, life income with refund period, joint and survivor life income. Periodic payments may not be less than $50 each.

Changing a Payment Option

Tax Impact of Choosing a Payment Option

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

How Is the Policy Treated Under Federal Income Tax Law?

Separate Account will thus meet the diversification requirement, and Penn Mutual will monitor continued compliance with this requirement.

IRC Qualification

· Cash Value Accumulation Test – Under the terms of the Policy, the policy value may not at any time exceed the net single premium cost (at any such time) for the benefits promised under the Policy.

· Guideline Premium/Cash Value Corridor Test – The Policy must at all times satisfy a guideline premium requirement and a cash value corridor requirement. Under the guideline premium requirement, the sum of the premiums paid under the Policy may not at any time exceed the greater of the guideline single premium or the sum of the guideline level premiums, for the benefits promised under the Policy. Under the cash value corridor requirement, the death benefit at any time must be equal to or greater than the applicable percentage of policy value specified in the Internal Revenue Code.

due to growth in the policy value will generally be greater under the Cash Value Accumulation Test than under the Guideline Premium/Cash Value Corridor Test.

Modified Endowment Contracts

Policy Loan Interest

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

Tax Consequences of the Guaranteed Option to Extend Maturity Date

Tax Consequences of the Guaranteed Withdrawal Benefit Agreement

The determination of whether your Policy will be treated as a life insurance contract for federal income tax purposes under either the Cash Value Accumulation Test or the Guideline Premium/Cash Value Corridor Test depends upon your Policy’s cash value (or alternatively, cash surrender value). Similarly, the determination of the extent to which a distribution from a Policy that is treated as a modified endowment contract is taxable will depend upon the determination of the Policy’s cash value.

There are no definitions for the terms “cash value” or “cash surrender value” in the Code and the other available authorities do not provide certainty in this area. If you add the Guaranteed Withdrawal Benefit Agreement to your base Policy, we intend to calculate the cash value (or cash surrender value) of your Policy without reflecting any additional amounts as a result of adding this rider to your base Policy. There is no published guidance from the IRS on this position. If future applicable authorities clarify that a position other than the one we have taken is applicable, then some policy owners who have added Guaranteed Withdrawal Benefit Agreements to their Policies may experience an increase in the taxable portion of certain distributions from such Policies. In addition, in the event of such a clarification, we will follow our normal procedures for keeping policies in compliance with Section 7702 (including increasing the face amount of the insurance under your base Policy to ensure that your base Policy continues to qualify as insurance under the Code). In addition, if there are remaining guaranteed withdrawal payments at the time when the Policy lapses, we will treat distributions of the remaining Benefit Base as taxable income. You are encouraged to consult your own tax advisor prior to adding a Guaranteed Withdrawal Benefit Agreement to your Policy.

Other Tax Considerations

Are There Other Charges That Penn Mutual Could Deduct in the Future?

How Do I Communicate With Penn Mutual?

General Rules

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

· policy loans in excess of $25,000, and full and partial surrenders;

· change of death benefit option;

· changes in specified amount of insurance;

· change of beneficiary;

· election of payment option for policy proceeds; and

· tax withholding elections.

Telephone Transactions

What Is the Timing of Transactions Under the Policy?

How Does Penn Mutual Communicate With Me?

report for each Fund underlying a subaccount to which you have allocated your policy value, as required by the 1940 Act. In addition, when you pay premiums, or if you borrow money under your Policy, transfer amounts among the investment options or make partial surrenders, we will send a written confirmation to you. Information on Dollar Cost Averaging, Automatic Asset Rebalancing, and pre-authorized check payments will be confirmed on a quarterly statement.

Do I Have the Right to Cancel the Policy?

THE PENN MUTUAL LIFE INSURANCE COMPANY

PENN MUTUAL VARIABLE LIFE ACCOUNT I

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 INVESTMENT FUNDS

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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.

DISTRIBUTION ARRANGEMENTS

who in turn sell the Policies through their sales representatives. HTK is registered as a broker-dealer with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as well as with the securities commissions in the states in which it operates, and is a member of the Financial Industry Regulatory Authority (“FINRA”).

Penn Mutual enters into selling agreements with HTK and other broker-dealers whose registered representatives are authorized by state insurance and securities departments to solicit applications for the Policies. Sales and renewal compensation are paid to these broker-dealers for soliciting applications as premium-based commission, asset-based commission (sometimes referred to as “trails” or “residuals”), or a combination of the two. Registered representatives may be paid commissions on a Policy they sell based on premiums paid in amounts up to 53.5% of first year premiums of sales), 3% on premiums paid during the second through fifteenth policy years, and 1.2% on premiums paid after the first fifteen policy years. In lieu of the renewal commissions just described, registered representatives can opt to receive 1% of premiums paid during the second through tenth policy years, 0% of the premiums paid after the first ten policy years, and an asset-based commission equivalent to an annualized rate of 0.10% of net policy value during the second through tenth policy years, and a 0.25% of net policy value after the first ten policy years.

Finally, within certain limits imposed by the FINRA, registered representatives who are associated with HTK, as a Penn Mutual broker-dealer affiliate, may qualify for sales incentive programs and other benefits sponsored by Penn Mutual. These HTK registered representatives are also agents of Penn Mutual and upon achievement of specified annual sales goals may be eligible for compensation in addition to the amounts stated above, including bonuses, fringe benefits, financing arrangements, conferences, trips, prizes and awards.

FINANCIAL STATEMENTS

Appendix A

Sample Minimum Initial Premiums

Issue Age Of Insured	Sex of Insured	Base Death Benefit		Minimum Initial Premium
25	M	$	50,000	$	359
30	F	$	75,000	$	496
35	M	$	75,000	$	584
40	F	$	100,000	$	859
45	M	$	100,000	$	1,124
50	F	$	100,000	$	1,185
55	M	$	100,000	$	1,658
60	F	$	75,000	$	1,362
65	M	$	75,000	$	2,156
70	F	$	50,000	$	1,641

A-1

Appendix B

Applicable Percentages Under the Guideline Premium/Cash Value Corridor Test

Attained Age	%		Attained Age	%		Attained Age	%		Attained Age	%		Attained Age	%
0-40	250	%	51	178	%	62	126	%	73	109	%	84	105	%
41	243	%	52	171	%	63	124	%	74	107	%	85	105	%
42	236	%	53	164	%	64	122	%	75	105	%	86	105	%
43	229	%	54	157	%	65	120	%	76	105	%	87	105	%
44	222	%	55	150	%	66	119	%	77	105	%	88	105	%
45	215	%	56	146	%	67	118	%	78	105	%	89	105	%
46	209	%	57	142	%	68	117	%	79	105	%	90	105	%
47	203	%	58	138	%	69	116	%	80	105	%	91	104	%
48	197	%	59	134	%	70	115	%	81	105	%	92	103	%
49	191	%	60	130	%	71	113	%	82	105	%	93	102	%
50	185	%	61	128	%	72	111	%	83	105	%	94-99	101	%

Sample Applicable Percentages Under the Cash Value Accumulation Test

Male Non-Tobacco

Attained Age	%		Attained Age	%		Attained Age	%		Attained Age	%		Attained Age	%
0-19	N/A		36	417.61	%	53	240.32	%	69	156.24	%	85	119.81	%
20	699.48	%	37	403.76	%	54	233.12	%	70	152.83	%	86	118.55	%
21	679.26	%	38	390.40	%	55	226.22	%	71	149.57	%	87	117.38	%
22	659.36	%	39	377.52	%	56	219.61	%	72	146.49	%	88	116.28	%
23	639.73	%	40	365.11	%	57	213.30	%	73	143.58	%	89	115.23	%
24	620.39	%	41	353.15	%	58	207.25	%	74	140.85	%	90	114.21	%
25	601.33	%	42	341.65	%	59	201.45	%	75	138.30	%	91	113.20	%
26	582.53	%	43	330.57	%	60	195.91	%	76	135.91	%	92	112.17	%
27	564.06	%	44	319.91	%	61	190.60	%	77	133.67	%	93	111.08	%
28	545.97	%	45	309.63	%	62	185.53	%	78	131.57	%	94	109.92	%
29	528.29	%	46	299.75	%	63	180.70	%	79	129.58	%	95	108.65	%
30	511.04	%	47	290.24	%	64	176.09	%	80	127.70	%	96	107.27	%
31	494.24	%	48	281.10	%	65	171.71	%	81	125.91	%	97	105.80	%
32	477.93	%	49	272.29	%	66	167.55	%	82	124.22	%	98	104.25	%
33	462.11	%	50	263.82	%	67	163.60	%	83	122.64	%	99	102.60	%
34	446.78	%	51	255.67	%	68	159.83	%	84	121.17	%	100	100.00	%
35	431.94	%	52	247.84	%

B-1

Female Non-Tobacco

Attained Age	%		Attained Age	%		Attained Age	%		Attained Age	%		Attained Age	%
0-19	N/A		36	468.31	%	53	270.97	%	69	171.23	%	85	122.77	%
20	796.54	%	37	452.83	%	54	262.85	%	70	166.87	%	86	121.08	%
21	771.20	%	38	437.93	%	55	255.03	%	71	162.66	%	87	119.50	%
22	746.54	%	39	423.58	%	56	247.50	%	72	158.63	%	88	118.03	%
23	722.57	%	40	409.78	%	57	240.24	%	73	154.80	%	89	116.64	%
24	699.24	%	41	396.51	%	58	233.24	%	74	151.16	%	90	115.32	%
25	676.63	%	42	383.77	%	59	226.46	%	75	147.74	%	91	114.03	%
26	654.62	%	43	371.51	%	60	219.89	%	76	144.52	%	92	112.76	%
27	633.28	%	44	359.71	%	61	213.54	%	77	141.49	%	93	111.49	%
28	612.56	%	45	348.34	%	62	207.41	%	78	138.64	%	94	110.17	%
29	592.47	%	46	337.38	%	63	201.52	%	79	135.95	%	95	108.79	%
30	572.99	%	47	326.82	%	64	195.89	%	80	133.39	%	96	107.34	%
31	554.12	%	48	316.63	%	65	190.51	%	81	130.98	%	97	105.82	%
32	535.83	%	49	306.81	%	66	185.37	%	82	128.71	%	98	104.26	%
33	518.10	%	50	297.34	%	67	180.47	%	83	126.58	%	99	102.60	%
34	500.93	%	51	288.22	%	68	175.76	%	84	124.60	%	100	100.00	%
35	484.36	%	52	279.43	%

B-2

Sample Applicable Percentages Under the Cash Value Accumulation Test

Male Tobacco

Attained Age	%		Attained Age	%		Attained Age	%		Attained Age	%		Attained Age	%
0-19	N/A		36	342.96	%	53	206.34	%	69	144.93	%	85	118.30	%
20	567.36	%	37	331.98	%	54	201.00	%	70	142.45	%	86	117.35	%
21	551.35	%	38	321.41	%	55	195.91	%	71	140.09	%	87	116.44	%
22	535.65	%	39	311.26	%	56	191.05	%	72	137.84	%	88	115.56	%
23	520.14	%	40	301.52	%	57	186.43	%	73	135.71	%	89	114.71	%
24	504.81	%	41	292.18	%	58	182.01	%	74	133.71	%	90	113.85	%
25	489.67	%	42	283.23	%	59	177.78	%	75	131.84	%	91	112.97	%
26	474.70	%	43	274.66	%	60	173.72	%	76	130.10	%	92	112.04	%
27	459.94	%	44	266.46	%	61	169.84	%	77	128.48	%	93	111.02	%
28	445.46	%	45	258.59	%	62	166.14	%	78	126.96	%	94	109.89	%
29	431.30	%	46	251.07	%	63	162.61	%	79	125.52	%	95	108.65	%
30	417.48	%	47	243.85	%	64	159.26	%	80	124.15	%	96	107.27	%
31	404.05	%	48	236.93	%	65	156.08	%	81	122.84	%	97	105.80	%
32	391.02	%	49	230.29	%	66	153.08	%	82	121.59	%	98	104.25	%
33	378.39	%	50	223.92	%	67	150.23	%	83	120.42	%	99	102.60	%
34	366.17	%	51	217.79	%	68	147.52	%	84	119.32	%	100	100.00	%
35	354.36	%	52	211.94	%

Female Tobacco

Attained Age	%		Attained Age	%		Attained Age	%		Attained Age	%		Attained Age	%
0-19	N/A		36	413.45	%	53	247.46	%	69	163.93	%	85	121.86	%
20	700.22	%	37	400.10	%	54	240.74	%	70	160.19	%	86	120.34	%
21	677.90	%	38	387.29	%	55	234.28	%	71	156.56	%	87	118.94	%
22	656.20	%	39	375.01	%	56	228.06	%	72	153.07	%	88	117.61	%
23	635.13	%	40	363.24	%	57	222.06	%	73	149.74	%	89	116.35	%
24	614.65	%	41	351.98	%	58	216.25	%	74	146.59	%	90	125.11	%
25	594.81	%	42	341.22	%	59	210.60	%	75	143.63	%	91	113.90	%
26	575.52	%	43	330.93	%	60	205.10	%	76	140.85	%	92	112.70	%
27	556.84	%	44	321.06	%	61	199.75	%	77	138.24	%	93	111.46	%
28	538.74	%	45	311.58	%	62	194.58	%	78	135.78	%	94	110.17	%
29	521.19	%	46	302.46	%	63	189.59	%	79	133.44	%	95	108.79	%
30	504.21	%	47	293.69	%	64	184.82	%	80	131.22	%	96	107.34	%
31	487.80	%	48	285.25	%	65	180.27	%	81	129.11	%	97	105.82	%
32	471.91	%	49	277.11	%	66	175.93	%	82	127.12	%	98	104.26	%
33	456.54	%	50	269.27	%	67	171.78	%	83	125.23	%	99	102.60	%
34	441.67	%	51	261.73	%	68	167.79	%	84	123.48	%	100	100.00	%
35	427.33	%	52	254.46	%

B-3

Appendix C

Mortality and Expense Risk Face Amount Charge

Current Rates per $1,000 of Initial Face Amount*

Non-Tobacco (Policy Years 1-5)				Non-Tobacco (Policy Years 6-10)
Issue Age	Male	Female	Unisex	Male	Female	Unisex
5	0.07	0.06	0.07	0.04	0.03	0.04
10	0.07	0.06	0.07	0.04	0.03	0.04
15	0.08	0.07	0.08	0.04	0.04	0.04
20	0.07	0.07	0.07	0.04	0.04	0.04
25	0.09	0.09	0.09	0.05	0.05	0.05
30	0.10	0.09	0.10	0.05	0.05	0.05
35	0.12	0.11	0.12	0.06	0.06	0.06
40	0.15	0.13	0.14	0.08	0.07	0.07
45	0.18	0.14	0.17	0.09	0.07	0.09
50	0.18	0.16	0.18	0.09	0.08	0.09
55	0.18	0.17	0.18	0.09	0.09	0.09
60	0.21	0.17	0.20	0.11	0.09	0.10
65	0.24	0.17	0.23	0.12	0.09	0.12
70	0.26	0.21	0.25	0.13	0.11	0.13
75	0.27	0.24	0.26	0.14	0.12	0.13
80	0.27	0.24	0.26	0.14	0.12	0.13
85	0.27	0.24	0.26	0.14	0.12	0.13

Mortality and Expense Risk Face Amount Charge

Current Rates per $1,000 of Initial Face Amount*

Tobacco (Policy Years 1-5)				Tobacco (Policy Years 6-10)
Issue Age	Male	Female	Unisex	Male	Female	Unisex
5	0.07	0.06	0.07	0.04	0.03	0.04
10	0.07	0.06	0.07	0.04	0.03	0.04
15	0.08	0.07	0.08	0.04	0.04	0.04
20	0.09	0.08	0.09	0.05	0.04	0.05
25	0.11	0.10	0.11	0.06	0.05	0.06
30	0.13	0.10	0.12	0.07	0.05	0.06
35	0.14	0.12	0.14	0.07	0.06	0.07
40	0.17	0.14	0.16	0.09	0.07	0.08
45	0.20	0.15	0.19	0.10	0.08	0.10
50	0.20	0.17	0.19	0.10	0.09	0.10
55	0.20	0.18	0.20	0.10	0.09	0.10
60	0.23	0.19	0.22	0.12	0.10	0.11
65	0.26	0.20	0.25	0.13	0.10	0.13
70	0.28	0.23	0.27	0.14	0.12	0.14
75	0.29	0.26	0.28	0.15	0.13	0.14
80	0.29	0.26	0.28	0.15	0.13	0.14
85	0.29	0.26	0.28	0.15	0.13	0.14

* Representative figures shown. For issue ages not listed, please ask your registered representative.

C-1

Mortality and Expense Risk Face Amount Charge

Guaranteed Rates per $1,000 of Initial Face Amount

All Policies*

Non-Tobacco				Tobacco
Issue Age	Male	Female	Unisex	Male	Female	Unisex
5	0.08	0.07	0.08	0.08	0.07	0.08
10	0.08	0.07	0.08	0.08	0.07	0.08
15	0.10	0.08	0.09	0.10	0.08	0.09
20	0.08	0.07	0.08	0.10	0.08	0.10
25	0.10	0.09	0.09	0.12	0.10	0.11
30	0.10	0.09	0.10	0.13	0.10	0.13
35	0.13	0.11	0.12	0.16	0.13	0.15
40	0.15	0.13	0.14	0.19	0.15	0.18
45	0.18	0.15	0.17	0.23	0.17	0.22
50	0.22	0.18	0.21	0.28	0.21	0.27
55	0.28	0.23	0.27	0.29	0.26	0.29
60	0.29	0.28	0.29	0.29	0.29	0.29
65	0.29	0.29	0.29	0.29	0.29	0.29
70	0.29	0.29	0.29	0.29	0.29	0.29
75	0.29	0.29	0.29	0.29	0.29	0.29
80	0.29	0.29	0.29	0.29	0.29	0.29
85	0.29	0.29	0.29	0.29	0.29	0.29

*Representative figures shown. For issue ages not listed, please ask your registered representative.

C-2

Appendix D

Mortality and Expense Risk Face Amount Charge

Guaranteed Rates per $1,000 of Term Insurance Benefit

Supplemental Term Insurance Rider*

Non-Tobacco				Tobacco
Issue Age	Male	Female	Unisex	Male	Female	Unisex

5	0.13	0.12	0.13	0.13	0.12	0.13
10	0.13	0.12	0.13	0.13	0.12	0.13
15	0.15	0.13	0.14	0.15	0.13	0.14
20	0.13	0.12	0.13	0.15	0.13	0.15
25	0.15	0.14	0.14	0.17	0.15	0.16
30	0.15	0.14	0.15	0.18	0.15	0.18
35	0.18	0.16	0.17	0.21	0.18	0.20
40	0.20	0.18	0.19	0.24	0.20	0.23
45	0.23	0.20	0.22	0.28	0.22	0.27
50	0.27	0.23	0.26	0.33	0.26	0.32
55	0.33	0.28	0.32	0.34	0.31	0.34
60	0.34	0.33	0.34	0.34	0.34	0.34
65	0.34	0.34	0.34	0.34	0.34	0.34
70	0.34	0.34	0.34	0.34	0.34	0.34
75	0.34	0.34	0.34	0.34	0.34	0.34
80	0.34	0.34	0.34	0.34	0.34	0.34
85	0.34	0.34	0.34	0.34	0.34	0.34

*Representative figures shown. For issue ages not listed, please ask your registered representative.

D-1

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STATEMENT OF ADDITIONAL INFORMATION

Penn Mutual Variable Life Account I’s Investment Company Act registration number is 811-05006.

STATEMENT OF ADDITIONAL INFORMATION

FOR

CORNERSTONE VUL II, III and IV

each a flexible premium adjustable variable life insurance policy issued by

THE PENN MUTUAL LIFE INSURANCE COMPANY

and funded through

PENN MUTUAL VARIABLE LIFE ACCOUNT I

The Penn Mutual Life Insurance Company

Philadelphia, PA 19172

800-523-0650

May 1, 2008

This Statement of Additional Information is not a prospectus. It should be read in conjunction with our Cornerstone VUL II, III and IV prospectuses dated May 1, 2008. A copy of the prospectus for each Policy is available, without charge, by writing to The Penn Mutual Life Insurance Company, Customer Service Group – C3P, Philadelphia, PA, 19172. Or, you may call, toll free,
1-800-523-0650.

Table of Contents

Federal Income Tax Considerations	2

Sale of the Policies	6

Performance Information	6

Financial Statements	7

FEDERAL INCOME TAX CONSIDERATIONS

The following summary provides a general description of the Federal income tax considerations associated with each 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 Each Policy

To qualify as a life insurance contract for federal income tax purposes, a 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 a Policy offered in its prospectus is not directly addressed by Section 7702 or any guidance issued to date under Section 7702. Nevertheless, Penn Mutual believes it is reasonable to conclude that a 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 a 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. § 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. The Treasury Department has indicated that in regulations or revenue rulings under Section 817(d), (relating to the definition of a variable contract), it will provide guidance on the extent to which contract owners may direct their investments to particular subaccounts without being treated as owners of the underlying shares. The Internal Revenue Service (“IRS”) has issued Revenue Ruling 2003-91 in which it ruled that the ability to choose among 20 subaccounts and make not more than one transfer per month without charge did not result in the owner of a policy being treated as the owner of the assets in the subaccount under the investment control doctrine.

owners were not owners of the subaccount assets. Although we do not believe this to be the case, these differences could result in Policy owners being treated as the owners of the assets of the subaccounts under the Policies. We, therefore, reserve the right to modify the Policies as necessary to attempt to prevent the owners of the Policies from being considered the owners of a pro rata share of the assets of the subaccounts under the Policies. In addition, it is possible that when regulations or additional rulings are issued, the contracts may need to be modified to comply with them.

IRC Qualification

For a Cornerstone VUL III or Cornerstone VUL IV policy to be treated as a life insurance contract under the Internal Revenue Code, it must pass one of two tests — a cash value accumulation test or a guideline premium/cash value corridor test. At the time of issuance of a Policy, you choose which test you want to be applied. It may not thereafter be changed. If you do not choose the test to be applied to your Policy, the Guideline Premium/Cash Value Corridor Test will be applied.

· Cash Value Accumulation Test - Under the terms of a Policy, the policy value may not at any time exceed the net single premium cost (at any such time) for the benefits promised under the Policy.

· Guideline Premium/Cash Value Corridor Test - A Policy must at all times satisfy a guideline premium requirement and a cash value corridor requirement. Under the guideline premium requirement, the sum of the premiums paid under the Policy may not at any time exceed the greater of the guideline single premium or the sum of the guideline level premiums, for the benefits promised under a Policy. Under the cash value corridor requirement, the death benefit at any time must be equal to or greater than the applicable percentage of policy value specified in the Internal Revenue Code.

The Cash Value Accumulation Test does not limit the amount of premiums that may be paid under a Policy. If you desire to pay premiums in excess of those permitted under the Guideline Premium/Cash Value Corridor Test, you should consider electing to have your Policy qualify under the Cash Value Accumulation Test. However, any premium that would increase the net amount at risk is subject to evidence of insurability satisfactory to us. Required increases in the minimum death benefit due to growth in the policy value will generally be greater under the Cash Value Accumulation Test than under the Guideline Premium/Cash Value Corridor Test.

The Guideline Premium/Cash Value Corridor Test limits the amount of premium that may be paid under a Policy. If you do not desire to pay premiums in excess of those permitted under Guideline Premium/Cash Value Corridor Test limitations, you should consider electing to have your Policy qualify under the Guideline Premium/Cash Value Corridor Test.

For a Cornerstone VUL II policy, only the Guideline/Premium Cash Corridor Test is applicable for testing whether the policy is life insurance under the Internal Revenue Code

The following discussion assumes that a 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 a Policy should be excludable from the gross income of the beneficiary under Section 101(a)(1) of the Code.

Modified Endowment Contracts

Due to a 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 exceed the sum of the net level premiums which would have been paid on or before such time if a 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 a 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.

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 a 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 59½, is attributable to the owner 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 classified as 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 a 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 a Policy) under rules prescribed in Section 7702.

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

Finally, neither distributions (including distributions upon surrender) nor loans from, or secured by, a Policy that is not classified as 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 competent tax advisor before deducting any interest paid in respect of a policy loan.

Investment in a Policy

Investment in a 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.

Tax Consequences of the Guaranteed Option to Extend Maturity Date- not available on Cornerstone Vul II

Tax Consequences of the Guaranteed Withdrawal Benefit Agreement

Guaranteed Withdrawal Benefit Agreements to their Policies may experience an increase in the taxable portion of certain distributions from such Policies. In addition, in the event of such a clarification, we will follow our normal procedures for keeping policies in compliance with Section 7702 (including increasing the face amount of the insurance under your base Policy to ensure that your base Policy continues to qualify as insurance under the Code). In addition, if there are remaining guaranteed withdrawal payments at the time when the Policy lapses, we will treat distributions of the remaining Benefit Base as taxable income. You are encouraged to consult your own tax advisor prior to adding a Guaranteed Withdrawal Benefit Agreement to your Policy.

Other Tax Considerations

The transfer of a Policy or the designation of a beneficiary may have federal, state, and/or local transfer and inheritance tax consequences, including the imposition of gift, estate and generation-skipping transfer taxes. For example, the transfer of a 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 advisor for specific information in connection with these taxes.

The foregoing is a summary of the federal income tax considerations associated with the Policy and does not purport to cover all possible situations. The summary is based on our understanding of the present federal income tax laws as they are currently interpreted by the Internal Revenue Service IRS. The summary is not intended as tax advice. 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.

SALE OF THE POLICIES

Hornor, Townsend & Kent, Inc. (“HTK”), a wholly-owned subsidiary of Penn Mutual, acts as a principal underwriter of the Policies on a continuous basis. HTK, located at 600 Dresher Road, Suite 4C, Horsham, Pennsylvania 19044, was organized as a Pennsylvania corporation on March 13, 1969. The offering is on a continuous basis. 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 Financial Industry Regulatory Authority.

With respect to VUL IV Policies, Penn Mutual compensated HTK in the approximate amounts of $293,971, $278,879 and $272,481 for the years ending December 31, 2005, 2006, and 2007 respectively, for its services as principal underwriter.

With respect to VUL III Policies, Penn Mutual compensated HTK in the approximate amounts of $20,679, $14,866 and $9,187 for the years ending December 31, 2005, 2006, and 2007 respectively, for its services as principal underwriter.

With respect to VUL II Policies, Penn Mutual compensated HTK in the approximate amounts of $12,977, $6,176 and $5,543 for the years ending December 31, 2005, 2006, and 2007 respectively, for its services as principal underwriter.

PERFORMANCE INFORMATION

We provide performance information for the investment funds offered as investment options under a Policy. The performance information for the funds does not reflect expenses that apply to the Separate Account or the Policies. Inclusion of these charges would reduce the performance information.

FINANCIAL STATEMENTS

The financial statements of the Separate Account and the consolidated financial statements of Penn Mutual appear on the following pages. The consolidated 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.

PENN MUTUAL VARIABLE LIFE ACCOUNT I

STATEMENTS OF NET ASSETS - DECEMBER 31, 2007

					Limited
			Money		Maturity Bond		Quality		High Yield
	Total		Market Fund†		Fund †		Bond Fund†		Bond Fund†
Investment in Fund Shares
Number of Shares			37,904,884		1,031,697		3,881,544		2,928,179
Cost	$	1,085,777,884	$	37,904,884	$	10,811,482	$	40,780,762	$	23,532,006

Assets:
Investments at market value	$	1,129,984,948	$	37,734,928	$	10,662,385	$	40,214,409	$	22,090,954
Dividends receivable	139,262		139,262		—		—		—
Receivable for securities sold	3,206,338		30,694		77,586		541,804		104,644

Liabilities:
Payable for securities purchased	3,618,933		—		—		—		—

Net Assets	$	1,129,711,615	$	37,904,884	$	10,739,971	$	40,756,213	$	22,195,598

Units Oustanding			2,808,502		743,242		2,485,617		1,088,979

PENN MUTUAL VARIABLE LIFE ACCOUNT I

STATEMENTS OF OPERATIONS - FOR THE YEAR ENDED DECEMBER 31, 2007

						Limited
				Money		Maturity Bond			Quality Bond			High Yield
	Total			Market Fund†		Fund †			Fund†			Bond Fund†
Net Investment Income (Loss):
Dividends	$	19,372,468		$	1,927,002	$	409,051		$	1,749,134		$	1,606,218
Expense:
Mortality and expense risk charges	17,731,693			679,578		183,602			719,120			363,949

Net investment income (loss)	1,640,775			1,247,424		225,449			1,030,014			1,242,269

Net Realized and Unrealized Gains (Losses) on Investments:
Realized gain (loss) from redemption of fund shares	26,493,971			—		(5,721		)	(71,987		)	(60,043		)
Realized gains distributions	69,972,058			—		—			—			—

Net realized gain (loss) from investment transactions	96,466,029			—		(5,721		)	(71,987		)	(60,043		)
Net change in unrealized appreciation (depreciation) of investments	(25,282,288		)	—		133,058			817,536			(751,292		)

Net realized and unrealized gain (loss) on investments	71,183,741			—		127,337			745,549			(811,335		)

Net increase (decrease) in net assets resulting from operations	$	72,824,516		$	1,247,424	$	352,786		$	1,775,563		$	430,934

† Investment in Penn Series Funds, Inc., an affiliate of Separate Account

†† Investment in Neuberger Berman Advisers Management Trust

††† Investment in Fidelity Investments’ Variable Insurance Products Funds I and II

†††† Investment in Van Kampen’s The Universal Institutional Funds, Inc.

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

PENN MUTUAL VARIABLE LIFE ACCOUNT I

STATEMENTS OF NET ASSETS - DECEMBER 31, 2007

	Flexibly				Large Cap		Large Cap
	Managed		Growth Stock		Value		Growth		Index 500
	Fund†		Fund†		Fund †		Fund †		Fund †
Investment in Fund Shares
Number of Shares	10,803,947		2,269,779		3,996,706		858,547		11,579,705
Cost	$	260,604,007	$	38,196,656	$	74,357,541	$	9,276,461	$	101,981,402

Assets:
Investments at market value	$	256,086,506	$	36,330,241	$	70,853,533	$	9,490,729	$	117,472,581
Dividends receivable	—		—		—		—		—
Receivable for securities sold	183,112		—		—		—		—

Liabilities:
Payable for securities purchased	—		104,572		311,668		63,884		401,767

Net Assets	$	256,269,618	$	36,225,669	$	70,541,865	$	9,426,845	$	117,070,814

Units Oustanding.	8,586,671		3,115,478		3,043,425		755,072		7,775,740

PENN MUTUAL VARIABLE LIFE ACCOUNT I

STATEMENTS OF OPERATIONS - FOR THE YEAR ENDED DECEMBER 31, 2007

	Flexibly						Large Cap			Large Cap
	Managed			Growth Stock			Value			Growth			Index 500
	Fund†			Fund†			Fund †			Fund †			Fund †
Net Investment Income (Loss):
Dividends	$	5,719,948		$	142,990		$	1,026,867		$	51,649		$	1,910,900
Expense:
Mortality and expense risk charges	4,634,683			573,183			933,065			229,035			1,976,596

Net investment income (loss)	1,085,265			(430,193		)	93,802			(177,386		)	(65,696		)

Net Realized and Unrealized Gains (Losses) on Investments:
Realized gain (loss) from redemption of fund shares	5,556,047			(1,920,022		)	842,421			143,724			2,898,317
Realized gains distributions	19,166,702			—			8,330,996			423,959			—

Net realized gain (loss) from investment transactions	24,722,749			(1,920,022		)	9,173,417			567,683			2,898,317
Net change in unrealized appreciation (depreciation) of investments	(19,590,024		)	4,824,854			(7,438,836		)	(186,931		)	1,452,027

Net realized and unrealized gain (loss) on investments	5,132,725			2,904,832			1,734,581			380,752			4,350,344

Net increase (decrease) in net assets resulting from operations	$	6,217,990		$	2,474,639		$	1,828,383		$	203,366		$	4,284,648

† Investment in Penn Series Funds, Inc., an affiliate of Separate Account

†† Investment in Neuberger Berman Advisers Management Trust

††† Investment in Fidelity Investments' Variable Insurance Products Funds I and II

†††† Investment in Van Kampen's The Universal Institutional Funds, Inc.

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

PENN MUTUAL VARIABLE LIFE ACCOUNT I

STATEMENTS OF NET ASSETS - DECEMBER 31, 2007

	Mid Cap		Mid Cap		Strategic		Small Cap		Small Cap
	Growth		Value		Value		Growth		Value		International
	Fund †		Fund †		Fund †		Fund†		Fund †		Equity Fund†
Investment in Fund Shares
Number of Shares	3,752,523		3,372,750		835,856		1,859,674		3,949,902		4,585,026
Cost	$	29,934,540	$	44,278,322	$	11,122,497	$	41,899,065	$	63,837,982	$	95,794,968

Assets:
Investments at market value	$	39,501,514	$	44,263,855	$	9,962,242	$	40,802,397	$	56,533,329	$	109,240,783
Dividends receivable	—		—		—		—		—		—
Receivable for securities sold	275,228		—		—		—		—		1,212,493

Liabilities:
Payable for securities purchased	—		13,377		115,864		559,055		958,207		—

Net Assets	$	39,776,742	$	44,250,478	$	9,846,378	$	40,243,342	$	55,575,122	$	110,453,276

Units Oustanding.	2,543,152		1,780,031		613,613		2,498,687		2,119,742		3,678,948

PENN MUTUAL VARIABLE LIFE ACCOUNT I

STATEMENTS OF OPERATIONS - FOR THE YEAR ENDED DECEMBER 31, 2007

	Mid Cap			Mid Cap			Strategic			Small Cap			Small Cap			International
	Growth			Value			Value			Growth			Value			Equity
	Fund †			Fund †			Fund †			Fund†			Fund †			Fund†
Net Investment Income (Loss):
Dividends	$	—		$	522,011		$	53,232		$	—		$	414,959		$	566,623
Expense:
Mortality and expense risk charges	579,872			676,788			227,222			489,092			919,845			1,548,370

Net investment income (loss)	(579,872		)	(154,777		)	(173,990		)	(489,092		)	(504,886		)	(981,747		)

Net Realized and Unrealized Gains (Losses) on Investments:
Realized gain (loss) from redemption of fund shares	1,766,660			1,351,028			335,270			(982,593		)	1,452,944			5,331,987
Realized gains distributions	—			2,567,047			1,091,133			—			8,727,898			18,396,692

Net realized gain (loss) from investment transactions	1,766,660			3,918,075			1,426,403			(982,593		)	10,180,842			23,728,679
Net change in unrealized appreciation (depreciation) of investments	6,484,802			(2,774,779		)	(1,391,287		)	4,052,898			(13,717,622		)	(5,743,134		)

Net realized and unrealized gain (loss) on investments	8,251,462			1,143,296			35,116			3,070,305			(3,536,780		)	17,985,545

Net increase (decrease) in net assets resulting from operations	$	7,671,590		$	988,519		$	(138,874	)	$	2,581,213		$	(4,041,666	)	$	17,003,798

† Investment in Penn Series Funds, Inc., an affiliate of Separate Account

†† Investment in Neuberger Berman Advisers Management Trust

††† Investment in Fidelity Investments’ Variable Insurance Products Funds I and II

†††† Investment in Van Kampen’s The Universal Institutional Funds, Inc.

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

PENN MUTUAL VARIABLE LIFE ACCOUNT I

STATEMENTS OF NET ASSETS - DECEMBER 31, 2007

											Emerging
	REIT		Balanced		Equity Income		Growth		Asset Manager		Markets Equity
	Fund †		Portfolio††		Portfolio†††		Portfolio†††		Portfolio†††		(Int’l) Portfolio††††
Investment in Fund Shares
Number of Shares	1,170,226		1,226,049		2,378,529		1,956,972		760,047		1,672,525
Cost	$	18,657,654	$	14,361,167	$	57,418,140	$	72,703,539	$	11,629,646	$	26,695,163

Assets:
Investments at market value	$	14,604,743	$	16,010,068	$	57,399,133	$	87,921,719	$	12,540,214	$	40,268,685
Dividends receivable	—		—		—		—		—		—
Receivable for securities sold	—		26,648		—		376,878		53,761		323,490

Liabilities:
Payable for securities purchased	562,030		—		528,509		—		—		—

Net Assets	$	14,042,713	$	16,036,716	$	56,870,624	$	88,298,597	$	12,593,975	$	40,592,175

Units Oustanding.	685,705		869,136		2,619,952		4,604,783		659,303		1,180,248

PENN MUTUAL VARIABLE LIFE ACCOUNT I

STATEMENTS OF OPERATIONS - FOR THE YEAR ENDED DECEMBER 31, 2007

															Emerging
	REIT			Balanced			Equity Income			Growth			Asset Manager		Markets Equity
	Fund †			Portfolio††			Portfolio†††			Portfolio†††			Portfolio†††		(Int'l) Portfolio††††
Net Investment Income (Loss):
Dividends	$	454,775		$	179,884		$	1,070,250		$	680,935		$	733,910	$	152,130
Expense:
Mortality and expense risk charges	321,596			194,890			829,543			971,008			152,246		528,410

Net investment income (loss)	133,179			(15,006		)	240,707			(290,073		)	581,664		(376,280		)

Net Realized and Unrealized Gains (Losses) on Investments:
Realized gain (loss) from redemption of fund shares	1,374,431			219,812			1,767,981			670,117			37,682		5,785,916
Realized gains distributions	2,267,048			—			4,719,985			72,551			326,881		3,881,166

Net realized gain (loss) from investment transactions	3,641,479			219,812			6,487,966			742,668			364,563		9,667,082
Net change in unrealized appreciation (depreciation) of investments	(7,523,392		)	1,831,238			(6,566,012		)	18,086,374			641,656		2,076,578

Net realized and unrealized gain (loss) on investments	(3,881,913		)	2,051,050			(78,046		)	18,829,042			1,006,219		11,743,660

Net increase (decrease) in net assets resulting from operations	$	(3,748,734	)	$	2,036,044		$	162,661		$	18,538,969		$	1,587,883	$	11,367,380

†	Investment in Penn Series Funds, Inc., an affiliate of Separate Account
††	Investment in Neuberger Berman Advisers Management Trust
†††	Investment in Fidelity Investments' Variable Insurance Products Funds I and II
††††	Investment in Van Kampen's The Universal Institutional Funds, Inc.

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

PENN MUTUAL VARIABLE LIFE ACCOUNT I

STATEMENTS OF CHANGES IN NET ASSETS - FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006

	Total						Money Market Fund†						Limited Maturity Bond Fund†
	2007			2006			2007			2006			2007			2006
Operations:
Net investment income (loss)	$	1,640,775		$	(1,357,311	)	$	1,247,424		$	990,028		$	225,449		$	256,032
Net realized gain (loss) from investment transactions	96,466,029			76,303,987			—			—			(5,721		)	(22,265		)
Net change in unrealized appreciation (depreciation) of investments	(25,282,288		)	45,819,351			—			—			133,058			45,422
Net increase (decrease) in net assets resulting from operations	72,824,516			120,766,027			1,247,424			990,028			352,786			279,189

Variable Life Activities:
Purchase payments	138,277,863			146,747,065			17,887,437			21,874,056			1,281,496			1,308,725
Death benefits	(2,094,356		)	(3,221,004		)	(4,660		)	(62,262		)	(428		)	(7,992		)
Cost of insurance	(61,876,579		)	(60,035,412		)	(2,509,541		)	(2,682,075		)	(654,024		)	(586,169		)
Net transfers	(24,155,271		)	(17,247,984		)	(12,315,280		)	(13,358,178		)	922,725			164,394
Transfer of policy loans	4,094,112			4,798,437			282,005			277,203			19,128			25,892
Contract administration charges	(4,247,476		)	(3,070,977		)	(237,324		)	(123,463		)	(28,941		)	(18,332		)
Surrender benefits	(74,714,078		)	(72,773,204		)	(5,919,389		)	(9,955,349		)	(1,084,112		)	(437,810		)
Net increase (decrease) in net assets resulting from variable life activities	(24,715,785		)	(4,803,079		)	(2,816,752		)	(4,030,068		)	455,844			448,708
Total increase (decrease) in net assets	48,108,731			115,962,948			(1,569,328		)	(3,040,040		)	808,630			727,897
Net Assets:
Beginning of year	1,081,602,884			965,639,936			39,474,212			42,514,252			9,931,341			9,203,444
End of year	$	1,129,711,615		$	1,081,602,884		$	37,904,884		$	39,474,212		$	10,739,971		$	9,931,341

	Quality Bond Fund†						High Yield Bond Fund†						Flexibly Managed Fund†
	2007			2006			2007			2006			2007			2006
Operations:
Net investment income (loss)	$	1,030,014		$	735,827		$	1,242,269		$	900,298		$	1,085,265		$	(356,507	)
Net realized gain (loss) from investment transactions	(71,987		)	(141,037		)	(60,043		)	(81,591		)	24,722,749			38,149,784
Net change in unrealized appreciation (depreciation) of investments	817,536			582,902			(751,292		)	933,564			(19,590,024		)	(10,389,519		)
Net increase (decrease) in net assets resulting from operations	1,775,563			1,177,692			430,934			1,752,271			6,217,990			27,403,758

Variable Life Activities:
Purchase payments	5,315,922			5,857,092			2,397,451			2,589,074			31,339,509			31,430,895
Death benefits	(17,347		)	(164,771		)	(63,244		)	(94,044		)	(849,026		)	(523,783		)
Cost of insurance	(2,376,907		)	(2,272,525		)	(1,375,133		)	(1,421,358		)	(14,460,113		)	(13,249,386		)
Net transfers	2,808,312			1,740,980			(199,382		)	(654,463		)	7,546,497			927,619
Transfer of policy loans	102,026			121,517			48,116			85,138			1,062,640			1,233,870
Contract administration charges	(235,737		)	(100,984		)	(68,424		)	(58,232		)	(930,628		)	(740,220		)
Surrender benefits	(6,267,016		)	(1,667,743		)	(1,820,708		)	(1,321,198		)	(12,923,508		)	(9,803,349		)
Net increase (decrease) in net assets resulting from variable life activities	(670,747		)	3,513,566			(1,081,324		)	(875,083		)	10,785,371			9,275,646
Total increase (decrease) in net assets	1,104,816			4,691,258			(650,390		)	877,188			17,003,361			36,679,404
Net Assets:
Beginning of year	39,651,397			34,960,139			22,845,988			21,968,800			239,266,257			202,586,853
End of year	$	40,756,213		$	39,651,397		$	22,195,598		$	22,845,988		$	256,269,618		$	239,266,257

†	Investment in Penn Series Funds, Inc., an affiliate of Separate Account
††	Investment in Neuberger Berman Advisers Management Trust
†††	Investment in Fidelity Investments' Variable Insurance Products Funds I and II
††††	Investment in Van Kampen's The Universal Institutional Funds, Inc.

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

PENN MUTUAL VARIABLE LIFE ACCOUNT I

STATEMENTS OF CHANGES IN NET ASSETS - FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006

	Growth Stock Fund†						Large Cap Value Fund†						Large Cap Growth Fund †						Index 500 Fund†
	2007			2006			2007			2006			2007			2006			2007			2006
Operations:
Net investment income (loss)	$	(430,193	)	$	(390,987	)	$	93,802		$	(182,740	)	$	(177,386	)	$	(227,010	)	$	(65,696	)	$	(546,357	)
Net realized gain (loss) from investment transactions	(1,920,022		)	(2,764,451		)	9,173,417			3,631,502			567,683			316,483			2,898,317			613,630
Net change in unrealized appreciation (depreciation) of investments	4,824,854			6,402,747			(7,438,836		)	7,154,921			(186,931		)	(27,873		)	1,452,027			14,572,817
Net increase (decrease) in net assets resulting from operations	2,474,639			3,247,309			1,828,383			10,603,683			203,366			61,600			4,284,648			14,640,090

Variable Life Activities:
Purchase payments	4,861,510			4,795,912			6,090,486			6,601,023			1,623,858			1,961,614			11,879,742			14,377,978
Death benefits	(60,871		)	(282,274		)	(110,522		)	(346,566		)	(1,380		)	-			(156,977		)	(132,292		)
Cost of insurance	(2,214,469		)	(1,975,376		)	(3,694,017		)	(3,768,338		)	(530,402		)	(546,714		)	(6,826,678		)	(7,024,189		)
Net transfers	686,312			1,815,893			(2,462,722		)	(833,131		)	(354,548		)	85,907			(6,077,822		)	(6,844,077		)
Transfer of policy loans	155,197			136,626			235,033			389,833			93,817			20,818			271,129			295,571
Contract administration charges	(142,401		)	(113,874		)	(204,986		)	(184,735		)	(42,334		)	(31,335		)	(351,407		)	(281,163		)
Surrender benefits	(2,125,265		)	(1,817,933		)	(4,213,274		)	(3,969,428		)	(808,299		)	(417,762		)	(7,448,064		)	(11,111,723		)
Net increase (decrease) in net assets resulting from variable life activities	1,160,013			2,558,974			(4,360,002		)	(2,111,342		)	(19,288		)	1,072,528			(8,710,077		)	(10,719,895		)
Total increase (decrease) in net assets	3,634,652			5,806,283			(2,531,619		)	8,492,341			184,078			1,134,128			(4,425,429		)	3,920,195
Net Assets:
Beginning of year	32,591,017			26,784,734			73,073,484			64,581,143			9,242,767			8,108,639			121,496,243			117,576,048
End of year	$	36,225,669		$	32,591,017		$	70,541,865		$	73,073,484		$	9,426,845		$	9,242,767		$	117,070,814		$	121,496,243

	Mid Cap Growth Fund†						Mid Cap Value Fund†						Strategic Value Fund †						Small Cap Growth Fund†
	2007			2006			2007			2006			2007			2006			2007			2006
Operations:
Net investment income (loss)	$	(579,872	)	$	(567,400	)	$	(154,777	)	$	(383,581	)	$	(173,990	)	$	(201,899	)	$	(489,092	)	$	(611,217	)
Net realized gain (loss) from investment transactions	1,766,660			764,525			3,918,075			3,810,885			1,426,403			2,717,575			(982,593		)	(1,188,749		)
Net change in unrealized appreciation (depreciation) of investments	6,484,802			1,392,934			(2,774,779		)	397,631			(1,391,287		)	(1,584,626		)	4,052,898			751,331
Net increase (decrease) in net assets resulting from operations	7,671,590			1,590,059			988,519			3,824,935			(138,874		)	931,050			2,581,213			(1,048,635		)

Variable Life Activities:
Purchase payments	3,956,028			4,107,153			4,512,343			4,920,906			1,528,931			1,550,522			4,836,719			6,041,112
Death benefits	(29,300		)	(156,746		)	(63,833		)	(206,679		)	(654		)	-			(55,688		)	(44,809		)
Cost of insurance	(1,867,181		)	(1,838,465		)	(2,270,075		)	(2,292,363		)	(508,605		)	(577,315		)	(2,370,174		)	(2,658,272		)
Net transfers	(1,248,089		)	(811,085		)	(1,814,847		)	2,229,802			(903,083		)	(1,630,602		)	(2,761,015		)	(824,625		)
Transfer of policy loans	126,030			217,381			127,994			236,715			42,799			30,521			150,998			168,158
Contract administration charges	(122,773		)	(98,050		)	(132,414		)	(108,056		)	(42,140		)	(31,076		)	(228,549		)	(175,725		)
Surrender benefits	(2,796,433		)	(2,128,964		)	(2,404,827		)	(2,577,246		)	(556,180		)	(3,958,745		)	(2,167,651		)	(2,490,780		)
Net increase (decrease) in net assets resulting from variable life activities	(1,981,718		)	(708,776		)	(2,045,659		)	2,203,079			(438,932		)	(4,616,695		)	(2,595,360		)	15,059
Total increase (decrease) in net assets	5,689,872			881,283			(1,057,140		)	6,028,014			(577,806		)	(3,685,645		)	(14,147		)	(1,033,576		)
Net Assets:
Beginning of year	34,086,870			33,205,587			45,307,618			39,279,604			10,424,184			14,109,829			40,257,489			41,291,065
End of year	$	39,776,742		$	34,086,870		$	44,250,478		$	45,307,618		$	9,846,378		$	10,424,184		$	40,243,342		$	40,257,489

†	Investment in Penn Series Funds, Inc., an affiliate of Separate Account
††	Investment in Neuberger Berman Advisers Management Trust
†††	Investment in Fidelity Investments' Variable Insurance Products Funds I and II
††††	Investment in Van Kampen's The Universal Institutional Funds, Inc.

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

PENN MUTUAL VARIABLE LIFE ACCOUNT I

STATEMENTS OF CHANGES IN NET ASSETS - FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006

	Small Cap Value Fund †						International Equity Fund†						REIT Fund †						Balanced Portfolio††
	2007			2006			2007			2006			2007			2006			2007			2006
Operations:
Net investment income (loss)	$	(504,886	)	$	(840,156	)	$	(981,747	)	$	73,373		$	133,179		$	(166,045	)	$	(15,006	)	$	(86,997	)
Net realized gain (loss) from investment transactions	10,180,842			6,484,633			23,728,679			12,733,141			3,641,479			2,193,314			219,812			(315,341		)
Net change in unrealized appreciation (depreciation) of investments	(13,717,622		)	2,346,290			(5,743,134		)	7,129,382			(7,523,392		)	1,831,606			1,831,238			1,682,094
Net increase (decrease) in net assets resulting from operations	(4,041,666		)	7,990,767			17,003,798			19,935,896			(3,748,734		)	3,858,875			2,036,044			1,279,756

Variable Life Activities:
Purchase payments	6,513,073			6,674,388			10,715,446			9,171,106			3,076,784			2,756,285			1,514,367			1,703,076
Death benefits	(126,931		)	(547,663		)	(109,179		)	(50,876		)	(41,820		)	(3,471		)	(55,653		)	(6,736		)
Cost of insurance	(3,008,256		)	(3,051,039		)	(4,826,798		)	(4,067,441		)	(1,010,639		)	(964,569		)	(981,213		)	(1,034,788		)
Net transfers	945,286			(2,222,209		)	853,562			4,477,216			(2,422,745		)	3,247,621			(298,518		)	(497,909		)
Transfer of policy loans	186,185			179,308			320,899			457,916			138,658			53,791			144,118			113,437
Contract administration charges	(322,877		)	(173,284		)	(285,320		)	(203,003		)	(125,751		)	(46,029		)	(54,811		)	(50,185		)
Surrender benefits	(3,293,752		)	(3,178,745		)	(5,664,668		)	(5,993,309		)	(1,081,419		)	(855,737		)	(840,751		)	(1,127,319		)
Net increase (decrease) in net assets resulting from variable life activities	892,728			(2,319,244		)	1,003,942			3,791,609			(1,466,932		)	4,187,891			(572,461		)	(900,424		)
Total increase (decrease) in net assets	(3,148,938		)	5,671,523			18,007,740			23,727,505			(5,215,666		)	8,046,766			1,463,583			379,332
Net Assets:
Beginning of year	58,724,060			53,052,537			92,445,536			68,718,031			19,258,379			11,211,613			14,573,133			14,193,801
End of year	$	55,575,122		$	58,724,060		$	110,453,276		$	92,445,536		$	14,042,713		$	19,258,379		$	16,036,716		$	14,573,133

	Equity Income Portfolio†††						Growth Portfolio†††						Asset Manager Portfolio†††						Emerging Markets Equity (Int'l) Portfolio††††
	2007			2006			2007			2006			2007			2006			2007			2006
Operations:
Net investment income (loss)	$	240,707		$	1,027,194		$	(290,073	)	$	(678,011	)	$	581,664		$	155,664		$	(376,280	)	$	(256,820	)
Net realized gain (loss) from investment transactions	6,487,966			7,615,695			742,668			(1,325,085		)	364,563			(19,124		)	9,667,082			3,130,463
Net change in unrealized appreciation (depreciation) of investments	(6,566,012		)	600,636			18,086,374			6,102,348			641,656			515,185			2,076,578			5,379,559
Net increase (decrease) in net assets resulting from operations	162,661			9,243,525			18,538,969			4,099,252			1,587,883			651,725			11,367,380			8,253,202

Variable Life Activities:
Purchase payments	5,975,055			5,728,310			8,013,095			8,879,311			1,146,739			1,244,826			3,811,872			3,173,701
Death benefits	(150,039		)	(248,865		)	(109,958		)	(216,393		)	(16,089		)	(77,193		)	(70,757		)	(47,589		)
Cost of insurance	(3,334,853		)	(3,186,594		)	(4,644,179		)	(4,712,401		)	(718,485		)	(739,152		)	(1,694,837		)	(1,386,883		)
Net transfers	(676,900		)	(851,464		)	(4,208,428		)	(4,379,500		)	(226,270		)	(564,039		)	(1,948,316		)	1,533,866
Transfer of policy loans	179,157			190,164			208,498			324,014			44,636			25,289			155,049			215,275
Contract administration charges	(176,669		)	(148,844		)	(304,680		)	(286,516		)	(31,356		)	(28,731		)	(177,954		)	(69,140		)
Surrender benefits	(3,516,810		)	(2,961,113		)	(5,673,661		)	(4,744,095		)	(720,853		)	(543,080		)	(3,387,438		)	(1,711,776		)
Net increase (decrease) in net assets resulting from variable life activities	(1,701,059		)	(1,478,406		)	(6,719,313		)	(5,135,580		)	(521,678		)	(682,080		)	(3,312,381		)	1,707,454
Total increase (decrease) in net assets	(1,538,398		)	7,765,119			11,819,656			(1,036,328		)	1,066,205			(30,355		)	8,054,999			9,960,656
Net Assets:
Beginning of year	58,409,022			50,643,903			76,478,941			77,515,269			11,527,770			11,558,125			32,537,176			22,576,520
End of year	$	56,870,624		$	58,409,022		$	88,298,597		$	76,478,941		$	12,593,975		$	11,527,770		$	40,592,175		$	32,537,176

†	Investment in Penn Series Funds, Inc., an affiliate of Separate Account
††	Investment in Neuberger Berman Advisers Management Trust
†††	Investment in Fidelity Investments' Variable Insurance Products Funds I and II
††††	Investment in Van Kampen's The Universal Institutional Funds, Inc.

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

PENN MUTUAL VARIABLE LIFE ACCOUNT I

Notes to Financial Statements - December 31, 2007

Note 1. Organization

Penn Mutual Variable Life (“Account I”) was established by The Penn Mutual Life Insurance Company (“Penn Mutual”) under the provisions of the Pennsylvania Insurance Law. Account I is registered under the Investment Company Act of 1940, as amended, as a unit investment trust. Account I offers units to variable life contract owners to provide for the accumulation of value and for the payment of benefits. Account I contains contracts of the Cornerstone VUL, Cornerstone VUL II, Cornerstone VUL III, Cornerstone VUL IV, Variable EstateMax, Variable EstateMax II, Variable EstateMax III, and Momentum Builder variable life products. Contract owners may borrow up to a specified amount depending on the policy value at any time by submitting a written request for a policy loan. Under applicable insurance law, the assets and liabilities of Account I are clearly identified and distinguished from Penn Mutual’s other assets and liabilities. The portion of Account I’s assets applicable to the variable life contracts is not chargeable with liabilities arising out of any other business Penn Mutual may conduct.

Note 2. Significant Accounting Policies

The preparation of the accompanying financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported values of assets and liabilities as of December 31, 2007 and the reported amounts from operations and variable life activities during 2007 and 2006. Actual results could differ with those estimates. The significant accounting policies of Account I are as follows:

Investments - Assets of Account I are invested into subaccounts, which invest in the shares of Penn Series Funds, Inc. (“Penn Series”), an affiliate of Penn Mutual: Money Market, Limited Maturity Bond, Quality Bond, High Yield Bond, Flexibly Managed, Growth Stock, Large Cap Value, Large Cap Growth, Index 500, Mid Cap Growth, Mid Cap Value, Strategic Value, Small Cap Growth, Small Cap Value, International Equity and REIT Funds; Neuberger Berman Advisers Management Trust (“AMT”): Balanced Portfolio; Fidelity Investments’ Variable Insurance Products Funds I and II (“Fidelity”): Equity Income, Growth, and Asset Manager Portfolios; and The Universal Institutional Funds, Inc. (“Van Kampen”): Emerging Markets Equity (Int’l) Portfolio. Penn Series, AMT, Fidelity and Van Kampen are open-end diversified management investment companies. The investment in shares of these funds or portfolios is carried at fair market value as determined by the underlying net asset value of the respective funds or portfolios. Dividend income and realized gain distributions are recorded on the ex-dividend date. Investment transactions are accounted for on a trade date basis.

Federal Income Taxes – The operations of Account I are included in the federal income tax return of Penn Mutual, which is taxed as a life insurance company under the provision of the Internal Revenue Code (“IRC”). Under the current provisions of the IRC, Penn Mutual does not expect to incur federal income taxes on the earnings of Account I to the extent the earnings are credited under contracts. Based on this, no charge is being made currently to Account I for federal income taxes. Penn Mutual will review periodically the status of this policy in the event of changes in the tax law. A charge may be made in future years for any federal income taxes that would be attributable to the contracts.

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

Accounting Pronouncements – Effective July 1, 2007, Account I adopted Financial Accounting Standards Board (FASB) Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, a clarification of FASB Statement No. 109, Accounting for Income Taxes. FIN 48 establishes financial accounting and disclosure requirements for recognition and measurement of tax positions taken or expected to be taken on an income tax return. The adoption of FIN 48 had no impact on the fund’s net assets or results of operations.

In September 2006, the FASB released the Statement of Financial Accounting Standard No. 157 (FAS 157), Fair Value Measurements. FAS 157 clarifies the definition of fair value and establishes the framework for measuring fair value, as well as proper disclosure of this methodology in the financial statements. It will be effective for Account I’s fiscal year ended December 31, 2008. Management is evaluating the effects of FAS 157; however, it is not expected to have a material impact on Account I’s net assets or results of operations.

Note 3. Purchases and Sales of Investments

The following table shows the aggregate cost of shares purchased and the aggregate proceeds from shares redeemed of each fund or portfolio for the period ended December 31, 2007:

	Purchases		Sales
Money Market Fund	$	24,174,941	$	25,745,372
Limited Maturity Bond Fund	3,363,582		2,688,271
Quality Bond Fund	9,268,463		8,982,236
High Yield Bond Fund	4,812,950		4,712,728
Flexibly Managed Fund	54,226,360		17,639,678
Growth Stock Fund	6,050,052		7,241,249
Large Cap Value Fund	13,836,557		8,931,805
Large Cap Growth Fund	2,162,291		1,791,408
Index 500 Fund	9,660,684		15,541,304
Mid Cap Growth Fund	5,117,855		5,913,678
Mid Cap Value Fund	8,433,948		6,717,680
Strategic Value Fund	3,943,291		3,129,980
Small Cap Growth Fund	3,782,535		7,850,839
Small Cap Value Fund	17,325,643		6,758,648
International Equity Fund	32,539,985		8,791,887
REIT Fund	7,793,148		5,485,810
Balanced Portfolio	3,264,647		3,632,750
Equity Income Portfolio	12,166,469		7,140,787
Growth Portfolio	6,946,151		13,215,520
Asset Manager Portfolio	2,103,725		1,679,584
Emerging Markets Equity (Int’l) Portfolio	11,653,198		5,675,648

Note 4. Related Party Transactions and Contract Charges

Penn Mutual received $83,855,748 and $80,224,604 from Account I for the years ended December 31, 2007 and 2006. These charges include those assessed through a reduction in unit value, as well as those assessed through redemption of units.

Certain charges of the products are reflected as a reduction in the value of the units held by the policyholder. These are as follows:

Products		Mortality & Risk Expense		Guaranteed Maximum Rate
Cornerstone VUL	0.75%		0.90%
Cornerstone VUL II	0.90%	(policy years 1 - 15)	0.90%
	0.60%	(policy years 16+)
Cornerstone VUL III	0.45%		0.90%
Cornerstone VUL IV	0.45%	on the first $25,000 of account value, 0.15% on account value in excess of $25,000; and a monthly expense charge per $1,000 of specified amount during first 10 years varying by issue age and rate class. The same load will apply for the first 10 years following an increase in specified amount.	0.60%	on the first $50,000 of account value, 0.30% on account value in excess of $50,000; and a monthly expense charge per $1,000 of specified amount during first 10 years varying by issue age and rate class. The same load will apply for the first 10 years following an increase in specified amount.
Variable Estate Max	0.90%	(policy years 1 - 15)	0.90%
	0.60%	(policy years 16+)
Variable Estate Max II	0.90%	(policy years 1 - 15)	0.90%
	0.60%	(policy years 16+)
Variable Estate Max III	0.60%	(policy years 1 - 10)	0.90%	(policy years 1 - 10)
	0.05%	(policy years 11+)	0.35%	(policy years 11+)
		and a monthly expense charge per $1,000 of Specified Amount during first 10 years. The same load will apply for the first 10 years following an increase in specified amount. Please refer to the prospectus for details.		and a monthly expense charge per $1,000 of Specified Amount during first 10 years. The same load will apply for the first 10 years following an increase in specified amount. Please refer to the prospectus for details.
Momentum Builder	0.65%		0.65%

Certain charges of the products are reflected as a redemption of units held by the policyholder. These are as follows:

Products		Surrender Charges
Cornerstone VUL		Maximum charge of 100% of purchase payments received. Charges do not apply after 11 years.
Cornerstone VUL II		Maximum charge of 100% of purchase payments received. Charges do not apply after 11 years.
Cornerstone VUL III		Maximum charge of 100% of purchase payments received. Charges do not apply after 11 years.
Cornerstone VUL IV		Maximum charge of 100% of purchase payments received. Charges do not apply after 11 years.
Variable Estate Max		Maximum charge of 100% of purchase payments received. Charges do not apply after 16 years.
Variable Estate Max II		Maximum charge of 100% of purchase payments received. Charges do not apply after 16 years.
Variable Estate Max III		Maximum charge of 100% of purchase payments received. Charges do not apply after 14 years.
Momentum Builder		Maximum charge of 100% of purchase payments received. Charges do not apply after 10 years.

Premium charges on purchase payments are withdrawn from payments prior to the purchase of units. Currently, state premium taxes on purchase payments range from 0.00% to 3.50%. Sales and distribution expense charges on purchase payments range from 1.50% to 5.00%.

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

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

Note 5. Accumulation Units

	January 1, 2006	December 31, 2006				December 31, 2007
					Ending				Ending
	Unit	Units	Units		Unit	Units	Units		Unit
Subaccount	Balance	Purchased	Redeemed		Balance	Purchased	Redeemed		Balance
Money Market Fund	3,490,357	1,861,159	(2,269,554	)	3,081,962	1,357,150	(1,630,610	)	2,808,502
Limited Maturity Bond Fund	682,676	170,690	(138,345	)	715,021	189,257	(161,037	)	743,242
Quality Bond Fund	2,240,759	467,187	(230,653	)	2,477,293	443,581	(435,258	)	2,485,617
High Yield Bond Fund	1,187,481	131,385	(182,705	)	1,136,161	152,872	(200,054	)	1,088,979
Flexibly Managed Fund	7,611,887	1,095,303	(650,972	)	8,056,218	1,081,101	(550,648	)	8,586,671
Growth Stock Fund	2,726,660	558,084	(287,970	)	2,996,774	452,710	(334,006	)	3,115,478
Large Cap Value Fund	3,270,645	314,090	(372,335	)	3,212,400	175,266	(344,241	)	3,043,425
Large Cap Growth Fund	702,395	173,336	(102,173	)	773,558	118,173	(136,658	)	755,072
Index 500 Fund	9,425,421	659,204	(1,630,165	)	8,454,460	422,945	(1,101,665	)	7,775,740
Mid Cap Growth Fund	2,835,625	298,012	(422,151	)	2,711,486	290,989	(459,323	)	2,543,152
Mid Cap Value Fund	1,767,231	391,115	(282,464	)	1,875,882	185,250	(281,101	)	1,780,031
Strategic Value Fund	992,232	111,052	(450,276	)	653,008	147,044	(186,439	)	613,613
Small Cap Growth Fund	2,587,050	418,972	(370,987	)	2,635,035	242,968	(379,316	)	2,498,687
Small Cap Value Fund	2,163,857	187,730	(279,105	)	2,072,482	283,284	(236,024	)	2,119,742
International Equity Fund	3,438,250	605,466	(404,466	)	3,639,250	451,939	(412,241	)	3,678,948
REIT Fund	592,975	250,204	(71,403	)	771,776	179,713	(265,784	)	685,705
Balanced Portfolio	970,744	87,404	(156,506	)	901,642	179,073	(211,578	)	869,136
Equity Income Portfolio	2,767,620	253,934	(329,639	)	2,691,915	258,817	(330,780	)	2,619,952
Growth Portfolio	5,393,337	335,829	(720,140	)	5,009,026	324,274	(728,518	)	4,604,783
Asset Manager Portfolio	741,335	65,509	(121,074	)	685,770	50,887	(77,355	)	659,303
Emerging Markets Equity (Int’l) Portfolio	1,264,268	283,164	(217,302	)	1,330,130	207,666	(357,549	)	1,180,248

Note 6. Financial Highlights

Account I is a funding vehicle for a number of variable life products, which have unique combinations of features and fees that are charged against the contract owner’s account balance. Differences in the fee structures result in a variety of unit values, expense ratios and total returns.

The following table was developed by determining which products offered within Account I have the lowest and highest total return. Only product designs within each subaccount that had units outstanding during the respective periods were considered when determining the lowest and highest total return. The summary may not reflect the minimum and maximum contract charges offered within Account I as contract owners may not have selected all available and applicable contract options.

	January 1, 2007			December 31, 2007						For the Year ended December 31, 2007
Subaccount	Unit Fair Value			Units	Unit Fair Value			Net Assets		Investment Income Ratio* (%)	Expense Ratio** (%)	Total Return*** (%)
Money Market Fund	$11.44	to	$20.68	2,808,502	$12.01	to	$21.56	$	37,904,884	4.87	0.45 to 0.90	4.03 to 4.67
Limited Maturity Bond Fund	12.43	to	16.60	743,242	13.08	to	17.33	10,739,971		3.89	0.45 to 0.90	4.28 to 4.92
Quality Bond Fund	13.26	to	35.66	2,485,617	14.10	to	37.67	40,756,213		4.28	0.45 to 0.90	5.38 to 6.03
High Yield Bond Fund	15.90	to	44.28	1,088,979	16.39	to	45.56	22,195,598		6.93	0.45 to 0.90	2.64 to 3.26
Flexibly Managed Fund	20.83	to	94.99	8,586,671	21.76	to	98.59	256,269,618		2.24	0.45 to 0.90	3.53 to 4.17
Growth Stock Fund	6.16	to	26.43	3,115,478	6.69	to	28.67	36,225,669		0.41	0.45 to 0.90	8.17 to 8.85
Large Cap Value Fund	14.58	to	62.31	3,043,425	15.06	to	64.22	70,541,865		1.40	0.45 to 0.90	2.80 to 3.43
Large Cap Growth Fund	11.59	to	12.09	755,072	12.03	to	12.66	9,426,845		0.55	0.45 to 0.90	3.77 to 4.41
Index 500 Fund	10.68	to	18.73	7,775,740	11.17	to	19.53	117,070,814		1.57	0.45 to 0.90	4.14 to 4.79
Mid Cap Growth Fund	8.18	to	17.87	2,543,152	10.20	to	22.19	39,776,742		0.00	0.45 to 0.90	24.02 to 24.84
Mid Cap Value Fund	19.92	to	29.31	1,780,031	20.67	to	30.18	44,250,478		1.13	0.45 to 0.90	2.83 to 3.46
Strategic Value Fund	15.52	to	16.19	613,613	15.51	to	16.33	9,846,378		0.51	0.45 to 0.90	(0.05) to 0.55
Small Cap Growth Fund	9.72	to	29.58	2,498,687	10.43	to	31.62	40,243,342		0.00	0.45 to 0.90	6.74 to 7.41
Small Cap Value Fund	22.57	to	36.83	2,119,742	21.37	to	34.62	55,572,122		0.69	0.45 to 0.90	(6.15) to (5.60)
International Equity Fund	17.87	to	36.94	3,678,948	21.35	to	44.02	110,453,276		0.56	0.45 to 0.90	18.97 to 19.75
REIT Fund	24.35	to	25.39	685,705	19.82	to	20.85	14,042,713		2.50	0.45 to 0.90	(18.61) to (18.17)
Balanced Portfolio	12.78	to	23.46	869,136	14.77	to	26.91	16,036,716		1.15	0.45 to 0.90	14.56 to 15.30
Equity Income Portfolio	14.13	to	30.29	2,619,952	14.28	to	30.53	56,870,624		1.80	0.45 to 0.90	0.62 to 1.23
Growth Portfolio	8.80	to	24.66	4,604,783	11.12	to	31.08	88,298,597		0.83	0.45 to 0.90	25.82 to 26.66
Asset Manager Portfolio	11.62	to	21.28	659,303	13.36	to	24.39	12,593,975		6.08	0.45 to 0.90	14.46 to 15.20
Emerging Markets Equity (Int’l) Portfolio	21.58	to	30.31	1,180,248	30.03	to	42.57	40,592,175		0.43	0.45 to 0.90	39.19 to 40.15

	January 1, 2006			December 31, 2006						For the Year ended December 31, 2006
Subaccount	Unit Fair Value			Units	Unit Fair Value			Net Assets		Investment Income Ratio* (%)	Expense Ratio** (%)	Total Return*** (%)
Money Market Fund	$10.93	to	$19.89	3,081,962	$11.44	to	$20.68	$	39,474,212	4.55	0.45 to 0.90	3.70 to 4.34
Limited Maturity Bond Fund	11.89	to	16.00	715,021	12.43	to	16.60	9,931,341		4.19	0.45 to 0.90	3.56 to 4.19
Quality Bond Fund	12.60	to	34.10	2,477,293	13.26	to	35.66	39,651,397		4.03	0.45 to 0.90	4.31 to 4.95
High Yield Bond Fund	14.52	to	40.53	1,136,161	15.90	to	44.28	22,845,988		5.74	0.45 to 0.90	8.98 to 9.66
Flexibly Managed Fund	18.05	to	82.87	8,056,218	20.83	to	94.99	239,266,257		1.71	0.45 to 0.90	14.34 to 15.06
Growth Stock Fund	5.47	to	23.54	2,996,774	6.16	to	26.43	32,591,017		0.25	0.45 to 0.90	12.00 to 12.70
Large Cap Value Fund	12.38	to	53.03	3,212,400	14.58	to	62.31	73,073,484		1.09	0.45 to 0.90	17.21 to 17.96
Large Cap Growth Fund	11.28	to	11.66	773,558	11.59	to	12.09	9,242,767		0.25	0.45 to 0.90	2.77 to 3.39
Index 500 Fund	9.30	to	16.35	8,454,460	10.68	to	18.73	121,496,243		1.25	0.45 to 0.90	14.34 to 15.07
Mid Cap Growth Fund	7.70	to	16.85	2,711,486	8.18	to	17.87	34,086,870		0.00	0.45 to 0.90	5.85 to 6.51
Mid Cap Value Fund	17.88	to	26.50	1,875,882	19.92	to	29.31	45,307,618		0.64	0.45 to 0.90	10.41 to 11.10
Strategic Value Fund	13.96	to	14.43	653,008	15.52	to	16.19	10,424,184		0.40	0.45 to 0.90	11.22 to 11.92
Small Cap Growth Fund	9.89	to	30.17	2,635,035	9.72	to	29.58	40,257,489		0.00	0.45 to 0.90	(2.11) to (1.53)
Small Cap Value Fund	19.22	to	31.60	2,072,482	22.57	to	36.83	58,724,060		0.30	0.45 to 0.90	16.38 to 17.13
International Equity Fund	13.77	to	28.56	3,639,250	17.87	to	36.94	92,445,536		1.60	0.45 to 0.90	29.18 to 30.04
REIT Fund	18.55	to	19.18	771,776	24.35	to	25.39	19,258,379		1.22	0.45 to 0.90	31.23 to 32.10
Balanced Portfolio	11.55	to	21.36	901,642	12.78	to	23.46	14,573,133		0.80	0.45 to 0.90	9.68 to 10.36
Equity Income Portfolio	11.81	to	25.39	2691,915	14.13	to	30.29	58,409,022		3.34	0.45 to 0.90	19.12 to 19.89
Growth Portfolio	8.27	to	23.26	5009,026	8.80	to	24.66	76,478,941		0.39	0.45 to 0.90	5.90 to 6.55
Asset Manager Portfolio	10.87	to	19.98	685,770	11.62	to	21.28	11,527,770		2.68	0.45 to 0.90	6.36 to 7.01
Emerging Markets Equity (Int’l) Portfolio	15.87	to	22.10	1,330,130	21.58	to	30.31	32,537,176		0.75	0.45 to 0.90	35.92 to 36.84

	January 1, 2005			December 31, 2005						For the Year ended December 31, 2005
Subaccount	Unit Fair Value			Units	Unit Fair Value			Net Assets		Investment Income Ratio* (%)	Expense Ratio** (%)	Total Return*** (%)
Money Market Fund	$10.63	to	$19.47	3,490,357	$10.93	to	$19.89	$	42,514,724	2.77	0.45 to 0.90	1.90 to 2.52
Limited Maturity Bond Fund	11.64	to	15.79	682,676	11.89	to	16.00	9,203,576		3.99	0.45 to 0.90	1.23 to 1.84
Quality Bond Fund	12.29	to	33.48	2,240,759	12.60	to	34.10	34,960,650		4.74	0.45 to 0.90	1.59 to 2.20
High Yield Bond Fund	14.15	to	39.56	1,187,481	14.52	to	40.53	21,969,144		6.79	0.45 to 0.90	2.19 to 2.80
Flexibly Managed Fund	16.74	to	77.34	7,611,887	18.05	to	82.87	202,589,875		1.58	0.45 to 0.90	6.88 to 7.54

Growth Stock Fund	5.18	to	22.33	2,726,660	5.47	to	23.54	26,785,177	0.12	0.45 to 0.90	5.19 to 5.84
Large Cap Value Fund	12.08	to	51.82	3,270,645	12.38	to	53.03	64,582,282	1.17	0.45 to 0.90	2.08 to 2.70
Large Cap Growth Fund	11.25	to	11.52	702,395	11.28	to	11.66	8,108,696	0.18	0.45 to 0.90	0.29 to 0.89
Index 500 Fund	8.94	to	15.77	9,425,421	9.30	to	16.35	117,577,618	1.54	0.45 to 0.90	3.55 to 4.18
Mid Cap Growth Fund	6.87	to	15.10	2,835,625	7.70	to	16.85	33,206,024	0.00	0.45 to 0.90	11.48 to 12.18

	January 1, 2005			December 31, 2005						For the Year ended December 31, 2005
Subaccount	Unit Fair Value			Units	Unit Fair Value			Net Assets		Investment Income Ratio* (%)	Expense Ratio** (%)	Total Return*** (%)
Strategic Value Fund	$15.92	to	$23.77	1,767,231	$17.88	to	$26.50	$	39,280,254	0.66	0.45 to 0.90	11.33 to 12.03
Small Cap Growth Fund	13.02	to	13.33	992,232	13.96	to	14.43	14,109,979		0.54	0.45 to 0.90	7.23 to 7.90
Small Cap Value Fund	9.35	to	28.60	2,587,050	9.89	to	30.17	41,291,745		0.00	0.45 to 0.90	5.32 to 5.97
International Equity Fund	18.54	to	30.71	2,163,857	19.22	to	31.60	53,053,333		0.40	0.45 to 0.90	2.75 to 3.37
REIT Fund	11.84	to	24.64	3,438,250	13.77	to	28.56	68,719,152		0.42	0.45 to 0.90	15.72 to 16.46
Balanced Portfolio	16.57	to	16.97	592,975	18.55	to	19.18	11,211,730		2.21	0.45 to 0.90	11.96 to 12.66
Equity Income Portfolio	10.57	to	19.71	970,744	11.55	to	21.36	14,194,017		0.93	0.45 to 0.90	8.21 to 8.88
Growth Portfolio	11.21	to	24.17	2,767,620	11.81	to	25.39	50,644,765		1.59	0.45 to 0.90	4.92 to 5.56
Asset Manager Portfolio	7.86	to	22.15	5,393,337	8.27	to	23.26	77,516,624		0.50	0.45 to 0.90	4.85 to 5.49
Emerging Markets Equity (Int’l) Portfolio	10.50	to	19.34	741,335	10.87	to	19.98	11,558,328		2.62	0.45 to 0.90	3.11 to 3.74
	11.97	to	16.51	1,264,268	15.87	to	22.10	22,576,825		0.38	0.45 to 0.90	32.66 to 33.55

	January 1, 2004			December 31, 2004						For the Year ended December 31, 2004
Subaccount	Unit Fair Value			Units	Unit Fair Value			Net Assets		Investment Income Ratio* (%)	Expense Ratio** (%)	Total Return*** (%)
Money Market Fund	$10.53	to	$19.41	3,509,066	$10.63	to	$19.47	$	41,788,915	0.94	0.45 to 0.90	0.05 to 0.80
Limited Maturity Bond Fund	11.38	to	15.54	582,976	11.64	to	15.79	7,775,769		3.44	0.45 to 0.90	1.40 to 2.17
Quality Bond Fund	11.75	to	32.22	1,824,967	12.29	to	33.48	28,271,915		4.25	0.45 to 0.90	3.66 to 4.44
High Yield Bond Fund	12.81	to	35.97	1,233,170	14.15	to	39.56	22,737,412		7.58	0.45 to 0.90	9.72 to 10.56
Flexibly Managed Fund	14.12	to	65.65	6,542,543	16.74	to	77.34	170,391,021		2.04	0.45 to 0.90	17.52 to 18.43
Growth Stock Fund	4.65	to	20.08	2,398,322	5.18	to	22.33	22,803,198		0.45	0.45 to 0.90	10.90 to 11.75
Large Cap Value Fund	10.75	to	46.22	3,237,387	12.08	to	51.82	63,964,702		1.44	0.45 to 0.90	11.84 to 12.70
Large Cap Growth Fund	10.44	to	10.60	579,660	11.25	to	11.52	6,622,079		0.63	0.45 to 0.90	7.69 to 8.51
Index 500 Fund	8.13	to	14.38	10,537,727	8.94	to	15.77	125,283,806		1.71	0.45 to 0.90	9.48 to 10.32
Mid Cap Growth Fund	6.20	to	13.66	2,532,744	6.87	to	15.10	26,367,057		—	0.45 to 0.90	10.38 to 11.22
Mid Cap Value Fund	12.92	to	19.44	1,712,480	15.92	to	23.77	34,456,319		0.41	0.45 to 0.90	22.07 to 23.02
Strategic Value Fund	10.57	to	10.73	723,135	13.02	to	13.33	9,504,977		0.47	0.45 to 0.90	23.14 to 24.10
Small Cap Growth Fund	8.57	to	26.32	2,607,060	9.35	to	28.60	40,274,620		—	0.45 to 0.90	8.52 to 9.34
Small Cap Value Fund	16.14	to	26.93	2,149,378	18.54	to	30.71	52,081,526		0.03	0.45 to 0.90	13.85 to 14.72

International Equity Fund	9.15	to	19.10	2,957,276	11.84	to	24.64	52,987,586	0.64	0.45 to 0.90	28.84 to 29.85
REIT Fund	12.34	to	12.53	491,748	16.57	to	16.97	8,260,835	3.81	0.45 to 0.90	34.31 to 35.37
Balanced Portfolio	9.67	to	18.16	1,079,897	10.57	to	19.71	14,915,242	1.21	0.45 to 0.90	8.33 to 9.16
Equity Income Portfolio	10.09	to	21.83	2,704,412	11.21	to	24.17	48,433,117	1.48	0.45 to 0.90	10.53 to 11.38
Growth Portfolio	7.63	to	21.58	5,577,838	7.86	to	22.15	77,720,992	0.26	0.45 to 0.90	2.45 to 3.2
Asset Manager Portfolio	10.00	to	18.48	768,628	10.50	to	19.34	11,699,791	2.64	0.45 to 0.90	4.52 to 5.32
Emerging Markets Equity (Int’l) Portfolio	9.81	to	13.41	1,008,571	11.97	to	16.51	12,877,335	0.66	0.45 to 0.90	22.01 to 22.96

	January 1, 2003			December 31, 2003						For the Year ended December 31,2003
Subaccount	Unit Fair Value			Units	Unit Fair Value			Net Assets		Investment Income Ratio* (%)	Expense Ratio** (%)	Total Return*** (%)
Money Market Fund	$10.44	to	$19.37	3,823,351	$10.53	to	$19.41	$	45,586,540	0.88	0.45 to 0.90	(0.04) to 0.71
Limited Maturity Bond Fund	11.06	to	15.22	561,656	11.38	to	15.54	7,428,676		3.82	0.45 to 0.90	1.98 to 2.75
Quality Bond Fund	11.07	to	30.54	1,679,212	11.75	to	32.22	25,012,368		4.45	0.45 to 0.90	5.23 to 6.02
High Yield Bond Fund	10.40	to	29.40	1,226,430	12.81	to	35.97	21,248,464		8.51	0.45 to 0.90	22.02 to 22.97
Flexibly Managed Fund	10.87	to	50.86	5,323,759	14.12	to	65.65	126,787,180		2.16	0.45 to 0.90	28.75 to 29.76
Growth Stock Fund	4.16	to	17.99	2,414,553	4.65	to	20.08	20,773,526		0.03	0.45 to 0.90	11.36 to 12.21
Large Cap Value Fund	8.45	to	36.41	3,182,788	10.75	to	46.22	57,617,552		1.69	0.45 to 0.90	26.62 to 27.61
Large Cap Growth Fund	8.39	to	8.44	337,631	10.44	to	10.60	3,555,532		0.58	0.45 to 0.90	24.48 to 25.45
Index 500 Fund	6.36	to	11.29	9,830,723	8.13	to	14.38	106,702,318		1.47	0.45 to 0.90	27.26 to 28.25
Mid Cap Growth Fund	4.17	to	9.22	2,358,927	6.20	to	13.66	22,279,833		—	0.45 to 0.90	47.96 to 49.14
Mid Cap Value Fund	9.44	to	14.32	1,538,503	12.92	to	19.44	25,773,764		0.40	0.45 to 0.90	35.62 to 36.69
Strategic Value Fund	8.52	to	8.57	510,758	10.57	to	10.73	5,429,374		0.51	0.45 to 0.90	24.01 to 24.98
Small Cap Growth Fund	5.84	to	17.98	2,533,043	8.57	to	26.32	36,958,989		—	0.45 to 0.90	46.19 to 47.36
Small Cap Value Fund	9.23	to	15.52	2,001,220	16.14	to	26.93	43,335,643		—	0.45 to 0.90	73.28 to 74.69
International Equity Fund	6.92	to	14.48	2,881,578	9.15	to	19.10	40,472,032		0.68	0.45 to 0.90	31.66 to 32.70
REIT Fund	9.19	to	9.24	288,500	12.34	to	12.53	3,587,337		5.25	0.45 to 0.90	34.27 to 35.33
Balanced Portfolio	8.32	to	15.74	1,140,990	9.67	to	18.16	14,563,163		1.81	0.45 to 0.90	15.24 to 16.12
Equity Income Portfolio	7.78	to	16.88	2,435,253	10.09	to	21.83	40,514,691		1.71	0.45 to 0.90	29.16 to 30.18
Growth Portfolio	5.77	to	16.37	5,305,813	7.63	to	21.58	73,903,768		0.25	0.45 to 0.90	31.66 to 32.69
Asset Manager Portfolio	8.51	to	15.78	831,791	10.00	to	18.48	11,775,852		3.36	0.45 to 0.90	16.92 to 17.82
Emerging Markets Equity (Int’l) Portfolio	6.61	to	8.96	954,510	9.81	to	13.41	9,799,615		—	0.45 to 0.90	48.33 to 49.52

* These ratios represent the dividends, excluding distributions of capital gains, received by the subaccounts within Account I from the underlying mutual funds, net of management fees and expenses assessed by the fund manager, divided by the average net assets of the respective subaccounts. These ratios exclude those expenses, such as mortality and expense charges, that result in direct reductions in the unit values. The recognition of investment income by the subaccount is affected by the timing of the declaration of dividends by the underlying funds in which the subaccounts invest.

** These ratios represent the annualized contract expenses of the subaccount, consisting primarily of mortality and expense charges, for the period indicated. The ratios include only those expenses that result in a direct reduction to unit values. Charges made directly to contract owner accounts through the redemption of units and expenses of the underlying subaccount are excluded, as in Cornerstone VUL IV (which would have an expense ratio of 0.00% since all contract

charges are assessed through a reduction in units held).

*** These ratios represent the total return for the periods indicated, including changes in the value of the underlying subaccount, and reflect deductions for all items included in the expense ratio. The total return does not include any expenses assessed through the redemption of units; inclusion of these expenses in the calculation would result in a reduction in the total return presented. The total return is calculated for the period indicated or from the effective date through the end of the reporting period.

	PricewaterhouseCoopers LLP
	Two Commerce Square, Suite 1700
	2001 Market Street
	Philadelphia PA 19103-7042
	Telephone (267) 330 3000
	Facsimile (267) 330 3300
	www.pwc.com

Report of the Independent Accounting Firm

To the Board of Trustees of The Penn Mutual Life Insurance Company
and contract owners of Penn Mutual Variable Life Account I

In our opinion, the accompanying statement of net assets and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of each of the sub accounts disclosed in Note 1 which comprise the Penn Mutual Variable Life Account I (the “Variable Account”) at December 31, 2007, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the four years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Variable Account’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit, which included confirmation of securities at December 31, 2007 by correspondence with the transfer agent, provides a reasonable basis for our opinion. The financial highlights included in Note 5 of the Variable Account for the year ended December 31, 2003 were audited by other auditors whose report dated March 19, 2004 expressed an unqualified opinion on those financial highlights.

PricewaterhouseCoopers LLP

Philadelphia, PA

April 17, 2008

The Penn Mutual Life Insurance Company and Subsidiaries
Consolidated Balance Sheets

As of December 31,	2007			2006
(in thousands)

ASSETS

Debt securities, at fair value	$	5,886,524		$	5,690,980
Equity securities, at fair value	8,582			8,980
Real estate, net of accumulated depreciation	16,311			16,896
Policy loans	669,338			633,403
Short-term investments	38,060			191,347
Other invested assets, at fair value	363,706			245,156
Total investments	6,982,521			6,786,762

Cash and cash equivalents	23,806			54,600
Investment income due and accrued	81,381			73,528
Deferred acquisition costs	806,718			753,703
Amounts recoverable from reinsurers	355,112			352,920
Broker/dealer receivables	1,708,810			1,922,896
Goodwill	50,026			50,026
Other assets	334,785			296,565
Separate account assets	4,137,215			3,791,429

Total Assets	$	14,480,374		$	14,082,429

LIABILITIES

Reserves for future policy benefits	$	2,608,995		$	2,615,706
Other policyholder funds	3,357,686			3,278,736
Policyholders’ dividends payable	16,596			18,554
Broker/dealer payables	1,435,009			1,678,262
Accrued income taxes	195,135			152,966
Debt	299,992			298,185
Other liabilities	390,852			353,254
Separate account liabilities	4,137,215			3,791,429

Total Liabilities	12,441,480			12,187,092

EQUITY

Retained earnings	1,977,554			1,835,306
Accumulated other comprehensive income:
Unrealized appreciation of securities, net	63,205			61,805
Minimum pension liability	—			(1,774		)
Pension liability after adoption of FAS 158	(1,865		)	—
Total accumulated other comprehensive income	61,340			60,031
Total Equity	2,038,894			1,895,337

Total Liabilities and Equity	$	14,480,374		$	14,082,429

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

The Penn Mutual Life Insurance Company and Subsidiaries
Consolidated Statements of Income

For the Years Ended December 31,	2007			2006			2005
(in thousands)

REVENUES

Premium and annuity considerations	$	130,323		$	139,298		$	123,909
Policy fee income	314,450			249,635			222,188
Net investment income	425,251			410,491			385,285
Net realized capital losses	(10,894		)	(9,667		)	(2,949		)
Broker/dealer fees and commissions	552,132			536,732			467,947
Other income	36,296			32,377			29,591

Total Revenues	1,447,558			1,358,866			1,225,971

BENEFITS AND EXPENSES

Benefits paid to policyholders and beneficiaries	419,109			403,781			399,437
Policyholder dividends	34,496			37,122			36,247
Decrease in reserves for future policy benefits	(25,857		)	(11,187		)	(31,233		)
General expenses	369,657			350,385			313,988
Broker/dealer sales expense	314,060			301,959			264,719
Amortization of deferred acquisition costs	133,406			86,974			74,898

Total Benefits and Expenses	1,244,871			1,169,034			1,058,056

Income Before Income Taxes	202,687			189,832			167,915

Income taxes:
Current	33,652			(2,716		)	22,699
Deferred	31,977			47,134			32,788

Income Tax Expense	65,629			44,418			55,487

NET INCOME	$	137,058		$	145,414		$	112,428

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

The Penn Mutual Life Insurance Company and Subsidiaries
Consolidated Statements of Changes in Equity

(In thousands)	Accumulated Other Comprehensive Income/(Loss)			Retained Earnings		Total Equity

Balance at January 1, 2005	$	188,366		$	1,577,464	$	1,765,830

Net income for 2005	—			112,428		112,428
Other comprehensive income, net of tax
Unrealized depreciation of securities,	—			—		—
net of reclassification adjustments	(85,992		)	—		(85,992		)
Minimum pension liability	(131		)	—		(131		)
Comprehensive income						26,305
Balance at December 31, 2005	$	102,243		$	1,689,892	$	1,792,135

Net income for 2006	—			145,414		145,414
Other comprehensive income, net of tax
Unrealized depreciation of securities,	—			—		—
net of reclassification adjustments	(43,269		)	—		(43,269		)
Minimum pension liability	1,057			—		1,057
Comprehensive Income						103,202
Balance at December 31, 2006	$	60,031		$	1,835,306	$	1,895,337

Net income for 2007	—			137,058		137,058
Other comprehensive income, net of tax
Unrealized appreciation of securities,
net of reclassification adjustments	1,400			—		1,400
Minimum pension liability	237			—		237
Comprehensive income						138,695
Impact of adoption of Statement of Financial Accouting Standards (SFAS) No. 158, net of tax	(328		)	—		(328		)
Impact of adoption of FASB Interpretation (FIN)No. 48, net of tax	—			5,190		5,190
Balance at December 31, 2007	$	61,340		$	1,977,554	$	2,038,894

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

The Penn Mutual Life Insurance Company and Subsidiaries

Consolidated Statements of Cash Flows

For the Years Ended December 31,	2007			2006			2005
(in thousands)

Cash Flows from Operating Activities

Net income	$	137,058		$	145,414		$	112,428
Adjustments to reconcile net income to net cash provided by operating activities:
Capitalization of acquisition costs	(186,381		)	(135,526		)	(128,349		)
Amortization of deferred acquisition costs	133,406			86,974			74,898
Policy fees on universal life and investment contracts	(190,460		)	(137,060		)	(124,112		)
Interest credited on universal life and investment contracts	146,862			136,499			127,058
Depreciation and amortization	(10,335		)	(8,483		)	1,870
Net realized capital losses	10,894			9,667			2,949
Net investment income on alternative assets and derivatives	(16,662		)	(7,986		)	4,011
(Increase)/decrease in investment income due and accrued	(7,853		)	(6,305		)	5,691
Increase in amounts recoverable from reinsurers	(2,192		)	(18,097		)	(9,289		)
Decrease in reserves for future policy benefits	(6,711		)	(7,687		)	(33,062		)
Increase in accrued income taxes	42,234			33,354			19,391
Increase/(decrease) in net broker/dealer receivables	(29,167		)	34,669			11,552
Increase in broker loans and advances	(12,943		)	1,881			(9,421		)
Increase in sales inducements	(9,879		)	(8,278		)	(4,611		)
Other, net	(3,375		)	(3,330		)	28,878

Net cash (used) provided by operating activities	(5,504		)	115,706			79,882

Cash Flows from Investing Activities

Sale of investments:
Debt securities	1,046,967			2,877,545			1,128,999
Equity securities	200			1,373			4,386
Other	—			(166		)	(36		)

Maturity and other principal repayments:
Debt securities	518,835			544,353			640,578
Other	21,806			26,866			13,673

Cost of investments acquired:
Debt securities	(1,763,617		)	(3,657,500		)	(2,188,988		)
Acquisition, net of cash acquired	—			—			(60,045		)
Equity securities	—			(1,380		)	(4,576		)
Alternative assets	(57,883		)	(50,318		)	(28,431		)
Derivatives	(32,797		)	(12,422		)	(8,660		)
Other	(34		)	(2,161		)	(2,085		)

Change in policy loans, net	(35,935		)	(7,971		)	(3,468		)
Cost of short-term investments sold, net	153,287			29,436			187,460
Purchases of furniture and equipment, net	4,603			(3,453		)	(2,655		)

Net cash used in investing activities	$	(144,568	)	$	(255,798	)	$	(323,848	)

For the Years Ended December 31,	2007			2006			2005
(in thousands)

Cash Flows from Financing Activities

Deposits for universal life and investment contracts	$	1,139,291		$	974,050		$	922,974
Withdrawals from universal life and investment contracts	(835,543		)	(704,739		)	(669,576		)
Transfers to separate accounts	(186,235		)	(127,116		)	(62,534		)
Issuance/(extinguishment) of debt	1,765			(31,487		)	58,322

Net cash provided by financing activities	119,278			110,708			249,186

Net increase in cash and cash equivalents	(30,794		)	(29,394		)	5,220

Cash and cash equivalents
Beginning of the year	54,600			83,994			78,774
End of the year	$	23,806		$	54,600		$	83,994

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

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

(In thousands)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Organization and Basis of Presentation

The Penn Mutual Life Insurance Company (“PML”) was founded and commenced business in 1847 as a mutual life insurance company. PML concentrates primarily on the sale of individual life insurance and annuity products. The primary products that PML currently markets are traditional whole life, term life, universal life, variable universal life, immediate annuities and deferred annuities, both fixed and variable. PML markets its products through a network of career agents, independent agents, and independent marketing organizations. PML is also involved in the broker/dealer business, which offers a variety of investment products and services and is conducted through PML’s non-insurance subsidiaries. PML sells its products in all fifty states and the District of Columbia.

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) and include the accounts of The Penn Mutual Life Insurance Company, its wholly owned life insurance subsidiary, The Penn Insurance and Annuity Company (“PIA”), and non-insurance subsidiaries (principally broker/dealer and investment advisory subsidiaries) (collectively the “Company”). All significant intercompany accounts and transactions have been eliminated in consolidation. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Such estimates and assumptions could change in the future, as more information becomes known which could impact the amounts reported and disclosed therein.

Investments

The Company classifies its debt securities (bonds, preferred stocks and mortgage and asset-backed securities) as available-for-sale. These securities are carried at fair value, with the change in unrealized gains and losses reported in other comprehensive income, net of tax. Income on debt securities is recognized using the effective yield method. For mortgage and asset-backed securities (“structured securities”), changes in expected cash flows are recognized using the retrospective method, except for changes in expected cash flows for structured securities where the possibility of credit loss is other than remote. In these cases, income is recognized on the prospective method over the remaining life of the securities. Cash flow assumptions for structured securities are obtained from broker dealer survey values or internal estimates consistent with the current interest rate and economic environments. These assumptions represent the Company’s best estimate of the amount and timing of estimated principal and interest cash flows based on current information and events that a market participant would use in determining the current fair value of the security. Interest on debt securities is recorded as income when earned.

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

The Company regularly evaluates the carrying value of debt and equity securities and adjusts their recorded value for impairment considered other than temporary. Factors considered in determining whether a decline in fair value is other than temporary include the significance of the decline, the length of time a security’s fair value is below its amortized cost, current economic conditions, past credit loss experience, estimated future cash flows, and other circumstances of the investee, and the Company’s ability and intent to hold the investment for a sufficient period of time to allow for anticipated recovery. A decline in a security’s fair value that is deemed to be other than temporary is reported in income as a realized capital loss and an appropriate reduction in the cost basis of the security is recognized. The discount created by the impairment loss is amortized into investment income over the remaining term of the security based on expected future cash flows.

Notes to Consolidated Financial Statements, continued
(In thousands)

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

Policy loans are carried at the aggregate of unpaid principal balances with interest.

Short-term investments include securities purchased with an original maturity date of less than one year. Short-term investments are valued at cost, which approximates fair value.

Other invested assets primarily include limited partnerships and derivatives. Investments in limited partnerships are accounted for using the equity method. Income from these partnerships is classified as investment income.

Derivatives

The Company utilizes various derivatives, including interest rate swaps, financial futures, interest rate caps, and put options in conjunction with its management of assets and liabilities and interest rate risk. All derivatives are recognized at fair value and reported in other invested assets. The accounting treatment for specific derivatives depends on whether management elects to follow hedge accounting, subject to the criteria for demonstrating hedge effectiveness specified in Statement of Financial Accounting Standards (SFAS) No. 133, “Accounting for Derivative Instruments and Hedging Activities.”

Interest rate swaps are used to manage risk from interest rate fluctuations. Credit default swaps protect the Company from a decline in credit quality of a specified security. These derivative transactions have been designated to qualify as fair value or cash flow hedges of fixed income securities in the investment portfolio.

For a fair value hedge, the gain or loss on the hedging instrument is recognized in current earnings. The carrying value of the hedged items is adjusted by the change in fair value and is recognized in current earnings. The Company recognized realized capital gains/(losses) of $(8,745), $392, and $(11,040) in 2007, 2006 and 2005, respectively, related to the ineffectiveness of its swap hedges.

For a cash flow hedge, the effective portion flows through other comprehensive income and the ineffective portion is recognized in current earnings. The effective portion of the cash flow hedge recorded in other comprehensive income was $15,046 at December 31, 2007.

In 2007 and 2006, the Company entered into interest rate swaps, financial futures and put options to hedge risks associated with the offering of equity market based guarantees in the Company’s annuity product portfolio. These derivatives do not qualify for hedge accounting. The change in fair value of these derivatives is recognized as a realized gain/(loss) of $20,436 and $(6,429) during 2007 and 2006, respectively. The gain/(loss) on settlement of these derivative transactions was $92 and $2,174 during 2007 and 2006, respectively.

Interest rate caps are carried at fair value and are classified as other invested assets in the consolidated balance sheet. The Company’s use of interest rate caps is designed to manage risk associated with rising interest rates, but is not a hedge of specific assets or liabilities. Therefore, these transactions do not qualify for hedge accounting treatment. As a result, the change in the fair value of the derivatives is recognized currently in realized capital gains or losses in the period of change. The Company recognized realized capital losses of $35, $1,697 and $4,666 in 2007, 2006 and 2005, respectively, related to the change in fair value of interest rate caps.

Notes to Consolidated Financial Statements, continued
(In thousands)

Cash and Cash Equivalents

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

Other Assets

Property and equipment, leasehold improvements, computer equipment, and packaged software are stated at cost, less accumulated depreciation and amortization. Depreciation on property and equipment is calculated using the straight-line method over the estimated useful lives of the related assets. Amortization of leasehold improvements is calculated using the straight-line method over the lesser of the term of the leases or the estimated useful life of the improvements. Depreciation of computer equipment is calculated using the straight-line method over the lesser of its useful life or three years. Packaged software is depreciated using the straight-line method over the lesser of its useful life or three years. At December 31, 2007 and 2006, these assets had a gross carrying amount of $98,804 and $96,085, respectively and accumulated depreciation and amortization was $77,061 and $71,871 at December 31, 2007 and 2006, respectively. Related depreciation and amortization expense was $5,190, $7,341, and $13,072 for the years ended December 31, 2007, 2006 and 2005, respectively.

Intangibles assets, which are related to purchased customer lists, are amortized over its useful life, unless the asset is determined to have an indefinite useful life. Those intangible assets had a gross carrying amount of $10,707 and $10,707 and accumulated amortization of $5,928 and $4,411 as of December 31, 2007 and 2006, respectively. The aggregate amortization expense related to these intangible assets was $1,517, $1,768 and $1,432 in 2007, 2006 and 2005, respectively. Estimated annual amortization expense is:

Years ending December 31,	Amortization Expense
2008	$	1,316
2009	912
2010	668
2011	479
2012	374

The Company had goodwill of $50,026 and $50,026 as of December 31, 2007 and 2006, respectively. Goodwill is reviewed annually for impairment pursuant to SFAS No. 142, “Goodwill and Other Intangible Assets.” No impairment of goodwill was recognized during 2007, 2006 or 2005.

Deferred Acquisition Costs

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

Deferred acquisition costs (“DAC”) related to participating traditional and universal life insurance policies and investment type products without mortality risk that include significant surrender charges fall under SFAS No. 120, “Accounting and Reporting by Mutual Life Insurance Enterprises and by Insurance Enterprises for Certain Long-Duration Participating Contracts” and SFAS No. 97. “Accounting by Insurance Cos. for Certain Long-Duration Contracts & Realized Gains & Losses on Investment Sales” and are being amortized over the lesser of the estimated or actual contract life. Amortization expense is recognized in proportion to estimated gross profits arising principally from interest, mortality margins, expense margins and surrender charges. The effects of revisions to estimated gross profits are reflected as adjustments to DAC in the period such estimated gross profits are revised. Deferred acquisition costs related to certain term business fall under SFAS No. 60. “Accounting and Reporting by Insurance Enterprises “ and are amortized in proportion to premium revenue.

Notes to Consolidated Financial Statements, continued
(In thousands)

During 2007, the Company completed an annual review of the assumptions underlying the amortization for DAC. As a result of the comprehensive review, we recorded negative net prospective unlocking of approximately $12 million pre-tax ($8 million after-tax) for 2007.

DAC is reviewed annually to determine whether the unamortized portion of such costs is recoverable from future estimated gross profits. The Company has evaluated all unamortized DAC and concluded these amounts are recoverable at December 31, 2007 and 2006, respectively. Certain costs and expenses reported in the consolidated income statements are net of amounts deferred.

Separate Accounts

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

The Company issues traditional variable annuity contracts in the separate accounts in which the Company provides various forms of guarantees to benefit the related contract holders called Guaranteed Minimum Death Benefits (“GMDB”), Guaranteed Minimum Accumulated Benefits (“GMAB”) and GMAB/Guaranteed Minimum Withdrawal Benefits (“GMWB”). See Note 10 for a discussion of the Company’s obligation regarding these product features.

Sales Inducements

Certain sales inducements are capitalized and then amortized into income in the future. PML has deferred annuity policies in force that contain sales inducements, which are deferred if they meet the requirements.

Capitalized sales inducements are amortized using the same methodology and assumptions used to amortize DAC. The following table summarizes the changes to the sales inducements asset as of December 31:

	2007		2006
Beginning balance	$	27,707	$	19,430
Additional amounts deferred	12,951		9,764
Amortization	3,072		1,487
Ending balance	$	37,586	$	27,707

Reserves for Future Policy Benefits

Future policy benefits include reserves for participating traditional life insurance and life contingent annuity products and are established in amounts adequate to meet the estimated future obligations of the policies in force.

Liabilities for participating traditional life products are computed using the net level premium method, using assumptions for investment yields, mortality and morbidity, which are consistent with the dividend fund interest rate and mortality rates used in calculating cash surrender values. Interest rate assumptions used in the calculation of the liabilities for participating traditional life products ranged from 2.5% to 8.5%. Reserves for substandard policies are computed using multiples of the respective underlying mortality tables.

Liabilities for life contingent annuity products are computed by estimating future benefits and expenses. Assumptions are based on the Company’s actual experience projected at the time of policy issue with provision for adverse deviations. Interest rate assumptions range from 2.25% to 13.25%.

Notes to Consolidated Financial Statements, continued
(In thousands)

Other Policyholder Funds

Other policyholder funds represent liabilities for universal life and investment-type annuity products. The liabilities for these products are based on the contract account value, which consists of deposits received from customers and investment earnings on the account value, less administrative and expense charges. The liability for universal life products is also reduced by mortality charges.

Liabilities for the non-life contingent annuity products are computed by estimating future benefits and expenses. Assumptions are based on Company experience projected at the time of policy issue. Interest rate assumptions range from 2.0% to 10.5%.

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

Policyholders’ Dividends Payable

As of December 31, 2007, participating insurance expressed as a percentage of insurance in force is 96%, and as a percentage of premium income is 67%. The Board of Trustees approves the amount of Policyholders’ dividends to be paid annually. The aggregate amount of policyholders’ dividends is calculated based on actual interest, mortality, morbidity and expense experience for the year and on management’s judgment as to the appropriate level of equity to be retained by the Company. The carrying value of this liability approximates the earned amount and fair value at December 31, 2007.

Broker/Dealer Receivables and Payables

Broker/dealer transactions in securities and listed options, including related commission revenue and expense, are recorded on a trade-date basis.

At December 31, 2007, the customer margin securities of $482,243 and stock borrowings of $1,216,318 were available to the Company to utilize as collateral on various borrowings and other purposes. The Company utilized $17,858 of these securities as collateral for bank loans and $1,275,754 in stock loan agreements.

Federal Income Taxes

The Company files a consolidated federal income tax return with its life and non-life insurance subsidiaries. Federal income taxes are charged or credited to operations based upon amounts estimated to be payable or recoverable as a result of taxable operations for the current year. Deferred income tax assets and liabilities are established to reflect the impact of temporary differences between the amount of assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes. These deferred tax assets or liabilities are measured by using the enacted tax rates expected to apply to taxable income in the period in which the deferred tax liabilities or assets are expected to be settled or realized. The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes on January 1, 2007.

Reinsurance

In the normal course of business, the Company seeks to limit its exposure to loss on any single insured and to recover a portion of benefits paid by ceding reinsurance to other insurance enterprises or reinsurers under excess coverage and coinsurance contracts. The Company has set its retention limit for acceptance of risk on life insurance policies at various levels up to $5 million.

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

Notes to Consolidated Financial Statements, continued
(In thousands)

Benefit Plans

The Company accounts for defined benefits in accordance with the requirements of SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans.” On December 31, 2007, the Company adopted this statement, which requires an employer on a prospective basis to recognize the funded status of its defined benefit pension and post retirement plans as an asset or liability in its statement of financial position and to recognize changes in that funded status through comprehensive income in the year in which the changes occur.

Reclassification

Certain 2006 and 2005 amounts have been reclassified to conform with 2007 presentation.

New Accounting Pronouncements

SOP 05-1

Effective January 1, 2007, the Company adopted the American Institute of Certified Public Accountants Statement of Position 05-1 (“SOP 05-1”), “Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts”. SOP 05-1 provides the criteria for defining an internal replacement as well as classifying whether it is due to an integrated feature or a non-integrated feature. The SOP also provides guidance on establishing DAC on internal replacements. The company’s implementation of the standard did not have a material effect on its consolidated results from operations or financial position.

FIN 48

Effective January 1, 2007, the company adopted FASB interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes. FIN 48 provides guidance for recognizing and measuring uncertain tax positions. The guidance clarifies that the amount of tax benefit recognized should be measured using management’s best estimate based on the most favorable expected benefit that is more likely than not (i.e. has a greater than 50% likelihood) to be realized. Under the guidance for implementing FIN 48 the required cumulative effect adjustment is recorded to retained earnings as of January 1, 2007. The company’s implementation of the standard increased equity by $5,190.

SFAS 158

Effective December 31, 2007, the Company adopted Financial Accounting Standards Board’s Statement of Accounting Standards No. 158 (“SFAS 158”), “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans”. This statement requires an employer on a prospective basis to recognize the funded status of its defined benefit pension and postretirement plans, defined as the difference between the fair value of plan assets and the benefit obligations, as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. In addition, the measurement date of the funded status of the plan is the Balance Sheet date. The company’s implementation of the standard decreased equity by $328.

Notes to Consolidated Financial Statements, continued
(In thousands)

SFAS 155

Effective January 1, 2007, the Company adopted FAS No. 155, Accounting for Certain Hybrid Financial Instruments – an amendment of FASB Statements No. 133 and 140 (“FAS 155”). FAS 155 permits fair value re-measurement of an entire hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation; establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain embedded derivatives requiring bifurcation; narrows the scope exemption applicable to interest-only strips and principal-only strips from FAS 133 and clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives. In December 2006, the FASB issued implementation guidance, Statement 133 Implementation Issue B40 Embedded Derivatives: Application of Paragraph 13(b) to Securitized Interests in Prepayable Financial Assets , which creates a scope exception with respect to accounting for prepayment risk within certain securitized financial assets as an embedded derivative. The Company’s implementation of FAS 155 did not have a material impact on the Company’s financial condition or results of operations

SFAS 157

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”). This statement creates a common definition of fair value to be used throughout generally accepted accounting principles. SFAS 157 will apply whenever another standard requires or permits assets or liabilities to be measured at fair value, with certain exceptions. The standard establishes a hierarchy for determining fair value which emphasizes the use of observable market data whenever available and focuses on the price that would be received when selling an asset or paid when transferring a liability (i.e., the exit price). The statement also requires expanded disclosures which include the extent to which assets and liabilities are measured at fair value, the methods and assumptions used to measure fair value and the effect of fair value measures on earnings. SFAS 157 is effective for fiscal years beginning after November 15, 2007. The company does not expect implementation of the standard will have a material effect on its consolidated results from operation or financial position.

SFAS 159

In February 2007, the FASB issues Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”). This statement provides companies with an option to report selected financial assets and liabilities at fair value. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The company does not expect implementation of the standard will have a material effect on its consolidated results from operation or financial position.

Notes to Consolidated Financial Statements, continued
(In thousands)

2. INVESTMENTS:

Debt Securities

The following tables summarize the Company’s investments in debt securities. All debt securities are classified as available-for-sale and are carried at fair value. Amortized cost is net of cumulative writedowns determined by management to be other than temporary declines in value of $22,783 and $20,617 as of December 31, 2007 and 2006, respectively.

	December 31, 2007
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
U.S. Treasury, government and agency securities	$	180,859	$	5,697	$	296	$	186,260
States and political subdivisions	7,314		731		—		8,045
Corporate securities	2,511,577		103,835		33,386		2,582,026
Residential mortgage backed securities	1,219,015		10,731		3,654		1,226,092
Commercial mortgage backed securities	1,284,568		21,799		7,393		1,298,974
Asset-backed securities	544,354		4,772		10,250		538,876
Redeemable preferred stocks	43,694		5,387		2,830		46,251
Total debt securities	$	5,791,381	$	152,952	$	57,809	$	5,886,524

	December 31, 2006
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
U.S. Treasury, government agency securities	$	196,348	$	1,999	$	2,617	$	195,730
States and political subdivisions	7,299		630		—		7,929
Corporate securities	2,288,357		111,016		27,772		2,371,601
Residential mortgage backed securities	1,235,784		9,751		3,885		1,241,650
Commercial mortgage backed securities	1,273,375		12,097		8,492		1,276,980
Asset-backed securities	546,938		8,851		503		555,286
Redeemable preferred stocks	37,474		4,809		479		41,804
Total debt securities	$	5,585,575	$	149,153	$	43,748	$	5,690,980

Corporate securities include $50,000 in notes initially yielding 1.6% with imbedded floors inversely tied to LIBOR. As of December 31, 2007 and 2006, the notes had a fair value of $51,334 and $48,575, respectively.

Notes to Consolidated Financial Statements, continued
(In thousands)

The following table summarizes the amortized cost and fair value of debt securities as of December 31, 2007 by contractual maturity.

Years to maturity:	Amortized Cost		Fair Value

One or less	$	137,371	$	138,305
After one through five	454,833		479,594
After five through ten	866,024		881,084
After ten	1,241,522		1,277,348
Residential mortgage backed securities	1,219,015		1,226,092
Commercial mortgage backed securities	1,284,568		1,298,974
Asset-backed securities	544,354		538,876
Redeemable preferred stocks	43,694		46,251
Total debt securities	$	5,791,381	$	5,886,524

Expected maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage and other asset-backed securities are presented separately in the maturity schedule due to the potential for prepayment. The weighted average life of these securities is estimated at 4.4 years.

Residential mortgage backed securities (MBS), Commercial MBS and Asset-backed securities follow a structured principal repayment schedule and 98% are of high credit quality. Securities totaling $2,967,190 are rated AAA and include $5,398 of interest-only tranches.

The U.S. residential mortgage market is experiencing a decline due to credit quality deterioration in a significant portion of loans originated, primarily to sub-prime borrowers. The slowing U.S. residential mortgage market has caused many sub-prime borrowers to be unable to refinance their mortgage loans, particularly those customers who had adjustable rate mortgages that reset at a higher rate than the rate at the origination of their mortgage. As a result, there has been a significant increase in delinquency and foreclosure rates within the United States. The Company does not engage in sub-prime residential mortgage lending, which is the origination of residential mortgage loans to customers with weak credit profiles including the use of relaxed mortgage underwriting standards to provide affordable mortgage products. Our exposure to sub-prime residential mortgage lending is through investments within our fixed income investment portfolio that contain securities collateralized by mortgages that have characteristics of sub-prime lending. These investments are in the form of asset-backed securities supported by sub-prime mortgage loans. The collective carrying value of these investments is approximately $80 million, representing less that 2 percent of our total fixed income investments, and 82 percent of these securities had a Standard & Poor’s credit rating of “AAA”. None of our sub-prime investments were other than temporarily impaired as of December 31, 2007. The Company manages its sub-prime risk exposure by maintaining high credit quality investments, limiting our holdings in these types of instruments and by utilizing expert investment advisors who perform ongoing analysis of cash flows, prepayment speeds, default rates and other stress variables. While the Company’s exposure to sub-prime investments is not significant to our total investment portfolio, if the residential market continues to decline and/or expands beyond the U.S. sub-prime residential mortgage market, such events could ultimately have an impact on the Company’s fixed income portfolio and may have an adverse effect on the Company’s financial condition, results of operations and cash flows.

Notes to Consolidated Financial Statements, continued
(In thousands)

At December 31, 2007, the largest industry concentration of the Company’s portfolio was investments in the electric industry of $387,327 representing 6.58% of the total debt portfolio.

Proceeds during 2007, 2006 and 2005 from sales of available-for-sale debt securities were $1,046,967, $2,877,545, and $1,128,999, respectively. Gross gains (losses) realized on those sales were $9,551 and $(8,950), respectively, during 2007, $48,401 and $(48,820), respectively, during 2006, and $25,496 and $(9,301), respectively, during 2005. During 2007, 2006, and 2005, the Company realized losses of $7,998, $9,207, and $1,537, respectively, related to impairment of debt securities.

The Company’s investment portfolio of debt securities is predominantly comprised of investment grade securities. At December 31, 2007 and 2006, debt securities with fair value totaling $249,852 and $270,701, respectively, were less than investment grade. At December 31, 2007 and 2006, there were no securities to be restructured pursuant to commenced negotiations.

Equity Securities

During 2007, 2006 and 2005, the proceeds from sales of equity securities amounted to $200, $1,373, and $4,386, respectively. The gross gains (losses) realized on those sales were $200 and $0, $18 and $(25), and $20 and $(210), for 2007, 2006 and 2005, respectively.

The cost basis of equity securities, excluding affiliates, was $6,186 and $6,186 as of December 31, 2007 and 2006, respectively. The equity securities had gross unrealized gains of $2,396 and $2,794 as of December 31, 2007 and 2006, respectively.

Other Invested Assets

As of December 31, 2007 and 2006, other invested assets included $226,375 and $178,745 of partnership investments. The Company recognized realized losses of $2,803 and $4,993 on these investments in 2007 and 2006, respectively, which were classified as investment income.

Unrealized Losses on Investments

Management has determined that the unrealized losses on the Company’s investments in equity and fixed maturity securities at December 31, 2007 are temporary in nature. The Company regularly evaluates the carrying value of debt and equity securities and adjusts their recorded value for impairment considered other than temporary. Factors considered in determining whether a decline in fair value is other than temporary include the significance of the decline, the length of time a security’s fair value is below its amortized cost, current economic conditions, past credit loss experience, estimated future cash flows, and other circumstances of the investee, and the Company’s ability and intent to hold the investment for a sufficient period of time to allow for anticipated recovery. A decline in a security’s fair value that is deemed to be other than temporary is reported in income as a realized capital loss and an appropriate reduction in the cost basis of the security is recognized. The discount created by the impairment loss is amortized into investment income over the remaining term of the security based on expected future cash flows.

The tables below show the fair value of investments in debt securities in an unrealized loss position at December 31, 2007 and 2006, respectively.

Notes to Consolidated Financial Statements, continued
(In thousands)

	December 31, 2007
	Less than 12 months				12 Months or longer				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
U.S Treasury, government and agency securities	$	18,306	$	296	$	—	$	—	$	18,306	$	296
Corporate securities	513,139		15,858		290,110		17,528		803,249		33,386
Residential MBS	377,139		2,785		94,622		869		471,761		3,654
Commercial MBS	113,209		405		288,457		6,988		401,666		7,393
Asset-backed securities	428,329		9,726		36,533		524		464,862		10,250
Redeemable preferred stocks	12,366		1,662		3,142		1,168		15,508		2,830
Total debt securities	$	1,462,488	$	30,732	$	712,864	$	27,077	$	2,175,352	$	57,809

	December 31, 2006
	Less than 12 months				12 Months or longer				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
U.S Treasury, government and agency securities	$	91,191	$	2,615	$	1,010	$	2	$	92,201	$	2,617
Corporate securities	372,468		22,072		421,603		5,701		794,071		27,773
Residential MBS	171,472		3,635		248,386		250		419,858		3,885
Commercial MBS	229,980		6,975		304,979		1,516		534,959		8,491
Asset-backed securities	57,367		428		47,099		75		104,466		503
Redeemable preferred stocks	—		—		7,521		479		7,521		479
Total debt securities	$	922,478	$	35,725	$	1,030,598	$	8,023	$	1,953,076	$	43,748

Other

Investments on deposit with regulatory authorities as required by law were $7,709 and $7,714 at December 31, 2007 and 2006, respectively.

3. INVESTMENT INCOME AND CAPITAL GAINS:

The following table summarizes the sources of investment income for the years ended December 31:

	2007		2006		2005

Debt securities	$	352,692	$	341,647	$	328,587
Equity securities	2		—		—
Real estate	—		2,209		2,209
Policy loans	36,070		35,213		37,358
Short-term investments	4,094		9,508		10,135
Other invested assets	42,041		31,149		16,120
Gross investment income	434,899		419,726		394,409
Less: Investment expense	9,648		9,235		9,124
Net investment income	$	425,251	$	410,491	$	385,285

Notes to Consolidated Financial Statements, continued
(In thousands)

The following table summarizes net realized capital gains/(losses) on investments for the years ended December 31:

	2007			2006			2005

Debt securities	$	(6,784	)	$	(9,626	)	$	14,658
Equity securities, mortgage loans and real estate	200			(13		)	(243		)
Other invested assets	(5,368		)	(1,206		)	(15,931		)
Amortization of deferred acquisition costs	1,058			1,178			(1,433		)
Net realized losses	$	(10,894	)	$	(9,667	)	$	(2,949	)

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

	2007			2006			2005
Reclassification Adjustments
Unrealized holding (losses) arising during period, net of taxes	$	(391	)	$	(52,696	)	$	(79,123	)
Reclassification adjustment for losses/(gains) included in net income	1,791			9,427			(6,869		)
Unrealized gains/(losses) on investments, net of reclassification adjustment	$	1,400		$	(43,269	)	$	(85,992	)

Reclassification adjustments reported in the above table for the years ended December 31, 2007, 2006 and 2005 are net of income tax expense/(benefits) of $(964), $(5,076) and $3,697, respectively, and $(429), $(1,584), and $(1,538), respectively, relating to the effects of such amounts on deferred acquisition benefits.

4. DERIVATIVES:

The Company utilizes derivatives to achieve its risk management goals. Exposure to risk is monitored and analyzed as part of the Company’s asset/liability management process, which focuses on risks that impact liquidity, capital, and income. The Company may enter into derivative transactions to hedge exposure to interest rate, credit, liability, currency, and cash flow risks. The Company may use forward contracts, swaps, futures, options, swaptions, caps, floors, collars and options on futures to hedge these risks.

When entering into a derivative transaction, there are several risks, including but not limited to basis risk, credit risk, and market risk. Basis risk is the exposure to loss from imperfectly matched positions, and is monitored and minimized by modifying or terminating the transaction. Credit risk is the exposure to loss as a result of default or a decline in credit rating of a counterparty. Credit risk is addressed by establishing and monitoring guidelines on the amount of exposure to any particular counterparty. Also, the Company requires that an International Swaps and Derivatives Association Master agreement govern all OTC derivative contracts. Market risk is the adverse effect that a change in interest rates, currency rates, implied volatility rates, or a change in certain equity indexes or instruments has on the value of a financial instrument. The Company manages the market risk by establishing and monitoring limits as to the types and degree of risk that may be undertaken.

Notes to Consolidated Financial Statements, continued
(In thousands)

The fair value of derivatives contracts are based on dealers’ quotes and represent the estimated amount the Company would receive to terminate the contracts taking into account current interest rates and the credit worthiness of the counterparties, where appropriate. The Company had open futures with a fair value of $(780) and $(184) as of December 31, 2007 and 2006, respectively. The Company had open put options with a fair value of $69,128 and $15,727 as of December 31, 2007 and 2006, respectively. The Company had open interest rate and credit default swaps with a notional amount of $660,000 and $35,000 and a fair value of $17,885 and $(126) as of December 31, 2007 and 2006, respectively. The Company had open interest rate cap positions with a notional amount of $875,000 and $1,250,000 and a fair value of $1,758 and $1,724 as of December 31, 2007 and 2006, respectively.

5. FAIR VALUE INFORMATION:

The following table summarizes the carrying value and fair value of the Company’s financial instruments as of December 31, 2007 and 2006.

	2007				2006
	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial Assets:
Debt securities, available for sale	$	5,886,524	$	5,886,524	$	5,690,980	$	5,690,980
Equity securities	8,582		8,582		8,980		8,980
Policy loans	669,338		670,713		633,403		640,240
Short-term investments	38,060		38,060		191,347		191,347
Other invested assets	363,706		363,704		245,156		245,151
Cash and cash equivalents	23,806		23,806		55,288		55,288
Separate account assets	4,137,215		4,137,215		3,791,429		3,791,429

Financial Liabilities:
Investment-type contracts
Individual annuities	$	1,231,688	$	1,236,629	$	1,266,887	$	1,263,130
Group annuities	15,628		15,730		16,639		16,532
Other policyholder funds	236,270		236,270		240,496		240,496
Total policyholder funds	1,483,586		1,488,629		1,524,022		1,520,158
Policyholder’s dividends payable	16,596		16,596		18,554		18,554
Separate account liabilities	4,137,215		4,137,215		3,791,429		3,791,429

The fair values for the Company’s investments in debt and equity securities are based on quoted market prices, where available. In situations where market prices are not readily available, primarily private placements, fair values are estimated using a pricing method based on fair values of securities with similar characteristics. The fair value of currently performing mortgage loans is estimated by discounting the cash flows associated with the investment, using an interest rate currently offered for similar loans to borrowers with similar credit ratings. The fair value of policy loans is calculated by discounting estimated future cash flows using interest rates currently being offered for similar loans. Loans with similar characteristics are aggregated for purposes of the calculations. The estimated fair values for limited partnerships, included in other invested assets, are based on values determined by the partnerships’ managing general partners. The carrying values of cash, cash equivalents, short-term investments and separate account assets approximate their fair values. The resulting fair values may not be indicative of the value that could be negotiated in an orderly transaction between market participants.

Notes to Consolidated Financial Statements, continued
(In thousands)

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

The fair values of liabilities under all of the Company’s contracts are considered in the overall management of interest rate risk. The Company is exposed to interest rate risk on its interest-sensitive products. The Company’s investment strategy is designed to minimize interest risk by managing the durations and anticipated cash flows of the Company’s assets and liabilities.

6. BENEFIT PLANS:

The Company maintains both funded and unfunded non-contributory defined benefit pension plans covering all eligible employees. The Company also has other postretirement benefit plans (health care plans) covering eligible existing retirees and limited other eligible employees. The Company uses a measurement date of December 31 for all plans.

The Company approved the freezing of benefits under its qualified and TEFRA pension plans effective December 31, 2005. The qualified and TEFRA pension plans’ obligation and assets were remeasured, with obligations using a 5.75% discount rate. During 2005, the pension plan was amended to increase the pension policy benefit, to freeze the benefit service credit that applied toward the payment period, and to allow future service to count toward vesting. Therefore, effective January 1, 2006, there will be no further benefits accrued for participants.

Benefit Obligations

The following table sets forth the plans’ change in benefit obligation as of December 31, 2007 and 2006:

	Pension Benefits						Other Benefits
	2007			2006			2007			2006

Benefit obligation at beginning of year	$	132,144		$	135,187		$	35,324		$	37,390
Service cost	—			134			627			551
Interest cost	7,679			7,402			1,896			1,919
Plan amendment	—			—			—			—
Actuarial (gain) loss	(4,940		)	(5,439		)	564			(2,176		)
Benefits paid	(6,130		)	(5,140		)	(2,194		)	(2,360		)
Benefit obligation at end of year	$	128,753		$	132,144		$	36,217		$	35,324

The accumulated benefit obligation for all defined benefit plans as of December 31, 2007 and 2006 was $127,864 and $130,760, respectively.

The weighted-average assumptions used to measure the actuarial present value of the projected benefit obligation at December 31 were:

	Pension Benefits				Other Benefits
	2007		2006		2007		2006
Discount rate	6.25	%	5.90	%	6.20	%	5.75	%
Rate of compensation increase	4.25	%	4.25	%	4.00	%	4.00	%

Notes to Consolidated Financial Statements, continued
(In thousands)

The discount rate is determined at the annual measurement date of the plans and is therefore subject to change each year. The rate reflects prevailing market rates for high quality fixed-income debt instruments with maturities corresponding to expected duration of the benefit obligations on the measurement date. The rate is used to discount the future cashflows of benefits obligations back to the measurement date.

Plan Assets

The following table sets forth the plan assets as of December 31:

	Pension Benefits						Other Benefits
	2007			2006			2007			2006
Change in plan assets:
Fair value of plans assets at beginning of year	$	121,435		$	108,935		$	—		$	—
Actual return on plan assets	11,408			15,719						—
Employer contribution	2,644			1,921			2,194			2,360
Benefits paid	(6,130		)	(5,140		)	(2,194		)	(2,360		)
Fair value of plan assets at end of year	$	129,357		$	121,435		$	—		$	—

The Company’s investment objectives with respect to pension assets are growth, preservation of principal, preservation of purchasing power and partial immunization through asset/liability matching while maintaining return objective over the long term. To achieve these objectives, the Company has established a strategic asset allocation policy. Plan assets are diversified both by asset class and within each asset class in order to provide reasonable assurance that no single security or class of security will have a disproportionate impact on the plan. Fixed income assets are to be managed on a buy-and-hold basis to achieve durations consistent with the liability matching strategy yet allow for appropriate liquidity for benefit payments. The plan is rebalanced annually back to the current 50/50 target allocation between equity securities and fixed income/cash. Performance of investment managers, liability measurement and investment objectives are reviewed on a regular basis. The Company’s pension plan asset allocation at December 31, 2007 and 2006, and the current target allocations are as follows:

	2008 Target		Percentage of Plan Assets As of December 31,
Asset Category	Allocation		2007		2006
Equity securities	50	%	51	%	51	%
Fixed income & cash	50	%	49	%	49	%
Total			100	%	100	%

The expected long-term rate of return on plan assets was 7.0% in both 2007 and 2006. The expected rate of return on plan assets was estimated utilizing a variety of factors including the historical investment returns achieved over a long-term period, the targeted allocation of plan assets and expectations concerning future returns in the marketplace for both equity and debt securities. Lower returns on plan assets result in higher pension expense.

At December 31, 2007, the fair value of the investment in fixed income securities and group annuity contracts was $63,322 and $66,035, respectively. At December 31, 2006, the fair value of the investment in fixed income securities and group annuity contracts was $58,578 and $62,857, respectively. The investments in group annuity contracts are invested in various investment options of related funds.

Notes to Consolidated Financial Statements, continued
(In thousands)

Funded Status

The funded status of the plans, reconciled to the amount reported on the statement of financial position is as follows:

	Pension Benefits						Other Benefits
	2007			2006			2007			2006
Benefit Obligation	$	(128,753	)	$	(132,144	)	$	(36,217	)	$	(35,323	)
Fair value of plan assets	129,357			121,435			—			—
Funded Status	$	604		$	(10,709	)	$	(36,217	)	$	(35,323	)

Funded status	$	604		$	(10,709	)	$	(36,217	)	$	(35,323	)
Unrecognized net actuarial loss	—			5,099			—			4,258
Unrecognized prior service cost (benefit)	—			—			—			(1,353		)
Net amount recognized	$	604		$	(5,610	)	$	(36,217	)	$	(32,418	)

Amount recognized in balance sheet:
Prepaid pension asset	$	27,482		$	18,802		$	—		$	—
Accrued benefit liability	(26,878		)	(27,143		)	(36,217		)	(32,418		)
Minimum pension liability	—			2,731			—			—
Net amount recognized	$	604		$	(5,610	)	$	(36,217	)	$	(32,418	)

The incremental adjustment related to the implementation of FAS 158 is as follows:

	December 31, 2007 Prior to AML and FAS 158 Adjustments		2007 AML Adjustment per FAS 87			Adjustment to initially apply FAS 158			December 31, 2007 Post AML and FAS 158 Adjustments
Other assets	$	328,115	$	—		$	6,670		$	334,785
Other liabilities	384,043		(365		)	7,174			390,852
Accrued income taxes	194,831		128			176			195,135
Accumulated other comprehensive income, net of tax	61,431		237			(328		)	61,340

The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were $26,878, $25,890 and $0, respectively as of December 31, 2007. The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were $28,527, $27,143 and $0, respectively as of December 31, 2006.

As of December 31, 2007, the projected benefit obligation for all pension benefit plans exceeds the fair value of plan assets and the accumulated postretirement benefit obligation exceeds plan assets for all of the Company’s other postretirement benefit plans.

Prior to adoption of SFAS 158, a minimum pension liability adjustment was required when the actuarial present value of accumulated benefits exceeds plan assets. In 2007 and 2006, the change in the minimum pension liability, net of the change in the related intangible asset of $365 and $(1,628) respectively, was reported in equity.

Notes to Consolidated Financial Statements, continued
(In thousands)

Actual Contributions and Benefits

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

	Pension Benefits						Other Benefits
	2007			2006			2007			2006
Employer Contributions	$	2,644		$	1,921		$	2,194		$	2,360
Benefits Paid	(6,130		)	(5,140		)	(2,194		)	(2,360		)

Expected Employer Contributions

The Company’s funding policy is to contribute an amount at least equal to the minimum required contribution under ERISA. The Company may increase its contribution above the minimum based upon an evaluation of the Company’s tax and cash positions and the plan’s funded status.

In 2008, the Company expects to make the minimum required contribution to the unfunded pension and postretirement plans in an amount equal to benefit costs of approximately $2,108 and $2,813, respectively. The Company does not expect to make a contribution to the funded pension plan.

Estimated Future Benefit Payments:

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:

	Pension Benefits		Other Benefits
2008	$	5,993	$	2,813
2009	6,482		2,933
2010	7,009		3,081
2011	7,355		3,252
2012	7,787		3,347
Years 2013-2017	45,980		16,894

Notes to Consolidated Financial Statements, continued
(In thousands)

Net Periodic Cost

The following are the components of the net periodic benefit costs (excluding the minimum pension liability adjustment) for the years ending December 31, 2007 and 2006:

	Pension Benefits						Other Benefits
	2007			2006			2007			2006
Service cost	$	—		$	134		$	627		$	551
Interest cost	7,679			7,402			1,897			1,919
Expected return on plan assets	(8,376		)	(7,513		)	—			—
Amortization of prior service cost	—			—			(451		)	(451		)
Amount of recognized gains and loss	543			496			—			171
Total net periodic benefit cost	$	(154	)	$	519		$	2,073		$	2,190

The weighted-average assumptions used to determine net cost were:

	Pension Benefits				Other Benefits
	2007		2006		2007		2006
Discount rate	5.90	%	5.65	%	5.75	%	5.50	%
Expected return on plan assets	7.00	%	7.00	%	—		—
Rate of compensation increase	4.25	%	4.25	%	4.00	%	4.00	%

The assumed health care cost trend rate used in determining net periodic costs for 2007 was 9.5%, grading to 5.0% for 2010.

The assumed health care cost trend rate used in determining net periodic costs for 2006 was 11.0%, grading to 5.0% for 2010.

Assumed health care trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage point change in assumed health care cost trend rates would have the following effects:

	One-Percentage Point
	Increase		Decrease
Service and interest cost components	$	203	$	(177	)
Postretirement benefit obligation	2,767		(2,434		)

Defined Contribution Plans

The Company maintains four defined contribution pension plans for substantially all of its employees and full-time agents. For two plans, designated contributions of up to 6% or 8% of annual compensation are eligible to be matched by the Company. Contributions for the third plan are based on tiered earnings of full-time agents. The last plan, which covers employees of a subsidiary, is determined on a discretionary basis by the Board of Directors of that subsidiary. For the years ended December 31, 2007, 2006 and 2005, the expense recognized for these plans was $4,552, $4,729 and $4,665, respectively. The estimated fair value of the defined contribution plans’ assets at December 31, 2007 and 2006 was $411,233 and $371,483, respectively.

At December 31, 2007 and 2006, $133,169 and $118,469, respectively, of the defined contribution plans’ assets were invested in the Company’s group annuity contracts.

Notes to Consolidated Financial Statements, continued
(In thousands)

7. INCOME TAXES:

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

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

	2007		2006
Deferred tax assets:
Future policy benefits	$	50,124	$	56,083
Policyholders’ dividends payable	5,740		6,433
Investment losses	28,783		22,050
Employee benefit liabilities	35,747		33,570
Other	3,641		10,209
Total deferred tax asset	124,035		128,345

Deferred tax liabilities:
DAC	222,132		207,470
Unrealized investment gains	33,123		31,860
Deferred investment income	46,171		37,831
Other	4,231		5,682
Total deferred tax liability	305,657		282,843
Net deferred tax liability	181,622		154,498
Uncertain tax position	4,537		9,781
Tax currently (receivable)/payable	8,976		(11,313		)
Accrued income taxes	$	195,135	$	152,966

The change in net deferred income taxe expense to net deferred income tax liability is comprised of the following::

	2007			2006			Change

Total deferred tax assets	$	124,035		$	128,345		$	(4,310	)
Total deferred tax liabilities	305,657			282,843			22,814
Net deferred tax asset (liability)	$	(181,622	)	$	(154,498	)	(27,124		)
Tax effect of unrealized gains/(losses)							1,263
Deferred tax asset reclass							(5,958		)
Change in net income tax							(31,819		)
Items reflected directly through equity/other							(158		)
Deferred income tax expense							$	(31,977	)

Notes to Consolidated Financial Statements, continued
(In thousands)

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

	2007			2006			2005
Tax expense at 35%	$	70,941		$	66,441		$	58,770
(Decrease)/increase in income taxes resulting from:
Tax release	—			(10,683		)	—
Prior period adjustment	496			(1,233		)	(1,456		)
Dividends received deduction	(5,334		)	(5,756		)	(4,991		)
Tax reserve	309			(3,561		)	3,382
Other	(783		)	(790		)	(218		)
Income tax expense	$	65,629		$	44,418		$	55,487

The Pension Funding Equity Act of 2004 repealed Internal Revenue Code Section 809, relating to the DEA for taxable years beginning after December 31, 2004. There was no income impact from the DEA in 2004. The DEA recalculation for 2004 did not result in an income adjustment for 2005.

Cash paid for federal income taxes in 2007, 2006, and 2005 was $13,635, $19,910, and $37,250, respectively.

The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, on January 1, 2007. As a result of the implementation of Interpretation 48, the Company recognized approximately a $5,190 decrease in the liability for unrecognized tax benefits, which was accounted for as an increase to the January 1, 2007 balance of retained earnings. Included in the amount is approximately $1,300 of tax positions that would not effect the annual effective tax rate.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

Unrecognized Tax Benefits:
FAS 5 Balance at December 31, 2006	$	9,621
Impact of FIN48 adoption	(5,190		)
Balance at January 1, 2007	4,431
Additions based on tax positions related to the current year	672
Additions for tax positions in prior years	—
Reductions for tax positions in prior years	(728		)
Settlements/Statute expiration	(143		)
Balance at December 31, 2007	$	4,232

Included in the balance at December 31, 2007, is $803 of tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductible period would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period.

The Company recognizes penalties and/or interest as a component of tax expense. During the years ended December 31, 2007, 2006 and 2005, the Company recognized approximately $145, $(459), and $629 in interest. The Company had approximately $305 and $160 for the payment of interest accrued at December 31, 2007 and 2006. No penalties were recognized or accrued. Therefore, the total unrecognized tax positions reserve as of December 31, 2007 is $4,537 and $9,781 as of December 31, 2006.

Notes to Consolidated Financial Statements, continued
(In thousands)

The Internal Revenue Service (“IRS”) has completed their examination of the Company’s income tax returns through the year 2001. The IRS is currently examining income tax returns for the tax years 2002 through 2004. Management believes that an adequate provision has been made for potential adjustments.

The Company does not anticipate that total unrecognized tax benefits will significantly change in the next 12 months due to settlement of audits or statute expirations.

8. REINSURANCE:

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

	Gross Amount		Assumed From Other Companies		Ceded to Other Companies		Net Amount
December 31, 2007:
Life Insurance in-Force	$	61,175,170	$	1,607,008	$	24,275,380	$	38,506,798
Premiums	163,368		1,954		35,000		130,322
Benefits	496,640		—		77,530		419,110
Reserves	5,963,874		2,807		322,508		5,644,173

December 31, 2006:
Life Insurance in-Force	$	57,285,924	$	1,695,211	$	24,089,218	$	34,891,917
Premiums	174,088		2,105		36,895		139,298
Benefits	473,447		—		69,666		403,781
Reserves	5,891,784		2,658		317,736		5,576,706

The December 31, 2007 reserves ceded to other company is net of an allowance for reinsurance recoverables of $2,166.

During 2005, the Company had gross premiums of $155,737, assumed premiums of $2,518, ceded premiums of $34,346, gross benefits of $453,995, assumed benefits of $0, and ceded benefits of $54,558.

Reinsurance recoverables with a carrying value of $176,408 and $187,192 were associated with a single reinsurer at December 31, 2007 and 2006, respectively. This recoverable is secured by investment grade securities with a market value of $225,310 and $220,859, respectively held in trust.

9. DEBT:

On June 23, 2004, the Company issued a Surplus Note (“Notes”) with a principal balance of $200,000, at a discount of $3,260. The Notes bears interest at 6.65%, and have a maturity date of June 15, 2034. The Notes were issued pursuant to Rule 144A under the Securities Act of 1933, as amended and are administered by a U.S. bank as registrar/paying agent. Interest on the 6.65% Notes is scheduled to be paid semiannually on

April 1 and October 1 of each year. At December 31, 2007 and 2006, the amortized cost basis of the Notes was $196,885 and $196,843, respectively.

Notes to Consolidated Financial Statements, continued
(In thousands)

The Company’s broker/dealer affiliate borrows from banks in connection with the securities settlement process and to finance margin loans made to customers. The Company is required to collateralize amounts borrowed in excess of certain limits. At December 31, 2007, the Company had debt of $57,300, which was collateralized by customer-owned securities valued at approximately $17,858 and remaining bank loans, including bank overdrafts of $45,807, which were not collateralized.

At December 31, 2006, the Company had debt of $55,400, which was collateralized by customer-owned securities valued at approximately $27,690 and remaining bank loans, including bank overdrafts of $45,942, which were not collateralized. The bank loans are demand obligations and generally require interest based on the Federal Funds rate. At December 31, 2007 and 2006, the weighted average interest rates on these borrowings were 4.45% and 5.56% respectively.

10. Guaranteed Minimum Death Benefits and Living Benefits:

The Company has variable annuity contracts containing GMDB provisions that provide a specified minimum benefit payable upon death as follows:

· Return of premium – provides the greater of the account value or total deposits made to the contract less any partial withdrawals and assessments, which is referred to as “net purchase Payments”. This guarantee is a standard death benefit on all individual variable annuity products.

· Step-up – provides a variable death benefit equal to the greater of the account value and the highest variable account value adjusted for withdrawals and transfers from any prior contract anniversary date.

· Rising Floor – provides a variable death benefit equal to the greater of the current account value and the variable purchase payments accumulated at a set rate and adjusted for withdrawals and transfers.

The following table summarizes the account values and net amount at risk, net of reinsurance, and reserves for variable annuity contracts with guarantees invested in the separate account as of December 31:

	2007		2006
Account value	$	2,754,864	$	2,466,556
Net amount at risk	25,278		34,748
GAAP Reserves	3,406		2,613

Stochastic modeling was used to determine the liability. The stochastic model involves 200 scenarios. Stochastic modeling generates a projection of excess benefits. A ratio of the present value of these excess benefits to the present value of excess revenues is calculated and applied to the excess revenues in that period to determine the new liability accrual. This accrual is rolled forward with interest and amortized as excess payments are made.

The Company regularly evaluates the estimates used to model the GMDB reserve and adjusts the additional liability balance as appropriate, with a related charge or credit to other benefits and claims in the period of evaluation if actual experience or other evidence suggests that earlier assumptions should be revised.

Notes to Consolidated Financial Statements, continued
(In thousands)

The Company has variable annuity contracts that have GMAB (Guaranteed Minimum Accumulation Benefit), GPPP (Guaranteed Purchasing Power Protection) and GMAB/GMWB (Guaranteed Minimum Accumulation Benefit/Guaranteed Minimum Withdrawal Benefit) Rider options. The GMAB provides for a return of principal at the end of a ten-year period. The GPPP adjusts the withdrawal amounts for the cost of living increases due to inflation. The GMAB/GMWB combination rider allows for guaranteed withdrawals from a benefit base after a selected waiting period. The benefit base is calculated as the maximum of principal times a roll up rate less any partial withdrawals during the accumulation phase, the current account value, and the highest anniversary value over the first ten years. The withdrawal amount is stated as a percentage of the benefit base and varies based on whether the annuitant selects lifetime withdrawals or a specified period. The following table summarizes the account values and reserves for the different benefit types as of December 31, 2007:

Rider Type	Contracts	Fixed Account Value		Variable Account Value		Total Fund Account Value		Reserves
GMAB	342	$	2,232	$	33,698	$	35,931	$	561
GPPP	463	5,447		54,711		60,157		1,377
GMAB/GMWB	3,764	17,262		495,436		512,698		15,962
Total	4,569	$	24,941	$	583,845	$	608,786	$	17,900

The guaranteed living benefits are considered to be derivatives under FASB No. 133, Accounting for Derivative Instruments and Hedging Activities. Changes in these values are recorded in realized capital gains/losses.

11. COMMITMENTS AND CONTINGENCIES:

The Company and its subsidiaries are involved in various pending or threatened legal and/or regulatory proceedings arising from the normal conduct of its business. Most of these proceedings are routine in the ordinary course of business, although some involve extra-contractual damages in addition to other damages. In addition, the regulators within the insurance and brokerage industries continue to focus on market conduct and compliance issues. The Company monitors sales materials and compliance procedures and makes extensive efforts to minimize any potential liabilities in this area.

In the opinion of management, after consultation with legal counsel and a review of available facts, the outcome of the proceedings and assessments are not likely to have a material adverse effect on the financial position of the Company. Insurance companies are also subject to assessments, up to statutory limits, by state guaranty funds for losses of policyholders of insolvent insurance companies. The liability for estimated guaranty fund assessments, net of applicable premium tax credits, as of December 31, 2007 and 2006 was $500 and $500, respectively.

The Company, in the ordinary course of business, extends commitments relating to its investment activities. As of December 31, 2007, the Company had outstanding commitments totaling $140,118, which approximates fair value, relating to these investment activities.

Notes to Consolidated Financial Statements, continued
(In thousands)

The Company has entered into various leases, primarily for field and sales offices. As of December 31, 2007, future minimum payments under noncancellable leases are as follows:

Year ending December 31,	Operating Leases
2008	$	22,220
2009	20,328
2010	17,465
2011	14,691
2012	10,121
Thereafter	13,124

12. STATUTORY INFORMATION:

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

Investments in bonds and preferred stocks are generally carried at amortized cost or market value. An Asset Valuation Reserve (AVR) is established as a liability to offset potential investment losses and an Interest Maintenance Reserve (IMR) is established as a liability to capture capital gains and losses on the sale of fixed income investments, resulting from changes in the general level of interest rates.

The combined insurance companies’ statutory capital and surplus at December 31, 2007 and 2006 was $1,302,211 and $1,295,642, respectively. The combined insurance companies’ net income, determined in accordance with statutory accounting practices, for the years ended December 31, 2007, 2006, and 2005, was ($5,962), $56,694, and $184,590, respectively.

Life insurance companies are subject to certain risk-based capital (RBC) requirements as specified by the NAIC. Under those requirements, minimum amounts of statutory surplus are required to be maintained based on various risk factors related to it. At December 31, 2007, the Company’s surplus exceeds these minimum levels.


	PricewaterhouseCoopers LLP
	Two Commerce Square, Suite 1700
	2001 Market Street
	Philadelphia PA 19103-7042
	Telephone (267) 330 3000
	Facsimile (267) 330 3300
	www.pwc.com

Report of Independent Auditors

To the Board of Trustees

The Penn Mutual Life Insurance Company:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, changes in equity, and cash flows present fairly, in all material respects, the financial position of The Penn Mutual Life Insurance Company and its subsidiaries (the “Company”) at December 31, 2007 and 2006, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

February 7, 2008

Part C

Other Information

Item 26: Exhibits

(a)(1) Resolution of the Board of Trustees of The Penn Mutual Life Insurance Company establishing the Penn Mutual Variable Life Account I is incorporated herein by reference to Exhibit A(1)(a) to Post-Effective Amendment No. 6 to the Form S-6 Registration Statement of Penn Mutual Variable Life Account I (File No. 33-87276) as filed with the U.S. Securities and Exchange Commission (the “SEC”) on April 30, 1999 (Accession No. 0000950116-99-000867).

(a)(2) Resolution of the Executive Committee of the Board of Trustees of The Penn Mutual Life Insurance Company relating to investments held in Penn Mutual Variable Life Account I. Incorporated herein by reference to Exhibit A(1)(b) to Post-Effective Amendment No. 8 to the Form S-6 Registration Statement filed on April 30, 1999 (Accession No. 0000950116-99-000880).

(b) Not Applicable.

(c)(1) Distribution Agreement between The Penn Mutual Life Insurance Company and Hornor, Townsend & Kent. Incorporated herein by reference to Exhibit A(3)(a)(1) to Post-Effective Amendment No. 6 to the Form S-6 Registration Statement of Penn Mutual Variable Life Account I (File No. 33-87276) filed on April 30, 1999 (Accession No. 0000950116-99-000867).

(c)(2) Sales Support Agreement between The Penn Mutual Life Insurance Company and Hornor, Townsend & Kent, Inc. Incorporated herein by reference to Exhibit A(3)(a)(2) to Post-Effective Amendment No. 6 to the Form S-6 Registration Statement of Penn Mutual Variable Life Account I (File No. 33-87276) filed on April 30, 1999 (Accession No. 0000950116-99-000867).

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

(c)(4) 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 Pre-Effective Amendment No. 1 to the Form N-4 Registration Statement of Penn Mutual Variable Annuity Account III (File No. 333-62811) filed on November 30, 1998 (Accession No. 0001036050-98-002055).

(c)(5) Form of Broker-Dealer Selling Agreement (for broker-dealers with affiliated corporations licensed to sell variable annuity contracts and/or variable life insurance policies under state insurance laws, and companion Form of Corporate Insurance Agent Selling Agreement. Incorporated herein by reference to Exhibit 3(e) to Pre-Effective Amendment to the Form N-4 Registration Statement of Penn Mutual Variable Annuity

Account III (File No. 333-62811) filed on November 30, 1999 (Accession No. 0001036050-98-002055).

(c)(6) Schedule of Sales Commissions. Incorporated herein by reference to Exhibit A(3)(c) to Post-Effective Amendment No. 8 to the Form S-6 Registration Statement filed on April 30, 1999 (Accession No. 0000950116-99-000880).

(d)(1) Specimen Flexible Premium Adjustable Variable Life Insurance Policy (VU-90(S)). Incorporated herein by reference to Exhibit A5(a) to Post-Effective Amendment No. 8 to the Form S-6 Registration Statement filed on April 30, 1999 (Accession No. 0000950116-99-000880).

(d)(2) Specimen Flexible Premium Adjustable Variable Life Insurance Policy (Sex distinct) (VU-99(S)). Incorporated herein by reference to Exhibit A5(b) to Post-Effective Amendment No. 9 to the Form S-6 Registration Statement filed on May 3, 1999 (Accession No. 0000950116-99-000884).

(d)(3) Specimen Flexible Premium Adjustable Variable Life Insurance Policy (Unisex) (VU-99(U)). Incorporated herein by reference to Exhibit A5(c) to Post-Effective Amendment No. 9 to the Form S-6 Registration Statement filed on May 3, 1999 (Accession No. 0000950116-99-000884).

(d)(4) Additional Insured Term Insurance Agreement Rider. Incorporated herein by reference to Exhibit A5(b) to Post-Effective Amendment No. 8 to the Form S-6 Registration Statement filed on April 30, 1999 (Accession No. 0000950116-99-000880).

(d)(5) Children’s Term Insurance Agreement Rider. Incorporated herein by reference to Exhibit A5(c) to Post-Effective Amendment No. 8 to the Form S-6 Registration Statement filed on April 30, 1999 (Accession No. 0000950116-99-000880).

(d)(6) Accidental Death Benefit Agreement Rider. Incorporated herein by reference to Exhibit A5(d) to Post-Effective Amendment No. 8 to the Form S-6 Registration Statement filed on April 30, 1999 (Accession No. 0000950116-99-000880).

(d)(7) Disability Waiver of Monthly Deduction and Disability Monthly Premium Deposit Agreement Rider. Incorporated herein by reference to Exhibit A5(e) to Post-Effective Amendment No. 8 to the Form S-6 Registration Statement filed on April 30, 1999 (Accession No. 0000950116-99-000880).

(d)(8) Disability Waiver of Monthly Deduction Agreement Rider. Incorporated herein by reference to Exhibit A5(f) to Post-Effective Amendment No. 8 to the Form S-6 Registration Statement filed on April 30, 1999 (Accession No. 0000950116-99-000880).

(d)(9) Guaranteed Continuation of Policy Agreement Rider. Incorporated herein by reference to Exhibit A5(g) to Post-Effective Amendment No. 8 to the Form S-6 Registration Statement filed on April 30, 1999 (Accession No. 0000950116-99-000880).

(d)(10) Guaranteed Option to Increase Specified Amount Agreement Rider. Incorporated herein by reference to Exhibit A5(h) to Post-Effective Amendment No. 8 to the Form S-6 Registration Statement filed on April 30, 1999 (Accession No. 0000950116-99-000880).

(d)(11) Supplemental Term Insurance Agreement Rider. Incorporated herein by reference to Exhibit A5(i) to Post-Effective Amendment No. 8 to the Form S-6 Registration Statement filed on April 30, 1999 (Accession

No. 0000950116-99-000880).

(d)(12) Flexible Premium Adjustable Variable Life Insurance Policy (revised) (VU-94(S)). Incorporated herein by reference to Exhibit A5(j) to Post-Effective Amendment No. 8 to the Form S-6 Registration Statement filed on April 30, 1999 (Accession No. 0000950116-99-000880).

(d)(13) Flexible Periodic Supplemental Term Insurance Agreement Rider. Incorporated herein by reference to Exhibit A5(k) to Post-Effective Amendment No. 8 to the Form S-6 Registration Statement filed on April 30, 1999 (Accession No. 0000950116-99-000880).

(d)(14) Option to Extend the Maturity Date. Incorporated herein by reference to Exhibit A5(n) to Post-Effective Amendment No. 9 to the Form S-6 Registration Statement filed on May 3, 1999 (Accession

No. 0000950116-99-000884).

(d)(15) Option to Extend the Maturity Date. Incorporated herein by reference to Exhibit A5(o) to Post-Effective Amendment No. 9 to the Form S-6 Registration Statement filed on May 3, 1999 (Accession

No. 0000950116-99-000884).

(d)(16) Return of Premium Term Insurance Agreement. Incorporated herein by reference to Exhibit A5(p) to Post-Effective Amendment No. 9 to the Form S-6 Registration Statement filed on May 3, 1999 (Accession

No. 0000950116-99-000884).

(d)(17) Return of Premium Term Insurance Agreement. Incorporated herein by reference to Exhibit A5(q) to Post-Effective Amendment No. 9 to the Form S-6 Registration Statement filed on May 3, 1999 (Accession

No. 0000950116-99-000884).

(d)(18) Supplemental Exchange Agreement. Incorporated herein by reference to Exhibit A5(r) to Post-Effective Amendment No. 9 to the Form S-6 Registration Statement filed on May 3, 1999 (Accession

No. 0000950116-99-000884).

(d)(19) Endorsement - Business Accounting Benefit (1707-01). Incorporated herein by reference to Exhibit A5(s) to Post-Effective Amendment No. 9 to the Form S-6 Registration Statement filed on May 3, 1999 (Accession No. 0000950116-99-000884).

(d)(20) Endorsement - Cost of Insurance. Incorporated herein by reference to Exhibit A5(t) to Post-Effective Amendment No. 9 to the Form S-6 Registration Statement filed on May 3, 1999 (Accession

No. 0000950116-99-000884).

(d)(21) Flexible Premium Adjustable Variable Life Insurance Policy (VU – 01(S)) (Cornerstone IV). Incorporated herein by reference to Exhibit A(5)(u) to the Form S-6 Registration Statement filed on January 8, 2001 (Accession No. 0000950116-01-000034).

(d)(22) Flexible Premium Adjustable Variable Life Insurance Policy (VU – 01(U)) (Cornerstone IV). Incorporated herein by reference to Exhibit A(5)(v) to the Form S-6 Registration Statement filed on January 8, 2001 (Accession No. 0000950116-01-000034).

(d)(23) Rider Supplemental Term Insurance Agreement (SLT – 01(S)). Incorporated herein by reference to Exhibit A(5)(w) to the Form S-6 Registration Statement filed on January 8, 2001 (Accession No. 0000950116-01-000034).

(d)(24) Rider Supplemental Term Insurance Agreement (SLT – 01(U)). Incorporated herein by reference to Exhibit A(5)(w) to the Form S-6 Registration Statement filed on January 8, 2001 (Accession No. 0000950116-01-000034).

(d)(25) Overloan Protection Benefit Agreement. Incorporated herein by reference to Exhibit (d)(25) to Registrant’s Registration Statement on Form N-6 (File No. 33-54662) as filed with the Securities and Exchange Commission via EDGAR (Accession No. 0000950116-05-001570) on April 29, 2005.

(d)(26) Optional Guaranteed Minimum Withdrawal Benefit. Incorporated herein by reference to Exhibit (d)(26) to Registrant’s Registration Statement on Form N-6 (File No. 33-54662) as filed with the Securities and Exchange Commission via EDGAR (Accession No. 0000950116-06-001371) on April 28, 2006.

(d)(27) Accelerated Death Benefit Agreement. Incorporated herein by reference to Exhibit (d)(27) to Registrant’s Registration Statement on Form N-6 (File No. 33-54662) as filed with the Securities and Exchange Commission via EDGAR (Accession No. 0000950116-06-001371) on April 28, 2006.

(e)(1) Application Form for Flexible Premium Adjustable Life Insurance. Incorporated herein by reference to
Exhibit A(1)(b) to Post-Effective Amendment No. 6 to the Form S-6 Registration Statement of Penn Mutual Variable Life Account I (File No. 33-87276) filed on April 30, 1999 (Accession No. 0000950116-99-000867).

(e)(2) Supplemental Application Form for Flexible Premium Adjustable Variable Life Insurance. Incorporated herein by reference to Exhibit A(1)(b) to Post-Effective Amendment No. 6 to the Form S-6 Registration Statement of Penn Mutual Variable Life Account I (File No. 33-87276) filed on April 30, 1999 (Accession No. 0000950116-99-000867).

(f)(1) Charter of the Penn Mutual Life Insurance Company. Incorporated herein by reference to Exhibit 6(a) to the Form N-4 Registration Statement of Penn Mutual Variable Annuity Account III (File No. 333-62811) filed on September 3, 1998(Accession No. 0001036050-98-001504).

(f)(2) By-laws of The Penn Mutual Life Insurance Company. Incorporated herein by reference to Exhibit 6(b) to the Form N-4 Registration Statement of Penn Mutual Variable Annuity Account III (File No. 333-62811) filed on September 3, 1998 (Accession No. 0001036050-98-001504).

(g) Not Applicable.

(h)(1) 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 Form N-4 Registration Statement of Penn Mutual Variable Annuity Account III (File No. 333-62811) filed on September 3, 1998 (Accession No. 0001036050-98-001504).

(h)(2) 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 Form N-4 Registration Statement of Penn Mutual Variable Annuity Account III (File No. 333-62811) filed on September 3, 1998 (Accession No. 0001036050-98-001504).

(h)(3) Participation Agreement between The Penn Mutual Life Insurance Company and Morgan Stanley Universal Funds, Inc. (renamed The Universal Institutional Funds, Inc. effective May 1, 2000). Incorporated herein by reference to Exhibit 8(f) to Post-Effective Amendment No. 22 to the Form N-4 Registration Statement of Penn Mutual Variable Annuity Account III (File No. 2-77283) filed on April 29, 1997 (Accession

No. 0001021408-97-000161).

(h)(4) Sales Agreement between The Penn Mutual Life Insurance Company and Penn Series Funds, Inc. Incorporated herein by reference to Exhibit A(8)(a) to Post-Effective Amendment No. 12 to the Form S-6 Registration Statement of Penn Mutual Variable Life Account I (File No. 33-87276) filed on April 19, 2002 (Accession

No. 0000950116-02-000799).

(h)(5) 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 the Form N-4 Registration Statement of Penn Mutual Variable Annuity Account III (File No. 333-62811) filed on September 3, 1998 (Accession No. 0001036050-98-001504).

(h)(6) 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 Form S-6 Registration Statement (File

No. 33-87276) of Penn Mutual Variable Life Account I filed on April 29, 1996. (Accession

No. 0000950109-96-002471).

(h)(7) Amendment to Agreement between The Penn Mutual Life Insurance Company and Neuberger & Berman Advisers Management Trust. Incorporated herein by reference to Exhibit 8(b)(3) to Post-Effective Amendment No. 5 to this Form S-6 Registration Statement filed on April 30, 1997. (Accession No. 0000950109-97-003328).

(i) Not Applicable.

(j) Not Applicable.

(k) Opinion and consent of Franklin L Best, Jr. Esq., Managing Corporate Counsel, The Penn Mutual Life Insurance Company, dated April 16, 2001, as to the legality of the securities being registered. Incorporated herein by reference to Exhibit 2 to Post-Effective Amendment No. 14 to the Form S-6 Registration Statement of Penn Mutual Variable Life Account I (File No. 33-54662) filed on April 18, 2001 (Accession No. 0000950116-01-000677).

(l) Not Applicable.

(m) Not Applicable.

(n)(1) Consent of independent registered public accountants, PricewaterhouseCoopers LLC, is filed herewith.

(n)(2) Consent of counsel, Morgan, Lewis & Bockius LLP is filed herewith.

(o) Not Applicable.

(p) Not Applicable.

(q) Amended and Restated Memorandum describing issuance, transfer and redemption procedures. Incorporated herein by reference to Exhibit (q) to the Registrant’s Registration Statement on Form N-6 (File No. 33-54662) as filed with the Securities and Exchange Commission via EDGAR (Accession No. 0000950116-05-001570) on April 29, 2005.

(r)(1) Powers of Attorney of the Board of Trustees of the Penn Mutual Life Insurance Company. Incorporated herein by reference to Exhibit 5 to Registrant’s Registration Statement on Form S-6 (File No. 33-87276) as filed with the Securities and Exchange Commission via EDGAR (Accession No. 0000950116-01-500307) on June 1, 2001.

(r)(2) Powers of Attorney Messrs. Cook, Santomero and Lillie, dated April 22, 2008, are filed herewith.

Item 27: Directors and Officers of the Depositor

The following table sets forth the names of the executive officers of Penn Mutual and the officers and trustees of Penn Mutual who are engaged directly or indirectly in activities relating to the Separate Account or the Policies offered by the Separate Account.

Name		Position and Offices with Depositor
Robert E. Chappell		Chairman of the Board, Chief Executive Officer and President
Peter J. Vogt		Executive Vice President and Chief Financial Officer
Terry A. Ramey		Executive Senior Vice President and Chief Information Officer
Edward F. Clemons		Senior Vice President and Chief Human Resources Officer
N. Robert Lazarus		Senior Vice President and Chief Compliance Officer
Peter M. Sherman		Executive Vice President and Chief Investment Officer
Jeffrey C. Carleton		Senior Vice President, Independence Financial Networks
Ralph L. Crews		Senior Vice President, Distribution
Frederick M. Rackovan		Vice President, New Business

Name		Position and Offices with Depositor
Franklin L. Best, Jr.		Managing Corporate Counsel and Secretary
Susan T. Deakins		Vice President and Chief Actuary
Frank J. Howell		Vice President, Sales Support
The Honorable Julia Chang Bloch (Ambassador)		Trustee of Penn Mutual
Edward G. Boehne		Trustee of Penn Mutual
John P. Carter		Trustee of Penn Mutual
William R. Cook		Trustee of Penn Mutual
Charisse R. Lillie		Trustee of Penn Mutual
Alan B. Miller		Trustee of Penn Mutual
Edmond F. Notebaert		Trustee of Penn Mutual
Robert H. Rock		Trustee of Penn Mutual
Anthony M. Santomero		Trustee of Penn Mutual

Unless otherwise listed, the business address of each of the trustees and officers is The Penn Mutual Life Insurance Company, Philadelphia, PA 19172.

Item 28: Persons Controlled By or Under Common Control with the Depositor or Registrant

Penn Mutual established Penn Mutual Variable Life Account I as a separate investment account under Pennsylvania law on January 27, 1987.

Penn Mutual Wholly-Owned Subsidiaries

Corporation	Principal Business	State of Incorporation

The Penn Insurance and Annuity Company	Life Insurance and Annuities	Delaware

Independence Capital Management, Inc.	Investment Adviser	Pennsylvania

Penn Series Funds, Inc.	Investment Company	Maryland

Penn Janney Fund, Inc.	Investments	Pennsylvania

Penn Janney Advisory, Inc.*	Investment Adviser	Pennsylvania

Corporation	Principal Business	State of Incorporation

Penn Janney GP LLC**	Investments	Delaware

Penn Janney Opportunities Fund LP***	Investments	Delaware

Independence Square Properties, LLC****	Holding Company	Delaware

The Pennsylvania Trust Company	Trust Company	Pennsylvania

Indepro Corporation	Real Estate Investment	Delaware

Hornor, Townsend & Kent, Inc.	Registered Broker-Dealer and Investment Adviser	Pennsylvania

ISP Parker Hunter	Holding Company	Delaware

	*	Penn Janney Advisory, Inc. is 50% owned by Penn Mutual and 50% owned by Janney Montgomery Scott LLC.
	**	Penn Janney GP LLC is 49.5% owned by Penn Mutual, 49.5% owned by Janney Montgomery Scott LLC, and 1.0% owned by Richard Fox.
	***	Penn Janney Opportunities Fund LLP is 49.5% owned by Penn Mutual, 49.5% owned by Janney Montgomery Scott LLC, and 1.0% owned by Penn Janney GP LLC.
	****	Independence Square Properties, LLC is 95% owned by Penn Mutual and 5% owned by ISP Parker Hunter, which is 100% owned by Penn Mutual.

Independence Square Properties, LLC

Wholly-Owned Subsidiaries

Corporation	Principal Business	State of Incorporation

WPI Investment Company	Real Estate Investment	Delaware

Janney Montgomery Scott LLC	Registered Broker-Dealer and Investment Adviser	Delaware

Indepro Corporation

Wholly-Owned Subsidiaries

Corporation	Principal Business	State of Incorporation

Indepro Property Fund II Corporation	Real Estate Investment	Delaware

Janney Montgomery Scott LLC

Wholly-Owned Subsidiaries

Corporation	Principal Business	State of Incorporation

JMS Resources, Inc.	Oil and Gas Development	Pennsylvania

JMS Investor Services, Inc.	Insurance Sales	Delaware

Janney Montgomery Scott Insurance Agency	Insurance Agents or Brokers	Massachusetts

Penn Janney Advisory, Inc.*	Investment Adviser	Pennsylvania

Penn Janney GP LLC**	Investments	Delaware

Penn Janney Opportunities Fund LP***	Investments	Delaware

	*	Penn Janney Advisory, Inc. is 50% owned by Penn Mutual and 50% owned by Janney Montgomery Scott LLC.
	**	Penn Janney GP LLC is 49.5% owned by Penn Mutual, 49.5% owned by Janney Montgomery Scott LLC, and 1.0% owned by Richard Fox.
	***	Penn Janney Opportunities Fund LLP is 49.5% owned by Penn Mutual, 49.5% owned by Janney Montgomery Scott LLC, and 1.0% owned by Penn Janney GP LLC.

Hornor, Townsend & Kent, Inc.

Wholly-Owned Subsidiaries

Corporation	Principal Business	State of Incorporation

Hornor, Townsend & Kent, Inc. of Delaware, Inc.	Financial Services	Delaware

Hornor, Townsend & Kent, Inc. Insurance Agency, Inc.	Insurance Agents or Brokers	Pennsylvania

Penn Janney GP LLC

Wholly-Owned Subsidiaries

Corporation	Principal Business	State of Incorporation

Penn Janney Opportunities Fund LP*	Investments	Delaware

Penn Janney Opportunities Fund LLP is 49.5% owned by Penn Mutual, 49.5% owned by Janney Montgomery Scott LLC, and 1.0% owned by Penn Janney GP LLC.

ISP Parker Hunter

Wholly-Owned Subsidiaries

Corporation	Principal Business	State of Incorporation

Independence Square Properties, Inc.*	Holding Corporation	Delaware

Independence Square Properties, LLC is 95% owned by Penn Mutual and 5% owned by ISP Parker Hunter, which is 100% owned by Penn Mutual.

All subsidiaries listed above are included in the Registrant’s consolidated financial statements.

Item 29. Indemnification

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 the Form N-4 Registration Statement of Penn Mutual Variable Annuity Account III filed September 3, 1998 (File No. 33-62811).

Pennsylvania law (15 Pa. C.S.A. §§ 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.

Item 30: Principal Underwriters

Hornor Townsend & Kent, Inc. serves as principal underwriters of the securities of the Registrant. Hornor Townsend & Kent, Inc. also serves as distributor of variable annuity contracts issued through Penn Mutual Variable Annuity Account III, a separate account of Penn Mutual.

Hornor, Townsend & Kent, Inc. - Directors and Officers

Eileen C. McDonnell, Chairman of the Board

Terry A. Ramey, Member of Board of Directors

Peter J. Vogt, Member of Board of Directors

David M. O’Malley, Member of Board of Directors

Ralph L. Crews, Member of Board of Directors

N. Robert Lazarus, Member of Board of Directors, Senior Vice President, Chief Compliance Officer, Anti Money Laundering Officer

Michelle A. Barry, President and Chief Executive Officer, Marketing

Franklin L. Best, Jr., Counsel and Secretary

Paul I. Martin, Director, Contracts, Licensing and Registration

John P. Reidy, Vice President, Sales Supervision

Stacey N. Polakowski, Treasurer and Controller

Nancy S. Rush, Vice President, Benefits and Risk Management

Scott E. Polter, Director, Trading and Operations

John Lagana, Auditor

The principal business address of the directors and officers is The Penn Mutual Life Insurance Company, Philadelphia, Pennsylvania, 19172.

Commissions and Other Compensation Received By Each Principal Underwriter During Last Fiscal Year:

Name of Principal Underwriter	Net Underwriting Discounts and Commissions		Compensation on Redemption		Brokerage Commissions		Other Compensation

Hornor, Townsend & Kent, Inc.	$	287,211	$	0	$	0	$	0

Item 31: Location of Accounts and Records

The name and address of the person who maintains physical possession of each account, book or other documents required by Section 31(a) of the Investment Company Act of 1940, as amended, is as follows:

The Penn Mutual Life Insurance Company

600 Dresher Road

Horsham, Pennsylvania 19044

Item 32: Management Services

Not applicable.

Item 33: Fee Representation

The Penn Mutual Life Insurance Company represents that the fees and charges deducted under the Flexible Premium Adjustable Variable Life Insurance Policies, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by the Company.

SIGNATURES

As required by the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, the Registrant certifies that it meets all of the requirements for effectiveness of this Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and that it has duly caused this Post-Effective Amendment No. 23 to the Registration Statement on Form N-6 to be signed on its behalf, by the undersigned, thereunto duly authorized in the Township of Horsham and Commonwealth of Pennsylvania on this 24th day of April, 2008.

	PENN MUTUAL VARIABLE LIFE ACCOUNT I
		(Registrant)


	By:	THE PENN MUTUAL LIFE INSURANCE COMPANY
		(Depositor)

	By:	/s/ Robert E. Chappell
		Robert E. Chappell
		Chairman of the Board of Trustees, President
		And Chief Executive Officer

As required by the Securities Act of 1933, as amended, this Post-Effective Amendment No. 23 to the Registration Statement on Form N-6 has been signed below by the following persons, in the capacities indicated, on the 24th day of April, 2008.

Signature		Title

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

/s/Peter J. Vogt		Executive Vice President
Peter J. Vogt		and Chief Financial Officer

*JULIA CHANG BLOCH		Trustee

*EDWARD G. BOEHNE		Trustee

*JOAN P. CARTER		Trustee

*ALAN B. MILLER		Trustee

*EDMOND F. NOTEBAERT		Trustee

*ROBERT H. ROCK		Trustee

*WILLIAM R. COOK		Trustee

*ANTHONY M. SANTOMERO		Trustee

*CHARISSE R. LILLIE		Trustee

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

Exhibit Index

Exhibit No.		Exhibit

(n)(1)		Consent of PricewaterhouseCoopers LLP.

(n)(2)		Consent of Morgan, Lewis & Bockius LLP.

(r)(2)		Powers of Attorney Messrs. Cook, Santomero and Lillie, dated April 22, 2008.