<PAGE> 1
File pursuant to Rule 497(c)
under the Securities Act of 1933
File Nos. 33-19293, 811-5474
PROSPECTUS - APRIL 30, 1996
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FLEXIBLE PAYMENT VARIABLE ANNUITY
CONTRACTS
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ISSUED BY
PRESIDENTIAL LIFE INSURANCE COMPANY
IN CONNECTION WITH
PRESIDENTIAL VARIABLE ACCOUNT ONE
<TABLE>
<S> <C>
HOME OFFICE:
69 LYDECKER STREET
NYACK, NEW YORK 10960
(914) 358-2300
CORRESPONDENCE ACCOMPANIED ALL OTHER
CORRESPONDENCE,
BY PAYMENTS: ANNUITY SERVICE CENTER:
P.O. BOX 100357 P.O. BOX 54299
PASADENA, CALIFORNIA 91189-0357 LOS ANGELES, CALIFORNIA 90054-0299
TELEPHONE NUMBER: (800) 537-3642
</TABLE>
The Variable Annuity Contracts ("Contract(s)") offered by this Prospectus
provide for accumulation of Contract Values and payment of annuity benefits on a
variable basis. The Contracts are available for retirement plans which do not
qualify for the special Federal tax advantages available under the Internal
Revenue Code ("Non-Qualified Plans") and for retirement plans which do qualify
for the Federal tax advantages available under the Internal Revenue Code
("Qualified Plans"). See "Taxes -- Qualified Plans," Page 22, for a detailed
discussion.
The minimum initial Purchase Payment for a Contract issued on a
Non-Qualified basis is $1,000. Additional Purchase Payments may be made in
amounts of at least $500. The minimum Purchase Payment for a Contract issued on
a Qualified basis is $100.
Purchase Payments are allocated among Divisions of Presidential Variable
Account One ("Separate Account"), a separate account of Presidential Life
Insurance Company ("Company") and/or the Company's General Account, as directed
by the Contract Owner. Each of the twelve Divisions of the Separate Account is
invested solely in the shares of one of the twelve Portfolios of Anchor Series
Trust ("Trust"). The Trust is registered under the Investment Company Act of
1940.
The twelve Portfolios are Foreign Securities Portfolio, Capital
Appreciation Portfolio, Growth Portfolio, Natural Resources Portfolio, Growth
and Income Portfolio (formerly the Convertible Securities Portfolio), Strategic
Multi-Asset Portfolio, Multi-Asset Portfolio, High Yield Portfolio, Target '98
Portfolio, Fixed Income Portfolio, Government and Quality Bond Portfolio and
Money Market Portfolio.
The current General Account allocation option pays a fixed rate of interest
declared by the Company for one year from the date amounts are allocated to it.
Contract Owners bear the complete investment risk for all Purchase Payments
allocated to the Separate Account.
This Prospectus concisely sets forth the information a prospective investor
ought to know before investing. Additional information about the Contracts is
contained in the Statement of Additional Information which is available at no
charge. The Table of Contents of the Statement of Additional Information can be
found on Page 24 of the Prospectus. For a copy of the Statement of Additional
Information, call or write the Company at the Annuity Service Center.
INQUIRIES:
Any inquiries may be made over the telephone to the Annuity Service Center
listed above or to the representative from whom this Prospectus was obtained.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR YOUR FUTURE
REFERENCE.
THE CONTRACTS OFFERED BY THIS PROSPECTUS WILL ONLY BE MADE AVAILABLE IN THE
STATE OF NEW YORK.
This Prospectus is dated April 30, 1996.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
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<S> <C>
DEFINITIONS............................................................................... 2
HIGHLIGHTS................................................................................ 4
FEE TABLES................................................................................ 5
EXAMPLES.................................................................................. 6
EXPLANATION OF FEE TABLES AND EXAMPLES.................................................... 6
CONDENSED FINANCIAL INFORMATION -- ACCUMULATION UNIT VALUES............................... 7
YIELD CALCULATION FOR MONEY MARKET DIVISION............................................... 8
DESCRIPTION OF THE COMPANY AND THE SEPARATE ACCOUNT....................................... 8
Company.............................................................................. 8
Separate Account..................................................................... 8
FINANCIAL STATEMENTS...................................................................... 9
ANCHOR SERIES TRUST....................................................................... 9
Equity Portfolios.................................................................... 9
Managed Portfolios................................................................... 10
Fixed Income Portfolios.............................................................. 10
Voting Rights........................................................................ 11
Substitution of Securities........................................................... 11
CONTRACT CHARGES.......................................................................... 11
Mortality and Expense Risk Charge.................................................... 11
Administrative Charges............................................................... 12
Administrative Expense Charge...................................................... 12
Annual Contract Charge.............................................................. 12
Sales Charges........................................................................ 12
Withdrawal Charge.................................................................. 12
Annuity Charge..................................................................... 12
Deduction for Separate Account Income Taxes.......................................... 13
Other Expenses....................................................................... 13
Reduction of Charges for Sales to Certain Groups..................................... 13
DESCRIPTION OF THE CONTRACTS.............................................................. 13
Voting Rights of Contract Owner...................................................... 13
Transfer During Accumulation Period.................................................. 13
Modification of the Contract.......................................................... 14
Assignment........................................................................... 14
Death of the Annuitant............................................................... 14
Death of the Contract Owner........................................................... 15
Beneficiary.......................................................................... 15
ANNUITY PERIOD............................................................................ 15
Annuity Date......................................................................... 15
Annuity Options...................................................................... 16
Other Options........................................................................ 17
Allocation of Annuity Payments....................................................... 17
Transfer During Annuity Period....................................................... 17
PURCHASES AND CONTRACT VALUE.............................................................. 18
Minimum Purchase Payment............................................................. 18
Allocation of Purchase Payments...................................................... 18
Accumulation Unit Value.............................................................. 18
Distribution of Contracts............................................................ 19
Withdrawals (Redemptions)............................................................ 19
ERISA Plans.......................................................................... 20
ADMINISTRATION............................................................................ 20
TAXES..................................................................................... 20
General.............................................................................. 20
Withholding Tax on Distributions...................................................... 21
Diversification...................................................................... 21
Multiple Contracts................................................................... 21
Tax Treatment of Assignments......................................................... 22
Tax Treatment of Withdrawals -- Non-Qualified Contracts.............................. 22
Qualified Plans...................................................................... 22
Tax Treatment of Withdrawals -- Qualified Contracts.................................. 23
Tax Sheltered Annuities -- Withdrawal Limitations.................................. 23
LEGAL PROCEEDINGS......................................................................... 23
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION.............................. 24
</TABLE>
(i)
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DEFINITIONS
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The following terms, as used in this Prospectus, have the indicated
meanings:
ACCUMULATION PERIOD --
The period between the Issue Date of the Contract and the Annuity Date, the
build-up phase of the Contract.
ACCUMULATION UNIT --
A unit of measurement which the Company uses to calculate Contract Value
during the Accumulation Period.
ANNUITANT --
The person designated in the application to receive or who actually receives
annuity payments. Annuity payments involving life contingencies depend on the
continuation of the Annuitant's life.
ANNUITIZATION --
The process by which a Contract Owner converts from the Accumulation Period
to the Annuity Period. Upon Annuitization, the Contract is converted from the
build-up phase to the phase during which the Annuitant receives periodic annuity
payments.
ANNUITY DATE --
The date on which annuity payments are to begin.
ANNUITY PERIOD --
The period starting on the Annuity Date.
ANNUITY UNIT --
A unit of measurement which the Company uses to calculate the amount of
Variable Annuity payments.
BENEFICIARY --
The person designated to receive any benefits under a Contract upon the
death of the Annuitant or the Contract Owner.
CONTRACT(S) --
The flexible payment variable annuity contracts offered by this Prospectus.
CONTRACT OWNER OR OWNER --
The Contract Owner is named in the application, unless changed, and has all
rights under the Contract.
CONTRACT VALUE --
The sum of the values of the Contract Owner's interest in the General
Account and Separate Account Divisions.
CONTRACT YEAR --
The period between anniversaries of the Issue Date of a Contract.
DIVISION OR SEPARATE ACCOUNT DIVISION --
A Division of the Separate Account invested wholly in shares of one of the
Eligible Investments.
DUE PROOF OF DEATH --
(1) A certified copy of a death certificate; or (2) a certified copy of a
decree of a court of competent jurisdiction as to the finding of death; or (3) a
written statement by a medical doctor who attended the deceased at time of
death; or (4) any other proof satisfactory to the Company.
ELIGIBLE INVESTMENTS --
An investment entity into which Contract Values can be invested.
FIXED ANNUITY --
A series of payments that are fixed in amount and made during the Annuity
Period to a payee under a Contract.
GENERAL ACCOUNT --
The Company's general investment account which contains all the assets of
the Company, with the exception of the Separate Account and other segregated
asset accounts.
ISSUE DATE --
The date on which the first Contract Year begins.
NON-QUALIFIED PLAN --
A retirement plan which does not receive favorable tax treatment under
Sections 403(b) or 408 of the Internal Revenue Code.
PORTFOLIO --
One of the investment options available in the Trust.
PURCHASE PAYMENTS --
Amounts paid to the Company by a Contract Owner.
2
<PAGE> 4
QUALIFIED PLAN --
A retirement plan which receives favorable tax treatment under Sections
403(b) or 408 of the Internal Revenue Code.
SEPARATE ACCOUNT OR ACCOUNT --
A segregated investment account entitled "Presidential Variable Account One"
established by the Company.
TRUST --
Anchor Series Trust.
VALUATION DATE --
The Separate Account will be valued each day that the New York Stock
Exchange is open for trading.
VALUATION PERIOD --
The period commencing at 4:00 p.m. New York time on each Valuation Date and
ending at 4:00 p.m. New York time on the next succeeding Valuation Date.
VARIABLE ANNUITY --
A series of payments made during the Annuity Period which varies in amount
in accordance with the investment experience of the Separate Account Divisions.
WITHDRAWAL CHARGE --
The contingent deferred sales charge assessed against certain withdrawals or
annuitizations.
WITHDRAWAL VALUE --
Contract Value, less any premium tax payable if the Contract is being
annuitized, minus any applicable Withdrawal Charge.
3
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HIGHLIGHTS
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Purchase Payments for the Contracts will be allocated to the Separate
Account, a segregated investment account of the Company, and/or the Company's
General Account. The Separate Account invests in shares of the Trust. (See
"Anchor Series Trust", Page 9.)
Except as explained below, Contract Values may be withdrawn at any time
during the Accumulation Period. There is a Free Withdrawal Amount which applies
to the first withdrawal during a Contract Year after the first Contract Year.
The Free Withdrawal Amount is equal to ten percent (10%) of the aggregate
Purchase Payments less any prior withdrawals. A Withdrawal Charge may be imposed
upon other withdrawals. The Withdrawal Charge is deducted from the remaining
Contract Value so that the actual reduction in Contract Value as a result of the
withdrawal will be greater than the withdrawal amount paid. The Withdrawal
Charge is 6% of the amount withdrawn if such withdrawal is made within six years
of making the Purchase Payment. The Withdrawal Charge shall not exceed 9% of
total Purchase Payments. Free withdrawals and other withdrawals will be
allocated to Purchase Payments on a first-in-first-out basis.
For purposes of determining Federal taxes, withdrawals are deemed to be on a
last-in-first-out basis, which means taxable income is withdrawn first. In
addition, a ten percent (10%) tax penalty is applied to the income portion of
any premature distribution (e.g. withdrawal) from Non-Qualified Contracts. The
penalty is not imposed on amounts received: (1) after the taxpayer reaches age
59 1/2; (2) after the death of the Contract Owner; (3) if the taxpayer is
totally disabled; (4) in a series of substantially equal periodic payments made
for the life of the taxpayer or for the joint lives of the taxpayer and his
beneficiary; (5) under an immediate annuity; or (6) which are allocable to
Purchase Payments made prior to August 14, 1982.
The tax consequences of distributions from Qualified Plans may differ from
Non-Qualified Plans, and may vary with the type of Qualified Plan as well. (See
"Taxes -- Tax Treatment of Withdrawals -- Qualified Contracts" on Page 23.)
Particularly, withdrawals of amounts attributable to contributions made pursuant
to a salary reduction agreement (as defined in Section 403(b)(11) of the Code)
are limited to circumstances only when: the Contract Owner attains age 59 1/2,
separates from service, dies, becomes disabled (within the meaning of Section
72(m)(7) of the Code), or in the case of hardship. Withdrawals for hardship are
restricted to the portion of the Contract Owner's Contract Value which
represents contributions made by the Contract Owner, and does not include any
investment results. The limitations on withdrawals became effective on January
1, 1989, and apply only to: (1) salary reduction contributions made after
December 31, 1988; (2) income attributable to such contributions; and (3) income
attributable to amounts held as of December 31, 1988. The limitations on
withdrawals do not affect rollovers or exchanges between certain Qualified
Plans.
Effective January 1, 1993, 20% of "eligible rollover distributions" must be
withheld by the Company unless the payee elects to have the distribution "rolled
over" to another eligible plan in a direct "trustee to trustee" transfer. (See
"Taxes -- Withholding Tax on Distributions" on Page 21 and "Taxes -- Tax
Treatment of Withdrawals -- Qualified Contracts," on Page 23.)
Contract Owners should consult their own tax counsel or other tax adviser
regarding any withdrawals or distributions.
The Contract Owner may return the Contract within ten (10) days after it is
received, by delivering it or mailing it to the Company's Annuity Service
Center. When the Contract is received by the Company, it will be voided as if it
had never been in force.
Except in the case of a Contract purchased pursuant to an Individual
Retirement Annuity ("IRA"), the Company will refund to the Contract Owner an
amount equal to the Contract Value as of the date of surrender. The Contract
Value may be more or less than the Purchase Payments made.
In the case of an IRA, the Company will refund the greater of: the Purchase
Payments, less any withdrawals; or the Contract Value. A Purchase Payment made
to acquire an IRA will be allocated to the Money Market Division of the Separate
Account until the expiration of fifteen (15) days from the day the Contract is
mailed from the Company's Annuity Service Office. Thereafter, the Purchase
Payment shall be allocated in accordance with the instructions specified by the
Contract Owner in the application for a Contract, and the Contract Owner shall
bear the investment risk for the Purchase Payment.
4
<PAGE> 6
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FEE TABLES
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CONTRACT OWNER TRANSACTION EXPENSES
<TABLE>
<S> <C> <C>
(a) Withdrawal Charge (as a percentage of amount
withdrawn, not to exceed 9% of Purchase Payments) 6% for six Contract Years
(b) Annual Contract Charge $30
(c) Transfer Fee (only applies if more than 15 transfers
are made in any Contract Year.) $25
</TABLE>
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SEPARATE ACCOUNT EXPENSES
(AS A PERCENTAGE OF DAILY NET ASSET VALUE)
<TABLE>
<S> <C> <C>
(a) Mortality and Expense
Risk Charge 1.25 % annually
(b) Administrative Expense
Charge + .15 % annually
(c) Total Expense Charge 1.40 % annually
======
</TABLE>
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ANCHOR SERIES TRUST ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS FOR THE FISCAL YEAR ENDED
DECEMBER 31,
1995.)
<TABLE>
<CAPTION>
STRA-
CAPITAL GROWTH TEGIC GOV'T
FOREIGN APPRECI- NATURAL AND MULTI- MULTI- HIGH TARGET FIXED & QUALITY MONEY
SECURITIES ATION GROWTH RESOURCES INCOME ASSET ASSET YIELD '98 INCOME BOND MARKET
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
(a) MANAGEMENT
FEE............. .9% .7% .7% .8% .7% 1.0% 1.0% .7% .6% .6% .6% .5%
- ------------------------------------------------------------------------------------------------------------------------------
(b) OTHER
EXPENSES........ .3% .1% .2% .2% .2% .3% .1% .2% .3% .2% .1% .1%
- ------------------------------------------------------------------------------------------------------------------------------
(c) TOTAL ANNUAL
EXPENSES........ 1.2% .8% .9% 1.0% .9% 1.3% 1.1% .9% .9% .8% .7% .6%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE FEE TABLE RELATING TO THE TRUST WAS PROVIDED TO THE COMPANY AND THE SEPARATE
ACCOUNT BY THE TRUST. NEITHER THE COMPANY NOR THE SEPARATE ACCOUNT HAS
INDEPENDENTLY VERIFIED THE ACCURACY OF SUCH INFORMATION. THE COMPANY AND THE
SEPARATE ACCOUNT DISCLAIM ALL LIABILITY FOR ANY CLAIM, LOSS OR EXPENSE RESULTING
FROM ANY ALLEGED ERRONEOUS INFORMATION ABOUT THE TRUST.
5
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EXAMPLES
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<TABLE>
<CAPTION>
SEPARATE CONDITIONS
ACCOUNT A Contract Owner would pay the following expenses on a TIME PERIODS
DIVISION $1,000 investment assuming 5% annual return on assets: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C> <C>
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FOREIGN (a) upon surrender at the end of the stated time $ 89 $ 142 $ 204 $302
SECURITIES period.
(b) if the Contract WAS NOT surrendered 27 83 142 302
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CAPITAL SAME $ 85 $ 130 $ 185 $262
APPRECIATION 23 71 122 262
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GROWTH SAME $ 86 $ 133 $ 190 $272
24 74 127 272
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NATURAL SAME $ 87 $ 136 $ 194 $282
RESOURCES 25 77 132 282
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GROWTH AND SAME $ 86 $ 133 $ 190 $272
INCOME 24 74 127 272
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STRATEGIC SAME $ 90 $ 145 $ 208 $312
MULTI-ASSET 28 86 147 312
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MULTI-ASSET SAME $ 88 $ 139 $ 199 $292
26 80 137 292
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HIGH YIELD SAME $ 86 $ 133 $ 190 $272
24 74 127 272
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TARGET '98 SAME $ 86 $ 133 $ 190 $272
24 74 127 272
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FIXED SAME $ 85 $ 130 $ 185 $262
INCOME 23 71 122 262
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GOV'T & SAME $ 84 $ 128 $ 180 $252
QUALITY BOND 22 68 117 252
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MONEY MARKET SAME $ 83 $ 125 $ 175 $242
21 65 112 242
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</TABLE>
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EXPLANATION OF FEE TABLES
AND EXAMPLES
- --------------------------------------------------------------------------------
1. The purpose of the foregoing table and examples is to assist the Contract
Owner in understanding the various costs and expenses that he or she will
bear directly or indirectly. The table reflects expenses of the Separate
Account as well as the Trust. For additional information see "Contract
Charges," beginning on Page 11 of this Prospectus and the Prospectus for the
Trust which is included with this Prospectus. The examples do not illustrate
the tax consequences of surrendering a Contract.
2. The examples assume that there were no transactions which would result in
the imposition of the Transfer Fee. The Contracts are presently sold in New
York only. New York does not assess premium taxes, so premium taxes are not
reflected.
3. For purposes of the amounts reported in the examples, the Annual Contract
Charge is reflected by dividing the total amount of Contract fees collected
during the year by the total average net assets of the Separate Account's
Divisions.
4. The examples reflect the fact that, after the first Contract Year, a
Contract Owner may withdraw up to 10% of the difference of the aggregate
Purchase Payments less prior withdrawals, without charge.
5. NEITHER THE FEE TABLES NOR THE EXAMPLES ARE REPRESENTATIONS OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
6
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CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
5/2/88
(INCEPTION) FISCAL YEAR ENDED
TO ---------------------------------------------------------------------
ICAP DIVISION 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95
- ----------------------------------------------- ----------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Foreign Securities Division
Beginning Unit Value......................... $ 9.72 $10.47 $13.32 $11.45 $11.26 $ 9.64 $12.39 $11.83
Ending Unit Value............................ $10.47 $13.32 $11.45 $11.26 $ 9.64 $12.39 $11.83 $13.13
Number of Accum. Units Outstanding........... 3,628 17,052 24,999 31,241 31,574 38,816 47,472 39,747
Capital Appreciation Division
Beginning Unit Value......................... $ 9.69 $9.80 $12.08 $ 9.97 $15.36 $19.09 $22.79 $21.62
Ending Unit Value............................ $ 9.80 $12.08 $ 9.97 $15.36 $19.09 $22.79 $21.62 $28.68
Number of Accum. Units Outstanding........... 3,342 19,098 16,080 15,521 14,406 34,323 35,218 32,160
Growth Division
Beginning Unit Value......................... $14.83 $15.43 $19.79 $18.99 $26.36 $27.40 $29.12 $27.36
Ending Unit Value............................ $15.43 $19.79 $18.99 $26.36 $27.40 $29.12 $27.36 $34.08
Number of Accum. Units Outstanding........... 3,641 21,562 29,865 30,932 30,390 41,656 41,036 35,168
Natural Resources Division
Beginning Unit Value......................... $11.12 $11.02 $12.86 $10.77 $11.13 $11.25 $15.11 $15.05
Ending Unit Value............................ $11.02 $12.86 $10.77 $11.13 $11.25 $15.11 $15.05 $17.43
Number of Accum. Units Outstanding........... 4,108 15,862 12,612 9,475 8,347 8,797 10,889 8,124
Growth and Income Division
Beginning Unit Value......................... $ 9.68 $9.76 $11.04 $10.50 $13.12 $15.55 $18.70 $16.67
Ending Unit Value............................ $ 9.76 $11.04 $10.50 $13.12 $15.55 $18.70 $16.67 $19.16
Number of Accum. Units Outstanding........... 3,271 24,751 23,408 20,775 21,549 20,694 18,889 6,868
Strategic Multi-Asset Division
Beginning Unit Value......................... $ 9.80 $10.26 $12.13 $11.06 $13.55 $13.88 $15.78 $15.16
Ending Unit Value............................ $10.26 $12.13 $11.06 $13.55 $13.88 $15.78 $15.16 $18.35
Number of Accum. Units Outstanding........... 10,592 55,985 49,505 40,079 38,790 41,817 37,667 31,915
Multi-Asset Division
Beginning Unit Value......................... $ 9.79 $10.09 $11.91 $11.93 $14.98 $15.97 $16.90 $16.39
Ending Unit Value............................ $10.09 $11.91 $11.93 $14.98 $15.97 $16.90 $16.39 $20.19
Number of Accum. Units Outstanding........... 11,829 53,295 72,163 53,932 43,310 81,114 69,541 48,948
High Yield Division
Beginning Unit Value......................... $12.43 $13.00 $12.48 $11.01 $14.44 $16.24 $19.07 $17.96
Ending Unit Value............................ $13.00 $12.48 $11.01 $14.44 $16.24 $19.07 $17.96 $21.03
Number of Accum. Units Outstanding........... 6,989 37,759 31,311 11,357 10,343 11,281 11,361 8,181
Target '98 Division
Beginning Unit Value......................... $10.00 $10.63 $12.29 $12.89 $15.11 $15.97 $17.52 $16.57
Ending Unit Value............................ $10.63 $12.29 $12.89 $15.11 $15.97 $17.52 $16.57 $18.72
Number of Accum. Units Outstanding........... 114,732 204,163 182,726 54,000 37,969 35,665 31,973 23,657
Fixed Income Division
Beginning Unit Value......................... $14.73 $15.08 $16.78 $17.84 $20.31 $21.34 $22.71 $21.67
Ending Unit Value............................ $15.08 $16.78 $17.84 $20.31 $21.34 $22.71 $21.67 $25.46
Number of Accum. Units Outstanding........... 5,437 15,964 13,752 9,452 7,850 6,653 6,700 6,759
</TABLE>
7
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CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
5/2/88
(INCEPTION) FISCAL YEAR ENDED
TO ---------------------------------------------------------------------
ICAP DIVISION 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95
- ----------------------------------------------- ----------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Government and Quality Bond Division
Beginning Unit Value......................... $14.22 $14.95 $17.04 $18.15 $21.00 $22.13 $23.63 $22.60
Ending Unit Value............................ $14.95 $17.04 $18.15 $21.00 $22.13 $23.63 $22.60 $26.60
Number of Accum. Units Outstanding........... 21,095 99,633 97,386 129,211 108,229 46,206 33,336 23,426
Money Market Division
Beginning Unit Value......................... $12.28 $12.78 $13.73 $14.61 $15.23 $15.53 $15.72 $16.10
Ending Unit Value............................ $12.78 $13.73 $14.61 $15.23 $15.53 $15.72 $16.10 $16.77
Number of Accum. Units Outstanding........... 7,937 92,606 97,530 42,418 21,712 12,556 21,881 20,336
</TABLE>
- --------------------------------------------------------------------------------
YIELD CALCULATION FOR MONEY MARKET DIVISION
- --------------------------------------------------------------------------------
From time to time the Separate Account may advertise its Money Market
Division's "yield" and "effective yield." Both yield figures are based on
historical earnings and are not intended to indicate future performance. The
"yield" of the Money Market Division refers to the net income generated for a
Contract funded by an investment in the Division over a seven-day period (which
period will be stated in the advertisement). This income is then "annualized."
That is, the amount of income generated by the investment during that week is
assumed to be generated each week over a 52-week period and is shown as a
percentage of the investment. The "effective yield" is calculated similarly but,
when annualized, the income earned by an investment in the Division is assumed
to be reinvested at the end of each seven-day period. The "effective yield" will
be slightly higher than the "yield" because of the compounding effect of this
assumed reinvestment. Neither the yield nor the effective yield takes into
consideration the effect of any capital changes that might have occurred during
the seven-day period, nor do they reflect the impact of premium taxes or any
Annuity Charges or Withdrawal Charges. The impact of other, recurring charges on
both yield figures is, however, reflected in them to the same extent it would
affect the yield (or effective yield) for a Contract of average size.
- --------------------------------------------------------------------------------
DESCRIPTION OF THE COMPANY AND
THE SEPARATE ACCOUNT
- --------------------------------------------------------------------------------
COMPANY
The Company is a stock life insurance company organized under the laws of
New York in 1965. All of the outstanding stock of the Company is held by
Presidential Life Corporation, a publicly owned holding company. The Company
offers life insurance and annuities and is admitted to do business in 47 states
and the District of Columbia.
SEPARATE ACCOUNT
The Separate Account was established pursuant to New York insurance law on
August 26, 1987. This segregated asset account has been designated "Presidential
Variable Account One" ("Separate Account"). The Separate Account is registered
with the Securities and Exchange Commission as a unit investment trust under the
Investment Company Act of 1940. This registration does not involve supervision
of the management of the Separate Account or the Company by the Securities and
Exchange Commission.
The assets of the Separate Account are the property of the Company. However,
the assets of the Separate Account, equal to the reserves and other contract
liabilities of the Separate Account, are not chargeable with liabilities arising
out of any other business the Company may conduct. The Company's obligations
arising under the Contracts are general corporate obligations of the Company.
Income, gains and losses, whether or not realized, are, in accordance with
the Contracts, credited to or charged against the Separate Account without
regard to other income, gains or losses of the Company.
8
<PAGE> 10
The Separate Account is divided into Divisions, with the assets of each
Division invested in the shares of one of the twelve Portfolios of the Trust.
The Company does not guarantee the investment performance of the Separate
Account or its Divisions. Contract Values allocated to the Separate Account and
the amount of Variable Annuity payments will vary with the value of shares of
the Portfolios and the Contract charges.
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FINANCIAL STATEMENTS
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Financial Statements of the Company and the Separate Account appear in the
Statement of Additional Information. A copy of the Statement of Additional
Information may be obtained by contacting the Company's Annuity Service Center.
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ANCHOR SERIES TRUST
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Each of the twelve Divisions of the Separate Account is invested solely in
the shares of one of the twelve Portfolios of Anchor Series Trust. The Trust is
an open-end diversified management investment company registered under the
Investment Company Act of 1940. While a brief summary of the investment
objectives is set forth below, more comprehensive information, including a
discussion of potential risks, is found in the Prospectus for the Trust which is
included with this Prospectus. Additional copies of this Prospectus, the Trust's
Prospectus and the Statement of Additional Information can be obtained by
calling the Annuity Service Center shown on the cover page of this Prospectus.
Both prospectuses should be read carefully to understand all aspects of the
Contract, the Separate Account and the Portfolios. SunAmerica Asset Management
Corp. ("SAAM") (an indirect wholly owned subsidiary of SunAmerica Inc.) is the
investment manager for the Trust. Wellington Management Company ("WMC"), which
is not affiliated with the Company, serves as sub-adviser for the Trust. (See
the Trust Prospectus for information concerning the investment management fees.)
The twelve Portfolios and their investment objectives are:
EQUITY PORTFOLIOS
FOREIGN SECURITIES PORTFOLIO seeks long-term capital appreciation. This
Portfolio will invest primarily in a diversified group of equity securities
issued by foreign companies and primarily denominated in foreign currencies.
CAPITAL APPRECIATION PORTFOLIO seeks long-term capital appreciation. This
Portfolio will invest in a widely diversified group of growth equity securities,
debt securities and preferred stocks that are convertible into, or which carry
warrants to purchase, common stocks or other equity interests and in addition
may invest up to 25% of its total assets in foreign securities. This Portfolio
may also engage in transactions involving stock index futures and options
thereon as a hedge against changes in market conditions.
GROWTH PORTFOLIO seeks capital appreciation. This Portfolio will invest in
growth equity securities and may invest up to 25% of its total assets in foreign
securities. This Portfolio may also engage in transactions involving stock index
futures and options thereon as a hedge against changes in market conditions.
NATURAL RESOURCES PORTFOLIO seeks total return in excess of the U.S. rate of
inflation as represented by the Consumer Price Index. This Portfolio will invest
primarily in equity securities of companies which are expected to benefit from
rising inflation, because they own or control assets which appreciate in
inflationary periods, or because of increased activity during these periods of
inflation, and in debt obligations and fixed income securities which are
expected to provide favorable returns in periods of rising inflation. This
Portfolio will invest in domestic securities and foreign securities and may
engage in transactions including stock index futures contracts and options
thereon, and transactions involving the future delivery of fixed income
securities ("Financial Futures Contracts") and options thereon, as a hedge
against changes in market conditions.
GROWTH AND INCOME PORTFOLIO seeks high current income and long-term capital
appreciation. This Portfolio will invest primarily in securities that provide
the potential for growth and offer income, such as dividend-paying stocks and
securities convertible into common stock. The Portfolio may also engage in
transactions involving Financial Futures Contracts and options thereon as a
hedge against changes in market conditions.
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<PAGE> 11
MANAGED PORTFOLIOS
STRATEGIC MULTI-ASSET PORTFOLIO seeks high long-term total investment
return. This Portfolio will invest in a diversified group of securities of the
following types: growth equity and aggressive growth equity securities,
including the securities of smaller companies which may be newer and less
seasoned, investment grade and high-yield, high-risk bonds, international
securities and money market instruments. The Portfolio may also engage in
transactions involving stock index futures contracts and options thereon and
Financial Futures Contracts and options thereon, as a hedge against changes in
market conditions.
MULTI-ASSET PORTFOLIO seeks long-term total investment return consistent
with moderate investment risk. This Portfolio will invest in a diversified group
of securities, including: growth equity securities, convertible securities,
investment grade fixed income securities and money market securities. The
Portfolio also may engage in transactions involving stock index futures
contracts and options thereon and Financial Futures Contracts and options
thereon, as a hedge against changes in market conditions.
FIXED INCOME PORTFOLIOS
HIGH YIELD PORTFOLIO seeks high current income. A secondary investment
objective is capital appreciation. This Portfolio will seek its objectives by
investing, except for temporary defensive purposes, at least 65% of its assets
in high-yielding, high-risk, income-producing corporate bonds, which generally
carry ratings lower than those assigned to investment grade bonds by Moody's
Investor's Service, Inc. ("Moody's") or Standard & Poor's Corporation ("Standard
& Poor's"), or which are unrated. This Portfolio may also engage in transactions
involving Financial Futures Contracts and options thereon as a hedge against
changes in market conditions. High-yield, high-risk bonds typically are subject
to greater risks than are investments in lower-yielding, higher-rated bonds. See
the Trust's Prospectus for more information.
TARGET '98 PORTFOLIO seeks a predictable compounded investment return for a
specified time period, consistent with preservation of capital. This Portfolio
will invest primarily in zero coupon securities and current, interest-bearing,
investment grade debt obligations which are issued by the U.S. Government, its
agencies and instrumentalities, and both domestic and foreign corporations.
These investments will generally mature no later than November 15, 1998. Upon
maturity, the Portfolio will be converted to cash. The redemption proceeds will,
except as otherwise directed by the Contract Owner, be used to purchase shares
of the Money Market Portfolio.
In January 1998, the Company's Annuity Service Office will notify all
Contract Owners then having Contract Value allocated to the Target '98 Division
of the forthcoming maturity and liquidation of the Target '98 Portfolio, and
will request instructions as to which other Division(s) each Contract Owner's
interest in the Target '98 Division is to be reallocated upon such liquidation.
Contract Values will be automatically reallocated to the Money Market Division
except to the extent that instructions indicating a different reallocation are
received by the Company on or before November 15, 1998.
To facilitate an orderly liquidation, no transfers into the Target '98
Division will be permitted after January 1, 1998. Reallocations of Contract
Value from the Target '98 Division effected in connection with the liquidation
as described above will not be considered "transfers" for purposes of
determining any applicable transfer fees. Other transfers out of the Target '98
Division will not be permitted after October 15, 1998. Of course, none of the
foregoing constraints affect a Contract Owner's right to redeem his or her
Contract Value at any time. (See "Purchases and Contract Value -- Withdrawals
(Redemption)", on Page 19).
FIXED INCOME PORTFOLIO seeks high level of current income consistent with
preservation of capital. This Portfolio will invest primarily in investment
grade, fixed income securities and may engage in Financial Futures Contracts and
options thereon as a hedge against changes in market conditions.
GOVERNMENT AND QUALITY BOND PORTFOLIO seeks relatively high current income,
liquidity and security of principal. This Portfolio will invest in obligations
issued, guaranteed or insured by the U.S. Government, its agencies or
instrumentalities ("government securities") and in corporate debt securities
rated Aa or better by Moody's or AA or better by Standard & Poor's ("high
quality corporate bonds"). It is currently anticipated that the Portfolio will
have the majority of its assets invested in government securities since the
Trust is permitted to treat each U.S. agency or instrumentality as a separate
issuer for purposes of determining compliance with diversification standards
imposed by Section 817(h) of the Internal Revenue Code. (See
"Taxes -- Diversification" on Page 21.)
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MONEY MARKET PORTFOLIO seeks current income consistent with stability of
principal through investment in a diversified portfolio of money market
instruments maturing in 397 days or less. The Portfolio will maintain a dollar-
weighted average portfolio maturity of not more than 90 days.
There is no assurance that the investment objectives of any of the
Portfolios will be met. Contract Owners bear the complete investment risk for
Purchase Payments allocated to a Division. Contract Values will fluctuate in
accordance with the investment performance of the Division(s) to which Purchase
Payments are allocated, and in accordance with the imposition of the fees and
charges assessed under the Contracts.
Shares of the Trust are issued and redeemed only in connection with
investments in and payments under variable contracts sold by the Company, Anchor
National Life Insurance Company, Phoenix Mutual Life Insurance Company and First
SunAmerica Life Insurance Company. The Company is not affiliated with such other
entities. No disadvantage to Contract Owners is seen to arise from the fact that
the Trust offers its shares in this fashion. See the Trust's Prospectus which is
included with this Prospectus.
Additional Portfolios may be established and, with the prior approval of the
Superintendent of Insurance of the State of New York, may be made available to
Contract Owners. However, there is no assurance that this will occur.
VOTING RIGHTS
In accordance with its view of present applicable law, the Company will vote
the shares of the Trust held in the Separate Account at special meetings of the
shareholders of the Trust in accordance with instructions received from persons
having the voting interest in the Separate Account. The Company will vote shares
for which it has not received instructions in the same proportion as it votes
shares for which it has received instructions. The Trust does not hold regular
meetings of shareholders.
The number of shares which a person has a right to vote will be determined
as of a date to be chosen by the Company not more than sixty (60) days prior to
the meeting of the Trust's shareholders. Voting instructions will be solicited
by written communication at least fourteen (14) days prior to such meeting. The
person having such voting rights will be the Contract Owner before the Annuity
Date or the death of the Annuitant; thereafter the payee entitled to receive
payments under the Contract. Voting rights attributable to a Contract will
generally decrease as Contract Values decrease.
SUBSTITUTION OF SECURITIES
If the shares of any of the Portfolios should no longer be available for
investment by the Separate Account or if, in the judgment of the Company's Board
of Directors, further investment in the shares of a Portfolio is no longer
appropriate in view of the purpose of the Contract, the Company may substitute
shares of another mutual fund or Portfolio for Portfolio shares already
purchased or to be purchased in the future by Purchase Payments under the
Contract. No substitution of securities may take place without prior approval of
the Securities and Exchange Commission and under such requirements as it may
impose.
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CONTRACT CHARGES
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MORTALITY AND EXPENSE RISK CHARGE
The Company deducts a risk charge from each Division of the Separate Account
during each Valuation Period. The risk charge is equal, on an annual basis, to
1.25% of the daily net asset value of each Division (approximately .90% is for
mortality risks and approximately .35% for expense risks). The mortality risks
assumed by the Company arise from its contractual obligations to make annuity
payments after the Annuity Date for the life of the Annuitant, to waive the
Withdrawal Charge in the event of the death of the Annuitant and to provide the
death benefit prior to the Annuity Date. The expense risk assumed by the Company
is that the costs of administering the Contracts and the Separate Account will
exceed the amount received from the Annual Contract Charge and the
Administrative Expense Charge. (See "Administrative Charges" following.)
This charge is guaranteed by the Company and cannot be increased.
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ADMINISTRATIVE CHARGES
ADMINISTRATIVE EXPENSE CHARGE
The Company deducts an Administrative Expense Charge from each Division of
the Separate Account which is equal, on an annual basis, to .15% of the daily
net asset value of each Division. This charge is designed to cover those
administrative expenses which exceed the revenues from the Annual Contract
Charge. The Company does not intend to profit from this charge. The Company
believes that the Administrative Expense Charge has been set at a level that
will recover no more than the actual costs associated with administering the
Contract. In the event that it exceeds the amount necessary to reimburse the
Company for its administrative expenses the charge will be appropriately
reduced. In no event will this charge be increased. The Administrative Expense
Charge is assessed during both the Accumulation Period and the Annuity Period.
ANNUAL CONTRACT CHARGE
An Annual Contract Charge of $30 is charged against each Contract. The
amount of this charge is guaranteed and cannot be increased by the Company. This
charge is not assessed during the Annuity Period. This charge reimburses the
Company for expenses incurred in establishing and maintaining the records
relating to a Contract. If the Contract is surrendered for its full value on a
date other than an anniversary of the Issue Date of the Contract, the full
Annual Contract Charge will be deducted at the date of surrender without
proration.
SALES CHARGES
The Withdrawal Charge and the Annuity Charge are sales charges.
WITHDRAWAL CHARGE
Effective January 1, 1989, federal tax law limits withdrawals from annuity
contracts issued in connection with 403(b) Qualified Plans. Subject to those
limitations, which are described on Page 22, the Contract Value may be withdrawn
at any time during the Accumulation Period. Contract Owners should consult their
own tax counsel or other tax adviser regarding any withdrawals.
There is a Free Withdrawal Amount which applies to the first withdrawal
during a Contract Year after the first Contract Year. The Free Withdrawal Amount
is equal to 10% of the aggregate Purchase Payments less prior withdrawals.
However, should a withdrawal exceed the Free Withdrawal Amount, a sales charge,
which is referred to as the Withdrawal Charge, may be imposed.
The Withdrawal Charge is deducted from the remaining Contract Value so that
the actual reduction in Contract Value as a result of the withdrawal will be
greater than the withdrawal amount requested and paid.
The Withdrawal Charge is 6% of the amount withdrawn if such withdrawal is
made within six years of making the Purchase Payment. The Withdrawal Charge
shall not exceed 9% of total Purchase Payments. Free withdrawals and other
withdrawals will be allocated to Purchase Payments on a first-in-first-out
basis.
The amounts obtained from the Withdrawal Charge will be used to pay sales
commissions and other promotional or distribution expenses associated with the
marketing of the Contracts. To the extent that the Withdrawal Charge is
insufficient to cover all sales commissions and other promotional or
distribution expenses, the Company may use any of its corporate assets,
including potential profit which may arise from the Mortality and Expense Risk
Charge (see Page 11), to make up any difference.
ANNUITY CHARGE
If a Contract Owner elects to have annuity payments made under annuity
option 1, Life Income with Installments Guaranteed or annuity option 2, Joint
and Survivor Annuity (See "Annuity Period -- Annuity Options", Page 16), no
Annuity Charge applies and 100% of the Contract Value is applied.
If a Contract Owner elects annuity option 3, Income for a Specified Period,
and if Purchase Payments were made in the Contract Year in which annuity
payments are to begin or any of the five preceding Contract Years, an Annuity
Charge may apply. This Annuity Charge equals the Withdrawal Charge that would
apply if the Contract were being surrendered. Further, no Annuity Charge will be
assessed if annuity option 3 is elected by a Beneficiary under the death
benefit.
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The Annuity Charge also applies to certain annuitizations of Contract Values
allocated to the General Account.
DEDUCTION FOR SEPARATE ACCOUNT INCOME TAXES
While the Company is not currently maintaining a provision for taxes, the
Company has reserved the right to establish such a provision for taxes in the
future if it determines, in its sole discretion, that it will incur a tax as a
result of the operation of the Separate Account. The Company will deduct for any
taxes incurred by it as a result of the operation of the Separate Account
whether or not there was a provision for taxes and whether or not it was
sufficient. (See "Taxes," Page 20.)
OTHER EXPENSES
There are other deductions from and expenses paid out of the assets of the
Trust which are described in the accompanying Trust Prospectus.
REDUCTION OF CHARGES FOR SALES TO CERTAIN GROUPS
The Company may reduce the charges on individual Contracts sold to certain
groups of individuals, or to a trustee, employer or other entity representing a
group, where it is expected that such multiple sales will result in savings of
sales or administrative expenses. The Company determines the eligibility of
groups for such reduced charges, and the amount of such reductions for
particular groups, by considering the following factors: (1) the size of the
group; (2) the total amount of Purchase Payments expected to be received from
the group; (3) the nature of the group for which the Contracts are purchased,
and the persistency expected in that group; (4) the purpose for which the
Contracts are purchased and whether that purpose makes it likely that expenses
will be reduced; and (5) any other circumstances which the Company believes to
be relevant to determining whether reduced sales or administrative expenses may
be expected. None of the reductions in charges for group sales is contractually
guaranteed. Such reductions may be withdrawn or modified by the Company on a
uniform basis. The Company's reductions in charges for group sales will not be
unfairly discriminatory to the interests of any Contract Owners. The Company
will not reduce the charges for any group sales until such reduction is approved
by the Insurance Department of the State of New York.
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DESCRIPTION OF THE CONTRACTS
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VOTING RIGHTS OF CONTRACT OWNER
Contract Owners have a voting interest in each of the Separate Account
Divisions to which they have allocated Contract Values. The voting interest in a
Division is based upon the Contract Owner's proportionate interest in the
Division as measured by Accumulation and Annuity Units. (See "Anchor Series
Trust -- Voting Rights", Page 11 and "Purchases and Contract Value -- Allocation
of Purchase Payments", Page 18.)
TRANSFER DURING ACCUMULATION PERIOD
During the Accumulation Period, the Contract Owner may transfer Contract
Values among Divisions and/or the General Account, by written request or
telephone authorization. Telephone transfers are automatically accepted unless
the Company is otherwise instructed by the Contract Owner. The Company has in
place procedures which are designed to provide reasonable assurance that
telephone authorizations are genuine, including tape recording all telephone
communications and requesting identifying information. Accordingly, the Company
and its affiliates disclaim all liability for any claim, loss or expense
resulting from any alleged error or mistake in connection with a telephone
transfer which was not properly authorized by the Contract Owner. However, if
the Company fails to employ reasonable procedures to ensure that all telephone
transfers are properly authorized, the Company may be held liable for such
losses. Telephone calls authorizing transfers must be completed by 4:00 p.m.
Eastern time in order to effect the transfer the day of receipt. All other
transfers will be processed on the next business day. The Company reserves the
right to terminate or modify the telephone transfer service at any time.
Transactions effecting transfer may not be made more often than fifteen
times in any Contract Year without charge. A charge of $25 per transaction is
assessed against any transaction effecting transfer in excess of the fifteen
permitted without charge in any Contract Year or, if all or part of a Contract
Owner's interest in a Division is transferred to another Division, within 30
days of the Issue Date. The fee will be deducted from Contract Values which
remain in the Division
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from which the transfer was made. If the remaining Contract Value is
insufficient to pay the transfer fee, then the fee will be deducted from
transferred Contract Values. The transfer fee is at cost with no margin included
for profit. Contract Owners are not permitted to transfer amounts allocated or
transferred to the Target '98 Division from that Division more frequently than
once every 30 days.
This transfer privilege may be suspended, modified or terminated at any time
without notice. (See "Taxes -- Diversification," on Page 21).
The minimum partial transfer amount is $500. No partial transfer may be made
if the value of the Contract Owner's interest in the Division from which a
transfer is being made would be less than $500 after the transfer. As with
initial Purchase Payments, at least $500 must be allocated to a Division before
another Division is selected. The Company may waive the minimum partial transfer
amount in connection with pre-authorized automatic transfer programs.
Transfers from the General Account to the Divisions of the Separate Account
are permitted subject to limitations which are set out in a rider to the
Contract.
MODIFICATION OF THE CONTRACT
Only the Company's President or Secretary may approve a change or waive the
provisions of the Contract. Any change or waiver must be in writing. No agent
has the authority to change or waive the provisions of the Contract.
ASSIGNMENT
Contracts issued pursuant to Non-Qualified Plans that are not subject to
Title 1 of the Employee Retirement Income Security Act of 1974 ("ERISA") may be
assigned by the Contract Owner at any time during the lifetime of the Annuitant
prior to the Annuity Date. The Company will not be bound by any assignment until
written notice is received by the Company, at its Annuity Service Center. The
Company is not responsible for the validity, or tax or other legal consequences,
of any assignment. An assignment will not affect any payments the Company may
make or actions it may take before it receives notice of the assignment.
If the Contract is issued pursuant to a Qualified Plan (or a Non-Qualified
Plan that is subject to Title 1 of ERISA), it may not be assigned, pledged or
otherwise transferred except under such conditions as may be allowed under
applicable law.
BECAUSE AN ASSIGNMENT MAY BE A TAXABLE EVENT, CONTRACT OWNERS SHOULD CONSULT
COMPETENT TAX ADVISERS SHOULD THEY WISH TO ASSIGN THEIR CONTRACTS.
DEATH OF THE ANNUITANT
In the event of the death of the Annuitant prior to the Annuity Date, a
death benefit will be paid to the Beneficiary designated by the Contract Owner.
If a single sum payment is requested, the proceeds will be paid within seven
days. If an annuity option is desired, election must be made by the Beneficiary
within sixty days of the date of receipt of Due Proof of Death; otherwise a
single sum payment will be made to the Beneficiary at the end of such sixty-day
period.
The amount of the death benefit is equal to the greater of: (1) the Contract
Value at the end of the Valuation Period during which Due Proof of Death and an
election of the type of payment by the Beneficiary is received by the Company at
the Annuity Service Center; or (2) the total dollar amount of Purchase Payments
minus any partial withdrawals made, all Contract Owner transaction expenses
deducted during the term of the Contract prior to the date of death, and any
partial annuitizations.
If the payee dies after the Annuity Date while the Contract is in force, the
death proceeds, if any, will depend upon the annuity option in effect at the
time of the payee's death. If the Owner or Annuitant, if different, dies after
the Annuity Date and before the entire interest in the Contract has been
distributed, the remaining interest, if any, as provided for in the annuity
option selected will be distributed at least as rapidly as under the method of
distribution in effect at the Owner's or Annuitant's death.
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DEATH OF THE CONTRACT OWNER
If the Contract Owner dies prior to the Annuity Date, the death benefit
provision, as described above under "Death of the Annuitant" is modified to
provide the following:
If the Contract Owner dies before the Annuity Date, the entire Contract
Value must be distributed within five (5) years of the date of death,
unless:
(1) it is payable over the lifetime of a designated Beneficiary with
distribution beginning within one (1) year of the date of death; or
(2) the designated Beneficiary is the Contract Owner's spouse and he or
she continues the Contract in his or her own name.
If the Contract is issued pursuant to a Qualified Plan, similar provisions
will apply upon the death of the Contract Owner. Purchasers acquiring Contracts
pursuant to Qualified Plans should consult a qualified pension or tax adviser.
BENEFICIARY
The Beneficiary(ies) is/are named in the application, unless changed. A
Beneficiary is entitled to receive the benefits to be paid at the death of the
Annuitant or Contract Owner, as applicable. Unless the Contract Owner provides
otherwise, the death benefit will be paid in equal shares or all to the survivor
as follows:
(1) to the primary Beneficiary(ies) who survive(s) the Annuitant's or
Contract Owner's death (as applicable); or if there are none,
(2) to the Contingent Beneficiary(ies) who survive(s) the Annuitant's or
Contract Owner's death, as applicable; or, if there are none,
(3) to the Contract Owner, or to the Contract Owner's estate.
The Contract Owner may change a Beneficiary or Contingent Beneficiary at any
time during his or her lifetime or that of the Annuitant's. A change may be made
by filing a written request with the Company at its Annuity Service Center,
unless any irrevocable Beneficiary designation was previously filed. The change
will take effect as of the date the Company records the change. The Company is
not liable for any payment made or action taken before it records the change.
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ANNUITY PERIOD
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ANNUITY DATE
The Contract Owner selects an Annuity Date (the date on which annuity
payments are to begin) at the time of application. The Annuity Date must always
be the first day of a calendar month. The Contract Owner may change the Annuity
Date during the lifetime of the Annuitant. An election to change the Annuity
Date must be in written form received by the Company at the Annuity Service
Office before the first annuity payment date.
The actual dollar amount of variable annuity payments is dependent upon (1)
the Contract Value at the time of annuitization, (2) the annuity table specified
in the Contract, (3) the annuity option selected, and (4) the investment
performance of the Division selected. In addition, if annuity option 3, Income
for a Specified Period, is selected, an Annuity Charge may apply. (See "Contract
Charges -- Annuity Charge," Page 12.)
The annuity tables contained in the Contract are based on a five percent
(5%) assumed investment rate. If the actual net investment rate exceeds five
percent (5%), payments will increase. Conversely, if the actual rate is less
than five percent (5%), annuity payments will decrease.
If a higher assumed investment rate were used, the initial payment would be
higher, but the actual net investment rate would have to be higher in order for
annuity payments to increase.
The Annuitant receives the value of a fixed number of Annuity Units each
month. The value of a fixed number of Annuity Units will reflect the investment
performance of the Divisions selected, and the amount of each annuity payment
will vary accordingly.
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ANNUITY OPTIONS
The Contract Owner, or any Beneficiary who is so entitled, may elect to
receive a lump sum at the end of the Accumulation Period. However, a lump sum
distribution may be deemed to be a withdrawal, and at least a portion of it may
be subject to federal income tax (See "Taxes -- Tax Treatment of Withdrawals --
Non-Qualified Contracts" and "Tax Treatment of Withdrawals -- Qualified
Contracts," Pages 22 and 23, respectively). Alternatively, an annuity option
may be elected. The Contract Owner may elect an annuity option or change an
annuity option at any time during the lifetime of the Annuitant prior to the
Annuity Date. The Annuitant may make the election on the Annuity Date unless
the Contract Owner has restricted the right to make such an election. The
Beneficiary may elect an annuity option upon the death of the Annuitant or the
Contract Owner unless the Contract Owner has restricted this right.
If no other annuity option is elected, monthly annuity payments will be made
in accordance with annuity option 1 below with a ten (10) year period certain.
Generally, annuity payments will be made in monthly installments. However, if
the amount available to apply under an annuity option is less than $2,000, the
Company has the right to pay the annuity in one lump sum. In addition, if the
first payment provided would be less than $20, the Company shall have the right
to change the frequency of payments to quarterly, semi-annual or annual
intervals so as to result in an initial payment of at least $20.
The following annuity options are generally available under the Contract.
However, there may be restrictions in the retirement plan pursuant to which a
Contract issued on a qualified basis has been purchased.
OPTION 1 -- LIFE INCOME WITH INSTALLMENTS GUARANTEED
An annuity payable monthly during the lifetime of the payee. Upon election a
guaranteed payment period of either 10 years or 20 years may be chosen. If the
payee dies before the end of the guaranteed period, the present value, based on
a five percent (5%) annual interest rate, of any remaining guaranteed payments
will be paid to the payee's estate or to the Beneficiary.
OPTION 2 -- JOINT AND SURVIVOR ANNUITY
An annuity payable monthly while both payees are living. Upon the death of
either payee, the monthly income payable will continue during the lifetime of
the surviving payee at the percentage of the full amount chosen at the time of
election of this option. This is the automatic form of annuity where joint
Annuitants are named, but a different option may be elected.
Annuity payments terminate automatically and immediately upon the death of
the surviving payee without regard to the number or total amount of payments
received.
There is no minimum number of guaranteed payments and it is possible to have
only one annuity payment if both payees die before the due date of the second
payment.
No Annuity Charge applies if either option 1 or option 2 is elected.
OPTION 3 -- INCOME FOR A SPECIFIED PERIOD
An Income for a Specified Period may be elected only if at least $20,000 in
Contract Value, less any Annuity Charge, is to be applied. If Purchase Payments
were made in the Contract Year in which annuity payments are to begin, or in any
of the five preceding Contract Years, an Annuity Charge may apply. That Annuity
Charge equals the Withdrawal Charge that would apply if the Contract were being
surrendered. No Annuity Charge will be assessed if option 3 is elected by a
Beneficiary under the death benefit.
Under this option, a payee can elect an annuity payable monthly for any
period of years from 5 to 30. This election must be made for full 12 month
periods. In the event the payee dies before the specified number of payments has
been made, the Beneficiary may elect to continue receiving the scheduled
payments or may alternatively elect to receive the present value, based on a
five percent (5%) annual interest rate, of any remaining guaranteed payments.
Because Contract Values are redeemable even after the Annuity Date under this
Option at any time while payments are being made, the payee may elect to receive
the present value of the remaining payments, commuted at the interest rate used
to create the annuity factor for this option.
The value of an Annuity Unit, regardless of the option chosen, takes into
account the Mortality and Expense Risk Charge. (See "Contract Charges --
Mortality and Expense Risk Charge," Page 11). Since annuity option 3, Income for
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a Specified Period, does not contain an element of mortality risk, the payee is
not getting the benefit of this charge. There shall be no right to terminate the
Contract during the Annuity Period if the option selected contains an element of
mortality risk.
OTHER OPTIONS
At the sole discretion of the Company, other annuity options may be made
available to the Contract Owner. However, to the extent that Withdrawal Charges
would otherwise apply to a withdrawal or termination, the identical Withdrawal
Charge may apply with respect to any additional options.
With respect to Contracts issued under Sections 401, 403(b) or 408 of the
Internal Revenue Code, any payments will be made only to the Annuitant and the
Annuitant's spouse.
ALLOCATION OF ANNUITY PAYMENTS
If all of the Contract Value on the seventh calendar day before the Annuity
Date is allocated to the General Account, the Annuity will be paid as a Fixed
Annuity. If all of the Contract Value on that date is allocated to the Separate
Account, the Annuity will be paid as a Variable Annuity. If the Contract Value
on that date is allocated to both the General Account and the Separate Account,
the Annuity will be paid as a combination of a Fixed Annuity and a Variable
Annuity to reflect the allocation between the accounts. Variable Annuity
payments will reflect the investment performance of the Separate Account
Divisions. The payee(s) may, by written notice to the Company, convert Variable
Annuity payments to Fixed Annuity payments. However, Fixed Annuity payments may
not be converted to Variable Annuity payments.
The payee may elect to have payments made from one or more Divisions.
Transfers during the Annuity Period are permitted subject to stated limitations.
(See "Transfer During Annuity Period," following.)
TRANSFER DURING ANNUITY PERIOD
During the Annuity Period, the payee alone has the sole right to transfer
the Contract Value to the General Account and/or among Separate Account
Division(s) by written request to the Annuity Service Center subject to the
following limitations:
a. no transfer to a Separate Account Division may be made during the
first year of the Annuity Period. Thereafter, only one transfer per Division
is permitted during each Contract Year of the Annuity Period;
b. payee's entire Contract Value in a Separate Account Division must be
transferred;
c. the request for transfer must be received by the Company, at its
Annuity Service Center, during the 45 days preceding the anniversary of the
Contract's Issue Date. The transfer will be effected at the next Annuity
Unit value calculation after receipt of a valid transfer request which meets
the limitations and conditions as are prescribed for transfers during the
Accumulation Period (See "Transfer During Accumulation Period," Page 13);
d. the amount allocated to the General Account in the event of a
transfer from a Separate Account Division will be equal to the annuity
reserve for the payee's interest in that Separate Account Division. The
annuity reserve is the product of "(A)" multiplied by "(B)" multiplied by
"(C)", where "(A)" is the number of Annuity Units representing the payee's
interest in the Separate Account Division per annuity payment; "(B)" is the
Annuity Unit value for the Separate Account Division; and "(C)" is the
present value of $1.00 per payment period as of the adjusted age of the
payee attained at the time of transfer, determined by using the 1983 Table
A, projected at Scale G with interest at the rate of 5% per annum. Amounts
transferred to the General Account will be applied under the annuity option
originally elected, except that adjustment will be made for the time elapsed
since the Annuity Date. All amounts and Annuity Unit values will be
determined as of the end of the Valuation Period preceding the effective
date of transfer;
e. the transfer privilege may be suspended or discontinued at any time.
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<PAGE> 19
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PURCHASES AND CONTRACT VALUE
- --------------------------------------------------------------------------------
MINIMUM PURCHASE PAYMENT
The minimum initial Purchase Payment for Contracts issued pursuant to a
Non-Qualified Plan is $1,000. Minimum additional Purchase Payments may be made
in amounts of $500. The minimum Purchase Payment for a Contract issued pursuant
to a Qualified Plan is $100. A minimum of $500 must be allocated to one Division
or the General Account before transfers are permitted. (See "Description of the
Contracts -- Transfer During Accumulation Period", on Page 13.) The Company
reserves the right to refuse any Purchase Payment at any time.
ALLOCATION OF PURCHASE PAYMENTS
Purchase Payments are allocated to the General Account and/or the
Division(s) of the Separate Account selected by the Contract Owner. The current
General Account allocation option pays a fixed rate of interest declared by the
Company for one year from the date amounts are allocated to it. The Company, at
its sole discretion, may offer other General Account allocation options which
are subject to different terms and conditions than apply to the current option.
Contract Owners making initial Purchase Payments should be sure to specify
their allocations on the application for a Contract. If the application is in
good order, the Company will apply the initial Purchase Payment to the General
Account and the selected Division(s), and credit the Contract with Accumulation
Units within two business days of receipt. The number of Accumulation Units in a
Division attributable to a Purchase Payment is determined by dividing that
portion of the Purchase Payment which is allocated to the Division by the
Division's Accumulation Unit value during the Valuation Period when the
allocation occurs.
Any Purchase Payment made to acquire an Individual Retirement Annuity
("IRA") will be allocated to the Money Market Division of the Separate Account
until the expiration of fifteen (15) days from the day the Contract is mailed to
the Company's Annuity Service Center. Thereafter, the Purchase Payment shall be
allocated in accordance with the instructions specified by the Contract Owner in
the application for a Contract, and the Contract Owner shall bear the investment
risk for the Purchase Payment.
IF THE APPLICATION DOES NOT SPECIFY AN ALLOCATION, THE APPLICATION IS NOT IN
GOOD ORDER.
If the application for a Contract is not in good order, the Company will
attempt to rectify it within five business days of its receipt. The Company will
credit the initial Purchase Payment within two business days after the
application has been rectified. Unless the Contract Owner consents otherwise,
the application and the initial Purchase Payment will be returned if the
application cannot be put in good order within five business days of its
receipt.
Just like Contract Owners making initial Purchase Payments, Contract Owners
making subsequent Purchase Payments should be sure to specify how they want
their payments allocated. OTHERWISE, THE COMPANY WILL AUTOMATICALLY PROCESS THE
PURCHASE PAYMENT BASED ON THE PREVIOUS ALLOCATION.
A Contract Owner may elect to increase, decrease or change the frequency or
amount of Purchase Payments. The application and any Purchase Payments should be
sent to the Company at its Annuity Service Center.
ACCUMULATION UNIT VALUE
Accumulation and Annuity Unit values are determined each day that the New
York Stock Exchange is open for trading. This is referred to as a Valuation
Date. A Valuation Period commences at 4:00 pm New York time on each Valuation
Date and ends at 4:00 pm New York time for the next succeeding Valuation Date.
A separate Accumulation Unit value is determined for each Division. If the
Company elects or is required to assess a charge for taxes, a separate
Accumulation Unit value may be calculated for Non-Qualified and Qualified
Contracts within each Division.
The net assets are determined by calculating the total value of each
Division's assets, (that is, the aggregate value of the shares of the Portfolio
of the Trust held by the Division). After calculation of the net assets of a
Division, that amount is reduced by the accrued but unpaid daily charge for
mortality and expense risks and administration expense
18
<PAGE> 20
charge (which together amount to 1.40% per annum) and any provision for taxes
which may occur. After that calculation, the resulting number is then divided by
the number of Accumulation Units outstanding at the end of the Valuation Period
to determine Accumulation Unit value.
The Accumulation Unit value for each Division will vary with the price of a
share in the underlying Portfolio and in accordance with the Mortality and
Expense Risk Charge, Administrative Expense Charge and any provision for taxes.
Assessments of premium tax, Withdrawal Charges and Annual Contract Charges are
made separately for each Contract. They do not affect the Accumulation Unit
value.
DISTRIBUTION OF CONTRACTS
Currently, the Contracts will only be made available in the State of New
York.
The Contracts are sold by licensed insurance agents, who are registered
representatives of broker-dealers which are registered under the Securities
Exchange Act of 1934, as amended, and are members of the National Association of
Securities Dealers, Inc.
SunAmerica Capital Services, Inc. located at 733 Third Avenue, New York, New
York 10017, serves as distributor of the Contracts. SunAmerica Capital Services,
Inc., an indirect wholly owned subsidiary of SunAmerica Inc., is registered as a
broker-dealer under the Securities Exchange Act of 1934, as amended, and is a
member of the National Association of Securities Dealers, Inc.
WITHDRAWALS (REDEMPTIONS)
Except as explained below, the Contract Owner may redeem a Contract for all
or a portion of the Contract Value during the Accumulation Period. The Contract
Owner may also redeem Contract Values after the Annuity Date if annuity option 3
is elected. Withdrawal Charges may be assessed. See "Contract Charges --
Withdrawal Charge" on Page 12 for additional information.
Effective January 1, 1989, withdrawals of amounts attributable to
contributions made pursuant to a salary reduction agreement (as defined in
Section 403 (b)(11) of the Code) are limited to circumstances only: when the
Contract Owner attains age 59 1/2, separates from service, dies, becomes
disabled (within the meaning of Section 72(m)(7) of the Code), or in the case of
hardship. Withdrawals for hardship are restricted to the portion of the Contract
Owner's Contract Value which represents contributions made by the Contract Owner
and does not include any investment results. These limitations on withdrawals
apply only to: (1) salary reduction contributions made after December 31, 1988;
(2) income attributable to such contributions; and (3) income attributable to
amounts held as of December 31, 1988. The limitations on withdrawals do not
effect rollovers or exchanges between certain Qualified Plans. Tax penalties may
also apply. (See "Taxes -- Tax Sheltered Annuities -- Withdrawal Limitations",
on Page 23).
While the foregoing limitations only apply to certain Contracts issued in
connection with 403(b) Qualified Plans, all Contract Owners should seek
competent tax advice regarding any withdrawals or distributions.
The minimum partial withdrawal amount is $500, or the Contract Owner's
entire interest in the Division from which a withdrawal is requested. The
Contract Owner's interest in the Division from which the withdrawal is requested
must be at least $500 after the withdrawal is completed if anything is left in
that Division.
A written withdrawal request must be sent to the Company at its Annuity
Service Center. The withdrawal request will not be in good order unless it
includes the Contract Owner's Tax I.D. Number (e.g. Social Security Number) and
provides instructions regarding withholding of income taxes. The Company
provides withdrawal request forms.
If the request is for total withdrawal, the Contract or a Lost Contract
Affidavit (which may be obtained by calling the Annuity Service Center) must be
submitted as well. The Withdrawal Value is determined on the basis of the
Accumulation Unit values next computed following receipt of a request in proper
order. The Withdrawal Value will be paid within seven days after the day a
proper request is received by the Company. However the Company may suspend the
right of withdrawal or delay payment more than seven (7) days: (1) during any
period when the New York Stock Exchange is closed (other than customary weekend
and holiday closings); (2) when trading in the markets the Separate Account or a
Portfolio normally utilizes is restricted or an emergency exists as determined
by the Securities and Exchange Commission so that disposal of the Separate
Account's or a Portfolio's investments or determination of Accumulation Unit
value is not reasonably practicable; or (3) for such other periods as the
Securities and Exchange Commission, by order, may permit for protection of
Contract Owners.
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<PAGE> 21
ERISA PLANS
Spousal consent may be required when a married Contract Owner seeks a
distribution from a Contract that has been issued in connection with a Qualified
Plan or Non-Qualified Plan that is subject to Title I of ERISA. Contract Owners
should obtain competent advice.
- --------------------------------------------------------------------------------
ADMINISTRATION
- --------------------------------------------------------------------------------
While the Company has primary responsibility for all administration of the
Contracts and the Separate Account, it has retained the services of First
SunAmerica Life Insurance Company ("First Sun"), 733 Third Avenue, 4th Floor,
New York, New York 10017; (800) 537-3642 to administer its Annuity Service
Center. First Sun is not affiliated with the Company. First Sun is an indirect
wholly owned subsidiary of SunAmerica Inc.
The administrative services provided include, but are not limited to:
issuance of the Contracts; maintenance of Contract Owner records; Contract Owner
services; calculation of unit values; and preparation of Contract Owner reports.
Contract statements and transaction confirmations are mailed to Contract
Owners at least quarterly. Contract Owners should read their statements
carefully and verify their accuracy. Questions about periodic statements should
be communicated to the Annuity Service Center promptly. The Annuity Service
Center will investigate all complaints and make any necessary adjustments
retroactively, provided that it has received notice of a potential error within
30 days after the date the Contract Owner receives the questioned statement. If
the Annuity Service Center has not received notice of a potential error within
this time, any adjustment shall be made as of the date that the Annuity Service
Center received notice of the potential error.
- --------------------------------------------------------------------------------
TAXES
- --------------------------------------------------------------------------------
NOTE: THE FOLLOWING DESCRIPTION IS BASED UPON THE COMPANY'S UNDERSTANDING OF
CURRENT FEDERAL INCOME TAX LAW APPLICABLE TO ANNUITIES IN GENERAL. THE COMPANY
CANNOT PREDICT THE PROBABILITY THAT ANY CHANGES IN SUCH LAWS WILL BE MADE.
PURCHASERS ARE CAUTIONED TO SEEK COMPETENT TAX ADVICE REGARDING THE POSSIBILITY
OF SUCH CHANGES. THE COMPANY DOES NOT GUARANTEE THE TAX STATUS OF THE CONTRACTS.
PURCHASERS BEAR THE COMPLETE RISK THAT THE CONTRACTS MAY NOT BE TREATED AS
"ANNUITY CONTRACTS" UNDER FEDERAL INCOME TAX LAWS.
GENERAL
Section 72 of the Internal Revenue Code of 1986, as amended (the "Code")
governs taxation of annuities in general. A Contract Owner is not taxed on
increases in the value of a Contract until distribution occurs, either in the
form of a lump sum payment or as annuity payments under the annuity option
elected. For a lump sum payment received as a total surrender (total
redemption), the recipient is taxed on the portion of the payment that exceeds
the cost basis of the Contract. For a payment received as a withdrawal (partial
redemption), federal tax liability is determined on a last-in-first-out basis,
meaning taxable income is withdrawn before the cost basis of the Contract is
withdrawn. For Non-Qualified Contracts, the cost basis is generally the Purchase
Payments, while for Qualified Contracts there may be no cost basis. The taxable
portion of the lump sum payment is taxed at ordinary income tax rates. Tax
penalties may also apply.
For annuity payments, the taxable portion is determined by a formula which
establishes the ratio that the cost basis of the Contract bears to the total
value of annuity payments for the term of the annuity Contract. The taxable
portion is taxed at ordinary income tax rates. For certain types of Qualified
Plans there may be no cost basis in the Contract within the meaning of Section
72 of the Code. Contract Owners, Annuitants and Beneficiaries under the
Contracts should seek competent financial advice about the tax consequences of
distributions under the retirement plan under which the Contracts are purchased.
The Company is taxed as a life insurance company under the Code. For federal
income tax purposes, the Separate Account is not a separate entity from the
Company and its operations form a part of the Company.
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<PAGE> 22
WITHHOLDING TAX ON DISTRIBUTIONS
The Code generally requires the Company (or, in some cases, a plan
administrator) to withhold tax on the taxable portion of any distribution or
withdrawal from a Contract. For "eligible rollover distributions" from Contracts
issued under certain types of Qualified Plans, 20% of the distribution must be
withheld, unless the payee elects to have the distribution "rolled over" to
another eligible plan in a direct "trustee to trustee" transfer. This
requirement is mandatory and cannot be waived by the Contract Owner. Withholding
on other types of distributions can be waived.
An "eligible rollover distribution" is the estimated taxable portion of any
amount received by a covered employee from a plan qualified under section 401(a)
or 403(a) of the Code, or from a tax-sheltered annuity qualified under section
403(b) of the Code (other than (1) annuity payments for the life (or life
expectancy) of the employee, or joint lives (or joint life expectancies) of the
employee and his or her designated beneficiary, or for a specified period of ten
years or more; and (2) distributions required to be made under the Code).
Failure to "roll over" the entire amount of an eligible rollover distribution
(including an amount equal to the 20% portion of the distribution that was
withheld) could have adverse tax consequences, including the imposition of a
penalty tax on premature withdrawals, described later in this section.
Withdrawals or distributions from a Contract other than eligible rollover
distributions are also subject to withholding on the estimated taxable portion
of the distribution, but the Contract Owner may elect in such cases to waive the
withholding requirement. If not waived, withholding is imposed (1) for periodic
payments, at the rate that would be imposed if the payments were wages, or (2)
for other distributions at 10%. If no withholding exemption certificate is in
effect for the payee, the rate under (1) above is computed by treating the payee
as a married individual claiming 3 withholding exemptions.
DIVERSIFICATION
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not adequately
diversified, in accordance with regulations prescribed by the United States
Treasury Department ("Treasury Department"). Disqualification of the Contract as
an annuity contract would result in imposition of federal income tax to the
Contract Owner with respect to earnings allocable to the Contract prior to the
receipt of payments under the Contract. The Code contains a safe harbor
provision which provides that annuity contracts such as the Contracts meet the
diversification requirements if, as of the close of each quarter, the underlying
assets meet the diversification standards for a regulated investment company,
and no more than fifty-five percent (55%) of the total assets consist of cash,
cash items, U.S. Government securities and securities of other regulated
investment companies.
On March 2, 1989, the Treasury Department issued Regulations (Treas. Reg.
Section 1.817-5), which establish diversification requirements for the
investment portfolios underlying variable contracts such as the Contracts. The
Regulations amplify the diversification requirements for variable contracts set
forth in the Code and provide an alternative to the safe harbor provision
described above. Under the Regulations an investment portfolio will be deemed
adequately diversified if (i) no more than 55% of the value of the total assets
of the portfolio is represented by any one investment; (ii) no more than 70% of
the value of the total assets of the portfolio is represented by any two
investments; (iii) no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and (iv) no more than 90% of
the value of the total assets of the portfolio is represented by any four
investments.
The Technical and Miscellaneous Revenue Act of 1988 (the "1988 Act")
provides that for purposes of determining whether or not the diversification
standards imposed on the underlying assets of variable contracts by Section
817(h) of the Code have been met, "each United States government agency or
instrumentality shall be treated as a separate issuer."
The Company intends that each Portfolio of the Trust underlying the
Contracts will be managed by the Investment Adviser for the Trust in such a
manner as to comply with these diversification requirements.
MULTIPLE CONTRACTS
The 1988 Act provides that multiple annuity contracts which are issued
within a calendar year to the same contract owner by one company or its
affiliates are treated as one annuity contract for purposes of determining the
tax consequences of any distribution. Such treatment may result in adverse tax
consequences including more rapid taxation
21
<PAGE> 23
of the distributed amounts from such combination of contracts. Contract Owners
should consult a tax adviser prior to purchasing more than one annuity contract
in any calendar year.
TAX TREATMENT OF ASSIGNMENTS
An assignment of a Contract may be a taxable event and may be prohibited by
ERISA in some circumstances. Contract Owners should therefore consult competent
tax advisers should they wish to assign their Contracts.
TAX TREATMENT OF WITHDRAWALS -- NON-QUALIFIED CONTRACTS
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the Contract Value exceeds the aggregate Purchase
Payments made, any amount withdrawn not in the form of an annuity payment will
be treated as coming first from the earnings and then, only after the income
portion is exhausted, as coming from the principal. Withdrawn earnings are
includible in a taxpayer's gross income. Section 72 further provides that a ten
percent (10%) penalty will apply to the income portion of any premature
distribution. The penalty is not imposed on amounts received: (1) after the
taxpayer reaches 59 1/2; (2) upon the death of the Contract Owner; (3) if the
taxpayer is totally disabled; (4) in a series of substantially equal periodic
payments made for the life of the taxpayer or for the joint lives of the
taxpayer and his Beneficiary; (5) under an immediate annuity; or (6) which are
allocable to purchase payments made prior to August 14, 1982.
The above information applies to Qualified Contracts issued pursuant to
Section 457 of the Code, but does not apply to other Qualified Contracts.
Separate tax withdrawal penalties and restrictions apply to Qualified Contracts.
(See "Tax Treatment of Withdrawals -- Qualified Contracts" on Page 23.)
QUALIFIED PLANS
The Contracts offered by this Prospectus are designed to be suitable for use
under various types of Qualified Plans. Taxation of participants in each
Qualified Plan varies with the type of plan and terms and conditions of each
specific plan. Contract Owners, Annuitants and Beneficiaries are cautioned that
benefits under a Qualified Plan may be subject to the terms and conditions of
the plan regardless of the terms and conditions of the contracts issued pursuant
to the plan.
Following are general descriptions of the types of Qualified Plans with
which the Contracts may be used. Such descriptions are not exhaustive and are
for general informational purposes only. The tax rules regarding Qualified Plans
are very complex and will have differing applications depending on individual
facts and circumstances. Each purchaser should obtain competent tax advice prior
to purchasing a Contract issued under a Qualified Plan.
Contracts issued pursuant to Qualified Plans include special provisions
restricting Contract provisions that may otherwise be available and described in
this Prospectus. Generally, Contracts issued pursuant to Qualified Plans are not
transferable except upon surrender or annuitization. Various penalty and excise
taxes may apply to contributions or distributions made in violation of
applicable limitations. Furthermore, certain withdrawal penalties and
restrictions may apply to surrenders from Qualified Contracts. (See "Tax
Treatment of Withdrawals -- Qualified Contracts", on Page 23.)
(A) TAX-SHELTERED ANNUITIES
Section 403(b) of the Code permits the purchase of "tax-sheltered
annuities" by public schools and certain charitable, educational and
scientific organizations described in Section 501 (c)(3) of the Code. These
qualifying employers may make contributions to the Contracts for the benefit
of their employees. Such contributions are not includible in the gross
income of the employee until the employee receives distributions from the
Contract. The amount of contributions to the tax-sheltered annuity is
limited to certain maximums imposed by the Code.
Furthermore, the Code sets forth additional restrictions governing such
items as transferability, distributions, nondiscrimination and withdrawals.
(See "Tax Treatment of Withdrawals -- Qualified Contracts" on Page 23.) Any
employee should obtain competent tax advice as to the tax treatment and
suitability of such an investment.
(B) INDIVIDUAL RETIREMENT ANNUITIES
Section 408(b) of the Code permits eligible individuals to contribute to
an individual retirement program known as an "Individual Retirement Annuity"
("IRA"). Under applicable limitations, certain amounts may be contributed to
an IRA which will be deductible from the individual's gross income. These
IRAs are subject to limitations on eligibility, contributions,
transferability and distributions. (See "Tax Treatment of
Withdrawals -- Qualified
22
<PAGE> 24
Contracts" on Page 23.) Under certain conditions, distributions from other
IRAs and other Qualified Plans may be rolled over or transferred on a
tax-deferred basis into an IRA. Sales of Contracts for use with IRAs are
subject to special requirements imposed by the Code, including the
requirement that certain informational disclosure be given to persons
desiring to establish an IRA. Purchasers of Contracts to be qualified as
IRAs should obtain competent tax advice as to the tax treatment and
suitability of such an investment.
TAX TREATMENT OF WITHDRAWALS -- QUALIFIED CONTRACTS
Section 72(t) of the Code imposes a 10% penalty tax on the taxable portion
of any early distribution from qualified retirement plans, including contracts
issued and qualified under Code Sections 403(b) (Tax-Sheltered Annuities) and
408(b) (IRAs).
The tax penalty will not apply to the following distributions: (1) if
distribution is made on or after the date on which the Contract Owner or
Annuitant (as applicable) reaches age 59 1/2; (2) distributions following the
death or disability of the Contract Owner or Annuitant (as applicable) (for this
purpose "disability" is defined in Section 72(m)(7) of the Code); (3)
distributions that are part of substantially equal periodic payments made not
less frequently than annually for the life (or life expectancy) of the Contract
Owner or Annuitant (as applicable) or the joint lives (or joint life
expectancies) of such Contract Owner or Annuitant (as applicable) and his or her
designated beneficiary; (4) distributions to a Contract Owner or Annuitant (as
applicable) who has separated from service after he or she has attained age 55;
(5) distributions made to the Contract Owner or Annuitant (as applicable) to the
extent such distributions do not exceed the amount allowable as a deduction
under Code Section 213 to the Contract Owner or Annuitant (as applicable) for
amounts paid during the taxable year for medical care; and (6) distributions
made to an alternate payee pursuant to a qualified domestic relations order.
The exceptions stated in items (4), (5) and (6) above do not apply in the
case of an IRA.
The taxable portion of a withdrawal or distribution from Contracts issued
under certain types of plans may, under some circumstances, be "rolled over"
into another eligible plan so as to continue to defer income tax on the taxable
portion. Effective January 1, 1993, such treatment is available for any
"eligible rollover distribution" made by certain types of plans (as described
above under "Taxes -- Withholding Tax on Distributions," Page 21) that is
transferred within 60 days of receipt into a plan qualified under section 401(a)
or 403(a) of the Code, a tax-sheltered annuity, an IRA, or an individual
retirement account described in section 408(a) of the Code. Plans making such
eligible rollover distributions are also required, with some exceptions
specified in the Code, to provide for a direct "trustee to trustee" transfer of
the distribution to the transferee plan designated by the recipient.
TAX SHELTERED ANNUITIES -- WITHDRAWAL LIMITATIONS
The Tax Reform Act of 1986, effective January 1, 1989, limits the withdrawal
of amounts attributed to contributions made pursuant to a salary reduction
agreement (as defined in Section 403(b)(11) of the Code) to circumstances only:
when the Contract Owner attains age 59 1/2, separates from service, dies,
becomes disabled (within the meaning of Section 72(m)(7) of the Code), or in the
case of hardship. Withdrawals for hardship are restricted to the portion of the
Contract Owner's Contract Value which represents contributions by the Contract
Owner and does not include any investment results. These limitations on
withdrawals apply only to salary reduction contributions made after December 31,
1988, to income attributable to such contributions, and to income attributable
to amounts held as of December 31, 1988. The limitations on withdrawals do not
affect rollovers or exchanges between certain Qualified Plans. Contract Owners
should consult their own tax counsel or other tax adviser regarding any
distributions.
- --------------------------------------------------------------------------------
LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
There are no legal proceedings to which the Separate Account is a party or
to which the assets of the separate Account are subject. The Company is engaged
in various kinds of routine litigation that in the Company's judgment will not
have a material adverse impact upon the Company's financial position.
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TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL
INFORMATION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ITEM PAGE
<S> <C>
COMPANY..................................................................................... 1
INDEPENDENT ACCOUNTANTS..................................................................... 1
DISTRIBUTORS................................................................................ 1
YIELD CALCULATIONS FOR MONEY MARKET DIVISION................................................ 2
ANNUITY PAYMENTS............................................................................ 3
Annuity Unit Value........................................................................ 3
Amount of Annuity Payments................................................................ 3
Subsequent Monthly Payments............................................................... 4
FINANCIAL STATEMENTS........................................................................ 4
</TABLE>
24
<PAGE> 26
Please forward a copy (without charge) of the Statement of Additional
Information concerning ICAP II Variable Annuity Contracts to:
(Please print or type and fill in all information.)
- ------------------------------------------------------------------
Name
- ------------------------------------------------------------------
Address
- ------------------------------------------------------------------
City/State/Zip
- ------------------------------------------------------------------
Date: Signed:
- ------------------------------------------------------------------
Return to: Presidential Life Insurance Company, c/o Annuity
Service Center, P.O. Box 54299, Los Angeles, California
90054-0299.
<PAGE> 27
Filed pursuant to Rule 497(c)
under the Securities Act of 1933
File Nos. 33-19293 and 811-5474
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED
VARIABLE ANNUITY CONTRACTS
issued by
PRESIDENTIAL VARIABLE ACCOUNT ONE
of
PRESIDENTIAL LIFE INSURANCE COMPANY
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION
SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS FOR THE INDIVIDUAL FLEXIBLE
PREMIUM DEFERRED VARIABLE ANNUITY CONTRACTS WHICH ARE REFERRED TO HEREIN.
THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT A PROSPECTIVE
INVESTOR OUGHT TO KNOW BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS DATED
APRIL 30, 1996, CALL OR WRITE THE COMPANY IN CARE OF ITS ANNUITY SERVICE CENTER,
P.O. Box 54299, LOS ANGELES, CALIFORNIA 90054-0299, 1-800-537-3642.
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED APRIL 30, 1996.
<PAGE> 28
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
- ----- ----
<S> <C>
COMPANY ................................................... 1
INDEPENDENT ACCOUNTANTS ................................... 1
DISTRIBUTORS .............................................. 1
YIELD CALCULATION FOR MONEY MARKET DIVISION ............... 2
ANNUITY PAYMENTS .......................................... 3
Annuity Unit Value ............................... 3
Amount of Annuity Payments ....................... 4
Subsequent Monthly Payments ...................... 4
FINANCIAL STATEMENTS ...................................... 5
</TABLE>
<PAGE> 29
COMPANY
Information regarding Presidential Life Insurance Company (the
"Company") and its ownership is contained in the Prospectus.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements for the three years ended
December 31, 1995 of Presidential Life Corporation and subsidiaries have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein, and are included in reliance upon the report of such
firm, given upon their authority as experts in accounting and auditing. The
consolidated financial statements of Presidential Life Corporation and
subsidiaries should be considered only as bearing on the ability of the Company
to meet its obligations under the Contracts.
The financial statements of the Separate Account as of December 31,
1995 and for each of the two years in the period ended December 31, 1995 also
are included in this Statement of Additional Information. Price Waterhouse LLP,
400 South Hope Street, Los Angeles, California 90071, serves as the independent
accountants for the Separate Account. The financial statements of the Separate
Account referred to above included in this Statement of Additional Information
have been so included in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
DISTRIBUTORS
The Contracts are sold by licensed insurance agents, where the
Contracts may be lawfully sold, who are registered representatives of
broker-dealers which are registered under the Securities Exchange Act of 1934
and are members of the National Association of Securities Dealers, Inc.
The offering is on a continuous basis.
Effective April 29, 1994, the Contracts were offered through the
distributor for the Separate Account, SunAmerica Capital Services, Inc.
("SunAmerica Capital Services"), 733 Third Avenue, New York, New York 10017.
The Company is not affiliated with the distributor. Prior to this time,
SunAmerica Securities, Inc. ("SunAmerica Securities") and Royal Alliance
Associates, Inc. ("Royal Alliance"), acted as co-distributors of the Contract.
For the year ended December 31, 1993, the aggregate amount of
underwriting commissions paid to Royal Alliance and The Producers' Edge
Insurance Agency, Inc., a subsidiary of SunAmerica Securities, was $6,163, of
which $3,989 was retained by them. For the year ended December 31, 1994, the
aggregate amount of underwriting commission paid to SunAmerica Capital Services
was $11,361, of which $1,217 was retained by it. For the year ended December 31,
1995, no underwriting commission was paid to SunAmerica Capital Services.
YIELD CALCULATION FOR MONEY MARKET DIVISION
The annualized current yield and the effective yield for the Money
Market Division for the 7 day period ended December 31, 1995 were 3.75% and
3.82% respectively.
Current yield is computed by first determining the Base Period Return
attributable to a hypothetical Contract having a balance of one Accumulation
Unit at the beginning of a 7 day period using the formula:
Base Period Return = (EV-SV-RMC)/(SV)
where:
SV = value of one Accumulation Unit at the start of a 7
day period
EV = value of one Accumulation Unit at the end of the 7
day period
<PAGE> 30
RMC = an allocated portion of the $30 Annual Contract
Charge, prorated for 7 days.
The change in the value of an Accumulation Unit during the 7 day period
reflects the income received, minus any expenses accrued, during such 7 day
period. The Annual Contract Charge is first allocated among the Divisions and
the General Account so that each Division's allocated portion of the charge is
proportional to the percentage of the number of Contract Owners' accounts that
have money allocated to that Division. The portion of the Charge allocable to
the Money Market Division is further reduced, for purposes of the yield
computation, by multiplying it by the ratio that the value of the hypothetical
Contract bears to the value of an account of average size for Contracts funded
by the Money Market Division. Finally, the result is multiplied by the fraction
7/365 to arrive at the portion attributable to the 7 day period.
The current yield is then obtained by annualizing the Base Period
Return:
Current Yield = (Base Period Return) x (365/7)
The Money Market Division also quotes an "effective yield" that differs
from the current yield given above in that it takes into account the effect of
dividend reinvestment in the Money Market Division. The effective yield, like
the current yield, is derived from the Base Period Return over a 7 day period.
However, the effective yield accounts for dividend reinvestment by compounding
the current yield according to the formula:
Effective Yield = [(Base Period Return + 1) to the 365/7 power -1].
Net investment income for yield quotation purposes does not include
either realized capital gains and losses or unrealized appreciation and
depreciation, whether reinvested or not. The yield quotations also do not
reflect any impact of transfer fees or Withdrawal or Annuity Charges.
The yields quoted should not be considered a representation of the
yield of the Money Market Division in the future since the yield is not fixed.
Actual yields will depend not only on the type, quality and maturities of the
investments held by the Money Market Division and changes in interest rates on
such investments, but also on factors such as a Contract Owner's account size
(since the impact of fixed dollar charges will be greater for small accounts
than for larger accounts).
Yield information may be useful in reviewing the performance of the
Money Market Division and for providing a basis for comparison with other
investment alternatives. However, the Money Market Division's yield fluctuates,
unlike bank deposits or other investments that typically pay a fixed yield for a
stated period of time.
ANNUITY PAYMENTS
Annuity Unit Value
The value of an Annuity Unit is determined independently for each
Separate Account Division.
For each Division, the value of an Annuity Unit for any Valuation
Period is determined by multiplying the Annuity Unit value for the immediately
preceding Valuation Period by the net investment factor for the Valuation Period
for which the Annuity Unit Value is being calculated and multiplying the result
by an interest factor which offsets the effect of the investment earnings rate
of five percent (5%) per annum that is assumed in the annuity table contained in
the Contract.
The net investment factor for each Division for a Valuation Period is
determined by dividing (a) by (b) and subtracting (c) from the result where: (a)
is the value of an Accumulation Unit from the applicable Division as of the end
of the current Valuation Period; (b) is the value of an Accumulation Unit for
the applicable Division as of the end of the immediately preceding Valuation
Period; and (c) is a factor representing the daily charge for mortality and
expense risks and administration of one and four-tenths percent (1.40%) per
annum.
<PAGE> 31
Amount of Annuity Payments
The initial annuity payment is determined by applying the Contract
Value, less any premium tax, less any Annuity Charge (if annuity option 3 is
elected), to the annuity table specified in the Contract. Those tables are based
on a set amount per $1,000 of proceeds applied. The appropriate rate must be
determined by the sex and adjusted age of the Annuitant and joint Annuitant, if
any. The adjusted age is determined from the actual age to the nearest birthday
at the Annuity Date according to the table below. The Adjusted Age Table is used
to correct for population mortality improvements over time.
Adjusted Age Table
<TABLE>
<CAPTION>
Adjustment Adjustment
Calendar to Actual Calendar to Actual
Year of Birth Age Year of Birth Age
- ------------- ---------- ------------- ----------
<S> <C> <C> <C>
1899-1905 +6 1946-1951 -1
1906-1911 +5 1952-1958 -2
1912-1918 +4 1959-1965 -3
1919-1925 +3 1966-1972 -4
1926-1932 +2 1973-1979 -5
1933-1938 +1 1980-1985 -6
1939-1945 0 1986-1992 -7
</TABLE>
The dollars applied are then divided by 1,000 and multiplied by the
appropriate annuity factor to indicate the amount of the first annuity payment.
That amount is divided by the value of an Annuity Unit as of the Annuity Date to
establish the number of Annuity Units representing each annuity payment. The
number of Annuity Units determined for the first annuity payment remains
constant for the second and subsequent monthly payments.
Subsequent Monthly Payments
The amount of the second and subsequent annuity payments is determined
by multiplying the number of Annuity Units by the Annuity Unit value as of the
Valuation Period next preceding the date on which each annuity payment is due.
The dollar amount of the first annuity payment determined as above is divided by
the value of an Annuity Unit as of the Annuity Date to establish the number of
Annuity Units representing each annuity payment. The number of Annuity Units
determined for the first annuity payment remains constant for the second and
subsequent monthly payments.
FINANCIAL STATEMENTS
The consolidated financial statements of Presidential Life Corporation
and subsidiaries included herein should be considered only as bearing upon the
ability of the Company to meet its obligations under the Contracts. The
financial statements of the Separate Account are also included in this Statement
of Additional Information.
<PAGE> 32
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Presidential Life Corporation
Nyack, New York 10960
We have audited the accompanying consolidated balance sheets of Presidential
Life Corporation and subsidiaries ("Presidential") as of December 31, 1995 and
1994 and the related consolidated statements of income, shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1995.
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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Presidential as of December 31,
1995 and 1994 and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, Presidential
changed its methods of accounting for fixed maturity investment securities in
1994 and for income taxes and reinsurance in 1993.
DELOITTE & TOUCHE LLP
New York, New York
February 28, 1996
<PAGE> 33
PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
December 31
ASSETS: 1995 1994
---- ----
<S> <C> <C>
Investments:
Fixed maturities:
Held to maturity $ 0 $ 221,362
Available for sale 1,855,663 1,290,825
Common stocks 37,748 38,074
Mortgage Loans 19,015 17,623
Real Estate 429 432
Policy Loans 18,601 18,741
Short-term investments 192,621 130,124
Other invested assets 150,331 142,488
---------- ----------
Total investments 2,274,408 1,859,669
Cash and cash equivalents (1,874) (772)
Accrued investment income 34,328 22,797
Deferred policy acquisition costs 33,330 58,319
Furniture and equipment, net 369 529
Amounts due from reinsurers 7,664 7,460
Amounts due from investment transactions 0 52,588
Deferred federal income taxes 0 7,566
Federal income tax recoverable 477 9,134
Other assets 1,818 2,135
Assets held in separate account 6,240 6,619
---------- ----------
TOTAL ASSETS $2,356,760 $2,026,044
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Policy Liabilities:
Policyholders' account balances $1,269,898 $1,255,691
Future policy benefits:
Annuity 362,027 361,331
Life and accident and health 47,464 46,572
Other policy liabilities 4,161 3,201
---------- ----------
Total policy liabilities 1,683,550 1,666,795
Dollar repurchase agreements 160,416 39,363
Other notes payable 50,000 50,000
Deposits on policies to be issued 2,947 1,605
Deferred federal income taxes 44,760 0
General expenses and taxes accrued 5,317 3,751
Other liabilities 2,470 1,958
Liabilities related to separate account 6,240 6,619
---------- ----------
Total liabilities 1,955,700 1,770,091
---------- ----------
Shareholders' Equity:
Capital stock ($.01 par value, authorized 100,000,000 shares, issued and
outstanding 33,536,601 shares in 1995 and 33,709,473
shares in 1994) 335 337
Additional paid-in-capital 30,130 31,751
Net unrealized investment gains (losses) 61,732 (39,463)
Retained earnings 308,863 263,328
---------- ----------
Total Shareholders' Equity 401,060 255,953
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,356,760 $2,026,044
========== ==========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
<PAGE> 34
PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share data)
<TABLE>
<CAPTION>
Years Ended December 31
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Insurance revenues:
Premiums $ 4,408 $ 4,249 $ 4,743
Annuity considerations 3,780 1,569 3,029
Universal life and investment type
policy fee income 1,934 1,912 2,665
Net investment income 170,780 157,251 185,190
Realized investment gains 17,216 7,259 8,805
Other income 1,746 1,834 1,927
----------- ----------- -----------
TOTAL REVENUES 199,864 174,074 206,359
----------- ----------- -----------
BENEFITS AND EXPENSES:
Death and other life insurance benefits 7,366 6,628 7,065
Annuity benefits 36,016 35,820 35,910
Interest credited to policyholders'
account balances 78,802 77,162 82,072
Interest expense on notes payable 5,045 5,266 6,522
Other interest and other charges 427 383 270
Increase (decrease) in liability for
future policy benefits 1,312 (262) 1,423
Commissions to agents, net 3,025 1,322 1,196
General expenses and taxes 11,940 8,682 12,556
Decrease (increase) in deferred
policy acquisition costs (459) 1,854 2,138
----------- ----------- -----------
TOTAL BENEFITS AND EXPENSES 143,474 136,855 149,152
----------- ----------- -----------
Income before income taxes 56,390 37,219 57,207
----------- ----------- -----------
Provision (benefit) for income taxes:
Current 9,495 (241) 12,415
Deferred (2,163) (2,452) 813
----------- ----------- -----------
7,332 (2,693) 13,228
----------- ----------- -----------
Income before the cumulative effect of
change in accounting principle 49,058 39,912 43,979
Cumulative effect of change in
accounting principle 0 0 2,846
----------- ----------- -----------
NET INCOME $ 49,058 $ 39,912 $ 46,825
=========== =========== ===========
Weighted average number of shares
outstanding during the year 33,631,719 33,852,766 30,569,396
=========== =========== ===========
Income per share before the
cumulative effect of change in
accounting principle $ 1.46 $ 1.18 $ 1.44
Cumulative effect of change in
accounting principle .00 .00 .09
----------- ----------- -----------
Net Income per share $ 1.46 $ 1.18 $ 1.53
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
<PAGE> 35
PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Net
Additional Unrealized
Capital Paid-in- Investment Retained Treasury
Stock Capital Gains (Losses) Earnings Stock Total
------- ---------- -------------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at
January 1,
1993 484 2,911 (3,555) 182,448 (6,218) 176,070
Net income 46,825 46,825
Private placement
of Common Stock
and merger (145) 29,606 6,218 35,679
Increase in
Unrealized
Investment
Gains, Net 8,685 8,685
Dividends
Paid to
Shareholders
($.09 per
share) (2,812) (2,812)
---- ------- -------- -------- ------- --------
Balance at
December 31,
1993 $339 $32,517 $ 5,130 $226,461 $ 0 $264,447
Net income 39,912 39,912
Increase in
Unrealized
Investment
Losses, Net (44,593) (44,593)
Purchase and
Retirement
of Stock (2) (775) (777)
Issuance of
Shares under
Stock Option
Plan 0 9 9
Dividends
Paid to
Shareholders
($.09 per
share) (3,045) (3,045)
---- ------- -------- -------- ------- --------
Balance at
December 31,
1994 $337 $31,751 $(39,463) $263,328 $ 0 $255,953
Net income 49,058 49,058
Increase in
Unrealized
Investment
Gains, Net 101,195 101,195
Purchase and
Retirement
of Stock (2) (1,704) (1,706)
Issuance of
Shares under
Stock Option
Plan 0 83 83
Dividends
Paid to
Shareholders
($.105 per
share) (3,523) (3,523)
---- ------- -------- -------- ------- --------
Balance at
December 31,
1995 $335 $30,130 $ 61,732 $308,863 $ 0 $401,060
==== ======= ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
<PAGE> 36
PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31
1995 1994 1993
---- ---- ----
(in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 49,058 $ 39,912 $ 46,825
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision (benefit) for deferred
income taxes (2,163) (2,452) 813
Depreciation and amortization 499 551 326
Net accrual of discount on fixed maturities (1,103) (3,304) (4,148)
Realized investment losses (gains) (17,216) (19,083) (36,277)
Cumulative effect of accounting change 0 0 (2,846)
Changes in:
Accrued investment income (11,531) 2,159 (1,289)
Deferred policy acquisition costs (459) 7,891 1,519
Federal income tax recoverable 8,657 (8,447) 0
Liability for future policy benefits 1,588 1,661 9,118
Other assets, liabilities, and income taxes 2,828 (2,356) (5,639)
----------- ----------- -----------
Net Cash Provided by
Operating Activities 30,158 16,532 8,402
----------- ----------- -----------
INVESTING ACTIVITIES:
Fixed Maturities:
Held to Maturity:
Acquisitions 0 (169,309) (185,076)
Sales 0 0 23,854
Maturities, calls and repayments 0 16,788 165,927
Available for Sale:
Acquisitions (326,630) (246,652) (251,908)
Sales 44,453 14,153 99,982
Maturities, calls and repayments 90,147 244,064 235,704
Common Stocks:
Acquisitions (25,087) (41,823) (65,113)
Sales 73,449 42,931 97,588
Decrease (increase) in short term
investments and policy loans (62,357) 373,630 (198,023)
Other Invested Assets:
Additions to other invested assets (31,655) (93,700) (138,572)
Distributions from other invested assets 23,812 79,105 68,680
Purchase of property and equipment (41) (68) (189)
Mortgage loan on real estate (1,392) (7,623) (10,000)
Amounts due from security transactions 52,588 (41,877) 10,711
Other items 0 125 5,870
----------- ----------- -----------
Net Cash Provided by (Used in)
Investing Activities (162,713) 169,844 (140,565)
----------- ----------- -----------
FINANCING ACTIVITIES:
Proceeds from Dollar Repurchase Agreements 1,670,600 1,321,700 1,410,041
Repayment of Dollar Repurchase Agreements (1,549,547) (1,438,541) (1,253,837)
Repayment of notes payable 0 (44,745) (35,072)
Increase (decrease) in policyholders'
account balances 14,207 (42,279) (54,313)
Repurchase of common stock (1,623) (777) 0
Proceeds from private placement 0 0 36,200
Proceeds from debt offering 0 0 50,000
Deposits on policies to be issued 1,342 339 (420)
Dividends paid to shareholders (3,526) (3,045) (2,812)
Other items 0 0 (520)
----------- ----------- -----------
Net Cash Provided by (Used in)
Financing Activities 131,453 (207,348) 149,267
----------- ----------- -----------
Increase (Decrease) in Cash and Cash
Equivalents (1,102) (20,972) 17,104
Cash and Cash Equivalents at Beginning of Year (772) 20,200 3,096
----------- ----------- -----------
Cash and Cash Equivalents at End of Year $ (1,874) $ (772) $ 20,200
=========== =========== ===========
Supplemental Cash Flow Disclosure:
Income Taxes Paid $ 6,887 $ 9,718 $ 16,804
=========== =========== ===========
Interest Paid $ 4,750 $ 4,750 $ 6,682
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
<PAGE> 37
PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BUSINESS
Presidential Life Corporation ("the Company"), through its
wholly-owned subsidiary Presidential Life Insurance Company ("the Insurance
Company"), is engaged in the sale of life insurance and annuities. On July 27,
1993 the Company (formerly a New York Corporation) merged with and into
Presidential Life Corporation, a newly formed Delaware Corporation. Accordingly
all treasury stock of the New York corporation was retired.
B. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements have been
prepared in conformity with generally accepted accounting principles ("GAAP").
Intercompany transactions and balances have been eliminated in consolidation.
Certain amounts have been reclassified to conform to the current year's
presentation. The preparation of financial statements in conformity with
generally accepted accounting principles requires that management make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
C. INVESTMENTS
Fixed maturity investments available for sale represent
investments which may be sold in response to changes in various economic
conditions. These investments are carried at estimated market value and net
unrealized gains (losses), net of the effects of amortization of deferred policy
acquisition costs of approximately $15.6 million and $(9.8) million and deferred
Federal income taxes of approximately $32.2 million and $(21.2) million, at
December 31, 1995 and 1994, respectively, are charged directly to shareholders'
equity, unless a decline in market value is considered to be other than
temporary. Equity securities include common stocks and non-redeemable preferred
stocks and are carried at market, with the related unrealized gains and losses,
net of deferred income tax effect, if any, charged or credited directly to
shareholders' equity, unless a decline in market value is deemed to be other
than temporary.
At December 31, 1994 fixed maturity investments held to
maturity included bonds and redeemable preferred stocks, which were carried at
amortized cost unless a decline in market value was considered to be other than
temporary. Management believed that the Company had the ability to hold such
investments to maturity and it was the intent of management at that time to hold
such securities to maturity.
"Other invested assets" are recorded at the lower of cost or
market, or equity as appropriate, and primarily include interests in limited
partnerships, which principally are engaged in venture capital, acquisitions of
private growth companies, debt restructuring and merchant banking. Limited
partnership interests usually are not registered and typically are illiquid. To
evaluate the appropriateness of the carrying value of a limited partnership
interest, management maintains ongoing discussions with the investment manager
and considers the limited partnership's operation, its current and near term
projected financial condition, earnings capacity, and distributions received by
the Company during the year. Because it is not practicable to obtain an
independent valuation for each limited partnership interest, for purposes of
disclosure, the market value of a limited partnership interest is estimated at
book value. Management believes that the net realizable value of such limited
partnership interests, in the aggregate, exceeds their related carrying value as
of December 31, 1995 and 1994.
<PAGE> 38
In evaluating whether an investment security or other
investment has suffered an impairment in value which is deemed to be "other than
temporary", management considers all available evidence. When a decline in the
value of an investment security or other investment is considered to be other
than temporary, the investment is reduced to its net realizable value, (which
contemplates the price that can be obtained from the sale of such asset in the
ordinary course of business) which becomes the new cost basis. The amount of
reduction is recorded as a realized loss. A recovery from the adjusted cost
basis is recognized as a realized gain only at sale.
The Company participates in "dollar roll" repurchase agreement
transactions to enhance investment income. Dollar roll transactions involve the
sale of certain mortgage backed securities to a holding institution and a
simultaneous agreement to purchase substantially similar securities for forward
settlement at a lower dollar price. The proceeds are invested in short-term
securities at a positive spread until the settlement date of the similar
securities. During this period, the holding institution receives all income and
prepayments for the security. Dollar roll repurchase agreement transactions are
treated as financing transactions for financial reporting purposes.
Realized gains and losses on disposal of investments are
determined for fixed maturities and equity securities by the
specific-identification method.
Investments in short-term securities, which consist primarily
of United States Treasury Notes and corporate debt issues maturing in less than
one year, are recorded at amortized cost which approximates market. Mortgage
loans are stated at their amortized indebtedness. Policy loans are stated at
their unpaid principal balance.
The Company's investments in real estate include two buildings
in Nyack, New York, which are occupied entirely by the Company. The investments
are carried at cost less accumulated depreciation. Depreciation has been
provided on a straight line basis at the rate of 4% per annum for one building
and 5% per annum for the other. Accumulated depreciation amounted to $198,000
and $195,000 at December 31, 1995 and 1994, respectively, and related
depreciation expense for the years ended December 31, 1995, 1994 and 1993 was
$3,200, $5,600 and $5,600, respectively.
D. FURNITURE AND EQUIPMENT
Furniture and equipment is carried at cost and depreciated on
a straight line basis over a period of five to ten years except for automobiles
which are depreciated over a period of three years. Accumulated depreciation
amounted to $3,908,000 and $3,948,000 at December 31, 1995 and 1994,
respectively, and related depreciation expense for each of the three years in
the period ended December 31, 1995 was $192,000, $250,000 and $320,000,
respectively.
E. RECOGNITION OF INSURANCE INCOME AND RELATED EXPENSES
Premiums from traditional life and annuity policies with life
contingencies are recognized generally as income over the premium paying period.
Benefits and expenses are matched with such income so as to result in the
recognition of profits over the life of the contracts. This matching is
accomplished by means of the provision for liabilities for future policy
benefits and the deferral and subsequent amortization of policy acquisition
costs.
For contracts with a single premium or a limited number of
premium payments due over a significantly shorter period than the total period
over which benefits are provided ("limited payment contracts"), premiums are
recorded as income when due with any excess profit deferred and recognized in
income in a constant relationship to insurance in force or, for annuities, the
amount of expected future benefit payments.
<PAGE> 39
E. RECOGNITION OF INSURANCE INCOME AND RELATED EXPENSES - CONTINUED
Premiums from universal life and investment-type contracts are
reported as deposits to policyholders' account balances. Revenues from these
contracts consist of amounts assessed during the period against policyholders'
account balances for mortality charges and surrender charges. Policy benefits
and claims that are charged to expense include benefit claims incurred in the
period in excess of related policyholders' account balances and interest
credited to policyholders' account balances.
For the fiscal years ended December 31, 1995, 1994, and 1993,
approximately 86.8%, 79.6% and 77.6%, respectively, of premiums from traditional
life, annuity, universal life and investment-type contracts received by the
Company were attributable to sales to annuitants and policyholders residing in
the State of New York. In addition, approximately 12.5%, 13.0% and 18.2% of the
Company's total insurance revenues from those respective years were attributable
to sales through an agency principally owned by a director of the Company until
his death in December 1995. Management believes that the Company's transactions
with such agency were made on terms at least as fair to the Company as could be
obtained from unaffiliated third parties. Compensation of agents is strictly
regulated by the New York State Department of Insurance.
F. DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business (principally commissions,
certain underwriting, agency and policy issue expenses), all of which vary with
and are primarily related to the production of new business, have generally been
deferred. When a policy is surrendered, the remaining unamortized cost is
written off. Deferred policy acquisition costs are subject to recoverability
testing at time of policy issue and loss recognition testing at the end of each
accounting period.
For immediate annuities with life contingencies, deferred
policy acquisition costs are amortized over the life of the contract, in
proportion to expected future benefit payments.
For traditional life policies, deferred policy acquisition
costs are amortized over the premium paying periods of the related policies
using assumptions that are consistent with those used in computing the liability
for future policy benefits. Assumptions as to anticipated premiums are estimated
at the date of policy issue and are consistently applied during the life of the
contracts. For these contracts the amortization periods generally are for the
scheduled life of the policy, not to exceed 30 years.
Deferred policy acquisition costs are amortized over periods
ranging from 15 to 25 years for universal life products and investment-type
products as a constant percentage of estimated gross profits arising principally
from surrender charges and interest and mortality margins based on historical
and anticipated future experience, updated regularly. The effects of revisions
to reflect actual experience on previous amortization of deferred policy
acquisition costs, subject to the limitation that the accrued interest on the
deferred acquisition costs balance may not exceed the amount of amortization for
the year, are reflected in earnings in the period estimated gross profits are
revised.
Unamortized deferred policy acquisition costs for the
years ended December 31, 1995, 1994, and 1993 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Balance at the beginning of year $58,319 $50,428 $51,947
Current year's costs deferred 5,992 12,780 3,766
------- ------- -------
Total 64,311 63,208 55,713
Less, amortization for the year 30,981 4,889 5,285
------- ------- -------
Balance at the end of the year $33,330 $58,319 $50,428
======= ======= =======
</TABLE>
<PAGE> 44
G. FUTURE POLICY BENEFITS
Future policy benefits for traditional life insurance policies
are computed using a net level premium method on the basis of actuarial
assumptions as to mortality, persistency and interest established at policy
issue. Assumptions established at policy issue as to mortality and persistency
are based on anticipated experience which, together with interest and expense
assumptions, provide a margin for adverse deviation. Benefit liabilities for
deferred annuities during the accumulation period are equal to accumulated
contractholders' fund balances and after annuitization are equal to the present
value of expected future payments. During the three years in the period ended
December 31, 1995, interest rates used in establishing such liabilities range
from 4.5% to 11% for life insurance liabilities and from 6% to 13.60% for
annuity liabilities.
H. POLICYHOLDERS' ACCOUNT BALANCES
Policyholders' account balances for universal life and
investment-type contracts are equal to the policy account values. The policy
account values represent an accumulation of gross premium payments plus credited
interest less mortality and expense charges and withdrawals.
These account balances are summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Account balances at beginning
of year $1,255,691 $1,297,970 $1,352,283
Additions to account balances 199,510 140,539 143,786
---------- ---------- ----------
Total 1,455,201 1,438,509 1,496,069
Deductions from account
balances 185,303 182,818 198,099
---------- ---------- ----------
Account balances at end of year $1,269,898 $1,255,691 $1,297,970
========== ========== ==========
</TABLE>
Interest rates credited to account balances ranged from 4% to
12.5% in 1995, 1994 and 1993.
I. FEDERAL INCOME TAXES
The Company and its subsidiaries file a consolidated Federal
income tax return. Effective January 1, 1993, the Company adopted SFAS No. 109,
"Accounting for Income Taxes" ("SFAS 109") which requires an asset and liability
method in recording income taxes on all transactions that have been recognized
in the financial statements. SFAS 109 provides that deferred taxes be adjusted
to reflect tax rates at which future tax liabilities or assets are expected to
be settled or realized. Previously, the Company accounted for income taxes in
accordance with SFAS No. 96, "Accounting for Income Taxes." (See Note 6).
J. SEPARATE ACCOUNTS
Separate Accounts are established in conformity with New York
State Insurance Law and represent funds for which investment income and
investment gains and losses accrue to the policyholders. Assets and liabilities
(stated at market value) of the Separate Account, representing net deposits and
accumulated net investment earnings less fees, held primarily for the benefit of
contractholders, are shown as separate captions in the consolidated balance
sheets.
Deposits to the Separate Account are reported as increases in
Separate Account liabilities and are not reported in revenues. Mortality, policy
administration and surrender charges to the Separate Account are included in
revenues.
<PAGE> 41
K. INCOME (LOSS) PER SHARE
Income (loss) per share is computed by dividing net income by
the weighted average number of shares of common stock outstanding during each
year. The potential dilution from the exercise of stock options outstanding is
not material.
L. CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand and amounts
due from banks with an original maturity of three months or less.
M. NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" (SFAS No.
115), requires that investments in debt and equity securities be classified in
three categories (held-to-maturity, trading and available-for-sale). SFAS No.
115 has previously been adopted by the Company, and the Company classified its
investments in accordance with the standard. Management has since adopted the
implementation guidance contained in the November 1995 Financial Accounting
Standards Board Special Report "Questions and Answers - A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities" (the "Special Report"). The Special Report permitted
management to reassess the appropriateness of the classifications of all
securities held when such guidance was implemented (no later than December 31,
1995) and account for the reclassification at fair value. On December 29, 1995,
management transferred 100% of its held-to-maturity securities to the
available-for-sale classification at fair value. The net unrealized gains on
such securities transferred is included in shareholders' equity at December 31,
1995.
Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), was issued in
October of 1995 and requires adoption not later than fiscal years that begin
after December 15, 1995. SFAS 123 establishes financial accounting and reporting
standards for stock-based employee compensation plans. It requires expanded
disclosures of stock-based compensation arrangements with employees and
encourages (but does not require) application of the "fair value" method of
accounting for an employee stock option. The Company has not yet determined
which method of accounting for stock-based compensation it will use in the
future.
2. INVESTMENTS
The following information summarizes the components of net investment
income and realized investment gains (losses). Certain amounts relating to
distributions from "other invested assets" have been reclassified to conform to
the current year's presentation.
Net Investment Income:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1995 1994 1993
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Fixed maturities $128,310 $125,988 $125,610
Common stocks 733 778 549
Short-term investments 14,010 9,726 12,718
Other investment income 32,497 25,061 51,013
-------- -------- --------
175,550 161,553 189,890
Less investment expenses 4,770 4,302 4,700
-------- -------- --------
Net investment income $170,780 $157,251 $185,190
======== ======== ========
</TABLE>
The carrying value of fixed maturities which were non-income
producing for more than twelve months at December 31, 1995, 1994 and 1993 was
$1.5 million, $12.4 million and $7.0 million, respectively.
<PAGE> 42
2. INVESTMENTS - CONTINUED
Realized Investment Gains (Losses):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1995 1994 1993
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Fixed maturities $ 5,458 $3,977 $ (470)
Common stocks 11,758 3,282 9,275
------- ------ ------
Total realized gains
on investments $17,216 $7,259 $8,805
======= ====== ======
</TABLE>
Unrealized Investment Gains (Losses):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1995 1994 1993
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Fixed maturities $107,521 $ (82,043) $102,833
Common stocks 3,668 1,568 8,478
-------- --------- --------
Unrealized investment
gains (losses) $111,189 $ (80,475) $111,311
======== ========= ========
Change in net unrealized
investment gains $191,664 $(191,786) $ 85,979
======== ========= ========
</TABLE>
The change in unrealized investment gains (losses) shown above resulted
primarily from changes in general economic conditions which directly influenced
investment security markets. These changes were also impacted by writedowns of
investment securities for declines in market values deemed to be other than
temporary.
The following tables provide additional information relating to
investments held by the Company:
DECEMBER 31, 1995:
AVAILABLE FOR SALE:
<TABLE>
<CAPTION>
Amortized Gross Unrealized Market Carrying
Type of Investment Cost Gains Losses Value Value
- ------------------ --------- ----- ---------- ------ -----
(in thousands)
<S> <C> <C> <C> <C> <C>
Fixed Maturities:
Bonds and Notes:
United States government
and government agencies
and authorities $ 34,756 $ 2,964 $ 0 $ 37,719 $ 37,719
States, municipalities and
political subdivisions 533,037 23,238 (111) 556,164 556,164
Foreign governments 12,063 4 (267) 11,800 11,800
Public utilities 268,348 13,529 (1,842) 280,036 280,036
All other corporate bonds 793,057 72,377 (8,121) 857,313 857,313
Preferred stocks, primarily
corporate 106,881 12,216 (6,466) 112,631 112,631
---------- -------- -------- ---------- ----------
Total Fixed Maturities: $1,748,142 $124,328 $(16,807) $1,855,663 $1,855,663
========== ======== ======== ========== ==========
Common Stocks $ 34,080 $ 5,983 $ (2,315) $ 37,748 $ 37,748
========== ======== ======== ========== ==========
</TABLE>
<PAGE> 43
2. INVESTMENTS - CONTINUED
DECEMBER 31, 1994:
HELD TO MATURITY:
<TABLE>
<CAPTION>
Amortized Gross Unrealized Market Carrying
Type of Investment Cost Gains Losses Value Value
- ------------------ --------- ----- ---------- ------ -----
(in thousands)
<S> <C> <C> <C> <C> <C>
Fixed Maturities:
Bonds and Notes:
States, municipalities and
political subdivisions $ 39,956 $ 124 $ (1,066) $ 39,014 $ 39,956
Foreign governments 7,071 0 (1,971) 5,100 7,071
Public utilities 18,966 43 (467) 18,542 18,966
All other corporate bonds 155,369 1,361 (8,528) 148,202 155,369
---------- ------- -------- --------- ----------
Total Fixed Maturities: $ 221,362 $ 1,528 $(12,032) $ 210,858 $ 221,362
========== ======= ======== ========= ==========
AVAILABLE FOR SALE:
<CAPTION>
Amortized Gross Unrealized Market Carrying
Type of Investment Cost Gains Losses Value Value
- ------------------ --------- ----- ---------- ------ --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Fixed Maturities:
Bonds and Notes:
United States government
and government agencies
and authorities $ 30,337 $ 570 $ (1,065) 29,842 $ 29,842
States, municipalities and
political subdivisions 417,697 1,538 (26,302) 392,933 392,933
Foreign governments 4,966 0 (716) 4,250 4,250
Public utilities 165,899 4,192 (17,677) 152,414 152,414
All other corporate bonds 605,227 15,733 (34,089) 586,871 586,871
Preferred stocks, primarily
corporate 138,240 1,250 (14,975) 124,515 124,515
---------- ------- -------- ---------- ----------
Total Fixed Maturities: $1,362,366 $23,283 $(94,824) $1,290,825 $1,290,825
========== ======= ======== ========== ==========
Common Stocks $ 36,507 $ 4,824 $ 3,257 $ 38,074 $ 38,074
========== ======= ======== ========== ==========
</TABLE>
The estimated fair value of fixed maturities available for sale at
December 31, 1995, by contractual maturity, are as follows. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without penalties.
<TABLE>
<CAPTION>
Estimated Fair Value
--------------------
(in thousands)
<S> <C>
Due in one year or less $ 10,747
Due after one year through five years 102,767
Due after five years through ten years 262,075
Due after ten years 1,367,443
---------
Total debt securities 1,743,032
Preferred stock 112,631
---------
Total $1,855,663
==========
</TABLE>
<PAGE> 44
2. INVESTMENTS - CONTINUED
Proceeds from sales of fixed maturities during 1995, 1994 and 1993 were
$506.7 million, $275.1 million and $525.5 million, respectively. During 1995,
1994 and 1993, respectively, gross gains of $4.8 million, $5.2 million and $14.7
million and gross losses of $14.7 million, $31.1 million and $34.1 million were
realized on those sales.
During 1995 and 1994, the Company restructured or modified the terms of
certain fixed maturity investments. Certain of these restructures included debt
for equity exchanges. The fixed maturity portfolio, based on carrying value,
includes $2.1 million and $6.0 million at December 31, 1995 and 1994,
respectively of such restructured securities. These restructures and
modifications had no significant impact on gross interest income on these fixed
maturities (which is included in net investment income).
As of December 31, 1995, the Company's mortgage loans were
collateralized by commercial office buildings in New York and Pennsylvania.
Investments in U.S. Government and Government Agencies with an
aggregate carrying value of $541,082,000 represents investments owned in any one
issuer that aggregate 10% or more of shareholders' equity as of December 31,
1995.
As of December 31, 1995 securities with a carrying value of
approximately $4.9 million were on deposit with various state insurance
departments to comply with applicable insurance laws.
As part of a proposed rehabilitation plan for Fidelity Mutual Life
Insurance Company ("Fidelity"), on January 11, 1995 the Insurance Company signed
a definitive purchase agreement with the Pennsylvania Insurance Commissioner and
Fidelity to invest up to $45 million for a minority (49.9%) stake in a Fidelity
subsidiary insurance holding company. In addition, the Company agreed to
purchase $25 million of Senior Notes of such company.
The Company was informed by Pennsylvania Insurance Commissioner Linda
S. Kaiser, that in response to the significant improvement in the invested
assets of Fidelity, she has reopened the process to select an equity investor
for the recapitalization and rehabilitation of Fidelity. The Company disagrees
with the Commissioner's decision to reopen the process and has reserved all of
its rights, including those under the Stock Purchase Agreement signed in January
1995 with the Pennsylvania Insurance Department.
3. NOTES PAYABLE
Notes payable at December 31, 1995 and 1994 consist of $50 million, 9
1/2% senior notes due December 15, 2000. Interest is payable June 15 and
December 15. Debt issue costs are being amortized on the interest method over
the term of the notes. As of December 31, 1995, such unamortized costs were $1.5
million. There are no principal payments required for the senior notes over the
next four years and the total principal is due on December 15, 2000. The senior
notes are callable after December 14, 1998.
COVENANTS
The indenture governing the senior notes contains covenants relating to
limitations on additional indebtedness, restricted payments, liens and sale or
issuance of capital stock of the Insurance Company. In the event the Company
violates such covenants as defined in the indenture, the Company is obligated to
offer to repurchase 25% of the outstanding principal amount of such notes. The
Company believes that it is in compliance with all of the covenants.
<PAGE> 45
3. NOTES PAYABLE - CONTINUED
SUBORDINATED NOTES
During 1986, the Company completed an offering to the public of $50
million of 11.125% subordinated notes due May 15, 1994. Interest was payable May
15 and November 15. Debt issue costs were amortized on a straight line basis
over the term of the notes, eight years.
On December 15, 1993, the Company called all of the remaining
subordinated notes for redemption on January 14, 1994, at 100.88% of the
principal amount thereof.
SENIOR TERM NOTES
In October 1988, the Company completed a private placement offering of
$30,000,000 senior term notes due October 25, 1993. The interest rate was
variable and ranged from 4.75% to 4.828% in 1993. On October 25, 1993, the
Company repaid the Senior Term Notes.
4. SHAREHOLDERS' EQUITY
Payment of dividends to the Company by the Insurance Company are
effectively restricted by the provisions of the New York Insurance Law
("Insurance Law"). All dividend payments are subject to the review and
disapproval by the New York Insurance Department. Under the New York State
Insurance Law, the New York Superintendent has broad discretion to determine
whether the financial condition of a stock life insurance company would support
the payment of dividends to its shareholders.
The New York Insurance Department has established informal guidelines
for the Superintendent's determinations which focus upon, among other things,
the overall financial condition and profitability of the insurer under statutory
accounting practices. During 1995, 1994 and 1993, the Insurance Company paid
dividends of $5 million, $12 million and $-0- million, respectively, to the
Company.
5. EMPLOYEE BENEFIT AND DEFERRED COMPENSATION PLANS
(a) Employee Retirement Plan
The Company has a noncontributory defined benefit pension plan covering
all eligible employees. The Company is both sponsor and administrator of this
plan. The plan provides for pension benefits based on average pay and years of
service. It is the Company's general policy to fund accrued pension costs as
required under ERISA. In 1995 the Company contributed $120,500 to the plan. At
December 31, 1994 and 1993 the plan was fully funded under ERISA. As a result,
the Company did not make a contribution to the plan in 1994 and 1993.
Net pension cost included the following components:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Service cost $ 379 $ 430 $ 455
Interest cost 293 302 305
Actual return on plan assets (293) (326) (352)
Other 0 28 28
----- ----- -----
Net pension cost $ 379 $ 434 $ 436
===== ===== =====
</TABLE>
<PAGE> 46
5. EMPLOYEE BENEFIT AND DEFERRED COMPENSATION PLANS - CONTINUED
The funded status of the plan at December 31, 1995 and 1994 was as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994
---- ----
(in thousands)
<S> <C> <C>
Projected benefits obligation $(4,650) $(4,879)
Plan assets at fair value 3,861 3,826
------- -------
Assets less than projected benefit (789) (1,053)
Unrecognized prior service cost 223 251
Unrecognized net loss (gain) (824) 329
------- -------
Accrued pension costs $(1,390) $ (473)
======= =======
Accumulated benefit obligation:
Vested $ 3,869 $ 3,620
Nonvested 28 23
------- ------
$ 3,897 $ 3,643
======= =======
</TABLE>
The following rates were used in computing the pension cost for the
years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Weighted-average discount rate 7.0% 7.0% 7.0%
Assumed rate of compensation increases 3.0% 4.5% 4.5%
Expected long-term rates of return 7.5% 8.5% 8.5%
</TABLE>
(b) Employee Savings Plan
The Company adopted an Internal Revenue Code (IRC) Section 401(k) plan
for its employees effective January 1, 1992. Under the plan, participants may
contribute up to a maximum of 15% of their pre-tax earnings or the dollar limit
as prescribed by IRC Section 415(d). A portion of participants' pre-tax earnings
may be matched by the Company. For the years ended December 31, 1994 and 1993,
the Company made no contribution to the Plan. For the year ended December 31,
1995, the Company's contribution was approximately $14,000.
(c) Employee Stock Option Plan
The Company has adopted an incentive stock option plan recommended by
the Board of Directors and approved by the shareholders in 1984. This plan
grants options to purchase up to 640,000 shares of common stock of the Company
to officers and key employees. Option prices are 100% of the fair market value
at date of grant. The following schedule shows all options granted, exercised,
expired and exchanged under the Company's Incentive Stock Option Plan as of
December 31, 1995.
<PAGE> 47
5. EMPLOYEE BENEFIT AND DEFERRED COMPENSATION PLANS - CONTINUED
Information relating to the options is as follows:
<TABLE>
<CAPTION>
Option Price
Number Amount Total
of Shares Per Share Price
--------- --------- -----
<S> <C> <C> <C>
Outstanding, January 1, 1993 218,427 $4.88 $1,064,832
Granted 5,000 7.25 36,250
Exercised (1,609) 4.88 (7,852)
Cancelled (23,884) 4.88 (116,554)
------- ----------
Outstanding, December 31, 1993 197,934 $4.93 $ 976,676
Granted 0 - 0
Exercised (1,995) 4.88 (9,726)
Cancelled (1,199) 4.88 (5,845)
------- ----------
Outstanding, December 31, 1994 194,740 $4.93 $ 961,105
Granted 45,200 7.53 340,200
Exercised (17,128) 4.88 (83,499)
Cancelled (1,191) 4.88 (5,806)
------- ----------
Outstanding, December 31, 1995 221,621 $5.47 $1,212,000
======= ==========
</TABLE>
At December 31, 1995, 173,919 options for shares of common stock were
exercisable.
6. INCOME TAXES
The following is a reconciliation of income taxes computed using the
Federal statutory rate with the provision for income taxes for the three years
ended December 31,:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Provision for income taxes computed
at Federal statutory rate $19,737 $13,027 $20,022
Increase (decrease) in income taxes
resulting from:
Utilization of prior unrecognized
deferred tax asset relating to
investment losses (7,858) (11,324) (8,203)
Losses producing no current benefit 1,262 896 1,935
Other (5,809) (5,292) (526)
------- ------- -------
Provision (Benefit) for
Federal income taxes $ 7,332 $(2,693) $13,228
======= ======= =======
</TABLE>
The Company provides for deferred income taxes resulting from temporary
differences which arise from recording certain transactions in different years
for income tax reporting purposes than for financial reporting purposes. The
sources of these differences and the tax effect of each were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Deferred policy acquisition costs $ 333 $ (647) $ 34
Policyholders' account balances (189) (112) (231)
Investment adjustments (1,510) (2,218) 1,405
Previously accrued expenses
currently deductible 0 665 0
Other (797) (140) (395)
------- ------- ------
Deferred Federal income tax
provision (benefit) $(2,163) $(2,452) $ 813
======= ======= ======
</TABLE>
<PAGE> 48
6. INCOME TAXES - CONTINUED
Effective January 1, 1993 the Company adopted SFAS No. 109. The
cumulative effect of the accounting change relating to prior years was to
increase net income by $2.8 million or $.09 per share and is reported separately
in the consolidated statement of income.
Deferred federal income taxes reflect the net tax effects of (a)
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes, and
(b) operating loss carryforwards. Significant components of the Company's net
deferred tax (asset) liability as of December 31, 1995 and 1994 are as follows
(in thousands):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Deferred income tax asset:
Investments $(10,609) $(18,108)
Insurance reserves (4,310) (4,406)
Net unrealized investment losses 0 (21,044)
Operating loss carryforwards (2,512) (2,002)
Other (418) (449)
-------- --------
(17,849) (46,009)
Valuation allowance 11,024 18,858
-------- --------
Net deferred income tax asset $ (6,825) $(27,151)
-------- --------
Deferred income tax liability:
Deferred policy acquisition costs $ 16,706 $ 16,372
Net unrealized investment gains 33,445 1,175
Policyholder account balances 301 490
Other 1,133 1,548
-------- --------
Deferred income tax liability 51,585 19,585
-------- --------
Net deferred income tax (asset) liability $ 44,760 $ (7,566)
======== ========
</TABLE>
The valuation allowance relates principally to investment writedowns
recorded for financial reporting purposes, which have not been recognized for
income tax purposes, due to the uncertainty associated with their realizability
for income tax purposes. Changes in the valuation allowance for the years ended
December 31, 1995 and 1994 primarily reflect the reduction in the deferred tax
asset as a result of the utilization of previously unrecognized investment
losses.
Prior to 1984, Federal income tax law allowed life insurance companies
to exclude from taxable income and set aside certain amounts in a tax memorandum
account known as the Policyholder Surplus Account ("PSA"). Under the tax law,
the PSA has been frozen at its December 31, 1983 balance of $2,900,000 which may
under certain circumstances become taxable in the future. The Insurance Company
does not believe that any significant portion of the amount in this account will
be taxed in the foreseeable future. Accordingly, no provision for income taxes
has been made thereon. If the amount in the PSA were to become taxable, the
resulting liability using current rates would be approximately $1,015,000.
Under current tax law, there are certain limitations on the utilization
of non-life insurance company losses ("non-life losses") against life insurance
company income ("life income") in a consolidated federal income tax return. The
utilization of non-life losses against life income in any year is limited to the
lesser of 35 percent of life income or 35 percent of non-life losses. Any
unutilized balance of non-life losses is carried over to subsequent tax years.
The Company has net operating loss carryforwards of approximately
$5,877,000 at December 31, 1995 of which $1,349,000 expire in 2007; $2,374,000
in 2008; and $2,154,000 in 2009.
<PAGE> 49
7. REINSURANCE
Reinsurance allows life insurance companies to share risks on a case by
case or aggregate basis with other insurance and reinsurance companies. The
Insurance Company cedes insurance to the reinsurer and compensates the reinsurer
for its assumption of risk. The maximum amount of individual life insurance
normally retained by the Company on any one life is $50,000 per policy and
$100,000 per life. The maximum retention with respect to impaired risk policies
typically is the same. The Insurance Company cedes insurance primarily on an
"automatic" basis, under which risks are ceded to a reinsurer on specific blocks
of business where the underlying risks meet certain predetermined criteria, and
on a "facultative" basis, under which the reinsurer's prior approval is required
on each risk reinsured.
The reinsurance of a risk does not discharge the primary liability of
the insurance company ceding that risk, but the reinsured portion of the claim
is recoverable from the reinsurer. The major reinsurance treaties into which the
Insurance Company has entered can be characterized as follows:
Reinsurance ceded from the Insurance Company to Life Reassurance
Corporation of America and North American Reassurance at December 31, 1995 and
1994 consists of coinsurance agreements aggregating face amounts of $295.6
million and $357 million, respectively, representing the amount of individual
life insurance contracts that were ceded to the reinsurers. The term
"coinsurance" refers to an arrangement under which the Insurance Company pays
the reinsurers the gross premiums on the portion of the policy to be reinsured
and the reinsurers grant a ceding commission to the Insurance Company to cover
its acquisition costs plus a margin for profit.
Reinsurance premiums ceded for 1995, 1994 and 1993 amounted to
approximately $4.5 million, $4.7 million, and $5.2 million, respectively.
8. STATUTORY FINANCIAL STATEMENTS
Accounting practices used to prepare statutory financial statements for
regulatory filings of stock life insurance companies differ from GAAP. Material
differences resulting from these accounting practices include: deferred policy
acquisition costs, deferred Federal income taxes and statutory non-admitted
assets are recognized under GAAP accounting while statutory investment valuation
reserves are not; premiums for universal life and investment-type products are
recognized as revenues for statutory purposes and as deposits to policyholders'
accounts under GAAP; different assumptions are used in calculating future
policyholders' benefits; and different methods are used for calculating
valuation allowances for statutory and GAAP purposes; fixed maturities are
recorded principally at market value or amortized cost as appropriate under GAAP
while under statutory accounting practices they are recorded principally at
amortized cost.
<TABLE>
<CAPTION>
For the years ended December 31,
1995 1994 1993
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Statutory surplus $205,135 $170,758 $163,626
======== ======== ========
Statutory net income $ 38,834 $ 2,535 $ 26,632
======== ======== ========
</TABLE>
<PAGE> 50
9. LITIGATION
From time to time, the Company is involved in litigation relating to
claims arising out of its operations in the normal course of business. The
Company is not a party to any legal proceedings, the adverse outcome of which,
in management's opinion, individually or in the aggregate, would have a material
adverse effect on the Company's financial condition or results of operations.
10. FAIR VALUE INFORMATION
The following estimated fair value disclosures of financial instruments
have been determined using available market information, current pricing
information and appropriate valuation methodologies. If quoted market prices
were not readily available for a financial instrument, management determined an
estimated fair value. Accordingly, the estimates may not be indicative of the
amounts the Company could have realized in a market transaction.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value.
For fixed maturities and common stocks, estimated fair values were
based primarily upon independent pricing services. For a limited number of
privately placed securities, where prices are not available from independent
pricing services, the Company estimates market values using a matrix pricing
model, based on the issuer's credit standing and the security's interest rate
spread over U.S. Treasury bonds. Because it is not practicable to obtain an
independent valuation for each limited partnership interest for purposes of
disclosure, the market value of a limited partnership interest is estimated to
approximate the carrying value. As of December 31, 1995, the Company was
committed to contribute, if called upon, an aggregate of approximately $37
million of additional capital to certain of these limited partnerships. The
market value of short-term investments, mortgage loans and policy loans is
estimated to approximate the carrying value.
Estimated fair values of policyholders' account balances for investment
type products (i.e., deferred annuities, immediate annuities without life
contingencies and universal life contracts) are calculated by projecting the
contract cash flows and then discounting them back to the valuation date at the
appropriate discount rate. For immediate annuities without life contingencies,
the cash flows are defined contractually. For all other products, projected cash
flows are based on an assumed lapse rate and crediting rate (based on the
current treasury curve), adjusted for any anticipated surrender charges. The
discount rate is based on the current duration-matched treasury curve, plus an
adjustment to reflect the anticipated spread above treasuries on investment
grade fixed maturity securities, less an expense and profit spread.
<TABLE>
<CAPTION>
December 31, 1995 Carrying VaLue Estimated Fair Value
- ----------------- -------------- --------------------
Assets (in thousands)
<S> <C> <C>
Fixed Maturities:
Available for Sale 1,855,663 1,855,663
Common Stock 37,748 37,748
Mortgage Loans 19,015 19,015
Policy Loans 18,601 18,601
Cash and Short-Term Investments 190,747 190,747
Other Invested Assets 150,331 150,331
Liabilities
Policyholders' Account Balances 1,269,898 1,286,221
Other Notes Payable 50,000 50,000
</TABLE>
<PAGE> 54
<TABLE>
<CAPTION>
10. FAIR VALUE INFORMATION - CONTINUED
December 31, 1994 Carrying Value Estimated Fair Value
- ----------------- -------------- --------------------
(in thousands)
<S> <C> <C>
Assets
Fixed Maturities:
Held to Maturity 221,362 210,858
Available for Sale 1,290,825 1,290,825
Common Stock 38,074 38,074
Mortgage Loans 17,623 17,623
Policy Loans 18,741 18,741
Cash and Short-Term Investments 129,352 129,352
Other Invested Assets 142,488 142,488
Liabilities
Policyholders' Account Balances 1,255,641 1,114,800
Other Notes Payable 50,000 50,000
</TABLE>
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data is presented below. Certain
amounts have been reclassified to conform to the current year's
presentation. (See Note 2).
<TABLE>
<CAPTION>
Three Months Ended
------------------
1995 March 31 June 30 September 30 December 31
---- -------- ------- ------------ -----------
(in thousands, except per share)
<S> <C> <C> <C> <C>
Premiums and other
insurance revenues $ 2,196 $2,889 $ 3,494 $ 3,289
Net investment income 42,831 43,516 40,749 43,683
Realized investment
gains 1,079 2,142 8,139 5,857
------- ------- ------- -------
Total revenues 46,106 48,547 52,382 52,829
======= ======= ======= =======
Benefits and expenses 34,806 34,839 36,803 37,026
======= ======= ======= =======
Net income 8,162 16,222 10,212 14,462
======= ======= ======= =======
Income per share $ .24 $ .48 $ .30 $ .44
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
------------------
1994 March 31 June 30 September 30 December 31
---- -------- ------- ------------ -----------
(in thousands, except per share)
<S> <C> <C> <C> <C>
Premiums and other
insurance revenues $ 1,448 $1,684 $ 2,653 $ 3,779
Net investment income 39,249 37,158 35,011 34,521
Realized investment
gains (losses) 6,442 4,699 (729) 7,937
------- ------- ------- -------
Total revenues 47,139 43,541 36,935 46,237
======= ======= ======= =======
Benefits and expenses 34,770 32,098 33,139 36,528
======= ======= ======= =======
Net income 9,463 8,289 3,329 18,831
======= ======= ======= =======
Income per share $ .28 $ .24 $ .10 $ .56
======= ======= ======= =======
</TABLE>
<PAGE> 55
PRESIDENTIAL VARIABLE ACCOUNT ONE
OF
PRESIDENTIAL LIFE INSURANCE COMPANY
FINANCIAL STATEMENTS
DECEMBER 31, 1995
<PAGE> 56
REPORT OF INDEPENDENT ACCOUNTANTS
February 27, 1996
To the Board of Directors of Presidential Life Insurance Company and the
Contractholders of its separate account, Presidential Variable Account One
In our opinion, the accompanying statement of net assets, including the schedule
of portfolio investments, and the related statements of operations and of
changes in net assets present fairly, in all material respects, the financial
position of each of the Variable Accounts constituting Presidential Variable
Account One, a separate account of Presidential Life Insurance Company (the
"Separate Account") at December 31, 1995, the results of their operations for
the year then ended, and the changes in their net assets for each of the two
years in the period then ended, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Separate
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 generally accepted auditing standards
which 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 audits, which included
confirmation of securities owned at December 31, 1995 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
<PAGE> 57
PRESIDENTIAL VARIABLE ACCOUNT ONE
OF
PRESIDENTIAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Presidential Variable Account One of Presidential Life Insurance
Company (the "Separate Account") is a segregated investment account of
Presidential Life Insurance Company (the "Company") which was
established pursuant to New York insurance law on August 26, 1987, with
units first offered for sale on May 2, 1988. The Separate Account is
registered as a segregated unit investment trust pursuant to the
provisions of the Investment Company Act of 1940, as amended.
The Separate Account is composed of twelve variable portfolios (the
"Variable Accounts"). Each of the Variable Accounts is invested solely
in the shares of one of the twelve currently available investment
portfolios of the Anchor Series Trust (the "Trust"). The Trust is a
diversified, open-end investment company, which retains an investment
advisor to assist in the investment activities of the Trust. The
contractholder may elect to have payments allocated to a
guaranteed-interest fund of the Company (the "General Account"), which
is not a part of the Separate Account. The financial statements include
balances allocated by the contractholder to the twelve Variable
Accounts and do not include balances allocated to the General Account.
The investment objectives and policies of the twelve portfolios of the
Trust are summarized below:
FOREIGN SECURITIES PORTFOLIO seeks long-term capital appreciation. This
portfolio invests primarily in a diversified group of equity securities
issued by foreign companies and primarily denominated in foreign
currencies.
CAPITAL APPRECIATION PORTFOLIO seeks long-term capital appreciation.
This portfolio invests in growth equity securities which are widely
diversified by industry and company and may engage in transactions
involving stock index futures and options thereon as a hedge against
changes in market conditions.
GROWTH PORTFOLIO seeks long-term capital appreciation. This portfolio
invests in growth equity securities and may also engage in transactions
involving stock index futures and options thereon as a hedge against
changes in market conditions.
1
<PAGE> 58
PRESIDENTIAL VARIABLE ACCOUNT ONE
OF
PRESIDENTIAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
NATURAL RESOURCES PORTFOLIO seeks a total return in excess of the U.S.
rate of inflation as represented by the Consumer Price Index. This
portfolio invests primarily in equity securities of U.S. or foreign
companies which are expected to provide favorable returns in periods of
rising inflation. This portfolio may also engage in transactions
involving stock index futures contracts and options thereon, and
transactions involving the future delivery of fixed-income securities
("Financial Futures Contracts") and options thereon as a hedge against
changes in market conditions.
CONVERTIBLE SECURITIES PORTFOLIO seeks to provide high current income
and long-term capital appreciation. This portfolio invests primarily in
a variety of securities convertible into common stock which are issued
by publicly held corporations. This portfolio may also engage in
transactions involving Financial Futures Contracts and options thereon
as a hedge against changes in market conditions.
STRATEGIC MULTI-ASSET PORTFOLIO seeks high long-term total investment
return. This portfolio invests in growth equity securities, aggressive
growth equity securities, investment grade bonds, high-yield, high-risk
bonds, international equity securities and money market instruments.
This portfolio may also engage in transactions involving stock index
futures contracts and options thereon, and Financial Futures Contracts
and options thereon as a hedge against changes in market conditions.
MULTI-ASSET PORTFOLIO seeks long-term total investment return
consistent with moderate investment risk. This portfolio invests in
growth equity securities, convertible securities, investment grade
fixed-income securities and money market securities. This portfolio may
also engage in transactions involving stock index futures contracts and
options thereon, and Financial Futures Contracts and options thereon as
a hedge against changes in market conditions.
HIGH YIELD PORTFOLIO seeks high current income. A secondary investment
objective is capital appreciation. This portfolio invests at least 65%
of its assets in high-yielding, high-risk, income-producing corporate
bonds, which generally carry ratings lower than those assigned to
investment grade bonds by Moody's Investors Service, Inc. ("Moody's")
or Standard & Poor's Corporation ("S&P"), or which are unrated. This
portfolio may also engage in transactions involving Financial Futures
Contracts and options thereon as a hedge against changes in market
conditions.
2
<PAGE> 59
PRESIDENTIAL VARIABLE ACCOUNT ONE
OF
PRESIDENTIAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
TARGET '98 PORTFOLIO seeks a predictable compounded investment return
for the specified time period, consistent with preservation of capital.
This portfolio invests primarily in zero coupon securities and current,
interest-bearing, investment grade debt obligations which are issued by
the U.S. Government, its agencies and instrumentalities, and both
domestic and foreign corporations.
FIXED INCOME PORTFOLIO seeks a high level of current income consistent
with preservation of capital. This portfolio invests primarily in
investment grade, fixed-income securities and may engage in Financial
Futures Contracts and options thereon as a hedge against changes in
market conditions.
GOVERNMENT AND QUALITY BOND PORTFOLIO seeks relatively high current
income, liquidity and security of principal. This portfolio invests in
obligations issued, guaranteed or insured by the U.S. Government, its
agencies or instrumentalities and in corporate debt securities rated Aa
or better by Moody's or AA or better by S&P.
MONEY MARKET PORTFOLIO seeks current income consistent with stability
of principal through investment in a diversified portfolio of money
market instruments maturing in 397 days or less. The portfolio will
maintain a dollar-weighted average portfolio maturity of not more than
90 days.
Investments in the variable portfolios of the Trust are valued at the
net asset value of the shares of the designated portfolio of the Trust.
Securities transactions are valued on the date the securities are
purchased or sold. Dividends and capital gains distributions are
recorded when received. Realized gains and losses on the sale of
investments in the Trust are recognized at the date of sale and are
determined on an average cost basis.
Accumulation unit values are computed daily based on the total net
assets of the Variable Accounts.
3
<PAGE> 60
PRESIDENTIAL VARIABLE ACCOUNT ONE
OF
PRESIDENTIAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
2. CHARGES AND DEDUCTIONS
Charges and deductions are applied against the current value of the
Separate Account and are paid as follows:
WITHDRAWAL CHARGE: The contract value may be withdrawn at any time
during the accumulation period. There is a free withdrawal amount for
the first withdrawal during a contract year after the first contract
year. The free withdrawal amount is equal to 10% of aggregate purchase
payments that have not previously been withdrawn. Should a withdrawal
exceed the free withdrawal amount, a withdrawal charge, in certain
circumstances, is imposed and paid to the Company.
The withdrawal charge is 6% of the amount withdrawn if such withdrawal
is made within six years of making the purchase payment, but will not
exceed 9% of total purchase payments. The withdrawal charge is deducted
from the remaining contract value so that the actual reduction in
contract value as a result of the withdrawal will be greater than the
withdrawal amount requested and paid. For purposes of determining the
withdrawal charge, withdrawals will be allocated to purchase payments
on a first-in, first-out basis so that all withdrawals are allocated to
purchase payments to which the lowest (if any) withdrawal charge
applies.
ANNUITY CHARGE: Contractholders may elect a lump sum payment or one of
three annuity options. Option 1 provides a life income with
installments guaranteed, Option 2 provides a joint and survivor
annuity, and Option 3 provides income for a specified period. No
annuity charge is assessed if Option 1 or Option 2 is elected. If a
contractholder elects Option 3, an annuity charge equal to the
withdrawal charge if the contract were surrendered may be applied. No
annuity charge will be assessed if Option 3 is elected by a beneficiary
under the death benefit.
ANNUAL CONTRACT CHARGE: An annual contract charge of $30 is charged
against each contract, which reimburses the Company for expenses
incurred in establishing and maintaining records relating to a
contract. The annual contract charge will be assessed each contract
year on the anniversary of the issue date of the contract. In the event
that a total surrender of contract value is made, the charge will be
assessed as of the date of surrender without proration.
4
<PAGE> 61
PRESIDENTIAL VARIABLE ACCOUNT ONE
OF
PRESIDENTIAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
2. CHARGES AND DEDUCTIONS (continued)
TRANSFER FEE: A transfer fee of $25 per transaction is assessed on each
transfer of funds in excess of fifteen transactions within a contract
year or if a transfer is made within 30 days of the issue date of the
contract.
PREMIUM TAXES: Premium taxes or other taxes payable to a state or other
governmental entity will be charged against contract values. Some
states assess premium taxes at the time purchase payments are made;
others assess premium taxes at the time annuity payments begin. The
Company currently intends to deduct premium taxes at the time of
surrender, upon death of the contractholder or upon annuitization;
however, it reserves the right to deduct premium taxes when incurred.
Premium taxes generally range from 0% to 3.5%.
MORTALITY RISK CHARGE: The Company deducts a mortality risk charge as
compensation for the mortality risk assumed by virtue of its
contractual obligations to make annuity payments after the contract has
annuitized for the life of the annuitant, to waive the withdrawal
charge in the event of the death of the annuitant and to provide a
death benefit prior to annuitization. As compensation for this, the
Company deducts an amount, computed on a daily basis, which is equal to
an annual rate of 0.90% of the net asset value of each portfolio.
EXPENSE RISK CHARGE: The Company guarantees that the annual contract
and administrative expense charges will not increase, regardless of
actual expenses. As compensation for this guarantee, the Company
deducts an amount, computed on a daily basis, which is equal to an
annual rate of 0.35% of the net asset value of each portfolio.
ADMINISTRATIVE EXPENSE CHARGE: The Company deducts an administrative
expense charge which is designed to compensate the Company for assuming
the risk that the administrative expenses will exceed the revenues from
the annual contract charge. As compensation for assuming this risk, the
Company deducts an amount, computed on a daily basis, which is equal to
0.15% of the net asset value of each Portfolio.
SEPARATE ACCOUNT INCOME TAXES: The Company currently does not maintain
a provision for taxes, but has reserved the right to establish such a
provision for taxes
5
<PAGE> 62
PRESIDENTIAL VARIABLE ACCOUNT ONE
OF
PRESIDENTIAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
2. CHARGES AND DEDUCTIONS (continued)
in the future if it determines, in its sole discretion, that it will
incur a tax as a result of the operation of the Separate Account.
3. INVESTMENT IN THE TRUST
The aggregate cost of the Trust's shares acquired and the aggregate
proceeds from shares sold for the year ended December 31, 1995 consist
of the following:
<TABLE>
<CAPTION>
Cost of Shares Proceeds from
Variable Accounts Acquired Shares Sold
-------------------------------- -------------- -------------
<S> <C> <C>
Foreign Securities Portfolio $ 16,714 $114,824
Capital Appreciation Portfolio 90,853 170,174
Growth Portfolio 232,067 239,819
Natural Resources Portfolio 45,539 88,239
Convertible Securities Portfolio 64,397 260,230
Strategic Multi-Asset Portfolio 115,213 128,708
Multi-Asset Portfolio 123,980 403,137
High Yield Portfolio 45,287 89,046
Target '98 Portfolio 55,052 163,346
Fixed Income Portfolio 27,070 15,184
Government and Quality Bond
Portfolio 61,487 263,375
Money Market Portfolio 128,869 140,011
======== ========
</TABLE>
4. FEDERAL INCOME TAXES
The Company qualifies for federal income tax treatment granted to life
insurance companies under subchapter L of the Internal Revenue Service
Code (the "Code"). The operations of the Separate Account are part of
the total operations of the Company and are not taxed separately. The
Separate Account is not treated as a regulated investment company under
the Code.
6
<PAGE> 63
PRESIDENTIAL VARIABLE ACCOUNT ONE
OF
PRESIDENTIAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
5. SUBSEQUENT EVENT
The decision has been made to change the name of the Convertible
Securities Portfolio to the Growth and Income Portfolio, with revised
investment objectives of high current income and long-term capital
appreciation through investment in securities of issuers that have the
potential for growth and offer income. The revised portfolio may also
enter into forward currency contracts and contracts on financial
futures or stock index futures, or options thereon, as a hedge against
changes in market conditions. These changes will become effective on
February 29, 1996.
7
<PAGE> 64
PRESIDENTIAL VARIABLE ACCOUNT ONE
OF
PRESIDENTIAL LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
December 31, 1995
<TABLE>
<CAPTION>
Foreign Capital Natural
Securities Appreciation Growth Resources
Portfolio Portfolio Portfolio Portfolio
-------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Investments in Anchor Series Trust,
at market value $521,845 $922,437 $1,198,403 $141,598
Liabilities 0 0 0 0
-----------------------------------------------------
Net Assets $521,845 $922,437 $1,198,403 $141,598
=====================================================
Accumulation units outstanding 39,747 32,160 35,168 8,124
=====================================================
Unit value of accumulation units $ 13.13 $ 28.68 $ 34.08 $ 17.43
=====================================================
<CAPTION>
Convertible Strategic
Securities Multi-Asset Multi-Asset
Portfolio Portfolio Portfolio
-----------------------------------------
<S> <C> <C> <C>
Assets:
Investments in Anchor Series Trust,
at market value $131,579 $585,692 $988,418
Liabilities 0 0 0
-------------------------------------
Net Assets $131,579 $585,692 $988,418
=====================================
Accumulation units outstanding 6,868 31,915 48,948
=====================================
Unit value of accumulation units $ 19.16 $ 18.35 $ 20.19
=====================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 65
PRESIDENTIAL VARIABLE ACCOUNT ONE
OF
PRESIDENTIAL LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
December 31, 1995
(Continued)
<TABLE>
<CAPTION>
Fixed Government and
High Yield Target '98 Income Quality Bond
Portfolio Portfolio Portfolio Portfolio
------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Investments in Anchor Series Trust,
at market value $172,106 $442,951 $172,101 $622,852
Liabilities 0 0 0 0
------------------------------------------------------------
Net Assets $172,106 $442,951 $172,101 $622,852
============================================================
Accumulation units outstanding 8,181 23,657 6,759 23,426
============================================================
Unit value of accumulation units $ 21.03 $ 18.72 $ 25.46 $ 26.60
============================================================
<CAPTION>
Money
Market
Portfolio TOTAL
-------------------------
<S> <C> <C>
Assets:
Investments in Anchor Series Trust,
at market value $340,969 $6,240,951
Liabilities 0 0
------------------------
Net Assets $340,969 $6,240,951
========================
Accumulation units outstanding 20,336
========
Unit value of accumulation units $ 16.77
========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 66
PRESIDENTIAL VARIABLE ACCOUNT ONE
OF
PRESIDENTIAL LIFE INSURANCE COMPANY
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1995
<TABLE>
<CAPTION>
Market Value Market
Variable Accounts Shares Per Share Value Cost
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Foreign Securities Portfolio 44,170 $11.81 $ 521,845 $ 473,263
Capital Appreciation Portfolio 39,725 23.22 922,437 686,940
Growth Portfolio 61,523 19.48 1,198,403 1,135,673
Natural Resources Portfolio 9,364 15.12 141,598 117,971
Convertible Securities Portfolio 10,956 12.01 131,579 121,203
Strategic Multi-Asset Portfolio 49,726 11.78 585,692 585,068
Multi-Asset Portfolio 75,794 13.04 988,418 958,534
High Yield Portfolio 20,654 8.33 172,106 161,739
Target '98 Portfolio 35,035 12.64 442,951 427,962
Fixed Income Portfolio 12,158 14.16 172,101 160,334
Government and Quality Bond Portfolio 43,772 14.23 622,852 565,369
Money Market Portfolio 340,969 1.00 340,969 340,969
---------------------------
$6,240,951 $5,735,025
===========================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 67
PRESIDENTIAL VARIABLE ACCOUNT ONE
OF
PRESIDENTIAL LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
December 31, 1995
<TABLE>
<CAPTION>
Foreign Capital Natural
Securities Appreciation Growth Resources
Portfolio Portfolio Portfolio Portfolio
-------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income:
Dividends and capital gains distributions $ 3,122 $ 14,249 $ 189,459 $ 5,364
-------------------------------------------------------
Total investment income 3,122 14,249 189,459 5,364
-------------------------------------------------------
Expenses:
Mortality risk charge (4,803) (7,785) (10,605) (1,447)
Expense risk charge (1,868) (3,027) (4,124) (563)
Administrative expense charge (800) (1,297) (1,768) (241)
-------------------------------------------------------
Total expenses (7,471) (12,109) (16,497) (2,251)
-------------------------------------------------------
Net investment income (loss) (4,349) 2,140 172,962 3,113
-------------------------------------------------------
Realized gains (losses) from securities transactions:
Proceeds from shares sold 114,824 170,174 239,819 88,239
Cost of shares sold (112,923) (134,941) (226,775) (73,727)
-------------------------------------------------------
Net realized gains (losses) from securities transactions 1,901 35,233 13,044 14,512
-------------------------------------------------------
Net unrealized appreciation/depreciation of investments:
Beginning of period (8,083) 30,431 (7,663) 17,715
End of period 48,582 235,497 62,730 23,627
-------------------------------------------------------
Change in net unrealized appreciation/depreciation of investments 56,665 205,066 70,393 5,912
-------------------------------------------------------
Increase in net assets from operations $ 54,217 $ 242,439 $ 256,399 $ 23,537
=======================================================
<CAPTION>
Convertible Strategic
Securities Multi-Asset Multi-Asset
Portfolio Portfolio Portfolio
-------------------------------------------
<S> <C> <C> <C>
Investment income:
Dividends and capital gains distributions $ 38,241 $ 94,146 $ 108,786
----------------------------------------
Total investment income 38,241 94,146 108,786
----------------------------------------
Expenses:
Mortality risk charge (2,834) (5,398) (9,466)
Expense risk charge (1,102) (2,100) (3,682)
Administrative expense charge (472) (900) (1,578)
----------------------------------------
Total expenses (4,408) (8,398) (14,726)
----------------------------------------
Net investment income (loss) 33,833 85,748 94,060
----------------------------------------
Realized gains (losses) from securities transactions:
Proceeds from shares sold 260,230 128,708 403,137
Cost of shares sold (235,856) (128,890) (396,877)
----------------------------------------
Net realized gains (losses) from securities transactions 24,374 (182) 6,260
----------------------------------------
Net unrealized appreciation/depreciation of investments:
Beginning of period 22,151 (27,756) (91,912)
End of period 10,376 624 29,884
----------------------------------------
Change in net unrealized appreciation/depreciation of investments (11,775) 28,380 121,796
----------------------------------------
Increase in net assets from operations $ 46,432 $ 113,946 $ 222,116
========================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 68
PRESIDENTIAL VARIABLE ACCOUNT ONE
OF
PRESIDENTIAL LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
December 31, 1995
(Continued)
<TABLE>
<CAPTION>
Fixed Government and
High Yield Target '98 Income Quality Bond
Portfolio Portfolio Portfolio Portfolio
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income:
Dividends and capital gains distributions $ 18,953 $ 49,405 $ 13,157 $ 49,829
------------------------------------------------------------
Total investment income 18,953 49,405 13,157 49,829
------------------------------------------------------------
Expenses:
Mortality risk charge (1,610) (4,641) (1,455) (6,187)
Expense risk charge (627) (1,805) (566) (2,406)
Administrative expense charge (269) (773) (242) (1,031)
------------------------------------------------------------
Total expenses (2,506) (7,219) (2,263) (9,624)
------------------------------------------------------------
Net investment income (loss) 16,447 42,186 10,894 40,205
------------------------------------------------------------
Realized gains (losses) from securities transactions:
Proceeds from shares sold 89,046 163,346 15,184 263,375
Cost of shares sold (83,798) (157,024) (14,554) (248,038)
------------------------------------------------------------
Net realized gains (losses) from securities transactions 5,248 6,322 630 15,337
------------------------------------------------------------
Net unrealized appreciation/depreciation of investments:
Beginning of period 3,874 (262) (2,597) 1,123
End of period 10,367 14,989 11,766 57,484
------------------------------------------------------------
Change in net unrealized appreciation/depreciation of investments 6,493 15,251 14,363 56,361
------------------------------------------------------------
Increase in net assets from operations $ 28,188 $ 63,759 $ 25,887 $ 111,903
============================================================
<CAPTION>
Money
Market
Portfolio TOTAL
--------------------------
<S> <C> <C>
Investment income:
Dividends and capital gains distributions $ 18,828 $ 603,539
--------------------------
Total investment income 18,828 603,539
--------------------------
Expenses:
Mortality risk charge (3,109) (59,340)
Expense risk charge (1,209) (23,079)
Administrative expense charge (518) (9,889)
--------------------------
Total expenses (4,836) (92,308)
--------------------------
Net investment income (loss) 13,992 511,231
--------------------------
Realized gains (losses) from securities transactions:
Proceeds from shares sold 140,011 2,076,093
Cost of shares sold (140,011) (1,953,414)
--------------------------
Net realized gains (losses) from securities transactions 0 122,679
--------------------------
Net unrealized appreciation/depreciation of investments:
Beginning of period 0 (62,979)
End of period 0 505,926
--------------------------
Change in net unrealized appreciation/depreciation of investments 0 568,905
--------------------------
Increase in net assets from operations $ 13,992 $ 1,202,815
==========================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 69
PRESIDENTIAL VARIABLE ACCOUNT ONE
OF
PRESIDENTIAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
December 31, 1995
<TABLE>
<CAPTION>
Foreign Capital Natural
Securities Appreciation Growth Resources
Portfolio Portfolio Portfolio Portfolio
----------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ (4,349) $ 2,140 $ 172,962 $ 3,113
Net realized gains (losses) from securities transactions 1,901 35,233 13,044 14,512
Change in net unrealized appreciation/depreciation
of investments 56,665 205,066 70,393 5,912
--------------------------------------------------------
Increase in net assets from operations 54,217 242,439 256,399 23,537
--------------------------------------------------------
From capital transactions:
Net proceeds from units sold 8,229 4,518 4,418 975
Cost of units redeemed (82,021) (98,156) (203,621) (65,844)
Net transfers (19,971) 12,178 18,490 19,056
--------------------------------------------------------
Increase (decrease) in net assets from capital transactions (93,763) (81,460) (180,713) (45,813)
--------------------------------------------------------
Increase (decrease) in net assets (39,546) 160,979 75,686 (22,276)
Net assets at beginning of period 561,391 761,458 1,122,717 163,874
--------------------------------------------------------
Net assets at end of period $521,845 $922,437 $1,198,403 $141,598
========================================================
ANALYSIS OF INCREASE (DECREASE) IN UNITS
OUTSTANDING:
Units sold 678 178 143 60
Units redeemed (6,758) (3,716) (6,611) (3,990)
Units transferred (1,645) 480 600 1,165
--------------------------------------------------------
Increase (decrease) in units outstanding (7,725) (3,058) (5,868) (2,765)
Beginning units 47,472 35,218 41,036 10,889
--------------------------------------------------------
Ending units 39,747 32,160 35,168 8,124
========================================================
<CAPTION>
Convertible Strategic
Securities Multi-Asset Multi-Asset
Portfolio Portfolio Portfolio
--------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 33,833 $ 85,748 $ 94,060
Net realized gains (losses) from securities transactions 24,374 (182) 6,260
Change in net unrealized appreciation/depreciation
of investments (11,775) 28,380 121,796
------------------------------------------
Increase in net assets from operations 46,432 113,946 222,116
------------------------------------------
From capital transactions:
Net proceeds from units sold 530 3,728 6,568
Cost of units redeemed (226,533) (62,060) (266,600)
Net transfers (3,663) (40,912) (113,186)
------------------------------------------
Increase (decrease) in net assets from capital transactions (229,666) (99,244) (373,218)
------------------------------------------
Increase (decrease) in net assets (183,234) 14,702 (151,102)
Net assets at beginning of period 314,813 570,990 1,139,520
------------------------------------------
Net assets at end of period $ 131,579 $585,692 $ 988,418
==========================================
ANALYSIS OF INCREASE (DECREASE) IN UNITS
OUTSTANDING:
Units sold 30 223 357
Units redeemed (11,846) (3,528) (14,806)
Units transferred (205) (2,447) (6,144)
------------------------------------------
Increase (decrease) in units outstanding (12,021) (5,752) (20,593)
Beginning units 18,889 37,667 69,541
------------------------------------------
Ending units 6,868 31,915 48,948
==========================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 70
PRESIDENTIAL VARIABLE ACCOUNT ONE
OF
PRESIDENTIAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
December 31, 1994
<TABLE>
<CAPTION>
Foreign Capital Natural
Securities Appreciation Growth Resources
Portfolio Portfolio Portfolio Portfolio
--------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ (6,222) $ 69,715 $ 152,850 $ 25
Net realized gains (losses) from securities transactions 660 9,380 7,702 1,061
Change in net unrealized appreciation/depreciation
of investments (17,481) (127,953) (235,517) (938)
------------------------------------------------------
Increase in net assets from operations (23,043) (48,858) (74,965) 148
------------------------------------------------------
From capital transactions:
Net proceeds from units sold 12,060 18,908 17,073 609
Cost of units redeemed (47,499) (89,654) (76,053) (2,529)
Net transfers 139,079 98,841 43,665 32,760
------------------------------------------------------
Increase (decrease) in net assets from capital transactions 103,640 28,095 (15,315) 30,840
------------------------------------------------------
Increase (decrease) in net assets 80,597 (20,763) (90,280) 30,988
Net assets at beginning of period 480,794 782,221 1,212,997 132,886
------------------------------------------------------
Net assets at end of period $561,391 $ 761,458 $1,122,717 $163,874
======================================================
ANALYSIS OF INCREASE (DECREASE) IN UNITS
OUTSTANDING:
Units sold 988 867 612 40
Units redeemed (3,892) (4,111) (2,798) (164)
Units transferred 11,560 4,139 1,566 2,217
------------------------------------------------------
Increase (decrease) in units outstanding 8,656 895 (620) 2,092
Beginning units 38,816 34,323 41,656 8,797
------------------------------------------------------
Ending units 47,472 35,218 41,036 10,889
======================================================
<CAPTION>
Convertible Strategic
Securities Multi-Asset Multi-Asset
Portfolio Portfolio Portfolio
--------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 39,585 $ 101,802 $ 164,049
Net realized gains (losses) from securities transactions 6,020 6,987 (4,217)
Change in net unrealized appreciation/depreciation
of investments (85,785) (136,452) (201,255)
-----------------------------------------
Increase in net assets from operations (40,180) (27,663) (41,423)
-----------------------------------------
From capital transactions:
Net proceeds from units sold 1,400 15,615 13,406
Cost of units redeemed (33,225) (30,827) (81,874)
Net transfers (221) (46,109) (121,797)
-----------------------------------------
Increase (decrease) in net assets from capital transactions (32,046) (61,321) (190,265)
-----------------------------------------
Increase (decrease) in net assets (72,226) (88,984) (231,688)
Net assets at beginning of period 387,039 659,974 1,371,208
-----------------------------------------
Net assets at end of period $314,813 $ 570,990 $1,139,520
=========================================
ANALYSIS OF INCREASE (DECREASE) IN UNITS
OUTSTANDING:
Units sold 79 1,012 813
Units redeemed (1,871) (1,998) (4,963)
Units transferred (12) (3,164) (7,423)
-----------------------------------------
Increase (decrease) in units outstanding (1,805) (4,150) (11,573)
Beginning units 20,694 41,817 81,114
-----------------------------------------
Ending units 18,889 37,667 69,541
=========================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 71
PRESIDENTIAL VARIABLE ACCOUNT ONE
OF
PRESIDENTIAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
December 31, 1994
(Continued)
<TABLE>
<CAPTION>
Fixed Government and
High Yield Target '98 Income Quality Bond
Portfolio Portfolio Portfolio Portfolio
---------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 24,236 $ 42,424 $ 10,080 $ 39,132
Net realized gains (losses) from securities transactions 3,308 2,853 356 22,183
Change in net unrealized appreciation/depreciation
of investments (41,038) (79,127) (17,377) (107,937)
-------------------------------------------------------
Increase (decrease) in net assets from operations (13,494) (33,850) (6,941) (46,622)
-------------------------------------------------------
From capital transactions:
Net proceeds from units sold 5,330 623 399 7,387
Cost of units redeemed (16,592) (19,944) (3,973) (224,919)
Net transfers 13,739 (42,065) 4,628 (74,720)
-------------------------------------------------------
Increase (decrease) in net assets from capital transactions 2,477 (61,386) 1,054 (292,252)
-------------------------------------------------------
Increase (decrease) in net assets (11,017) (95,236) (5,887) (338,874)
Net assets at beginning of period 215,141 624,908 151,107 1,091,917
-------------------------------------------------------
Net assets at end of period $204,124 $529,672 $145,220 $ 753,043
=======================================================
ANALYSIS OF INCREASE (DECREASE) IN UNITS
OUTSTANDING:
Units sold 291 37 18 324
Units redeemed (959) (1,178) (181) (9,921)
Units transferred 749 (2,551) 210 (3,272)
-------------------------------------------------------
Increase (decrease) in units outstanding 80 (3,692) 47 (12,870)
Beginning units 11,281 35,665 6,653 46,206
-------------------------------------------------------
Ending units 11,361 31,973 6,700 33,336
=======================================================
<CAPTION>
Money
Market
Portfolio TOTAL
-------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 6,304 $ 643,980
Net realized gains (losses) from securities transactions 0 56,293
Change in net unrealized appreciation/depreciation
of investments 0 (1,050,860)
------------------------
Increase (decrease) in net assets from operations 6,304 (350,587)
------------------------
From capital transactions:
Net proceeds from units sold 165,035 257,845
Cost of units redeemed (66,945) (694,034)
Net transfers 50,496 98,296
------------------------
Increase (decrease) in net assets from capital transactions 148,586 (337,893)
------------------------
Increase (decrease) in net assets 154,890 (688,480)
Net assets at beginning of period 197,421 7,307,613
------------------------
Net assets at end of period $352,311 $ 6,619,133
========================
ANALYSIS OF INCREASE (DECREASE) IN UNITS
OUTSTANDING:
Units sold 10,361
Units redeemed (4,216)
Units transferred 3,180
--------
Increase (decrease) in units outstanding 9,325
Beginning units 12,556
--------
Ending units 21,881
========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 72
PRESIDENTIAL VARIABLE ACCOUNT ONE
OF
PRESIDENTIAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
December 31, 1995
(Continued)
<TABLE>
<CAPTION>
Fixed Government and
High Yield Target '98 Income Quality Bond
Portfolio Portfolio Portfolio Portfolio
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 16,447 $ 42,186 $ 10,894 $ 40,205
Net realized gains (losses) from securities transactions 5,248 6,322 630 15,337
Change in net unrealized appreciation/depreciation
of investments 6,493 15,251 14,363 56,361
---------------------------------------------------------------
Increase in net assets from operations 28,188 63,759 25,887 111,903
---------------------------------------------------------------
From capital transactions:
Net proceeds from units sold 1,874 (140) 651 90
Cost of units redeemed (39,856) (145,099) (1,304) (229,090)
Net transfers (22,224) (5,241) 1,647 (13,094)
---------------------------------------------------------------
Increase (decrease) in net assets from capital transactions (60,206) (150,480) 994 (242,094)
---------------------------------------------------------------
Increase (decrease) in net assets (32,018) (86,721) 26,881 (130,191)
Net assets at beginning of period 204,124 529,672 145,220 753,043
---------------------------------------------------------------
Net assets at end of period $172,106 $ 442,951 $172,101 $ 622,852
===============================================================
ANALYSIS OF INCREASE (DECREASE) IN UNITS
OUTSTANDING:
Units sold 96 (8) 28 4
Units redeemed (2,140) (8,013) (55) (9,384)
Units transferred (1,136) (295) 86 (530)
---------------------------------------------------------------
Increase (decrease) in units outstanding (3,180) (8,316) 59 (9,910)
Beginning units 11,361 31,973 6,700 33,336
---------------------------------------------------------------
Ending units 8,181 23,657 6,759 23,426
===============================================================
<CAPTION>
Money
Market
Portfolio TOTAL
---------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 13,992 $ 511,231
Net realized gains (losses) from securities transactions 0 122,679
Change in net unrealized appreciation/depreciation
of investments 0 568,905
----------------------------
Increase in net assets from operations 13,992 1,202,815
----------------------------
From capital transactions:
Net proceeds from units sold 7,501 38,942
Cost of units redeemed (114,304) (1,534,488)
Net transfers 81,469 (85,451)
----------------------------
Increase (decrease) in net assets from capital transactions (25,334) (1,580,997)
----------------------------
Increase (decrease) in net assets (11,342) (378,182)
Net assets at beginning of period 352,311 6,619,133
----------------------------
Net assets at end of period $ 340,969 $ 6,240,951
============================
ANALYSIS OF INCREASE (DECREASE) IN UNITS
OUTSTANDING:
Units sold 456
Units redeemed (6,958)
Units transferred 4,957
---------
Increase (decrease) in units outstanding (1,545)
Beginning units 21,881
---------
Ending units 20,336
=========
</TABLE>
See accompanying notes to financial statements.
