<PAGE> 1
File Nos. 33-19293
811-5474
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933 [ X ]
Pre-Effective Amendment No. ____ [ ]
Post-Effective Amendment No. 12 [ X ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 [ X ]
Amendment No. 13
(Check appropriate box or boxes)
PRESIDENTIAL VARIABLE ACCOUNT ONE
(Exact Name of Registrant)
PRESIDENTIAL LIFE INSURANCE COMPANY
(Name of Depositor)
69 Lydecker Street
Nyack, New York 10960
(Address of Depositor's Principal Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (914) 358-2300
Herbert Kurz, President
Presidential Life Insurance Company
69 Lydecker Street
Nyack, New York 10960
(Name and Address of Agent for Service)
Title of Securities Being Registered
------------------------------------
Flexible Payment
Deferred Annuity Contracts
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b) of Rule 485
-----
X on May 1, 1999 pursuant to paragraph (b) on Rule 485
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60 days after filing pursuant to paragraph (a) of Rule 485
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on pursuant to paragraph (a) of Rule 485
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<PAGE> 2
PRESIDENTIAL VARIABLE ACCOUNT ONE
Cross Reference Sheet
Part A - Prospectus
<TABLE>
<CAPTION>
Item Number in Form N-4 Caption
- ----------------------- -------
<S> <C>
1. Cover Page ............................... Cover Page
2. Definitions .............................. Definitions
3. Synopsis ................................. Highlights; Fee Tables;
Examples; Explanation of
Fee Tables and Examples
4. Condensed Financial Information .......... Condensed Financial
Information - Accumulation
Unit Values
5. General Description of Registrant,
Depositor and Portfolio Companies........ Description of the Company
and the Separate Account;
Anchor Series Trust
6. Deductions ............................... Contract Charges
7. General Description of Variable Annuity
Contracts ................................ Description of the
Contracts
8. Annuity Period ........................... Income Phase
9. Death Benefit ............................ Description of the
Contracts; Income Phase
10. Purchases and Contract Value ............ Purchases and Contract
Value
11. Redemptions ............................. Purchases and Contract
Value
12. Taxes ................................... Taxes
13. Legal Proceedings ....................... Legal Proceedings
14. Table of Contents of Statement
of Additional Information................ Table of Contents of the
Statement of Additional
Information
</TABLE>
<PAGE> 3
Part B - Statement of Additional Information
Certain information required in Part B of the Registration Statement
has been included within the Prospectus forming part of this Registration
Statement. The cross-references suffixed with a "P" are made by reference to
the captions in the Prospectus.
<TABLE>
<CAPTION>
Item Number in Form N-4 Caption
- ----------------------- -------
<S> <C>
15. Cover Page .............................. Cover Page
16. Table of Contents........................ Table of Contents
17. General Information and History.......... Company
18. Services ................................ Not Applicable
19. Purchase of Securities Being Offered .... Purchase Payments(P)
20. Underwriters ............................ Distributors
21. Calculation of Performance Data ......... Yield Calculations for
Money Market Division
22. Annuity Payments ........................ Annuity Payments
23. Financial Statements .................... Financial Statements
</TABLE>
Part C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE> 4
PROSPECTUS
MAY 1, 1999
FLEXIBLE PAYMENT VARIABLE ANNUITY CONTRACTS
ISSUED BY
PRESIDENTIAL LIFE INSURANCE COMPANY
IN CONNECTION WITH
PRESIDENTIAL VARIABLE ACCOUNT ONE
The annuity has 12 investment choices -- 1 fixed account option and 11
variable investment portfolios listed below. The one year fixed account option
is funded through Presidential Life's General Account. Each of the 11 variable
investment portfolios invest solely in the shares of one of the following
currently available divisions of the Anchor Series Trust:
<TABLE>
<S> <C>
- Foreign Securities Portfolio - Multi-Asset Portfolio
- Capital Appreciation Portfolio - High Yield Portfolio
- Growth Portfolio - Fixed Income Portfolio
- Natural Resources Portfolio - Government and Quality Bond Portfolio
- Growth and Income Portfolio - Money Market Portfolio
- Strategic Multi-Asset Portfolio
</TABLE>
Please read this prospectus carefully before investing and keep it for
future reference. It contains important information about the ICAP contract.
To learn more about the annuity offered by this prospectus, obtain a copy
of the Statement of Additional Information ("SAI") dated May 1, 1999. The SAI is
on file with the Securities and Exchange Commission ("SEC") and is incorporated
by reference into this prospectus. The Table of Contents of the SAI appears on
page 27 of this prospectus. For a free copy of the SAI, call us at (800)
537-3642 or write to us at our Annuity Service Center, P.O. Box 54299, Los
Angeles, California 90054-0299.
In addition, the SEC maintains a website (http://www.sec.gov) that contains
the SAI, materials incorporated by reference and other information filed
electronically with the SEC by Presidential Life.
ANNUITIES INVOLVE RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. ANNUITIES
ARE NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED BY, ANY BANK. THEY
ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC, NOR HAS
THE SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS CRIMINAL.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
ITEM ----
<S> <C>
DEFINITIONS................................................. 3
SUMMARY..................................................... 4
FEE TABLES.................................................. 7
EXAMPLES.................................................... 8
CONDENSED FINANCIAL INFORMATION -- ACCUMULATION UNIT
VALUES.................................................... 9
PERFORMANCE DATA............................................ 9
DESCRIPTION OF PRESIDENTIAL LIFE, THE SEPARATE ACCOUNT AND
THE GENERAL ACCOUNT....................................... 10
Presidential Life Insurance Company.................... 10
Separate Account....................................... 10
General Account........................................ 11
VARIABLE PORTFOLIO OPTIONS.................................. 11
Equity Portfolios...................................... 11
Managed Portfolios..................................... 11
Fixed Income Portfolios................................ 11
Voting Rights.......................................... 11
Substitution of Securities............................. 12
FIXED ACCOUNT OPTION........................................ 12
Allocations............................................ 12
CONTRACT CHARGES............................................ 12
Insurance Charges...................................... 12
Withdrawal Charges..................................... 12
Investment Charges..................................... 13
Contract Maintenance Fee............................... 13
Transfer Fee........................................... 13
Annuity Charge......................................... 13
Income Taxes........................................... 13
Reduction or Elimination of Charges and Expenses, and
Additional Amounts Credited........................... 13
Free Withdrawal Amount................................. 14
DESCRIPTION OF THE CONTRACTS................................ 14
Summary................................................ 14
Ownership.............................................. 14
Annuitant.............................................. 14
Modification of the Contract........................... 14
Assignment............................................. 15
Death Benefit.......................................... 15
PURCHASES, WITHDRAWALS AND CONTRACT VALUE................... 16
Purchase Payments...................................... 16
Allocation of Purchase Payments........................ 16
Accumulation Units..................................... 16
Free Look.............................................. 17
Transfers During the Accumulation Phase................ 17
Distribution of Contracts.............................. 18
Withdrawals............................................ 18
Minimum Contract Value................................. 19
INCOME PHASE................................................ 19
Annuity Date........................................... 19
Income Options......................................... 19
Transfers During the Income Phase...................... 21
Deferment of Payments.................................. 21
ADMINISTRATION.............................................. 21
TAXES....................................................... 22
General................................................ 22
Withholding Tax on Distributions....................... 23
Diversification........................................ 23
</TABLE>
2
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<TABLE>
<CAPTION>
PAGE
ITEM ----
<S> <C>
Multiple Contracts..................................... 24
Tax Treatment of Assignments........................... 24
Tax Treatment of Withdrawals -- Non-Qualified
Contracts............................................. 24
Qualified Plans........................................ 24
Tax Treatment of Withdrawals -- Qualified Contracts.... 25
Tax Sheltered Annuities -- Withdrawal Limitations...... 26
CUSTODIAN................................................... 26
LEGAL PROCEEDINGS........................................... 27
REGISTRATION STATEMENTS..................................... 27
ADDITIONAL INFORMATION ABOUT THE SEPARATE ACCOUNT........... 28
FINANCIAL STATEMENTS........................................ 28
</TABLE>
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DEFINITIONS
- --------------------------------------------------------------------------------
The following terms, as used in this prospectus, have the indicated
meanings:
ACCUMULATION PHASE -- The period during which you invest money in your contract.
ACCUMULATION UNIT -- A unit of measurement which we use to calculate the value
of the variable portion of your contract during the Accumulation Phase.
ANNUITANT(S) -- The person(s) on whose life (lives) we base income payments.
ANNUITY DATE -- The date on which income payments begin, as selected by you.
ANNUITY UNIT(S) -- A measurement we use to calculate the amount of income
payments you receive from the variable portion of your contract during the
Income Phase.
BENEFICIARY -- The person designated to receive any benefits under the contract
if you or the Annuitant dies.
INCOME PHASE -- The period during which we make income payments to you.
IRS -- The Internal Revenue Service.
NON-QUALIFIED (CONTRACT) -- A contract purchased with after-tax dollars. In
general, these contracts are not under any pension plan, specially sponsored
program or individual retirement account ("IRA").
PURCHASE PAYMENTS -- The money you give us to buy the contract, as well as any
additional money you give us to invest in the contract after you own it.
QUALIFIED (CONTRACT) -- A contract purchased with pre-tax dollars. These
contracts are generally purchased under a pension plan, specially sponsored
program or IRA.
TRUST -- Anchor Series Trust, an open-end management investment company.
VARIABLE PORTFOLIO(S) -- The variable investment options available under the
contract. Each Variable Portfolio has its own investment objective and is
invested in the underlying investments of the Trust.
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SUMMARY
- --------------------------------------------------------------------------------
This summary sets forth some of the more important points that you should
know and consider before purchasing the ICAP Variable Annuity. The remainder of
the prospectus discusses the topics in more detail. We urge you to read it
carefully and retain it, and the prospectus for the Trust attached hereto, for
future reference.
WHAT IS AN ANNUITY CONTRACT?
An annuity is a contract between you and an insurance company. You are the
owner of the contract. The contract provides three main benefits:
- Tax Deferral: This means that you do not pay taxes on your earnings from
the annuity until you withdraw them.
- Death Benefit: If you die during the Accumulation Phase, the insurance
company pays a death benefit to your Beneficiary.
- Guaranteed Income: If elected, you receive a stream of income for your
lifetime, or another available period you select.
The ICAP Variable Annuity is a contract between you and Presidential Life
Insurance Company (Presidential Life, the Company, Us, We). It is designed to
help you invest on a tax deferred basis and meet long-term financial goals, such
as retirement funding.
Like most annuities, this contract has an Accumulation Phase and an Income
Phase. During the Accumulation Phase, you invest money in your contract. Your
earnings are based on the investment performance of the Variable Portfolios you
allocate money to and/or the interest rate earned on the fixed account option.
During the Income Phase, you will receive income payments from your annuity.
Depending on the option you choose, your payments may be fixed in dollar amount,
may vary with investment performance of the Variable Portfolios or be a
combination of both. Among other factors, the amount of money you are able to
accumulate in your contract during the Accumulation Phase will determine the
amount of your payments during the Income Phase.
WHAT IS THE DIFFERENCE BETWEEN A VARIABLE ANNUITY AND A FIXED ANNUITY?
A fixed annuity earns interest at a fixed rate guaranteed by the insurance
company. A variable annuity typically provides a fixed account option but also
provides Variable Portfolios. The Variable Portfolios are similar to a mutual
fund, but are only available through the purchase of an annuity. Most
significantly, you as the contract owner bear the entire investment risk with
respect to any Purchase Payments allocated to the Variable Portfolios of an
annuity. This means that the value of your contract will go up and down,
depending on the performance of the Variable Portfolios.
The ICAP Variable Annuity is a variable annuity with one fixed account
option and eleven Variable Portfolios.
WHAT ARE THE INVESTMENT OPTIONS AVAILABLE UNDER THE CONTRACT?
You may allocate money to the following Variable Portfolios of the Trust:
<TABLE>
<S> <C>
- Foreign Securities Portfolio - Multi-Asset Portfolio
- Capital Appreciation Portfolio - High Yield Portfolio
- Growth Portfolio - Fixed Income Portfolio
- Natural Resources Portfolio - Government and Quality Bond
- Growth and Income Portfolio Portfolio
- Strategic Multi-Asset Portfolio - Money Market Portfolio
</TABLE>
4
<PAGE> 8
You may also allocate money to the fixed account option for a period of one
year. We call this time period the guarantee period. Presidential Life
guarantees the interest rate credited to money in the fixed account option.
During the Accumulation Phase, you may transfer among the Variable
Portfolios and/or the fixed account option. Fifteen free transfers are permitted
per contract year. After that, we assess a transfer fee.
HOW MAY I ACCESS MY MONEY?
During the Accumulation Phase, you may withdraw money from your contract at
any time. After your first contract year, the first withdrawal you take each
contract year will be free of a withdrawal charge if it does not exceed the
greater of 10% of your total Purchase Payments still subject to a withdrawal
charge, less prior withdrawals or Purchase Payments out of penalty minus prior
withdrawals. You will not get the benefit of a free withdrawal amount upon a
full surrender of your contract.
Withdrawals in excess of these limits may be assessed a withdrawal charge.
Generally, withdrawals may be made from your contract in the amount of $500 or
more. You may request withdrawals in writing or by establishing systematic
withdrawals.
There are no withdrawal charges on that portion of your money invested for
six years or more. Of course, upon a withdrawal you may have to pay income tax.
A 10% IRS penalty tax may also apply if you are under age 59 1/2. Additionally,
we do not assess withdrawal charges upon payment of a death benefit.
CAN I EXAMINE THE CONTRACT?
You may cancel your contract within ten days of your receipt of the
contract by mailing it to our Annuity Service Center. Your contract will be
treated as void on the date we receive it and we will refund an amount equal to
the contract value. Its value may be more or less than the money you initially
invested.
WHAT ARE THE CHARGES AND DEDUCTIONS UNDER A CONTRACT?
Each year, we deduct a $30 contract maintenance fee from your contract. We
also deduct insurance charges which equal 1.40% annually of the average daily
value of your contract allocated to the Variable Portfolios. The insurance
charges include: mortality and expense risk, 1.25%, and distribution expense,
.15%.
As with other professionally managed investments, there are also investment
charges imposed on contracts with money allocated to the Variable Portfolios,
which are estimated to range from .58% to 1.48%.
If you take money out in excess of the free withdrawal amount allowed for
in your contract, you may be assessed a withdrawal charge which is a percentage
of the Purchase Payments you withdraw. A withdrawal charge may be assessed
against the Contract Value when a withdrawal is made within six years of making
the Purchase payment (6% of the amount withdrawn). (See Contract Charges).
During the Accumulation Period, you may transfer all or part of your interest in
a Division to another Division, free of any charge. In the event you transfer
all or part of your interest in a Division to another Division within 30 days of
a prior transfer or within 30 days of the Issue Date, a transfer fee of $25 will
be imposed.
WHAT IS THE DEATH BENEFIT UNDER THE CONTRACT?
If you die during the Accumulation Phase of your contract, your Beneficiary
will receive a death benefit.
5
<PAGE> 9
The death benefit is the greater of:
1. the value of your contract at the end of the valuation period during
which we receive satisfactory proof of death; or
2. total Purchase Payments less any withdrawals and partial annuitizations
(and any fees or charges applicable to such distributions).
WHAT ARE THE AVAILABLE INCOME OPTIONS UNDER THE CONTRACT?
You can select from one of three income options:
(1) payments for your lifetime, but for not less than 10 or 20 years;
(2) payments for your lifetime and your survivor's lifetime;
(3) payments for a specified period of 5 to 30 years.
You will also need to decide when your income payments begin and if you
want your income payments to fluctuate with investment performance or remain
constant. Once you begin receiving income payments, you cannot change your
income option.
If your contract is part of a Non-qualified retirement plan (one that is
established with after-tax dollars), payments during the Income Phase are
considered partly a return of your original investment. The "original
investment" part of each payment is not taxable as income. For contracts which
are part of a Qualified retirement plan using before-tax dollars, the entire
payment is taxable as income.
6
<PAGE> 10
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FEE TABLES
- --------------------------------------------------------------------------------
OWNER TRANSACTION EXPENSES
<TABLE>
<S> <C>
WITHDRAWAL CHARGE (AS A PERCENTAGE OF AMOUNT WITHDRAWN,
NOT TO EXCEED 9% OF PURCHASE PAYMENTS)...6% for six Contract Years
ANNUAL CONTRACT MAINTENANCE FEE............................. $30
TRANSFER FEE................................................ $25
(no transfer fee applies provided 30 days has elapsed since
any prior transfer or since the issue date.)
</TABLE>
- --------------------------------------------------------------------------------
ANNUAL SEPARATE ACCOUNT EXPENSES
(AS A PERCENTAGE OF DAILY NET ASSET VALUE)
<TABLE>
<S> <C>
MORTALITY RISK CHARGE....................................... 0.90%
EXPENSE RISK CHARGE......................................... 0.35%
DISTRIBUTION EXPENSE CHARGE................................. 0.15%
----
TOTAL EXPENSE CHARGE................................. 1.40%
====
</TABLE>
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ANNUAL TRUST EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS FOR THE TRUST'S
FISCAL YEAR ENDED DECEMBER 31, 1998):
<TABLE>
<CAPTION>
TOTAL ANNUAL
MANAGEMENT FEE OTHER EXPENSES EXPENSES
-------------- -------------- ------------
<S> <C> <C> <C>
Foreign Securities................................. 0.90% 0.58% 1.48%
Capital Appreciation............................... 0.64% 0.04% 0.68%
Growth............................................. 0.70% 0.05% 0.75%
Natural Resources.................................. 0.75% 0.13% 0.88%
Growth and Income.................................. 0.70% 0.10% 0.80%
Strategic Multi-Asset.............................. 1.00% 0.47% 1.47%
Multi-Asset........................................ 1.00% 0.08% 1.08%
High Yield......................................... 0.70% 0.24% 0.94%
Fixed Income....................................... 0.63% 0.32% 0.95%
Government & Quality Bond.......................... 0.61% 0.06% 0.67%
Money Market....................................... 0.50% 0.08% 0.58%
</TABLE>
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THE ABOVE EXPENSES WERE PROVIDED BY THE TRUST.
THE COMPANY HAS NOT VERIFIED THE ACCURACY OF THE INFORMATION.
7
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EXAMPLES
- --------------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment in each Variable
Portfolio, assuming 5% annual return on assets, and:
(a) surrender of the contract at the end of the applicable time period
or switch to the Income Phase using Income Option 3; and
(b) if the contract is not surrendered or is switched to the Income
Phase using Income Options 1 or 2.
<TABLE>
<CAPTION>
TIME PERIODS
----------------------------------------
VARIABLE PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------ ------ ------- ------- --------
<S> <C> <C> <C> <C>
FOREIGN
SECURITIES........................................ A $91 $149 $216 $328
B $30 $ 92 $156 $328
CAPITAL
APPRECIATION...................................... A $84 $127 $179 $249
B $22 $ 68 $116 $249
GROWTH............................................ A $84 $129 $182 $257
B $23 $ 70 $120 $257
NATURAL
RESOURCES......................................... A $86 $133 $188 $270
B $24 $ 74 $126 $270
GROWTH AND
INCOME............................................ A $85 $130 $185 $262
B $23 $ 71 $122 $262
STRATEGIC
MULTI-ASSET....................................... A $91 $149 $216 $327
B $30 $ 91 $155 $327
MULTI-ASSET....................................... A $87 $138 $198 $290
B $26 $ 80 $136 $290
HIGH YIELD........................................ A $86 $134 $191 $276
B $25 $ 76 $129 $276
FIXED
INCOME............................................ A $86 $135 $192 $277
B $25 $ 76 $130 $277
GOVERNMENT AND
QUALITY BOND...................................... A $84 $127 $179 $248
B $22 $ 67 $116 $248
MONEY MARKET...................................... A $83 $124 $174 $239
B $21 $ 65 $111 $239
</TABLE>
* We do not currently charge a withdrawal charge when you elect to begin the
Income Phase under Option 1 or 2.
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EXPLANATION OF FEE TABLES AND EXAMPLES
1. The purpose of the fee tables is to show you the various expenses you would
incur directly and indirectly by investing in the contract. The table
reflects expenses of the separate account as well as the Trust. The examples
do not illustrate the tax consequences of surrendering the contract.
2. The examples assume that no transfer fees were imposed. The contracts are
only sold in the state of New York, which does not assess premium taxes.
Accordingly, premium taxes are not reflected.
3. For purposes of the amounts reported in the examples, the contract
maintenance fee is calculated by dividing the total amount of contract
maintenance fees anticipated to be collected during the year by the total net
assets of the separate account's divisions and the related fixed accounts
assets.
4. THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
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CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL FISCAL FISCAL FISCAL FISCAL FISCAL FISCAL
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
SEPARATE ACCOUNT DIVISION 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
------------------------- ----------- -------- -------- --------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Foreign Securities
Beginning AUV.............. $10.47 $13.32 $11.45 $11.26 $ 9.64 $12.39 $11.83 $13.13 $14.43
End AUV.................... $13.32 $11.45 $11.26 $ 9.64 $12.39 $11.83 $13.13 $14.43 $14.08
Ending Number of AUs....... 17,052 24,999 31,241 31,574 38,816 47,472 39,747 35,830 18,506
Capital Appreciation
Beginning AUV.............. $ 9.80 $12.08 $ 9.97 $15.36 $19.09 $22.79 $21.62 $28.68 $35.39
End AUV.................... $12.08 $ 9.97 $15.36 $19.09 $22.79 $21.62 $28.68 $35.39 $43.78
Ending Number of AUs....... 19,098 16,080 15,521 14,406 34,323 35,218 32,160 25,696 14,845
Growth
Beginning AUV.............. $15.43 $19.79 $18.99 $26.36 $27.40 $29.12 $27.36 $34.08 $42.03
End AUV.................... $19.79 $18.99 $26.36 $27.40 $29.12 $27.36 $34.08 $42.03 $54.05
Ending Number of AUs....... 21,562 29,865 30,932 30,390 41,656 41,036 35,168 30,113 21,523
Natural Resources
Beginning AUV.............. $11.02 $12.86 $10.77 $11.13 $11.25 $15.11 $15.05 $17.43 $19.61
End AUV.................... $12.86 $10.77 $11.13 $11.25 $15.11 $15.05 $17.43 $19.61 $17.68
Ending Number of AUs....... 15,862 12,612 9,475 8,347 8,797 10,889 8,124 5,081 3,455
Growth and Income
Beginning AUV.............. $ 9.76 $11.04 $10.50 $13.12 $15.55 $18.70 $16.67 $19.16 $22.69
End AUV.................... $11.04 $10.50 $13.12 $15.55 $18.70 $16.67 $19.16 $22.69 $28.81
Ending Number of AUs....... 24,751 23,408 20,775 21,549 20,694 18,889 6,868 5,788 6,864
Strategic Multi-Asset
Beginning AUV.............. $10.26 $12.13 $11.06 $13.55 $13.88 $15.78 $15.16 $18.35 $20.78
End AUV.................... $12.13 $11.06 $13.55 $13.88 $15.78 $15.16 $18.35 $20.78 $23.43
Ending Number of AUs....... 55,985 49,505 40,079 38,790 41,817 37,667 31,915 28,148 22,997
Multi-Asset
Beginning AUV.............. $10.09 $11.91 $11.93 $14.98 $15.97 $16.90 $16.39 $20.19 $22.67
End AUV.................... $11.91 $11.93 $14.98 $15.97 $16.90 $16.39 $20.19 $22.67 $27.09
Ending Number of AUs....... 53,295 72,163 53,932 43,310 81,114 69,541 48,948 33,152 24,182
High Yield
Beginning AUV.............. $13.00 $12.48 $11.01 $14.44 $16.24 $19.07 $17.96 $21.03 $23.17
End AUV.................... $12.48 $11.01 $14.44 $16.24 $19.07 $17.96 $21.03 $23.17 $25.42
Ending Number of AUs....... 37,759 31,311 11,357 10,343 11,281 11,361 8,181 7,304 6,161
Fixed Income
Beginning AUV.............. $15.08 $16.78 $17.84 $20.31 $21.34 $22.71 $21.67 $25.46 $25.73
End AUV.................... $16.78 $17.84 $20.31 $21.34 $22.71 $21.67 $25.46 $25.73 $27.76
Ending Number of AUs....... 15,964 13,752 9,452 7,850 6,653 6,700 6,759 2,908 2,953
Government &
Quality Bond
Beginning AUV.............. $14.95 $17.04 $18.15 $21.00 $22.13 $23.63 $22.60 $26.60 $26.99
End AUV.................... $17.04 $18.15 $21.00 $22.13 $23.63 $22.60 $26.60 $26.99 $29.16
Ending Number of AUs....... 99,633 97,386 129,211 108,229 46,206 33,336 23,426 15,893 11,372
Money Market
Division
Beginning Unit Value....... $12.78 $13.73 $14.61 $15.23 $15.53 $15.72 $16.10 $16.77 $17.36
Ending Unit Value.......... $13.73 $14.61 $15.23 $15.53 $15.72 $16.10 $16.77 $17.36 $18.00
Ending Number of AUs....... 92,606 97,530 42,418 21,712 12,556 21,881 20,336 15,403 9,843
<CAPTION>
FISCAL
YEAR
ENDED
SEPARATE ACCOUNT DIVISION 12/31/98
------------------------- --------
<S> <C>
Foreign Securities
Beginning AUV.............. $14.08
End AUV.................... $15.37
Ending Number of AUs....... 13,592
Capital Appreciation
Beginning AUV.............. $43.78
End AUV.................... $52.75
Ending Number of AUs....... 8,853
Growth
Beginning AUV.............. $54.05
End AUV.................... $68.72
Ending Number of AUs....... 16,540
Natural Resources
Beginning AUV.............. $17.68
End AUV.................... $14.41
Ending Number of AUs....... 2,036
Growth and Income
Beginning AUV.............. $28.81
End AUV.................... $36.98
Ending Number of AUs....... 5,425
Strategic Multi-Asset
Beginning AUV.............. $23.43
End AUV.................... $26.63
Ending Number of AUs....... 20,072
Multi-Asset
Beginning AUV.............. $27.09
End AUV.................... $33.24
Ending Number of AUs....... 14,863
High Yield
Beginning AUV.............. $25.42
End AUV.................... $23.95
Ending Number of AUs....... 5,351
Fixed Income
Beginning AUV.............. $27.76
End AUV.................... $29.57
Ending Number of AUs....... 2,966
Government &
Quality Bond
Beginning AUV.............. $29.16
End AUV.................... $31.37
Ending Number of AUs....... 10,511
Money Market
Division
Beginning Unit Value....... $18.00
Ending Unit Value.......... $18.66
Ending Number of AUs....... 24,992
</TABLE>
- ------------------------------
AUV -- Accumulation Unit Value.
AU -- Accumulation Units.
- --------------------------------------------------------------------------------
PERFORMANCE DATA
- --------------------------------------------------------------------------------
We advertise the Money Market Portfolio's "yield" and "effective yield."
Both figures are based on historical earnings and are not intended to indicate
future performance. The "yield" of the Money Market Portfolio refers to the net
income generated for a contract funded by an investment in the Money Market
Portfolio over a seven-day period. This income is then "annualized." That is,
the amount of income
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<PAGE> 13
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 Money Market Portfolio 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
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.
In addition, the separate account may advertise "total return" data for its
other Variable Portfolios. Like the yield figures described above, total return
figures are based on historical data and are not intended to indicate future
performance. The "total return" is a computed rate of return that, when
compounded annually over a stated period of time and applied to a hypothetical
initial investment in a Variable Portfolio made at the beginning of the period,
will produce the same contract value at the end of the period that the
hypothetical investment would have produced over the same period (assuming a
complete redemption of the contract at the end of the period). Recurring
contract charges are reflected in the total return figures in the same manner as
they are reflected in the yield data for contracts funded through the Money
Market Portfolio. The effect of applicable withdrawal charges due to the assumed
redemption will be reflected in the return figures, but may be omitted in
additional return figures given for comparison.
The separate account may also advertise an annualized 30-day (or one month)
yield figure for Variable Portfolios other than the Money Market Portfolio.
These yield figures are based upon the actual performance of the Variable
Portfolio over a 30-day (or one month) period ending on a date specified in the
advertisement. Like the total return data described above, the 30-day (or one
month) yield data will reflect the effect of all recurring contract charges (but
will not reflect any withdrawal charges or premium taxes). The yield figure is
derived from net investment gain (or loss) over the period expressed as a
fraction of the investment's value at the end of the period.
More detailed information on the computation of advertised performance data
for the separate account is contained in the SAI.
- --------------------------------------------------------------------------------
DESCRIPTION OF PRESIDENTIAL LIFE, THE SEPARATE ACCOUNT
AND THE GENERAL ACCOUNT
- --------------------------------------------------------------------------------
PRESIDENTIAL LIFE INSURANCE COMPANY
Presidential Life is a stock life insurance company organized under the
laws of the state of New York in 1965. Its principal place of business is 69
Lydecker Street, Nyack, New York 10960. 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 48 states and the District of Columbia.
SEPARATE ACCOUNT
Presidential Life established Presidential Variable Account One (the
"separate account") on August 26, 1987. The separate account is registered with
the SEC as a unit investment trust under the Investment Company Act of 1940, as
amended. Presidential Life owns the assets of the separate account. However, the
assets in the separate account are not chargeable with liabilities arising out
of any other business conducted by Presidential Life. Income, gains and losses
(realized and unrealized), resulting from assets in the separate account are
credited to or charged against the separate account without regard to other
income, gains or losses of Presidential Life.
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<PAGE> 14
GENERAL ACCOUNT
Money allocated to the fixed account option goes into Presidential Life's
general account. The general account consists of all of Presidential Life's
assets other than assets attributable to a separate account. All of the assets
in the general account are chargeable with the claims of any Presidential Life
contract holders as well as all of its creditors. The general account funds are
invested as permitted under state insurance laws.
- --------------------------------------------------------------------------------
VARIABLE PORTFOLIO OPTIONS
- --------------------------------------------------------------------------------
The contract currently offers eleven Variable Portfolios. These Variable
Portfolios invest in shares of the Trust. These Variable Portfolios operate
similarly to a mutual fund but are only available through the purchase of this
annuity contract. The Variable Portfolios are:
<TABLE>
<S> <C>
EQUITY PORTFOLIOS FIXED INCOME PORTFOLIOS
- FOREIGN SECURITIES - HIGH YIELD
- CAPITAL APPRECIATION - FIXED INCOME
- GROWTH - GOVERNMENT AND QUALITY BOND
- NATURAL RESOURCES - MONEY MARKET
- GROWTH AND INCOME
MANAGED PORTFOLIOS
- STRATEGIC MULTI-ASSET
- MULTI-ASSET
</TABLE>
The Trust is an open-end diversified management investment company
registered under the Investment Company Act of 1940. Comprehensive information,
including a discussion of potential risks, is found in the prospectus for the
Trust, attached or enclosed. SunAmerica Asset Management Corp. ("SAAMCo"), an
indirect wholly owned subsidiary of SunAmerica Inc., a member of the American
International Group, Inc. family of financial services companies, is the
investment manager for the Trust. Wellington Management Company, LLP, which is
not affiliated with Presidential Life, serves as sub-adviser for the Trust.
There is no assurance that the investment objective of any of the Variable
Portfolios will be met. The 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 and will be issued and redeemed only in connection
with investments in and payments under variable contracts sold by the company,
Anchor National Life Insurance Company, First SunAmerica Life Insurance Company
and Phoenix Mutual 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.
Additional Variable Portfolios may be established by the Trust from time to
time and may be made available to contract owners. However, there is no
assurance that this will occur.
VOTING RIGHTS
Presidential Life is the legal owner of the Trust's shares. However, when a
Variable Portfolio solicits proxies in conjunction with a vote of shareholders,
we must obtain your instructions on how to vote those shares. We vote all of the
shares we own in proportion to your instructions. Should we determine that we
are no longer required to comply with these rules, we will vote the shares in
our own right.
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<PAGE> 15
SUBSTITUTION OF SECURITIES
If Variable Portfolios become unavailable for investment, we may be
required to substitute shares of another Variable Portfolios. We will seek prior
approval of the SEC and give you notice before substituting shares.
- --------------------------------------------------------------------------------
FIXED ACCOUNT OPTION
- --------------------------------------------------------------------------------
ALLOCATIONS
The contract also offers a fixed account option for a one year period. We
call this time period the guarantee period. The fixed account option pays
interest at rate set and guaranteed by Presidential Life. The interest rate may
differ from time to time and is set at our sole discretion. We will never credit
less than a 4% annual effective rate to the fixed account option. The interest
rate offered for new Purchase Payments may differ from interest rates offered
for subsequent Purchase Payments and money already in the fixed account option.
Rates are established at the beginning of a guarantee period and once
established, the rates for specified payments do not change during the guarantee
period.
When a guarantee period ends, you may leave your money in the fixed
account. You may also reallocate your money to the Variable Portfolios. If you
want to reallocate your money you must contact us within 30 days after the end
of the current guarantee period and instruct us how to reallocate the money. If
we do not hear from you, we will keep your money in the fixed account where it
will earn the renewal interest rate applicable at that time.
- --------------------------------------------------------------------------------
CONTRACT CHARGES
- --------------------------------------------------------------------------------
There are charges and expenses associated with your contract. These charges
and expenses reduce your investment return. We will not increase the contract
maintenance fee and withdrawal charges under your contract. However, the
investment charges under your contract may increase or decrease. Some states may
require that we charge less than the amounts described below.
INSURANCE CHARGES
The amount of this charge is 1.40% annually, of the value of your contract
invested in the Variable Portfolios. We deduct the charge from the Variable
Portfolio(s) in which you are invested on a pro-rata basis, daily.
The insurance charge compensates us for the mortality and expense risks and
the costs of contract distribution we assume. If these charges do not cover all
expenses, we will pay the difference. Likewise, if these charges exceed our
expenses, we will keep the difference.
WITHDRAWAL CHARGES
The contract provides a free withdrawal amount every year. (SEE CONTRACT
CHARGES, FREE WITHDRAWAL AMOUNT, PAGE 14.) If you take money out in excess of
the free withdrawal amount, you may incur a withdrawal charge.
We apply a withdrawal charge against amount withdrawn in excess of the free
withdrawal amount. After a Purchase Payment has been in the contract for six
complete years, no withdrawal charge applies. 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.
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<PAGE> 16
When calculating the withdrawal charge, we treat withdrawals as coming
first from the Purchase Payments that have been in your contract the longest.
However, for tax purposes, your withdrawals are considered earnings first, then
Purchase Payments.
Whenever possible, we deduct the withdrawal charge from the money remaining
in your contract. If you withdraw all of your contract value, applicable
withdrawal charges are deducted from the amount withdrawn.
We do not assess a withdrawal charge for money withdrawn to pay a death
benefit. Withdrawals made prior to age 59 1/2 may result in a 10% IRS penalty
tax. SEE TAXES, TAX TREATMENT OF WITHDRAWALS -- NON-QUALIFIED CONTRACTS, PAGE
24.
INVESTMENT CHARGES
Charges are deducted from the Variable Portfolios for the advisory and
other expenses of the underlying Variable Portfolios. THE FEE TABLES LOCATED AT
PAGE 7 illustrate these charges and expenses. For more detailed information on
these investment charges, refer to the attached prospectus for the Trust.
CONTRACT MAINTENANCE FEE
During the Accumulation Phase, we subtract a $30 contract maintenance fee
from your account, on a pro-rata basis, once per contract year. This charge
compensates us for the cost of contract administration. We deduct the fee on
your contract anniversary. If you withdraw your entire contract value, the fee
is deducted from that withdrawal.
TRANSFER FEE
During the Accumulation Period, you may transfer all or part of your
interest in a Division to another Division, free of any charge. In the event you
transfer all or part of your interest in a Division to another Division within
30 days of a prior transfer or within 30 days of the Issue Date, a transfer fee
of $25 will be imposed. SEE TRANSFERS DURING THE ACCUMULATION PHASE, PAGE 17.
ANNUITY CHARGE
If you elect to have your income payments made under income option 1, Life
Annuity with 10 or 20 Years Guaranteed, or income option 2, Joint and Survivor
Life Annuity, we do not assess an annuity charge. If you elect income option 3,
Income for a Specified Period, and if your Purchase Payments were made in the
contract year in which income payments begin or in any of the five preceding
contract years, we may assess an annuity charge. This annuity charge equals the
withdrawal charge that would apply if your contract was being surrendered. If
income option 3 is elected by your Beneficiary under the death benefit, we will
not assess an annuity charge. Under certain income options, we will assess the
annuity charge against the portion of your contract in the fixed account.
INCOME TAXES
We do not currently deduct income taxes from your contract. We reserve the
right to do so in the future.
REDUCTION OR ELIMINATION OF CHARGES AND EXPENSES, AND ADDITIONAL AMOUNTS
CREDITED
Sometimes sales of the contracts to groups of similarly situated
individuals may lower our administrative and/or sales expenses. We reserve the
right to reduce or waive certain charges and expenses when this type of sale
occurs. In addition, we may also credit additional interest to policies sold to
such groups. We determine which groups are eligible for such treatment. Some of
the criteria used to make a determination are: size of the group; amount of
expected Purchase Payments; relationship existing between us and prospective
purchaser; nature of the purchase; length of time a
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<PAGE> 17
group of contracts is expected to remain active; purpose of the purchase and
whether that purpose increases the likelihood that our expenses will be reduced;
and/or any other factors that we believe indicate that administrative and/or
sales expenses may be reduced.
We may make such a determination regarding sales to our employees, our
affiliates' employees and employees of currently contracted broker-dealers, our
registered representatives and immediate family members of all of those
described.
We reserve the right to change or modify any such determination or the
treatment applied to a particular group, at any time.
FREE WITHDRAWAL AMOUNT
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 the greater of 10% of the aggregate Purchase Payments less prior
withdrawals or Purchase Payments in the contract for six years or longer minus
prior withdrawals. Alternatively, certain Owners of Non-Qualified Contracts and
Contracts issued in connection with IRAs may choose to withdraw via the
Systematic Withdrawal Program amounts which in the aggregate add up to 10% of
their initial Purchase Payments annually, without charge. The Systematic
Withdrawal Program is available under such Contracts which were issued on and
after April 1, 1989. To participate in the Systematic Withdrawal Program, Owners
must complete an enrollment form (which describes the program) and send it to
the Company, c/o its Administrative Service Center. Depending on fluctuations in
the net asset value of the Separate Account's Divisions, systematic withdrawals
may reduce or even exhaust Contract Value. (See "Purchase and Contract
Value -- Systematic Withdrawal Program").
We will waive the withdrawal charge upon payment of a death benefit.
- --------------------------------------------------------------------------------
DESCRIPTION OF THE CONTRACTS
- --------------------------------------------------------------------------------
SUMMARY
This contract works in two stages, the Accumulation Phase and the Income
Phase. Your contract is in the Accumulation Phase while you make payments into
the contract. The Income Phase begins when you request that we begin making
payments to you out of the money accumulated in your contract.
OWNERSHIP
You, as the contract owner, are entitled to the rights and privileges of
the contract. If you die during the Accumulation Phase, your Beneficiary will
become the owner of the contract, unless you elect otherwise. Joint owners have
equal ownership interests in the contract unless we advise otherwise in writing.
Only spouses may be joint owners.
ANNUITANT
The annuitant is the person on whose life we base income payments. You may
change the Annuitant at any time before the Annuity Date. You may also designate
a second person on whose life, together with the annuitant, income payments
depend. If the annuitant dies before the Annuity Date, you must notify us and
select a new annuitant.
MODIFICATION OF THE CONTRACT
Only the Company's President, a Vice President or Secretary may approve a
change or waive a provision of the contract. Any change or waiver must be in
writing. We reserve the right to modify the terms of the contract as necessary
to comply with changes in applicable law.
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<PAGE> 18
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 owner at any time during the lifetime of the Annuitant prior to
the Annuity Date. We will not be bound by any assignment until written notice is
received by us at our Annuity Service Center. We are not responsible for the
validity, tax or other legal consequences of any assignment. An assignment will
not affect any payments we may make or actions we may take before we receive
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, YOU SHOULD CONSULT A
COMPETENT TAX ADVISER SHOULD YOU WISH TO ASSIGN YOUR CONTRACT.
DEATH BENEFIT
If you die during the Accumulation Phase of your contract, we pay a death
benefit to your Beneficiary.
The death benefit is equal to the greater of:
1. the value of your contract at the end of the valuation period during
which we receive satisfactory proof of death; or
2. total Purchase Payments less any withdrawals and partial annuitizations
(and any fees or charges applicable to such distributions).
We do not pay the death benefit if you die after you switch to the Income
Phase. However, if you die during the Income Phase, your Beneficiary receives
any remaining guaranteed income payments in accordance with the income option
you selected. (SEE INCOME PHASE, INCOME OPTIONS, PAGE 19.)
You name your Beneficiary. You may change the Beneficiary at any time,
unless you previously made an irrevocable Beneficiary designation.
We pay the death benefit when we receive satisfactory proof of death. We
consider the following satisfactory proof of death:
1. a certified copy of the 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 the
time of death; or
4. any other proof satisfactory to us.
We may require additional proof before we pay the death benefit.
The death benefit payment must begin immediately upon receipt of all
necessary documents. In any event, the death benefit must be paid within 5 years
of the date of death unless the Beneficiary elects to have it payable in the
form of an income option. If the Beneficiary elects an income option, it must be
paid over the Beneficiary's lifetime or for a period not extending beyond the
Beneficiary's life expectancy. Payments must begin within one year of the date
of your death. If a Beneficiary does not elect a specific form of pay out within
60 days of our receipt of proof of death, we pay a lump sum death benefit to the
Beneficiary.
If the Beneficiary is the spouse of a deceased owner, he or she can elect
to continue the contract at the then current value. If the Beneficiary/spouse
continues the contract, we do not pay a death benefit to him or her.
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<PAGE> 19
- --------------------------------------------------------------------------------
PURCHASES, WITHDRAWALS AND CONTRACT VALUE
- --------------------------------------------------------------------------------
PURCHASE PAYMENTS
A Purchase Payment is the money you give us to buy a contract. Any
additional money you give us to invest in the contract after purchase is a
subsequent Purchase Payment.
This chart shows the minimum initial and subsequent Purchase Payments
permitted under your contract. These amounts depend upon whether your contract
is Qualified or Non-qualified for tax purposes. SEE TAXES, PAGE 22.
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------
MINIMUM
MINIMUM INITIAL SUBSEQUENT
PURCHASE PAYMENT PURCHASE PAYMENT
- --------------------------------------------------------------------
Qualified $100 N/A
- --------------------------------------------------------------------
Non-Qualified $1,000 $500
- --------------------------------------------------------------------
</TABLE>
Prior Company approval is required to accept Purchase Payments greater than
$1,000,000. The Company reserves the right to refuse any Purchase Payment or
subsequent Purchase Payments, including but not limited to Purchase Payments
which would cause the contract value to exceed $1,000,000 at the time of the
Purchase Payment. In general, Presidential Life will not issue a Qualified
contract to anyone who is age 70 1/2 or older, unless you certify the minimum
distribution required by the IRS is being made. In addition, we may not issue a
contract to anyone over age 80.
ALLOCATION OF PURCHASE PAYMENTS
We invest your Purchase Payments in the fixed and variable investment
options according to your instructions. If we receive a Purchase Payment without
allocation instructions, we invest the money according to your last allocation
instructions. SEE VARIABLE PORTFOLIO OPTIONS, PAGE 11 AND FIXED ACCOUNT OPTION,
PAGE 12.
In order to issue your contract, we must receive your completed
application, Purchase Payment allocation instructions and any other required
paperwork at our principal place of business. We allocate your initial Purchase
Payment within two days of receiving it. If we do not have complete information
necessary to issue your contract, we will contact you. If we do not have the
information necessary to issue your contract within 5 business days we will:
- Send your money back to you, or;
- Ask your permission to keep your money until we get the information
necessary to issue the contract.
ACCUMULATION UNITS
When you allocate a Purchase Payment to the Variable Portfolios, we credit
your contract with Accumulation Units of the separate account. We base the
number of accumulation units you receive on the unit value of the Variable
Portfolio as of the day we receive your money, if we receive it before 4:00
p.m., Eastern Standard Time ("EST"); or on the next business day's unit value,
if we receive your money after 1:00 p.m., PST.
We calculate the value of an Accumulation Unit each day that the New York Stock
Exchange ("NYSE") is open as follows:
1. We determine the total value of money invested in a particular Variable
Portfolio;
2. We subtract from that amount all applicable contract charges; and
3. We divide this amount by the number of outstanding Accumulation Units.
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<PAGE> 20
We determine the number of Accumulation Units credited to your contract by
dividing the Purchase Payment by the Accumulation Unit value for the specific
Variable Portfolio.
EXAMPLE:
We receive a $25,000 Purchase Payment from you on Wednesday. You allocate
the money to the Multi-Asset Portfolio. The value of an Accumulation Unit
for the Multi-Asset Portfolio is $11.10 when the NYSE closes on Wednesday.
Your Purchase Payment of $25,000 is then divided by $11.10 and we credit
your contract on Wednesday night with 2252.52 Accumulation Units of the
Multi-Asset Portfolio.
Performance of the Variable Portfolios and the charges and expenses under
your contract affect Accumulation Unit values. These factors cause the value of
your contract to go up and down.
FREE LOOK
You may cancel your contract within ten days after receiving it.
Presidential Life calls this a "free look." To cancel, you must mail the
contract along with your free look request to the Annuity Service Center at P.O.
Box 54299, Los Angeles, California 90054-0299. We will refund the value of your
contract on the day we receive your request. The amount refunded to you may be
more or less than the amount you originally invested. All contracts issued as an
IRA require the full return of Purchase Payments upon a free look.
TRANSFERS DURING THE ACCUMULATION PHASE
During the Accumulation Phase you may transfer funds between the Variable
Portfolios and/or the fixed account option. You must transfer at least $500. If
less than $500 will remain in any Variable Portfolio after a transfer, that
amount must be transferred as well. Transfers from the fixed account option may
only be made once each contract year and must be requested during the 30-day
period following the end of the applicable 1-year guarantee period.
You may request transfers of your account value between the Variable
Portfolios and/or the fixed account option in writing or by telephone. We
currently allow 15 free transfers per contract per year. A charge of $25 for
each additional transfer in any contract year applies after the first 15
transfers. We may also assess a $25 fee if you move all your money from a
Variable Portfolio to another Variable Portfolio within 30 days of the contract
issue date.
We accept transfer requests by telephone unless you specify not to on your
contract application. Additionally, in the future you may be able to execute
transfers or other financial transactions over the internet. When receiving
instructions over the telephone, we follow appropriate procedures to provide
reasonable assurance that the transactions executed are genuine. Thus, we are
not responsible for any claim, loss or expense from any error resulting from
instructions received over the telephone.
Telephone calls authorizing transfers received before 4:00 p.m. EST will be
processed on the same day, calls after 4:00 p.m. EST will be processed on the
next business day. The company reserves the right to terminate or modify the
telephone transfers service at any time.
Upon implementation of internet account transfers we will have appropriate
procedures in place to provide reasonable assurance that the transactions
executed are genuine. Thus, Presidential Life would not be responsible for any
claim, loss or expense from any error resulting from instructions received over
the internet. If we fail to follow any procedures, we may be liable for any
losses due to unauthorized or fraudulent instructions. We reserve the right to
terminate or modify the internet transfer system or procedure at any time.
We may limit the number of transfers in any contract year or refuse any
transfer request for you or others invested in the contract if we believe that
excessive trading or a specific transfer request or group transfer requests may
have a detrimental effect on unit values or the share prices of the underlying
Variable Portfolios.
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<PAGE> 21
Where permitted by law, we may accept your authorization for a third party
to make transfers for you subject to certain rules. We reserve the right to
suspend or cancel such acceptance at any time and will notify you accordingly.
Additionally, we may restrict the investment options available for transfers
during any period in which such third party acts for you. We will notify such
third party beforehand regarding any restrictions. However, we will not enforce
these restrictions if we are satisfied that such third party has been appointed
by a court of competent jurisdiction to act on your behalf.
We may provide administrative or other support services to independent
third parties you authorize to make transfers on your behalf. We do not
currently charge extra for providing these support services. This includes, but
is not limited to, transfers between investment options in accordance with
market timing strategies. Such independent third parties may or may not be
appointed with us for the sale of annuities. However, WE DO NOT ENGAGE ANY THIRD
PARTIES TO OFFER INVESTMENT ALLOCATION SERVICES OF ANY TYPE. WE TAKE NO
RESPONSIBILITY FOR THE INVESTMENT ALLOCATION AND TRANSFERS TRANSACTED ON YOUR
BEHALF BY SUCH THIRD PARTIES OR FOR ANY INVESTMENT ALLOCATION RECOMMENDATIONS
MADE BY SUCH PARTIES.
For information regarding transfers during the Income Phase, SEE INCOME
PHASE, TRANSFERS DURING THE INCOME PHASE, PAGE 21.
We reserve the right to modify, suspend, waive or terminate these transfer
provisions at any time.
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.
From time to time, we may pay or allow additional promotional incentives in
the form of cash or other compensation. We reserve the right to offer these
additional incentives only to certain broker-dealers that sell or are expected
to sell, certain minimum amounts of the contract, or other contracts offered by
us. Promotional incentives may change at any time.
SunAmerica Capital Services, Inc., 733 Third Avenue, 4th Floor, New York,
New York 10017 distributes the contracts. SunAmerica Capital Services an
indirect wholly owned subsidiary of SunAmerica Inc., is registered as a
broker-dealer under the Exchange Act of 1934 and is a member of the National
Association of Securities Dealers, Inc.
WITHDRAWALS
You can access money in your contract in two ways:
- by making a partial or total withdrawal, and/or;
- by receiving income payments during the Income Phase. (SEE INCOME PHASE,
PAGE 19.)
Generally, we deduct a withdrawal charge applicable to any total or partial
withdrawal. If you withdraw your entire contract value, a deduction for the
contract maintenance fee also occurs. (SEE CONTRACT CHARGES, WITHDRAWAL CHARGES,
PAGE 12.)
Under most circumstances, the partial withdrawal minimum is $500. We
require that the value left in any investment option be at least $500 after the
withdrawal. You must send a written withdrawal request. Unless you provide
different instructions, partial withdrawals will be made pro rata from each
Variable Portfolio and the fixed account option in which your contract is
invested.
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<PAGE> 22
Under certain Qualified plans, access to the money in your contract may be
restricted. Additionally, withdrawals made prior to age 59 1/2 may result in a
10% IRS penalty tax. (SEE TAXES, TAX TREATMENT OF WITHDRAWALS -- QUALIFIED
CONTRACTS, ON PAGE 25.)
We may be required to suspend or postpone the payment of a withdrawal for
any period of time when: (1) the NYSE is closed (other than customary weekend
and holiday closings); (2) trading with the NYSE is restricted; (3) an emergency
exists such that disposal of or determination of the value of shares of the
Variable Portfolios is not reasonably practicable; (4) the SEC, by order, so
permits for the protection of contract owners.
Additionally, we reserve the right to defer payments for a withdrawal from
the fixed account option. Such deferrals are limited to no longer than six
months.
MINIMUM CONTRACT VALUE
Where permitted by state law, we may terminate your contract if both of the
following occur: (1) your contract is less than $500 as a result of withdrawals;
and (2) you have not made any Purchase Payments during the past three years. We
will provide you with sixty days written notice. At the end of the notice
period, we will distribute the contract value to you.
- --------------------------------------------------------------------------------
INCOME PHASE
- --------------------------------------------------------------------------------
ANNUITY DATE
During the Income Phase, we use the money accumulated in your contract to
make regular income payments to you. You select the month and year in which you
want income payments to begin. The first day of that month is the Annuity Date.
You may change your Annuity Date, so long as you do so at least seven days
before the income payments are scheduled to begin. Once you begin receiving
income payments, you cannot change your income option. Except as discussed under
Option 3 below, once you begin receiving income payments, you cannot otherwise
access your money through a withdrawal or surrender.
Income payments must begin on or before the Annuitant's 85th birthday. If
you named joint Annuitants on your contract, the income payments may not be
later than the first day of the month following the 85th birthday of the younger
Annuitant. If you do not choose an Annuity Date, your income payments will
automatically begin on this date.
If the Annuity Date is past your 85th birthday, your contract could lose
its status as an annuity under Federal tax laws. This may cause you to incur
adverse tax consequences.
In addition, most Qualified contracts require you to take minimum
distributions after you reach age 70 1/2. (SEE TAXES, PAGE 23.)
INCOME OPTIONS
Currently, this contract offers three income options. If you elect to
receive income payments but do not select an option, your income payments will
be made monthly and in accordance with option 1 for a period of 10 years.
We base our calculation of income payments on the life of the Annuitant and
the annuity rates set forth in your contract. As the contract owner, you may
change the Annuitant at any time prior to the Annuity Date. You must notify us
if the Annuitant dies before the Annuity Date and designate a new Annuitant.
OPTION 1 -- LIFE ANNUITY WITH 10 OR 20 YEARS GUARANTEED
This option provides income payments for the longer of (1) the life of the
Annuitant or (2) 10 or 20 years, depending on the number of years you select.
Under this option, we guarantee that income
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<PAGE> 23
payments will be made for at least 10 or 20 years. If the Annuitant dies before
all guaranteed income payments are made, the remaining income payments go to the
Beneficiary under your contract.
OPTION 2 -- JOINT AND SURVIVOR LIFE ANNUITY
This option provides income payments for the life of the Annuitant and for
the life of another designated person. Upon the death of either person, we will
continue to make income payments during the lifetime of the survivor. Income
payments stop whenever the survivor dies.
OPTION 3 -- INCOME FOR A SPECIFIED PERIOD
This option provides income payments for a guaranteed period ranging from 5
to 30 years. If the Annuitant dies before all of the guaranteed income payments
are made, the remaining income payments will be made to the Beneficiary under
your contract. Additionally, if variable income payments are elected under this
option, you (or the Beneficiary under the contract if the Annuitant dies prior
to all guaranteed payments being made) may redeem the contract value after the
Annuity Date. The amount available upon such redemption will be the discounted
present value of any remaining guaranteed payments.
Under this option, if your Purchase Payments were made in the contract year
in which income payments begin or in any of the five preceding contract years,
we may assess an annuity charge. (SEE CONTRACT CHARGES, ANNUITY CHARGE, PAGE
13). This annuity charge equals the withdrawal charge that would apply to those
purchase payments if your contract was being surrendered. If this option is
elected by your Beneficiary under the death benefit, we will not assess an
annuity charge.
The value of an Annuity Unit, regardless of the option chosen, takes into
account the Mortality and Expense Risk Charge. Since Option 3 does not contain
an element of mortality risk, no benefit is derived from this charge.
Please read the SAI for a more detailed discussion of the income options.
You can choose income payments that are fixed, variable or both. If at the
date when income payments begin you are invested in the Variable Portfolios
only, your income payments will be variable. If your money is only in the fixed
account at that time, your income payments will be fixed in amount. Further, if
you are invested in both the fixed and variable investment options when payments
begin your payments will be fixed and variable. If income payments are fixed,
Presidential Life guarantees the amount of each payment. If the income payments
are variable, the amount is not guaranteed. You may send us a written request to
convert variable income payments to fixed income payments. However, you may not
convert fixed income payments to variable income payments.
We make income payments on a monthly basis. You instruct us to send you a
check or to have the payments directly deposited into your bank account. If
state law allows, we distribute annuities with a contract value of $2,000 or
less in a lump sum. Also, if the selected income option results in income
payments of less than $20 per payment, the frequency of your payments may be
decreased, state law allowing.
If you are invested in the Variable Portfolios after the Annuity Date your
income payments vary depending on four things:
- for life options, your age when payments begin, and;
- the value of your contract in the Variable Portfolios on the Annuity
Date, and;
- the 5% assumed investment rate used in the annuity table for the
contract, and;
- the performance of the Variable Portfolios in which you are invested
during the time you receive income payments.
If you are invested in both the fixed account options and the Variable
Portfolios after the Annuity Date, the allocation of funds between the fixed and
variable options also impacts the amount of your income payments.
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<PAGE> 24
TRANSFERS DURING THE INCOME PHASE
During the Income Phase, you may transfer funds to the fixed account and/or
among the Variable Portfolios. Transfers during the Income Phase are subject to
the following limitations:
(1) You may not transfer funds to a Variable Portfolio during the first
year your contract is in the Income Phase. After the first year, you
may only make one transfer per Variable Portfolio during each contract
year.
(2) When you make a transfer, you must transfer the entire value of a
Variable Portfolio.
(3) Your transfer request must be in writing. We must receive your transfer
request during the 45 days preceding your contract anniversary. Amounts
are transferred at the next Annuity Unit value calculation date.
(4) You may not transfer funds from the fixed account option. However,
amounts may be transferred from the Variable Portfolios to the fixed
account option.
(5) We reserve the right to modify, suspend or terminate this transfer
privilege at any time.
DEFERMENT OF PAYMENTS
We may defer making fixed income payments for up to six months, or less if
required by law. Interest is credited to you during the deferral period.
- --------------------------------------------------------------------------------
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 SunAmerica"), 733 Third Avenue, 4th
Floor, New York, New York 10017; (800) 537-3642 to administer its Annuity
Service Center. First SunAmerica is not affiliated with the Company. First
SunAmerica is an indirect wholly owned subsidiary of SunAmerica Inc., a member
of the AIG family of financial services companies.
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.
We send out transaction confirmations and quarterly statements. It is your
responsibility to review these documents carefully and notify us of any
inaccuracies immediately. We investigate all inquiries. To the extent that we
believe we made an error, we retroactively adjust your contract, provided you
notify us within 30 days of receiving the transaction confirmation or quarterly
statement. Any other adjustments we deem warranted are made as of the time we
receive notice of the error.
YEAR 2000 MATTERS
In 1994, the Company initiated the process of migrating to a local area
network and preparing its computer systems and applications for the Year 2000.
This process involves modifying or replacing certain hardware and software
maintained by the Company as well as communicating with external service
providers to ensure that they are taking the appropriate action to remedy their
Year 2000 issues. Management believes that the modification process of all
significant administrative systems has been completed by December 31, 1998 and
that all of the remaining non-critical system and application changes will be
completed during the second half of 1999.
The Company has initiated formal communications with its significant
vendors and business partners to determine the extent to which the Company may
be vulnerable to those third parties' failure to properly remediate their own
year 2000 issues. While the Company is not presently aware of
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<PAGE> 25
any such significant exposure, the Company cannot predict the outcome of other
companies' remediation efforts.
While the Company is not presently aware of any significant exposure that
its systems will not be properly remediated on a timely basis, there can be no
assurances that all year 2000 remediation processes will be completed and
properly tested before the year 2000, or that contingency plans will
sufficiently mitigate the risk of a year 2000 readiness problem. The failure of
the systems of the Company or its significant vendors or business partners due
to a year 2000 readiness problem could have a material adverse effect on the
Company.
The Company's contingency plans, which are expected to be completed during
the second quarter of 1999, will be structured to address both remediation of
those systems not yet compliant and their components and overall business
operating risk. These plans are intended to mitigate both internal risk as well
as potential risks relative to a significant exposure identified relative to the
dependencies on third-party systems.
Purchased hardware will be capitalized in accordance with normal policy.
Personnel and all other costs related to the project are being expensed as
incurred. Based on Management's best estimates, the total cost to the Company of
both migrating to a local area network, replacing software and Year 2000
compliance activities is not expected to exceed $4.0 million. Since 1994, the
Company has incurred approximately $2.9 million in connection with migrating to
a local area network, replacing software and Year 2000 compliance. The total
cost to the Company of these Year 2000 compliance activities has not been and is
not anticipated to be material to its financial position or results of
operations in any given year.
- --------------------------------------------------------------------------------
TAXES
- --------------------------------------------------------------------------------
NOTE: WE PREPARED THE FOLLOWING INFORMATION ON TAXES AS A GENERAL
DISCUSSION OF THE SUBJECT. IT IS NOT TAX ADVICE. WE CAUTION YOU TO SEEK
COMPETENT TAX ADVICE ABOUT YOUR OWN CIRCUMSTANCES. WE DO NOT GUARANTEE THE TAX
STATUS OF YOUR ANNUITY. TAX LAWS CONSTANTLY CHANGE, THEREFORE WE CANNOT
GUARANTEE THAT THE INFORMATION CONTAINED HEREIN IS COMPLETE AND/OR ACCURATE.
GENERAL
From time to time, Federal initiatives are proposed that could affect the
tax treatment of insurance products. Recent administration budget proposals
include the proposed taxation of exchanges involving variable annuity contracts,
reallocations within variable annuity contracts, and certain other proposals
relating to annuities. Please consult your tax advisor for additional
information.
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
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<PAGE> 26
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.
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;
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<PAGE> 27
(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 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").
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
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<PAGE> 28
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").
(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"). 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 Contracts"). 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.
(C) ROTH IRAS
Section 408A of the Code permits an individual to contribute to an
individual retirement program called a Roth IRA. Unlike contributions to a
regular IRA under Section 408(b) of the Code, contributions to a Roth IRA
are not made on tax-deferred basis, but distributions are tax-free if
certain requirements are satisfied. Like regular IRAs, Roth IRAs are
subject to limitations on the amount that may be contributed, those who may
be eligible and the time when distributions may commence. A regular IRA may
be converted into a Roth IRA, and the resulting income tax shall be spread
over four years if the conversion occurs before January 1, 1999. If and
when Contracts are made available for use with Roth IRAs, they may be
subject to special requirements imposed by the Internal Revenue Service.
Purchasers of the Contracts for this purpose will be provided with such
supplementary information as may be required by the Internal Revenue
Service or other appropriate agency.
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).
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<PAGE> 29
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; and
(7) distributions from an IRA made to the owner of Annuitant (as applicable) to
the extent such distributions do not exceed the Qualified Higher Education
expense (as defined in Section 72(t)(7) of the Code) or the Owner or Annuitant
(as applicable) for the taxable year; and (8) distribution from an IRA made to
the Owner of Annuitant (as applicable) which are Qualified First Time Home Buyer
distributions (as defined in Section 72(t)(8) of the Code).
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") 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.
- --------------------------------------------------------------------------------
CUSTODIAN
- --------------------------------------------------------------------------------
State Street Bank and Trust Company, 255 Franklin Street, Boston,
Massachusetts 02110, serves as the custodian of the assets of the separate
account. First SunAmerica pays State Street Bank for services provided, based on
a schedule of fees.
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- --------------------------------------------------------------------------------
LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
There are no pending legal proceedings affecting the separate account. The
Company is engaged in various kinds of routine litigation. In management's
opinion, these matters are not of material importance to their respective total
assets nor are they material with respect to the separate account.
- --------------------------------------------------------------------------------
REGISTRATION STATEMENTS
- --------------------------------------------------------------------------------
Presidential Life is subject to the informational requirements of the
Securities and Exchange Act of 1934 (as amended). It files reports and other
information with the SEC to meet those requirements. You can inspect and copy
this information at SEC public facilities at the following locations:
WASHINGTON, DISTRICT OF COLUMBIA
450 Fifth Street, N.W., Room 1024
Washington, D.C. 20549
CHICAGO, ILLINOIS
500 West Madison Street
Chicago, IL 60661
NEW YORK, NEW YORK
7 World Trade Center, 13th Fl.
New York, NY 10048
To obtain copies by mail contact the Washington, D.C. location. After you
pay the fees as prescribed by the rules and regulations of the SEC, the required
documents are mailed.
Registration statements under the Securities Act of 1933, as amended,
related to the contracts offered by this prospectus are on file with the SEC.
This prospectus does not contain all of the information contained in the
registrations statement and its exhibits. For further information regarding the
separate account, Presidential Life and its general account, the Variable
Portfolios and the contract, please refer to the registration statement and its
exhibits.
The SEC also maintains a website (http://www.sec.gov) that contains the
SAI, materials incorporated by reference and other information filed
electronically with the SEC by First SunAmerica.
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<PAGE> 31
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT THE SEPARATE ACCOUNT
- --------------------------------------------------------------------------------
Additional information concerning the operations of the separate account is
contained in a Statement of Additional Information ("SAI"), which is available
without charge upon written request addressed to us at our Annuity Service
Center, P.O. Box 54299, Los Angeles, California 90054-0299 or by calling (800)
537-3642. The contents of the SAI are tabulated below.
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
COMPANY..................................................... 1
INDEPENDENT ACCOUNTANTS..................................... 1
DISTRIBUTORS................................................ 1
PERFORMANCE DATA............................................ 2
Money Market Portfolio.................................... 2
Other Variable Portfolios................................. 3
INCOME PAYMENTS............................................. 4
Annuity Unit Value........................................ 4
Amount of Income Payments................................. 4
Subsequent Monthly Income Payments........................ 5
TAXES....................................................... 5
FINANCIAL STATEMENTS........................................ 9
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Financial statements of the separate account appear in the SAI. Financial
information regarding the fixed account is reported in Presidential Life's
financial statements, which are also included in the SAI. A copy of the SAI may
be obtained by contacting Presidential Life, c/o its Annuity Service Center.
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<PAGE> 32
Please forward a copy (without charge) of the Statement of Additional
Information concerning ICAP
Variable Annuity Contracts issued by Presidential Life Insurance Company to:
(Please print or type and fill in all information.)
- ------------------------------------------------------------------------------
Name
- ------------------------------------------------------------------------------
Address
- ------------------------------------------------------------------------------
City/State/Zip
- ------------------------------------------------------------------------------
Date: ________________________ Signed: _____________________________________
Return to: Presidential Life Insurance Company, Annuity Service Center, P.O. Box
54299, Los Angeles, California 90054-0299.
<PAGE> 33
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
MAY 1,1999, AS IT MAY BE SUPPLEMENTED, CALL OR WRITE THE COMPANY IN C/O ITS
ANNUITY SERVICE CENTER, P.O. Box 54299, LOS ANGELES, CALIFORNIA 90054-0299,
1-800-537-3642.
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED MAY 1, 1999.
<PAGE> 34
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 ........................................... 3
Subsequent Monthly Payments .......................................... 4
FINANCIAL STATEMENTS ..................................................... 4
</TABLE>
<PAGE> 35
COMPANY
Information regarding Presidential Life Insurance Company (the
"Company") and its ownership is contained in the Prospectus.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements for each of the three years in the
period ended December 31, 1998 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 financial statements of Presidential Variable Account One (the
"Separate Account") as of December 31, 1998 and for each of the two years in the
period ended December 31, 1998 also are included in this Statement of Additional
Information. PricewaterhouseCoopers 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 PricewaterhouseCoopers 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.
SunAmerica Securities, Inc. and Royal Alliance Associates, Inc. are each an
indirect, wholly owned subsidiary of SunAmerica Inc.
No underwriting fees are paid in connection with the distribution of the
contract.
-1-
<PAGE> 36
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, 1998 were 3.0 and
3.05 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
RMC = an allocated portion of the $3 0 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:
365/7
Effective Yield = [(Base Period Return + 1) -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.
-2-
<PAGE> 37
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.
In addition, the separate account may advertise "total return" data for
its other Variable Portfolios. Like the yield figures described above, total
return figures are based on historical data and are not intended to indicate
future performance. The "total return" is a computed rate of return that, when
compounded annually over a stated period of time and applied to a hypothetical
initial investment in a Variable Portfolio made at the beginning of the period,
will produce the same contract value at the end of the period that the
hypothetical investment would have produced over the same period (assuming a
complete redemption of the contract at the end of the period). Recurring
contract charges are reflected in the total return figures in the same manner as
they are reflected in the yield data for contracts funded through the Money
Market Portfolio. The effect of applicable withdrawal charges due to the assumed
redemption will be reflected in the return figures, but may be omitted in
additional return figures given for comparison.
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.
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.
-3-
<PAGE> 38
<TABLE>
<CAPTION>
ADJUSTED AGE TABLE
CALENDAR ADJUSTMENT TO CALENDAR ADJUSTMENT TO
YEAR OF BIRTH ACTUAL AGE YEAR OF BIRTH ACTUAL 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. As of January 1, 1999, all 457 plans of state and
local governments must hold assets and income in trust (or custodial accounts or
an annuity contract) for the exclusive benefit of participants and their
beneficiaries.
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.
-4-
<PAGE> 39
REPORT OF INDEPENDENT ACCOUNTANTS
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 ("the Company") as of December 31, 1998 and
1997 and the related consolidated statements of income, shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1998.
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 the Company as of December 31, 1998
and 1997 and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
February 16, 1999
10
<PAGE> 40
- --------------------------------------------------------------------------------
PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(In thousands, except share data)
DECEMBER 31,
ASSETS: 1998 1997
---------- ----------
<S> <C> <C>
Investments:
Fixed maturities:
Available for sale $1,951,454 $1,909,924
Common stocks 34,240 45,773
Mortgage Loans 17,038 17,865
Real Estate 415 417
Policy Loans 17,879 18,120
Short-term investments 227,890 264,098
Other invested assets 244,097 208,162
---------- ----------
Total investments 2,493,013 2,464,359
Cash and cash equivalents 1,407 13,480
Accrued investment income 24,309 28,167
Amounts due from security transactions 20,170 0
Federal income tax recoverable 4,740 0
Deferred policy acquisition costs 40,283 37,685
Furniture and equipment, net 693 567
Amounts due from reinsurers 8,700 8,249
Other assets 9,402 1,222
Assets held in separate account 4,082 4,612
---------- ----------
TOTAL ASSETS $2,606,799 $2,558,341
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Policy Liabilities:
Policyholders' account balances $1,314,784 $1,280,900
Future policy benefits:
Annuity 400,717 380,109
Life and accident and health 52,270 50,848
Other policy liabilities 3,261 3,124
---------- ----------
Total policy liabilities 1,771,032 1,714,981
Dollar repurchase agreements 148,651 205,202
Repurchase agreements 24,402 0
Notes payable 50,000 50,000
Short-term note payable 23,000 20,000
Deposits on policies to be issued 1,939 2,436
Deferred federal income taxes 40,815 46,575
General expenses and taxes accrued 6,471 7,074
Other liabilities 13,163 4,807
Liabilities related to separate account 4,082 4,612
---------- ----------
Total liabilities 2,083,555 2,055,687
---------- ----------
Shareholders' Equity:
Capital stock ($.01 par value, authorized
100,000,000 shares, issued and outstanding
31,731,214 shares in 1998 and 32,621,549
shares in 1997) 318 326
Additional paid-in-capital 1,268 18,274
Accumulated other comprehensive income 69,037 71,540
Retained earnings 452,621 412,514
---------- ----------
Total Shareholders' Equity 523,244 502,654
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,606,799 $2,558,341
========== ==========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
11
<PAGE> 41
- --------------------------------------------------------------------------------
PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(In thousands, except share data)
YEARS ENDED DECEMBER 31,
REVENUES: 1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Insurance revenues:
Premiums $ 4,086 $ 3,976 $ 4,244
Annuity considerations 28,140 19,655 8,461
Universal life and investment type policy fee income 2,100 1,988 2,090
Net investment income 187,155 191,818 186,180
Realized investment gains 17,185 26,039 20,020
Other income 3,540 4,228 2,679
------------ ------------ ------------
TOTAL REVENUES 242,206 247,704 223,674
------------ ------------ ------------
BENEFITS AND EXPENSES:
Death and other life insurance benefits 7,612 7,236 6,887
Annuity benefits 40,697 37,867 36,510
Interest credited to policyholders'
account balances 76,776 76,202 75,252
Interest expense on notes payable 7,124 5,850 5,049
Other interest and other charges 274 445 330
Increase in liability for future policy benefits 21,051 15,248 5,281
Commissions to agents, net 4,780 4,357 3,215
General expenses and taxes 14,522 12,813 13,944
Decrease (increase) in deferred policy acquisition costs (2,375) (2,872) 849
------------ ------------ ------------
TOTAL BENEFITS AND EXPENSES 170,461 157,146 147,317
------------ ------------ ------------
Income before income taxes 71,745 90,558 76,357
------------ ------------ ------------
Provision (benefit) for income taxes:
Current 26,902 31,165 23,199
Deferred (4,381) (1,899) (1,363)
------------ ------------ ------------
22,521 29,266 21,836
------------ ------------ ------------
NET INCOME $ 49,224 $ 61,292 $ 54,521
============ ============ ============
Weighted average number of shares
outstanding during the year 32,073,388 32,734,733 33,184,294
============ ============ ============
Earnings per common share $ 1.53 $ 1.87 $ 1.64
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
12
<PAGE> 42
- --------------------------------------------------------------------------------
PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
(In thousands, except share data)
Accumulated
Additional Other
Capital Paid-in- Retained Comprehensive
Stock Capital Earnings Income Total
--------- ----------- --------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $ 335 $ 30,130 $ 308,863 $ 61,732 $ 401,060
---------
Comprehensive Income:
Net income 54,521 54,521
Net Unrealized Investment
Gains (Losses) (21,438) (21,438)
---------
Comprehensive Income 33,083
Purchase and Retirement of Stock (7) (7,031) (7,038)
Issuance of Shares
under Stock Option Plan 2 924 926
Dividends Paid to Shareholders
($.15 per share) (4,968) (4,968)
--------- --------- --------- --------- ---------
Balance at December 31, 1996 330 24,023 358,416 40,294 423,063
---------
Comprehensive Income:
Net income 61,292 61,292
Net Unrealized Investment
Gains (Losses) 31,246 31,246
---------
Comprehensive Income 92,538
Purchase and Retirement of Stock (4) (5,758) (5,762)
Issuance of Shares
under Stock Option Plan 9 9
Dividends Paid to Shareholders
($.22 per share) (7,194) (7,194)
--------- --------- --------- --------- ---------
Balance at December 31, 1997 326 18,274 412,514 71,540 502,654
---------
COMPREHENSIVE INCOME:
NET INCOME 49,224 49,224
NET UNREALIZED INVESTMENT
GAINS (LOSSES) (2,503) (2,503)
---------
COMPREHENSIVE INCOME 46,721
PURCHASE AND RETIREMENT OF STOCK (8) (17,060) (17,068)
ISSUANCE OF SHARES
UNDER STOCK OPTION PLAN 54 54
DIVIDENDS PAID TO SHAREHOLDERS
($.285 PER SHARE) (9,117) (9,117)
--------- --------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1998 $ 318 $ 1,268 $ 452,621 $ 69,037 $ 523,244
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
13
<PAGE> 43
- --------------------------------------------------------------------------------
PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(in thousands)
YEARS ENDED DECEMBER 31,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 49,224 $ 61,292 $ 54,521
Adjustments to reconcile net income to
net cash provided by operating activities:
Benefit for deferred income taxes (4,381) (1,899) (1,363)
Depreciation and amortization 1,037 474 439
Net accrual of discount on fixed maturities (8,806) (4,181) (1,184)
Realized investment gains (17,185) (26,039) (20,020)
Changes in:
Accrued investment income 3,858 4,307 1,854
Deferred policy acquisition costs (2,375) (2,872) 849
Federal income tax recoverable (4,740) 0 477
Liability for future policy benefits 22,030 15,777 5,689
Other items (1,629) 436 2,612
----------- ----------- -----------
Net Cash Provided by Operating Activities 37,033 47,295 43,928
----------- ----------- -----------
INVESTING ACTIVITIES:
Fixed Maturities:
Available for Sale:
Acquisitions (377,730) (338,058) (302,778)
Sales 2,602 29,325 13,713
Maturities, calls and repayments 333,533 252,383 259,108
Common Stocks:
Acquisitions (12,880) (18,722) (15,663)
Sales 46,435 68,377 54,369
Decrease (increase) in short-term
investments and policy loans 36,449 (24,112) (46,884)
Other Invested Assets:
Additions to other invested assets (93,837) (110,760) (62,045)
Distributions from other invested assets 57,902 78,701 36,274
Purchase of property and equipment (289) (409) (154)
Mortgage loan on real estate 827 757 393
Amounts due from security transactions (20,170) 0 0
----------- ----------- -----------
Net Cash Used in Investing Activities (27,158) (62,518) (63,667)
----------- ----------- -----------
FINANCING ACTIVITIES:
Proceeds from Dollar Repurchase Agreements 2,115,345 2,429,540 2,308,967
Repayment of Dollar Repurchase Agreements (2,171,896) (2,425,221) (2,268,500)
Proceeds from Reverse Repurchase Agreements 24,402 0 0
Proceeds from line of credit 3,000 15,000 5,000
Increase (decrease) in policyholders'
account balances 33,884 20,355 (9,353)
Repurchase of common stock (17,069) (5,762) (7,038)
Deposits on policies to be issued (497) 1,166 (1,677)
Dividends paid to shareholders (9,117) (7,194) (4,967)
----------- ----------- -----------
Net Cash Provided by (Used in)
Financing Activities (21,948) 27,884 22,432
----------- ----------- -----------
Increase (Decrease) in Cash and Cash Equivalents (12,073) 12,661 2,693
Cash and Cash Equivalents at Beginning of Year 13,480 819 (1,874)
----------- ----------- -----------
Cash and Cash Equivalents at End of Year $ 1,407 $ 13,480 $ 819
=========== =========== ===========
Supplemental Cash Flow Disclosure:
Income Taxes Paid $ 33,500 $ 27,700 $ 27,303
=========== =========== ===========
Interest Paid $ 6,216 $ 5,508 $ 4,750
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
14
<PAGE> 44
- --------------------------------------------------------------------------------
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.
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. The Company has one reportable
operating segment and therefore, no additional disclosures are required under
Statement of Financial Accounting Standards No. 131 "Disclosures About Segments
of an Enterprise and Related Information". Operating segments are defined as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance.
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 and deferred Federal income taxes are credited or charged directly to
shareholders' equity, unless a decline in market value is considered to be other
than temporary in which case the investment is reduced to its net realizable
value. Equity securities include common stocks and non-redeemable preferred
stocks and are carried at estimated 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 in which case the investment is reduced to its net
realizable value.
"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 real estate, international opportunities,
acquisitions of private growth companies, debt restructuring and merchant
banking. In general, risks associated with such limited partnerships include
those related to their underlying investments (i.e., equity securities, debt
securities and real estate), plus a level of illiquidity, which is mitigated by
the ability of the Company to take annual distributions of partnership earnings.
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, 1998 and 1997. As of December 31, 1998, the Company was
committed to contribute, if called upon, an aggregate of approximately $77.2
million of additional capital to certain of these limited partnerships.
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.
15
<PAGE> 45
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
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 $206,800 and $204,400
at December 31, 1998 and 1997, respectively, and related depreciation expense
for the years ended December 31, 1998, 1997 and 1996 was $2,400, $3,200 and
$3,200, 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
$377,400 and $219,300 at December 31, 1998 and 1997, respectively, and related
depreciation expense for the years ended December 31, 1998, 1997 and 1996 was
$160,900, $163,700 and $187,200, 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.
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 years ended December 31, 1998, 1997, and 1996, approximately
58.1%, 67.3% and 78.3%, 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.
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
year.
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.
16
<PAGE> 46
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Unamortized deferred policy acquisition costs for the years ended
December 31, 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(in thousands)
<S> <C> <C>
Balance at the beginning of year $ 37,685 $ 39,783
Current year's costs deferred 8,706 9,783
-------- --------
Total 46,391 49,566
Less, amortization for the year 6,293 6,581
-------- --------
Total 40,098 42,985
Change in amortization (benefit) related to
unrealized gain (loss) in investments (185) 5,300
-------- --------
Balance at the end of the year $ 40,283 $ 37,685
======== ========
</TABLE>
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, 1998, interest rates used in establishing such liabilities range
from 4.5% to 11% for life insurance liabilities and from 5.5% 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>
1998 1997 1996
---------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
Account balances at beginning of year $1,280,900 $1,260,545 $1,269,898
Additions to account balances 209,601 209,568 190,559
---------- ---------- ----------
Total 1,490,501 1,470,113 1,460,457
Deductions from account balances 175,717 189,213 199,912
---------- ---------- ----------
Account balances at end of year $1,314,784 $1,280,900 $1,260,545
========== ========== ==========
</TABLE>
Interest rates credited to account balances ranged from 4% to 12.5% in
1998, 1997 and 1996.
I. FEDERAL INCOME TAXES
The Company and its subsidiaries file a consolidated Federal income tax
return. The asset and liability method in recording income taxes on all
transactions that have been recognized in the financial statements is used.
Deferred taxes are adjusted to reflect tax rates at which future tax liabilities
or assets are expected to be settled or realized.
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.
17
<PAGE> 47
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
K. EARNINGS PER COMMON SHARE
The Financial Accounting Standards Board ("FASB") issued Statement No.
128, "Earnings Per Share" (SFAS No. 128) which specifies the computation,
presentation and disclosure requirements of earnings per share for entities with
publicly held common stock and potential common stock. Earnings per share (EPS)
presented on the face on the consolidated income statement has been calculated
to reflect the adoption of SFAS No. 128 by the Company. Basic EPS is computed
based upon the weighted average number of common shares outstanding during the
year. Diluted EPS is computed based upon the weighted average number of common
shares including contingently issuable shares and other dilutive items. The
weighted average number of common shares used to compute diluted EPS for the
year ended December 31, 1998 and 1997 was 32,073,388 and 32,736,202,
respectively. The dilution from the potential exercise of stock options
outstanding did not change basic EPS.
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
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133). SFAS 133 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. It also
establishes specific conditions that must be met in order for a derivative to be
recognized as a hedge of certain exposures. The Company has not yet completed
its analysis to determine the impact of this statement on the Company's
financial statements. SFAS 133 is effective for fiscal years beginning after
June 15, 1999.
2. INVESTMENTS
The following information summarizes the components of net investment
income and realized investment gains (losses).
Net Investment Income:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------
1998 1997 1996
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Fixed maturities $141,483 $134,740 $132,467
Common stocks 1,621 1,341 1,315
Short-term investments 16,537 14,368 14,226
Other investment income 33,281 48,797 44,141
-------- -------- --------
192,922 199,246 192,149
Less investment expenses 5,767 7,428 5,969
-------- -------- --------
Net investment income $187,155 $191,818 $186,180
======== ======== ========
</TABLE>
There were no fixed maturities which were non-income producing for more
than twelve months at December 31, 1998, 1997 and 1996.
Realized Investment Gains (Losses):
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1998 1997 1996
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Fixed maturities $ 3,144 $12,080 $ 6,735
Common stocks 14,041 13,959 13,285
------- ------- -------
Total realized gains
on investments $17,185 $26,039 $20,020
======= ======= =======
</TABLE>
18
<PAGE> 48
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS -CONTINUED
Unrealized Investment Gains (Losses):
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1998 1997 1996
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Fixed maturities $ 110,178 $ 109,995 $ 61,931
Common stocks 9,525 13,752 8,438
--------- --------- ---------
Unrealized investment gains 119,703 123,747 70,369
Amortization of deferred
acquisition costs (13,492) (13,686) (8,378)
Deferred federal income taxes (37,174) (38,521) (21,697)
--------- --------- ---------
Net unrealized investment gain $ 69,037 $ 71,540 $ 40,294
========= ========= =========
Change in net unrealized
investment gains $ (2,503) $ 31,246 $ (21,438)
========= ========= =========
</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, 1998:
AVAILABLE FOR SALE:
<TABLE>
<CAPTION>
AMORTIZED GROSS UNREALIZED MARKET
TYPE OF INVESTMENT COST GAINS LOSSES VALUE
- ------------------ ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
FIXED MATURITIES:
BONDS AND NOTES:
UNITED STATES GOVERNMENT
AND GOVERNMENT AGENCIES
AND AUTHORITIES $ 387,430 $ 20,361 $ (111) $ 407,680
STATES, MUNICIPALITIES AND
POLITICAL SUBDIVISIONS 26,707 4,153 0 30,860
FOREIGN GOVERNMENTS 12,100 1,950 0 14,050
PUBLIC UTILITIES 139,013 12,076 0 151,089
ALL OTHER CORPORATE BONDS 1,069,931 85,409 (6,816) 1,148,524
PREFERRED STOCKS, PRIMARILY CORPORATE 206,095 6,254 (13,098) 199,251
---------- ---------- ---------- ----------
TOTAL FIXED MATURITIES: $1,841,276 $ 130,203 $ (20,025) $1,951,454
========== ========== ========== ==========
COMMON STOCKS $ 24,715 $ 10,065 $ (540) $ 34,240
========== ========== ========== ==========
</TABLE>
December 31, 1997:
AVAILABLE FOR SALE:
<TABLE>
<CAPTION>
Amortized Gross Unrealized Market
Type of Investment Cost Gains Losses Value
- ------------------ ---------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Fixed Maturities:
Bonds and Notes:
United States government
and government agencies
and authorities $ 518,997 $ 21,815 $ (256) $ 540,556
States, municipalities and
political subdivisions 26,709 3,574 0 30,283
Foreign governments 12,160 2,190 0 14,350
Public utilities 189,555 14,142 (425) 203,272
All other corporate bonds 855,347 74,441 (5,908) 923,880
Preferred stocks, primarily corporate 197,161 8,047 (7,625) 197,583
---------- ---------- ---------- ----------
Total Fixed Maturities: $1,799,929 $ 124,209 $ (14,214) $1,909,924
========== ========== ========== ==========
Common Stocks $ 32,021 $ 14,202 $ (450) $ 45,773
========== ========== ========== ==========
</TABLE>
19
<PAGE> 49
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS - CONTINUED
The estimated fair value of fixed maturities available for sale at
December 31, 1998, 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>
Market Value
--------------
(in thousands)
<S> <C>
Due in one year or less $ 40,590
Due after one year through five years 152,048
Due after five years through ten years 74,735
Due after ten years 1,484,830
----------
Total debt securities 1,752,203
Preferred stock 199,251
----------
Total $1,951,454
==========
</TABLE>
Proceeds from sales of fixed maturities during 1998, 1997 and 1996 were
$527.5 million, $718.4 million and $757.7 million, respectively. During 1998,
1997 and 1996, respectively, gross gains of $9.0 million, $16.4 million and $7.3
million and gross losses of $1.0 million, $4.5 million and $7.2 million were
realized on those sales.
During 1996, 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 $8.6 million at December 31, 1996 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).
During 1998 and 1997, the Company did not restructure or modify the terms of any
fixed maturity investments.
As of December 31, 1998, the Company's mortgage loans were
collateralized by commercial office buildings in New York and Pennsylvania.
There were no investments owned in any one issuer that aggregate 10% or
more of shareholders' equity as of December 31, 1998.
As of December 31, 1998 securities with a carrying value of
approximately $5.8 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 had agreed to
purchase $25 million of Senior Notes of such company.
The Company was informed by the Pennsylvania Insurance Commissioner 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 disagreed with the
Insurance Commissioner's actions and commenced litigation which was settled in
the second quarter of 1997. As part of the settlement, the Company received $1.7
million.
3. NOTES PAYABLE
Notes payable at December 31, 1998 and 1997 consist of $50 million, 9
1/2% senior notes due December 15, 2000. Interest is payable June 15 and
December 15. Debt issue costs were amortized on the interest method over the
term of the notes. As of December 31, 1998, there were no unamortized costs.
There are no principal payments required for the senior notes until the total
principal is due on December 15, 2000. The senior notes are callable after
December 14, 1998.
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.
The short-term note payable is a bank line of credit in the amount of
$25,000,000 and provides for interest on borrowings based on market indices. At
December 31, 1998 and 1997 the Company had $23,000,000 and $20,000,000
outstanding, respectively. The short-term note payable outstanding at December
31, 1998 and 1997 had a weighted average interest rate of 6.469% and 6.625%,
respectively.
20
<PAGE> 50
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. NOTES PAYABLE - CONTINUED
The Company filed a registration statement with the Securities and
Exchange Commission covering up to $100 million aggregate principal amount of
senior notes ("New Senior Notes"). The net proceeds from the sale of such
offering are expected to be used to retire existing indebtedness and for general
corporate purposes. The Company expects to complete the offering during February
of 1999.
In connection with the offering of the New Senior Notes, the Company
entered into a forward treasury lock agreement with a creditworthy financial
institution pursuant to which the Company will make or receive, respectively,
payments in respect of an aggregate notional principal amount of $100 million
depending upon whether the interest rate for ten-year Treasury Notes in effect
on the settlement date has increased or declined during the term of the
agreement. The amount of any unrecognized gain or loss is recognized in the
financial statements and fluctuates with the ten-year Treasury Note. At December
31, 1998, the agreement had an unrealized loss of $9.1 million. On the
settlement date, the unrecognized loss will be capitalized and amortized over
the term of the New Senior Notes as an increase in interest expense.
4. SHAREHOLDERS' EQUITY
The Company is authorized to issue 100,000,000 shares of its $.01 par
value Common Stock. At December 31, 1998 31,731,214 shares were outstanding and
at December 31, 1997 32,621,549 shares were outstanding.
During 1998, the Company's Board of Directors increased the quarterly
dividend rate to $.075 per share. During 1998, 1997 and 1996, the Company
purchased and retired 896,900, 372,300 and 724,000 shares of common stock,
respectively. The Company is authorized pursuant to a resolution of the Board of
Directors to purchase an additional 335,300 shares of common stock.
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 1998, 1997 and 1996, the Insurance Company paid
dividends of $49.4 million, $24.8 million and $15 million, respectively, to the
Company.
OTHER COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Tax After-
Pre-Tax Expense/ Tax
For the years ended December 31, Amount (Benefit) Amount
-------- ---------- --------
(in thousands)
<S> <C> <C> <C>
1998
UNREALIZED GAIN ON INVESTMENT SECURITIES:
UNREALIZED HOLDING GAINS ARISING DURING YEAR $ 15,739 $ 5,509 $ 10,230
LESS: RECLASSIFICATION ADJUSTMENT FOR GAINS
REALIZED IN NET INCOME 17,185 4,452 12,733
-------- -------- --------
NET UNREALIZED INVESTMENT GAINS (LOSSES) $ (1,446) $ 1,057 $ (2,503)
======== ======== ========
1997
Unrealized gain on investment securities:
Unrealized holding gains arising during year $ 74,757 $ 26,165 $ 48,592
Less: reclassification adjustment for gains
realized in net income 26,039 8,693 17,346
-------- -------- --------
Net unrealized investment gains (losses) $ 48,718 $ 17,472 $ 31,246
======== ======== ========
1996
Unrealized gain (loss) on investment securities:
Unrealized holding gains (losses) arising
during year $ (5,342) $ (1,870) $ (3,472)
Less: reclassification adjustment for gains
realized in net income 20,020 2,054 17,966
-------- -------- --------
Net unrealized investment gains (losses) $(25,362) $ (3,924) $(21,438)
======== ======== ========
</TABLE>
21
<PAGE> 51
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997
------- -------
(in thousands)
<S> <C> <C>
Change in benefit obligation
Benefit obligation (beginning of year) $ 5,923 $ 5,269
Service cost 438 436
Interest cost 388 370
Actuarial (gain)/loss (334) 50
Benefits paid (437) (202)
------- -------
Benefit obligation (end of year) 5,978 5,923
------- -------
Change in Plan assets
Fair value of assets (beginning of year) 4,558 4,444
------- -------
Actual return on plan assets 287 266
Employer contribution 299 50
Benefits paid (437) (202)
------- -------
Fair value of assets (end of year) 4,707 4,558
------- -------
Funded status (1,272) (1,365)
Unrecognized transition amount 140 167
Unrecognized net actuarial loss (824) (619)
------- -------
Prepaid (accrued) benefit cost $(1,956) $(1,816)
======= =======
Weighted average assumptions
Discount rate 7.00% 7.00%
Expected return on assets 7.50 7.50
Rate of compensation increase 3.00 3.00
Components of net periodic benefit cost
Service cost $ 438 $ 436
Interest cost 388 370
Expected return on assets (350) (343)
Amortization of prior service cost 28 28
Recognized net actuarial loss (65) (12)
------- -------
Net periodic benefit cost $ 439 $ 479
======= =======
</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, 1998, 1997 and
1996, the Company's contribution was approximately $43,300, $43,700 and $40,500,
respectively.
(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. This plan grants
options to purchase up to 1,000,000 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, 1998.
22
<PAGE> 52
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 1996 221,621 $ 5.47 $ 1,212,000
Granted 44,400 9.69 430,125
Exercised (170,433) 4.88 (830,861)
Cancelled (46,188) 7.20 (332,516)
----------- -----------
Outstanding, December 31, 1996 49,400 9.08 448,748
Granted 66,150 17.49 1,180,706
Exercised (1,014) 9.69 (9,826)
Cancelled (2,525) 12.43 (31,398)
----------- -----------
Outstanding, December 31, 1997 112,011 14.20 1,588,230
GRANTED 80,700 18.125 1,462,688
EXERCISED (6,565) 8.29 (54,402)
CANCELLED (10,886) 14.54 (158,328)
----------- -----------
OUTSTANDING, DECEMBER 31, 1998 175,260 $ 16.19 $ 2,838,188
=========== ===========
</TABLE>
At December 31, 1998, 34,005 options for shares of common stock were
exercisable.
The Company applies Accounting Principles Board Opinion No. 25 and
related Interpretations in accounting for its stock option plan. Accordingly, no
compensation cost has been recognized for its fixed stock option plan. Had
compensation cost for the Company's stock option plan been determined based on
the fair value at the grant dates for awards under the plan consistent with the
method of FASB Statement 123, the Company's net income and earnings per common
share for the years ended December 31, 1998 and 1997 would have been reduced to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Net income (in thousands) Year Ended December 31,
1998 1997
---------- ----------
<S> <C> <C>
As reported $ 49,224 $ 61,292
Pro forma 49,114 61,188
Earnings per common share
As reported $ 1.53 $ 1.87
Pro forma 1.53 1.87
</TABLE>
The fair value of options granted under the Company's fixed stock option
plan during 1998 was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions used:
dividend yield of 1.51%, expected volatility of 51.0%, risk free interest rate
of 7.0%, and expected lives of 4 years.
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 years ended
December 31,:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Provision for income taxes computed
at Federal statutory rate $ 25,111 $ 31,695 $ 26,725
Increase (decrease) in income taxes
resulting from:
Utilization of prior unrecognized
deferred tax asset relating to
investment losses (306) (868) (5,767)
Losses producing no current benefit 784 81 1,590
Other (3,068) (1,642) (712)
-------- -------- --------
Provision for Federal income taxes $ 22,521 $ 29,266 $ 21,836
======== ======== ========
</TABLE>
23
<PAGE> 53
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. INCOME TAXES - CONTINUED
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>
1998 1997 1996
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Deferred policy acquisition costs $ 621 $ 341 $ (742)
Policyholders' account balances (21) 5 (216)
Investment adjustments (1,236) (481) 135
Insurance reserves (2,422) (924) (1,274)
Other (1,323) (840) (734)
------- ------- -------
Deferred Federal income tax benefit $(4,381) $(1,899) $(1,363)
======= ======= =======
</TABLE>
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, 1998 and 1997 are as follows
(in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Deferred income tax asset:
Investments $ (7,239) $ (6,003)
Insurance reserves (8,930) (6,508)
Operating loss carryforwards (1,517) (1,669)
Other (179) (249)
-------- --------
(17,865) (14,429)
Valuation allowance 3,904 5,322
-------- --------
Net deferred income tax asset (13,961) (9,107)
-------- --------
Deferred income tax liability:
Deferred policy acquisition costs 16,927 16,305
Net unrealized investment gains 37,174 38,521
Policyholder account balances 69 90
Other 606 766
-------- --------
Deferred income tax liability 54,776 55,682
-------- --------
Net deferred income tax liability $ 40,815 $ 46,575
======== ========
</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, 1998 and 1997 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
$6,668,000 at December 31, 1998 of which $182,000 expire in 2009; $2,487,000 in
2010; $1,671,000 in 2011; and $2,328,000 in 2013.
24
<PAGE> 54
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 Swiss Re Life & Health America Inc. at December 31,
1998 and 1997 consists of coinsurance agreements aggregating face amounts of
$203.1 million and $230.6 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.
Premiums ceded for 1998, 1997 and 1996 amounted to approximately $4.4
million, $4.5 million, and $4.6 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 at market value under GAAP while under statutory accounting practices
they are recorded principally at amortized cost.
In March 1998, the National Association of Insurance Commissioners
adopted the Codification of Statutory Accounting Principles (Codification). The
Codification, which is intended to standardize regulatory accounting and
reporting for the insurance industry, is proposed to be effective January 1,
2001. However, statutory accounting principles will continue to be established
by individual state laws and permitted practices and it is uncertain when, or
if, the state of New York will require adoption of Codification for the
preparation of statutory financial statements. The Company has not finalized the
quantification of the effects of Codification on its statutory financial
statements.
<TABLE>
<CAPTION>
For the years ended December 31,
1998 1997 1996
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Statutory surplus $287,286 $296,725 $250,869
======== ======== ========
Statutory net income $ 52,105 $ 57,081 $ 41,972
======== ======== ========
</TABLE>
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.
25
<PAGE> 55
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. FAIR VALUE INFORMATION - CONTINUED
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, 1998, the Company was committed to
contribute, if called upon, an aggregate of approximately $77.2 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. At December 31, 1998, the forward treasury lock
agreement had an unrealized loss of $9.1 million. See Note 3.
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>
ESTIMATED
DECEMBER 31, 1998 CARRYING VALUE FAIR VALUE
- ----------------- -------------- ----------
ASSETS (IN THOUSANDS)
<S> <C> <C>
FIXED MATURITIES:
AVAILABLE FOR SALE 1,951,454 1,951,454
COMMON STOCK 34,240 34,240
MORTGAGE LOANS 17,038 17,038
POLICY LOANS 17,879 17,879
CASH AND SHORT-TERM INVESTMENTS 229,297 229,297
OTHER INVESTED ASSETS 244,097 244,097
LIABILITIES
POLICYHOLDERS' ACCOUNT BALANCES 1,314,784 1,306,665
NOTE PAYABLE 50,000 51,125
SHORT-TERM NOTE PAYABLE 23,000 23,000
</TABLE>
<TABLE>
<CAPTION>
Estimated
December 31, 1997 Carrying Value Fair Value
- ----------------- -------------- ----------
Assets (in thousands)
<S> <C> <C>
Fixed Maturities:
Available for Sale 1,909,924 1,909,924
Common Stock 45,773 45,773
Mortgage Loans 17,865 17,865
Policy Loans 18,120 18,120
Cash and Short-Term Investments 277,578 277,578
Other Invested Assets 208,162 208,162
Liabilities
Policyholders' Account Balances 1,280,900 1,288,551
Note Payable 50,000 52,500
Short-Term Note Payable 20,000 20,000
</TABLE>
26
<PAGE> 56
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------
1998 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---- -------- ------- ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
PREMIUMS AND OTHER
INSURANCE REVENUES $10,366 $ 9,929 $ 6,358 $11,213
NET INVESTMENT INCOME 52,422 57,654 35,716 41,363
REALIZED INVESTMENT GAINS 2,006 7,063 5,018 3,098
------- ------- ------- -------
TOTAL REVENUES 64,794 74,646 47,092 55,674
======= ======= ======= =======
BENEFITS AND EXPENSES 44,357 46,265 39,169 40,670
======= ======= ======= =======
NET INCOME 13,672 18,497 6,512 10,543
======= ======= ======= =======
EARNINGS PER SHARE $ .42 $ .58 $ .20 $ .33
======= ======= ======= =======
Three Months Ended
------------------------------------------------------
1997 March 31 June 30 September 30 December 31
---- -------- ------- ------------ -----------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Premiums and other
insurance revenues $ 6,390 $ 6,637 $ 9,024 $ 7,796
Net investment income 48,623 49,399 44,444 49,352
Realized investment gains 2,510 8,503 9,518 5,508
------- ------- ------- -------
Total revenues 57,523 64,539 62,986 62,656
======= ======= ======= =======
Benefits and expenses 38,951 41,022 40,128 37,045
======= ======= ======= =======
Net income 12,548 16,372 16,018 16,354
======= ======= ======= =======
Earnings per share $ .38 $ .50 $ .49 $ .50
======= ======= ======= =======
</TABLE>
27
<PAGE> 57
REPORT OF INDEPENDENT ACCOUNTANTS
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, 1998, the results of their operations for the year then ended, and
the changes in their net assets for the two years 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, 1998 by correspondence
with the custodian, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Los Angeles, California
March 19, 1999
<PAGE> 58
PRESIDENTIAL VARIABLE ACCOUNT ONE
OF
PRESIDENTIAL LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
December 31, 1998
<TABLE>
<CAPTION>
Foreign Capital Natural Growth and Strategic
Securities Appreciation Growth Resources Income Multi-Asset Multi-Asset
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Investments in Anchor Series Trust,
at market value $ 208,800 $ 466,989 $1,136,548 $ 29,320 $ 200,643 $ 534,337 $ 493,910
Liabilities 0 0 0 0 0 0 0
----------------------------------------------------------------------------------------
Net Assets $ 208,800 $ 466,989 $1,136,548 $ 29,320 $ 200,643 $ 534,337 $ 493,910
========================================================================================
Accumulation units outstanding 13,592 8,853 16,540 2,036 5,425 20,072 14,863
========================================================================================
Unit value of accumulation units $ 15.37 $ 52.75 $ 68.72 $ 14.41 $ 36.98 $ 26.63 $ 33.24
========================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 59
PRESIDENTIAL VARIABLE ACCOUNT ONE
OF
PRESIDENTIAL LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
December 31, 1998
(Continued)
<TABLE>
<CAPTION>
Government and
High Yield Target '98 Fixed Income Quality Bond Money Market
Portfolio Portfolio Portfolio Portfolio Portfolio TOTAL
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Investments in Anchor Series Trust,
at market value $ 128,153 $ 0 $ 87,688 $ 329,750 $ 466,365 $4,082,503
Liabilities 0 0 0 0 0 0
-------------------------------------------------------------------------------------
Net Assets $ 128,153 $ 0 $ 87,688 $ 329,750 $ 466,365 $4,082,503
=====================================================================================
Accumulation units outstanding 5,351 0 2,966 10,511 24,992
======================================================================
Unit value of accumulation units $ 23.95 $ 0 $ 29.57 $ 31.37 $ 18.66
======================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 60
PRESIDENTIAL VARIABLE ACCOUNT ONE
OF
PRESIDENTIAL LIFE INSURANCE COMPANY
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
Market Value Market
Variable Accounts Shares Per Share Value Cost
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Foreign Securities Portfolio 19,540 $ 10.69 $ 208,800 $ 211,510
Capital Appreciation Portfolio 13,120 35.59 466,989 273,974
Growth Portfolio 34,948 32.52 1,136,548 707,758
Natural Resources Portfolio 2,530 11.59 29,320 33,957
Growth and Income Portfolio 9,506 21.11 200,643 125,261
Strategic Multi-Asset Portfolio 51,061 10.46 534,337 570,340
Multi-Asset Portfolio 36,615 13.49 493,910 459,926
High Yield Portfolio 18,854 6.80 128,153 145,469
Target '98 Portfolio 0 0.00 0 0
Fixed Income Portfolio 6,643 13.20 87,688 87,539
Government and Quality Bond Portfolio 22,531 14.64 329,750 294,725
Money Market Portfolio 466,366 1.00 466,365 466,365
----------------------------
$4,082,503 $3,376,824
============================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 61
PRESIDENTIAL VARIABLE ACCOUNT ONE
OF
PRESIDENTIAL LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
December 31, 1998
<TABLE>
<CAPTION>
Foreign Capital Natural Growth and Strategic
Securities Appreciation Growth Resources Income Multi-Asset Multi-Asset
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends and capital gains
distributions $ 35,910 $ 41,545 $ 71,303 $ 1,262 $ 11,309 $ 98,035 $ 97,221
---------------------------------------------------------------------------------------------
Total investment income 35,910 41,545 71,303 1,262 11,309 98,035 97,221
---------------------------------------------------------------------------------------------
Expenses:
Mortality risk charge (2,323) (4,835) (10,707) (458) (1,932) (4,981) (4,937)
Expense risk charge (904) (1,880) (4,164) (178) (751) (1,937) (1,920)
Distribution expense charge (387) (806) (1,784) (76) (322) (830) (823)
---------------------------------------------------------------------------------------------
Total expenses (3,614) (7,521) (16,655) (712) (3,005) (7,748) (7,680)
---------------------------------------------------------------------------------------------
Net investment income 32,296 34,024 54,648 550 8,304 90,287 89,541
---------------------------------------------------------------------------------------------
Net realized gains (losses) from
securities transactions:
Proceeds from shares sold 86,144 288,066 317,833 22,685 59,289 126,139 292,481
Cost of shares sold (87,371) (176,275) (221,604) (24,427) (42,029) (127,520) (265,260)
---------------------------------------------------------------------------------------------
Net realized gains (losses) from
securities transactions (1,227) 111,791 96,229 (1,742) 17,260 (1,381) 27,221
---------------------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) of investments:
Beginning of period 7,713 243,863 308,922 3,959 52,130 (16,222) 36,200
End of period (2,710) 193,015 428,790 (4,637) 75,382 (36,003) 33,984
---------------------------------------------------------------------------------------------
Change in net unrealized
appreciation/depreciation
of investments (10,423) (50,848) 119,868 (8,596) 23,252 (19,781) (2,216)
---------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations $ 20,646 $ 94,967 $ 270,745 $ (9,788) $ 48,816 $ 69,125 $ 114,546
=============================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 62
PRESIDENTIAL VARIABLE ACCOUNT ONE
OF
PRESIDENTIAL LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
December 31, 1998
(Continued)
<TABLE>
<CAPTION>
Government and
High Yield Target '98 Fixed Income Quality Bond Money Market
Portfolio Portfolio Portfolio Portfolio Portfolio TOTAL
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends and capital gains
distributions $ 18,974 $ 35,408 $ 6,870 $ 13,349 $ 11,192 $ 442,378
-------------------------------------------------------------------------------------------
Total investment income 18,974 35,408 6,870 13,349 11,192 442,378
-------------------------------------------------------------------------------------------
Expenses:
Mortality risk charge (1,312) (2,518) (766) (3,004) (2,038) (39,811)
Expense risk charge (510) (980) (298) (1,169) (793) (15,484)
Distribution expense charge (219) (420) (128) (501) (340) (6,636)
-------------------------------------------------------------------------------------------
Total expenses (2,041) (3,918) (1,192) (4,674) (3,171) (61,931)
-------------------------------------------------------------------------------------------
Net investment income 16,933 31,490 5,678 8,675 8,021 380,447
-------------------------------------------------------------------------------------------
Net realized gains (losses) from
securities transactions:
Proceeds from shares sold 22,943 350,539 1,233 31,343 63,328 1,662,023
Cost of shares sold (21,677) (403,073) (1,207) (28,047) (63,328) (1,461,818)
-------------------------------------------------------------------------------------------
Net realized gains (losses) from
securities transactions 1,266 (52,534) 26 3,296 0 200,205
-------------------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) of investments:
Beginning of period 8,463 (28,298) 501 22,244 0 639,475
End of period (17,316) 0 149 35,025 0 705,679
-------------------------------------------------------------------------------------------
Change in net unrealized
appreciation/depreciation
of investments (25,779) 28,298 (352) 12,781 0 66,204
-------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations $ (7,580) $ 7,254 $ 5,352 $ 24,752 $ 8,021 $ 646,856
===========================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 63
PRESIDENTIAL VARIABLE ACCOUNT ONE
OF
PRESIDENTIAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDING
December 31, 1998
<TABLE>
<CAPTION>
Foreign Capital Natural Growth and Strategic
Securities Appreciation Growth Resources Income Multi-Asset Multi-Asset
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 32,296 $ 34,024 $ 54,648 $ 550 $ 8,304 $ 90,287 $ 89,541
Net realized gains (losses)
from securities transactions (1,227) 111,791 96,229 (1,742) 17,260 (1,381) 27,221
Change in net unrealized
appreciation/ depreciation
of investments (10,423) (50,848) 119,868 (8,596) 23,252 (19,781) (2,216)
-----------------------------------------------------------------------------------------------
Increase (decrease) in net
assets from operations 20,646 94,967 270,745 (9,788) 48,816 69,125 114,546
-----------------------------------------------------------------------------------------------
From capital transactions:
Net proceeds from units sold 10,024 413 4,976 0 0 6,672 0
Cost of units redeemed (74,120) (278,232) (293,252) (21,972) (56,029) (88,529) (265,183)
Net transfers (8,327) 0 (9,104) 0 10,087 8,327 (10,325)
-----------------------------------------------------------------------------------------------
Decrease in net assets from
capital transactions (72,423) (277,819) (297,380) (21,972) (45,942) (73,530) (275,508)
-----------------------------------------------------------------------------------------------
Increase (decrease) in net assets (51,777) (182,852) (26,635) (31,760) 2,874 (4,405) (160,962)
Net assets at beginning of period 260,577 649,841 1,163,183 61,080 197,769 538,742 654,872
-----------------------------------------------------------------------------------------------
Net assets at end of period $ 208,800 $ 466,989 $ 1,136,548 $ 29,320 $ 200,643 $ 534,337 $ 493,910
===============================================================================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 703 12 96 0 0 277 0
Units redeemed (5,109) (6,004) (4,937) (1,419) (1,740) (3,512) (8,971)
Units transferred (508) 0 (142) 0 301 310 (348)
-----------------------------------------------------------------------------------------------
Decrease in units outstanding (4,914) (5,992) (4,983) (1,419) (1,439) (2,925) (9,319)
Beginning units 18,506 14,845 21,523 3,455 6,864 22,997 24,182
-----------------------------------------------------------------------------------------------
Ending units 13,592 8,853 16,540 2,036 5,425 20,072 14,863
===============================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 64
PRESIDENTIAL VARIABLE ACCOUNT ONE
OF
PRESIDENTIAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
December 31, 1998
(Continued)
<TABLE>
<CAPTION>
Government and
High Yield Target '98 Fixed Income Quality Bond Money Market
Portfolio Portfolio Portfolio Portfolio Portfolio TOTAL
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 16,933 $ 31,490 $ 5,678 $ 8,675 $ 8,021 $ 380,447
Net realized gains (losses)
from securities transactions 1,266 (52,534) 26 3,296 0 200,205
Change in net unrealized
appreciation/ depreciation
of investments (25,779) 28,298 (352) 12,781 0 66,204
-------------------------------------------------------------------------------------------
Increase (decrease) in net
assets from operations (7,580) 7,254 5,352 24,752 8,021 646,856
-------------------------------------------------------------------------------------------
From capital transactions:
Net proceeds from units sold 0 0 400 136 0 22,621
Cost of units redeemed (10,190) (49,136) (45) (12,849) (60,215) (1,209,752)
Net transfers (10,713) (296,492) 0 (13,858) 341,348 10,943
-------------------------------------------------------------------------------------------
Increase (decrease) in net
assets from capital
transactions (20,903) (345,628) 355 (26,571) 281,133 (1,176,188)
-------------------------------------------------------------------------------------------
Increase (decrease) in net assets (28,483) (338,374) 5,707 (1,819) 289,154 (529,332)
Net assets at beginning of period 156,636 338,374 81,981 331,569 177,211 4,611,835
-------------------------------------------------------------------------------------------
Net assets at end of period $ 128,153 $ 0 $ 87,688 $ 329,750 $ 466,365 $ 4,082,503
===========================================================================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 0 0 14 4 0
Units redeemed (403) (2,439) (1) (425) (3,239)
Units transferred (407) (14,597) 0 (440) 18,388
---------------------------------------------------------------------------
Increase (decrease) in units
outstanding (810) (17,036) 13 (861) 15,149
Beginning units 6,161 17,036 2,953 11,372 9,843
---------------------------------------------------------------------------
Ending units 5,351 0 2,966 10,511 24,992
===========================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 65
PRESIDENTIAL VARIABLE ACCOUNT ONE
OF
PRESIDENTIAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDING
December 31, 1997
<TABLE>
<CAPTION>
Foreign Capital Natural Growth and Strategic
Securities Appreciation Growth Resources Income Multi-Asset Multi-Asset
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 38,663 $ 62,326 $ 110,614 $ 4,761 $ 1,015 $ 112,531 $ 116,877
Net realized gains (losses) from
securities transactions 33,556 189,942 126,459 6,214 6,880 (1,689) 21,966
Change in net unrealized
appreciation/ depreciation
of investments (77,869) (71,386) 59,596 (19,665) 29,471 (38,802) (4,325)
-----------------------------------------------------------------------------------------------
Increase (decrease) in net
assets from operations (5,650) 180,882 296,669 (8,690) 37,366 72,040 134,518
-----------------------------------------------------------------------------------------------
From capital transactions:
Net proceeds from units sold 14,359 16,207 9,780 165 848 6,921 2,781
Cost of units redeemed (284,417) (494,547) (484,516) (40,402) (25,719) (125,131) (187,787)
Net transfers 19,402 37,891 75,568 10,378 53,880 0 (46,251)
-----------------------------------------------------------------------------------------------
Increase (decrease) in net
assets from capital
transactions (250,656) (440,449) (399,168) (29,859) 29,009 (118,210) (231,257)
-----------------------------------------------------------------------------------------------
Increase (decrease) in net assets (256,306) (259,567) (102,499) (38,549) 66,375 (46,170) (96,739)
Net assets at beginning of period 516,883 909,408 1,265,682 99,629 131,394 584,912 751,611
-----------------------------------------------------------------------------------------------
Net assets at end of period $ 260,577 $ 649,841 $ 1,163,183 $ 61,080 $ 197,769 $ 538,742 $ 654,872
===============================================================================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 664 115 159 15 33 187 46
Units redeemed (19,341) (11,953) (10,265) (2,168) (998) (5,338) (7,110)
Units transferred 1,353 987 1,516 527 2,041 0 (1,906)
-----------------------------------------------------------------------------------------------
Increase (decrease) in units
outstanding (17,324) (10,851) (8,590) (1,626) 1,076 (5,151) (8,970)
Beginning units 35,830 25,696 30,113 5,081 5,788 28,148 33,152
-----------------------------------------------------------------------------------------------
Ending units 18,506 14,845 21,523 3,455 6,864 22,997 24,182
===============================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 66
PRESIDENTIAL VARIABLE ACCOUNT ONE
OF
PRESIDENTIAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Government and
High Yield Target '98 Fixed Income Quality Bond Money Market
Portfolio Portfolio Portfolio Portfolio Portfolio TOTAL
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 13,678 $ 28,036 $ 5,860 $ 24,143 $ 7,814 $ 526,318
Net realized gains (losses) from
securities transactions 2,748 (749) 16 6,414 0 391,757
Change in net unrealized
appreciation/ depreciation
of investments (1,442) (14,776) 117 380 0 (138,701)
-------------------------------------------------------------------------------------------
Increase (decrease) in net
assets from operations 14,984 12,511 5,993 30,937 7,814 779,374
-------------------------------------------------------------------------------------------
From capital transactions:
Net proceeds from units sold 37 0 1,199 518 4 52,819
Cost of units redeemed (25,451) (22,802) (47) (72,982) (30,190) (1,793,991)
Net transfers (2,199) (12) 0 (55,614) (67,827) 25,216
-------------------------------------------------------------------------------------------
Decrease in net assets
from capital transactions (27,613) (22,814) 1,152 (128,078) (98,013) (1,715,956)
-------------------------------------------------------------------------------------------
Increase (decrease) in net assets (12,629) (10,303) 7,145 (97,141) (90,199) (936,582)
Net assets at beginning of period 169,265 348,677 74,836 428,710 267,410 5,548,417
-------------------------------------------------------------------------------------------
Net assets at end of period $ 156,636 $ 338,374 $ 81,981 $ 331,569 $ 177,211 $ 4,611,835
===========================================================================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 0 0 47 10 0
Units redeemed (1,049) (1,173) (2) (2,570) (1,734)
Units transferred (94) 0 0 (1,961) (3,826)
---------------------------------------------------------------------------
Increase (decrease) in units
outstanding (1,143) (1,173) 45 (4,521) (5,560)
Beginning units 7,304 18,209 2,908 15,893 15,403
---------------------------------------------------------------------------
Ending units 6,161 17,036 2,953 11,372 9,843
===========================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 67
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 eleven variable portfolios (the
"Variable Accounts"). Each of the Variable Accounts is invested solely
in the shares of a designated portfolio 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 eleven Variable Accounts
and do not include balances allocated to the General Account.
The investment objectives and policies of the eleven portfolios of the
Trust are summarized below:
The 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.
The 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.
The GROWTH PORTFOLIO seeks capital appreciation. This portfolio invests
in growth equity securities and may engage in transactions involving
stock index futures and options thereon as a hedge against changes in
market conditions.
1
<PAGE> 68
PRESIDENTIAL VARIABLE ACCOUNT ONE
OF
PRESIDENTIAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The 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.
The GROWTH AND INCOME PORTFOLIO seeks to provide high current income and
long-term capital appreciation. This portfolio invests primarily in
securities that provide the potential for growth and offer income, such
as dividend-paying stocks and securities convertible into common stock.
This portfolio may also engage in transactions involving stock index
futures and options thereon as a hedge against changes in market
conditions.
The 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 transactions
involving the future delivery of fixed-income securities ("Financial
Futures Contracts") and options thereon as a hedge against changes in
market conditions.
The 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.
The 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> 69
PRESIDENTIAL VARIABLE ACCOUNT ONE
OF
PRESIDENTIAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The 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.
The 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.
The 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.
Purchases and sales of shares of the portfolios of the Trust are valued
at the net asset values of the shares on the date the shares 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.
The TARGET '98 PORTFOLIO is no longer available. This portfolio invested
primarily in zero coupon securities and current, interest bearing,
investment grade debt obligations which were issued by the U.S.
Government, its agencies and instrumentalities, and both domestic and
foreign corporations. These investments matured no later than November
15, 1998. If the Company did not receive reallocation instructions from
contractholders before November 15, 1998, Contract Values were
automatically reallocated to the Money Market Portfolio.
3
<PAGE> 70
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 remain subject to the withdrawal charge and 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 the oldest purchase
payments first 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 on each 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> 71
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 the 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 any premium taxes when
incurred.
MORTALITY AND EXPENSE RISK CHARGE: The Company deducts mortality and
expense risk charges, which total to an annual rate of 1.25% of the net
asset value of each portfolio, computed on a daily basis. The mortality
risk charge is compensation for the mortality risks assumed by the
Company from 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 if the annuitant dies prior to the date annuity
payments begin. The expense risk charge is compensation for the risk
assumed by the Company that the cost of administering the contracts will
exceed the amount received from the annual contract charge and the
administrative expense charge. Both of these charges are guaranteed by
the Company and cannot be increased.
ADMINISTRATIVE EXPENSE CHARGE: The Company deducts an administrative
expense charge at an annual rate of 0.15% of the net asset value of each
portfolio, computed on a daily basis. The administrative expense charge
is designed to cover those expenses which exceed the revenues from the
annual contract charge.
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 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.
5
<PAGE> 72
PRESIDENTIAL VARIABLE ACCOUNT ONE
OF
PRESIDENTIAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
3. INVESTMENT IN ANCHOR SERIES TRUST
The aggregate cost of the Trust's shares acquired and the aggregate
proceeds from shares sold during the year ended December 31, 1998
consist of the following:
<TABLE>
<CAPTION>
Cost of
Shares Proceeds from
Variable Accounts Acquired Shares Sold
-------------------------------- ----------------------------
<S> <C> <C>
Foreign Securities Portfolio $ 46,017 $ 86,144
Capital Appreciation Portfolio 44,271 288,066
Growth Portfolio 75,101 317,833
Natural Resources Portfolio 1,263 22,685
Growth and Income Portfolio 21,651 29,289
Strategic Multi-Asset Portfolio 142,896 129,139
Multi-Asset Portfolio 106,514 292,481
High Yield Portfolio 18,973 22,943
Target '98 Portfolio 36,401 350,539
Fixed Income Portfolio 7,266 1,233
Government and Quality Bond
Portfolio 13,447 31,343
Money Market Portfolio 352,482 63,328
======== ========
</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> 73
PART C
OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
The following financial statements are included in Part A of the
Registration Statement: None
The following financial statements are included in Part B of the
Registration Statement:
Consolidated Financial Statements of Presidential Life Corporation and
subsidiaries for each of the three years in the period ended December 31, 1998.
Financial Statements of Presidential Variable Account One for each of
the two years in the period ended December 31, 1998.
(b) Exhibits
<TABLE>
<S> <C>
(1) Resolution Establishing Separate Account *
(2) Custody Agreements Not Applicable
(3) (a) Distribution Contracts *
(b) Selling Agreement *
(4) Variable Annuity Contract *
(5) Application for Contract *
(6) Depositor - Corporate Documents
(a) Certificate of Incorporation *
(b) By-Laws *
(7) Reinsurance Contract Not Applicable
(6) Service Agreement
(8) (a) Fund Participation Agreement *
(8) (b) Service Agreement
(9) Opinion of Counsel *
Consent of Counsel *
(10) Consents of Independent Accountants Filed Herewith
(11) Financial Statements Omitted from Item 23 Not Applicable
(12) Initial Capitalization Agreement Not Applicable
(13) Performance Computations *
(14) Diagram and Listing of All Persons directly
or indirectly controlled by or under common
control with Presidential Life Insurance
Company, the Depositor or Registrant *
(15) Powers of Attorney *
(14) Financial Data Schedules Not Applicable
</TABLE>
- ----------------------
* Previously Filed in Post-Effective Amendment 10 and Amendment 11 to
this Registration Statement
<PAGE> 74
Item 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The officers and directors of Presidential Life Insurance Company are
listed below. Their principal business address is 69 Lydecker Street, Nyack,
New York 10960.
<TABLE>
<CAPTION>
Name Position
----- --------
<S> <C>
Herbert Kurz Chairman of the Board, Chief Executive
Officer, President & Director
Shirley Jordan Executive Vice President & Director
Michael V. Oporto Chief Financial Officer, Treasurer & Director
Jerrold Scher Senior Vice President, Actuary & Director
Donna Monacelli Secretary
Donald Barnes Senior Vice President
Michael Reich Senior Vice President
Stanley Rubin Senior Vice President
Donald Barnes Senior Vice President & Director
Charles Snyder Controller & Vice President
Mark Abrams Vice President
Maria Kramer Vice President
Lawrence Lowell Vice President
Andrew Tuck Vice President
Marilyn Shenn Vice President
Joseph Monacelli Vice President
John Ng Vice President
Kenneth B. Clark Director
Richard Giesser Director
Melvin Gold Director
W. Thomas Knight Director
Jerome Johnson Director
George McGovern Director
Paul Pape Director
Irving Schwartz Director
</TABLE>
Item 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH DEPOSITOR OR
REGISTRANT
Presidential Life Corporation
-----------------------------
<TABLE>
<S> <C> <C> <C>
Presidential Asset Presidential Life Presidential Securities P.L. Assigned
Management Company Insurance Company Corporation Services,Inc.
</TABLE>
Item 27. NUMBER OF CONTRACT OWNERS
As of December 31, 1998, the number of Contract Owners of Presidential
Variable Account One was 108, of which 55 represented Qualified Contracts and
53 represented Non-Qualified Contracts.
Item 28. INDEMNIFICATION
So far as permitted by the laws of the State of New York, any person
made a party to any action, suit, or proceeding by reason of the fact that he,
his testator or intestate, is or was a director, officer or employee of the
Company, or of any corporation which he served as such at the request of the
Company, shall be indemnified by the Company against the reasonable expenses,
including attorneys' fee, actually and necessarily incurred by him in
connection with the defense of such action, suit, or proceeding, or in
connection with any appeal therein, except in relation to matters as to which
it shall be adjudged in such action, suit or proceeding that such officer,
director or employee is liable for negligence or misconduct in the performance
of his duties. If said action, suit or proceeding shall be settled with the
approval of the Board of Directors and the Court, such director, officer or
employee, upon application for payment of such indemnity, shall be entitled to
such indemnity in such amount that the court shall approve as reasonable;
provided, however, that in the judgment of the Board of Directors, said
director, officer, or employee had not in any substantial way been derelict in
the performance of his duties as charged in such action, suit or proceeding.
The foregoing right to indemnification shall be in addition to other rights to
which any such director, officer or employee may be entitled as a matter of
law.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted directors and officers or controlling
persons of the Company pursuant to the foregoing, or otherwise, the Company
<PAGE> 75
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in such Act and,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any such action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in said Act and will be governed by the
final adjudication of such issue.
Item 29. PRINCIPAL UNDERWRITER
SunAmerica Capital Services, Inc. serves as distributor for the
Registrant. Its principal business address is 733 Third Avenue, 4th Floor, New
York, New York 10017.
The following are the directors and executive officers of SunAmerica
Capital Services, Inc.:
Name Position with Distributor
---- --------------------------
J. Steven Neamtz Director and President
Robert M. Zakem Director, Executive Vice
President, General Counsel and
Assistant Secretary
Peter Harbeck Director
Susan L. Harris Secretary
James Nichols Vice President
Per Furmark Vice President
Debbie Potash-Turner Controller
<TABLE>
<CAPTION>
Net Distribution Compensation on
Name of Discounts and Redemption or Brokerage
Distributor Commissions Annuitization Commissions Commissions*
- ----------- ---------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
SunAmerica None None None None
Capital
Services, Inc.
</TABLE>
__________________
*Distribution fee is paid by Presidential Life Insurance Company
SunAmerica Capital Services, Inc. also acts as the principal underwriter to
the following:
- Variable Separate Account
- Variable Annuity Account One
- FS Variable Annuity Account One
- FS Variable Separate Account
- Variable Annuity Account Four
- Variable Annuity Account Five
- Variable Annuity Account Seven
- SunAmerica Income Funds
- SunAmerica Equity Funds
- SunAmerica Money Market Funds, Inc.
- Style Select Series, Inc.
and will serve as principal underwriter for SunAmerica Strategic Investment
Series, Inc. which is currently in registration.
Item 30. LOCATION OF ACCOUNTS AND RECORDS
Presidential Life Insurance Company, the Depositor for the Registrant,
is located at 69 Lydecker Street, Nyack, New York 10960. SunAmerica Capital
Services, Inc., is located at 733 Third Avenue, 4th Floor, New York, New York
10017. Each maintains those accounts and records required to be maintained by
each pursuant to Section 31(a) of the Investment Company Act of 1940 and the
rules promulgated thereunder.
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02100, maintains certain accounts and records pursuant to the
instructions of the Registrant.
Item 31. MANAGEMENT SERVICES
Not Applicable.
Item 32. UNDERTAKINGS
Registrant undertakes to file post-effective amendments to this
Registration Statement as frequently as is necessary to ensure that the audited
financial statements in the Registration Statement are never more than 16
months old for so long as payments under the variable annuity Contracts may be
accepted. Registrant undertakes to include either (1) as part of any
application to purchase a contract offered by the prospectus, a space that an
applicant can check to request a Statement of Additional
<PAGE> 76
Information, or (2) a written communication in the Prospectus that the
Applicant can remove to send for a Statement of Additional Information.
Registrant also undertakes to deliver any Statement of Additional Information
and any financial statements required to be made available under this Form N-4
promptly upon written or oral request.
Item 33. Representation
(a) The Company hereby represents that it is relying upon a No-Action Letter
issued to the American Council of Life Insurance dated November 28, 1988
(Commission ref. IP-6-88) and that the following provisions have been
complied with:
1. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration statement, including
the prospectus, used in connection with the offer of the contract;
2. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in
connection with the offer of the contract;
3. Instruct sales representatives who solicit participants to purchase the
contract specifically to bring the redemption restrictions imposed by
Section 403(b)(11) to the attention of the potential participants;
4. Obtain from each plan participant who purchases a Section 403(b)
annuity contract, prior to or at the time of such purchase, a signed
statement acknowledging the participant's understanding of (1) the
restrictions on redemption imposed by Section 403(b)(11), and (2) other
investment alternatives available under the employer's Section 403(b)
arrangement to which the participant may elect to transfer his contract
value.
(b) REPRESENTATION PURSUANT TO SECTION 26(e) OF THE INVESTMENT COMPANY ACT OF
1940: The Company represents that the fees and charges to be deducted under
the variable annuity contract described in the prospectus contained in this
registration statement are, in the aggregate, reasonable, in relation to
the services rendered, the expenses expected to be incurred, and the risks
assumed in connection with the contract.
<PAGE> 77
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company
Act of 1940, the Registrant certifies that it meets the requirements of
Securities Act Rule 485(b) for effectiveness of the Registration Statement and
has caused this Post-Effective Amendment to the Registration Statement to be
signed on its behalf, in the City of Nyack, and the State of New York, on this
27th day of April, 1999.
PRESIDENTIAL VARIABLE ACCOUNT ONE
(Registrant)
By: PRESIDENTIAL LIFE INSURANCE COMPANY
(Depositor)
By: /s/ HERBERT KURZ
-----------------------------------
Herbert Kurz
Principal Executive Officer
As required by the Securities Act of 1933, this Post-Effective
Amendment to the Registration Statement has been signed by the following
persons in the capacity and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------- ----- ----
<S> <C> <C>
/s/ HERBERT KURZ Chairman of the Board, Chief April 27, 1999
- ----------------------- Executive Officer, President
Herbert Kurz and Director
(Principal Executive Officer)
/s/ MICHAEL V. OPORTO Chief Financial Officer April 27, 1999
- ----------------------- Treasurer and Director
Michael V. Oporto (Principal Financial Officer)
/s/ CHARLES SNYDER Controller and Vice President April 27, 1999
- ----------------------- (Chief Accounting Officer)
Charles Snyder
/s/ SHIRLEY JORDAN Executive Vice President April 27, 1999
- ----------------------- and Director
Shirley Jordan
/s/ JERROLD SCHER Senior Vice President, April 27, 1999
- ----------------------- Actuary and Director
Jerrold Scher
Donald Barnes Senior Vice President
- ------------------------ and Director
Donald Barnes
Kenneth B. Clark* Director
- ------------------------
Kenneth B. Clark
Richard Giesser* Director
- ------------------------
Richard Giesser
Melvin Gold* Director
- ------------------------
Melvin Gold
Jerome Johnson* Director
- ------------------------
Jerome Johnson
/s/ W. THOMAS KNIGHT Director April 27, 1999
- ------------------------
W. Thomas Knight
</TABLE>
<PAGE> 78
<TABLE>
<S> <C>
Paul Pape* Director
- ------------------------
Paul Pape
Irving Schwartz* Director
- ------------------------
Irving Schwartz
*By: /s/ HERBERT KURZ Attorney-in-Fact
-------------------
Herbert Kurz
</TABLE>
Date: April 27, 1999
<PAGE> 1
EXHIBIT 10
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Registration Statement on Form N-4 for
Variable Account One of Presidential Life Insurance Company of our
report dated March 19, 1999, relating to the financial statements of
Variable Account One of Presidential Life Insurance Company, which
appears in such Statement of Additional Information, and to the
incorporation by reference of our report into the Prospectus which
constitutes part of this Registration Statement. We also consent to the
reference to us under the heading "Financial Statements" in such
Statement of Additional Information.
PricewaterhouseCoopers LLP
Los Angeles, California
April 23, 1999
<PAGE> 2
EXHIBIT 10
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 12 to Registration
Statement No. 33-19293 of Presidential Variable Account One on Form N-4 of our
report dated February 16, 1999 relating to Presidential Life Corporation for the
year ended December 31, 1998, and to the reference to us under the headings
"Independent Accountants" appearing in the Statement of Additional Information
of such Registration Statement.
DELOITTE & TOUCHE LLP
New York, New York
April 23, 1999
