<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. 13 [ X ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 [ X ]
Amendment No. 14
(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, 2000 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, 2000
FLEXIBLE PAYMENT VARIABLE ANNUITY CONTRACTS
ISSUED BY
PRESIDENTIAL LIFE INSURANCE COMPANY
IN CONNECTION WITH
PRESIDENTIAL VARIABLE ACCOUNT ONE
The annuity has 10 investment choices -- 1 fixed account option and 9
variable investment portfolios listed below. The one year fixed account option
is funded through Presidential Life's General Account. Each of the 9 variable
investment portfolios invest solely in the shares of one of the following
currently available divisions of the Anchor Series Trust:
<TABLE>
<S> <C>
- Capital Appreciation Portfolio - Multi-Asset Portfolio
- Growth Portfolio - High Yield 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, 2000. 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 25 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
Year 2000 Matters...................................... 21
</TABLE>
2
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<TABLE>
<CAPTION>
PAGE
ITEM ----
<S> <C>
TAXES....................................................... 22
Annuity Contracts in General........................... 22
Tax Treatment of Distributions -- Non-qualified
Contracts............................................. 22
Tax Treatment of Distributions -- Qualified
Contracts............................................. 22
Minimum Distributions.................................. 23
Diversification........................................ 23
CUSTODIAN................................................... 23
LEGAL PROCEEDINGS........................................... 23
REGISTRATION STATEMENTS..................................... 24
ADDITIONAL INFORMATION ABOUT THE SEPARATE ACCOUNT........... 25
FINANCIAL STATEMENTS........................................ 25
</TABLE>
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DEFINITIONS
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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 nine 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>
- Capital Appreciation Portfolio - Multi-Asset Portfolio
- Growth Portfolio - High Yield 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 .66% to 1.46%.
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
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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, 1999):
<TABLE>
<CAPTION>
TOTAL ANNUAL
MANAGEMENT FEE OTHER EXPENSES EXPENSES
-------------- -------------- ------------
<S> <C> <C> <C>
Capital Appreciation............................... 0.62% 0.05% 0.67%
Growth............................................. 0.68% 0.05% 0.73%
Natural Resources.................................. 0.75% 0.25% 1.00%
Growth and Income.................................. 0.70% 0.21% 0.91%
Strategic Multi-Asset*............................. 1.00% 0.46% 1.46%
Multi-Asset........................................ 1.00% 0.08% 1.08%
High Yield......................................... 0.70% 0.46% 1.16%
Government & Quality Bond**........................ 0.60% 0.06% 0.66%
Money Market....................................... 0.50% 0.17% 0.67%
</TABLE>
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* Effective August 6, 1999, shares of the Foreign Securities Portfolio were
replaced with shares of the Strategic Multi-Asset Portfolio.
** Effective August 6, 1999, shares of the Fixed Income Portfolio were replaced
with shares of the Government and Quality Bond Portfolio.
THE ABOVE EXPENSES WERE PROVIDED BY THE TRUST.
THE COMPANY HAS NOT VERIFIED THE ACCURACY OF THE INFORMATION.
7
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EXAMPLES
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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>
CAPITAL
APPRECIATION...................................... A $81 $126 $173 $244
B $21 $ 66 $113 $244
GROWTH............................................ A $81 $127 $176 $251
B $21 $ 67 $116 $251
NATURAL
RESOURCES......................................... A $84 $135 $190 $278
B $24 $ 75 $130 $278
GROWTH AND
INCOME............................................ A $83 $133 $185 $269
B $23 $ 73 $125 $269
STRATEGIC
MULTI-ASSET*...................................... A $89 $149 $212 $323
B $29 $ 89 $152 $323
MULTI-ASSET....................................... A $85 $138 $194 $286
B $25 $ 78 $134 $286
HIGH YIELD........................................ A $86 $140 $198 $294
B $26 $ 80 $138 $294
GOVERNMENT AND
QUALITY BOND**.................................... A $81 $125 $173 $243
B $21 $ 65 $113 $243
MONEY MARKET...................................... A $81 $126 $173 $244
B $21 $ 66 $113 $244
</TABLE>
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* Effective August 6, 1999, shares of the Foreign Securities Portfolio were
replaced with shares of the Strategic Multi-Asset Portfolio.
** Effective August 6, 1999, shares of the Fixed Income Portfolio were replaced
with shares of the Government and Quality Bond Portfolio.
*** 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 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
------------------------- ----------- -------- -------- --------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Foreign Securities
Beginning AUV.............. $13.32 $11.45 $11.26 $ 9.64 $12.39 $11.83 $13.13 $14.43 $14.08
End AUV.................... $11.45 $11.26 $ 9.64 $12.39 $11.83 $13.13 $14.43 $14.08 $15.37
Ending Number of AUs....... 24,999 31,241 31,574 38,816 47,472 39,747 35,830 18,506 13,592
Capital Appreciation
Beginning AUV.............. $12.08 $ 9.97 $15.36 $19.09 $22.79 $21.62 $28.68 $35.39 $43.78
End AUV.................... $ 9.97 $15.36 $19.09 $22.79 $21.62 $28.68 $35.39 $43.78 $52.75
Ending Number of AUs....... 16,080 15,521 14,406 34,323 35,218 32,160 25,696 14,845 8,853
Growth
Beginning AUV.............. $19.79 $18.99 $26.36 $27.40 $29.12 $27.36 $34.08 $42.03 $54.05
End AUV.................... $18.99 $26.36 $27.40 $29.12 $27.36 $34.08 $42.03 $54.05 $68.72
Ending Number of AUs....... 29,865 30,932 30,390 41,656 41,036 35,168 30,113 21,523 16,540
Natural Resources
Beginning AUV.............. $12.86 $10.77 $11.13 $11.25 $15.11 $15.05 $17.43 $19.61 $17.68
End AUV.................... $10.77 $11.13 $11.25 $15.11 $15.05 $17.43 $19.61 $17.68 $14.41
Ending Number of AUs....... 12,612 9,475 8,347 8,797 10,889 8,124 5,081 3,455 2,036
Growth and Income
Beginning AUV.............. $11.04 $10.50 $13.12 $15.55 $18.70 $16.67 $19.16 $22.69 $28.81
End AUV.................... $10.50 $13.12 $15.55 $18.70 $16.67 $19.16 $22.69 $28.81 $36.98
Ending Number of AUs....... 23,408 20,775 21,549 20,694 18,889 6,868 5,788 6,864 5,425
Strategic Multi-Asset*
Beginning AUV.............. $12.13 $11.06 $13.55 $13.88 $15.78 $15.16 $18.35 $20.78 $23.43
End AUV.................... $11.06 $13.55 $13.88 $15.78 $15.16 $18.35 $20.78 $23.43 $26.63
Ending Number of AUs....... 49,505 40,079 38,790 41,817 37,667 31,915 28,148 22,997 20,072
Multi-Asset
Beginning AUV.............. $11.91 $11.93 $14.98 $15.97 $16.90 $16.39 $20.19 $22.67 $27.09
End AUV.................... $11.93 $14.98 $15.97 $16.90 $16.39 $20.19 $22.67 $27.09 $33.24
Ending Number of AUs....... 72,163 53,932 43,310 81,114 69,541 48,948 33,152 24,182 14,863
High Yield
Beginning AUV.............. $12.48 $11.01 $14.44 $16.24 $19.07 $17.96 $21.03 $23.17 $25.42
End AUV.................... $11.01 $14.44 $16.24 $19.07 $17.96 $21.03 $23.17 $25.42 $23.95
Ending Number of AUs....... 31,311 11,357 10,343 11,281 11,361 8,181 7,304 6,161 5,351
Fixed Income
Beginning AUV.............. $16.78 $17.84 $20.31 $21.34 $22.71 $21.67 $25.46 $25.73 $27.76
End AUV.................... $17.84 $20.31 $21.34 $22.71 $21.67 $25.46 $25.73 $27.76 $29.57
Ending Number of AUs....... 13,752 9,452 7,850 6,653 6,700 6,759 2,908 2,953 2,966
Government & Quality Bond**
Beginning AUV.............. $17.04 $18.15 $21.00 $22.13 $23.63 $22.60 $26.60 $26.99 $29.16
End AUV.................... $18.15 $21.00 $22.13 $23.63 $22.60 $26.60 $26.99 $29.16 $31.37
Ending Number of AUs....... 97,386 129,211 108,229 46,206 33,336 23,426 15,893 11,372 10,511
Money Market Division
Beginning Unit Value....... $13.73 $14.61 $15.23 $15.53 $15.72 $16.10 $16.77 $17.36 $18.00
Ending Unit Value.......... $14.61 $15.23 $15.53 $15.72 $16.10 $16.77 $17.36 $18.00 $18.66
Ending Number of AUs....... 97,530 42,418 21,712 12,556 21,881 20,336 15,403 9,843 24,992
<CAPTION>
FISCAL
YEAR
ENDED
SEPARATE ACCOUNT DIVISION 12/31/99
------------------------- --------
<S> <C>
Foreign Securities
Beginning AUV.............. $15.37
End AUV.................... 0
Ending Number of AUs....... 0
Capital Appreciation
Beginning AUV.............. $52.75
End AUV.................... $87.36
Ending Number of AUs....... 9,745
Growth
Beginning AUV.............. $68.72
End AUV.................... $86.02
Ending Number of AUs....... 13,472
Natural Resources
Beginning AUV.............. $14.41
End AUV.................... $20.11
Ending Number of AUs....... 1,188
Growth and Income
Beginning AUV.............. $36.98
End AUV.................... $42.26
Ending Number of AUs....... 5,938
Strategic Multi-Asset*
Beginning AUV.............. $26.63
End AUV.................... $33.63
Ending Number of AUs....... 15,318
Multi-Asset
Beginning AUV.............. $33.24
End AUV.................... $36.87
Ending Number of AUs....... 11,399
High Yield
Beginning AUV.............. $23.95
End AUV.................... $24.97
Ending Number of AUs....... 4,711
Fixed Income
Beginning AUV.............. $29.57
End AUV.................... 0
Ending Number of AUs....... 0
Government & Quality Bond**
Beginning AUV.............. $31.37
End AUV.................... $30.44
Ending Number of AUs....... 10,198
Money Market Division
Beginning Unit Value....... $18.66
Ending Unit Value.......... $19.28
Ending Number of AUs....... 19,581
</TABLE>
- ------------------------------
AUV -- Accumulation Unit Value.
AU -- Accumulation Units.
* Effective August 6, 1999, shares of the Foreign Securities Portfolio were
replaced with shares of the Strategic Multi-Asset Portfolio.
** Effective August 6, 1999, shares of the Fixed Income Portfolio were replaced
with shares of the Government and Quality Bond Portfolio.
- --------------------------------------------------------------------------------
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 nine 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
- CAPITAL APPRECIATION - HIGH YIELD
- 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 underlying Trust portfolios become unavailable for investment, we may be
required to substitute shares of another underlying Trust portfolio. 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 DISTRIBUTIONS -- NON-QUALIFIED CONTRACTS, PAGE
22.
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, the Contract currently provides for 15 free
transfers between investment options each contract year. 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
An initial 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.
The following 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
$1,500,000. The Company reserves the right to refuse any Purchase Payment
including one which would cause the contract value or total Purchase Payments to
exceed $1,500,000 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 4:00 p.m., EST.
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 DISTRIBUTIONS -- QUALIFIED
CONTRACTS, ON PAGE 22.)
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 22.)
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.
During the accumulation phase, you will receive confirmation of
transactions within your contract. Transactions made pursuant to contractual or
systematic agreements, such as deduction of the annual maintenance fee and
dollar cost averaging, may be confirmed quarterly. Purchase Payments received
through the Automatic Payment Plan or a salary reduction arrangement, may also
be confirmed quarterly. For all other transactions, we send confirmations
immediately.
During the accumulation and income phases, you will receive a statement of
your transactions over the past quarter and a summary of your account values.
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 involved modifying or replacing certain hardware and software
maintained by the Company as well as communicating with external service
providers to ensure that they were taking the appropriate action to remedy their
Year 2000
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<PAGE> 25
issues. The modification process of all administrative systems has been
completed and the Company has not experienced any failure of systems due to a
Year 2000 readiness problem.
Purchased hardware was capitalized in accordance with normal policy.
Personnel and all other costs related to the project were expensed as incurred.
Since 1994, the Company has incurred approximately $4.3 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.
ANNUITY CONTRACTS IN GENERAL
The Internal Revenue Code ("IRC") provides for special rules regarding the
tax treatment of annuity contracts. Generally, taxes on the earnings in your
annuity contract are deferred until you take the money out. Qualified retirement
investments automatically provide tax deferral regardless of whether the
underlying contract is an annuity. Different rules apply depending on how you
take the money out and whether your contract is Qualified or Non-qualified.
If you do not purchase your contract under a pension plan, a specially
sponsored employer program or an IRA, your contract is referred to as a
Non-qualified contract. A Non-qualified contract receives different tax
treatment than a Qualified contract. In general, your cost basis in a Non-
qualified contract is equal to the Purchase Payments you put into the contract.
You have already been taxed on the cost basis in your contract.
If you purchase your contract under a pension plan, a specially sponsored
employer program or as an individual retirement account, your contract is
referred to as a Qualified contract. Examples of qualified plans are: IRAs, Roth
IRAs, Tax-Sheltered Annuities (referred to as 403(b) contracts), H.R. 10 Plans
(referred to as Keogh Plans) and pension and profit sharing plans, including
401(k) plans. Typically you have not paid any tax on the Purchase Payments used
to buy your contract and therefore, you have no cost basis in your contract.
TAX TREATMENT OF DISTRIBUTIONS -- NON-QUALIFIED CONTRACTS
If you make a withdrawal from a Non-qualified contract, the IRC treats such
a withdrawal as first coming from the earnings and then as coming from your
Purchase Payments. For income payments, any portion of each payment that is
considered a return of your Purchase Payment will not be taxed. Withdrawn
earnings are treated as income to you and are taxable. The IRC provides for a
10% penalty tax on any earnings that are withdrawn other than in conjunction
with the following circumstances: (1) after reaching age 59 1/2; (2) when paid
to your Beneficiary after you die; (3) after you become disabled (as defined in
the IRC); (4) when paid in a series of substantially equal installments made for
your life or for the joint lives of you and you Beneficiary; (5) under an
immediate annuity; or (6) which come from Purchase Payments made prior to August
14, 1982.
TAX TREATMENT OF DISTRIBUTIONS -- QUALIFIED CONTRACTS
Generally, you have not paid any taxes on the Purchase Payments used to buy
a Qualified contract. Any amount of money you take out as a withdrawal or as
income payments is taxable income. The IRC further provides for a 10% penalty
tax on any withdrawal or income payment paid to
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<PAGE> 26
you other than in conjunction with the following circumstances: (1) after
reaching age 59 1/2; (2) when paid to your Beneficiary after you die; (3) after
you become disabled (as defined in the IRC); (4) when paid in a series of
substantially equal installments made for your life or for the joint lives of
you and your Beneficiary; (5) to the extent such withdrawals do not exceed
limitations set by the IRC for amounts paid during the taxable year for medical
care; (6) to fund higher education expenses (as defined in IRC); (7) to fund
certain first-time home purchase expenses; and, except in the case of an IRA;
(8) when you separate from service after attaining age 55; and (9) when paid to
an alternate payee pursuant to a qualified domestic relations order.
The IRC limits the withdrawal of Purchase Payments from certain
Tax-Sheltered Annuities. Withdrawals can only be made when an owner: (1) reaches
age 59 1/2; (2) leaves his or her job; (3) dies; (4) becomes disabled (as
defined in the IRC); or (5) experiences hardship (as defined in the IRC). In the
case of hardship, the owner can only withdraw Purchase Payments.
MINIMUM DISTRIBUTIONS
Generally, the IRS requires that you begin taking annual distributions from
Qualified annuity contracts by April 1 of the calendar year following the later
of (1) the calendar year in which you attain age 70 1/2 or (2) the calendar year
in which you retire. Failure to satisfy the minimum distribution requirement may
result in a tax penalty. You should consult your tax advisor.
DIVERSIFICATION
The IRC imposes certain diversification requirements on the underlying
investments for a variable annuity. We believe that the manager of the
underlying Variable Portfolios monitors the Variable Portfolios so as to comply
with these requirements. To be treated as a variable annuity for tax purposes,
the underlying investments must meet these requirements.
The diversification regulations do not provide guidance as to the
circumstances under which you, because of the degree of control you exercise
over the underlying investments, and not the Company, would be considered the
owner of the shares of the Variable Portfolios. It is unknown to what extent
owners are permitted to select investments, to make transfers among Variable
Portfolios or the number and type of Variable Portfolios owners may select from.
If any guidance is provided which is considered a new position, then the
guidance would generally be applied prospectively. However, if such guidance is
considered not to be a new position, it may be applied retroactively. This would
mean you, as the owner of the contract, could be treated as the owner of the
underlying Variable Portfolios. Due to the uncertainty in this area, we reserve
the right to modify the contract in an attempt to maintain favorable tax
treatment.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
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<PAGE> 27
- --------------------------------------------------------------------------------
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.
24
<PAGE> 28
- --------------------------------------------------------------------------------
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> 29
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> 30
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, 2000, 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, 2000.
<PAGE> 31
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
---- ----
<S> <C>
COMPANY .................................................................. 1
INDEPENDENT ACCOUNTANTS .................................................. 1
DISTRIBUTORS ............................................................. 1
YIELD CALCULATION FOR MONEY MARKET DIVISION .............................. 2
INCOME PAYMENTS .......................................................... 3
Annuity Unit Value ................................................... 3
Amount of Income Payments ............................................ 3
Subsequent Monthly Income Payments ................................... 4
TAXES .................................................................... 4
FINANCIAL STATEMENTS ..................................................... 8
</TABLE>
<PAGE> 32
COMPANY
Information regarding Presidential Life Insurance Company (the
"Company") and its ownership is contained in the Prospectus.
INDEPENDENT ACCOUNTANTS
The audited consolidated financial statements of Presidential Life
Corporation and subsidiaries as of December 31, 1999 and 1998 and for each of
the three years in the period ended December 31, 1999 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, 1999 and for each of the two years in the
period ended December 31, 1999 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> 33
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, 1999 were 3.58 and
3.64, 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> 34
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.
INCOME 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 INCOME PAYMENTS
The initial income 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> 35
<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 income 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 income payment. The
number of Annuity Units determined for the first income payment remains constant
for the second and subsequent monthly payments.
Subsequent Monthly Income Payments
The amount of the second and subsequent income 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 income payment is due.
The dollar amount of the first income 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 income payment. The number of Annuity Units
determined for the first income payment remains constant for the second and
subsequent monthly payments.
TAXES
General
Section 72 of the Internal Revenue Code of 1986, as amended (the "Code")
governs taxation of annuities in general. An owner is not taxed on increases in
the value of a contract until distribution occurs, either in the form of a
non-annuity distribution or as income payments under the income option elected.
For a lump sum payment
-4-
<PAGE> 36
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 contracts issued in
connection with Non-qualified plans, the cost basis is generally the Purchase
Payments, while for contracts issued in connection with Qualified plans 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 income 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 income payments for the term of the annuity contract. The taxable
portion is taxed at ordinary income tax rates. 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 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 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 the rate of 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 - Separate Account Investments
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
owner with respect to
-5-
<PAGE> 37
earnings allocable to the contract prior to the receipt of any payments under
the contract. The Code contains a safe harbor provision which provides that
annuity contracts, such as your contract, meet the diversification requirements
if, as of the close of each calendar quarter, the underlying assets meet the
diversification standards for a regulated investment company, and no more than
55% of the total assets consist of cash, cash items, U.S. government securities
and securities of other regulated investment companies.
The Treasury Department has issued regulations 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 (1) no more
than 55% of the value of the total assets of the portfolio is represented by any
one investment; (2) no more than 70% of the value of the total assets of the
portfolio is represented by any two investments; (3) no more than 80% of the
value of the total assets of the portfolio is represented by any three
investments; and (4) no more than 90% of the value of the total assets of the
portfolio is represented by any four investments. 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."
Multiple Contracts
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 multiple contracts. The
Company believes that Congress intended to affect the purchase of multiple
deferred annuity contracts which may have been purchased to avoid withdrawal
income tax treatment. 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 have tax consequences, and may also be
prohibited by ERISA in some circumstances. Contract Owners should therefore
consult competent legal advisers should they wish to assign their contracts.
Partial 1035 Exchanges
Section 1035 of the Code provides that an annuity contract may be
exchanged in a tax-free transaction for another annuity contract. Historically,
it was presumed that only the exchange of an entire contract, as opposed to a
partial exchange, would be accorded tax-free status. In 1998 in Conway vs.
commissioner, the Tax Court held that the direct transfer of a portion of an
annuity contract into another annuity contract qualified as a non-taxable
exchange. On November 22, 1999, the Internal Revenue Service filed an Action on
Decision which indicated that it acquiesced in the Tax Court decision in Conway.
However, in its acquiescence with the decision of the Tax Court, the Internal
Revenue Service stated that it will challenge transactions where taxpayers enter
into a series of partial exchanges and annuitizations as part of a design to
avoid application of the 10% premature distribution penalty or other limitations
imposed on annuity contracts under Section 72 of the Code. In the absence of
further guidance from the Internal Revenue Service it is unclear what specific
types of partial exchange designs and transactions will be challenged by the
Internal Revenue Service. Due to the uncertainty in this area owners should seek
their own tax advice.
Qualified Plans
The contracts offered by this prospectus are designed to be suitable for
use under various types of Qualified plans. Taxation of owners 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 information purposes only. The tax rules regarding Qualified plans
are very complex and will have differing applications depending on individual
facts and circumstances. Each purchaser should obtain competent tax advice prior
to purchasing a contract issued under a Qualified plan.
-6-
<PAGE> 38
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.
(a) H.R. 10 Plans
Section 401 of the Code permits self-employed individuals to
establish Qualified plans for themselves and their employees, commonly
referred to as "H.R. 10" or "Keogh" Plans. Contributions made to the
plan for the benefit of the employees will not be included in the gross
income of the employees until distributed from the plan. The tax
consequences to owners may vary depending upon the particular plan
design. However, the Code places limitations and restrictions on all
plans on such items as: amounts of allowable contributions; form, manner
and timing of distributions; vesting and nonforfeitability of interests;
nondiscrimination in eligibility and participation; and the tax
treatment of distributions, withdrawals and surrenders. Purchasers of
contracts for use with an H.R. 10 Plan should obtain competent tax
advice as to the tax treatment and suitability of such an investment.
(b) Tax-Sheltered Annuities
Section 403(b) of the Code permits the purchase of
"tax-sheltered annuities" by public schools and certain charitable,
education 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. Any employee should obtain competent tax advice as to the
tax treatment and suitability of such an investment.
(c) Individual Retirement Accounts
Section 408(b) of the Code permits eligible individuals to
contribute to an individual retirement program known as an "Individual
Retirement Account" ("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. 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.
(d) Roth IRAs
Section 408(a) 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 a 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 without tax penalty. Certain persons may be
eligible to convert a regular IRA into a Roth IRA, and the taxes on the
resulting income
-7-
<PAGE> 39
may be spread over four years if the conversion occurs before January 1,
1999. If and when the contracts are made available for use with Roth
IRAs, they may be subject to special requirements imposed by the
Internal Revenue Service ("IRS"). Purchasers of the contracts for this
purpose will be provided with such supplementary information as may be
required by the IRS or other appropriate agency.
(e) Corporate Pension and Profit-Sharing Plans
Sections 401(a) and 401(k) of the Code permit corporate
employers to establish various types of retirement plans for employees.
These retirement plans may permit the purchase of the contracts to
provide benefits under the plan. Contributions to the plan for the
benefit of employees will not be includible in the gross income of the
employee until distributed from the plan. The tax consequences to owners
may vary depending upon the particular plan design. However, the Code
places limitations on all plans on such items as amount of allowable
contributions; form, manner and timing of distributions; vesting and
nonforfeitability of interests; nondiscrimination in eligibility and
participation; and the tax treatment of distributions, withdrawals and
surrenders. Purchasers of contracts for use with corporate pension or
profit sharing plans should obtain competent tax advice as to the tax
treatment and suitability of such an investment.
(f) Deferred Compensation Plans - Section 457
Under Section 457 of the Code, governmental and certain other
tax-exempt employers may establish, for the benefit of their employees,
deferred compensation plans which may invest in annuity contracts. The
Code, as in the case of Qualified plans, establishes limitations and
restrictions on eligibility, contributions and distributions. Under
these plans, contributions made for the benefit of the employees will
not be includible in the employees' gross income until distributed from
the plan. However, under a 457 plan all the plan assets shall remain
solely the property of the employer, subject only to the claims of the
employer's general creditors until such time as made available to an
owner or a Beneficiary. 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.
-8-
<PAGE> 40
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Presidential Life Corporation
Nyack, New York 10960
We have audited the accompanying consolidated balance sheets of Presidential
Life Corporation and subsidiaries (the "Company") as of December 31, 1999 and
1998 and the related consolidated statements of income, shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1999.
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, 1999
and 1998 and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1999 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
February 15, 2000
-9-
<PAGE> 41
PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
December 31
-----------------------------
ASSETS: 1999 1998
----------- -----------
<S> <C> <C>
Investments:
Fixed maturities available for sale $ 1,962,354 $ 1,951,454
Common stocks 32,470 34,240
Mortgage Loans 16,134 17,038
Real Estate 415 415
Policy Loans 17,580 17,879
Short-term investments 215,889 227,890
Other invested assets 245,486 244,097
----------- -----------
Total investments 2,490,328 2,493,013
Cash and cash equivalents 28,582 1,407
Accrued investment income 27,816 24,309
Amounts due from security transactions 2,800 20,170
Deferred federal income taxes 25,611 0
Federal income tax recoverable 2,602 4,740
Deferred policy acquisition costs 48,844 40,283
Furniture and equipment, net 674 693
Amounts due from reinsurers 9,940 8,700
Other assets 12,443 9,402
Assets held in separate account 4,025 4,082
----------- -----------
TOTAL ASSETS $ 2,653,665 $ 2,606,799
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Policy Liabilities:
Policyholders' account balances $ 1,385,957 $ 1,314,784
Future policy benefits:
Annuity 449,732 400,717
Life and accident and health 55,789 52,270
Other policy liabilities 4,340 3,261
----------- -----------
Total policy liabilities 1,895,818 1,771,032
Dollar repurchase agreements 212,614 148,651
Repurchase agreements 0 24,402
Notes payable 100,000 50,000
Short-term note payable 15,000 23,000
Deposits on policies to be issued 6,662 1,939
Deferred federal income taxes 0 40,815
General expenses and taxes accrued 8,641 6,471
Other liabilities 4,437 13,163
Liabilities related to separate account 4,025 4,082
----------- -----------
Total liabilities 2,247,197 2,083,555
----------- -----------
Shareholders' Equity:
Capital stock ($.01 par value; authorized
100,000,000 shares; issued and outstanding
30,814,591 shares in 1999 and 31,731,214 shares
in 1998) 308 318
Additional paid-in-capital 0 1,268
Accumulated other comprehensive income (loss) (68,091) 69,037
Retained earnings 474,251 452,621
----------- -----------
Total Shareholders' Equity 406,468 523,244
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,653,665 $ 2,606,799
=========== ===========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
-10-
<PAGE> 42
PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share data)
<TABLE>
<CAPTION>
Years Ended December 31
--------------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Insurance revenues:
Premiums $ 4,521 $ 4,086 $ 3,976
Annuity considerations 54,376 28,140 19,655
Universal life and investment type
policy fee income 2,559 2,100 1,988
Net investment income 208,126 187,155 191,818
Realized investment gains 2,775 17,185 26,039
Other income 5,703 3,540 4,228
------------ ------------ ------------
TOTAL REVENUES 278,060 242,206 247,704
------------ ------------ ------------
BENEFITS AND EXPENSES:
Death and other life insurance benefits 8,116 7,612 7,236
Annuity benefits 43,016 40,697 37,867
Interest credited to policyholders'
account balances 78,000 76,776 76,202
Interest expense on notes payable 8,960 7,124 5,850
Other interest and other charges 531 274 445
Increase in liability for
future policy benefits 51,463 21,051 15,248
Commissions to agents, net 6,301 4,780 4,357
General expenses and taxes 17,379 14,522 12,813
Increase in deferred policy
acquisition costs (5,198) (2,375) (2,872)
------------ ------------ ------------
TOTAL BENEFITS AND EXPENSES 208,568 170,461 157,146
------------ ------------ ------------
Income before income taxes 69,492 71,745 90,558
------------ ------------ ------------
Provision (benefit) for income taxes:
Current 24,866 26,902 31,165
Deferred (3,605) (4,381) (1,899)
------------ ------------ ------------
21,261 22,521 29,266
------------ ------------ ------------
Income before extraordinary item 48,231 49,224 61,292
Extraordinary item - loss on retirement
of debt, net of income tax benefit of
$276.5 (514) 0 0
------------ ------------ ------------
NET INCOME $ 47,717 $ 49,224 $ 61,292
============ ============ ============
Weighted average number of shares
outstanding during the year 31,161,277 32,073,388 32,734,733
============ ============ ============
Earnings per common share before
extraordinary item $ 1.55 $ 1.53 $ 1.87
Extraordinary item (.02) 0 0
------------ ------------ ------------
Earnings per common share $ 1.53 $ 1.53 $ 1.87
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
-11-
<PAGE> 43
PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Accumulated
Additional Other
Capital Paid-in- Retained Comprehensive
Stock Capital Earnings Income (loss) Total
------- ---------- -------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Balance at
January 1, 1997 $ 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
---------
Comprehensive Income:
Net income 47,717 47,717
Net Unrealized Investment
Gains (Losses) (137,128) (137,128)
---------
Comprehensive Loss (89,411)
Purchase and Retirement
of Stock (10) (1,281) (15,375) (16,666)
Issuance of Shares
under Stock Option Plan 13 13
Dividends Paid to
Shareholders ($.345 per
share) (10,712) (10,712)
--------- --------- --------- --------- ---------
Balance at
December 31, 1999 $ 308 $ 0 $ 474,251 $ (68,091) $ 406,468
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
-12-
<PAGE> 44
PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31
---------------------------------------------
1999 1998 1997
----------- ----------- -----------
(in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 47,717 $ 49,224 $ 61,292
Adjustments to reconcile net income to
net cash provided by operating activities:
Benefit for deferred income taxes (3,605) (4,381) (1,899)
Depreciation and amortization 936 1,037 474
Net accrual of discount on fixed maturities (8,469) (8,806) (4,181)
Realized investment gains (2,775) (17,185) (26,039)
Changes in:
Accrued investment income (3,507) 3,858 4,307
Deferred policy acquisition costs (5,198) (2,375) (2,872)
Federal income tax recoverable 2,138 (4,740) 0
Liability for future policy benefits 52,534 22,030 15,777
Other items (10,468) (1,629) 436
----------- ----------- -----------
Net Cash Provided by
Operating Activities 69,303 37,033 47,295
----------- ----------- -----------
INVESTING ACTIVITIES:
Fixed Maturities:
Available for Sale:
Acquisitions (434,070) (377,730) (338,058)
Sales 53,524 2,602 29,325
Maturities, calls and repayments 172,830 333,533 252,383
Common Stocks:
Acquisitions (21,038) (12,880) (18,722)
Sales 27,533 46,435 68,377
Decrease (increase) in short-term
investments and policy loans 12,300 36,449 (24,112)
Other Invested Assets:
Additions to other invested assets (48,413) (93,837) (110,760)
Distributions from other invested assets 47,024 57,902 78,701
Purchase of property and equipment (172) (289) (409)
Mortgage loan on real estate 904 827 757
Amounts due from security transactions 17,370 (20,170) 0
----------- ----------- -----------
Net Cash Used in
Investing Activities (172,208) (27,158) (62,518)
----------- ----------- -----------
FINANCING ACTIVITIES:
Proceeds from Dollar Repurchase Agreements 2,522,329 2,115,345 2,429,540
Repayment of Dollar Repurchase Agreements (2,458,365) (2,171,896) (2,425,221)
Proceeds from Reverse Repurchase Agreements (24,402) 24,402 0
Proceeds from (repayment of) Senior Notes 50,000 0 0
Proceeds from (repayment of) line of credit (8,000) 3,000 15,000
Increase (decrease) in policyholders'
account balances 71,173 33,884 20,355
Repurchase of common stock (16,666) (17,069) (5,762)
Deposits on policies to be issued 4,723 (497) 1,166
Dividends paid to shareholders (10,712) (9,117) (7,194)
----------- ----------- -----------
Net Cash Provided by (Used in)
Financing Activities 130,080 (21,948) 27,884
----------- ----------- -----------
Increase (Decrease) in Cash and Cash
Equivalents 27,175 (12,073) 12,661
Cash and Cash Equivalents at Beginning of Year 1,407 13,480 819
----------- ----------- -----------
Cash and Cash Equivalents at End of Year $ 28,582 $ 1,407 $ 13,480
=========== =========== ===========
Supplemental Cash Flow Disclosure:
Income Taxes Paid $ 22,453 $ 33,500 $ 27,700
=========== =========== ===========
Interest Paid $ 5,514 $ 6,216 $ 5,508
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
-13-
<PAGE> 45
PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BUSINESS
Presidential Life Corporation ("the Company"), through its
wholly-owned subsidiary Presidential Life Insurance Company ("the Insurance
Company"), is engaged in the sale of life insurance and annuities.
On December 29, 1999, the Company announced the completion of the
purchase of The Central National Life Insurance Company of Omaha ("Central
National") from the Household Insurance Group Holding Company, a subsidiary of
Household International, Inc. Central National which has assets of $10.5 million
and capital and surplus of $10.5 million is licensed to market insurance
products in 49 states, the District of Columbia, Puerto Rico and the U.S. Virgin
Islands.
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
-14-
<PAGE> 46
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, 1999 and 1998. As of December 31, 1999, the Company was committed to
contribute, if called upon, an aggregate of approximately $68.9 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.
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 $206,800
at December 31, 1999 and 1998, respectively, and related depreciation expense
for the years ended December 31, 1999, 1998 and 1997 was $0, $2,400 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 $565,400 and $377,400 at December 31, 1999 and 1998, respectively,
and related depreciation expense for the years ended December 31, 1999, 1998 and
1997 was $190,700, $160,900 and $163,700, 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.
-15-
<PAGE> 47
E. RECOGNITION OF INSURANCE INCOME AND RELATED EXPENSES - CONTINUED
Premiums from universal life and investment-type contracts are
reported as deposits to policyholders' account balances. Revenues from these
contracts consist of amounts assessed during the period against policyholders'
account balances for mortality charges and surrender charges. Policy benefits
and claims that are charged to expense include benefit claims incurred in the
period in excess of related policyholders' account balances and interest
credited to policyholders' account balances.
For the years ended December 31, 1999, 1998, and 1997, approximately
50.2%, 58.1% and 67.3%, 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.
Unamortized deferred policy acquisition costs for the years ended
December 31, 1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
----------- ----------
(in thousands)
<S> <C> <C>
Balance at the beginning of year $ 40,283 $ 37,685
Current year's costs deferred 11,479 8,706
----------- ----------
Total 51,762 46,391
Less, amortization for the year 6,215 6,293
----------- ----------
Total 45,547 40,098
Change in amortization (benefit)
related to unrealized gain
(loss) in investments (3,297) (185)
----------- ----------
Balance at the end of the year $ 48,844 $ 40,283
=========== ==========
</TABLE>
-16-
<PAGE> 48
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, 1999, 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>
1999 1998 1997
---------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
Account balances at beginning of year $1,314,784 $1,280,900 $1,260,545
Additions to account balances 238,535 209,601 209,568
---------- ---------- ----------
Total 1,553,319 1,490,501 1,470,113
Deductions from account balances 167,362 175,717 189,213
---------- ---------- ----------
Account balances at end of year $1,385,957 $1,314,784 $1,280,900
========== ========== ==========
</TABLE>
Interest rates credited to account balances ranged from 4% to 12.5% in
1999, 1998 and 1997.
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 income 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> 49
K. EARNINGS PER COMMON SHARE
Earnings per share (EPS) presented on the face on the consolidated
statement of income 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, 1999, 1998 and 1997
was 31,161,227, 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.
In June 1999, the FASB issued Statement of Financial Accounting
Standards No. 137, which amends SFAS 133 by deferring the effective date to
fiscal years beginning after June 15, 2000. The Company has not yet completed
its analysis to determine the impact of this statement on the Company's
financial statements.
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
------------------------------------
1999 1998 1997
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Fixed maturities $163,112 $141,483 $134,740
Common stocks 677 1,621 1,341
Short-term investments 14,081 16,537 14,368
Other investment income 36,777 33,281 48,797
-------- -------- --------
214,647 192,922 199,246
Less investment expenses 6,521 5,767 7,428
-------- -------- --------
Net investment income $208,126 $187,155 $191,818
======== ======== ========
</TABLE>
-18-
<PAGE> 50
2. INVESTMENTS - CONTINUED
There were no fixed maturities which were non-income producing for more
than twelve months at December 31, 1999 and 1998.
Realized Investment Gains (Losses):
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1999 1998 1997
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Fixed maturities $(1,273) $ 3,144 $12,080
Common stocks 4,048 14,041 13,959
------- ------- -------
Total realized gains
on investments $ 2,775 $17,185 $26,039
======= ======= =======
</TABLE>
Unrealized Investment Gains (Losses):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1999 1998 1997
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Fixed maturities $ (88,359) $ 110,178 $ 109,995
Common stocks 4,816 9,525 13,752
--------- --------- ---------
Unrealized investment
gains (losses) $ (83,543) $ 119,703 $ 123,747
Amortization of deferred
acquisition costs 10,195 (13,492) (13,686)
Deferred federal income
taxes (25,647) (37,174) (38,521)
--------- --------- ---------
Net unrealized investment
gains (losses) (68,091) 69,037 71,540
========= ========= =========
Change in net unrealized
investment gains (losses) $(137,128) $ (2,503) $ 31,246
========= ========= =========
</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, 1999:
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 $ 349,499 $ 5,042 $ (4,534) $ 350,007
States, municipalities and
political subdivisions 26,743 1,132 (400) 27,475
Foreign governments 12,087 1,013 0 13,100
Public utilities 130,538 900 (7,159) 124,279
All other corporate bonds 1,325,404 29,059 (86,022) 1,268,441
Preferred stocks, primarily
corporate 206,439 3,234 (30,621) 179,052
---------- ---------- ---------- ----------
Total Fixed Maturities: $2,050,710 $ 40,380 $ (128,736) $1,962,354
========== ========== ========== ==========
Common Stocks $ 27,655 $ 5,977 $ (1,162) $ 32,470
========== ========== ========== ==========
</TABLE>
-19-
<PAGE> 51
2. INVESTMENTS - CONTINUED
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>
The estimated fair value of fixed maturities available for sale at December
31, 1999, 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 $ 21,803
Due after one year through five years 158,082
Due after five years through ten years 129,153
Due after ten years 1,474,264
------------
Total debt securities 1,783,302
Preferred stock 179,052
------------
Total $ 1,962,354
============
</TABLE>
Proceeds from sales of fixed maturities during 1999, 1998 and 1997 were
$305.4 million, $527.5 million and $718.4 million, respectively. During 1999,
1998 and 1997, respectively, gross gains of $14.0 million, $9.0 million and
$16.4 million and gross losses of $1.4 million, $1.0 million and $4.5 million
were realized on those sales.
As of December 31, 1999, 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, 1999.
-20-
<PAGE> 52
2. INVESTMENTS - CONTINUED
As of December 31, 1999 securities with a carrying value of approximately
$5.1 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, 1999 consist of $100 million, 7 7/8% Senior
Notes ("Senior Notes") due February 15, 2009. Interest is payable February 15
and August 15. Debt issue costs are being amortized on the interest method over
the term of the notes. As of December 31, 1999, unamortized costs were $8.2
million. The total principal is due on February 15, 2009.
Notes payable at December 31, 1998 consisted of $50 million, 9 1/2% Senior
Notes, ("9 1/2% Senior Notes") due December 15, 2000. The Company repaid the 9
1/2% Senior Notes during March 1999 which resulted in an extraordinary charge to
the Company's net income of $514 thousand, after income taxes of $276.5
thousand.
The indenture governing the senior notes contains covenants relating to
limitations on 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 may be obligated to offer to repurchase all 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, 1999 and 1998 the Company had $15,000,000 and $23,000,000
outstanding, respectively. The short-term note payable outstanding at December
31, 1999 and 1998 had a weighted average interest rate of 6.108% and 6.469%,
respectively.
-21-
<PAGE> 53
4. SHAREHOLDERS' EQUITY
The Company is authorized to issue 100,000,000 shares of its $.01 par value
Common Stock. At December 31, 1999 30,814,591 shares were outstanding and at
December 31, 1998 31,731,214 shares were outstanding.
During 1999, the Company's Board of Directors increased the quarterly
dividend rate to $.09 per share. During 1999, 1998 and 1997, the Company
purchased and retired 918,300, 896,900 and 372,300 shares of common stock,
respectively. The Company is authorized pursuant to a resolution of the Board of
Directors to purchase an additional 417,000 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 1999, 1998 and 1997, the Insurance Company paid
dividends of $28.4 million, $49.4 million and $24.8 million, respectively, to
the Company.
Other Comprehensive Income (loss)
For the years ended
December 31,
<TABLE>
<CAPTION>
Tax After-
Pre-Tax Expense/ Tax
Amount (Benefit) Amount
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
1999
Unrealized gains (losses) on investment securities:
Unrealized holding losses arising
during year $(208,192) $ (72,868) $(135,324)
Less: reclassification adjustment for gains
realized in net income 2,775 971 1,804
--------- --------- ---------
Net unrealized investment gains (losses) $(210,967) $ (73,839) $(137,128)
========= ========= =========
1998
Unrealized gains 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 gains 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 $ 48,718 $ 17,472 $ 31,246
========= ========= =========
</TABLE>
-22-
<PAGE> 54
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,
-----------------------
1999 1998
------- -------
(in thousands)
<S> <C> <C>
Change in benefit obligation
Benefit obligation (beginning of year) $ 5,978 $ 5,923
Service cost 338 438
Interest cost 347 388
Actuarial gain (967) (334)
Benefits paid (1,340) (437)
------- -------
Benefit obligation (end of year) 4,356 5,978
------- -------
Change in Plan assets
Fair value of assets (beginning of year) 4,707 4,558
Actual return on plan assets 585 287
Employer contribution 305 299
Benefits paid (1,340) (437)
------- -------
Fair value of assets (end of year) 4,257 4,707
------- -------
Funded status (99) (1,272)
Unrecognized transition amount 112 140
Unrecognized net actuarial loss (1,885) (824)
------- -------
Prepaid (accrued) benefit cost $(1,872) $(1,956)
======= =======
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 $ 338 $ 438
Interest cost 347 388
Expected return on assets (362) (350)
Amortization of prior service cost 28 28
Recognized net actuarial loss (130) (65)
------- -------
Net periodic benefit cost $ 221 $ 439
======= =======
</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, 1999, 1998 and
1997, the Company's contribution was approximately $44,000, $43,300 and $43,700,
respectively.
-23-
<PAGE> 55
5. EMPLOYEE BENEFIT AND DEFERRED COMPENSATION PLANS - CONTINUED
(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, 1999.
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, 1997 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 18.13 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
Granted 74,250 17.19 1,276,172
Exercised (1,677) 10.82 (18,149)
Cancelled (5,411) 17.53 (94,869)
------- -----------
Outstanding, December 31, 1999 242,422 $16.51 $ 4,001,342
======= ===========
</TABLE>
At December 31, 1999, 74,605 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, 1999 and 1998 would have been reduced to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
Net income (in thousands) 1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
As reported $47,717 $49,224 $61,292
Pro forma 47,625 49,114 61,188
Earnings per common share
As reported $ 1.53 $ 1.53 $ 1.87
Pro forma 1.53 1.53 1.87
</TABLE>
The fair value of options granted under the Company's fixed stock
option plan during 1999 was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used: dividend yield of 1.96%, expected volatility of 49.0%, risk
free interest rate of 7.0%, and expected lives of 4 years.
-24-
<PAGE> 56
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>
1999 1998 1997
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Provision for income taxes computed
at Federal statutory rate $ 24,322 $ 25,111 $ 31,695
Increase (decrease) in income taxes resulting from:
Utilization of prior unrecognized
deferred tax asset relating to
investment losses 0 (306) (868)
Losses producing no current benefit 514 784 81
Other (3,575) (3,068) (1,642)
-------- -------- --------
Provision for Federal
income taxes $ 21,261 $ 22,521 $ 29,266
======== ======== ========
</TABLE>
The Company provides for deferred income taxes resulting from temporary
differences which arise from recording certain transactions in different years
for income tax reporting purposes than for financial reporting purposes. The
sources of these differences and the tax effect of each were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Deferred policy acquisition costs $ 1,374 $ 621 $ 341
Policyholders' account balances (3) (21) 5
Investment adjustments (3,411) (1,236) (481)
Insurance reserves (830) (2,422) (924)
Other (735) (1,323) (840)
------- ------- -------
Deferred Federal income tax benefit $(3,605) $(4,381) $(1,899)
======= ======= =======
</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 federal tax (asset) liability as of December 31, 1999 and 1998 are as
follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Deferred federal income tax asset:
Investments $(10,650) $ (7,239)
Net unrealized investment losses (25,647) 0
Insurance reserves (9,760) (8,930)
Operating loss carryforwards (2,534) (1,517)
Other (224) (179)
-------- --------
(48,815) (17,865)
Valuation allowance 4,230 3,904
-------- --------
Net deferred federal income tax asset $(44,585) $(13,961)
-------- --------
Deferred federal income tax liability:
Deferred policy acquisition costs $ 18,302 $ 16,927
Net unrealized investment gains 0 37,174
Policyholder account balances 66 69
Other 606 606
-------- --------
Deferred federal income tax liability 18,974 54,776
-------- --------
Net deferred federal income tax
(asset) liability $(25,611) $ 40,815
======== ========
</TABLE>
-25-
<PAGE> 57
6. INCOME TAXES - CONTINUED
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, 1999 and 1998 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
$11,138,000 at December 31, 1999 of which $1,150,000 expire in 2010; $1,671,000
in 2011; $4,120,000 in 2013; and $4,197,000 in 2014.
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,
1999 and 1998 consists of coinsurance agreements aggregating face amounts of
$201.5 million and $203.1 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 1999, 1998 and 1997 amounted to approximately $4.7
million, $4.4 million, and $4.5 million, respectively.
-26-
<PAGE> 58
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,
-------------------------------------------
1999 1998 1997
-------- --------- --------
(in thousands)
<S> <C> <C> <C>
Statutory surplus $298,029 $287,286 $296,725
======== ======== ========
Statutory net income $ 47,798 $ 52,105 $ 57,081
======== ======== ========
</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.
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.
-27-
<PAGE> 59
10. FAIR VALUE INFORMATION- CONTINUED
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, 1999, the Company was committed to contribute, if called upon,
an aggregate of approximately $68.9 million of additional capital to certain of
these limited partnerships. The market value of short-term investments, mortgage
loans and policy loans is estimated to approximate the carrying value.
Estimated fair values of policyholders' account balances for investment
type products (i.e., deferred annuities, immediate annuities without life
contingencies and universal life contracts) are calculated by projecting the
contract cash flows and then discounting them back to the valuation date at the
appropriate discount rate. For immediate annuities without life contingencies,
the cash flows are defined contractually. For all other products, projected cash
flows are based on an assumed lapse rate and crediting rate (based on the
current treasury curve), adjusted for any anticipated surrender charges. The
discount rate is based on the current duration-matched treasury curve, plus an
adjustment to reflect the anticipated spread above treasuries on investment
grade fixed maturity securities, less an expense and profit spread.
<TABLE>
<CAPTION>
December 31, 1999 Carrying Value Estimated Fair Value
- ----------------- -------------- --------------------
(in thousands)
<S> <C> <C>
Assets
Fixed Maturities:
Available for Sale 1,962,354 1,962,354
Common Stock 32,470 32,470
Mortgage Loans 16,134 16,134
Policy Loans 17,580 17,580
Cash and Short-Term Investments 244,471 244,471
Other Invested Assets 245,486 245,486
Liabilities
Policyholders' Account Balances 1,385,957 1,272,349
Note Payable 100,000 91,089
Short-Term Note Payable 15,000 15,000
<CAPTION>
December 31, 1998 Carrying Value Estimated Fair Value
- ----------------- -------------- --------------------
(in thousands)
<S> <C> <C>
Assets
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>
-28-
<PAGE> 60
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
-----------------------------------------------------
1999 March 31 June 30 September 30 December 31
---- -------- ------- ------------ -----------
(in thousands, except per share)
<S> <C> <C> <C> <C>
Premiums and other
insurance revenues $ 10,467 $ 19,379 $ 16,485 $ 20,828
Net investment income 50,989 49,338 50,099 57,700
Realized investment
gains (losses) 2,480 (1,725) 751 1,269
-------- -------- -------- --------
Total revenues 63,936 66,992 67,335 79,797
======== ======== ======== ========
Benefits and expenses 46,776 53,766 50,546 57,480
======== ======== ======== ========
Net income 10,548 9,484 12,695 14,990
======== ======== ======== ========
Earnings per share $ .33 $ .30 $ .41 $ .49
======== ======== ======== ========
</TABLE>
Includes extraordinary loss of $514 thousand or $.02 per share.
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------
1998 March 31 June 30 September 30 December 31
---- -------- ------- ------------ -----------
(in thousands, except per share)
<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
======= ======= ======= =======
</TABLE>
-29-
<PAGE> 61
PRESIDENTIAL VARIABLE ACCOUNT ONE
OF
PRESIDENTIAL LIFE INSURANCE COMPANY
FINANCIAL STATEMENTS
DECEMBER 31, 1999
-30-
<PAGE> 62
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 the Variable Accounts constituting
Presidential Variable Account One, a separate account of Presidential
Life Insurance Company (the "Separate Account") at December 31, 1999,
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
accounting principles generally accepted in the United States. 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 auditing standards
generally accepted in the United States, 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, 1999 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Los Angeles, California
March 17, 2000
-31-
<PAGE> 63
PRESIDENTIAL VARIABLE ACCOUNT ONE
OF
PRESIDENTIAL LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
<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 $ 0 $ 851,257 $1,158,678 $ 23,882 $ 250,949 $ 515,001 $ 420,175
Liabilities 0 0 0 0 0 0 0
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Assets $ 0 $ 851,257 $1,158,678 $ 23,882 $ 250,949 $ 515,001 $ 420,175
========== ========== ========== ========== ========== ========== ==========
Accumulation units outstanding 0 9,745 13,472 1,188 5,938 15,318 11,399
========== ========== ========== ========== ========== ========== ==========
Unit value of accumulation units $ 0 $ 87.36 $ 86.02 $ 20.11 $ 42.26 $ 33.63 $ 36.87
========== ========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
-32-
<PAGE> 64
PRESIDENTIAL VARIABLE ACCOUNT ONE
OF
PRESIDENTIAL LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
(Continued)
<TABLE>
<CAPTION>
Government and
High Yield Fixed Income Quality Bond Money Market
Portfolio Portfolio Portfolio Portfolio TOTAL
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Assets:
Investments in Anchor Series Trust,
at market value $ 117,628 $ 0 $ 310,424 $ 377,172 $4,025,166
Liabilities 0 0 0 0 0
---------- ---------- ---------- ---------- ----------
Net Assets $ 117,628 $ 0 $ 310,424 $ 377,172 $4,025,166
========== ========== ========== ========== ==========
Accumulation units outstanding 4,711 0 10,198 19,581
========== ========== ========== ==========
Unit value of accumulation units $ 24.97 $ 0 $ 30.44 $ 19.28
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
-33-
<PAGE> 65
PRESIDENTIAL VARIABLE ACCOUNT ONE
OF
PRESIDENTIAL LIFE INSURANCE COMPANY
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Market Value Market
Portfolio Investment Shares Per Share Value Cost
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Foreign Securities Portfolio 0 $ 0.00 $ 0 $ 0
Capital Appreciation Portfolio 14,928 57.02 851,257 445,335
Growth Portfolio 30,081 38.52 1,158,678 656,441
Natural Resources Portfolio 1,472 16.22 23,882 19,794
Growth and Income Portfolio 11,951 21.00 250,949 175,625
Strategic Multi-Asset Portfolio 43,766 11.77 515,001 487,349
Multi-Asset Portfolio 33,391 12.58 420,175 419,706
High Yield Portfolio 19,225 6.12 117,628 143,395
Fixed Income Portfolio 0 0.00 0 0
Government and Quality Bond Portfolio 22,686 13.68 310,424 306,079
Money Market Portfolio 377,172 1.00 377,172 377,172
------------- ----------
$ 4,025,166 $3,030,896
============= ==========
</TABLE>
See accompanying notes to financial statements.
-34-
<PAGE> 66
PRESIDENTIAL VARIABLE ACCOUNT ONE
OF
PRESIDENTIAL LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
DECEMBER 31, 1999
(Continued)
<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 $ 33,100 $ 21,095 $ 76,165 $ 437 $ 31,353 $ 89,238 $ 75,713
--------- --------- --------- --------- --------- --------- ---------
Total investment income 33,100 21,095 76,165 437 31,353 89,238 75,713
--------- --------- --------- --------- --------- --------- ---------
Expenses:
Mortality risk charge (1,218) (4,956) (10,593) (294) (1,997) (5,094) (4,245)
Expense risk charge (474) (1,928) (4,120) (114) (777) (1,981) (1,651)
Distribution expense charge (203) (826) (1,766) (49) (333) (849) (708)
--------- --------- --------- --------- --------- --------- ---------
Total expenses (1,895) (7,710) (16,479) (457) (3,107) (7,924) (6,604)
--------- --------- --------- --------- --------- --------- ---------
Net investment income 31,205 13,385 59,686 (20) 28,246 81,314 69,109
--------- --------- --------- --------- --------- --------- ---------
Net realized gains (losses)
from securities transactions:
Proceeds from shares sold 236,451 236,178 318,906 16,368 10,957 454,671 171,555
Cost of shares sold (251,586) (127,437) (188,309) (14,599) (7,607) (470,188) (160,504)
--------- --------- --------- --------- --------- --------- ---------
Net realized gains (losses) from
securities transactions (15,135) 108,741 130,597 1,769 3,350 (15,517) 11,051
--------- --------- --------- --------- --------- --------- ---------
Net unrealized appreciation
(depreciation) of investments:
Beginning of period (2,710) 193,015 428,790 (4,637) 75,382 (36,003) 33,984
End of period 0 405,922 502,237 4,088 75,324 27,652 469
--------- --------- --------- --------- --------- --------- ---------
Change in net unrealized
appreciation/depreciation
of investments 2,710 212,907 73,447 8,725 (58) 63,655 (33,515)
--------- --------- --------- --------- --------- --------- ---------
Increase (decrease) in net
assets from operations $ 18,780 $ 335,033 $ 263,730 $ 10,474 $ 31,538 $ 129,452 $ 46,645
========= ========= ========= ========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
-35-
<PAGE> 67
PRESIDENTIAL VARIABLE ACCOUNT ONE
OF
PRESIDENTIAL LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
DECEMBER 31, 1999
(Continued)
<TABLE>
<CAPTION>
Government and
High Yield Fixed Income Quality Bond Money Market
Portfolio Portfolio Portfolio Portfolio TOTAL
----------- ------------ -------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Investment income:
Dividends and capital gains distributions $ 17,543 $ 10,447 $ 16,139 $ 18,707 $ 389,937
----------- ----------- ----------- ----------- -----------
Total investment income 17,543 10,447 16,139 18,707 389,937
----------- ----------- ----------- ----------- -----------
Expenses:
Mortality risk charge (1,125) (468) (2,951) (3,675) (36,616)
Expense risk charge (437) (182) (1,148) (1,430) (14,242)
Distribution expense charge (187) (78) (492) (613) (6,104)
----------- ----------- ----------- ----------- -----------
Total expenses (1,749) (728) (4,591) (5,718) (56,962)
----------- ----------- ----------- ----------- -----------
Net investment income (loss) 15,794 9,719 11,548 12,989 332,975
----------- ----------- ----------- ----------- -----------
Net realized gains (losses) from securities
transactions:
Proceeds from shares sold 17,497 85,225 165,116 136,477 1,849,401
Cost of shares sold (19,618) (98,779) (154,794) (136,477) (1,629,898)
----------- ----------- ----------- ----------- -----------
Net realized gains (losses) from
securities transactions (2,121) (13,554) 10,322 0 219,503
----------- ----------- ----------- ----------- -----------
Net unrealized appreciation
(depreciation) of investments:
Beginning of period (17,316) 149 35,025 0 705,679
End of period (25,767) 0 4,345 0 994,270
----------- ----------- ----------- ----------- -----------
Change in net unrealized
appreciation/depreciation of investments (8,451) (149) (30,680) 0 288,591
----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets
from operations $ 5,222 $ (3,984) $ (8,810) $ 12,989 $ 841,069
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
-36-
<PAGE> 68
PRESIDENTIAL VARIABLE ACCOUNT ONE
OF
PRESIDENTIAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Foreign Capital Natural Growth and
Securities Appreciation Growth Resources Income
Portfolio Portfolio Portfolio Portfolio Portfolio
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 31,205 $ 13,385 $ 59,686 $ (20) $ 28,246
Net realized gains (losses) from
securities transactions (15,135) 108,741 130,597 1,769 3,350
Change in net unrealized appreciation/
depreciation of investments 2,710 212,907 73,447 8,725 (58)
----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets
from operations 18,780 335,033 263,730 10,474 31,538
----------- ----------- ----------- ----------- -----------
From capital transactions:
Net proceeds from units sold 6,507 (1,205) 6,090 11 (1)
Cost of units redeemed (2,891) (151,625) (262,526) (875) (7,889)
Net transfers (231,196) 202,065 14,836 (15,048) 26,658
----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets
from capital transactions (227,580) 49,235 (241,600) (15,912) 18,768
----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets (208,800) 384,268 22,130 (5,438) 50,306
Net assets at beginning of period 208,800 466,989 1,136,548 29,320 200,643
----------- ----------- ----------- ----------- -----------
Net assets at end of period $ 0 $ 851,257 $ 1,158,678 $ 23,882 $ 250,949
=========== =========== =========== =========== ===========
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 395 9 88 0 0
Units redeemed (171) (2,329) (3,359) (47) (191)
Units transferred (13,816) 3,212 203 (801) 704
----------- ----------- ----------- ----------- -----------
Increase (decrease) in units outstanding (13,592) 892 (3,068) (848) 513
Beginning units 13,592 8,853 16,540 2,036 5,425
----------- ----------- ----------- ----------- -----------
Ending units 0 9,745 13,472 1,188 5,938
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Strategic
Multi-Asset Multi-Asset
Portfolio Portfolio
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 81,314 $ 69,109
Net realized gains (losses) from
securities transactions (15,517) 11,051
Change in net unrealized appreciation/
depreciation of investments 63,655 (33,515)
----------- -----------
Increase (decrease) in net assets
from operations 129,452 46,645
----------- -----------
From capital transactions:
Net proceeds from units sold 5,154 (151)
Cost of units redeemed (199,418) (92,048)
Net transfers 45,476 (28,181)
----------- -----------
Increase (decrease) in net assets
from capital transactions (148,788) (120,380)
----------- -----------
Increase (decrease) in net assets (19,336) (73,735)
Net assets at beginning of period 534,337 493,910
----------- -----------
Net assets at end of period $ 515,001 $ 420,175
=========== ===========
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 189 0
Units redeemed (6,561) (2,629)
Units transferred 1,618 (835)
----------- -----------
Increase (decrease) in units outstanding (4,754) (3,464)
Beginning units 20,072 14,863
----------- -----------
Ending units 15,318 11,399
=========== ===========
</TABLE>
See accompanying notes to financial statements.
-37-
<PAGE> 69
PRESIDENTIAL VARIABLE ACCOUNT ONE
OF
PRESIDENTIAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
DECEMBER 31, 1999
(Continued)
<TABLE>
<CAPTION>
Government and
High Yield Fixed Income Quality Bond Money Market
Portfolio Portfolio Portfolio Portfolio TOTAL
----------- ----------- -------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 15,794 $ 9,719 $ 11,548 $ 12,989 $ 332,975
Net realized gains (losses) from
securities transactions (2,121) (13,554) 10,322 0 219,503
Change in net unrealized appreciation/
depreciation of investments (8,451) (149) (30,680) 0 288,591
----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets
from operations 5,222 (3,984) (8,810) 12,989 841,069
----------- ----------- ----------- ----------- -----------
From capital transactions:
Net proceeds from units sold (19) 405 135 (3) 16,923
Cost of units redeemed (15,728) (39) (94,721) (87,544) (915,304)
Net transfers 0 (84,070) 84,070 (14,635) (25)
----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets
from capital transactions (15,747) (83,704) (10,516) (102,182) (898,406)
----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets (10,525) (87,688) (19,326) (89,193) (57,337)
Net assets at beginning of period 128,153 87,688 329,750 466,365 4,082,503
----------- ----------- ----------- ----------- -----------
Net assets at end of period $ 117,628 $ 0 $ 310,424 $ 377,172 $ 4,025,166
=========== =========== =========== =========== ===========
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 0 14 4 0 699
Units redeemed (640) (1) (3,101) (4,642) (23,671)
Units transferred 0 (2,979) 2,784 (769) (10,679)
----------- ----------- ----------- ----------- -----------
Increase (decrease) in units outstanding (640) (2,966) (313) (5,411) (33,651)
Beginning units 5,351 2,966 10,511 24,992 125,201
----------- ----------- ----------- ----------- -----------
Ending units 4,711 0 10,198 19,581 91,550
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
-38-
<PAGE> 70
PRESIDENTIAL VARIABLE ACCOUNT ONE
OF
PRESIDENTIAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Foreign Capital Natural Growth and
Securities Appreciation Growth Resources Income
Portfolio Portfolio Portfolio Portfolio Portfolio
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 32,296 $ 34,024 $ 54,648 $ 550 $ 8,304
Net realized gains (losses) from
securities transactions (1,227) 111,791 96,229 (1,742) 17,260
Change in net unrealized appreciation/
depreciation of investments (10,423) (50,848) 119,868 (8,596) 23,252
----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets
from operations 20,646 94,967 270,745 (9,788) 48,816
----------- ----------- ----------- ----------- -----------
From capital transactions:
Net proceeds from units sold 10,024 413 4,976 0 0
Cost of units redeemed (74,120) (278,232) (293,252) (21,972) (56,029)
Net transfers (8,327) 0 (9,104) 0 10,087
----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets
from capital transactions (72,423) (277,819) (297,380) (21,972) (45,942)
----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets (51,777) (182,852) (26,635) (31,760) 2,874
Net assets at beginning of period 260,577 649,841 1,163,183 61,080 197,769
----------- ----------- ----------- ----------- -----------
Net assets at end of period $ 208,800 $ 466,989 $ 1,136,548 $ 29,320 $ 200,643
=========== =========== =========== =========== ===========
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 703 12 96 0 0
Units redeemed (5,109) (6,004) (4,937) (1,419) (1,740)
Units transferred (508) 0 (142) 0 301
----------- ----------- ----------- ----------- -----------
Increase (decrease) in units outstanding (4,914) (5,992) (4,983) (1,419) (1,439)
Beginning units 18,506 14,845 21,523 3,455 6,864
----------- ----------- ----------- ----------- -----------
Ending units 13,592 8,853 16,540 2,036 5,425
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Strategic
Multi-Asset Multi-Asset
Portfolio Portfolio
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 90,287 $ 89,541
Net realized gains (losses) from
securities transactions (1,381) 27,221
Change in net unrealized appreciation/
depreciation of investments (19,781) (2,216)
----------- -----------
Increase (decrease) in net assets
from operations 69,125 114,546
----------- -----------
From capital transactions:
Net proceeds from units sold 6,672 0
Cost of units redeemed (88,529) (265,183)
Net transfers 8,327 (10,325)
----------- -----------
Increase (decrease) in net assets
from capital transactions (73,530) (275,508)
----------- -----------
Increase (decrease) in net assets (4,405) (160,962)
Net assets at beginning of period 538,742 654,872
----------- -----------
Net assets at end of period $ 534,337 $ 493,910
=========== ===========
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 277 0
Units redeemed (3,512) (8,971)
Units transferred 310 (348)
----------- -----------
Increase (decrease) in units outstanding (2,925) (9,319)
Beginning units 22,997 24,182
----------- -----------
Ending units 20,072 14,863
=========== ===========
</TABLE>
See accompanying notes to financial statements.
-39-
<PAGE> 71
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
Portfolio Portfolio Portfolio Portfolio
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 16,933 $ 31,490 $ 5,678 $ 8,675
Net realized gains (losses) from
securities transactions 1,266 (52,534) 26 3,296
Change in net unrealized appreciation/
depreciation of investments (25,779) 28,298 (352) 12,781
----------- ----------- ----------- -----------
Increase (decrease) in net assets from operations (7,580) 7,254 5,352 24,752
----------- ----------- ----------- -----------
From capital transactions:
Net proceeds from units sold 0 0 400 136
Cost of units redeemed (10,190) (49,136) (45) (12,849)
Net transfers (10,713) (296,492) 0 (13,858)
----------- ----------- ----------- -----------
Increase (decrease) in net assets
from capital transactions (20,903) (345,628) 355 (26,571)
----------- ----------- ----------- -----------
Increase (decrease) in net assets (28,483) (338,374) 5,707 (1,819)
Net assets at beginning of period 156,636 338,374 81,981 331,569
----------- ----------- ----------- -----------
Net assets at end of period $ 128,153 $ 0 $ 87,688 $ 329,750
=========== =========== =========== ===========
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 0 0 14 4
Units redeemed (403) (2,439) (1) (425)
Units transferred (407) (14,597) 0 (440)
----------- ----------- ----------- -----------
Increase (decrease) in units outstanding (810) (17,036) 13 (861)
Beginning units 6,161 17,036 2,953 11,372
----------- ----------- ----------- -----------
Ending units 5,351 0 2,966 10,511
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Money Market
Portfolio TOTAL
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 8,021 $ 380,447
Net realized gains (losses) from
securities transactions 0 200,205
Change in net unrealized appreciation/
depreciation of investments 0 66,204
----------- -----------
Increase (decrease) in net assets from operations 8,021 646,856
----------- -----------
From capital transactions:
Net proceeds from units sold 0 22,621
Cost of units redeemed (60,215) (1,209,752)
Net transfers 341,348 10,943
----------- -----------
Increase (decrease) in net assets
from capital transactions 281,133 (1,176,188)
----------- -----------
Increase (decrease) in net assets 289,154 (529,332)
Net assets at beginning of period 177,211 4,611,835
----------- -----------
Net assets at end of period $ 466,365 $ 4,082,503
=========== ===========
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 0
Units redeemed (3,239)
Units transferred 18,388
-----------
Increase (decrease) in units outstanding 15,149
Beginning units 9,843
-----------
Ending units 24,992
===========
</TABLE>
See accompanying notes to financial statements.
-40-
<PAGE> 72
PRESIDENTIAL VARIABLE ACCOUNT ONE
OF
PRESIDENTIAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND 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 nine 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 nine Variable Accounts
and do not include balances allocated to the General Account.
The inception date of the Target `98 Portfolio was May 2, 1988. The
inception date of the Natural Resources Portfolio was January 4, 1988.
The inception date of the Capital Appreciation, Foreign Securities,
Growth and Income, Multi-Asset and Strategic Multi-Asset Portfolios was
March 23, 1987. The inception date of the High-Yield Portfolio was
January 2, 1986. The inception date of the Money Market portfolio is
December 31, 1984. The inception date of the Growth, Fixed Income,
Government and Quality Bond Portfolios was September 5, 1984.
The investment objectives and policies of the nine portfolios of the
Trust are summarized below:
The CAPITAL APPRECIATION PORTFOLIO seeks long-term capital appreciation.
This portfolio invests in growth equity securities across a wide range
of industries and companies, using a wide-ranging and flexible stock
picking approach.
The GROWTH PORTFOLIO seeks capital appreciation. This portfolio invests
in core equity securities that are widely diversified by industry and
company.
-41-
<PAGE> 73
PRESIDENTIAL VARIABLE ACCOUNT ONE
OF
PRESIDENTIAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND 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.
The STRATEGIC MULTI-ASSET PORTFOLIO seeks high long-term total
investment return. This portfolio actively allocates the Portfolio's
assets among equity securities of U.S. and foreign companies, medium and
small company equity securities, and global fixed income securities
(including high-yield, high-risk bonds).
The MULTI-ASSET PORTFOLIO seeks long-term total investment return
consistent with moderate investment risk. This portfolio actively
allocates the Portfolio's assets among equity securities, investment
grade fixed income securities and cash.
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
bonds and other fixed income securities.
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 high quality corporate fixed income
securities.
The MONEY MARKET PORTFOLIO seeks current income consistent with
stability of principal. This portfolio invests in a diversified
portfolio of money market instruments maturing in 397 days or less and
maintains a dollar-weighted average portfolio maturity of not more than
90 days.
-42-
<PAGE> 74
PRESIDENTIAL VARIABLE ACCOUNT ONE
OF
PRESIDENTIAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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. These investments
matured no later than November 15, 1998, and effective January 1, 1998,
no purchase payments or transfers into this portfolio were accepted. If
the Company did not receive reallocation instructions from
contractholders before November 15, 1998, contract values were
automatically reallocated to the Money Market Portfolio
The FOREIGN SECURITIES PORTFOLIO is no longer available. This portfolio
invested in core equity securities issued by foreign companies.
Effective at the close of business on August 6, 1999, shares of the
Foreign Securities Portfolio were replaced with shares of the Strategic
Multi-Asset Portfolio.
The FIXED INCOME PORTFOLIO is no longer available. This portfolio
invested primarily in investment grade bonds and other fixed income
securities. Effective at the close of business on August 6, 1999, shares
of the Fixed Income Portfolio were replaced with shares of the
Government and Quality Bond Portfolio.
-43-
<PAGE> 75
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.
-44-
<PAGE> 76
PRESIDENTIAL VARIABLE ACCOUNT ONE
OF
PRESIDENTIAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
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 of 0.90% 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 of 0.35% 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.
-45-
<PAGE> 77
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, 1999
consist of the following:
<TABLE>
<CAPTION>
Cost of Shares Proceeds from
Portfolio Investment Acquired Shares Sold
-------------------- -------------- -------------
<S> <C> <C>
Foreign Securities Portfolio $ 40,076 $ 236,451
Capital Appreciation Portfolio 298,798 236,178
Growth Portfolio 136,992 318,906
Natural Resources Portfolio 436 16,368
Growth and Income Portfolio 57,971 10,957
Strategic Multi-Asset Portfolio 387,197 454,671
Multi-Asset Portfolio 120,284 171,555
High Yield Portfolio 17,544 17,497
Fixed Income Portfolio 11,240 85,225
Government and Quality Bond
Portfolio 166,148 165,116
Money Market Portfolio 47,284 136,477
</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.
-46-
<PAGE> 78
PART C
OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
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, 1999.
Financial Statements of Presidential Variable Account One for each of
the two years in the period ended December 31, 1999.
(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 on April 30, 1998
<PAGE> 79
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
Michael V. Oporto Chief Financial Officer, Treasurer & Director
Jerrold Scher Senior Vice President, Actuary & Director
Donna Monacelli Secretary
Donald Barnes Executive Vice President & Director
Stanley Rubin Senior Vice President & Director
Charles Snyder Controller & Vice President
Mark Abrams Vice President
Maria Kramer Vice President
Marilyn Shenn Senior 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> <C>
Presidential Asset Presidential Life Presidential Securities P.L. Assigned The Central National Life
Management Company Insurance Company Corporation Services,Inc. Insurance Company of Omaha
</TABLE>
Item 27. NUMBER OF CONTRACT OWNERS
As of December 31, 1999, the number of Contract Owners of Presidential
Variable Account One was 93, of which 51 represented Qualified Contracts and
42 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> 80
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
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> 81
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> 82
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
25th day of April, 2000.
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
- ----------------------- Executive Officer, President
Herbert Kurz and Director
(Principal Executive Officer)
/s/ MICHAEL V. OPORTO Chief Financial Officer
- ----------------------- Treasurer and Director
Michael V. Oporto (Principal Financial Officer)
CHARLES SNYDER* Controller and Vice President
- ----------------------- (Chief Accounting Officer)
Charles Snyder
STANLEY RUBIN* Senior Vice President
- ----------------------- and Director
Stanley Rubin
JERROLD SCHER* Senior Vice President,
- ----------------------- Chief Actuary and Director
Jerrold Scher
Donald Barnes* Executive 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 25, 2000
- ------------------------
W. Thomas Knight
</TABLE>
<PAGE> 83
<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 25, 2000
<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 Presidential
Variable Account One of Presidential Life Insurance Company of our report dated
March 17, 2000, relating to the financial statements of Presidential Variable
Annuity Account One, which appear in such Statement of Additional Information.
We also consent to the reference to us under the heading "Independent
Accountants" in such Statement of Additional Information.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Los Angeles, California
April 25, 2000
<PAGE> 2
EXHIBIT 10
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 13 to Registration
Statement No. 33-19293 of Presidential Variable Account One on Form N-4 of our
report dated February 15, 2000 relating to Presidential Life Corporation for the
year ended December 31, 1999, and to the reference to us under the headings
"Independent Accountants" appearing in the Statement of Additional Information
of such Registration Statement.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
New York, New York
April 25, 1999
