File Nos. 33-26646
811-5716
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ( )
Pre-Effective Amendment No. ( )
Post-Effective Amendment No. 9 (X)
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 ( )
Amendment No. 12 (X)
(Check appropriate box or boxes.)
PREFERRED LIFE VARIABLE ACCOUNT C
_________________________________
(Exact Name of Registrant)
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
____________________________________________
(Name of Depositor)
<PAGE>
152 West 57th Street, 18th Floor, New York, New York 10019
____________________________________________________ _________
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (212) 586-7733
Name and Address of Agent for Service
_____________________________________
Eugene Long
Preferred Life Insurance Company of New York
152 West 57th Street, 18th Floor
New York, New York 10019
Copies to:
Judith A. Hasenauer
Blazzard, Grodd & Hasenauer, P.C.
P.O. Box 5108
Westport, CT 06881
(203) 226-7866
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b) of Rule 485
_X_ on November 1, 1995 pursuant to paragraph (b) of Rule 485
___ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
___ on (date) pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following:
___ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has declared that it has registered an indefinite number or amount
of securities in accordance with Rule 24f-2 under the Investment Company Act
of 1940. Registrant filed a Rule 24f-2 Notice for the most recent fiscal year
on or about February 24, 1995.
<PAGE>
CROSS REFERENCE SHEET
(Required by Rule 495)
<TABLE>
<CAPTION>
Item No. Location
<S> <C> <C>
PART A
Item 1. Cover Page............................. Cover Page
Item 2. Definitions............................ Definitions
Item 3. Synopsis or Highlights................. Highlights
Item 4. Condensed Financial Information........ Condensed Financial
Information
Item 5. General Description of Registrant,
Depositor, and Portfolio Companies..... The Company; The
Variable Account;
Franklin Valuemark Funds
Item 6. Deductions............................. Charges and Deductions
Item 7. General Descriptionof Variable
Annuity Contracts...................... The Contracts
Item 8. Annuity Period......................... Annuity Provisions
Item 9. Death Benefit.......................... The Contracts; Annuity
Provisions
Item 10. Purchases and Contract Value........... Purchase Payments and
Contract Value
Item 11. Redemptions............................ Surrenders
Item 12. Taxes.................................. Tax Status
Item 13. Legal Proceedings...................... Legal Proceedings
Item 14. Table of Contents of the Statement of
Additional Information................. Table of Contents of the
Statement of Additional
Information
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Item No. Location
<S> <C> <C>
PART B
Item 15. Cover Page.............................. Cover Page
Item 16. Table of Contents....................... Table of Contents
Item 17. General Information and History......... The Company
Item 18. Services................................ Not Applicable
Item 19. Purchase of Securities Being Offered.... Not Applicable
Item 20. Underwriters............................ Distributor
Item 21. Calculation of Performance Data......... Calculation of
Performance Data
Item 22. Annuity Payments........................ Annuity Provisions
Item 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 to this Registration Statement.
<PAGE>
PART A
<PAGE>
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Home Office: Valuemark Service Center
152 West 57th Street, 18th Floor 300 Berwyn Park
New York, NY 10019 P.O. Box 3031
(800) 542-5427 Berwyn, PA 19312-0031
(800) 624-0197
INDIVIDUAL FLEXIBLE PAYMENT
VARIABLE ANNUITY CONTRACTS
issued by
PREFERRED LIFE VARIABLE ACCOUNT C
and
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
November 1, 1995
The Individual Flexible Payment Variable Annuity Contracts (the "Contracts")
described in this Prospectus provide for accumulation of Contract Values and
eventual payment of monthly annuity payments. The Contracts are designed to
aid individuals in long-term planning for retirement or other long-term
purposes. This is not appropriate as a trading vehicle.
The Contracts are available for retirement plans which do not qualify for the
special federal tax advantages available under the Internal Revenue Code
("Non-Qualified Plans") and for retirement plans which do qualify for the
federal tax advantages available under the Internal Revenue Code ("Qualified
Plans"). (See "Tax Status - Qualified Plans.") However, because of the
minimum purchase requirements, these Contracts may not be appropriate for some
periodic payment retirement plans.
Purchase payments for the Contracts will be allocated to a segregated
investment account of Preferred Life Insurance Company of New York (the
"Company") which account has been designated Preferred Life Variable Account C
(the "Variable Account"). The Variable Account invests in shares of Franklin
Valuemark Funds (the "Trust"). The Trust is a series fund with twenty- two
Funds: the Money Market Fund, the Adjustable U.S. Government Fund, the
Global Income Fund, the High Income Fund, the Investment Grade Intermediate
Bond Fund, the U. S. Government Securities Fund, the four Zero Coupon Funds,
the Growth and Income Fund, the Income Securities Fund, the Rising Dividends
Fund, the Templeton Global Asset Allocation Fund, the Utility Equity Fund, the
Precious Metals Fund, the Real Estate Securities Fund, the Small Cap Fund ,
the Templeton Developing Markets Equity Fund, the Templeton Global Growth Fund,
the Templeton International Equity Fund and the Templeton Pacific Growth Fund.
Prior to May 1, 1995, the Growth and Income Fund was known as the Equity
Growth Fund. See "Highlights" and "Tax Status" for a discussion of owner
control of the underlying investments in a variable annuity contract.
<PAGE>
THE SMALL CAP FUND IS NOT AVAILABLE IN NEW YORK UNTIL APPROVED BY THE
NEW YORK INSURANCE DEPARTMENT. (CHECK WITH YOUR AGENT REGARDING AVAILABILITY.)
THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY FINANCIAL INSTITUTION AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
INVESTMENT IN THE CONTRACTS IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF
THE CONTRACT OWNER'S INVESTMENT TO FLUCTUATE, AND WHEN THE CONTRACTS ARE
SURRENDERED, THE VALUE MAY BE HIGHER OR LOWER THAN THE PURCHASE PAYMENT.
This Prospectus concisely sets forth the information a prospective investor
should know before investing. Additional information about the Contracts is
contained in the "Statement of Additional Information", which is available at
no charge. The Statement of Additional Information has been filed with the
Securities and Exchange Commission and is incorporated herein by reference.
The Table of Contents of the Statement of Additional Information can be found
on the last page of this Prospectus. For the "Statement of Additional
Information," call or write the Home Office address shown above.
INQUIRIES:
Any inquiries can be made by telephone or in writing to the Company at the
Home Office phone number or address listed above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THIS PROSPECTUS MUST BE ACCOMPANIED BY OR PRECEDED BY A CURRENT PROSPECTUS FOR
FRANKLIN VALUEMARK FUNDS.
This Prospectus and the Statement of Additional Information are dated
November 1, 1995, and as may be amended from time to time.
This Prospectus should be kept for future reference.
<PAGE>
TABLE OF CONTENTS
Page
DEFINITIONS
HIGHLIGHTS
FEE TABLE
CONDENSED FINANCIAL INFORMATION
THE COMPANY
THE VARIABLE ACCOUNT
FRANKLIN VALUEMARK FUNDS
Description of the Funds
CHARGES AND DEDUCTIONS
Deduction for Contingent Deferred Sales Charge (Sales Load)
Reduction or Elimination of Contingent Deferred Sales Charge
Deduction for Mortality and Expense Risk Charge
Deduction for Administrative Expense Charge
Deduction for Contract Maintenance Charge
Deduction for Premium Taxes
Deduction for Income Taxes
Deduction for Trust Expenses
Deduction for Transfer Fee
THE CONTRACTS
Ownership
Assignment
Beneficiary
Change of Beneficiary
Annuitant
Death of the Contract Owner Before the Income Date
Death of the Annuitant Prior to the Income Date
Death of the Annuitant After the Income Date
ANNUITY PROVISIONS
Income Date
Change in Income Date and Annuity Option
Annuity Options
PURCHASE PAYMENTS AND CONTRACT VALUE
Purchase Payments
Allocation of Purchase Payments
Transfer of Contract Values Between Sub-Accounts
<PAGE>
Dollar Cost Averaging
Contract Value
Accumulation Unit
DISTRIBUTOR
Systematic Withdrawal
Delay of Payments
ADMINISTRATION OF THE CONTRACTS
PERFORMANCE DATA
Money Market Sub-Account
Other Sub-Accounts
Performance Ranking
TAX STATUS
General
Diversification
Multiple Contracts
Tax Treatment of Assignments
Income Tax Withholding
Tax Treatment of Withdrawals - Non-Qualified Contracts
Qualified Plans
Tax Treatment of Withdrawals - Qualified Contracts
Tax-Sheltered Annuities - Withdrawal Limitations
Contracts Owned by Other than Natural Persons
FINANCIAL STATEMENTS
LEGAL PROCEEDINGS
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
DEFINITIONS
Accumulation Unit - An accounting unit of measure used to calculate the
Contract Value prior to the Income Date.
Annuitant - The person upon whose continuation of life any annuity payment
involving life contingencies depends. The Annuitant may be changed at any
time prior to the Income Date unless the Contract Owner is not a natural
person.
Annuity Option - An arrangement under which annuity payments are made under
the Contract.
Annuity Period - The period starting on the Income Date.
Annuity Unit - An accounting unit of measure used to calculate annuity
payments after the Income Date.
Contingent Owner - In those Contracts containing Contingent Owner provisions,
the Contingent Owner is named in the application, unless changed. Only the
spouse of the Owner may be the Contingent Owner.
Company - Preferred Life Insurance Company of New York at its Valuemark
Service Center shown on the cover page of this Prospectus.
Contract Anniversary - An anniversary of the Effective Date of the Contract.
Contract Owner - The Contract Owner is named in the Application, unless
changed, and has all rights under the Contract.
Contract Value - The dollar value as of any Valuation Date of all amounts
accumulated under the Contract.
Contract Year - Any period of twelve (12) months commencing with the Effective
Date and each Contract Anniversary thereafter.
Effective Date - The date on which the first Contract Year begins.
Eligible Investment(s) - An investment entity which can be selected by the
Contract Owner to be the underlying investment of the Contract.
Fund - A segment of an Eligible Investment which constitutes a separate and
distinct class of interests under an Eligible Investment.
Income Date - The date on which annuity payments are to commence.
<PAGE>
Joint Owner - In Contracts containing Joint Owner provisions, if there is more
than one Contract Owner, each Contract Owner shall be a Joint Owner of the
Contract. Joint Owners have equal ownership rights and must both authorize
any exercising of those ownership rights unless otherwise allowed by the
Company. Any Joint Owner must be the spouse of the other Joint Owner. If
there are Joint Owners, any reference to the age of the Contract Owner (or
taxpayer) will be the age of the older Joint Owner.
Non-Qualified Contracts - Contracts issued under Non-Qualified Plans which
do not receive favorable tax treatment under Sections 401, 403(b) or 408 of
the Internal Revenue Code.
Qualified Contracts - Contracts issued under Qualified Plans which receive
favorable tax treatment under Sections 401, 403(b) or 408 of the Internal
Revenue Code.
Surrender Value - Contract Value for the Valuation Period next following the
Valuation Period during which the written request to the Company for surrender
is received reduced by the sum of: (i) any applicable premium taxes not
previously deducted; (ii) any applicable Contract Maintenance Charge; and
(iii) any applicable Contingent Deferred Sales Charge.
Valuation Date - The Variable Account will be valued each day that the New
York Stock Exchange is open for trading which is Monday through Friday, except
for normal business holidays.
Valuation Period - The period commencing at the close of business of the New
York Stock Exchange on each Valuation Date and ending at the close of business
for the next succeeding Valuation Date.
Variable Account - A separate investment account of the Company, designated as
Preferred Life Variable Account C, into which purchase payments may be
allocated.
<PAGE>
HIGHLIGHTS
Purchase payments for the Contracts will be allocated to a segregated
investment account of Preferred Life Insurance Company of New York (the
"Company") which has been designated Preferred Life Variable Account C (the
"Variable Account"). THE SMALL CAP FUND IS NOT AVAILABLE IN NEW YORK UNTIL
APPROVED BY THE NEW YORK INSURANCE DEPARTMENT. (CHECK WITH YOUR AGENT
REGARDING AVAILABILITY.) The Variable Account invests in shares of Franklin
Valuemark Funds (the "Trust"). (See "Franklin Valuemark Funds.") Contract
Owners bear the investment risk for all amounts allocated to the Variable
Account.
The Contract may be returned within 10 days after it is received ("Free Look
Period"). It can be mailed or delivered to either the Company or the agent
who sold it. Return of the Contract by mail is effective on being postmarked,
properly addressed and postage prepaid. The returned Contract will be treated
as if the Company never had issued it. The Company will promptly refund the
Contract Value as of the date of surrender. This may be more or less than the
purchase payments. Where the Contract is issued pursuant to an Individual
Retirement Annuity, the Company will promptly refund the purchase payments,
less withdrawals. The Company has the right to allocate initial purchase
payments to the Money Market Sub-Account until the expiration of 15 days from
the date the Contract is mailed from the Valuemark Service Center. If the
Company does so allocate the initial purchase payments to the Money Market
Sub-Account, it will refund the greater of the purchase payments, less any
withdrawals, or the Contract Value. It is the Company's current practice to
directly allocate the initial purchase payments to the Fund(s) as selected by
the Contract Owner.
A Contingent Deferred Sales Charge (sales load) may be deducted in the event
of a surrender. The Contingent Deferred Sales Charge is imposed on surrenders
of purchase payments within five (5) years after their being made. Once each
Contract Year, Contract Owners may surrender up to fifteen percent (15%) of
purchase payments paid less any prior surrenders without incurring a
Contingent Deferred Sales Charge. If no withdrawal is made during a Contract
Year, the 15% is cumulative into future years. If less than 15% is withdrawn
in a Contract Year, the remaining percentage is not available in future years.
The Contingent Deferred Sales Charge will vary in amount depending upon the
Contract Year in which the purchase payment being surrendered was made. The
Company currently makes available a systematic withdrawal plan which allows
for additional options in some instances. (See "Surrenders - Systematic
Withdrawal.") The Contingent Deferred Sales Charge is found in the Fee Table.
(See also "Charges and Deductions - Deduction for Contingent Deferred Sales
Charge (Sales Load).") The maximum Contingent Deferred Sales Charge is 5% of
purchase payments. For purposes of determining the applicability of the
Contingent Deferred Sales Charge, surrenders are deemed to be on a first-in,
first-out basis.
<PAGE>
There is a Mortality and Expense Risk Charge which is equal, on an annual
basis, to 1.25% of the average daily net assets of the Variable Account. This
Charge compensates the Company for assuming the mortality and expense risks
under the Contracts. (See "Charges and Deductions - Deduction for Mortality
and Expense Risk Charge.")
There is an Administrative Expense Charge which is equal, on an annual basis,
to 0.15% of the average daily net assets of the Variable Account. This Charge
compensates the Company for costs associated with the administration of the
Contract and the Variable Account. (See "Charges and Deductions - Deduction
for Administrative Expense Charge.")
There is an annual Contract Maintenance Charge of $30 each Contract Year. (See
"Charges and Deductions - Deduction for Contract Maintenance Charge.")
Premium taxes or other taxes payable to a state or other governmental entity
will be charged against the Contract Values. (See "Charges and
Deductions-Deduction for Premium Taxes.")
Under certain circumstances there may be assessed a transfer fee when a
Contract Owner transfers Contract Values. (See "Charges and Deductions -
Deduction for Transfer Fee.")
There is a ten percent (10%) federal income tax penalty applied to the income
portion of any distribution from Non-Qualified Contracts. However, the
penalty is not imposed on amounts received: (a) after the taxpayer reaches age
59 1/2; (b) after the death of the Contract Owner; (c) if the taxpayer is
totally disabled (for this purpose, disability is as defined in Section
72(m)(7) of the Internal Revenue Code of 1986, as amended (the"Code")); (d) in
a series of substantially equal periodic payments made not less frequently
than annually for the life (or life expectancy) of the taxpayer or for the
joint lives (or joint life expectancies) of the taxpayer and his or her
beneficiary; (e) under an immediate annuity; or (f) which are allocable to
purchase payments made prior to August 14, 1982. For federal income tax
purposes, withdrawals are deemed to be on a last-in, first-out basis. This
discussion does not apply to Qualified Contracts issued pursuant to plans
qualified under Sections 401, 403(b) or 408 of the Code. Separate tax
withdrawal penalties and restrictions apply to Qualified Contracts. (See "Tax
Status - Tax Treatment of Withdrawals - Qualified Contracts".) For a further
discussion of the taxation of the Contracts, see "Tax Status."
Withdrawals of amounts attributable to contributions made pursuant to a salary
reduction agreement (as defined in Section 403(b)(11) of the Code) are limited
to circumstances only when the Contract Owner: (1) attains age 59 1/2; (2)
separates from service; (3) dies; (4) becomes disabled (within the meaning of
Section 72(m)(7) of the Code); or (5) in the case of hardship. However,
withdrawals for hardship are restricted to the portion of the Contract Owner's
<PAGE>
Contract Value which represents contributions made by the Contract Owner and
does not include any investment results. The limitations on withdrawals
became effective on January 1, 1989 and only apply to (i) salary reduction
contributions made after December 31, 1988; (ii) to income attributable to
such contributions; and (iii) to income attributable to amounts held as of
December 31, 1988. The limitations on withdrawals do not affect rollovers or
transfers between certain Qualified Plans. Contract Owners should consult
their own tax counsel or other tax adviser regarding distributions. (See "Tax
Status - Tax Sheltered Annuities - Withdrawal Limitations.")
The Treasury Department has indicated that guidelines may be forthcoming under
which a variable annuity contract will not be treated as an annuity contract
for tax purposes if the owner of the contract has excessive control over the
investment underlying the contract. The issuance of such guidelines may
require the Company to impose limitations on a Contract Owner's right to
control the investment. It is not known whether any such guidelines would
have a retroactive effect. (See "Tax Status - Diversification.")
The Company offers other deferred variable annuity contracts but does not
permit exchange of those contracts for the Contracts offered by this
Prospectus.
PREFERRED LIFE VARIABLE ACCOUNT C FEE TABLE
__________________________________________________________________________
Contract Owner Transaction Fees
Contingent Deferred Sales Charge*
(as a percentage of purchase payments): Years Since Payment Charge
___________________ ______
0-1 5%
1-2 5%
2-3 4%
3-4 3%
4-5 1.5%
5+ 0
<TABLE>
<CAPTION>
<S> <C>
Current Transfer Fee** First 12 transfers in a
Contract Year are free. Thereafter,
the fee is $25 (or 2% of
the amount transferred, if
less). Prescheduled automatic
dollar cost averaging transfers
are not counted.
<PAGE>
Contract Maintenance Charge (Prior to the $30 per Contract
Income Date the charge is waived for
Contracts having values or purchase
payments less withdrawals of $100,000 or
more.)
Variable Account Annual Expenses
(as a percentage of average account value)
Mortality and Expense Risk Charge 1.25%
Administrative Expense Charge .15%
_____
Total Variable Account Annual Expenses 1.40%
</TABLE>
<TABLE>
<CAPTION>
<C> <S>
* Once each Contract Year, a Contract Owner may surrender up to fifteen
percent (15%) of purchase payments paid less any prior surrenders
without incurring a Contingent Deferred Sales Charge. If no
withdrawal is made during a Contract Year, the 15% is cumulative into
future years. If less than 15% is withdrawn in a Contract Year, the
remaining percentage is not available in future years. See also
"Surrenders - Systematic Withdrawal" for additional options.
** The Contract provides that if more than three transfers have been made
in a Contract Year, the Company reserves the right to deduct a
transfer fee which shall not exceed the lesser of $25 or 2% of the
amount transferred.
</TABLE>
FRANKLIN VALUEMARK FUNDS' ANNUAL EXPENSES
(as a percentage of Franklin Valuemark Funds' average net assets).
The Management Fees for each Fund are based on a percentage of that Fund's
assets under management. See "Charges and Deductions" in this Prospectus and
"Management" in the Trust prospectus.
The fees below represent the amounts that were paid by each Fund, for the 1994
calendar year (except for the Money Market Fund, the Zero Coupon Fund-1995,
the Zero Coupon Fund-2000, the Zero Coupon Fund-2005, the Zero Coupon Fund
2010, the Templeton Global Asset Allocation Fund and the Small Cap Fund).
The purpose of the Table is to assist the Contract Owner in understanding the
various costs and expenses that a Contract Owner will incur, directly or
indirectly.
<PAGE>
<TABLE>
<CAPTION>
Management
and Business Total
Management Other Annual
Fees (1/ Expenses Expenses
____________ ________ ________
<S> <C> <C> <C>
Money Market Fund (2/) .51% .03% .54%
Growth and Income Fund(3/) .50% .04% .54%
Precious Metals Fund .61% .07% .68%
Real Estate Securities Fund .58% .04% .62%
Utility Equity Fund .47% .05% .52%
High Income Fund .55% .05% .60%
Global Income Fund .55% .16% .71%
Investment Grade Intermediate Bond Fund .59% .04% .63%
Income Securities Fund .48% .06% .54%
U.S. Government Securities Fund .49% .04% .53%
Adjustable U.S. Government Fund .54% .03% .57%
Zero Coupon Fund-1995(4/) .36% .04% .40%
Zero Coupon Fund-2000(4/) .36% .04% .40%
Zero Coupon Fund-2005(4/) .35% .05% .40%
Zero Coupon Fund-2010(4/) .35% .05% .40%
Rising Dividends Fund .75% .05% .80%
Templeton International Equity Fund(5/) .84% .15% .99%
Templeton Pacific Growth Fund(6/) .90% .17% 1.07%
Templeton Global Growth Fund .99% .15% 1.14%
<PAGE>
Templeton Developing Markets Equity Fund 1.25% .28% 1.53%
Templeton Global Asset Allocation Fund(7/) .80% .11% .91%
Small Cap Fund(8/) .75% .06% .81%
<FN>
1/ The Business Management Fee is a direct expense for the Templeton
Global Asset Allocation Fund; the other Funds pay for similar services
indirectly through the Management Fee. See "Management" in the Trust
Prospectus for further information regarding Management and Business
Management Fees.
2/ Franklin Advisers Inc. agreed in advance to waive a portion of its
Management Fee and make payment of other expenses incurred by the Money Market
Fund during 1994 and is currently continuing this arrangement in 1995. This
arrangement may be terminated at any time. Therefore, the expenses of the
Money Market Fund have been restated for 1995 and do not reflect this
arrangement.
3/ Prior to May 1, 1995, the Growth and Income Fund was known as the
Equity Growth Fund.
4/ Net of management fees waived and/or expense reimbursements.
Although not obligated to, Franklin Advisers, Inc. agreed in advance to
waive a portion of its management fees and make payment of other expenses for
the four Zero Coupon Funds through at least December 31, 1995 such that the
aggregate expenses of the Zero Coupon Fund-1995, the Zero Coupon Fund-2000,
the Zero Coupon Fund-2005 and the Zero Coupon Fund-2010 will not exceed 0.40%
of each Fund's net assets. Absent the management fee waivers and expense
payments, for the year ended December 31, 1994, the total annual expenses
would have been as follows: Zero Coupon Fund-1995, .67%; Zero Coupon
Fund-2000, .66%; Zero Coupon Fund-2005, .68%; and Zero Coupon Fund-2010, .68%.
5/ The Templeton International Equity Fund was known as the International
Equity Fund prior to August 18, 1993.
6/ The Templeton Pacific Growth Fund was known as the Pacific Growth Fund
prior to August 18, 1993.
7/ The Templeton Global Asset Allocation Fund commenced operations May 1,
1995. The expenses shown are estimated expenses for the Fund for 1995.
8/ The Small Cap Fund has not yet commenced operations. The expenses
shown are estimated expenses for the Fund for 1995 on an annual basis.
</TABLE>
<PAGE>
The following Tables reflect expenses of the Variable Account as well as of
the Trust. The dollar figures should not be considered a representation of
past or future expenses. Actual expenses may be greater or less than those
shown. The $30 Contract Maintenance Charge is included in the Examples as $1.
Since the average Contract account size for the Contracts described in this
Prospectus is greater than $1,000, the expense effect of the Contract
Maintenance Charge is reduced accordingly. For additional information, see
"Charges and Deductions" in this Prospectus and "Management" in the Trust
Prospectus.
Premium taxes are not reflected in the Tables. Premium taxes may apply.
EXAMPLE
If the Contract is fully surrendered at the end of the applicable time period
and no prior surrenders have occurred, the Contract Owner would have incurred
the following expenses on a $1,000 investment, assuming a 5% annual return on
assets compounded semi-annually:
<TABLE>
<CAPTION>
1 3 5 10
Year Years Years Years
____ ______ ______ ______
<S> <C> <C> <C> <C>
Money Market Fund $ 63 $ 89 $ 125 $ 294
Growth and Income Fund $ 64 $ 89 $ 125 $ 294
Precious Metals Fund $ 65 $ 94 $ 133 $ 312
Real Estate Securities Fund $ 65 $ 92 $ 130 $ 304
Utility Equity Fund $ 64 $ 89 $ 124 $ 291
High Income Fund $ 64 $ 91 $ 129 $ 302
Global Income Fund $ 66 $ 95 $ 135 $ 316
Investment Grade Intermediate Bond Fund $ 65 $ 92 $ 130 $ 306
Income Securities Fund $ 64 $ 89 $ 125 $ 294
U.S. Government Securities Fund $ 64 $ 89 $ 125 $ 292
Adjustable U.S. Government Fund $ 64 $ 90 $ 127 $ 298
<PAGE>
Zero Coupon Fund-1995# $ 62 $ 85 $ 117 $ 275
Zero Coupon Fund-2000# $ 62 $ 85 $ 117 $ 275
Zero Coupon Fund-2005# $ 62 $ 85 $ 117 $ 275
Zero Coupon Fund-2010# $ 62 $ 85 $ 117 $ 275
Rising Dividends Fund $ 66 $ 98 $ 140 $ 328
Templeton International Equity Fund $ 68 $ 104 $ 151 $ 353
Templeton Pacific Growth Fund $ 69 $ 106 $ 155 $ 363
Templeton Global Growth Fund* $ 70 $ 109 $ 159 $ 372
Templeton Developing Markets Equity Fund* $ 74 $ 121 $ 181 $ 420
Templeton Global Asset Allocation Fund** $ 68 $ 101 $ 146 $ 342
Small Cap Fund** $ 67 $ 98 $ 140 $ 329
<FN>
* Annualized
** Estimated
# Calculated with waiver of fees and reimbursement of expenses
</TABLE>
If the Contract is not surrendered at the end of the applicable time period
and no prior surrenders have occurred, the Contract Owner would have incurred
the following expenses on a $1,000 investment, assuming a 5% annual return on
assets compounded semi-annually:
<TABLE>
<CAPTION>
1 3 5 10
Year Years Years Years
____ ______ ______ ______
<S> <C> <C> <C> <C>
Money Market Fund $ 21 $ 67 $ 121 $ 294
Growth and Income Fund $ 21 $ 67 $ 121 $ 294
Precious Metals Fund $ 22 $ 72 $ 129 $ 312
Real Estate Securities Fund $ 22 $ 70 $ 126 $ 304
<PAGE>
Utility Equity Fund $ 21 $ 67 $ 120 $ 291
High Income Fund $ 21 $ 69 $ 125 $ 302
Global Income Fund $ 23 $ 73 $ 131 $ 316
Investment Grade Intermediate Bond Fund $ 22 $ 70 $ 126 $ 306
Income Securities Fund $ 21 $ 67 $ 121 $ 294
U.S. Government Securities Fund $ 21 $ 67 $ 121 $ 292
Adjustable U.S. Government Fund $ 21 $ 68 $ 123 $ 298
Zero Coupon Fund-1995# $ 19 $ 63 $ 113 $ 275
Zero Coupon Fund-2000# $ 19 $ 63 $ 113 $ 275
Zero Coupon Fund-2005# $ 19 $ 63 $ 113 $ 275
Zero Coupon Fund-2010# $ 19 $ 63 $ 113 $ 275
Rising Dividends Fund $ 23 $ 76 $ 136 $ 328
Templeton International Equity Fund $ 25 $ 82 $ 147 $ 353
Templeton Pacific Growth Fund $ 26 $ 84 $ 151 $ 363
Templeton Global Growth Fund* $ 27 $ 87 $ 155 $ 372
Templeton Developing Markets Equity Fund* $ 31 $ 99 $ 177 $ 420
Templeton Global Asset Allocation Fund** $ 25 $ 79 $ 142 $ 342
Small Cap Fund** $ 24 $ 76 $ 136 $ 329
<FN>
* Annualized
** Estimated
# Calculated with waiver of fees and reimbursement of other expenses
</TABLE>
<PAGE>
CONDENSED FINANCIAL INFORMATION
The financial statements of Preferred Life Insurance Company of New York and
of Preferred Life Variable Account C may be found in the Statement of
Additional Information.
The table below gives per unit information about the financial history of each
Sub-Account from the inception of each to June 30, 1995.# This
information should be read in conjunction with the financial statements and
related notes to the Variable Account included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
(Number of units in thousands) Period from
Year ended Year ended Year ended Inception to
Period ended December 31, December 31, December 31, December 31,
Franklin Valuemark Funds: June 30, 1995 1994 1993 1992 1991
_____________ _____________ _____________ _____________ ______________
<S> <C> <C> <C> <C> <C>
Money Market Fund
Unit value at beginning of period $ 12.354 $12.066 $11.932 $11.742 $11.623
Unit value at end of period $ 12.622 $12.354 $12.066 $11.932 $11.742
Number of units outstanding at end of period 2,415 2,487 627 301 62
Growth and Income Fund*
Unit value at beginning of period $ 13.215 $13.677 $12.574 $11.949 $11.061
Unit value at end of period $ 15.122 $13.215 $13.677 $12.574 $11.949
Number of units outstanding at end of period 3,747 3,452 2,402 1,227 125
Precious Metals Fund
Unit value at beginning of period $ 13.979 $14.464 $9.424 $10.635 $10.433
Unit value at end of period $ 14.016 $13.979 $14.464 $9.424 $10.635
Number of units outstanding at end of period 592 647 391 30 5
High Income Fund
Unit value at beginning of period $ 14.608 $15.155 $13.278 $11.583 $11.043
Unit value at end of period $ 16.444 $14.608 $15.155 $13.278 $11.583
Number of units outstanding at end of period 1,827 1,710 1,135 266 37
Real Estate Securities Fund
Unit value at beginning of period $ 15.594 $15.369 $13.095 $11.848 $10.787
Unit value at end of period $ 16.139 $15.594 $15.369 $13.095 $11.848
Number of units outstanding at end of period 848 900 437 77 8
U.S. Government Securities Fund
Unit value at beginning of period $ 13.835 $14.698 $13.586 $12.798 $12.036
Unit value at end of period $ 15.451 $13.835 $14.698 $13.586 $12.798
Number of units outstanding at end of period 5,161 5,331 6,108 2,266 213
<PAGE>
Utility Equity Fund
Unit value at beginning of period $ 15.104 $17.319 $15.889 $14.821 $13.234
Unit value at end of period $ 16.906 $15.104 $17.319 $15.889 $14.821
Number of units outstanding at end of period 6,144 6,317 7,479 2,519 166
Zero Coupon - 1995 Fund
Unit value at beginning of period $ 14.380 $14.480 $13.665 $12.845 $11.943
Unit value at end of period $ 14.915 $14.380 $14.480 $13.665 $12.845
Number of units outstanding at end of period 295 344 270 171 15
Zero Coupon - 2000 Fund
Unit value at beginning of period $ 15.373 $16.717 $14.595 $13.570 $12.274
Unit value at end of period $ 17.368 $15.373 $16.717 $14.595 $13.570
Number of units outstanding at end of period 1,360 1,158 795 397 6
Zero Coupon - 2005 Fund
Unit value at beginning of period $ 16.096 $18.050 $14.975 $13.705 $12.369
Unit value at end of period $ 19.061 $16.096 $18.050 $14.975 $13.705
Number of units outstanding at end of period 422 403 341 108 3
Zero Coupon - 2010 Fund
Unit value at beginning of period $ 15.930 $18.144 $14.670 $13.482 $12.013
Unit value at end of period $ 19.596 $15.930 $18.144 $14.670 $13.482
Number of units outstanding at end of period 321 252 193 60 1
Global Income Fund
Unit value at beginning of period $ 13.726 $14.650 $12.733 $12.962 $12.296
Unit value at end of period $ 14.725 $13.726 $14.650 $12.733 $12.962
Number of units outstanding at end of period 1,552 1,667 1,045 406 47
Investment Grade Intermediate Bond Fund
Unit value at beginning of period $ 14.257 $14.389 $13.442 $12.879 $12.105
Unit value at end of period $ 14.984 $14.257 $14.389 $13.442 $12.879
Number of units outstanding at end of period 1,036 1,085 893 352 26
Income Securities Fund
Unit value at beginning of period $ 16.392 $17.734 $15.163 $13.580 $12.811
Unit value at end of period $ 18.242 $16.392 $17.734 $15.163 $13.580
Number of units outstanding at end of period 4,418 4,416 2,634 668 35
Adjustable U.S. Government Fund
Unit value at beginning of period $ 11.077 $11.254 $11.020 $10.698 $10.498
Unit value at end of period $ 11.610 $11.077 $11.254 $11.020 $10.698
Number of units outstanding at end of period 1,383 1,767 1,971 1,453 126
Templeton Pacific Growth Fund **
Unit value at beginning of period $ 12.802 $14.233 $9.761 $10.000**** NA
Unit value at end of period $ 13.015 $12.802 $14.233 $9.761 NA
Number of units outstanding at end of period 1,913 2,112 915 58 NA
Rising Dividends Fund
Unit value at beginning of period $ 9.769 $10.327 $10.848 $10.000**** NA
Unit value at end of period $ 11.035 $9.769 $10.327 $10.848 NA
Number of units outstanding at end of period 3,001 2,936 2,772 617 NA
Templeton International Equity Fund ***
Unit value at beginning of period $ 12.161 $12.226 $9.642 $10.000**** NA
Unit value at end of period $ 13.005 $12.161 $12.226 $9.642 NA
Number of units outstanding at end of period 4,041 4,079 1,346 88 NA
<PAGE>
Templeton Developing Markets Equity Fund
Unit value at beginning of period $ 9.454 $10.000**** NA NA NA
Unit value at end of period $ 9.678 $9.454 NA NA NA
Number of units outstanding at end of period 686 591 NA NA NA
Templeton Global Growth Equity Fund
Unit value at beginning of period $ 10.201 $10.000**** NA NA NA
Unit value at end of period $ 10.855 $10.201 NA NA NA
Number of units outstanding at end of period 1,084 921 NA NA NA
<FN>
# As of June 30, 1995, the Small Cap Fund and the Templeton Global
Asset Allocation Fund had not yet commenced operations.
* Prior to May 1, 1995, the Growth and Income Fund was known as the Equity Growth Fund.
** Prior to August 18, 1993, the Templeton Pacific Growth Fund was known
as the Pacific Growth Fund
*** Prior to August 18, 1993, the Templeton International Equity Fund was
known as the International Equity Fund
**** Unit Value at inception was $10.00
</TABLE>
The Accumulation Unit Value for each Sub-Account was initially arbitrarily
set. The inception date for all Sub-Accounts, except those noted below, was
September 6, 1991. The inception date for the Rising Dividends Sub-Account,
the Templeton International Equity Sub-Account and the Templeton Pacific
Growth Sub-Account was March 10, 1992. Inception was March 15, 1994 for the
Templeton Global Growth Sub-Account and the Templeton Developing Markets
Equity Sub-Account. The Templeton Global Asset Allocation Sub-Account and the
Small Cap Fund are new in 1995.
THE COMPANY
Preferred Life Insurance Company of New York (the "Company") is a stock life
insurance company organized under the laws of the state of New York. The
Company is a wholly-owned subsidiary of Allianz Life Insurance Company of
North America ("Allianz Life"). Allianz Life, formerly North American Life
and Casualty Company, is headquartered in Minneapolis, Minnesota. The Company
is authorized to do direct business in six states, including New York. The
Company offers group life, group accident and health insurance and variable
annuity products.
NALAC Financial Plans, Inc. is a wholly-owned subsidiary of Allianz Life. It
is the principal underwriter of the Contracts. NALAC Financial Plans, Inc.
Is reimbursed for expenses incurred in the distribution of the Contracts.
Administration for the Contract is provided at the Company's Valuemark Service
Center: Preferred Life Annuity Service Office, 300 Berwyn Park, P.O. Box 3031,
Berwyn, Pennsylvania 19312-0031, (800) 624-0197
<PAGE>
THE VARIABLE ACCOUNT
The Variable Account was established pursuant to a resolution of the Board of
Directors on February 26, 1988. The Variable Account is registered with the
Securities and Exchange Commission as a unit investment trust under the
Investment Company Act of 1940, as amended (the "1940 Act").
The assets of the Variable Account are the property of the Company. However,
the assets of the Variable Account equal to the reserves and other contract
liabilities with respect to the Variable Account are not chargeable with
liabilities arising out of any other business the Company may conduct. Income,
gains and losses, whether or not realized, are, in accordance with the
Contracts, credited to or charged against the Variable Account without regard
to other income, gains or losses of the Company. The Company's obligations
arising under the Contracts are general corporate obligations.
The Variable Account meets the definition of a "separate account" under the
federal securities laws.
The Variable Account is divided into Sub-Accounts with the assets of each
Sub-Account invested in one of the Funds of Franklin Valuemark Funds.
Currently, there are twenty-two Funds available under Franklin Valuemark
Funds.
FRANKLIN VALUEMARK FUNDS
Each of the twenty-two Sub-Accounts of the Variable Account is invested solely
in the shares of one of the 22 Funds of Franklin Valuemark Funds ("Trust").
The Trust is an open-end management investment company registered under the
1940 Act. While a brief summary of the investment objectives is set forth
below, more comprehensive information, including a discussion of potential
risks, is found in the accompanying prospectus for the Trust, which is
included with this Prospectus. PURCHASERS SHOULD READ THIS PROSPECTUS AND THE
ACCOMPANYING PROSPECTUS FOR THE TRUST CAREFULLY BEFORE INVESTING.
Franklin Advisers, Inc. ("Advisers"), 777 Mariners Island Blvd., San Mateo,
California 94404 , serves as each Fund's (except the Templeton Global Growth
Fund, the Templeton Developing Markets Equity Fund and the Templeton Global
Asset Allocation Fund) investment manager. The investment manager for the
Templeton Global Growth Fund and the Templeton Global Asset Allocation Fund is
Templeton, Galbraith & Hansberger, Ltd., Lyford Cay Nassau, N.P. Bahamas. As
of October 1,1995 the investment manager for the Templeton Developing Markets
Equity Fund is Templeton Investment Management (Singapore) Pte Ltd., 20
Raffles Place, Ocean Towers, Singapore. All investment managers or advisers
are referred to collectively as "Managers." The Managers are direct or
indirect wholly-owned subsidiaries of Franklin Resources, Inc., a
publicly-owned holding company. The Managers, subject to the overall
policies, control and direction and review of the Board of Trustees of the
<PAGE>
Trust, are responsible for recommending and providing advice with respect to
each Fund's investments, and for determining which securities will be
purchased, retained or sold as well as for execution of portfolio
transactions. Certain Managers have retained one or more Sub-Advisers to
handle the day-to-day management of a Fund. Advisers act as investment
manager or administrator to 33 U.S. registered investment companies (111
separate series) with aggregate assets of over $75 billion.
Templeton Global Investors, Inc., Broward Financial Centre, Suite 2100, Ft.
Lauderdale, Florida, provides certain administrative facilities and services
for certain of the Funds.
Franklin Templeton Investor Services, Inc., 777 Mariners Island Blvd., San
Mateo, California 94404, also a wholly-owned subsidiary of Franklin Resources,
Inc., maintains the records of the Trust's shareholder accounts, processes
purchases and redemptions of shares, and serves as each Fund's dividend paying
agent.
Description of the Funds
FUND SEEKING STABILITY
OF PRINCIPAL AND INCOME
Money Market Fund
The Money Market Fund seeks high current income, consistent with capital
preservation and liquidity. The Fund will pursue its objective by investing
exclusively in high quality money market instruments. An investment in the
Fund is neither insured nor guaranteed by the U.S. Government. The Fund
attempts to maintain a stable net asset value of $1.00 per share, although no
assurances can be given that the Fund will be able to do so.
FUNDS SEEKING CURRENT INCOME
Adjustable U.S. Government Fund
The Adjustable U.S. Government Fund seeks a high level of current income,
consistent with lower volatility of principal, by investing primarily in
adjustable rate securities which are issued or guaranteed by the U.S.
government, its agencies or instrumentalities.
Global Income Fund
The Global Income Fund seeks a high level of current income, consistent with
preservation of capital, with capital appreciation as a secondary
consideration, through investing in foreign and domestic debt obligations,
including up to 25% in high yield, high risk, lower rated debt obligations
(commonly referred to as "junk bonds") and related currency transactions.
<PAGE>
Investing in a non-diversified fund of global securities including those of
developing markets issuers involves increased susceptibility to the
special risks associated with foreign investing.
High Income Fund
The High Income Fund seeks a high level of current income, with capital
appreciation as a secondary objective, by investing in debt obligations and
dividend-paying common and preferred stocks. Debt obligations include high
yield, high risk, lower rated obligations (commonly referred to as "junk
bonds") which involve increased risks related to the creditworthiness of their
issuers.
Investment Grade Intermediate Bond Fund
The Investment Grade Intermediate Bond Fund seeks current income, consistent
with preservation of capital, primarily through investment in
intermediate-term, investment grade corporate obligations and in U.S.
government securities.
The U.S. Government Securities Fund
The U.S. Government Securities Fund seeks current income and safety of capital
by investing exclusively in obligations issued or guaranteed by the U.S.
government or its agencies or instrumentalities.
Zero Coupon Funds
There are four Zero Coupon Funds. Each of the Funds matures in the specified
target year as follows:
Zero Coupon Fund - 1995
Zero Coupon Fund - 2000
Zero Coupon Fund - 2005
Zero Coupon Fund - 2010
The four Zero Coupon Funds seek a high investment return consistent with the
preservation of capital, by investing primarily in zero coupon securities. In
response to interest rate changes, these securities may experience greater
fluctuations in market value than interest paying securities of similar
maturities. The Funds may not be appropriate for short-term investors or
those who intend to withdraw money before the maturity date.
Additional Zero Coupon Funds may be added to the Trust in the future. Should
any such Funds be available for investment at the maturity date of any
existing Zero Coupon Fund, such Funds will be available as an investment
option for Contract Owners who select such option. If no selection has been
made by a Contract Owner prior to the maturity date of a Zero Coupon Fund, the
<PAGE>
Account Value held in the Sub-Account underlying the Owner's Contract will be
automatically transferred to the Money Market Sub-Account. The Company will
notify the Owner of a maturing Zero Coupon Fund in writing at least 30 days
prior to the maturity. Included with the notification will be investment
options available at that time as well as the automatic Money Market option.
THE ZERO COUPON FUND-1995 WILL MATURE DECEMBER 15, 1995. The Zero Coupon Funds
may not be appropriate for Contract Owners who do not plan to have their
purchase payments invested in the Zero Coupon Sub-Accounts for the long-term
or until maturity of the portfolio.
FUNDS SEEKING GROWTH AND INCOME
Growth and Income Fund
The Growth and Income Fund (formerly the Equity Growth Fund) seeks capital
appreciation, with current income return as a secondary objective, by
investing primarily in U.S. common stocks, securities convertible into common
stocks, preferred stocks and debt securities.
Income Securities Fund
The Income Securities Fund seeks to maximize income while maintaining
prospects for capital appreciation by investing in a diversified portfolio of
domestic and foreign, including developing markets, debt obligations and/or
equity securities. Debt obligations include high yield, high risk, lower
rated obligations (commonly referred to as "junk bonds") which involve
increased risks related to the creditworthiness of their issuers.
Rising Dividends Fund
The Rising Dividends Fund seeks capital appreciation, primarily through
investment in the equity securities of companies that have paid consistently
rising dividends over the past ten years. Preservation of capital is also an
important consideration. The Fund seeks current income incidental to capital
appreciation.
Templeton Global Asset Allocation Fund
The Templeton Global Asset Allocation Fund seeks a high level of total return
through a flexible policy of investing in equity securities, debt obligations,
and money market instruments of issuers in any nation, including developing
markets nations. The mix of investments among the three market segments will
be adjusted in an attempt to capitalize on total return potential produced by
changing economic conditions throughout the world. Foreign investing involves
special risks.
<PAGE>
Utility Equity Fund
The Utility Equity Fund seeks both capital appreciation and current income by
investing in securities of domestic and foreign, including developing markets,
issuers engaged in the public utilities industry.
FUNDS SEEKING CAPITAL GROWTH
Precious Metals Fund
The Precious Metals Fund seeks capital appreciation, with current income
return as a secondary objective, by concentrating its investments in
securities of U.S. and foreign companies including those in developing
markets, engaged in mining, processing or dealing in gold and other precious
metals.
Real Estate Securities Fund
The Real Estate Securities Fund seeks capital appreciation, with current
income return as a secondary objective, by concentrating its investments in
publicly traded securities of U.S. companies in the real estate industry.
Small Cap Fund
The Small Cap Fund seeks long-term capital growth. The Fund seeks to
accomplish its objective by investing primarily in equity securities of small
capitalization growth companies. The Fund may also invest in foreign
securities, including those of developing markets issuers. Because of the
Fund's investments in small capitalization companies, an investment in the
Fund may involve greater risks and higher volatility and should not be
considered a complete investment program.
Templeton Developing Markets Equity Fund
The Templeton Developing Markets Equity Fund seeks long-term capital
appreciation. The Fund seeks to achieve this objective by investing primarily
in equities of issuers in countries having developing markets. The Fund is
subject to the heightened foreign securities investment risks that accompany
foreign developing markets and an investment in the Fund may be considered
speculative.
Templeton Global Growth Fund
The Templeton Global Growth Fund seeks long-term capital growth. The Fund
hopes to achieve its objective through a flexible policy of investing in
stocks and debt obligations of companies and governments of any nation,
<PAGE>
including developing markets. The realization of income, if any, is only
incidental to accomplishment of the Fund's objective of long-term capital
growth. Foreign investing involves special risks.
Templeton International Equity Fund
The Templeton International Equity Fund seeks long-term growth of capital.
Under normal conditions, the International Equity Fund will invest at least
65% of its total assets in an internationally mixed portfolio of foreign
equity securities which trade on markets in countries other than the U.S.,
including developing markets, and are (i) issued by companies domiciled in
countries other than the U.S. or (ii) issued by companies that derive at least
50% of either their revenues or pre-tax income from activities outside of the
U.S. Foreign investing involves special risks.
Templeton Pacific Growth Fund
The Templeton Pacific Growth Fund seeks long-term growth of capital, primarily
through investing at least 65% of its total assets in equity securities which
trade on markets in the Pacific Rim, including developing markets, and (i) are
issued by companies domiciled in the Pacific Rim or (ii) issued by companies
that derive at least 50% of either their revenues or pre-tax income from
activities in the Pacific Rim. Investing in a portfolio of geographically
concentrated foreign securities, including developing markets, involves
increased susceptibility to the special risks of foreign investing and an
investment in the Fund may be considered speculative.
The Templeton Global Asset Allocation Fund, Templeton Developing Markets
Equity Fund, Templeton Global Growth Fund, Global Income Fund, Income
Securities Fund, Investment Grade Intermediate Bond Fund, Templeton
International Equity Fund, Money Market Fund, Templeton Pacific Growth Fund,
Precious Metals Fund, Small Cap Fund and Utility Equity Fund may invest more
than 10% of their total net assets in foreign securities which are subject to
special and additional risks related to currency fluctuations, market
volatility and economic, social and political uncertainty; investing in
developing markets involves similar but heightened risks related to the
relatively small size and lesser liquidity of these markets. See "Highlighted
Risk Considerations - Foreign Transactions" in the Trust Prospectus.
The High Income Fund and the Income Securities Fund may invest up to 100% of
their respective net assets in debt obligations rated below investment grade,
commonly known as "junk bonds", or in obligations which have not been rated by
any rating agency. Investments rated below investment grade involve greater
risks, including price volatility and risk of default than investments in
higher rated obligations. Investors should carefully consider the risks
associated with an investment in these Funds in light of the securities in
which they invest. See "Highlighted Risk Considerations - Lower Rated Debt
Obligations" in the Trust Prospectus.
<PAGE>
General
There is no assurance that the investment objectives of any of the Funds will
be met. Contract Owners bear the complete investment risk for Contract Values
allocated to a Sub-Account.
Additional Funds and/or additional Eligible Investments may, from time to
time, be made available as investments to underlie the Contract. However, the
right to make such selections will be limited by the terms and conditions
imposed on such transactions by the Company. (See "Purchase Payments and
Contract Value - Allocation of Purchase Payments.")
Substitution of Securities
If the shares of any Fund of the Trust should no longer be available for
investment by the Variable Account or if, in the judgment of the Company,
further investment in such shares should become inappropriate in view of the
purpose of the Contract, the Company may substitute shares of another Eligible
Investment (or Fund within the Trust). No substitution of securities in any
Sub-Account may take place without prior approval of the Securities and
Exchange Commission and under such requirements as it may impose.
Voting Rights
In accordance with its view of present applicable law, the Company will vote
the shares of the Trust held in the Variable Account at special meetings of
the shareholders of the Trust in accordance with instructions received from
persons having the voting interest in the Variable Account. The Company will
vote shares for which it has not received instructions, as well as shares
attributable to it, in the same proportion as it votes shares for which it has
received instructions. The Trust does not hold regular meetings of
shareholders.
The number of shares which a person has a right to vote will be determined as
of a date to be chosen by the Company not more than sixty (60) days prior to
the meeting of the Trust. Voting instructions will be solicited by written
communication at least fourteen (14) days prior to the meeting.
Trust shares are issued and redeemed only in connection with variable annuity
contracts and variable life insurance policies issued through separate
accounts of the Company and its affiliates. The Trust does not foresee any
disadvantage to Contract Owners arising out of the fact that the Trust may be
made available to separate accounts which are used in connection with both
variable annuity and variable life insurance products. Nevertheless, the
Trust's Board of Trustees intends to monitor events in order to identify any
material irreconcilable conflicts which may possibly arise and to determine
what action, if any, should be taken in response thereto. If such a conflict
were to occur, one of the separate accounts might withdraw its investment in
<PAGE>
the Trust. This might force the Trust to sell portfolio securities at
disadvantageous prices.
CHARGES AND DEDUCTIONS
Various charges and deductions are made from Contract Values and the Variable
Account. These charges and deductions are:
Deduction for Contingent Deferred Sales Charge (Sales Load)
If all or a portion of the Surrender Value (see "Surrenders") is surrendered,
a Contingent Deferred Sales Charge (sales load) will be calculated at the time
of each surrender and will be deducted from the Contract Value. This Charge
reimburses the Company for expenses incurred in connection with the promotion,
sale and distribution of the Contracts. The Contingent Deferred Sales Charge
applies only to those purchase payments received within five (5) years of the
date of surrender. In calculating the Contingent Deferred Sales Charge,
purchase payments are allocated to the amount surrendered on a first-in,
first-out basis. The amount of the Contingent Deferred Sales Charge is
calculated by: (a) allocating purchase payments to the amount surrendered;
(b) multiplying each such allocated purchase payment that has been held under
the Contract for the period shown below by the charge shown below:
Years Since Payment Charge
___________________ ______
0-1 5%
1-2 5%
2-3 4%
3-4 3%
4-5 1.5%
5+ 0
and (c) adding the products of each multiplication in (b) above. The charge
will not exceed 5% of the purchase payments.
Once each Contract Year, Contract Owners may surrender up to fifteen percent
(15%) of purchase payments paid less any prior surrenders without incurring a
Contingent Deferred Sales Charge. If no withdrawal is made during a Contract
Year, the 15% is cumulative into future years. If less than 15% is withdrawn
in a Contract Year, the remaining percentage is not available in future years.
No Contingent Deferred Sales Charge will be deducted from purchase payments
which have been held under the Contract for more than five (5) Contract Years
or as annuity payments. See also "Surrenders - Systematic Withdrawal." The
Company may also eliminate or reduce the Contingent Deferred Sales Charge
under the Company procedures then in effect. (See "Charges and Deductions -
Reduction or Elimination of Contingent Deferred Sales Charge.")
<PAGE>
For a partial surrender, the Contingent Deferred Sales Charge will be deducted
from the remaining Contract Value, if sufficient; otherwise it will be
deducted from the amount surrendered. The amount deducted from the Contract
Value will be determined by canceling Accumulation Units from each applicable
Sub-Account in the ratio that the value of each Sub-Account bears to the total
Contract Value. The Contract Owner must specify in writing in advance which
units are to be canceled if other than the above method of cancellation is
desired.
To the extent that the Contingent Deferred Sales Charge is insufficient to
cover the actual cost of distribution, the Company may use any of its
corporate assets, including potential profit which may arise from the
Mortality and Expense Risk Charge, to make up any difference.
Reduction or Elimination of Contingent Deferred Sales Charge
The amount of the Contingent Deferred Sales Charge on the Contracts may be
reduced or eliminated when sales of the Contracts are made to individuals or
to a group of individuals in a manner that results in savings of sales
expenses. The entitlement to reduction of the Contingent Deferred Sales Charge
will be determined by the Company after examination of the following factors:
(1) the size of the group; (2) the total amount of purchase payments expected
to be received from the group; (3) the nature of the group for which the
Contracts are purchased, and the persistency expected in that group; (4) the
purpose for which the Contracts are purchased and whether that purpose makes
it likely that expenses will be reduced; and (5) any other circumstances which
the Company believes to be relevant to determining whether reduced sales or
administrative expenses may be expected. None of the reductions in charges
for sales is contractually guaranteed.
The Contingent Deferred Sales Charge may be eliminated when the Contracts are
issued to an officer, director or employee of the Company or any of its
affiliates. In no event will reductions or elimination of the Contingent
Deferred Sales Charge be permitted where reductions or elimination will
unfairly discriminate against any person.
Deduction for Mortality and Expense Risk Charge
The Company deducts on each Valuation Date a Mortality and Expense Risk Charge
which is equal, on an annual basis, to 1.25% of the average daily net assets
of the Variable Account (consisting of approximately .90% for mortality risks
and approximately .35% for expense risks). The mortality risk borne by the
Company arises from its contractual obligation to make annuity payments
(determined in accordance with the Annuity Options and other provisions
contained in the Contract) regardless of how long all Annuitants may live.
This undertaking assures that neither an Annuitant's own longevity, nor an
improvement in life expectancy greater than expected, will have any adverse
effect on the annuity payments the Annuitant will receive under the Contract.
<PAGE>
Furthermore, the Company bears a mortality risk, regardless of the Annuity
Option selected, in that it guarantees the purchase rates for the annuity
income options available under the Contract whether for fixed payment options
or variable payment options. In addition, the Company assumes a mortality risk
for the guaranteed minimum death benefit provided under the Contract. The
expense risk assumed by the Company is that all actual expenses involved in
administering the Contracts, including Contract maintenance costs,
administrative costs, mailing costs, data processing costs, legal fees,
accounting fees, filing fees, and the costs of other services may exceed the
amount recovered from the Contract Maintenance Charge and the Administrative
Expense Charge.
If the Mortality and Expense Risk Charge is insufficient to cover the actual
costs, the loss will be borne by the Company. Conversely, if the amount
deducted proves more than sufficient, the excess will be a profit to the
Company. The Company expects to profit from this charge.
Mortality and Expense Risk Charge is guaranteed by the Company and cannot be
increased.
Deduction for Administrative Expense Charge
The Company deducts on each Valuation Date an Administrative Expense Charge
which is equal, on an annual basis, to 0.15% of the average daily net assets
of the Variable Account. This charge, together with the Contract Maintenance
Charge (see below), is to reimburse the Company for the expenses it incurs in
the establishment and maintenance of the Contracts and the Variable Account.
These expenses include but are not limited to: preparation of the Contracts,
confirmations, annual reports and statements, maintenance of Contract Owner
records, maintenance of Variable Account records, administrative personnel
costs, mailing costs, data processing costs, legal fees, accounting fees,
filing fees, the costs of other services necessary for Contract Owner
servicing and all accounting, valuation, regulatory and reporting
requirements. The Company does not intend to profit from this charge. This
charge will be reduced to the extent that the amount of this charge is in
excess of that necessary to reimburse the Company for its administrative
expenses. Should this charge prove to be insufficient, the Company will not
increase this charge and will incur the loss.
Deduction for Contract Maintenance Charge
The Company deducts an annual Contract Maintenance Charge of $30 from the
Contract Value on each Contract Anniversary (Prior to the Income Date, the
charge is waived for Contracts having Contract Values or purchase payments less
withdrawals of $100,000.00 or more). This charge is to reimburse the Company
for its administrative expenses (see above). Prior to the Income Date, this
charge is deducted by canceling Accumulation Units from each applicable
Sub-Account in the ratio that the value of each Sub-Account bears to the total
Contract Value. When the Contract is surrendered for its full Surrender Value
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on other than a Contract Anniversary, the entire Contract Maintenance Charge
will be deducted at the time of surrender. On and after the Income Date, the
Contract Maintenance Charge will be collected pro rata on a monthly basis
($2.50 per month) and will result in a reduction of the monthly annuity
payments.
Deduction for Premium Taxes
Premium taxes or other taxes payable to a state, municipality or other
governmental entity will be charged against the Contract Values. Premium
taxes currently imposed by certain states on the Contracts offered hereby
range from 0% to 3% of premiums paid. Some states assess premium taxes at the
time purchase payments are made; others assess premium taxes at the time
annuity payments begin. The Company will, in its sole discretion, determine
when taxes have resulted from: the investment experience of the Variable
Account; receipt by the Company of the purchase payment(s); or commencement of
annuity payments. The Company may, at its sole discretion, pay taxes when due
and deduct that amount from the Contract Value at a later date. Payment at an
earlier date does not waive any right the Company may have to deduct amounts
at a later date.
Deduction for Income Taxes
While the Company is not currently maintaining a provision for federal income
taxes, the Company has reserved the right to establish a provision for income
taxes if it determines, in its sole discretion, that it will incur a tax as a
result of the operation of the Variable Account. The Company will deduct for
any income taxes incurred by it as a result of the operation of the Variable
Account whether or not there was a provision for taxes and whether or not it
was sufficient. Currently, no federal income taxes are assessed against the
Variable Account. However, if the tax laws should change, the Company
reserves the right to deduct the amount of such taxes from the Variable
Account.
Deduction for Trust Expenses
There are other deductions from, and expenses paid out of, the assets of the
Trust which are described in the accompanying Trust prospectus.
Deduction for Transfer Fee
A Contract Owner may transfer all or a part of the Contract Owner's interest
among the Sub-Accounts without the imposition of any fee or charge if there
have been no more than three transfers made in the Contract Year. If more
than three transfers have been made in the Contract Year, the Company reserves
the right to deduct a transfer fee. The maximum transfer fee that the Company
may deduct, per transfer, is the lesser of $25 or 2% of the amount
transferred. Currently 12 transfers may be made in a Contract Year without a
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charge. Thereafter, the fee is $25 (or 2% of the amount transferred, if less.)
Currently, prescheduled automatic dollar cost averaging transfers are not
counted. The Company charges a fee for all transfers after the Income Date,
which fee, per transfer, will not exceed the lesser of $25 or 2% of the amount
transferred. The transfer fee at any given time will not be set at a level
greater than its cost and will contain no element of profit.
THE CONTRACTS
Ownership
The Contract Owner and if provided for in the Contract, any Joint Owner as
named on the Contract Schedule, have all rights and may receive all benefits
under the Contract. The Contract Owner, if provided for in the Contract, may
name a Contingent Owner or change the Contract Owner at any time. Any Joint
Owner must be the spouse of the other Joint Owner and any Contingent Owner
must be the spouse of the Contract Owner. Upon the death of the Contract
Owner, the Contingent Owner or surviving Joint Owner (as applicable) may elect
to keep the Contract in force and become the new Contract Owner. The
Annuitant becomes the Owner on and after the Income Date. A change of
Contract Owner or Contingent Owner will automatically revoke any prior
designation of Contract Owner or Contingent Owner. A request for change must
be: (1) made in writing; and (2) received by the Company as its Annuity
Service Office. After the transfer is recorded, the change will become
effective as of the date the written request is signed. A new designation of
Contract Owner (as applicable) will not apply to any payment made or action
taken by the Company prior to the time it was received.
For Non-Qualified Contracts, in accordance with Code Section 72(u), a deferred
annuity contract held by a corporation or other entity that is not a natural
person is not treated as an annuity contract for tax purposes. Income on the
contract is treated as ordinary income received by the owner during the
taxable year. However, for purposes of Code Section 72(u), an annuity contract
held by a trust or other entity as agent for a natural person is considered
held by a natural person and treated as an annuity contract for tax purposes.
Tax advice should be sought prior to purchasing a Contract which is to be
owned by a trust or other non-natural person.
Assignment
The Contract Owner may assign the Contract at any time during his or her
lifetime. A copy of any assignment must be filed with the Valuemark Service
Center. The Company is not responsible for the validity of any assignment.
If the Contract Owner assigns the Contract, the Contract Owner's rights and
those of any revocably-named person will be subject to the assignment. The
Company will not be bound by any assignment until written notice is received
by the Company at its Valuemark Service Center.
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If the Contract is issued pursuant to a Qualified Plan, it may not be
assigned, pledged or otherwise transferred except as may be allowed under
applicable law.
Beneficiary
One or more Beneficiaries and/or Contingent Beneficiaries are named in the
application, and unless changed, are entitled to receive any death benefits to
be paid. Upon the death of the Contract Owner, the Contingent Owner or
surviving Joint Owner (as applicable) will be the designated Beneficiary and
any other Beneficiary named will be treated as a Contingent Beneficiary,
unless otherwise indicated.
Change of Beneficiary
The Contract Owner may change a Beneficiary or Contingent Beneficiary by
filing a written request with the Company at its Valuemark Service Center
unless an irrevocable Beneficiary designation was previously filed. After the
change is recorded, it will take effect as of the date the request was
signed. If the request reaches the Valuemark Service Center after the
Annuitant or Contract Owner, as applicable, dies but before any payment is
made, the change will be valid. The Company will not be liable for any
payment made or action taken before it records the change.
Annuitant
The Annuitant must be a natural person. The maximum age of the Annuitant on
the Effective Date is 80 years old. The Annuitant may be changed at any time
prior to the Income Date unless the Contract is owned by a non-natural person.
(See "Death of the Annuitant Prior to the Income Date.") Joint Annuitants
are allowed at the time of annuitization only. The Annuitant has no rights or
privileges prior to the Income Date. When an Annuity Option is elected, the
amount payable as of the Income Date is based on the age (and sex, where
permissible) of the Annuitant, as well as the Option selected and the Contract
Value. The Annuitant becomes the Contract Owner on or after the Income Date.
Death of the Contract Owner Before the Income Date
In those Contracts where a Contingent Owner has been named, in the event of
the death of the Contract Owner prior to the Income Date, the Contingent
Owner, if any becomes the designated Beneficiary and any other Beneficiary
named will be treated as a Contingent Beneficiary, unless otherwise indicated.
In those Contracts where Joint Owners have been named, upon the death of
either Joint Owner prior to the Income Date, the surviving Joint Owner, if
any, becomes the designated Beneficiary and any other Beneficiary named will
be treated as a Contingent Beneficiary, unless otherwise indicated. Only the
Owner's spouse may be the Contingent Owner or a Joint Owner. If there is no
surviving Contingent Owner or Joint Owner, a death benefit is payable to the
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Beneficiary designated by the Contract Owner. The value of the death benefit
will be determined as of the Valuation Period next following the date both due
proof of death and a payment election are received by the Company.
The guaranteed death benefit is:
1. On the date of issue, the guaranteed death benefit is equal to the
purchase payment.
2. After the date of issue, the guaranteed death benefit will be the
sum of all purchase payments made minus any amounts surrendered or paid by the
company.
The guaranteed death benefit will never be less than the Contract Value as of
the most recent five year Contract Anniversary preceding the earlier of (a)
the date of death or (b) the date of the Contract Owners 81st birthday, plus
subsequent Purchase Payments minus subsequent surrenders.
The Beneficiary may, at any time before the end of a sixty (60) day period
following receipt of proof of death, elect the death benefit to be paid under
one of the following options:
A. Lump sum payment of the death benefit;
(The value of the death benefit is equal to the greater of the guaranteed
death benefit or the Surrender Value as of the Valuation Period next following
the date due proof of death and a payment election are received by the
Company).
B. Payment of the entire death benefit within five years of the date of
the Contract Owner's death;
(The value of the death benefit under Option B is determined by comparing
the guaranteed death benefit to the Contract Value as of the Valuation Period
next following the date both due proof of death and a payment election are
received by the Company. If the Contract Value is the greater, it will be the
death benefit. The death benefit will no longer be guaranteed by the Company.
If the guaranteed death benefit is greater, it will be the death benefit. The
death benefit will no longer be guaranteed by the Company. Any distribution
of death benefit will be reduced by the sum of any applicable premium taxes,
Contract Maintenance Charge and Contingent Deferred Sales Charge).
C. Payment over the lifetime of the designated Beneficiary or over a
period not extending beyond the life expectancy of the designated Beneficiary
with distribution beginning within one year of the date of death of the
Contract Owner (see "Annuity Provisions - Annuity Options").
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(The value of the death benefit under Option C is determined by comparing
the guaranteed death benefit to the Contract Value as of the Valuation Period
next following the date both due proof of death and a payment election are
received by the Company. If the Contract Value is greater it will be treated
as the death benefit.) If the guaranteed death benefit is the greater, it
will be the death benefit.
D. If the designated Beneficiary is the Contract Owner's spouse,
he/she can continue the Contract in his/her own name. (The value of the death
benefit under Option D is determined by comparing the guaranteed death benefit
to the Contract Value as of the Valuation Period next following the date both
due proof of death and a payment election are received by the Company. If the
Contract Value is greater, it will remain the Contract Value. If the
guaranteed death benefit is greater, it will become the new Contract Value.
Any distribution by the new Owner will be reduced by the
sum of any applicable premium taxes, Contract Maintenance Charges and
Contingent Deferred Sales Charges.
If no payment option is elected, a single sum settlement will be made at the
end of the sixty (60) day period following receipt of proof of death.
Death of the Annuitant Prior to the Income Date
If the Annuitant dies on or before the Income Date and the Annuitant is
different from the Contract Owner, the Contract Owner may designate a new
Annuitant. If one is not designated, the Contract Owner will be the Annuitant,
provided the Contract Owner is a natural person.
If the Contract Owner is a non-natural person, then for the purposes of the
death benefit, the Annuitant shall be treated as the Contract Owner and the
death of the Annuitant shall be treated as a death of the Contract Owner.
Death of the Annuitant After the Income Date
If the Annuitant dies on or after the Income Date, the death benefit, if any,
will be payable to the Beneficiary as specified in the Annuity Option elected.
The Company will require proof of the Annuitant's death. Death benefits will
be paid at least as rapidly as under the method of distribution in effect at
the Annuitant's death.
ANNUITY PROVISIONS
Income Date
The Contract Owner selects an Income Date at the time of application (or at
the time of issue for certain Contracts). The Income Date must always be the
first day of a calendar month. The earliest Income Date is five years after
<PAGE>
the Effective Date. The Income Date may not be later than the month following
the Annuitant's 85th birthday or 10 years from the Effective Date if later.
If no Income Date is selected on the Application, the date will be the later
of the Annuitant's 65th birthday (or 85th birthday for certain Contracts).
Change in Income Date and Annuity Option
Contract Owner may, upon at least thirty (30) days prior written notice to the
Company, at any time prior to the Income Date, change the Income Date. The
Income Date must always be the first day of a calendar month. The Income Date
may not be later than the month following the Annuitant's 85th birthday, or 10
years from the Effective Date, if later.
The Contract Owner may, upon at least thirty (30) days prior written notice to
the Company, at any time prior to the Income Date, select and/or change the
Annuity Option.
Annuity Options
Instead of having the proceeds paid in one sum, the Contract Owner may select
one of the Annuity Options. These may be on a fixed or variable basis, or a
combination thereof. The Annuity Option must be selected at least 30 days
prior to the Income Date. The Company may, at the time of election of an
Annuity Option, offer more favorable rates in lieu of those guaranteed. The
Company also may make available other options.
Fixed Options
Under a fixed option, once the selection has been made and payments have
begun, the amount of the payments will not vary. The fixed options currently
available are:
OPTION 1 - LIFE ANNUITY WITH OPTIONAL GUARANTEE PERIOD. The Company will make
equal monthly payments during the life of the Annuitant, but at least for the
minimum period shown in the annuity tables contained in the Contract. The
amount of each monthly payment per $1,000 of proceeds is based on the age (and
sex, where permissible) of the Annuitant when the first payment is made and on
the guaranteed period chosen. If the Annuitant dies within the guaranteed
period, the discounted value of the unpaid guaranteed payments will be paid by
the Company as a final payment.
OPTION 2 - LIFE ANNUITY WITH CASH REFUND. The Company will pay equal monthly
payments during the life of the Annuitant. Upon the death of the Annuitant,
after payments have started, the Company will pay in one sum any excess of the
amount of the proceeds applied under this Option over the total of all
payments made under this Option. The amount of each monthly payment per
$1,000 of proceeds is based on the age (and sex, where permissible) of the
Annuitant when the first payment is made.
<PAGE>
Variable Options
The actual dollar amount of variable annuity payments is dependent upon (i)
the Contract Value at the time of annuitization, (ii) the annuity table
specified in the Contract, (iii) the Annuity Option selected, and (iv) the
investment performance of the Sub-Account selected.
The dollar amount of the first monthly variable annuity payment is determined
by applying the available value (after deduction of any premium taxes not
previously deducted) to the table using the age (and sex, where permissible)
of the Annuitant and any joint Annuitant. The number of Annuity Units is then
determined by dividing this dollar amount by the then current Annuity Unit
value. Thereafter, the number of Annuity Units remains unchanged during the
period of annuity payments. This determination is made separately for each
Sub-Account of the Variable Account. The number of Annuity Units is
determined for each Sub-Account and is based upon the available value in each
Sub-Account as of the date annuity payments are to begin. The dollar amount
determined for each Sub-Account will then be aggregated for purposes of making
payments.
The dollar amount of the second and later variable annuity payments is equal
to the number of Annuity Units determined for each Sub-Account times the
Annuity Unit value for that Sub-Account as of the due date of the payment.
This amount may increase or decrease from month to month.
The annuity tables contained in the Contract are based on a five percent (5%)
assumed investment rate. If the actual net investment rate exceeds five
percent (5%), payments will increase. Conversely, if the actual rate is less
than five percent (5%), annuity payments will decrease. If a higher assumed
investment rate was used, the initial payment would be higher, but the actual
net investment rate would have to be higher in order for annuity payments to
increase. Annuity payments will not decrease as long as the investment return
of the Variable Account assets equals or exceeds 6.4% on an annual basis.
The Annuitant receives the value of a fixed number of Annuity Units each
month. The value of a fixed number of Annuity Units will reflect the
investment performance of the Sub-Account selected and the amount of each
annuity payment will vary accordingly.
The value of an Annuity Unit for a Sub-Account is determined by subtracting
(2) from (1) and dividing the result by (3) and multiplying the result by
.99986303 (.99986303 is the daily factor to neutralize the assumed net
investment rate, discussed above, of 5% per annum which is built into the
annuity rate table) where:
<PAGE>
1. is the net result of
a. the assets of the Sub-Account attributable to the Annuity Units; plus
or minus
b. the cumulative charge or credit for taxes reserved which is
determined by the Company to have resulted from the operation of the
Sub-Account;
2. is the cumulative unpaid charge for the Mortality and Expense Risk
Charge and for the Administrative Expense Charge; and
3. is the number of Annuity Units outstanding at the end of the Valuation
Period.
The Company utilizes sex distinct and unisex annuity rate tables. (See "Tax
Status - Qualified Plans.")
The value of an Annuity Unit may increase or decrease from Valuation Period to
Valuation Period.
The variable options currently available are:
3 - LIFE ANNUITY. Monthly annuity payments are paid during the life of an
Annuitant, ceasing with the last annuity payment due prior to the Annuitant's
death.
OPTION 4 - LIFE ANNUITY WITH 10-YEAR GUARANTEE. Monthly annuity payments are
paid during the life of an Annuitant, but at least for the 10-year minimum
period.
OPTION 5 - JOINT AND LAST SURVIVOR ANNUITY. Monthly annuity payments are paid
during the joint lifetime of the Annuitant and a designated second person and
are paid thereafter during the remaining lifetime of the survivor, ceasing
with the last annuity payment due prior to the survivor's death.
PURCHASE PAYMENTS AND CONTRACT VALUE
Purchase Payments
The Contracts may be purchased under a flexible purchase payment plan.
Purchase payments are payable in the frequency and in the amount selected by
the Contract Owner. The initial purchase payment is due on the Effective
Date. The initial purchase payment must be at least $2,000. Subsequent
purchase payments must be at least $250. These minimum amounts are not waived
for Qualified Plans. The Company reserves the right to decline any
application or purchase payment. Amounts in excess of $1 million require
<PAGE>
preapproval by the Company. The Company may, at its sole discretion, waive
the minimum payment requirements. The Contract Owner may elect to increase,
decrease or change the frequency of purchase payments.
Allocation of Purchase Payments
Purchase payments are allocated to one or more of the Sub-Accounts within the
Variable Account as selected by the Contract Owner. THE SMALL CAP FUND IS NOT
AVAILABLE IN NEW YORK UNTIL APPROVED BY THE NEW YORK INSURANCE DEPARTMENT.
(CHECK WITH YOUR AGENT REGARDING AVAILABILITY.) For each Sub-Account, purchase
payments are converted into Accumulation Units. The number of Accumulation
Units credited to the Contract is determined by dividing the purchase payment
allocated to the Sub-Account by the value of the Accumulation Unit for the
Sub-Account.
The Company has the right to allocate initial purchase payments to the Money
Market Sub-Account until the expiration of 15 days from the date the Contract
is mailed from the Valuemark Service Center. In the event that the Company
does so allocate initial purchase payments, at the end of this 15-day period
the Contract Value will be allocated to the Sub-Account(s) selected by the
Contract Owner. Currently, however, the Company will allocate the initial
purchase payment directly to the Sub-Account(s) selected by the Contract
Owner.
Transfers do not necessarily affect the allocation instructions for future
payments. Subsequent payments will be allocated as directed by the Contract
Owner; if no direction is given, the allocation will be that which has been
most recently directed for payments by the Contract Owner. The Contract Owner
may change the allocation of future payments without fee, penalty or other
charge upon written notice to the Valuemark Service Center. A change will be
effective for payments received on or after receipt of the written notice or
telephone instructions.Company reserves the right to limit the number of
Sub-Accounts that a Contract Owner may have at any one time. Currently, the
Contract Owner may select up to nine Sub-Accounts. The Company reserves the
right to change the maximum number of Sub-Accounts in the future.
For initial purchase payments, if the application for a Contract is in good
order, the Company will apply the purchase payment to the Variable Account and
credit the Contract with Accumulation Units and credit the Contract with
dollars within two business days of receipt.
In addition to the underwriting requirements of the Company, good order means
that the Company has received federal funds (monies credited to a bank's
account with its regional Federal Reserve Bank). If the application for a
Contract is not in good order, the Company will attempt to get it in good
order or the Company will return the application and the purchase payment
within five business days. The Company will not retain purchase payments for
more than five business days while processing an incomplete application,
unless it has been so authorized by the purchaser.
<PAGE>
For subsequent purchase payments, the Company will apply purchase payments to
the Variable Account and credit the Contract with Accumulation Units during
the Valuation Period next following the Valuation Period during which the
purchase payment was received in good order.
Transfer of Contract Values Between Sub-Accounts
Prior to the Income Date, the Contract Owner may transfer all or part of the
Contract Owner's interest in a Sub-Account to another Sub-Account without the
imposition of any fee or charge if there have been no more than three
transfers made in the Contract Year. If more than three transfers have been
made in the Contract Year, the Company reserves the right to deduct a transfer
fee. Currently, 12 transfers may be made in a Contract Year without a charge.
(See "Charges and Deductions - Deduction for Transfer Fee.")
Neither the Variable Account nor the Trust are designed for professional
market timing organizations or other entities using programmed and frequent
transfers. A pattern of exchanges that coincides with a "market timing"
strategy may be disruptive to a Fund. In coordination with the Trust, the
Company reserves the right to restrict the transfer privilege or reject any
specific purchase payment allocation request for any person whose transactions
seem to follow a timing pattern.
After the Income Date, provided a variable annuity option was selected, the
Contract Owner may make transfers. The Company charges for all transfers after
the Income Date.
All transfers are subject to the following:
a. The deduction of any transfer fee that may be imposed. The transfer
fee will be deducted from the amount which is transferred if the entire amount
in the Sub-Account is being transferred; otherwise from the amount remaining
in the Sub-Account from which the transfer is made.
b. The minimum amount which may be transferred is the lesser of (i)
$1,000 from each Sub-Account; or (ii) the Contract Owner's entire interest in
the Sub-Account.
c. No partial transfer will be made if the Contract Owner's remaining
Contract Value in the Sub-Account will be less than $1,000.
d. Transfers will be effected during the Valuation Period next following
receipt by the Company of a written transfer request (or by telephone, if
authorized) containing all required information. However, no transfer may be
made effective within seven calendar days of the date on which the first
annuity payment is due. No transfers may occur until the end of the Free-Look
Period. (See "Highlights.")
<PAGE>
e. Any transfer direction must clearly specify the amount which is to be
transferred and the Sub-Accounts which are to be affected.
f. After the Income Date, no transfers may be made if it would result in
any selected Sub-Account providing less than 10% of the annuity benefits under
the Contract.
g. After the Income Date, transfers may not take place between a Fixed
Annuity Option and a Variable Annuity Option.
A Contract Owner may elect to make transfers by telephone. To elect this
option the Contract Owner must do so in writing to the Company. If there are
Joint Owners, unless the Company is informed to the contrary, instructions
will be accepted from either one of the Joint Owners. The Company will use
reasonable procedures to confirm that instructions communicated by telephone
are genuine. If it does not, the Company may be liable for any losses due to
unauthorized of fraudulent instructions. The Company tape records all
telephone instructions. Transfers do not charge the allocation instructions
for future payments. (See "Purchase Payments and Contract Value - Allocation
of Purchase Payments.")
Dollar Cost Averaging
Dollar Cost Averaging is a program which, if elected, enables a Contract Owner
to systematically allocate specified dollar amounts from the Money Market
Sub-Account or the Adjustable U.S. Government Sub-Account to the Contract's
other Sub-Accounts (maximum of eight) at regular intervals. By allocating on
a regularly scheduled basis as opposed to allocating the total amount at one
particular time, a Contract Owner may be less susceptible to the impact of
market fluctuations.
Dollar Cost Averaging may be selected for 12 to 36 months. The minimum amount
per period to allocate is $1,000. All dollar cost averaging transfers will be
made effective the tenth of the month (or the next Valuation Date if the tenth
of the month is not a Valuation Date). Election into this program may occur
at any time by properly completing the Dollar Cost Averaging election form,
returning it to the Company by the first of the month, to be effective that
month, and insuring that sufficient value is in either the Money Market
Sub-Account or the Adjustable U.S. Government Sub-Account. When utilizing the
Dollar Cost Averaging program, a Contract Owner must be invested in either
the Money Market Sub-Account or the Adjustable U.S. Government Sub-Account and
may invest in a maximum of five of the other Sub-Accounts.
Cost Averaging will terminate when any of the following occurs: (1) the number
of designated transfers has been completed; (2) the value of the Money Market
Sub-Account or the Adjustable U.S. Government Sub-Account (as applicable) is
insufficient to complete the next transfer; (3) the Contract Owner requests
termination in writing and such writing is received by the first of the month
in order to cancel the transfer scheduled to take effect that month; or (4)
<PAGE>
the Contract is terminated. The Dollar Cost Averaging program may not be
active following the Income Date. There is no current charge for Dollar Cost
Averaging but the Company reserves the right to charge for this program. In
the event there are additional transfers, the transfer fee may be charged. The
Company does not intend to profit from any such charge.
Contract Value
The value of the Contract is the sum of the values attributable to the
Contract for each Sub-Account. The value of each Sub-Account is determined by
multiplying the number of Accumulation Units attributable to the Contract in
the Sub-Account by the value of an Accumulation Unit for the Sub-Account.
Accumulation Unit
For each Sub-Account, purchase payments are converted into Accumulation Units.
This is done by dividing each purchase payment by the value of an
Accumulation Unit for the Valuation Period during which the purchase payment
is allocated to the Sub-Account. The Accumulation Unit value for each
Sub-Account was initially arbitrarily set. The Accumulation Unit value for
any later Valuation Period is determined by subtracting (b) from (a) and
dividing the result by (c) where:
a. is the net result of
1) the assets of the Sub-Account attributable to Accumulation Units
(i.e., the aggregate value of the underlying Eligible Investments held at the
end of such Valuation Period); plus or minus
2) the cumulative charge or credit for taxes reserved which is
determined by the Company to have resulted from the operation of the
Sub-Account;
b. is the cumulative unpaid charge for the Mortality and Expense Risk Charge
and for the Administrative Expense Charge (See "Charges and Deductions"); and
c. is the number of Accumulation Units outstanding at the end of such
Valuation Period.
The Accumulation Unit value may increase or decrease from Valuation Period to
Valuation Period.
DISTRIBUTOR
NALAC Financial Plans, Inc. ("NFP"), 1750 Hennepin Avenue, Minneapolis,
Minnesota, acts as the distributor of the Contracts. NFP is a wholly-owned
subsidiary of Allianz Life, the Company's parent. The Contracts are offered on
a continuous basis. NFP has subcontracted with Franklin Advisers, Inc.
<PAGE>
("Advisers") for it and/or certain of its affiliates to provide certain
marketing support services and NFP compensates these entities for their
services. Commissions will be paid to broker-dealers who sell the Contracts.
Broker-dealers will be paid commissions and expense reimbursements up to an
amount equal to 6.0% of purchase payments for promotional or distribution
expenses associated with the marketing of the Contracts. In addition, under
certain circumstances, the Company and/or Advisors or certain of its
affiliates, under a marketing support agreement with NFP may pay certain
sellers for other services not directly related to the sale of the Contracts,
such as special marketing support allowances. Commissions may be recovered
from broker-dealers if a full or partial surrender occurs within 12 months of
a purchase payment.
SURRENDERS
While the Contract is in force and before the Income Date, the Company will,
upon written request to the Company by the Contract Owner, allow the surrender
of all or a portion of the Contract for its Surrender Value. Surrenders will
result in the cancellation of Accumulation Units from each applicable
Sub-Account in the ratio that the value of each Sub-Account bears to the total
Contract Value. The Contract Owner must specify in writing in advance which
units are to be canceled if other than the above mentioned method of
cancellation is desired. The Company will pay the amount of any surrender
from the Variable Account within seven (7) days of receipt of a valid request,
unless the "Delay of Payments" provision is in effect. (See "Surrenders -
Delay of Payments.")
Certain tax withdrawal penalties and restrictions may apply to surrenders from
the Contracts. (See "Tax Status.") For Contracts purchased in connection
with 403(b) plans, the Code limits the withdrawal of amounts attributable to
contributions made pursuant to a salary reduction agreement (as defined in
Section 403(b)(11) of the Code) to circumstances only when the Contract Owner:
(1) attains age 59 1/2; (2) separates from service; (3) dies; (4) becomes
disabled (within the meaning of Section 72(m)(7) of the Code); or (5) in the
case of hardship.
However, withdrawals for hardship are restricted to the portion of the
Contract Owner's Contract Value which represents contributions by the Contract
Owner and does not include any investment results. The limitations on
withdrawals became effective January 1, 1989 and apply only to salary
reduction contributions made after December 31, 1988, to income attributable
to such contributions and to income attributable to amounts held as of
December 31, 1988. The limitations on withdrawals do not affect rollovers or
transfers between certain Qualified Plans. Contract Owners should consult
their own tax counsel or other tax adviser regarding any distributions.
<PAGE>
Systematic Withdrawal
The Company permits a systematic withdrawal plan which enables a Contract
Owner to pre-authorize a periodic exercise of the contractual withdrawal
rights described above. Systematic withdrawal is not available for
Non-Qualified Contracts where the Contract Owner is under age 59 1/2. Certain
tax penalties and restrictions may apply to systematic withdrawals from the
Contracts. (See "Tax Status - Tax Treatment of Withdrawals - Qualified
Contracts.") Contract Owners entering into such a plan instruct the Company to
withdraw a level dollar amount from the Contract on a monthly or quarterly
basis. Currently, systematic withdrawal on a monthly or quarterly basis is
available to Contract Owners who have a Contract Value of $50,000 or more and
on a quarterly basis only to Contract Owners who have a Contract Value of at
least $20,000 but less than $50,000. The amount deducted will result in the
cancellation of Accumulation Units from each applicable Sub-Account in the
ratio that the value of each Sub-Account bears to the total Contract Value.
The Contract Owner must specify in writing in advance which units are to be
canceled if other than the above mentioned method of cancellation is desired.
The Company reserves the right to modify the eligibility rules at any time,
without notice. The total systematic withdrawal in a Contract Year which can
be made without incurring a Contingent Deferred Sales Charge is limited to not
more than 9% of the Contract Value. However, the 9% limit may be increased to
allow systematic withdrawals to meet applicable minimum distribution
requirements for qualified contracts. The exercise of the systematic
withdrawal plan in any Contract Year replaces the 15% amount which is
allowable per year without incurring a Contingent Deferred Sales Charge. Any
other withdrawal in a year when the systematic withdrawal plan has been
utilized will be subject to the Contingent Deferred Sales Charge.
Delay of Payments
The Company reserves the right to suspend or postpone payments for any period
when:
1. the New York Stock Exchange is closed (other than customary weekend
and holiday closings);
2. trading on the New York Stock Exchange is restricted;
3. an emergency exists as a result of which disposal of securities held
in the Variable Account is not reasonably practicable or it is not reasonably
practicable to determine the value of the Variable Account's net assets; or
4. during any other period when the Securities and Exchange Commission,
by order, so permits for the protection of Contract Owners.
The applicable rules and regulations of the Securities and Exchange Commission
will govern as to whether the conditions described in 2. and 3. exist.
<PAGE>
ADMINISTRATION OF THE CONTRACTS
While the Company has primary responsibility for all administration of the
Contracts, it has retained the services of Delaware Valley Financial Services,
Inc. ("DVFS" or "Valuemark Service Center") pursuant to an Administration
Agreement. Such administrative services include issuance of the Contracts and
maintenance of Contract Owners' records. The Company pays all fees and
charges of DVFS. DVFS serves as the administrator to various insurance
companies offering variable and fixed annuity and variable life insurance
contracts. The Company's ability to administer the Contracts could be
adversely affected should DVFS elect to terminate the Agreement.
PERFORMANCE DATA
Money Market Sub-Account
From time to time, the Company or NFP may advertise the "yield" and "effective
yield" of the Money Market Sub-Account. Both yield figures will be based on
historical earnings and are not intended to indicate future performance. The
"yield" of the Money Market Sub-Account refers to the income generated by
Contract Values in the Money Market Sub-Account over a seven-day period (which
period will be stated in the advertisement). This income is then "annualized."
That is, the amount of income generated by the investment during that week is
assumed to be generated each week over a 52-week period and is shown as a
percentage of the Contract Values in the Money Market Sub-Account. The
"effective yield" is calculated similarly but, when annualized, the income
earned by Contract Values in the Money Market Sub-Account is assumed to be
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment. The
computation of the yield calculation includes a deduction for the Mortality
and Expense Risk Charge, the Administrative Expense Charge and the Contract
Maintenance Charge.
Other Sub-Accounts
From time to time, the Company or NFP may publish the current yields and total
returns for the other Sub-Accounts in advertisements and communications to
Contract Owners. The current yield for each Sub-Account will be calculated by
dividing the annualization of the interest income earned by the underlying
Fund during a recent 30-day period by the maximum Accumulation Unit value at
the end of such period. Total return information will include the underlying
Fund's average annual compounded rate of return over the most recent four
calendar quarters and the period from the underlying Fund's inception of
operations, based upon the value of the Accumulation Units acquired through a
hypothetical $1,000 investment at the Accumulation Unit value at the beginning
of the specified period and the value of the Accumulation Unit at the end of
such period, assuming reinvestment of all distributions and the deduction of
the Mortality and Expense Risk Charge, the Administrative Expense Charge and
<PAGE>
the prorated Contract Maintenance Charge. Each Sub-Account may also advertise
aggregate and average total return information over different periods of time.
In each case, the yield and total return figures will reflect all recurring
charges against the Sub-Account's income, including the deduction for the
Mortality and Expense Risk Charge, the Administrative Expense Charge and the
Contract Maintenance Charge for the applicable time period. The Company or
NFP may, in addition, advertise or present yield or total return performance
information computed on different basis, or for the Funds. Contract Owners
should note that the investment results of each Sub-Account will fluctuate
over time, and any presentation of a Sub-Account's current yield or total
return for any prior period should not be considered as a representation of
what an investment may earn or what a Contract Owner's yield or total return
may be in any future period. Hypothetical performance illustrations for a
hypothetical contract may be prepared for sales literature or advertisements.
See "Calculation of Performance Data" in the Statement of Additional
Information.
Performance Ranking
The performance of each or all of the Sub-Accounts of the Variable Account may
be compared in its advertisements and sales literature to the performance of
other variable annuity issuers in general or to the performance of particular
types of variable annuities investing in mutual funds, or series of mutual
funds with investment objectives similar to each of the Sub-Accounts of the
Variable Account or indices. Lipper Analytical Services, Inc. ("Lipper") and
the Variable Annuity Research and Data Service ("VARDS") are independent
services which monitor and rank the performance of variable annuity issuers in
each of the major categories of investment objectives on an industry-wide
basis.
Lipper's rankings include variable life issuers as well as variable annuity
issuers. VARDS rankings compare only variable annuity issuers. The
performance analyses prepared by Lipper and VARDS rank such issuers on the
basis of total return, assuming reinvestment of distributions, but do not take
sales charges, redemption fees or certain expense deductions at the separate
account level into consideration. In addition, VARDS prepares risk adjusted
rankings, which consider the effects of market risk on total return
performance. This type of ranking may address the question as to which funds
provide the highest total return with the least amount of risk. Other ranking
services may be used as sources of performance comparison, such as
CDA/Weisenberger and Morningstar.
TAX STATUS
NOTE: The following description is based upon the Company's understanding of
current federal income tax law applicable to annuities in general. The
Company cannot predict the probability that any changes in such laws will be
made. Purchasers are cautioned to seek competent tax advice regarding the
<PAGE>
possibility of such changes. The Company does not guarantee the tax status of
the Contracts. Purchasers bear the complete risk that the Contracts may not
be treated as "annuity contracts" under federal income tax laws. It should be
further understood that the following discussion is not exhaustive and that
special rules not described in this Prospectus may be applicable in certain
situations. Moreover, no attempt has been made to consider any applicable
state or other tax laws.
General
Section 72 of the Code governs taxation of annuities in general. A Contract
Owner is not taxed on increases in the value of a Contract until distribution
occurs, either in the form of a lump sum payment or as annuity payments under
the Settlement Option elected. For a lump sum payment received as a total
surrender (total redemption) or death benefit, the recipient is taxed on the
portion of the payment that exceeds the cost basis of the Contract. For
Non-Qualified Contracts, this cost basis is generally the purchase payments,
while for Qualified Contracts there may be no cost basis. The taxable portion
of the lump sum payment is taxed at ordinary income tax rates.
For annuity payments, a portion of each payment in excess of an exclusion
amount is includable in taxable income. The exclusion amount for payments
based on a fixed annuity option is determined by multiplying the payment by
the ratio that the cost basis of the Contract (adjusted for any period certain
or refund feature) bears to the expected return under the Contract. The
exclusion amount for payments based on a variable annuity option is determined
by dividing the cost basis of the Contract (adjusted for any period certain or
refund guarantee) by the number of years over which the annuity is expected to
be paid. Payments received after the investment in the Contract has been
recovered (i.e. when the total of the excludable amounts equal the investment
in the Contract) are fully taxable. The taxable portion is taxed at ordinary
income rates. For certain types of Qualified Plans there may be no cost basis
in the Contract within the meaning of Section 72 of the Code. Contract
Owners, Annuitants and Beneficiaries under the Contracts should seek competent
financial advice about the tax consequences of any distributions.
The Company is taxed as a life insurance company under the Code. For federal
income tax purposes, the Variable Account is not a separate entity from the
Company and its operations form a part of the Company.
Diversification
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not
adequately diversified in accordance with regulations prescribed by the United
States Treasury Department ("Treasury Department"). Disqualification of the
Contract as an annuity contract would result in imposition of federal income
<PAGE>
tax to the Contract Owner with respect to earnings allocable to the Contract
prior to the receipt of payments under the Contract. The Code contains a safe
harbor provision which provides that annuity contracts such as the Contracts
meet the diversification requirements if, as of the end of each quarter, the
underlying assets meet the diversification standards for a regulated
investment company and no more than fifty-five percent (55%) of the total
assets consist of cash, cash items, U.S. government securities and securities
of other regulated investment companies.
On March 2, 1989, the Treasury Department issued Regulations (Treas. Reg.
1.817-5) which established 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.
The Code provides that for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable
contracts by Section 817(h) of the Code have been met, "each United States
government agency or instrumentality shall be treated as a separate issuer."
The Company intends that all Funds of the Trust underlying the Contracts will
be managed by the Managers for the Trust in such a manner as to comply with
these diversification requirements.
The Treasury Department has indicated that the diversification Regulations do
not provide guidance regarding the circumstances in which Contract Owner
control of the investments of the Variable Account will cause the Contract
Owner to be treated as the owner of the assets of the Variable Account,
thereby resulting in the loss of favorable tax treatment for the Contract. At
this time it cannot be determined whether additional guidance will be provided
and what standards may be contained in such guidance.
The amount of Contract Owner control which may be exercised under the Contract
is different in some respects from the situations addressed in published
rulings issued by the Internal Revenue Service in which it was held that the
policy owner was not the owner of the assets of the separate account. It is
unknown whether these differences, such as the Contract Owner's ability to
transfer among investment choices or the number and type of investment choices
available, would cause the Contract Owner to be considered as the owner of the
assets of the Variable Account resulting in the imposition of federal income
<PAGE>
tax to the Contract Owner with respect to earnings allocable to the Contract
prior to receipt of payments under the Contract.
In the event any forthcoming guidance or ruling is considered to set forth a
new position, such guidance or ruling will generally be applied only
prospectively. However, if such ruling or guidance was not considered to set
forth a new position, it may be applied retroactively resulting in the
Contract Owner being retroactively determined to be the owner of the assets of
the Variable Account.
Due to the uncertainty in this area, the Company reserves the right to modify
the Contract in an attempt to maintain favorable tax treatment.
Multiple Contracts
The Code provides that multiple non-qualified annuity contracts which are
issued within a calendar year period to the same contract owner by one company
or its affiliates are treated as one annuity contract for purposes of
determining the tax consequences of any distribution. Such treatment may
result in adverse tax consequences, including more rapid taxation of the
distributed amounts from such combination of contracts. Contract Owners
should consult a tax adviser prior to purchasing more than one non-qualified
annuity contract in any calendar year period.
Tax Treatment of Assignments
An assignment or pledge of a Contract may be a taxable event. Contract Owners
should therefore consult competent tax advisers should they wish to assign
their Contracts.
Income Tax Withholding
All distributions or the portion thereof which is includible in the gross
income of the Contract Owner are subject to federal income tax withholding.
Generally, amounts are withheld from periodic payments at the same rate as
wages and at the rate of 10% from non-periodic payments. However, the
Contract Owner, in most cases, may elect not to have taxes withheld or to have
withholding done at a different rate.
Effective January 1, 1993, certain distributions from retirement plans
qualified under Section 401 or Section 403(b) of the Code, which are not
directly rolled over to another eligible retirement plan or individual
retirement account or individual retirement annuity, are subject to a
mandatory 20% withholding for federal income tax. The 20% withholding
requirement does not apply to: a) distributions for the life or life
expectancy of the participant or joint and last survivor expectancy of the
participant and a designated beneficiary; or b) distributions for a specified
period of 10 years or more; or c) distributions which are required minimum
<PAGE>
distributions. Participants should consult their own tax counsel or other tax
advisor regarding withholding.
Tax Treatment of Withdrawals - Non-Qualified Contracts
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the Contract Value exceeds the aggregate
purchase payments made, any amount withdrawn will be treated as coming first
from the earnings and then, only after the income portion is exhausted, as
coming from the principal. Withdrawn earnings are includable in gross income.
It further provides that a ten percent (10%) penalty will apply to the income
portion of any distribution. However, the penalty is not imposed on amounts
received: (a) after the taxpayer reaches age 59 1/2; (b) after the death of
the Contract Owner; (c) if the taxpayer is totally disabled (for this purpose
disability is as defined in Section 72(m)(7) of the Code); (d) in a series of
substantially equal periodic payments made not less frequently than annually
for the life (or life expectancy) of the taxpayer or for the joint lives (or
joint life expectancies) of the taxpayer and his Beneficiary; (e) under an
immediate annuity; or (f) which are allocable to purchase payments made prior
to August 14, 1982.
The above information does not apply to Qualified Contracts. However,
separate tax withdrawal penalties and restrictions may apply to such Qualified
Contracts. (See "Tax Treatment of Withdrawals - Qualified Contracts.")
Qualified Plans
The Contracts offered by this Prospectus are designed to be suitable for use
under various types of Qualified Plans. Because of the minimum purchase
payment requirements, these Contracts may not be appropriate for some periodic
payment retirement plans. Taxation of participants in each Qualified Plan
varies with the type of plan and terms and conditions of each specific plan.
Contract Owners, Annuitants and Beneficiaries are cautioned that benefits
under a Qualified Plan may be subject to the terms and conditions of the plan
regardless of the terms and conditions of the Contracts issued pursuant to the
plan. Some retirement plans are subject to distribution and other
requirements that are not incorporated into the Company's administrative
procedures. Contract Owners, participants and beneficiaries are responsible
for determining that contributions, distributions and other transactions with
respect to the Contracts comply with applicable law. Following are general
descriptions of the types of Qualified Plans with which the Contracts may be
used. Such descriptions are not exhaustive and are for general informational
purposes only. The tax rules regarding Qualified Plans are very complex and
will have differing applications depending on individual facts and
circumstances. Each purchaser should obtain competent tax advice prior to
purchasing a Contract issued under a Qualified Plan.
On July 6, 1983, the Supreme Court decided in ARIZONA GOVERNING COMMITTEE V.
<PAGE>
NORRIS that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. The Contracts sold by the Company in connection
with Qualified Plans will utilize annuity tables which do not differentiate on
the basis of sex. Such annuity tables will also be available for use in
connection with certain non-qualified deferred compensation plans.
Contracts issued pursuant to Qualified Plans include special provisions
restricting Contract provisions that may otherwise be available and described
in this Prospectus. Generally, Contracts issued pursuant to Qualified Plans
are not transferable except upon surrender or annuitization. Various penalty
and excise taxes may apply to contributions or distributions made in violation
of applicable limitations. Furthermore, certain withdrawal penalties and
restrictions may apply to surrenders from Qualified Contracts. (See "Tax
Treatment of Withdrawals - Qualified Contracts.")
a. 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 participants may vary,
depending upon the particular plan design. However, the Code places
limitations and restrictions on all Plans, including on such items as:
amounts of allowable contributions; form, manner and timing of distributions;
transferability of benefits; vesting and nonforfeitability of interests;
nondiscrimination in eligibility and participation, and the tax treatment of
distributions, withdrawals and surrenders. (See "Tax Treatment of Withdrawals
- - Qualified Contracts.") 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, educational and
scientific organizations described in Section 501(c)(3) of the Code. These
qualifying employers may make contributions to the Contracts for the benefit
of their employees. Such contributions are not includable in the gross income
of the employee until the employee receives distributions from the Contract.
The amount of contributions to the tax-sheltered annuity is limited to certain
maximums imposed by the Code. Furthermore, the Code sets forth additional
restrictions governing such items as transferability, distributions,
nondiscrimination and withdrawals. (See "Tax Treatment of Withdrawals -
Qualified Contracts.") Employee loans are not allowed under these Contracts.
Any employee should obtain competent tax advice as to the tax treatment and
suitability of such an investment.
<PAGE>
c. Individual Retirement Annuities
Section 408(b) of the Code permits eligible individuals to contribute to
an individual retirement program known as an "Individual Retirement Annuity"
("IRA"). Under applicable limitations, certain amounts may be contributed to
an IRA which may be deductible from the individual's gross income. These IRAs
are subject to limitations on eligibility, contributions, transferability and
distributions. (See "Tax Treatment of Withdrawals - Qualified Contracts.")
Under certain conditions, distributions from other IRAs and other Qualified
Plans may be rolled over or transferred on a tax-deferred basis into an IRA.
Sales of Contracts for use with IRAs are subject to special requirements
imposed by the Code, including the requirement that certain informational
disclosure be given to persons desiring to establish an IRA. Purchasers of
Contracts to be qualified as Individual Retirement Annuities should obtain
competent tax advice as to the tax treatment and suitability of such an
investment.
d. 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
includable in the gross income of the employee until distributed from the
Plan. The tax consequences to participants may vary, depending upon the
particular plan design. However, the Code places limitations and restrictions
on all Plans, including on such items as: amount of allowable contributions;
form, manner and timing of distributions; transferability of benefits; vesting
and nonforfeitability of interests; nondiscrimination in eligibility and
participation, and the tax treatment of distributions, withdrawals and
surrenders. Participant loans are not allowed under the Contracts purchased
in connection with these Plans. (See "Tax Treatment of Withdrawals -
Qualified Contracts.") 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.
Tax Treatment of Withdrawals - Qualified Contracts
In the case of a withdrawal under a Qualified Contract, a ratable portion of
the amount received is taxable, generally based on the ratio of the
individual's cost basis to the individual's total accrued benefit under the
retirement plan. Special tax rules may be available for certain distributions
from a Qualified Contract. Section 72(t) of the Code imposes a 10% penalty
tax on the taxable portion of any distribution from qualified retirement
plans, including Contracts issued and qualified under Code Sections 401 (H.R.
10 and Corporate Pension and Profit-Sharing Plans), 403(b) (Tax-Sheltered
Annuities) and 408(b) (Individual Retirement Annuities). To the extent amounts
are not includable in gross income because they have been properly rolled over
<PAGE>
to an IRA or to another eligible Qualified Plan, no tax penalty will be
imposed. The tax penalty will not apply to the following distributions: (a)
if distribution is made on or after the date on which the Contract Owner or
Annuitant (as applicable) reaches age 59 1/2; (b) distributions following the
death or disability of the Contract Owner or Annuitant (as applicable) (for
this purpose disability is as defined in Section 72(m)(7) of the Code); (c)
after separation from service, distributions that are part of substantially
equal periodic payments made not less frequently than annually for the life
(or life expectancy) of the Contract Owner or Annuitant (as applicable) or the
joint lives (or joint life expectancies) of such Contract Owner or Annuitant
(as applicable) and his designated beneficiary; (d) distributions to a
Contract Owner or Annuitant (as applicable) who has separated from service
after he has attained age 55; (e) distributions made to the Contract Owner or
Annuitant (as applicable) to the extent such distributions do not exceed the
amount allowable as a deduction under Code Section 213 to the Contract Owner
or Annuitant (as applicable) for amounts paid during the taxable year for
medical care; and (f) distributions made to an alternate payee pursuant to a
qualified domestic relations order.
The exceptions stated in items (d), (e) and (f) above do not apply in the case
of an Individual Retirement Annuity. The exception stated in item (c) applies
to an Individual Retirement Annuity without the requirement that there be a
separation from service.
Generally, distributions from a Qualified Plan must commence no later than
April 1 of the calendar year following the year in which the employee attains
age 70 1/2. Required distributions must be over a period not exceeding the
life expectancy of the individual or the joint lives or life expectancies of
the individual and his or her designated beneficiary. If the required minimum
distributions are not made, a 50% penalty tax is imposed as to the amount not
distributed. In addition, distributions in excess of $150,000 per year may be
subject to an additional 15% excise tax unless an exception applies.
Tax-Sheltered Annuities - Withdrawal Limitations
The Code limits the withdrawal of amounts attributable to contributions made
pursuant to a salary reduction agreement (as defined in Section 403(b)(11) of
the Code) to circumstances only when the Contract Owner: (1) attains age 59
1/2; (2) separates from service; (3) dies; (4) becomes disabled (within the
meaning of Section 72(m)(7) of the Code); or (5) in the case of hardship.
However, withdrawals for hardship are restricted to the portion of the
Contract Owner's Contract Value which represents contributions by the Contract
Owner and does not include any investment results. The limitations on
withdrawals became effective on January 1, 1989 and apply only to salary
reduction contributions made after December 31, 1988, to income attributable
to such contributions and to income attributable to amounts held as of
December 31, 1988. The limitations on withdrawals do not affect rollovers or
<PAGE>
transfers between certain Qualified Plans. Contract Owners should consult
their own tax counsel or other tax adviser regarding any distributions.
Contracts Owned by Other than Natural Persons
Generally, investment earnings on premiums for Contracts will be taxed
currently to the Contract Owner if the Owner is a non-natural person, e.g., a
corporation, or certain other entities. Such Contracts generally will not be
treated as annuities for federal income tax purposes. However, this rule does
not apply to Contracts held by a trust or other entity as an agent for a
natural person.
FINANCIAL STATEMENTS
Audited financial statements of the Company and audited financial statements
of the Variable Account as of December 31, 1994 are included in the Statement
of Additional Information. Unaudited financial statements of the Variable
Account as of June 30, 1995 are also included in the Statement of Additional
Information.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Variable Account or the Distributor
is a party or to which the assets of the Variable Account are subject. The
Company is not involved in any litigation that is of material importance in
relation to its total assets or that relates to the Variable Account.
<PAGE>
TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
Item Page
Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . .
Distributor. . . . . . . . . . . . . . . . . . . . . . . . . . .
Calculation of Performance Data. . . . . . . . . . . . . . . . .
Annuity Provisions. . . . . . . . . . . . . . . . . . . . . . . .
Variable Annuity Payout. . . . . . . . . . . . . . . . . . .
Fixed Annuity Payout . . . . . . . . . . . . . . . . . . . .
Financial Statements. . . . . . . . . . . . . . . . . . . . . . .
<PAGE>
PART B
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL FLEXIBLE PAYMENT
VARIABLE ANNUITY CONTRACTS
issued by
PREFERRED LIFE VARIABLE ACCOUNT C
and
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOVEMBER 1, 1995
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS FOR THE INDIVIDUAL FLEXIBLE PAYMENT
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 CALL OR WRITE
THE COMPANY AT: 152 West 57th Street, 18th Floor, New York, New York 10019,
(212) 586-7733.
THIS STATEMENT OF ADDITIONAL INFORMATION AND THE PROSPECTUS ARE DATED
NOVEMBER 1, 1995 AND AS MAY BE AMENDED FROM TIME TO TIME.
<PAGE>
TABLE OF CONTENTS
Page
COMPANY
EXPERTS
LEGAL OPINIONS
DISTRIBUTOR
CALCULATION OF PERFORMANCE DATA
ANNUITY PROVISIONS
Variable Annuity Payout
Fixed Annuity Payout
FINANCIAL STATEMENTS
<PAGE>
COMPANY
Information regarding the Company and its ownership is contained in the
Prospectus. Preferred Life Insurance Company of New York (the "Company")is
rated A+e(Superior, parent rating) by A.M. Best, an independent analyst,
of the insurance industry. The financial strength of an insurance
company may be relevant insofar as the ability of the Company to make fixed
annuity payments from its general account.
EXPERTS
The financial statements of Preferred Life Variable Account C and the
financial statements of the Company as of December 31, 1994, included in this
Statement of Additional Information have been audited by KPMG Peat Marwick
LLP, independent auditors, as indicated in their reports included in this
Statement of Additional Information and are included herein in reliance upon
such reports and upon the authority of said firm as experts in accounting and
auditing.
LEGAL OPINIONS
Legal matters in connection with the Contracts described herein are being
passed upon by the law firm of Blazzard, Grodd & Hasenauer, P.C., Westport,
Connecticut.
DISTRIBUTOR
NALAC Financial Plans, Inc., a wholly-owned subsidiary of Allianz Life
Insurance Company of North America, the Company's parent, acts as the
distributor. The offering is on a continuous basis.
CALCULATION OF PERFORMANCE DATA
The Money Market Sub-Account. The Money Market Sub-Account's current yield
may vary each day depending upon, among other things, the average maturity of
the underlying Fund's investment securities and changes in interest rates,
operating expenses, the deduction of the Mortality and Expense Risk Charge,
the Administrative Expense Charge and the Contract Maintenance Charge and, in
certain instances, the value of the underlying Fund's investment securities.
The fact that the Sub-Account's current yield will fluctuate and that the
principal is not guaranteed should be taken into account when using the
Sub-Account's current yield as a basis for comparison with savings accounts or
other fixed-yield investments. The Sub-Account's yield at any particular time
is not indicative of what the yield may be at any other time. For the seven
calendar days ended June 30, 1995, the yield of the Money Market
Sub-Account was 4.07%.
<PAGE>
The Money Market Sub-Account's current yield is computed on a base period
return of a hypothetical Contract having a beginning balance of one
Accumulation Unit for a particular period of time (generally 7 days). The
return is determined by dividing the net change (exclusive of any capital
changes) in such Accumulation Unit by its beginning value, and then
multiplying it by 365/7 to get the annualized current yield. The calculation
of net change reflects the value of additional shares purchased with the
dividends paid by the Fund, and the deduction of the Mortality and Expense
Risk Charge, the Administrative Expense Charge and Contract Maintenance
Charge.
The effective yield reflects the effects of compounding and represents an
annualization of the current return with all dividends reinvested. (Effective
yield = [(Base Period Return + 1)365/7]-1.)
Other Sub-Accounts. From time to time, the other Sub-Accounts may state their
total return in advertisements and Contract Owner communications. Any
statements of total return or other performance data of a Sub-Account will be
accompanied by information on that Sub-Account's average annual compounded
rate of return over the most recent four calendar quarters and the period from
the Sub-Account's inception of operations. Each Sub-Account may also
advertise aggregate and average total return information over different
periods of time.
Each Sub-Account's average annual compounded rate of return is determined by
reference to a hypothetical $1,000 Contract Value, according to the following
formula:
n
P ( 1 + T) = ERV
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
Contract at the end of the period
Aggregate total return is calculated in a similar manner, except that the
results are not annualized. Each calculation assumes that no sales load is
deducted from the initial $1,000 of payment at the time it is allocated to the
Sub-Account and assumes that the income earned by the investment in the
Sub-Account is reinvested.
Each Sub-Account may also quote its current yield in advertisements and
Contract Owner communications. Each Sub-Account (other than the Money Market
Sub-Account) will publish standardized total return information with any
quotation of current yield.
<PAGE>
The yield computation is determined by dividing the net investment income per
Accumulation Unit earned during the period (minus the deduction for the
Mortality and Expense Risk Charge, Administrative Expense Charge and the
Contract Maintenance Charge) by the Accumulation Unit Value on the last day of
the period and annualizing the resulting figure, according to the following
formula:
6
Yield = 2[[ (a-b) + 1] - 1]
where:
a = net investment income earned during the period by the Fund
attributable to shares owned by the Sub-Account;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of Accumulation Units outstanding during
the period;
d = the maximum offering price per Accumulation Unit on the last day of
the period.
The above formula will be used in calculating quotations of yield, based on
specified 30-day periods identified in the advertisement or communication.
Yield calculations assume no sales load.
Each Sub-Account's current yield and total return may be compared to relevant
indices, including U.S. domestic and international taxable bond indices and
data from Lipper Analytical Services, Inc., Standard & Poor's Indices, or
VARDS.
From time to time, evaluations of each Sub-Account's performance by
independent sources may also be used in advertisements and in information
furnished to present or prospective Contract Owners.
Contract Owners should note that the investment results of the Sub-Account
will fluctuate over time, and any presentation of the Sub-Account's current
yield or total return for any period should not be considered as a
representation of what an investment may earn or what a Contract Owner's total
return or yield may be in any future period.
<PAGE>
ANNUITY PROVISIONS
Variable Annuity Payout
A variable annuity is an annuity with payments which: (1) are not
predetermined as to dollar amount; and (2) will vary in amount with the net
investment results of the applicable Sub-Account(s) of the Variable Account.
At the Income Date, the Contract Value in each Sub-Account will be applied to
the applicable Annuity Tables. The Annuity Table used will depend upon the
Annuity Option chosen. Both sex distinct and unisex Annuity Tables are
utilized by the Company, depending on the state and type of Contract. If, as
of the Income Date, the then current Annuity Option rates applicable to this
class of Contracts provide a larger income than that guaranteed for the same
form of annuity under this Contract, the larger amount will be paid. The
dollar amount of annuity payments after the first is determined as follows:
1. The dollar amount of the first annuity payment is divided by the
value of an Annuity Unit as of the Income Date. This establishes the number
of Annuity Units for each monthly payment. The number of Annuity Units
remains fixed during the annuity payment period.
2. The fixed number of Annuity Units is multiplied by the Annuity Unit
value for the last Valuation Period of the month preceding the month for which
the payment is due. This result is the dollar amount of the payment.
3. The total dollar amount of each Variable Annuity variable payout is
the sum of all Sub-Account Variable Annuity payments reduced by the Contract
Maintenance Charge.
Fixed Annuity Payout
A fixed annuity is an annuity with payments which are guaranteed as to dollar
amount by the Company and do not vary with the investment experience of the
Variable Account. The Fixed Account value on the day immediately preceding
the Annuity Date will be used to determine the Fixed Annuity monthly payment.
The monthly Annuity Payment will be based upon the Contract Value at the time
of annuitization, the Annuity Option selected, the age of the annuitant and
any joint annuitant and the sex of the annuitant and joint annuitant where
allowed.
FINANCIAL STATEMENTS
The audited financial statements of the Company as of December 31, 1994,
included herein should be considered only as bearing upon the ability of the
Company to meet its obligations under the Contracts. The audited financial
statements of the Variable Account as of December 31, 1994 are included
herein. In addition, unaudited financial statements of the Variable Account
as of June 30, 1995 are included herein.
<PAGE>
PREFERRED LIFE VARIABLE ACCOUNT C
of
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements
June 30, 1995 (unaudited)
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
of
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Statements of Assets and Liabilities
June 30, 1995 (unaudited)
Real U.S.
Money Growth and Precious High Estate Government Utility
Market Income Metals Income Securities Securities Equity
Fund Fund Fund Fund Fund Fund Fund
----------- ---------- --------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Money Market Fund, 30,538,519
shares, cost $30,538,519 $30,538,519 - - - - - -
Growth and Income Fund, 3,815,440
shares, cost $51,187,785 - 56,697,439 - - - - -
Precious Metals Fund, 598,238
shares, cost $8,114,433 - - 8,309,529 - - - -
High Income Fund, 2,326,916
shares, cost $29,282,084 - - - 30,087,022 - - -
Real Estate Securities Fund,
888,102 shares,
cost $13,338,690 - - - - 13,703,408 - -
U.S. Government Securities Fund,
6,064,046 shares,
cost $81,333,882 - - - - - 79,924,131 -
Utility Equity Fund, 6,770,180
shares, cost $109,794,791 - - - - - - 103,989,961
----------- ---------- --------- ---------- ---------- ---------- -----------
Total assets 30,538,519 56,697,439 8,309,529 30,087,022 13,703,408 79,924,131 103,989,961
----------- ---------- --------- ---------- ---------- ---------- -----------
Liabilities:
Accrued mortality and
expense risk charges 51,371 62,119 10,805 34,223 16,917 87,516 113,062
Accrued administrative charges 6,165 7,454 1,297 4,107 2,030 10,502 13,567
----------- ---------- --------- ---------- ---------- ---------- -----------
<PAGE>
Total liabilities 57,536 69,573 12,102 38,330 18,947 98,018 126,629
----------- ---------- --------- ---------- ---------- ---------- -----------
Net Assets $30,480,983 56,627,866 8,297,427 30,048,692 13,684,461 79,826,113 103,863,332
=========== ========== ========= ========== ========== ========== ===========
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
of
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Statements of Assets and Liabilities (Continued)
June 30, 1995 (unaudited)
Zero Zero Zero Zero Investment
Coupon Coupon Coupon Coupon Global Grade Income
Fund - Fund - Fund - Fund - Income Intermediate Securities
1995 2000 2005 2010 Fund Bond Fund Fund
---------- ---------- --------- --------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Zero Coupon Fund - 1995, 376,076
shares, cost $4,682,433 $4,403,848 - - - - - -
Zero Coupon Fund - 2000, 1,594,817
shares, cost $22,813,257 - 23,651,136 - - - - -
Zero Coupon Fund - 2005, 512,201
shares, cost $7,500,292 - - 8,056,919 - - - -
Zero Coupon Fund - 2010, 402,057
shares, cost $5,674,052 - - - 6,292,185 - - -
Global Income Fund, 1,804,665
shares, cost $23,149,080 - - - - 22,883,147 - -
Investment Grade Intermediate
Bond Fund, 1,149,257 shares,
cost $15,323,377 - - - - - 15,537,950 -
Income Securities Fund, 5,351,500
shares, cost $79,637,489 - - - - - - 80,700,618
---------- ---------- --------- --------- ---------- ------------ ----------
Total assets 4,403,848 23,651,136 8,056,919 6,292,185 22,883,147 15,537,950 80,700,618
---------- ---------- --------- --------- ---------- ------------ ----------
Liabilities:
Accrued mortality and
expense risk charges 6,708 27,123 11,155 8,703 26,791 18,630 87,573
Accrued administrative charges 805 3,255 1,339 1,044 3,215 2,236 10,509
---------- ---------- --------- --------- ---------- ------------ ----------
<PAGE>
Total liabilities 7,513 30,378 12,494 9,747 30,006 20,866 98,082
---------- ---------- --------- --------- ---------- ------------ ----------
Net Assets $4,396,335 23,620,758 8,044,425 6,282,438 22,853,141 15,517,084 80,602,536
========== ========== ========= ========= ========== ============ ==========
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
of
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Statements of Assets and Liabilities (Continued)
June 30, 1995 (unaudited)
Templeton
Adjustable Templeton Templeton Developing Templeton
U.S. Pacific Rising International Markets Global Total
Government Growth Dividends Equity Equity Growth All
Fund Fund Fund Fund Fund Fund Funds
----------- ---------- ---------- ------------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Adjustable U.S. Government Fund,
1,549,548 shares,
cost $16,891,444 $16,084,304 - - - - -
Templeton Pacific Growth Fund,
1,890,006 shares,
cost $25,286,398 - 24,929,175 - - - -
Rising Dividends Fund, 2,986,984
shares, cost $31,477,984 - - 33,155,528 - - -
Templeton International Equity
Fund, 4,056,521 shares,
cost $50,729,307 - - - 52,613,079 - -
Templeton Developing Markets
Equity Fund, 678,019 shares,
cost $6,802,072 - - - - 6,651,362 -
Templeton Global Growth Fund,
1,055,023 shares,
cost $11,126,874 - - - - - 11,784,606
----------- ---------- ---------- ------------- ---------- ----------
Total assets 16,084,304 24,929,175 33,155,528 52,613,079 6,651,362 11,784,606 629,993,866
----------- ---------- ---------- ------------- ---------- ---------- -----------
Liabilities:
Accrued mortality and
expense risk charges 19,758 29,089 37,093 58,040 8,944 14,907 730,527
<PAGE>
Accrued administrative charges 2,371 3,491 4,451 6,965 1,073 1,789 87,665
----------- ---------- ---------- ------------- ---------- ---------- -----------
Total liabilities 22,129 32,580 41,544 65,005 10,017 16,696 818,192
----------- ---------- ---------- ------------- ---------- ---------- -----------
Net Assets $16,062,175 24,896,595 33,113,984 52,548,074 6,641,345 11,767,910 629,175,674
=========== ========== ========== ============= ========== ========== ===========
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
of
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Statements of Operations
For the period ended June 30, 1995 (unaudited)
Real U.S.
Money Growth and Precious High Estate Government Utility
Market Income Metals Income Securities Securities Equity
Fund Fund Fund Fund Fund Fund Fund
------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Income:
Dividends reinvested in fund shares $ 896,021 686,196 114,561 1,981,032 449,629 5,443,054 5,790,676
------------- ----------- ----------- ----------- ----------- ----------- -----------
Expenses:
Mortality and expense risk charges 196,847 319,866 52,425 173,221 83,344 483,258 635,438
Administrative charges 23,622 38,384 6,291 20,787 10,001 57,991 76,253
------------- ----------- ----------- ----------- ----------- ----------- -----------
Total expenses 220,469 358,250 58,716 194,008 93,345 541,249 711,691
------------- ----------- ----------- ----------- ----------- ----------- -----------
Investment income (loss), net 675,552 327,946 55,845 1,787,024 356,284 4,901,805 5,078,985
Realized gains (losses) and
unrealized appreciation
(depreciation) on investments:
Realized capital gain
distributions on mutual funds - 1,493,701 84,810 - - - -
------------- ----------- ----------- ----------- ----------- ----------- -----------
Realized gains (losses) on
sales of investments:
Proceeds from sales 17,634,787 2,783,760 1,757,539 2,118,785 1,884,797 5,462,509 6,237,528
Cost of investments sold (17,634,787) (2,519,477) (1,741,791) (2,043,615) (1,858,930) (5,507,623) (6,546,683)
------------- ----------- ----------- ----------- ----------- ----------- -----------
Total realized gains (losses)
on sales of investments, net - 264,283 15,749 75,170 25,867 (45,114) (309,155)
------------- ----------- ----------- ----------- ----------- ----------- -----------
<PAGE>
Realized gains (losses)
on investments, net - 1,757,984 100,559 75,170 25,867 (45,114) (309,155)
Net change in unrealized
appreciation (depreciation)
on investments - 4,663,027 (166,056) 1,350,198 49,336 3,580,898 6,541,878
------------- ----------- ----------- ----------- ----------- ----------- -----------
Total realized gains
(losses) and unrealized
appreciation (depreciation)
on investments, net - 6,421,011 (65,498) 1,425,368 75,203 3,535,784 6,232,723
------------- ----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in
net assets from operations $ 675,552 6,748,957 (9,653) 3,212,392 431,487 8,437,589 11,311,708
============= =========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
of
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Statements of Operations (Continued)
For the period ended June 30, 1995 (unaudited)
Zero Zero Zero Zero Investment
Coupon Coupon Coupon Coupon Global Grade Income
Fund - Fund - Fund - Fund - Income Intermediate Securities
1995 2000 2005 2010 Fund Bond Fund Fund
---------- ---------- ---------- ---------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Income:
Dividends reinvested in fund shares $ 305,200 1,020,445 335,762 190,626 848,947 625,846 4,463,912
---------- ---------- ---------- ---------- ----------- ------------- -----------
Expenses:
Mortality and expense risk charges 29,613 129,585 46,420 32,773 141,295 97,359 476,034
Administrative charges 3,554 15,550 5,570 3,933 16,955 11,683 57,124
---------- ---------- ---------- ---------- ----------- ------------- -----------
Total expenses 33,167 145,135 51,990 36,706 158,250 109,042 533,158
---------- ---------- ---------- ---------- ----------- ------------- -----------
Investment income (loss), net 272,033 875,310 283,772 153,920 690,697 516,804 3,930,754
Realized gains (losses) and
unrealized appreciation
(depreciation) on investments:
Realized capital gain
distributions on mutual funds 1,505 - - - - - 359,303
---------- ---------- ---------- ---------- ----------- ------------- -----------
Realized gains (losses)
on sales of investments:
Proceeds from sales 850,556 839,754 707,186 475,218 2,574,673 1,216,708 3,938,068
Cost of investments sold (860,901) (821,116) (672,348) (452,467) (2,647,815) (1,180,335) (3,935,195)
---------- ---------- ---------- ---------- ----------- ------------- -----------
Total realized gains (losses)
on sales of investments, net (10,345) 18,638 34,838 22,751 (73,142) 36,373 2,874
---------- ---------- ---------- ---------- ----------- ------------- -----------
<PAGE>
Realized gains (losses)
on investments, net (8,840) 18,638 34,838 22,751 (73,142) 36,373 362,177
Net change in unrealized appreciation
(depreciation) on investments (89,147) 1,596,683 922,520 894,585 954,292 219,083 3,848,814
---------- ---------- ---------- ---------- ----------- ------------- -----------
Total realized gains (losses)
and unrealized
appreciation (depreciation)
on investments, net (97,987) 1,615,321 957,358 917,336 881,150 255,456 4,210,991
---------- ---------- ---------- ---------- ----------- ------------- -----------
Net increase (decrease) in
net assets from operations $ 174,046 2,490,631 1,241,130 1,071,256 1,571,847 772,260 8,141,745
========== ========== ========== ========== =========== ============= ===========
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
of
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Statements of Operations (Continued)
For the period ended June 30, 1995 (unaudited)
Templeton
Adjustable Templeton Templeton Developing Templeton
U.S. Pacific Rising International Markets Global Total
Government Growth Dividends Equity Equity Growth All
Fund Fund Fund Fund Fund Fund Funds
------------ ----------- ----------- -------------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Income:
Dividends reinvested
in fund shares $ 1,064,752 475,320 705,270 868,500 24,621 62,358 26,352,728
------------ ----------- ----------- -------------- ----------- ---------- ------------
Expenses:
Mortality and expense
risk charges 110,205 158,407 194,518 311,607 36,757 64,461 3,773,433
Administrative charges 13,225 19,009 23,342 37,393 4,411 7,735 452,813
------------ ----------- ----------- -------------- ----------- ---------- ------------
Total expenses 123,430 177,416 217,860 349,000 41,168 72,196 4,226,246
------------ ----------- ----------- -------------- ----------- ---------- ------------
Investment income (loss), net 941,322 297,904 487,410 519,500 (16,547) (9,838) 22,126,482
Realized gains (losses) and
unrealized appreciation
(depreciation) on investments:
Realized capital gain
distributions on mutual funds - 197,651 - 1,076,084 5,785 - 3,218,839
------------ ----------- ----------- -------------- ----------- ---------- ------------
Realized gains (losses)
on sales of investments:
Proceeds from sales 5,438,016 6,035,031 2,167,123 6,984,328 901,678 750,083 70,758,127
Cost of investments sold (5,504,423) (6,223,856) (2,105,547) (6,884,192) (968,509) (740,364) (70,849,973)
------------ ----------- ----------- -------------- ----------- ---------- ------------
<PAGE>
Total realized gains
(losses) on sales
of investments, net (66,407) (188,825) 61,576 100,136 (66,831) 9,719 (91,845)
------------ ----------- ----------- -------------- ----------- ---------- ------------
Realized gains (losses)
on investments, net (66,407) 8,826 61,576 1,176,220 (61,046) 9,719 3,126,994
Net change in unrealized
appreciation (depreciation)
on investments (43,041) 72,309 3,175,212 1,683,531 241,495 665,430 30,161,047
------------ ----------- ----------- -------------- ----------- ---------- ------------
Total realized gains (losses)
and unrealized
appreciation (depreciation)
on investments, net (109,448) 81,135 3,236,788 2,859,751 180,449 675,149 33,288,041
------------ ----------- ----------- -------------- ----------- ---------- ------------
Net increase (decrease) in
net assets from operations $ 831,874 379,039 3,724,198 3,379,251 163,902 665,311 55,414,523
============ =========== =========== ============== =========== ========== ============
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
of
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Statements of Changes in Net Assets
For the periods ended June 30, 1995 and 1994 (unaudited)
Money Market Fund Growth and Income Fund Precious Metals Fund
-------------- ----------- ----------- ------------ ---------- ------------
1995 1994 1995 1994 1995 1994
-------------- ----------- ----------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 675,552 126,230 327,946 (6,231) 55,845 (2,473)
Realized gains (losses) on investments, net - - 1,757,984 796,070 100,559 76,263
Net change in unrealized appreciation
(depreciation) on investments - - 4,663,027 (3,082,973) (166,056) (621,966)
-------------- ----------- ----------- ------------ ---------- ------------
Net increase (decrease) in net assets
from operations 675,552 126,230 6,748,957 (2,293,134) (9,653) (548,176)
-------------- ----------- ----------- ------------ ---------- ------------
Contract transactions:
Purchase payments 4,339,190 10,516,928 3,459,423 8,309,589 339,046 1,995,947
Transfers between funds (873,605) 7,328,120 3,609,393 3,545,194 (394,884) 1,133,539
Surrenders and terminations (4,279,413) (1,760,621) (2,752,852) (662,635) (677,373) (677,297)
Rescissions (125,472) (437,714) (81,192) (134,856) (10,660) -
Other transactions (note 2) 15,039 6,683 28,000 (12,132) 876 (421)
-------------- ----------- ----------- ------------ ---------- ------------
Net increase (decrease) in net assets
resulting from contract transactions (924,261) 15,653,396 4,262,772 11,045,160 (742,995) 2,451,768
-------------- ----------- ----------- ------------ ---------- ------------
Increase (decrease) in net assets (248,709) 15,779,626 11,011,729 8,752,026 (752,648) 1,903,592
-------------- ----------- ----------- ------------ ---------- ------------
Net assets at beginning of period 30,729,692 7,565,717 45,616,137 32,856,662 9,050,074 5,655,841
-------------- ----------- ----------- ------------ ---------- ------------
Net assets at end of period $ 30,480,983 23,345,343 56,627,866 41,608,688 8,297,427 7,559,433
============== =========== =========== ============ ========== ============
<PAGE>
High Income Fund
------------ -----------
1995 1994
------------ -----------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net 1,787,024 868,442
Realized gains (losses) on investments, net 75,170 192,122
Net change in unrealized appreciation
(depreciation) on investments 1,350,198 (2,000,979)
------------ -----------
Net increase (decrease) in net assets
from operations 3,212,392 (940,415)
------------ -----------
Contract transactions:
Purchase payments 1,965,219 6,290,063
Transfers between funds 2,400,518 570,833
Surrenders and terminations (2,424,261) (686,646)
Rescissions (89,709) (63,094)
Other transactions (note 2) 991 (2,663)
------------ -----------
Net increase (decrease) in net assets
resulting from contract transactions 1,852,758 6,108,493
------------ -----------
Increase (decrease) in net assets 5,065,150 5,168,078
------------ -----------
Net assets at beginning of period 24,983,542 17,206,793
------------ -----------
Net assets at end of period 30,048,692 22,374,871
============ ===========
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
of
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Statements of Changes in Net Assets (Continued)
For the periods ended June 30, 1995 and 1994 (unaudited)
Real Estate U.S. Government
Securities Fund Securities Fund Utility Equity Fund
------------ ----------- ----------- ------------ ------------ ------------
1995 1994 1995 1994 1995 1994
------------ ----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 356,284 64,078 4,901,805 3,564,651 5,078,985 3,528,301
Realized gains (losses)
on investments, net 25,867 35,285 (45,114) 239,526 (309,155) (21,892)
Net change in unrealized
appreciation (depreciation)
on investments 49,336 (780) 3,580,898 (9,453,439) 6,541,878 (24,336,542)
------------ ----------- ----------- ------------ ------------ ------------
Net increase (decrease) in
net assets from operations 431,487 98,583 8,437,589 (5,649,262) 11,311,708 (20,830,133)
------------ ----------- ----------- ------------ ------------ ------------
Contract transactions:
Purchase payments 445,326 2,968,721 2,683,509 11,918,840 2,625,725 12,763,019
Transfers between funds (553,337) 3,300,688 594,015 (11,328,715) 506,081 (20,235,546)
Surrenders and terminations (663,368) (418,486) (5,690,252) (2,866,706) (5,946,484) (3,122,059)
Rescissions (3,433) (9,811) (30,893) (729,638) (66,182) (295,071)
Other transactions (note 2) (7,228) 43 84,714 (8,450) 17,843 (3,725)
------------ ----------- ----------- ------------ ------------ ------------
Net increase (decrease) in
net assets resulting from
contract transactions (782,040) 5,841,155 (2,358,907) (3,014,669) (2,863,017) (10,893,382)
------------ ----------- ----------- ------------ ------------ ------------
Increase (decrease) in net assets (350,553) 5,939,738 6,078,682 (8,663,931) 8,448,691 (31,723,515)
------------ ----------- ----------- ------------ ------------ ------------
Net assets at beginning of period 14,035,014 6,711,766 73,747,431 89,773,675 95,414,641 129,527,153
------------ ----------- ----------- ------------ ------------ ------------
<PAGE>
Net assets at end of period $13,684,461 12,651,504 79,826,113 81,109,744 103,863,332 97,803,638
============ =========== =========== ============ ============ ============
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
of
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Statements of Changes in Net Assets (Continued)
For the periods ended June 30, 1995 and 1994 (unaudited)
Zero Coupon Fund -1995 Zero Coupon Fund - 2000 Zero Coupon Fund - 2005
------------- ----------- ------------ ------------ ------------ ------------
1995 1994 1995 1994 1995 1994
------------- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 272,033 235,765 875,310 630,187 283,772 194,127
Realized gains (losses) on investments, net (8,840) 10,543 18,638 137,124 34,838 113,965
Net change in unrealized appreciation
(depreciation) on investments (89,147) (301,149) 1,596,683 (1,779,030) 922,520 (970,367)
------------- ----------- ------------ ------------ ------------ ------------
Net increase (decrease) in net assets
from operations 174,046 (54,841) 2,490,631 (1,011,719) 1,241,130 (662,275)
------------- ----------- ------------ ------------ ------------ ------------
Contract transactions:
Purchase payments 95,257 827,109 2,814,868 3,756,805 596,545 1,104,682
Transfers between funds (197,909) 113,850 1,447,388 574,281 61,337 (863,723)
Surrenders and terminations (616,963) (214,624) (856,995) (595,457) (289,066) (106,796)
Rescissions - (51,312) (72,152) (142,345) (48,915) (25,340)
Other transactions (note 2) - (669) - (3,488) - (1,805)
------------- ----------- ------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from contract transactions (719,615) 674,354 3,333,109 3,589,796 319,901 107,018
------------- ----------- ------------ ------------ ------------ ------------
Increase (decrease) in net assets (545,569) 619,513 5,823,740 2,578,077 1,561,031 (555,257)
------------- ----------- ------------ ------------ ------------ ------------
Net assets at beginning of period 4,941,904 3,906,143 17,797,018 13,297,231 6,483,394 6,158,582
------------- ----------- ------------ ------------ ------------ ------------
Net assets at end of period $ 4,396,335 4,525,656 23,620,758 15,875,308 8,044,425 5,603,325
============= =========== ============ ============ ============ ============
<PAGE>
Zero Coupon Fund - 2010
------------ ------------
1995 1994
------------ ------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net 153,920 116,813
Realized gains (losses) on investments, net 22,751 74,297
Net change in unrealized appreciation
(depreciation) on investments 894,585 (662,470)
------------ ------------
Net increase (decrease) in net assets
from operations 1,071,256 (471,360)
------------ ------------
Contract transactions:
Purchase payments 583,886 850,930
Transfers between funds 793,274 (752,761)
Surrenders and terminations (136,864) (54,863)
Rescissions (37,383) (22,722)
Other transactions (note 2) - (967)
------------ ------------
Net increase (decrease) in net assets
resulting from contract transactions 1,202,913 19,617
------------ ------------
Increase (decrease) in net assets 2,274,169 (451,743)
------------ ------------
Net assets at beginning of period 4,008,269 3,501,948
------------ ------------
Net assets at end of period 6,282,438 3,050,205
============ ============
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
of
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Statements of Changes in Net Assets (Continued)
For the periods ended June 30, 1995 and 1994 (unaudited)
Investment Grade Income
Global Income Fund Intermediate Bond Fund Securities Fund
------------ ------------ ------------- ----------- ----------- -----------
1995 1994 1995 1994 1995 1994
------------ ------------ ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 690,697 436,400 516,804 309,530 3,930,754 1,525,761
Realized gains (losses) on investments, net (73,142) 231,192 36,373 80,607 362,177 298,425
Net change in unrealized appreciation
(depreciation) on investments 954,292 (2,442,739) 219,083 (622,044) 3,848,814 (5,853,867)
------------ ------------ ------------- ----------- ----------- -----------
Net increase (decrease) in net assets
from operations 1,571,847 (1,775,147) 772,260 (231,907) 8,141,745 (4,029,681)
------------ ------------ ------------- ----------- ----------- -----------
Contract transactions:
Purchase payments 957,761 6,074,653 520,107 3,222,886 3,526,602 21,628,164
Transfers between funds (1,177,023) 2,944,910 (201,069) (557,655) 1,093,424 5,045,370
Surrenders and terminations (1,350,856) (458,394) (1,057,021) (433,215) (4,439,731) (1,530,223)
Rescissions (42,594) (129,175) (27,743) (49,747) (129,119) (472,872)
Other transactions (note 2) 6,253 5,042 40,062 2,762 20,638 1,770
------------ ------------ ------------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from contract transactions (1,606,459) 8,437,036 (725,664) 2,185,031 71,814 24,672,209
------------ ------------ ------------- ----------- ----------- -----------
Increase (decrease) in net assets (34,612) 6,661,889 46,596 1,953,124 8,213,559 20,642,528
------------ ------------ ------------- ----------- ----------- -----------
Net assets at beginning of period 22,887,753 15,302,232 15,470,488 12,850,330 72,388,977 46,706,650
------------ ------------ ------------- ----------- ----------- -----------
Net assets at end of period $22,853,141 21,964,121 15,517,084 14,803,454 80,602,536 67,349,178
============ ============ ============= =========== =========== ===========
<PAGE>
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
of
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Statements of Changes in Net Assets (Continued)
For the periods ended June 30, 1995 and 1994 (unaudited)
Adjustable U.S. Templeton Pacific
Government Fund Growth Fund Rising Dividends Fund
------------ ----------- ----------- ----------- ----------- ---------------
1995 1994 1995 1994 1995 1994
------------ ----------- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 941,322 814,038 297,904 (82,637) 487,410 284,878
Realized gains (losses) on investments, net (66,407) (29,664) 8,826 226,963 61,576 (65,713)
Net change in unrealized appreciation
(depreciation) on investments (43,041) (966,528) 72,309 (1,438,367) 3,175,212 (1,921,735)
------------ ----------- ----------- ----------- ----------- ---------------
Net increase (decrease) in net assets
from operations 831,874 (182,154) 379,039 (1,294,041) 3,724,198 (1,702,570)
------------ ----------- ----------- ----------- ----------- ---------------
Contract transactions:
Purchase payments 1,235,817 6,870,255 1,434,868 7,620,724 1,273,420 3,868,331
Transfers between funds (4,304,093) (6,032,754) (2,673,384) 5,259,749 940,493 (1,896,536)
Surrenders and terminations (1,287,475) (467,286) (1,272,550) (877,825) (1,487,414) (524,202)
Rescissions - (77,529) (27,167) (53,549) (37,156) (55,722)
Other transactions (note 2) 14,761 (5,763) 18,713 (3,232) 15,805 (1,310)
------------ ----------- ----------- ----------- ----------- ---------------
Net increase (decrease) in net assets
resulting from contract transactions (4,340,990) 286,923 (2,519,520) 11,945,867 705,148 1,390,561
------------ ----------- ----------- ----------- ----------- ---------------
Increase (decrease) in net assets (3,509,116) 104,769 (2,140,481) 10,651,826 4,429,346 (312,009)
------------ ----------- ----------- ----------- ----------- ---------------
Net assets at beginning of period 19,571,291 22,178,644 27,037,076 13,023,202 28,684,638 28,622,815
------------ ----------- ----------- ----------- ----------- ---------------
Net assets at end of period $16,062,175 22,283,413 24,896,595 23,675,028 33,113,984 28,310,806
============ =========== =========== =========== =========== ===============
<PAGE>
Templeton International
Equity Fund
----------- --------------
1995 1994
----------- --------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net 519,500 (100,315)
Realized gains (losses) on investments, net 1,176,220 447,016
Net change in unrealized appreciation
(depreciation) on investments 1,683,531 (1,137,306)
----------- --------------
Net increase (decrease) in net assets
from operations 3,379,251 (790,605)
----------- --------------
Contract transactions:
Purchase payments 3,271,725 13,214,663
Transfers between funds (1,533,987) 10,373,860
Surrenders and terminations (2,102,411) (709,764)
Rescissions (100,132) (293,742)
Other transactions (note 2) 26,294 3,865
----------- --------------
Net increase (decrease) in net assets
resulting from contract transactions (438,511) 22,588,882
----------- --------------
Increase (decrease) in net assets 2,940,740 21,798,277
----------- --------------
Net assets at beginning of period 49,607,334 16,450,520
----------- --------------
Net assets at end of period 52,548,074 38,248,797
=========== ==============
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
of
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Statements of Changes in Net Assets (Continued)
For the periods ended June 30, 1995 and 1994 (unaudited)
Templeton
Developing Markets Templeton Global
Equity Fund Growth Fund Total All Funds
------------ ---------- ----------- ---------- ------------ ------------
1995 1994 1995 1994 1995 1994
------------ ---------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ (16,547) (1,188) (9,838) (1,917) 22,126,482 12,504,440
Realized gains (losses) on investments, net (61,046) - 9,719 - 3,126,994 2,842,129
Net change in unrealized appreciation
(depreciation) on investments 241,495 (5,153) 665,430 (9,516) 30,161,047 (57,606,950)
------------ ---------- ----------- ---------- ------------ ------------
Net increase (decrease) in net assets
from operations 163,902 (6,341) 665,311 (11,433) 55,414,523 (42,260,381)
------------ ---------- ----------- ---------- ------------ ------------
Contract transactions:
Purchase payments 812,768 856,055 1,680,148 912,748 34,661,210 125,571,112
Transfers between funds 157,346 349,395 306,022 1,127,901 - -
Surrenders and terminations (96,426) - (291,989) - (37,719,764) (16,167,099)
Rescissions - - (7,629) - (937,531) (3,044,239)
Other transactions (note 2) 14,796 (15) 15,746 - 313,303 (24,475)
------------ ---------- ----------- ---------- ------------ ------------
Net increase (decrease) in net assets
resulting from contract transactions 888,484 1,205,435 1,702,298 2,040,649 (3,682,782) 106,335,299
------------ ---------- ----------- ---------- ------------ ------------
Increase (decrease) in net assets 1,052,386 1,199,094 2,367,609 2,029,216 51,731,741 64,074,918
------------ ---------- ----------- ---------- ------------ ------------
Net assets at beginning of period 5,588,959 - 9,400,301 - 577,443,933 471,295,904
------------ ---------- ----------- ---------- ------------ ------------
Net assets at end of period $ 6,641,345 1,199,094 11,767,910 2,029,216 629,175,674 535,370,822
============ ========== =========== ========== ============ ============
</TABLE>
<PAGE>
See accompanying notes to unaudited financial statements.
<PAGE>
PREFERRED LIFE VARIABLE ACCOUNT C
of
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Notes to Financial Statements
June 30, 1995 (unaudited)
1. ORGANIZATION
Preferred Life Variable Account C (Variable Account) is a segregated
investment account of Preferred Life Insurance Company of New York (Preferred
Life) and is registered with the Securities and Exchange Commission as a unit
investment trust pursuant to the provisions of the Investment Company Act of
1940 (as amended). The Variable Account was established by Preferred Life on
February 26, 1988 and commenced operations September 6, 1991. Accordingly, it
is an accounting entity wherein all segregated account transactions are
reflected.
The Variable Account's assets are the property of Preferred Life and are held
for the benefit of the owners and other persons entitled to payments under
variable annuity contracts issued through the Variable Account and
underwritten by Preferred Life. The assets of the Variable Account, equal to
the reserves and other liabilities of the Variable Account, are not chargeable
with liabilities that arise from any other business which Preferred Life may
conduct.
The Variable Account's sub-accounts may invest, at net asset values, in one or
more of the funds of the Franklin Valuemark Funds (FVF), managed by Franklin
Advisers, Inc., in accordance with the selection made by the contract owner.
Certain officers and trustees of the FVF are also officers and/or directors of
Franklin Advisers, Inc. and/or Preferred Life.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS
Investments of the Variable Account are valued daily at market value using net
asset values provided by Franklin Advisers, Inc.
<PAGE>
Realized investment gains include gains on the sale of fund shares as
determined by the average cost method. Dividend distributions received from
the FVF are reinvested in additional shares of the FVF and are recorded as
income to the Variable Account on the ex-dividend date.
The Templeton Developing Markets Equity Fund and Templeton Global Growth Fund
were added as available investment options on April 25, 1994.
In April 1995, the Equity Growth Fund name was changed to Growth and Income
Fund.
EXPENSES
ASSET BASED EXPENSES
A mortality and expense risk charge is deducted from the Variable Account on a
daily basis equal, on an annual basis, to 1.25% of the daily net assets of the
Variable Account.
An administrative charge is deducted from the Variable Account on a daily
basis equal, on an annual basis, to .15% of the daily net assets of the
Variable Account.
CONTRACT BASED EXPENSES
A contract maintenance charge is paid by the contract owner annually from each
contract by liquidating contract units at the end of the contract year and at
the time of full surrender. The amount of the charge is $30 each year.
Contract maintenance charges deducted during the periods ended June 30, 1995
and 1994 were $246,600 and $155,550, respectively. These contract charges are
reflected in the unaudited financial statements as other transactions.
A contingent deferred sales charge is deducted from the contract value at the
time of a surrender. This charge applies only to a surrender of purchase
payments received within five years of the date of surrender. For this
purpose, purchase payments are allocated on a first-in, first-out basis. The
amount of the contingent deferred sales charge is calculated by: (a)
allocating purchase payments to the amount surrendered; and (b) multiplying
each allocated purchase payment that has been held under the contract for the
period shown below by the charge shown below:
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Years Since Payment Charge
- ------------------- -------
0-1 5%
1-2 5%
2-3 4%
3-4 3%
4-5 1.5%
5 + 0
</TABLE>
and (c) adding the products of each multiplication in (b) above.
A contract owner may, not more frequently than once annually on a cumulative
basis, make a surrender each contract year of fifteen percent (15%) of
purchase payments paid less any prior surrenders without incurring a
contingent deferred sales charge.
For a partial surrender, the contingent deferred sales charge will be deducted
from the remaining contract value, if sufficient; otherwise it will be
deducted from the amount surrendered.
Total contingent deferred sales charges paid by the contract owners for the
periods ended June 30, 1995 and 1994 were $732,113 and $360,865, respectively.
Currently, twelve transfers are permitted each contract year. Thereafter, the
fee is $25 per transfer, or 2% of the amount transferred, if less. Currently,
transfers associated with the dollar cost averaging program are not counted.
Total transfer charges for the periods ended June 30, 1995 and 1994 were
$6,393 and $10,000, respectively.
Premium taxes or other taxes payable to a state or other governmental entity
will be charged against the contract values. Preferred Life may, at its sole
discretion, pay taxes when due and deduct that amount from the contract value
at a later date. Payment at an earlier date does not waive any right
Preferred Life may have to deduct such amounts at a later date.
On certain contracts, a systematic withdrawal plan is available which allows
an owner to withdraw annually up to 9% of purchase payments less prior
surrenders, paid quarterly, without incurring a contingent deferred sales
charge. The exercise of the systematic withdrawal plan in any contract year
replaces the 15% penalty free privilege for that year.
<PAGE>
A rescission is defined as a contract that is returned to the company and
canceled within the free-look period, generally within 10 days.
3. INVESTMENT TRANSACTIONS
The sub-account purchases of fund shares, including reinvestment of dividend
distributions, were as follows during the period ended June 30, 1995:
<TABLE>
<CAPTION>
<S> <C>
Money Market Fund $17,434,546
Growth and Income Fund 8,931,427
Precious Metals Fund 1,163,916
High Income Fund 5,792,575
Real Estate Securities Fund 1,474,386
U.S. Government Securities Fund 8,095,655
Utility Equity Fund 8,570,185
Zero Coupon Fund - 1995 408,645
Zero Coupon Fund - 2000 5,074,308
Zero Coupon Fund - 2005 1,320,850
Zero Coupon Fund - 2010 1,838,756
Global Income Fund 1,685,162
Investment Grade Intermediate Bond Fund 1,024,892
Income Securities Fund 8,390,098
Adjustable U.S. Government Fund 2,056,778
Templeton Pacific Growth Fund 4,039,483
Rising Dividends Fund 3,396,540
Templeton International Equity Fund 8,200,402
Templeton Developing Markets Equity Fund 1,786,570
Templeton Global Growth Fund 2,455,740
</TABLE>
4. FEDERAL INCOME TAXES
Operations of the Variable Account form a part of, and are taxed with,
operations of Preferred Life, which is taxed as a life insurance company under
the Internal Revenue Code.
Preferred Life does not expect to incur any federal income taxes in the
operation of the Variable Account. If in the future Preferred Life determines
that the Variable Account may incur federal income taxes, it may then assess a
charge against the Variable Account for such taxes.
<PAGE>
5. CONTRACT TRANSACTIONS - UNIT ACTIVITY
Transactions in units for each fund for the period ended June 30, 1995 and the
year ended December 31, 1994 were as follows:
<TABLE>
<CAPTION>
Growth Real U.S.
Money and Precious High Estate Government
Market Income Metals Income Securities Securities
Fund Fund Fund Fund Fund Fund
------------- ----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding at December 31, 1993 627,038 2,402,339 391,041 1,135,378 436,709 6,107,774
Contract transactions:
Purchase payments 1,661,743 923,189 255,888 600,639 314,797 1,080,502
Transfers between funds 742,599 305,438 80,754 107,167 208,412 (1,203,909)
Surrenders and terminations (502,247) (161,395) (78,581) (126,425) (59,351) (593,751)
Rescissions (50,318) (16,981) (1,666) (7,160) (1,532) (59,151)
Other transactions 8,617 (648) (21) 713 987 (934)
------------- ----------- ---------- ----------- ----------- -----------
Net increase (decrease) in accumulation
units resulting from contract transactions 1,860,394 1,049,603 256,374 574,934 463,313 (777,243)
------------- ----------- ---------- ----------- ----------- -----------
Units outstanding at December 31, 1994 2,487,432 3,451,942 647,415 1,710,312 900,022 5,330,531
============= =========== ========== =========== =========== ===========
Accumulation unit value per unit at
December 31, 1994 $ 12.354 13.215 13.979 14.608 15.594 13.835
============= =========== ========== =========== =========== ===========
Contract transactions (unaudited):
Purchase payments 347,740.00 241,889 25,014 124,834 28,993 182,001
Transfers between funds (68,386.00) 251,000 (30,173) 153,698 (37,665) 38,488
Surrenders and terminations (343,138.00) (193,980) (49,494) (155,946) (42,764) (388,164)
Rescissions (9,986.00) (5,640) (826) (5,654) (216) (2,120)
Other transactions 1,209.00 1,946 70 62 (454) -
------------- ----------- ---------- ----------- ----------- -----------
Net increase (decrease) in accumulation
units resulting from contract transactions (72,561) 295,215 (55,409) 116,994 (52,106) (169,795)
------------- ----------- ---------- ----------- ----------- -----------
<PAGE>
Units outstanding at
June 30, 1995 (unaudited) 2,414,871 3,747,157 592,006 1,827,306 847,916 5,160,736
============= =========== ========== =========== =========== ===========
Accumulation unit value per unit at
June 30, 1995 (unaudited) $ 12.622 15.112 14.016 16.444 16.139 15.451
============= =========== ========== =========== =========== ===========
Accumulation net assets at
June 30, 1995 (unaudited) $ 30,480,983 56,627,866 8,297,427 30,048,692 13,684,461 79,826,113
============= =========== ========== =========== =========== ===========
Zero Zero Zero
Utility Coupon Coupon Coupon
Equity Fund - Fund - Fund -
Fund 1995 2000 2005
------------ ---------- ----------- ----------
<S> <C> <C> <C> <C>
Units outstanding at December 31, 1993 7,478,993 269,765 795,411 341,197
Contract transactions:
Purchase payments 1,051,921 70,708 414,919 125,015
Transfers between funds (1,696,778) 42,828 68,710 (40,577)
Surrenders and terminations (491,312) (35,886) (112,129) (21,155)
Rescissions (24,704) (3,621) (9,747) (1,457)
Other transactions (922) (118) 503 (227)
------------ ---------- ----------- ----------
Net increase (decrease) in accumulation
units resulting from contract transactions (1,161,795) 73,911 362,256 61,599
------------ ---------- ----------- ----------
Units outstanding at December 31, 1994 6,317,198 343,676 1,157,667 402,796
============ ========== =========== ==========
Accumulation unit value per unit at
December 31, 1994 15.104 14.380 15.373 16.096
============ ========== =========== ==========
Contract transactions (unaudited):
Purchase payments 163,594 6,498 173,247 33,816
Transfers between funds 34,441 (13,467) 86,362 5,345
Surrenders and terminations (368,754) (41,954) (52,720) (17,135)
Rescissions (4,057) - (4,521) (2,781)
Other transactions 1,181 - - -
------------ ---------- ----------- ----------
<PAGE>
Net increase (decrease) in accumulation
units resulting from contract transactions (173,595) (48,923) 202,368 19,245
------------ ---------- ----------- ----------
Units outstanding at
June 30, 1995 (unaudited) 6,143,603 294,753 1,360,035 422,041
============ ========== =========== ==========
Accumulation unit value per unit at
June 30, 1995 (unaudited) 16.906 14.915 17.368 19.061
============ ========== =========== ==========
Accumulation net assets at
June 30, 1995 (unaudited) 103,863,332 4,396,335 23,620,758 8,044,425
============ ========== =========== ==========
</TABLE>
<PAGE>
5. CONTRACT TRANSACTIONS - UNIT ACTIVITY (CONTINUED)
<TABLE>
<CAPTION>
Zero Investment Adjustable Templeton
Coupon Global Grade Income U.S. Pacific Rising
Fund - Income Intermediate Securities Government Growth Dividends
2010 Fund Bond Fund Fund Fund Fund Fund
----------- ----------- ------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Units outstanding at
December 31, 1993 193,003 1,044,532 893,048 2,633,679 1,970,803 914,981 2,771,594
Contract transactions:
Purchase payments 76,028 561,113 300,084 1,705,232 968,718 921,042 599,000
Transfers between funds (8,676) 180,054 (37,700) 374,341 (1,032,132) 440,484 (261,335)
Surrenders and terminations (7,322) (107,849) (66,963) (256,277) (130,996) (157,447) (161,474)
Rescissions (1,286) (11,608) (3,708) (40,792) (8,659) (8,240) (10,761)
Other transactions (127) 1,196 348 9 (819) 1,165 (653)
----------- ----------- ------------- ----------- ----------- ----------- -----------
Net increase (decrease) in
accumulation units resulting
from contract transactions 58,617 622,906 192,061 1,782,513 (203,888) 1,197,004 164,777
----------- ----------- ------------- ----------- ----------- ----------- -----------
Units outstanding at
December 31, 1994 251,620 1,667,438 1,085,109 4,416,192 1,766,915 2,111,985 2,936,371
=========== =========== ============= =========== =========== =========== ===========
Accumulation unit value per
unit at December 31, 1994 $ 15.930 13.726 14.257 16.392 11.077 12.802 9.769
=========== =========== ============= =========== =========== =========== ===========
Contract transactions
(unaudited):
Purchase payments 33,605 68,039 35,374 204,485 108,955 113,896 120,514
Transfers between funds 44,866 (84,779) (13,657) 63,482 (380,214) (211,631) 89,256
Surrenders and terminations (7,534) (96,221) (72,135) (259,400) (113,510) (100,724) (143,428)
Rescissions (1,958) (2,981) (1,902) (7,608) - (2,099) (3,495)
Other transactions - 458 2,764 1,254 1,327 1,430 1,583
----------- ----------- ------------- ----------- ----------- ----------- -----------
<PAGE>
Net increase (decrease) in
accumulation units resulting
from contract transactions 68,979 (115,484) (49,556) 2,213 (383,442) (199,128) 64,430
----------- ----------- ------------- ----------- ----------- ----------- -----------
Units outstanding at
June 30, 1995 (unaudited) 320,599 1,551,954 1,035,553 4,418,405 1,383,473 1,912,857 3,000,801
=========== =========== ============= =========== =========== =========== ===========
Accumulation unit value
per unit at
June 30, 1995 (unaudited) $ 19.596 14.725 14.984 18.242 11.610 13.015 11.035
=========== =========== ============= =========== =========== =========== ===========
Accumulation net assets at
June 30, 1995 (unaudited) $6,282,438 22,853,141 15,517,084 80,602,536 16,062,175 24,896,595 33,113,984
=========== =========== ============= =========== =========== =========== ===========
Templeton
Templeton Developing Templeton
International Markets Global Total
Equity Equity Growth All
Fund Fund Fund Funds
-------------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Units outstanding at
December 31, 1993 1,345,574 - - 31,752,859
Contract transactions:
Purchase payments 1,712,426 358,401 482,780 14,184,145
Transfers between funds 1,226,646 242,892 455,573 194,791
Surrenders and terminations (175,010) (8,146) (13,427) (3,267,143)
Rescissions (32,139) (2,370) (3,306) (299,206)
Other transactions 1,611 381 (99) 10,962
-------------- ----------- ----------- ------------
Net increase (decrease) in
accumulation units resulting
from contract transactions 2,733,534 591,158 921,521 10,823,549
-------------- ----------- ----------- ------------
Units outstanding at
December 31, 1994 4,079,108 591,158 921,521 42,576,408
============== =========== =========== ============
Accumulation unit value per
unit at December 31, 1994 12.161 9.454 10.201
============== =========== ===========
<PAGE>
Contract transactions
(unaudited):
Purchase payments 266,802 88,967 161,589 2,529,852
Transfers between funds (127,155) 15,123 28,410 (156,656)
Surrenders and terminations (172,077) (10,557) (28,151) (2,657,786)
Rescissions (8,085) - (722) (64,651)
Other transactions 2,119 1,509 1,478 17,936
-------------- ----------- ----------- ------------
Net increase (decrease) in
accumulation units resulting
from contract transactions (38,396) 95,042 162,604 (331,305)
-------------- ----------- ----------- ------------
Units outstanding at
June 30, 1995 (unaudited) 4,040,712 686,200 1,084,125 42,245,103
============== =========== =========== ============
Accumulation unit value
per unit at
June 30, 1995 (unaudited) 13.005 9.678 10.855
============== =========== ===========
Accumulation net assets at
June 30, 1995 (unaudited) 52,548,074 6,641,345 11,767,910 629,175,674
============== =========== =========== ============
</TABLE>
<PAGE>
PREFERRED LIFE VARIABLE ACCOUNT C
of
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements
December 31, 1994
<PAGE>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
INDEPENDENT AUDITORS' REPORT
The Board of Directors of Preferred Life Insurance Company of New York
and Contract Owners of Preferred Life Variable Account C:
We have audited the accompanying statements of assets and liabilities of the
sub-accounts of Preferred Life Variable Account C as of December 31, 1994, the
related statements of operations for the year ended December 31, 1994 and the
statements of changes in net assets for each of the years in the two-year
period ended December 31, 1994. These financial statements are the
responsibility of the Variable Account's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audit 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.
Investment securities held in custody for the benefit of the Variable Account
were confirmed to us by the Franklin Valuemark Funds. 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, the financial statements referred to above present fairly, in
all material respects, the assets and liabilities of the sub-accounts of
Preferred Life Variable Account C at December 31, 1994, the results of their
operations for the year ended December 31, 1994 and the changes in their net
assets for each of the years in the two-year period ended December 31, 1994,
in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 20, 1995
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
of
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Statements of Assets and Liabilities
December 31, 1994
U.S.
Money Equity Precious High Real Estate Government Utility
Market Growth Metals Income Securities Securities Equity
Fund Fund Fund Fund Fund Fund Fund
----------- ---------- --------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Money Market Fund, 30,738,760 shares,
cost $30,738,760 $30,738,760 - - - - - -
Equity Growth Fund, 3,399,587 shares,
cost $44,775,834 - 45,622,461 - - - - -
Precious Metals Fund, 642,545 shares,
cost $8,692,308 - - 9,053,460 - - - -
High Income Fund, 2,046,508 shares,
cost $25,533,124 - - - 24,987,864 - - -
Real Estate Securities Fund,
916,957 shares, cost $13,723,234 - - - - 14,038,616 - -
U.S. Government Securities Fund,
5,867,558 shares, cost $78,745,849 - - - - - 73,755,200 -
Utility Equity Fund, 6,617,516 shares,
cost $107,771,288 - - - - - - 95,424,580
----------- ---------- --------- ---------- ----------- ---------- ----------
Total assets 30,738,760 45,622,461 9,053,460 24,987,864 14,038,616 73,755,200 95,424,580
----------- ---------- --------- ---------- ----------- ---------- ----------
Liabilities:
Accrued mortality and expense
risk charges 8,096 5,646 3,023 3,859 3,216 6,937 8,874
Accrued administrative charges 972 678 363 463 386 832 1,065
----------- ---------- --------- ---------- ----------- ---------- ----------
Total liabilities 9,068 6,324 3,386 4,322 3,602 7,769 9,939
----------- ---------- --------- ---------- ----------- ---------- ----------
<PAGE>
Net Assets $30,729,692 45,616,137 9,050,074 24,983,542 14,035,014 73,747,431 95,414,641
=========== ========== ========= ========== =========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
of
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Statements of Assets and Liabilities
December 31, 1994
Zero Zero Zero Zero Investment
Coupon Coupon Coupon Coupon Global Grade Income
Fund - Fund - Fund - Fund - Income Intermediate Securities
1995 2000 2005 2010 Fund Bond Fund Fund
---------- ---------- --------- --------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Zero Coupon Fund - 1995, 410,394 shares,
cost $5,134,689 $4,945,251 - - - - - -
Zero Coupon Fund - 2000, 1,306,994
ares, ost $18,560,065 - 17,801,261 - - - - -
Zero Coupon Fund - 2005, 471,359 shares,
cost $6,851,790 - - 6,485,897 - - - -
Zero Coupon Fund - 2010, 308,088 shares,
cost $4,287,763 - - - 4,011,311 - - -
Global Income Fund, 1,877,892 shares,
cost $24,111,733 - - - - 22,891,508 - -
Investment Grade Intermediate Bond Fund,
1,162,608 shares, cost $15,478,821 - - - - - 15,474,311 -
Income Securities Fund, 5,059,182
shares, cost $75,182,586 - - - - - - 72,396,901
---------- ---------- --------- --------- ---------- ------------ ----------
Total assets 4,945,251 17,801,261 6,485,897 4,011,311 22,891,508 15,474,311 72,396,901
---------- ---------- --------- --------- ---------- ------------ ----------
Liabilities:
Accrued mortality and expense
risk charges 2,988 3,788 2,235 2,716 3,353 3,413 7,075
Accrued administrative charges 359 455 268 326 402 410 849
---------- ---------- --------- --------- ---------- ------------ ----------
Total liabilities 3,347 4,243 2,503 3,042 3,755 3,823 7,924
---------- ---------- --------- --------- ---------- ------------ ----------
<PAGE>
Net Assets $4,941,904 17,797,018 6,483,394 4,008,269 22,887,753 15,470,488 72,388,977
========== ========== ========= ========= ========== ============ ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
of
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Statements of Assets and Liabilities (Continued)
December 31, 1994
Templeton
Adjustable Templeton Templeton Developing Templeton
U.S. Pacific Rising International Markets Global Total
Government Growth Dividends Equity Equity Growth All
Fund Fund Fund Fund Fund Fund Funds
----------- ---------- ---------- ------------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Adjustable U.S. Government Fund,
1,858,973 shares, cost $20,339,089 $19,574,990 - - - - -
Templeton Pacific Growth Fund,
2,042,390 shares, cost $27,470,771 - 27,041,239 - - - -
Rising Dividends Fund, 2,877,565 shares,
cost $30,186,991 - - 28,689,323 - - -
Templeton International Equity Fund,
3,965,894 shares, cost $49,413,097 - - - 49,613,338 - -
Templeton Developing Markets Equity Fund,
584,917 shares, cost $5,984,012 - - - - 5,591,807 -
Templeton Global Growth Fund,
897,309 shares, cost $9,411,499 - - - - - 9,403,801
----------- ---------- ---------- ------------- ---------- ---------
Total assets 19,574,990 27,041,239 28,689,323 49,613,338 5,591,807 9,403,801 577,541,879
----------- ---------- ---------- ------------- ---------- --------- -----------
Liabilities:
Accrued mortality and expense
risk charges 3,303 3,717 4,183 5,361 2,543 3,125 87,451
Accrued administrative charges 396 446 502 643 305 375 10,495
----------- ---------- ---------- ------------- ---------- --------- -----------
Total liabilities 3,699 4,163 4,685 6,004 2,848 3,500 97,946
----------- ---------- ---------- ------------- ---------- --------- -----------
<PAGE>
Net Assets $19,571,291 27,037,076 28,684,638 49,607,334 5,588,959 9,400,301 577,443,933
=========== ========== ========== ============= ========== ========= ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
of
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Statements of Operations
For the year ended December 31, 1994
Real U.S.
Money Equity Precious High Estate Government Utility
Market Growth Metals Income Securities Securities Equity
Fund Fund Fund Fund Fund Fund Fund
------------- ----------- ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Income:
Dividends reinvested in
fund shares $ 859,956 291,958 43,469 1,009,903 131,645 4,161,617 4,295,765
------------- ----------- ----------- ----------- ----------- ------------ ------------
Expenses:
Mortality and expense
risk charges 264,039 514,978 96,752 272,269 142,398 1,021,437 1,300,981
Administrative charges 31,685 61,797 11,610 32,672 17,088 122,572 156,118
------------- ----------- ----------- ----------- ----------- ------------ ------------
Total expenses 295,724 576,775 108,362 304,941 159,486 1,144,009 1,457,099
------------- ----------- ----------- ----------- ----------- ------------ ------------
Investment income (loss), net 564,232 (284,817) (64,893) 704,962 (27,841) 3,017,608 2,838,666
Realized gains (losses) and
unrealized appreciation
(depreciation) on investments:
Realized capital gain
distributions on mutual funds - 603,492 - 137,233 - 325,977 761,388
------------- ----------- ----------- ----------- ----------- ------------ ------------
Realized gains (losses) on
sales of investments:
Proceeds from sales 27,394,896 4,989,993 3,630,478 5,194,887 1,571,003 18,535,088 24,398,108
Cost of investments sold (27,394,896) (4,743,016) (3,463,646) (5,178,774) (1,558,711) (19,334,499) (26,574,902)
------------- ----------- ----------- ----------- ----------- ------------ ------------
Total realized gains (losses)
on sales of investments, net - 246,977 166,832 16,113 12,292 (799,411) (2,176,794)
------------- ----------- ----------- ----------- ----------- ------------ ------------
<PAGE>
Realized gains (losses)
on investments, net - 850,469 166,832 153,346 12,292 (473,434) (1,415,406)
Net change in unrealized
appreciation (depreciation)
on investments - (2,200,082) (466,699) (1,605,134) (9,769) (7,889,476) (17,590,119)
------------- ----------- ----------- ----------- ----------- ------------ ------------
Total realized gains (losses)
and unrealized appreciation
(depreciation) on
investments, net - (1,349,613) (299,867) (1,451,788) 2,523 (8,362,910) (19,005,525)
------------- ----------- ----------- ----------- ----------- ------------ ------------
Net increase (decrease) in
net assets from operations $ 564,232 (1,634,430) (364,760) (746,826) (25,318) (5,345,302) (16,166,859)
============= =========== =========== =========== =========== ============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
of
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Statements of Operations (Continued)
For the year ended December 31, 1994
Zero Zero Zero Zero Investment
Coupon Coupon Coupon Coupon Global Grade Income
Fund - Fund - Fund - Fund - Income Intermediate Securities
1995 2000 2005 2010 Fund Bond Fund Fund
---------- ----------- ----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Income:
Dividends reinvested in
fund shares $ 268,772 738,645 233,563 141,116 577,990 417,682 1,977,593
---------- ----------- ----------- ----------- ----------- ------------- -----------
Expenses:
Mortality and expense
risk charges 55,928 191,447 73,144 41,185 269,238 181,992 807,149
Administrative charges 6,711 22,974 8,777 4,942 32,309 21,839 96,858
---------- ----------- ----------- ----------- ----------- ------------- -----------
Total expenses 62,639 214,421 81,921 46,127 301,547 203,831 904,007
---------- ----------- ----------- ----------- ----------- ------------- -----------
Investment income (loss), net 206,133 524,224 151,642 94,989 276,443 213,851 1,073,586
Realized gains (losses) and
unrealized appreciation
(depreciation) on investments:
Realized capital gain
distributions on mutual funds 11,003 105,114 73,003 68,580 238,262 64,463 295,882
---------- ----------- ----------- ----------- ----------- ------------- -----------
Realized gains (losses) on sales
of investments:
Proceeds from sales 959,185 2,051,870 1,445,569 1,436,188 1,963,617 2,078,204 2,756,590
Cost of investments sold (978,782) (2,065,687) (1,432,139) (1,486,056) (2,046,382) (2,066,057) (2,791,621)
---------- ----------- ----------- ----------- ----------- ------------- -----------
Total realized gains (losses)
on sales of investments, net (19,597) (13,817) 13,430 (49,868) (82,765) 12,147 (35,031)
---------- ----------- ----------- ----------- ----------- ------------- -----------
<PAGE>
Realized gains (losses) on
investments, net (8,594) 91,297 86,433 18,712 155,497 76,610 260,851
Net change in unrealized
appreciation (depreciation)
on investments (222,658) (1,812,252) (887,768) (515,561) (1,886,070) (412,173) (6,238,272)
---------- ----------- ----------- ----------- ----------- ------------- -----------
Total realized gains (losses)
and unrealized appreciation
(depreciation) on
investments, net (231,252) (1,720,955) (801,335) (496,849) (1,730,573) (335,563) (5,977,421)
---------- ----------- ----------- ----------- ----------- ------------- -----------
Net increase (decrease) in
net assets from operations ($25,119) (1,196,731) (649,693) (401,860) (1,454,130) (121,712) (4,903,835)
========== =========== =========== =========== =========== ============= ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
of
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Statements of Operations (Continued)
For the year ended December 31, 1994
Templeton
Adjustable Templeton Templeton Developing Templeton
U.S. Pacific Rising International Markets Global Total
Government Growth Dividends Equity Equity Growth All
Fund Fund Fund Fund Fund Fund Funds
------------- ----------- ----------- -------------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Income:
Dividends reinvested in
fund shares $ 967,204 53,728 480,312 106,059 - - 16,756,977
------------- ----------- ----------- -------------- ----------- ---------- -------------
Expenses:
Mortality and expense
risk charges 270,101 285,862 354,381 472,826 23,079 37,947 6,677,133
Administrative charges 32,412 34,303 42,526 56,739 2,769 4,554 801,255
------------- ----------- ----------- -------------- ----------- ---------- -------------
Total expenses 302,513 320,165 396,907 529,565 25,848 42,501 7,478,388
------------- ----------- ----------- -------------- ----------- ---------- -------------
Investment income (loss), net 664,691 (266,437) 83,405 (423,506) (25,848) (42,501) 9,278,589
Realized gains (losses) and
unrealized appreciation
(depreciation) on investments:
Realized capital gain
distributions on mutual funds - 98,902 - 191,622 - - 2,974,921
------------- ----------- ----------- -------------- ----------- ---------- -------------
Realized gains (losses) on
sales of investments:
Proceeds from sales 11,813,851 7,691,423 3,627,180 5,681,001 68,619 128,145 127,415,895
Cost of investments sold (12,078,358) (7,373,057) (3,777,747) (5,351,738) (66,544) (127,937) (129,890,549)
------------- ----------- ----------- -------------- ----------- ---------- -------------
Total realized gains (losses)
on sales of investments, net (264,507) 318,366 (150,567) 329,263 2,075 208 (2,474,654)
------------- ----------- ----------- -------------- ----------- ---------- -------------
<PAGE>
Realized gains (losses) on
investments, net (264,507) 417,268 (150,567) 520,885 2,075 208 500,267
Net change in unrealized
appreciation (depreciation)
on investments (745,000) (2,435,240) (1,515,045) (1,575,004) (392,205) (7,698) (48,406,225)
------------- ----------- ----------- -------------- ----------- ---------- -------------
Total realized gains (losses)
and unrealized appreciation
(depreciation) on
investments, net (1,009,507) (2,017,972) (1,665,612) (1,054,119) (390,130) (7,490) (47,905,958)
------------- ----------- ----------- -------------- ----------- ---------- -------------
Net increase (decrease) in
net assets from operations ($344,816) (2,284,409) (1,582,207) (1,477,625) (415,978) (49,991) (38,627,369)
============= =========== =========== ============== =========== ========== =============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
of
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Statements of Changes in Net Assets
For the years ended December 31, 1994 and 1993
Money Equity Precious High
Market Fund Growth Fund Metals Fund Income Fund
------------ ----------- ----------- ----------- ----------- ---------- ----------- -----------
1994 1993 1994 1993 1994 1993 1994 1993
------------ ----------- ----------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in
net assets:
Operations:
Investment income
(loss), net $ 564,232 57,013 (284,817) (140,367) (64,893) (19,936) 704,962 199,622
Realized gains (losses)
on investments, net - - 850,469 240,221 166,832 56,917 153,346 108,768
Net change in unrealized
appreciation
(depreciation)
on investments - - (2,200,082) 2,160,289 (466,699) 856,362 (1,605,134) 910,648
------------ ----------- ----------- ----------- ----------- ---------- ----------- -----------
Net increase (decrease)
in net assests
from operations 564,232 57,013 (1,634,430) 2,260,143 (364,760) 893,343 (746,826) 1,219,038
------------ ----------- ----------- ----------- ----------- ---------- ----------- -----------
Contract transactions:
Purchase payments 20,235,166 9,695,690 12,533,220 15,497,868 3,576,266 2,822,263 8,837,799 11,590,922
Transfers between funds 9,008,938 (5,275,313) 4,254,917 456,357 1,278,991 1,709,310 1,621,416 1,458,774
Surrenders and
terminations (6,138,474) (349,119) (2,158,598) (616,829) (1,073,457) (46,771) (1,841,609) (449,415)
Rescissions (611,504) (148,550) (226,365) (151,506) (22,490) (580) (104,329) (141,840)
Other transactions
(note 2) 105,617 (1,007) (9,269) (13,239) (317) (772) 10,298 (2,932)
------------ ----------- ----------- ----------- ----------- ---------- ----------- -----------
<PAGE>
Net increase (decrease)
in net assets
resulting from
contract transactions 22,599,743 3,921,701 14,393,905 15,172,651 3,758,993 4,483,450 8,523,575 12,455,509
------------ ----------- ----------- ----------- ----------- ---------- ----------- -----------
Increase (decrease) in
net assets 23,163,975 3,978,714 12,759,475 17,432,794 3,394,233 5,376,793 7,776,749 13,674,547
------------ ----------- ----------- ----------- ----------- ---------- ----------- -----------
Net assets at
beginning of year 7,565,717 3,587,003 32,856,662 15,423,868 5,655,841 279,048 17,206,793 3,532,246
------------ ----------- ----------- ----------- ----------- ---------- ----------- -----------
Net assets at end of year $30,729,692 7,565,717 45,616,137 32,856,662 9,050,074 5,655,841 24,983,542 17,206,793
============ =========== =========== =========== =========== ========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
of
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Statements of Changes in Net Assets (Continued)
For the years ended December 31, 1994 and 1993
Real Estate U.S. Government Utility
Securities Fund Securities Fund Equity Fund
------------ ---------- ------------ ----------- ------------ ------------
1994 1993 1994 1993 1994 1993
------------ ---------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in
net assets:
Operations:
Investment income (loss), net ($27,841) (14,566) 3,017,608 1,256,902 2,838,666 355,116
Realized gains (losses) on
investments, net 12,292 10,662 (473,434) 367,295 (1,415,406) 42,386
Net change in unrealized
appreciation (depreciation)
on investments (9,769) 248,806 (7,889,476) 1,944,092 (17,590,119) 3,015,210
------------ ---------- ------------ ----------- ------------ ------------
Net increase (decrease) in
net assets from operations (25,318) 244,902 (5,345,302) 3,568,289 (16,166,859) 3,412,712
------------ ---------- ------------ ----------- ------------ ------------
Contract transactions:
Purchase payments 4,925,336 4,689,453 15,371,426 62,151,915 16,521,939 89,274,222
Transfers between funds 3,344,209 878,936 (16,943,563) (2,585,356) (26,596,445) 1,136,273
Surrenders and terminations (912,278) (67,219) (8,269,859) (2,936,094) (7,474,582) (3,072,889)
Rescissions (23,872) (44,636) (826,373) (1,184,724) (383,473) (1,209,107)
Other transactions (note 2) 15,171 (1,265) (12,573) (21,414) (13,092) (36,502)
------------ ---------- ------------ ----------- ------------ ------------
Net increase (decrease) in
net assets resulting from
contract transactions 7,348,566 5,455,269 (10,680,942) 55,424,327 (17,945,653) 86,091,997
------------ ---------- ------------ ----------- ------------ ------------
Increase (decrease) in net assets 7,323,248 5,700,171 (16,026,244) 58,992,616 (34,112,512) 89,504,709
------------ ---------- ------------ ----------- ------------ ------------
<PAGE>
Net assets at beginning of year 6,711,766 1,011,595 89,773,675 30,781,059 129,527,153 40,022,444
------------ ---------- ------------ ----------- ------------ ------------
Net assets at end of year $14,035,014 6,711,766 73,747,431 89,773,675 95,414,641 129,527,153
============ ========== ============ =========== ============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
of
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Statements of Changes in Net Assets (Continued)
For the years ended December 31, 1994 and 1993
Zero Coupon Zero Coupon Zero Coupon Zero Coupon
Fund - 1995 Fund - 2000 Fund - 2005 Fund - 2010
----------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
1994 1993 1994 1993 1994 1993 1994 1993
----------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in
net assets:
Operations:
Investment income (loss), net $ 206,133 117,120 524,224 282,336 151,642 67,375 94,989 95,612
Realized gains (losses) on
investments, net (8,594) 50,189 91,297 81,217 86,433 49,958 18,712 95,626
Net change in unrealized
appreciation (depreciation)
on investments (222,658) (19,154) (1,812,252) 794,918 (887,768) 413,934 (515,561) 188,927
----------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
Net increase (decrease) in
net assets from operations (25,119) 148,155 (1,196,731) 1,158,471 (649,693) 531,267 (401,860) 380,165
----------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
Contract transactions:
Purchase payments 1,016,548 1,853,508 6,524,472 7,568,834 2,062,590 4,460,886 1,257,365 2,914,365
Transfers between funds 612,501 (285,738) 1,062,503 (718,671) (716,211) (290,947) (205,063) (526,853)
Surrenders and terminations (515,158) (140,627) (1,747,638) (368,568) (342,303) (79,965) (118,829) (118,722)
Rescissions (51,312) (10,522) (150,398) (128,302) (25,851) (84,191) (23,229) (31,415)
Other transactions (note 2) (1,699) (1,497) 7,579 (3,811) (3,720) (895) (2,063) (761)
----------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
Net increase (decrease) in
net assets resulting from
contract transactions 1,060,880 1,415,124 5,696,518 6,349,482 974,505 4,004,888 908,181 2,236,614
----------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
Increase (decrease)
in net assets 1,035,761 1,563,279 4,499,787 7,507,953 324,812 4,536,155 506,321 2,616,779
----------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<PAGE>
Net assets at
beginning of year 3,906,143 2,342,864 13,297,231 5,789,278 6,158,582 1,622,427 3,501,948 885,169
----------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
Net assets at end of year $4,941,904 3,906,143 17,797,018 13,297,231 6,483,394 6,158,582 4,008,269 3,501,948
=========== ========== =========== =========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
of
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Statements of Changes in Net Assets (Continued)
For the years ended December 31, 1994 and 1993
Global Investment Grade Income
Income Fund Intermediate Bond Fund Securities Fund
------------ ----------- ------------- ----------- ----------- -----------
1994 1993 1994 1993 1994 1993
------------ ----------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in
net assets:
Operations:
Investment income (loss), net $ 276,443 149,518 213,851 75,048 1,073,586 88,932
Realized gains (losses) on
investments, net 155,497 88,825 76,610 48,112 260,851 87,001
Net change in unrealized
appreciation (depreciation)
on investments (1,886,070) 855,190 (412,173) 318,237 (6,238,272) 3,305,468
------------ ----------- ------------- ----------- ----------- -----------
Net increase (decrease) in
net assets from operations (1,454,130) 1,093,533 (121,712) 441,397 (4,903,835) 3,481,401
------------ ----------- ------------- ----------- ----------- -----------
Contract transactions:
Purchase payments 8,011,192 8,340,734 4,279,682 7,906,052 29,130,260 29,453,618
Transfers between funds 2,676,522 928,870 (536,649) 169,045 6,471,357 4,699,089
Surrenders and terminations (1,501,529) (163,413) (953,308) (299,118) (4,321,170) (782,739)
Rescissions (163,384) (57,305) (52,789) (89,201) (694,175) (264,031)
Other transactions (note 2) 16,850 (4,239) 4,934 (3,100) (110) (8,425)
------------ ----------- ------------- ----------- ----------- -----------
Net increase (decrease) in
net assets resulting from
contract transactions 9,039,651 9,044,647 2,741,870 7,683,678 30,586,162 33,097,512
------------ ----------- ------------- ----------- ----------- -----------
Increase (decrease) in net assets 7,585,521 10,138,180 2,620,158 8,125,075 25,682,327 36,578,913
------------ ----------- ------------- ----------- ----------- -----------
<PAGE>
Net assets at beginning of year 15,302,232 5,164,052 12,850,330 4,725,255 46,706,650 10,127,737
------------ ----------- ------------- ----------- ----------- -----------
Net assets at end of year $22,887,753 15,302,232 15,470,488 12,850,330 72,388,977 46,706,650
============ =========== ============= =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
of
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Statements of Changes in Net Assets (Continued)
For the years ended December 31, 1994 and 1993
Adjustable U.S. Templeton Pacific Rising Templeton
Government Fund Growth Fund Dividends Fund Equity
------------- ------------ ----------- ----------- ----------- ----------- -----------
1994 1993 1994 1993 1994 1993 1994
------------- ------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in
net assets:
Operations:
Investment income (loss), net $ 664,691 529,328 (266,437) (50,681) 83,405 (214,493) (423,506)
Realized gains (losses) on
investments, net (264,507) 54,377 417,268 91,269 (150,567) (3,456) 520,885
Net change in unrealized
appreciation (depreciation)
on investments (745,000) (190,173) (2,435,240) 2,009,358 (1,515,045) (253,924) (1,575,004)
------------- ------------ ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in
net assets from operations (344,816) 393,532 (2,284,409) 2,049,946 (1,582,207) (471,873) (1,477,625)
------------- ------------ ----------- ----------- ----------- ----------- -----------
Contract transactions:
Purchase payments 10,829,027 17,390,162 12,437,434 6,956,523 5,956,165 21,922,704 21,636,160
Transfers between funds (11,523,439) (10,757,964) 6,046,223 3,587,743 (2,607,296) 1,054,922 15,583,976
Surrenders and terminations (1,461,901) (628,409) (2,090,878) (120,518) (1,593,730) (436,146) (2,203,244)
Rescissions (97,065) (217,791) (108,539) (17,433) (105,012) (137,525) (401,811)
Other transactions (note 2) (9,159) (8,028) 14,043 (941) (6,097) (5,495) 19,358
------------- ------------ ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in
net assets resulting from
contract transactions (2,262,537) 5,777,970 16,298,283 10,405,374 1,644,030 22,398,460 34,634,439
------------- ------------ ----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets (2,607,353) 6,171,502 14,013,874 12,455,320 61,823 21,926,587 33,156,814
------------- ------------ ----------- ----------- ----------- ----------- -----------
<PAGE>
Net assets at beginning of year 22,178,644 16,007,142 13,023,202 567,882 28,622,815 6,696,228 16,450,520
------------- ------------ ----------- ----------- ----------- ----------- -----------
Net assets at end of year $ 19,571,291 22,178,644 27,037,076 13,023,202 28,684,638 28,622,815 49,607,334
============= ============ =========== =========== =========== =========== ===========
International
Fund
--------------
1993
--------------
<S> <C>
Increase (decrease) in
net assets:
Operations:
Investment income (loss), net (54,528)
Realized gains (losses) on
investments, net 60,354
Net change in unrealized
appreciation (depreciation)
on investments 1,782,968
--------------
Net increase (decrease) in
net assets from operations 1,788,794
--------------
Contract transactions:
Purchase payments 9,595,935
Transfers between funds 4,361,523
Surrenders and terminations (120,253)
Rescissions (23,067)
Other transactions (note 2) (1,266)
--------------
Net increase (decrease) in
net assets resulting from
contract transactions 13,812,872
--------------
Increase (decrease) in net assets 15,601,666
--------------
Net assets at beginning of year 848,854
--------------
Net assets at end of year 16,450,520
==============
</TABLE>
<PAGE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
of
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Statements of Changes in Net Assets (Continued)
For the years ended December 31, 1994 and 1993
Templeton
Developing Markets Templeton Global Total
Equity Fund Growth Fund All Funds
------------ ------- ---------- ------ ------------ ------------
1994 1993 1994 1993 1994 1993
------------ ------- ---------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in
net assets:
Operations:
Investment income (loss), net $ (25,848) - (42,501) - 9,278,589 2,779,351
Realized gains (losses) on
investments, net 2,075 - 208 - 500,267 1,529,721
Net change in unrealized
appreciation (depreciation)
on investments (392,205) - (7,698) - (48,406,225) 18,341,156
------------ ------- ---------- ------ ------------ ------------
Net increase (decrease) in
net assets from operations (415,978) - (49,991) - (38,627,369) 22,650,228
------------ ------- ---------- ------ ------------ ------------
Contract transactions:
Purchase payments 3,620,848 - 4,944,049 - 193,706,944 314,085,654
Transfers between funds 2,487,493 - 4,679,620 - - -
Surrenders and terminations (83,207) - (138,417) - (44,940,169) (10,796,814)
Rescissions (24,211) - (33,934) - (4,130,116) (3,941,726)
Other transactions (note 2) 4,014 - (1,026) - 138,739 (115,589)
------------ ------- ---------- ------ ------------ ------------
Net increase (decrease) in
net assets resulting from
contract transactions 6,004,937 - 9,450,292 - 144,775,398 299,231,525
------------ ------- ---------- ------ ------------ ------------
Increase (decrease) in net assets 5,588,959 - 9,400,301 - 106,148,029 321,881,753
------------ ------- ---------- ------ ------------ ------------
<PAGE>
Net assets at beginning of year - - - - 471,295,904 149,414,151
------------ ------- ---------- ------ ------------ ------------
Net assets at end of year $ 5,588,959 - 9,400,301 - 577,443,933 471,295,904
============ ======= ========== ====== ============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PREFERRED LIFE VARIABLE ACCOUNT C
of
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Notes to Financial Statements, (continued)
December 31, 1994
1. ORGANIZATION
Preferred Life Variable Account C (Variable Account) is a segregated
investment account of Preferred Life Insurance Company of New York (Preferred
Life) and is registered with the Securities and Exchange Commission as a unit
investment trust pursuant to the provisions of the Investment Company Act of
1940 (as amended). The Variable Account was established by Preferred Life on
February 26, 1988 and commenced operations September 6, 1991. Accordingly, it
is an accounting entity wherein all segregated account transactions are
reflected.
The Variable Account's assets are the property of Preferred Life and are held
for the benefit of the owners and other persons entitled to payments under
variable annuity contracts issued through the Variable Account and
underwritten by Preferred Life. The assets of the Variable Account, equal to
the reserves and other liabilities of the Variable Account, are not chargeable
with liabilities that arise from any other business which Preferred Life may
conduct.
The Variable Account's sub-accounts may invest, at net asset values, in one or
more of the funds of the Franklin Valuemark Funds (FVF), managed by Franklin
Advisers, Inc., in accordance with the selection made by the contract owner.
Certain officers and trustees of the FVF are also officers and/or directors of
Franklin Advisers, Inc. and/or Preferred Life.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS
Investments of the Variable Account are valued daily at market value using net
asset values provided by Franklin Advisers, Inc.
Realized investment gains include gains on the sale of fund shares as
determined by the average cost method. Dividend distributions received from
the FVF are reinvested in additional shares of the FVF and are recorded as
income to the Variable Account on the ex-dividend date.
The Templeton Developing Markets Equity Fund and Templeton Global Growth Fund
were added as available investment options on April 25, 1994.
<PAGE>
EXPENSES
ASSET BASED EXPENSES
A mortality and expense risk charge is deducted from the Variable Account on a
daily basis equal, on an annual basis, to 1.25% of the daily net assets of the
Variable Account.
An administrative charge is deducted from the Variable Account on a daily
basis equal, on an annual basis, to .15% of the daily net assets of the
Variable Account.
CONTRACT BASED EXPENSES
A contract maintenance charge is paid by the contract owner annually from each
contract by liquidating contract units at the end of the contract year and at
the time of full surrender. The amount of the charge is $30 each year.
Contract maintenance charges deducted during the years ended December 31, 1994
and 1993 were $369,180 and $115,589, respectively. These contract charges are
reflected in the financial statements as other transactions.
A contingent deferred sales charge is deducted from the contract value at the
time of a surrender. This charge applies only to a surrender of purchase
payments received within five years of the date of surrender. For this
purpose, purchase payments are allocated on a first-in, first-out basis. The
amount of the contingent deferred sales charge is calculated by: (a)
allocating purchase payments to the amount surrendered; and (b) multiplying
each allocated purchase payment that has been held under the contract for the
period shown below by the charge shown below:
<TABLE>
<CAPTION>
<S> <C>
Years Since Payment Charge
- ------------------- -------
0-1 5%
1-2 5%
2-3 4%
3-4 3%
4-5 1.5%
5 0
</TABLE>
and (c) adding the products of each multiplication in (b) above.
A contract owner may, not more frequently than once annually on a cumulative
basis, make a surrender each contract year of fifteen percent (15%) of
<PAGE>
purchase payments paid, less any prior surrenders, without incurring a
contingent deferred sales charge.
For a partial surrender, the contingent deferred sales charge will be deducted
from the remaining contract value, if sufficient; otherwise it will be
deducted from the amount surrendered.
Total contingent deferred sales charges paid by the contract owners for the
years ended December 31, 1994 and 1993 were $944,991 and $127,888,
respectively.
Currently, twelve transfers are permitted each contract year. Thereafter, the
fee is $25 per transfer, or 2% of the amount transferred, if less. Currently,
transfers associated with the dollar cost averaging program are not counted.
Total transfer charges for the years ended December 31, 1994 and 1993 were
$12,900 and $5,800, respectively. Transfer charges are reflected in the
financial statements as other transactions.
Premium taxes or other taxes payable to a state or other governmental entity
will be charged against the contract values. Preferred Life may, at its sole
discretion, pay taxes when due and deduct that amount from the contract value
at a later date. Payment at an earlier date does not waive any right
Preferred Life may have to deduct such amounts at a later date.
On certain contracts, a systematic withdrawal plan is available which allows
an owner to withdraw annually up to 9% of purchase payments less prior
surrenders, paid quarterly, without incurring a contingent deferred sales
charge. The exercise of the systematic withdrawal plan in any contract year
replaces the 15% penalty free privilege for that year.
A rescission is defined as a contract that is returned to the company and
canceled within the free-look period, generally within 10 days.
3. INVESTMENT TRANSACTIONS
The sub-account purchases of fund shares, including reinvestment of dividend
distributions, were as follows during the year ended December 31, 1994:
<TABLE>
<CAPTION>
<S> <C>
Money Market Fund $50,564,596
Equity Growth Fund 19,705,350
Precious Metals Fund 7,324,940
High Income Fund 14,561,598
Real Estate Securities Fund 8,892,214
<PAGE>
U.S. Government Securities Fund 11,199,740
Utility Equity Fund 10,054,608
Zero Coupon Fund - 1995 2,237,841
Zero Coupon Fund - 2000 8,379,148
Zero Coupon Fund - 2005 2,644,640
Zero Coupon Fund - 2010 2,508,066
Global Income Fund 11,518,519
Investment Grade Intermediate Bond Fund 5,099,218
Income Securities Fund 34,716,227
Adjustable U.S. Government Fund 10,216,518
Templeton Pacific Growth Fund 23,823,337
Rising Dividends Fund 5,355,522
Templeton International Equity Fund 40,086,122
Templeton Developing Markets Equity Fund 6,050,556
Templeton Global Growth Fund 9,539,435
</TABLE>
4. FEDERAL INCOME TAXES
Operations of the Variable Account form a part of, and are taxed with,
operations of Preferred Life, which is taxed as a life insurance company under
the Internal Revenue Code.
Preferred Life does not expect to incur any federal income taxes in the
operation of the Variable Account. If in the future Preferred Life determines
that the Variable Account may incur federal income taxes, it may then assess a
charge against the Variable Account for such taxes.
5. CONTRACT TRANSACTIONS - UNIT ACTIVITY
Transactions in units for each fund for the years ended December 31, 1994 and
1993 were as follows:
<TABLE>
<CAPTION>
Real U.S.
Money Equity Precious High Estate Government Utility
Market Growth Metals Income Securities Securities Equity
Fund Fund Fund Fund Fund Fund Fund
------------ ----------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Units outstanding at
December 31, 1992 300,618 1,226,685 29,609 266,025 77,248 2,265,610 2,518,933
Contract transactions:
Purchase payments 808,412 1,201,364 224,678 806,620 308,590 4,304,095 5,144,321
<PAGE>
Transfers between funds (440,467) 34,828 140,498 103,455 58,232 (175,590) 65,702
Surrenders and terminations (29,059) (47,766) (3,637) (30,885) (4,382) (202,911) (178,249)
Rescissions (12,382) (11,750) (45) (9,635) (2,894) (81,953) (69,604)
Other transactions (84) (1,022) (62) (202) (85) (1,477) (2,110)
------------ ----------- ---------- ----------- ----------- ----------- -----------
Net increase (decrease) in
accumulation units resulting
from contract transactions 326,420 1,175,654 361,432 869,353 359,461 3,842,164 4,960,060
Units outstanding at
December 31, 1993 627,038 2,402,339 391,041 1,135,378 436,709 6,107,774 7,478,993
============ =========== ========== =========== =========== =========== ===========
Accumulation unit value per unit
at December 31, 1993 $ 12.066 13.677 14.464 15.155 15.369 14.698 17.319
============ =========== ========== =========== =========== =========== ===========
Contract transactions:
Purchase payments 1,661,743 923,189 255,888 600,639 314,797 1,080,502 1,051,921
Transfers between funds 742,599 305,438 80,754 107,167 208,412 (1,203,909) (1,696,778)
Surrenders and terminations (502,247) (161,395) (78,581) (126,425) (59,351) (593,751) (491,312)
Rescissions (50,318) (16,981) (1,666) (7,160) (1,532) (59,151) (24,704)
Other transactions 8,617 (648) (21) 713 987 (934) (922)
------------ ----------- ---------- ----------- ----------- ----------- -----------
Net increase (decrease) in
accumulation units resulting
from contract transactions 1,860,394 1,049,603 256,374 574,934 463,313 (777,243) (1,161,795)
------------ ----------- ---------- ----------- ----------- ----------- -----------
Units outstanding at
December 31, 1994 2,487,432 3,451,942 647,415 1,710,312 900,022 5,330,531 6,317,198
============ =========== ========== =========== =========== =========== ===========
Accumulation unit value per unit
at December 31, 1994 $ 12.354 13.215 13.979 14.608 15.594 13.835 15.104
============ =========== ========== =========== =========== =========== ===========
Accumulation net assets
at December 31, 1994 $30,729,692 45,616,137 9,050,074 24,983,542 14,035,014 73,747,431 95,414,641
============ =========== ========== =========== =========== =========== ===========
<PAGE>
Zero Zero Zero
Coupon Coupon Coupon
Fund - Fund - Fund -
1995 2000 2005
---------- ----------- ----------
<S> <C> <C> <C>
Units outstanding at
December 31, 1992 171,447 396,665 108,345
Contract transactions:
Purchase payments 129,304 473,627 258,654
Transfers between funds (20,128) (43,596) (16,485)
Surrenders and terminations (10,028) (23,219) (4,541)
Rescissions (725) (7,832) (4,726)
Other transactions (105) (234) (50)
---------- ----------- ----------
Net increase (decrease) in
accumulation units resulting
from contract transactions 98,318 398,746 232,852
Units outstanding at
December 31, 1993 269,765 795,411 341,197
========== =========== ==========
Accumulation unit value per unit
at December 31, 1993 14.480 16.717 18.050
========== =========== ==========
Contract transactions:
Purchase payments 70,708 414,919 125,015
Transfers between funds 42,828 68,710 (40,577)
Surrenders and terminations (35,886) (112,129) (21,155)
Rescissions (3,621) (9,747) (1,457)
Other transactions (118) 503 (227)
---------- ----------- ----------
Net increase (decrease) in
accumulation units resulting
from contract transactions 73,911 362,256 61,599
---------- ----------- ----------
Units outstanding at
December 31, 1994 343,676 1,157,667 402,796
========== =========== ==========
<PAGE>
Accumulation unit value per unit
at December 31, 1994 14.380 15.373 16.096
========== =========== ==========
Accumulation net assets
at December 31, 1994 4,941,904 17,797,018 6,483,394
========== =========== ==========
</TABLE>
5. CONTRACT TRANSACTIONS - UNIT ACTIVITY (CONTINUED)
<TABLE>
<CAPTION>
Zero Investment Adjustable Templeton
Coupon Global Grade Income U.S. Pacific Rising
Fund - Income Intermediate Securities Government Growth Dividends
2010 Fund Bond Fund Fund Fund Fund Fund
----------- ----------- ------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Units outstanding at
December 31, 1992 60,340 405,580 351,527 667,945 1,452,585 58,179 617,294
Contract transactions:
Purchase payments 169,893 591,902 556,819 1,752,582 1,554,288 583,102 2,110,054
Transfers between funds (28,575) 63,329 12,291 275,551 (959,985) 285,157 100,053
Surrenders and terminations (6,872) (11,882) (21,097) (46,338) (55,959) (9,931) (41,962)
Rescissions (1,739) (4,091) (6,275) (15,562) (19,408) (1,450) (13,313)
Other transactions (44) (306) (217) (499) (718) (76) (532)
----------- ----------- ------------- ----------- ----------- ----------- -----------
Net increase (decrease) in
accumulation units resulting
from contract transactions 132,663 638,952 541,521 1,965,734 518,218 856,802 2,154,300
----------- ----------- ------------- ----------- ----------- ----------- -----------
Units outstanding at
December 31, 1993 193,003 1,044,532 893,048 2,633,679 1,970,803 914,981 2,771,594
=========== =========== ============= =========== =========== =========== ===========
Accumulation unit value per unit
at December 31, 1993 $ 18.144 14.650 14.389 17.734 11.254 14.233 10.327
=========== =========== ============= =========== =========== =========== ===========
Contract transactions:
Purchase payments 76,028 561,113 300,084 1,705,232 968,718 921,042 599,000
Transfers between funds (8,676) 180,054 (37,700) 374,341 (1,032,132) 440,484 (261,335)
Surrenders and terminations (7,322) (107,849) (66,963) (256,277) (130,996) (157,447) (161,474)
<PAGE>
Rescissions (1,286) (11,608) (3,708) (40,792) (8,659) (8,240) (10,761)
Other transactions (127) 1,196 348 9 (819) 1,165 (653)
----------- ----------- ------------- ----------- ----------- ----------- -----------
Net increase (decrease) in
accumulation units resulting
from contract transactions 58,617 622,906 192,061 1,782,513 (203,888) 1,197,004 164,777
----------- ----------- ------------- ----------- ----------- ----------- -----------
Units outstanding at
December 31, 1994 251,620 1,667,438 1,085,109 4,416,192 1,766,915 2,111,985 2,936,371
=========== =========== ============= =========== =========== =========== ===========
Accumulation unit value per unit
at December 31, 1994 $ 15.930 13.726 14.257 16.392 11.077 12.802 9.769
=========== =========== ============= =========== =========== =========== ===========
Accumulation net assets at
December 31, 1994 $4,008,269 22,887,753 15,470,488 72,388,977 19,571,291 27,037,076 28,684,638
=========== =========== ============= =========== =========== =========== ===========
Templeton
Templeton Developing Templeton
International Markets Global
Equity Equity Growth
Fund Fund Fund
-------------- ----------- ----------
<S> <C> <C> <C>
Units outstanding at
December 31, 1992 88,033 - -
Contract transactions:
Purchase payments 884,058 - -
Transfers between funds 386,678 - -
Surrenders and terminations (10,999) - -
Rescissions (2,080) - -
Other transactions (116) - -
-------------- ----------- ----------
Net increase (decrease) in
accumulation units resulting
from contract transactions 1,257,541 - -
-------------- ----------- ----------
Units outstanding at
December 31, 1993 1,345,574 - -
============== =========== ==========
<PAGE>
Accumulation unit value per unit
at December 31, 1993 12.226 - -
============== =========== ==========
Contract transactions:
Purchase payments 1,712,426 358,401 482,780
Transfers between funds 1,226,646 242,892 455,573
Surrenders and terminations (175,010) (8,146) (13,427)
Rescissions (32,139) (2,370) (3,306)
Other transactions 1,611 381 (99)
-------------- ----------- ----------
Net increase (decrease) in
accumulation units resulting
from contract transactions 2,733,534 591,158 921,521
-------------- ----------- ----------
Units outstanding at
December 31, 1994 4,079,108 591,158 921,521
============== =========== ==========
Accumulation unit value per unit
at December 31, 1994 12.161 9.454 10.201
============== =========== ==========
Accumulation net assets at
December 31, 1994 49,607,334 5,588,959 9,400,301
============== =========== ==========
</TABLE>
<PAGE>
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements
December 31, 1994 and 1993
<PAGE>
KPMG Peat Marwick LLP
4200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Preferred Life Insurance Company of New York:
We have audited the accompanying balance sheets of Preferred Life Insurance
Company of New York (a wholly owned subsidiary of Allianz Life Insurance
Company of North America) as of December 31, 1994 and 1993, and the related
statements of income, stockholder's equity and cash flows for each of the
years in the three-year period ended December 31, 1994. 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Preferred Life Insurance
Company of New York as of December 31, 1994 and 1993, and the results of its
operations and changes in stockholder's equity and cash flows for each of the
years in the three-year period ended December 31, 1994, in conformity with
generally accepted accounting principles.
In 1994, as discussed in note 1 to the financial statements, the Company
adopted the provisions of Financial Accounting Standards Board's Statement of
<PAGE>
Financial Accounting Standards Statement No. 115, Accounting for Certain
Investments in Debt and Equity Securities. In 1993, as discussed in notes 1,
6 and 7 to the financial statements, the Company adopted the provisions of
Financial Accounting Standards Board's Statements of Financial Accounting
Standards No. 109, Accounting for Income Taxes; and No. 113, Accounting and
Reporting for Reinsurance of Short-Duration and Long-Duration Contracts.
KPMG Peat Marwick LLP
February 7, 1995
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Balance Sheets
December 31, 1994 and 1993
(in thousands except share data)
Assets 1994 1993
- ---------------------------------------------------------------------- --------- -------
<S> <C> <C>
Investments:
Fixed maturities, at amortized cost $ 0 7,461
Fixed maturities, at market 3,516
Certificates of deposit and short-term securities 3,188 0
--------- -------
Total investments 6,704 7,461
Cash 4,872 0
Receivables 5,091 5,026
Reinsurance receivable:
Recoverable on future policy benefit reserves 160 262
Recoverable on unpaid claims 13,672 10,778
Receivable on paid claims 114 967
Prepaid insurance premiums 426 109
Deferred acquisition costs 37,577 29,487
Accrued investment income 74 126
Other assets 161 72
--------- -------
Assets exclusive of separate account assets 68,851 54,288
Separate account assets 577,444 471,296
--------- -------
Total assets $646,295 525,584
========= =======
Liabilities and Stockholder's Equity
- ----------------------------------------------------------------------
Liabilities:
Future life policy benefit reserves $ 511 544
Future annuity benefit reserves 271 0
Policy and contract claims 27,312 22,016
Unearned premiums 2,285 2,089
Other policyholder funds 885 475
Reinsurance payable 2,058 2,942
Deferred income taxes 4,605 3,651
Accrued expenses 1,053 434
Commissions due and accrued 880 1,904
<PAGE>
Payable to parent 566 0
Bank overdraft 0 1,240
--------- -------
Liabilities exclusive of separate account liabilities 40,426 35,295
Separate account liabilities 577,444 471,296
--------- -------
Total liabilities 617,870 506,591
Stockholder's equity:
Common stock, $10 par value; 200,000 shares
authorized, issued and outstanding 2,000 2,000
Additional paid-in capital 15,500 9,000
Net unrealized holding loss on available-for-sale
securities, net of deferred federal income taxes (268) 0
Retained earnings 11,193 7,993
--------- -------
Total stockholder's equity 28,425 18,993
--------- -------
Commitments and contingencies (notes 6 and 11)
Total liabilities and stockholder's equity $646,295 525,584
========= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Statements of Income
Years Ended December 31, 1994, 1993 and 1992
(in thousands)
1994 1993 1992
-------- -------- -------
<S> <C> <C> <C>
Revenue:
Life insurance premiums $10,465 9,504 11,986
Annuity considerations 8,781 4,450 993
Accident and health premiums 24,586 24,160 30,704
-------- -------- -------
Total premiums and considerations 43,832 38,114 43,683
Premiums ceded 16,341 12,683 17,761
-------- -------- -------
Net premiums and considerations 27,491 25,431 25,922
Investment income, net 371 372 1,187
Realized investment gains (losses), net (113) 649 306
Other 0 0 241
-------- -------- -------
Total revenue 27,749 26,452 27,656
-------- -------- -------
Benefits and expenses:
Life insurance and annuity benefits 10,934 9,445 10,730
Accident and health insurance benefits 15,455 15,117 20,559
-------- -------- -------
Total benefits 26,389 24,562 31,289
Benefit recoveries 11,999 9,424 15,041
-------- -------- -------
Net benefits 14,390 15,138 16,248
Commissions and other agent compensation 12,974 23,033 16,512
General and administrative expenses 3,079 3,079 1,503
Taxes, licenses and fees 943 766 1,199
Increase in deferred acquisition costs (8,090) (18,017) (9,994)
-------- -------- -------
Total benefits and expenses 23,296 23,999 25,468
-------- -------- -------
<PAGE>
Income from operations before income taxes 4,453 2,453 2,188
-------- -------- -------
Income tax expense (benefit):
Current 154 (376) (453)
Deferred 1,099 1,177 1,144
-------- -------- -------
Total income tax expense 1,253 801 691
-------- -------- -------
Net income before cumulative effect of changes in accounting 3,200 1,652 1,497
Cumulative effect of changes in accounting 0 (1,084) 0
-------- -------- -------
Net income $ 3,200 568 1,497
======== ======== =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Statements of Stockholder's Equity
Years Ended December 31, 1994, 1993 and 1992
(in thousands)
1994 1993 1992
--------- ------ ------
<S> <C> <C> <C>
Common stock:
Balance at beginning and end of year $2,000 2,000 2,000
--------- ------ ------
Additional paid-in capital:
Balance at beginning of year 9,000 4,000 4,000
Additional contribution from parent 6,500 5,000 0
--------- ------ ------
Balance at end of year 15,500 9,000 4,000
--------- ------ ------
Net unrealized losses on investments:
Balance at beginning of year 0 0 0
Cumulative effect of the implementation of SFAS No. 115,
net of deferred federal income taxes 82 0 0
Net unrealized loss during the year,
net of deferred federal income taxes (350) 0 0
--------- ------ ------
Balance at end of year (268) 0 0
--------- ------ ------
Retained earnings:
Balance at beginning of year 7,993 7,425 5,928
Net income 3,200 568 1,497
--------- ------ ------
Balance at end of year 11,193 7,993 7,425
--------- ------ ------
Total stockholder's equity $28,425 18,993 13,425
========= ====== ======
</TABLE>
<PAGE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Statements of Cash Flow
Years Ended December 31, 1994, 1993 and 1992
(in thousands)
1994 1993 1992
-------- -------- -------
<S> <C> <C> <C>
Cash flows used in operating activities:
Net income $ 3,200 568 1,497
-------- -------- -------
Adjustments to reconcile net income to net
cash used in operating activities:
Realized losses (gains)on investments 113 (649) (307)
Deferred federal income tax expense 1,099 1,177 1,144
Cumulative effect of change in accounting 0 (1,084) 0
Change in:
Future life policy benefit reserve (33) 353 (824)
Future annuity benefit reserves 271 0 0
Policy and contract claims 5,296 1,479 1,845
Deferred acquisition costs (8,090) (18,017) (9,994)
Unearned premiums 196 542 (263)
Receivables (2,320) (188) 2,940
Reinsurance payable (884) 611 (229)
Other policyholder funds 410 (2,919) 3,276
Commissions due and accrued (1,024) 657 (489)
Accrued expenses 619 (32) (249)
Deferred tax liability 0 2,168 0
Due to/from parent 573 17 (2,957)
Depreciation and amortization (63) 20 (64)
Other, net (46) 11 (49)
-------- -------- -------
Total adjustments (3,883) (15,854) (6,220)
-------- -------- -------
Net cash used in operating activities (683) (15,286) (4,723)
-------- -------- -------
Cash flows from (used in) investing activities:
Purchase of fixed maturities, at amortized cost 0 (6,027) 0
Sale of fixed maturities, at amortized cost 0 12,261 4,233
Matured fixed maturities, at amortized cost 0 650 0
<PAGE>
Sale of fixed maturities, at market 3,428 0 0
Other investments, net (3,133) 0 3,674
-------- -------- -------
Net cash from investing activities 295 6,884 7,907
-------- -------- -------
Cash flows from (used in) financing activities:
Capital contribution from parent 6,500 5,000 0
Net change in bank overdraft (1,240) 1,240 (1,022)
-------- -------- -------
Net cash from (used in) financing activities 5,260 6,240 (1,022)
-------- -------- -------
Net increase (decrease) in cash 4,872 (2,162) 2,162
Cash at beginning of year 0 2,162 0
-------- -------- -------
Cash at end of year $ 4,872 0 2,162
======== ======== =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Notes to Financial Statements
December 31, 1994, 1993 and 1992
(in thousands)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Preferred Life Insurance Company of New York (the Company) is a wholly owned
subsidiary of Allianz Life Insurance Company of North America (Allianz Life)
which, in turn, is a wholly-owned subsidiary of Allianz of America, Inc.
(AZOA), a majority-owned subsidiary of Allianz A.G. Holding, a Federal
Republic of Germany company. Following is a summary of the significant
accounting policies reflected in the accompanying financial statements.
BASIS OF PRESENTATION
The financial statements have been prepared in accordance with generally
accepted accounting principles (GAAP) which vary in certain respects from
accounting rules prescribed or permitted by state insurance regulatory
authorities. Certain amounts as previously reported have been reclassified to
be consistent with the current year's presentation.
RECOGNITION OF TRADITIONAL LIFE, GROUP LIFE AND GROUP ACCIDENT AND HEALTH
REVENUE
Traditional life products include products with guaranteed premiums and
benefits and consist solely of policies converted from group life business.
Premiums on traditional life and group life products are recognized as income
when due. Group accident and health premiums are recognized as earned on a
pro rata basis over the risk coverage periods. Benefits and expenses are
matched with earned premiums so that profits are recognized over the premium
paying periods of the contracts. This matching is accomplished by
establishing provisions for future policy benefits and policy and contract
claims, and deferring and amortizing related policy acquisition costs.
RECOGNITION OF VARIABLE ANNUITY REVENUE
Variable annuity contracts do not have significant mortality or morbidity
risks and are accounted for in a manner consistent with interest bearing
financial instruments. Accordingly, premium receipts are reported as deposits
to the contractholder's account, while revenues consist of amounts assessed
against contractholders including surrender charges and earned administrative
service fees. Benefits consist of claims and benefits incurred in excess of
the contractholder's balance.
<PAGE>
DEFERRED ACQUISITION COSTS
Acquisition costs, consisting of commissions and other costs, which vary with
and are primarily related to production of new business, are deferred. For
variable annuity contracts, acquisition costs are amortized in relation to the
present value of expected gross profits from investment margins and expense
charges. Acquisition costs for group life and group accident and health
products are deferred and amortized over the lives of the policies in the same
manner as premiums are earned. Deferred acquisition costs amortized during
1994, 1993 and 1992 were $3,739, $2,325 and $996, respectively.
FUTURE POLICY BENEFIT RESERVES
Future policy benefits on life insurance products are computed by the
commissioners reserve valuation method and net level premium methods based
upon estimated future investment yield and mortality, commensurate with the
Company's experience.
Future policy benefit reserves for variable annuity products are carried at
accumulated contract values. Any additional reserves are carried at an amount
equal to a one year term cost for any death benefits which may exceed the
accumulated contract values.
POLICY AND CONTRACT CLAIMS
Policy and contract claims represent an estimate of claims and claim
adjustment expenses on accident and health, life insurance and variable
annuity policies that have been reported but not yet paid and incurred but not
yet reported as of December 31.
INVESTMENTS
On January 1, 1994, the Company adopted Statement of Financial Accounting
Standard (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity
Securities which addresses the accounting and reporting for investments in
equity securities that have readily determinable fair values and for all
investments in debt securities. Those investments are classified in one of
three categories. Debt securities that the Company has the positive intent
and ability to hold to maturity are classified as "held-to-maturity
securities" and are reported at amortized cost. Debt and equity securities
that are bought and held principally for the purpose of selling them in the
near term are classified as "trading securities" and are reported at fair
value, with unrealized gains and losses included in earnings. Debt and equity
securities not classified as either "held-to-maturity securities" or "trading
securities" are classified as "available-for-sale securities" and are reported
at fair value, with unrealized gains and losses reported in a separate
<PAGE>
component of stockholders' equity, net of deferred income taxes. SFAS No. 115
does not permit retroactive application of its provisions. The Company
classified all of its investment portfolio as "available-for-sale securities"
at January 1, 1994.
In 1993, prior to adoption of SFAS No. 115, investments in fixed maturities
were carried at amortized cost reduced by a provision for loss due to declines
in value expected to be other than temporary.
Realized gains and losses are computed based on the specific identification
method.
Short term investments, which include certificate of deposits, are carried at
amortized cost which approximates market.
As of December 31, 1994 and 1993, investments with a carrying value of $649
and $657, respectively, were pledged to the New York Superintendent of
Insurance as required by statutory regulation.
The fair values of invested assets are deemed by management to approximate
their estimated market values. Changes in market conditions subsequent to
December 31 may cause estimates of fair values to differ from the amounts
presented herein.
REINSURANCE
Effective January 1, 1993, the Company adopted SFAS No. 113, Accounting and
Reporting for Reinsurance of Short-Duration and Long-Duration Contracts.
Pursuant to SFAS No. 113, insurance liabilities are reported before the
effects of reinsurance. Amounts paid or deemed to have been paid for claims
covered by reinsurance contracts are recorded as reinsurance receivables.
Estimated reinsurance receivables are recognized in a manner consistent with
the liabilities related to the underlying reinsured contracts.
SEPARATE ACCOUNTS
Separate accounts represent funds for which investment income and investment
gains and losses accrue directly to the policyholders. Each account has
specific investment objectives and the assets are carried at market value.
The assets of each account are legally segregated and are not subject to
claims which arise out of any other business of the Company.
Fair values of separate accounts assets were determined using the market value
of the investments held in segregated fund accounts. Fair values of separate
accounts liabilities were determined using the cash surrender values of the
contractholders' accounts.
<PAGE>
INCOME TAXES
Effective January 1, 1993, the Company adopted SFAS No. 109, Accounting for
Income Taxes, and reported the cumulative effect of this change in the
Statements of Income. The primary provision of SFAS No. 109 is the change
from the deferred method of accounting for income taxes to the asset and
liability method. The Company implemented the change in accounting principle
in 1993, which resulted in a one-time cumulative adjustment to decrease income
by $1,084 determined as of January 1, 1993. The 1992 financial statements
were not restated to apply the provisions of this Statement.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Under SFAS No. 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized as income in the period
that includes the enactment date.
Under the deferred method of accounting for income taxes prescribed by the
Accounting Principles Board (APB) Opinion 11, which was applied in 1992 and
prior years, deferred income taxes were recognized for income and expense
items reported in different years for financial reporting purposes and income
tax purposes, using the tax rate in effect for the year of the calculation.
Under the deferred method, deferred taxes were not adjusted for subsequent
changes in tax rates.
RECEIVABLES
Receivable balances approximate estimated fair values. This is based on
pertinent information available to management as of year end including the
financial condition and credit worthiness of the parties underlying the
receivables. Changes in market conditions subsequent to year end may cause
estimates of fair values to differ from the amounts presented herein.
ACCOUNTING CHANGES
<TABLE>
<CAPTION>
The impact of implementation of SFAS No. 115 in 1994 was an increase in equity
of $82 at January 1, 1994.
<PAGE>
The table below presents the cumulative effect of changes, net of tax, in
accounting principles implemented in 1993 on after tax net income:
<S> <C>
SFAS No. 109 $(1,084)
--------
Total cumulative effect on after tax net income
of changes in accounting principles $(1,084)
========
</TABLE>
(2) INVESTMENTS
<TABLE>
<CAPTION>
Investments at December 31, 1994 consist of:
Amount
Amortized Estimated shown on
cost market balance
or cost value sheet
---------- --------- --------
<S> <C> <C> <C>
Fixed maturities - Available-for-sale
U.S. government $ 3,929 3,516 3,516
---------- --------- --------
Total fixed maturities 3,929 3,516 3,516
---------- --------- --------
Other investments:
Certificates of deposit and short term securities 3,188 XXXXXXX 3,188
---------- --------- --------
Total other investments 3,188 XXXXXXX 3,188
---------- --------- --------
Total investments $ 7,117 XXXXXXX 6,704
========== ========= ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
At December 31, 1994 and 1993, the amortized cost, gross unrealized gains,
gross unrealized losses and estimated market values of fixed maturities are as
follows:
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
1994:
Available-for-sale:
U.S. government $ 3,929 0 413 3,516
---------- ---------- ---------- ---------
Total fixed maturities $ 3,929 0 413 3,516
========== ========== ========== =========
1993:
U.S. government $ 7,461 163 36 7,588
---------- ---------- ---------- ---------
Total fixed maturities $ 7,461 163 36 7,588
========== ========== ========== =========
</TABLE>
The changes in unrealized gains (losses) from fixed maturities were $(540),
$(490) and $(147) for the years ended December 31, 1994, 1993 and 1992,
respectively.
The amortized cost and estimated market value of fixed maturities at December
31, 1994, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
<PAGE>
Amortized Estimated
cost market value
---------- ------------
<S> <C> <C>
Available-for-sale:
Due after one year through five years $ 916 909
Due after five years through ten years 3,013 2,607
---------- ------------
Totals $ 3,929 3,516
========== ============
</TABLE>
Proceeds from sales of investments in available-for-sale securities during
1994 were $3,428. Gross gains of $110 and gross losses of $209 were realized
on sales of available-for-sale securities in 1994, the related tax benefit was
$(35). Proceeds from sales of fixed maturity securities in 1993 and 1992 were
$12,261 and $4,233, respectively. Gross gains of $656 and $283 and gross
losses of $6 and $0 were realized on sales of fixed maturities in 1993 and
1992, respectively. Related taxes were $221 and $96 in 1993 and 1992,
respectively.
Net realized investment gains (losses) for the respective years ended December
31 are summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ----- ----
<S> <C> <C> <C>
Fixed maturities, at amortized cost $ 0 650 283
Fixed maturities, at market (99) 0 0
Other (14) (1) 23
------ ----- ----
Net gains (losses) before taxes (113) 649 306
Tax (benefit) expense on net realized gains (38) 227 104
------ ----- ----
Net gains (losses) after taxes $ (75) 422 202
====== ===== ====
</TABLE>
<PAGE>
Major categories of net investment income for the respective years ended
December 31 are:
<TABLE>
<CAPTION>
1994 1993 1992
----- ---- -----
<S> <C> <C> <C>
Interest:
Fixed maturities, at amortized cost $ 0 483 1,256
Fixed maturities, at market 309 0 0
Short-term investments 69 50 89
----- ---- -----
Total investment income 378 533 1,345
Investment expenses 7 161 158
----- ---- -----
Net investment income $ 371 372 1,187
===== ==== =====
</TABLE>
(3) SUMMARY TABLE OF FAIR VALUE DISCLOSURES
<TABLE>
<CAPTION>
1994 1994 1993 1993
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Financial assets
- ------------------------------------------
Fixed maturities, at amortized cost
U.S. Government $ 0 $ 0 $ 7,461 $ 7,588
Fixed maturities, at market
U.S. Government 3,516 3,516 0 0
<PAGE>
Certificates of deposit
and other short term investments 3,188 3,188 0 0
Receivables 5,091 5,091 5,026 5,026
Separate accounts assets 577,444 577,444 471,296 471,296
Financial liabilities
- ------------------------------------------
Separate account liabilities 577,444 555,839 471,296 452,900
</TABLE>
See Note 1 "Summary of Significant Accounting Policies" for description of the
methods and significant assumptions used to estimate fair values.
(4) RECEIVABLES
<TABLE>
<CAPTION>
Receivables at December 31 consist of the following:
1994 1993
------ -----
<S> <C> <C>
Premiums due $3,722 4,020
Reinsurance commission receivable 489 477
Due from administrators 321 505
Other 559 24
------ -----
Total receivables $5,091 5,026
====== =====
</TABLE>
(5) ACCIDENT AND HEALTH CLAIMS RESERVES
Accident and health claims reserves are based on long-range projections
subject to uncertainty. Uncertainty regarding reserves of a given accident
year is gradually reduced as new information emerges each succeeding year,
allowing more reliable re-evaluations of such reserves. While management
believes that reserves as of December 31, 1994 are adequate, uncertainties in
<PAGE>
the reserving process could cause such reserves to develop favorably or
unfavorably as new or additional information emerges. Any adjustments to
reserves are reflected in the operating results of the periods in which they
are made. Movements in reserves which are small relative to the amount of
such reserves could significantly impact future reported earnings of the
Company.
Activity in the accident and health claims reserves, exclusive of hospital
indemnity and AIDS reserves of $205, $186 and $195 in 1994, 1993 and 1992, is
summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------- ------- -------
<S> <C> <C> <C>
Balance at January 1, net of reinsurance
recoverables of $8,117, $7,982 and $5,552 $ 7,823 7,162 6,466
Incurred related to:
Current year 10,061 11,240 12,466
Prior years (2,839) (2,493) (2,313)
-------- ------- -------
Total incurred 7,222 8,747 10,153
-------- ------- -------
Paid related to:
Current year 1,073 3,920 5,487
Prior years 3,823 4,166 3,970
-------- ------- -------
Total paid 4,896 8,086 9,457
-------- ------- -------
Balance at December 31, net of reinsurance
recoverables of $10,049, $8,117, and $7,982 $10,149 7,823 7,162
======== ======= =======
</TABLE>
(6) REINSURANCE
In the normal course of business, the Company seeks to limit its exposure to
loss on any single insured and to recover a portion of benefits paid by ceding
risks under excess coverage and coinsurance contracts. The Company retains a
maximum of $50 coverage per individual life.
<PAGE>
Reinsurance contracts do not relieve the Company from its obligations to
policyholders. Failure of reinsurers to honor their obligations could result
in losses to the Company; consequently, allowances are established for amounts
deemed uncollectible. The Company evaluates the financial condition of its
reinsurers and monitors concentrations of credit risk to minimize its exposure
to significant losses from reinsurer insolvencies.
Included in reinsurance receivables at December 31, 1994 and 1993 are
recoverables from Allianz Life for $1,955 and $2,674. A contingent liability
exists to the extent that Allianz Life or the Company's unaffiliated
reinsurers are unable to meet their contractual obligations under reinsurance
contracts. Management is of the opinion that no liability will accrue to the
Company with respect to this contingency.
Life insurance, annuities and accident and health business assumed from and
ceded to other companies is as follows:
<TABLE>
<CAPTION>
Percentage
Assumed Ceded of amount
Gross from other to other Net assumed
Year ended amount companies companies amount to net
- ---------------------------------- ---------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
December 31, 1994:
Life insurance in force $1,320,843 0 740,856 579,987 0.0%
---------- ----------- --------- --------- -----------
Premiums:
Life insurance and annuities 19,248 (2) 2,898 16,348 0.0%
Accident and health insurance 15,759 8,827 13,443 11,143 79.2%
---------- ----------- --------- --------- -----------
Total premiums 35,007 8,825 16,341 27,491 32.1%
========== =========== ========= ========= ===========
December 31, 1993:
Life insurance in force $1,676,382 0 664,449 1,011,933 0.0%
---------- ----------- --------- --------- -----------
Premiums:
Life insurance and annuities 13,948 6 2,324 11,630 0.1%
Accident and health insurance 14,286 9,874 10,359 13,801 71.5%
---------- ----------- --------- --------- -----------
<PAGE>
Total premiums 28,234 9,880 12,683 25,431 38.9%
========== =========== ========= ========= ===========
December 31, 1992:
Life insurance in force $1,922,449 0 1,005,552 916,897 0.0%
---------- ----------- --------- --------- -----------
Premiums:
Life insurance and annuities 12,976 3 3,752 9,227 0.0%
Accident and health insurance 21,228 9,476 14,009 16,695 56.8%
---------- ----------- --------- --------- -----------
Total premiums 34,204 9,479 17,761 25,922 36.6%
========== =========== ========= ========= ===========
</TABLE>
Of the amounts assumed from and ceded to other companies, life and accident
and health insurance assumed from and ceded to Allianz Life is as follows:
<TABLE>
<CAPTION>
ASSUMED CEDED
------- -----
1994 1993 1992 1994 1993 1992
------ ------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Life insurance in force $ 0 0 0 2,745 2,925 0
------ ------- ----- ----- ----- -----
Premiums:
Life insurance 0 0 0 69 35 (40)
Accident and health insurance $2,600 4,801 6,651 784 463 530
------ ------- ----- ----- ----- -----
Total premiums $2,600 4,801 6,651 853 498 490
====== ======= ===== ===== ===== =====
</TABLE>
(7) INCOME TAXES
As discussed in note 1, the Company adopted SFAS No. 109 as of January 1, 1993
and the $(1,084) cumulative effect of this change is reported in the 1993
<PAGE>
Statements of Income. The 1992 financial statements have not been restated to
apply the provisions of SFAS No. 109.
INCOME TAX EXPENSE
Total income tax expenses (benefits) for the years ended December 31 are as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------ ------
<S> <C> <C> <C>
Income tax expense attributable to operations:
Current tax expense (benefit) $ 154 (376) (453)
------- ------ ------
Deferred tax expense 1,099 1,104 1,144
Adjustment of deferred tax assets and
liabilities for enacted change in tax rates 0 73 0
------- ------ ------
Total deferred tax expense 1,099 1,177 1,144
------- ------ ------
Total income tax expense attributable to operations $1,253 801 691
Income tax effect on equity:
Income tax allocated to stockholder's equity,
Adoption of SFAS No. 115 44 0 0
Attributable to unrealized gains and losses for the year (189) 0 0
------- ------ ------
Total income tax effect on equity $1,108 801 691
======= ====== ======
</TABLE>
COMPONENTS OF INCOME TAX EXPENSE
Income tax expense computed at the statutory rate of 35% in 1994 and 1993 and
34% in 1992, varies from tax expense reported in the Statements of Income for
the respective years ended December 31 as follows:
<PAGE>
<TABLE>
<CAPTION>
1994 1993 1992
------- ----- -----
<S> <C> <C> <C>
Income tax expense computed at the statutory rate $1,558 858 744
Impact of statutory rate change on deferred tax liability 0 73 0
Dividend received deduction (315) (138) (55)
Other 10 8 2
------- ----- -----
Income tax expense as reported $1,253 801 691
======= ===== =====
</TABLE>
COMPONENTS OF DEFERRED TAX ASSETS AND LIABILITIES ON THE BALANCE SHEET
Tax effects of temporary differences giving rise to the significant components
of the net deferred tax liabilities at December 31, 1994 and 1993 are as
follows:
<TABLE>
<CAPTION>
1994 1993
------- -----
<S> <C> <C>
Deferred tax assets:
Future policy benefit reserves $ 5,960 4,948
Unrealized losses on investments in available for sale securities 145 0
------- -----
Total deferred tax assets 6,105 4,948
------- -----
Deferred tax liabilities:
Deferred acquisition costs 10,326 8,457
Investments 384 142
------- -----
Total deferred tax liabilities 10,710 8,599
------- -----
<PAGE>
Net deferred tax liability $ 4,605 3,651
======= =====
</TABLE>
The Company has determined it is not necessary to establish a valuation
allowance for the deferred tax asset as it is more likely than not the
deferred tax asset will be realized principally through future reversals of
existing taxable temporary differences and future taxable income.
DEFERRED TAX EXPENSE UNDER PREVIOUS ACCOUNTING RULES
The components of deferred income tax expense for the year ended December 31,
1992 were as follows:
<TABLE>
<CAPTION>
<S> <C>
Acquisition costs and future policy benefits $1,148
Other (4)
-------
Total deferred income tax expense $1,144
=======
</TABLE>
The Company files a consolidated federal income tax return with AZOA and all
of its wholly owned subsidiaries. The consolidated tax allocation agreement
stipulates that each company participating in the return will bear its share
of the tax liability pursuant to United States Treasury Department
regulations. The Company accrues income taxes payable to Allianz Life under
AZOA intercompany tax allocation agreements. The Company recorded tax payable
of $134 as of December 31, 1994 and taxes recoverable of $376 as of December
31, 1993.
(8) RELATED PARTY TRANSACTIONS
During 1994 and 1993, Allianz Life contributed additional paid-in capital to
the Company of $6,500 and $5,000, respectively.
Allianz Life performs certain administrative services for the Company. The
Company reimbursed Allianz Life $1,994, $885 and $1,472 in 1994, 1993 and
1992, respectively, for related administrative expenses incurred. The
Company's liability to Allianz Life as of December 31, 1994 was $566 and is
<PAGE>
included as a separate component in the liability section of the accompanying
balance sheet. At December 31, 1993, the Company was owed $7 from Allianz
Life, this receivable is included in other assets in the accompanying balance
sheet.
Allianz Investment Corporation (AIC) manages the Company's investment
portfolio. The Company paid AIC $4, $27 and $16 in 1994, 1993 and 1992,
respectively, for investment advisory fees. The Company had no liability to
AIC as of December 31, 1994 and 1993.
(9) EMPLOYEE BENEFIT PLANS
The Company participates in the Allianz Primary Retirement Plan (Primary
Retirement Plan), a defined contribution plan. The Company makes
contributions to a money purchase pension plan on behalf of eligible
participants. All employees are eligible to participate in the Primary
Retirement Plan after two years of service. The contributions are based on a
percentage of the participant's salary with the participants being 100% vested
upon eligibility. It is the Company's policy to fund the plan costs as
accrued. Total pension contributions were $18, $22 and $18 in 1994, 1993 and
1992, respectively.
The Company participates in the Allianz Asset Accumulation Plan (Allianz
Plan), a defined contribution plan sponsored by AZOA. Under the Allianz Plan
provisions, the Company will match from 50% to 100% of eligible employees'
contributions up to a maximum of 6% of a participant's compensation. In 1994,
the Company match was 50%. Any additional match for 1994 plan participants
will be determined during 1995. In 1993 and 1992, the Company match was 100%.
All employees are eligible to participate after one year of service and are
fully vested in the Company's matching contribution after three years of
service. The Allianz Plan will accept participants' pretax or after-tax
contributions up to 15% of the participant's compensation. It is the
Company's policy to fund the Allianz Plan costs as accrued. The Company has
accrued $35, $21 and $13 in 1994, 1993 and 1992, respectively, toward planned
contributions.
(10) STATUTORY FINANCIAL DATA AND DIVIDEND RESTRICTIONS
Statutory accounting is directed toward insurer solvency and protection of
policyholders. Accordingly, certain items recorded in financial statements
prepared under GAAP are excluded in determining statutory policyholders'
surplus. These items include, among others, deferred acquisition costs,
furniture and fixtures, accident and health premiums receivable which are more
than 90 days past due, deferred taxes and undeclared dividends to
policyholders. Additionally, future life and annuity policy benefit reserves
are calculated using more conservative assumptions with no provisions for
<PAGE>
withdrawals for statutory accounting.
The differences between stockholder's equity and net income reported in
accordance with statutory accounting practices and the accompanying financial
statements as of and for the year ended December 31, 1994 are as follows:
<TABLE>
<CAPTION>
Stockholder's Net
equity income
--------------- -------
<S> <C> <C>
Statutory basis $ 16,817 (796)
Adjustments:
Change in reserve basis (21,139) (2,812)
Deferred acquisition costs 37,577 8,090
Deferred taxes (4,605) (1,099)
Nonadmitted assets 35
Statutory interest maintenance reserve 136 (183)
Liability for unauthorized reinsurers 17
Unrealized losses on investments (413) -
--------------- -------
As reported in the accompanying financial statements $ 28,425 3,200
=============== =======
</TABLE>
The Company is required to meet minimum capital and surplus requirements. At
December 31, 1994 and 1993, the Company was in compliance with these
requirements. Total statutory capital and surplus at December 31, 1994 and
1993 was $16,817 and $11,002, respectively. Total statutory losses as of
December 31, 1994, 1993 and 1992 were $(796), $(3,406) and $(1,583),
respectively. In accordance with New York Statutes, the Company may not pay a
stockholder dividend without prior approval by the Superintendent of
Insurance. The Company paid no dividends in 1994 and 1993.
STATE EXAMINATION
The Company is currently under routine examination by the New York State
Department of Insurance. No matters of significance or adjustments to the
Company's statutory financial statements have been brought to management's
attention as a result of this examination.
<PAGE>
REGULATORY RISK BASED CAPITAL
An insurance enterprise's state of domicile imposes minimum risk-based capital
requirements that were developed by the National Association of Insurance
Commissioners (NAIC). The formulas for determining the amount of risk-based
capital specify various weighting factors that are applied to financial
balances or various levels of activity based on the perceived degree of risk.
Regulatory compliance is determined by a ratio of an enterprise's regulatory
total adjusted capital to its authorized control level risk-based capital, as
defined by the NAIC. Enterprises below specific triggerpoints or ratios are
classified within certain levels, each of which requires specified corrective
action. The levels and ratios are as follows:
<TABLE>
<CAPTION>
Ratio of total adjusted capital to
authorized control level risk-based
Regulatory event capital (less than or equal to)
- ------------------------ ------------------------------------
<S> <C>
Company action level 2 (or 2.5 with negative trends)
Regulatory action level 1.5
Authorized control level 1
Mandatory control level 0.7
</TABLE>
The Company met the minimum risk-based capital requirements for the years
ended December 31, 1994 and 1993.
PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company is required to file annual statements with insurance regulatory
authorities which are prepared on an accounting basis prescribed or permitted
by such authorities. Prescribed statutory accounting practices included state
laws, regulations, and general administrative rules, as well as a variety of
publications of the NAIC. Permitted statutory accounting practices encompass
all accounting practices that are not prescribed; such practices differ from
state to state, may differ from company to company within a state, and may
change in the future. Furthermore, the NAIC has a project to codify statutory
accounting practices, the result of which is expected to constitute the only
source of "prescribed" statutory accounting practices. Accordingly, that
project which is expected to be completed in 1995, will likely change the
definition of what comprises prescribed versus permitted statutory accounting
practices, and may result in changes to the accounting policies that insurance
<PAGE>
enterprises use to prepare their statutory financial statements. The Company
does not currently use permitted statutory accounting practices which could
have a significant impact on its statutory financial statements.
(11) COMMITMENTS AND CONTINGENCIES
The Company is subject to claims and lawsuits that arise in the ordinary
course of business. In the opinion of management, the ultimate resolution of
such litigation will not have a material adverse effect on the financial
position of the Company.
The Company is contingently liable for possible future assessments under
regulatory requirements pertaining to insolvencies and impairments of
unaffiliated insurance companies. Provision has been made for assessments
currently received and assessments anticipated for known insolvencies.
(12) SUPPLEMENTARY INSURANCE INFORMATION
<TABLE>
<CAPTION>
The following table summarizes certain financial information by line of business for 1994, 1993 and 1992:
As of December 31 For the years ended
------------ ------------ -------- ---------- -------------- ---------- ---------- -------------
Future Benefits,
policy Other Premium claims Amortization
Deferred benefits, policy revenue losses, of deferred
policy losses, claims and and other Net and policy
acquisition claims and Unearned benefits contract investment settlement acquisition
costs loss expense premiums payable considerations income expenses costs (a)
------------ ------------ -------- ---------- -------------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994:
Life insurance and
annuity considerations $ 37,369 782 834 6,909 16,348 80 7,059 (8,168)
Accident and
health insurance 208 0 1,451 20,403 11,143 291 7,331 78
------------ ------------ -------- ---------- -------------- ---------- ---------- -------------
$ 37,577 782 2,285 27,312 27,491 371 14,390 (8,090)
============ ============ ======== ========== ============== ========== ========== =============
<PAGE>
1993:
Life insurance and
annuity considerations $ 29,200 544 906 5,890 11,629 86 6,302 (18,190)
Accident and
health insurance 287 0 1,183 16,126 13,802 286 8,836 173
------------ ------------ -------- ---------- -------------- ---------- ---------- -------------
$ 29,487 544 2,089 22,016 25,431 372 15,138 (18,017)
============ ============ ======== ========== ============== ========== ========== =============
1992:
Life insurance and
annuity considerations $ 11,010 191 303 5,198 9,227 202 6,013 (10,084)
Accident and
health insurance 460 0 1,244 15,339 16,695 985 10,235 90
------------ ------------ -------- ---------- -------------- ---------- ---------- -------------
$ 11,470 191 1,547 20,537 25,922 1,187 16,248 (9,994)
============ ============ ======== ========== ============== ========== ========== =============
December 31
--------- ---------
Other Premiums
operating written
expenses (b)
--------- ---------
<S> <C> <C>
1994:
Life insurance and
annuity considerations 14,475
Accident and
health insurance 2,521
---------
16,996
=========
1993:
Life insurance and
annuity considerations 23,511
Accident and
health insurance 3,367
---------
<PAGE>
26,878
=========
1992:
Life insurance and
annuity considerations 14,242
Accident and
health insurance 4,972
---------
19,214
=========
</TABLE>
(a) Represents the net change in deferred policy acquisition cost reported in
the income statement.
(b) Premiums written are not applicable for life insurance companies.
<PAGE>
PART C
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
a. Financial Statements
The following financial statements of the Company are included in Part B
hereof:
1. Independent Auditors' Report.
2. Balance Sheets as of December 31, 1994 and 1993.
3. Statements of Income for the years ended December 31, 1994, 1993
and 1992.
4. Statements of Stockholder's Equity for the years ended December
31, 1994, 1993 and 1992.
5. Statements of Cash Flows for the years ended December 31, 1994,
1993 and 1992.
6. Notes to Financial Statements - December 31, 1994, 1993 and 1992.
The following financial statements of the Variable Account are included
in Part B hereof:
1. Independent Auditors' Report.
2. Statements of Net Assets as of December 31, 1994.
3. Statements of Operations for the years ended December 31, 1994
and 1993.
4. Statements of Changes in Net Assets for the years ended December
31, 1994 and 1993.
5. Notes to Financial Statements - December 31, 1994.
The following unaudited financial statements of the Variable Account are
included in Part B hereof:
1. Statements of Assets and Liabilities as of June 30, 1995
(unaudited).
2. Statements of Operations for the period ended June 30, 1995
(unaudited).
3. Statements of Charges in Net Assets for the periods ended June 30,
1995 and 1994 (unaudited).
4. Notes to Financial Statements - June 30, 1995 (unaudited).
<PAGE>
b. Exhibits
1. Resolution of Board of Directors of the Company authorizing the
establishment of the Variable Account
2. Not Applicable
3. Principal Underwriter Agreement*
4. Individual Variable Annuity Contract****
5. Application for Individual Variable Annuity Contract****
6. (i) Copy of Articles of Incorporation of the Company
(ii) Copy of the Bylaws of the Company
7. Not Applicable
8. Form of Fund Participation Agreement***
9. Opinion and Consent of Counsel
10. Independent Auditor's Consent
11. Not Applicable
12. Not Applicable
13. Calculation of Performance Information*****
14. Company Organizational Chart****
* Incorporated by reference to Registrant's Form N-4 filed on January 19,
1989.
** Incorporated by reference to Pre-Effective Amendment No. 1 to
Registrant's Form N-4 filed on November 22, 1989.
*** Incorporated by reference to Post-Effective Amendment No. 1 to
Registrant's Form N-4 filed on April 27, 1990.
**** Incorporated by reference to Post-Effective Amendment No. 6 to
Registrant's Form N-4 as filed on April 30, 1993.
***** Incorporated by reference to Post Effective Amendment No. 8 to
Registrant's Form N-4 as filed on April 24, 1995.
Item 25. Directors and Officers of the Depositor
The following are the Officers and Directors of the Company:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices
Business Address with Depositor
_________________ ______________________________
<S> <C>
Lowell C. Anderson Chairman, Chief
1750 Hennepin Avenue Executive Officer and Director
Minneapolis, MN 55403
Howard E. Barnhill Director
475 Highcroft Road
Wayzata, MN 55391
<PAGE>
Ronald L. Wobbeking President and Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Thomas G. Brown Director
One Liberty Plaza,
45th Floor
New York, NY 10006
Thomas Duncanson Director
12778 Mariner Court
Palm City, FL 34990
Edward J. Bonach Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Alan A. Grove Secretary and Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Shannon Hendricks Treasurer
1750 Hennepin Avenue
Minneapolis, MN 55403
Dennis Marion Director
500 Valley Road
Wayne, NJ 07470
John C. Morrison Director
2 Sutton Place
New York, NY 10022
Timothy J. Tongson Appointed Actuary
1750 Hennepin Avenue
Minneapolis, MN 55403
Robert S. James Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Eugene T. Wilkinson Director
14 Commerce Drive
Cranford, NJ 07016
Richard M. Murray Director
60 Remsen Street, Apt. 10C
Brooklyn Heights, NY 11201
<PAGE>
Eugene Long Vice President of Operations
152 W. 57th Street and Director
18th Floor
New York, NY 10019
Thomas J. Lynch Vice President-Chief
1750 Hennepin Avenue Marketing Officer
Minneapolis, MN 55403 and Director
Carol B. Shaw Assistant Vice President
152 W. 57th Street, 18th Floor
New York, NY 10019
</TABLE>
Item 26. Persons Controlled by or Under Common Control with the Depositor
or
Registrant
The Company organizational chart is incorporated by reference to Registrant's
Post-Effective Amendment No. 6 to Form N-4.
Item 27. Number of Contract Owners
As of August 31, 1995, there were 6,269 qualified Contract Owners and 9,845
non-qualified Contract Owners.
Item 28. Indemnification
The Bylaws of the Company provide that:
Each person (and the heirs, executors, and administrators of such person) made
or threatened to be made a party to any action, civil or criminal, by reason
of being or having been a Director, officer, or employee of the corporation
(or by reason of serving any other organization at the request of the
corporation) shall be indemnified to the extent permitted by the laws of the
State of New York, and in the manner prescribed therein.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted for directors and officers or controlling persons of the
Company pursuant to the foregoing, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and,
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 action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
<PAGE>
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 the Act and will be governed by the
final adjudication of such issue.
Item 29. Principal Underwriters
a. NALAC Financial Plans, Inc. is the principal underwriter for the
Contracts. It also is the principal underwriter for:
Allianz Life Variable Account A
Allianz Life Variable Account B
b. The following are the officers and directors of NALAC Financial
Plans, Inc.:
<TABLE>
<CAPTION>
Name & Principal Positions and Offices
Business Address with Underwriter
________________ _____________________
<S> <C>
Lowell C. Anderson Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Alan A. Grove Director
1750 Hennepin Avenue
Minneapolis, MN 55403
James P. Kelso Director
1750 Hennepin Ave.
Minneapolis, MN 55403
Mark L. Solverud Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Thomas B. Clifford President
1750 Hennepin Avenue
Minneapolis, MN 55403
Michael T. Westermeyer Secretary
1750 Hennepin Avenue
Minneapolis, MN 55403
<PAGE>
Thomas D. Barta Treasurer
1750 Hennepin Avenue
Minneapolis, MN 55403
Edward J. Bonach Director
1750 Hennepin Avenue
Minneapolis, MN 55403
</TABLE>
c. Not Applicable
Item 30. Location of Accounts and Records
Thomas Clifford, whose address is 1750 Hennepin Avenue, Minneapolis,
Minnesota, maintains physical possession of the accounts, books or documents
of the Variable Account required to be maintained by Section 31(a) of the
Investment Company Act of 1940, as amended, and the rules promulgated
thereunder.
Item 31. Management Services
Not Applicable
Item 32. Undertakings
a. Registrant hereby undertakes to file a post-effective amendment to
this registration statement as frequently as is necessary to ensure that the
audited financial statements in the registration statement are never more than
sixteen (16) months old for so long as payment under the variable annuity
contracts may be accepted.
b. Registrant hereby 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 Information, or (2) a
postcard or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement of Additional
Information.
c. Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form promptly upon written or oral request.
<PAGE>
REPRESENTATIONS
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.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, as amended, the Registrant certifies that it meets the requirements of
Securities Act Rule 485(b) for effectiveness of this registration statement
and has caused this registration statement to be signed on its behalf in the
City of Minneapolis and State of Minnesota, on this 10th day of October, 1995.
<TABLE>
<CAPTION>
<S> <C>
PREFERRED LIFE VARIABLE
ACCOUNT C
(Registrant)
By: PREFERRED LIFE INSURANCE
COMPANY OF NEW YORK
(Depositor)
By: /s/ ALAN A. GROVE
________________________
Alan A. Grove
PREFERRED LIFE INSURANCE
COMPANY OF NEW YORK
By: /s/ ALAN A. GROVE
________________________
Alan A. Grove
</TABLE>
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on
the dates indicated.
Signature and Title
<TABLE>
<CAPTION>
<S> <C> <C>
Lowell C. Anderson* Chairman of the Board 10/10/95
Lowell C. Anderson and Chief Executive Officer Date
Howard E. Barnhill* Director 10/10/95
Howard E. Barnhill Date
Ronald L. Wobbeking* President and Director 10/10/95
Ronald L. Wobbeking Date
Shannon Hendricks* Treasurer 10/10/95
Shannon Hendricks Date
Alan A. Grove* Secretary and Director 10/10/95
Alan A. Grove Date
Thomas G. Brown* Director 10/10/95
Thomas G. Brown Date
Thomas Duncanson* Director 10/10/95
Thomas Duncanson Date
Edward J. Bonach* Director 10/10/95
Edward J. Bonach Date
Robert S. James* Director 10/10/95
Robert S. James Date
Thomas J. Lynch* Director 10/10/95
Thomas J. Lynch Date
Dennis Marion* Director 10/10/95
Dennis Marion Date
John C. Morrison* Director 10/10/95
John C. Morrison Date
Richard M. Murray* Director 10/10/95
Richard M. Murray Date
<PAGE>
Eugene T. Wilkinson* Director 10/10/95
Eugene T. Wilkinson Date
Eugene Long* Director 10/10/95
Eugene Long Date
</TABLE>
* By /S/ ALAN A. GROVE
_________________
Alan A. Grove
Attorney-in-Fact
<PAGE>
EXHIBITS
TO
POST-EFFECTIVE AMENDMENT NO. 9
TO
FORM N-4
PREFERRED LIFE VARIABLE ACCOUNT C
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
<PAGE>
INDEX TO EXHIBITS
Exhibit Page
27 Financial Data Schedules
99.B1 Resolution of Board of Directors
99.B6 Certificate Of Amendment of Charter
99.B6 By-Laws
99.B9 Opinion and Consent of Counsel
99.B10 Independent Auditor's Consent
<PAGE>
CERTIFICATION
The following resolutions were adopted at a meeting of the Board of Directors
of Preferred Life Insurance Company of New York on February 26, 1988.
RESOLVED: That this company is hereby authorized to establish one or more
separate accounts in accordance with state insurance laws and to issue
variable and fixed annuity contracts and variable and fixed life insurance
policies with the reserves for such contracts and policies being segregated in
such separate accounts or in the general accounts of this company in the
manner specified in such accounts.
RESOLVED FURTHER: That the President or Vice President - Operations of
the Company or such other executive officer of this company as shall be
designated by the President is hereby authorized to designate such separate
accounts as may be deemed necessary or convenient and to register such
separate accounts and those variable and fixed annuity contracts and life
insurance policies authorized hereby under such federal securities laws as are
deemed appropriate.
RESOLVED FURTHER: That the President or Vice President - Operations of
this company or such other executive officer of this company as shall be
designated by the President is hereby authorized to invest such sums in any
separate account established hereby as may be deemed necessary or appropriate
to comply with requirements of applicable law.
RESOLVED FURTHER: That the President of this company and such other
executive officers of this company as may be appropriate, are hereby
authorized to do any act necessary or appropriate to carry out the intention
of this resolution.
I, the undersigned, do hereby certify that I am the duly elected and qualified
Secretary and keeper of the records and corporate seal of Preferred Life
Insurance Company of New York, a corporation organized under the laws of the
State of New York, and that the foregoing is a full, true and correct copy of
the resolutions duly adopted at a meeting of the Board of Directors of said
<PAGE>
Corporation, convened and held in accordance with the law and articles and
bylaws of said Corporation on the 26th day of February, 1988, and that said
resolution supersedes all resolutions previously adopted for the purpose
stated and is now in full force and effect.
Attest/s/ VICKI L. OSBAUGH /s/ ALAN A. GROVE
__________________________ ____________________________
Alan A. Grove, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF CHARTER
OF
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Under Section 1205 of the Insurance Law of the State of New York and
Section 805 of the Business Corporation Law of the State of New York
Pursuant to the provisions of Section 1206 of the Insurance Law of the State
of New York, the undersigned President and Secretary of Preferred Life
Insurance Company of New York hereby certify:
1. The name of the Corporation is Preferred Life Insurance Company of New
York.
2. The Charter of the Corporation was filed with the Insurance Department of
the State of New York in December 21, 1982.
3. The amendment to the Charter effected by this certificate is to amend
Article V, Section 6, to effect a change in the director residency
requirements to conform to New York Law, Article 12, Section 1201.
4. In order to effect such amendment, Article V, Section 6 of the Charter is
amended in its entirety to read as follows:
SECTION 6: At all times a majority of the directors shall be citizens and
residents of the United States, not less than three (3) thereof, shall be
residents of the State of New York, and each director shall be at least
eighteen (18) years of age.
5. The amendment of the Charter of the Corporation was authorized by
unanimous consent of the Board of Directors of the Corporation at a meeting of
the Board held on September 16, 1988 at Minneapolis, Minnesota in accordance
with Section 1206 of the New York Insurance Law and Section 708(b) of the
Business Corporation Law of the State of New York, followed by the unanimous
consent of the sole shareholder of the Corporation at a special Shareholders
Meeting held on September 16, 1988 at Minneapolis, Minnesota in accordance
with Section 615(b) of the Business Corporation.
IN WITNESS WHEREOF, we hereunto sign our names and affirm that the statements
herein are true under the penalties of perjury this 5th day of October, 1988.
<PAGE>
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
By: /s/ Ronald Wobbeking
_______________________
Ronald Wobbeking - President
Attest: /s/ Alan A Grove
________________________
Alan A Grove - Secretary
<PAGE>
DECLARATION OF INTENTION AND CHARTER
OF
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
We, the undersigned, all being natural persons of full age, and at
least two-thirds of us citizens of the United States, and at least three (3)
of us being residents of the State of New York, do hereby declare our
intention to form a stock corporation for the purpose of doing the kinds of
insurance business authorized by Paragraphs "1", "2" and "3", respectively, of
Section 46 of the Insurance Law of the State of New York, and for that purpose
do hereby adopt the following charter:
CHARTER
ARTICLE I
The name of this Corporation shall be:
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
ARTICLE II
The principal office of this Corporation shall be located in the
County of New York in the State of New York.
ARTICLE III
SECTION 1. The kind or kinds of insurance to be transacted by
the Corporation are those kinds specified in Paragraphs "1", "2" and "3",
Section 46, of Article IV of the Insurance Law of the State of New York, as
follows:
1. "Life insurance," meaning every insurance upon the lives
of human beings and every insurance appertaining thereto. The business of
life insurance shall be deemed to include the granting of endowment benefits;
additional benefits in the event of death by accident or accidental means;
additional benefits operating to safeguard the contract from lapse, or to
provide a special surrender value, in the event of total and permanent
disability of the insured; and optional modes of settlement of proceeds.
Amounts paid to the Corporation for life insurance and proceeds applied under
optional modes of settlement or under dividend options may be allocated by
the Corporation to one or more separate accounts pursuant to section two
hundred twenty-seven.
<PAGE>
2. "Annuities," meaning all agreements to make periodical
payments where the making or continuance of all or of some of a series of
such payments, or the amount of any such payment, is dependent upon the
continuance of human life, except payments made under the authority of
paragraph one. Amounts paid to the Corporation to provide annuities and
proceeds applied under optional modes of settlement or under dividend options
may be allocated by the Corporation to one or more separate accounts pursuant
to section two hundred twenty-seven.
3. "Accident and health insurance," meaning (a) Insurance
against death or personal injury by accident or by any specified kind or
kinds of accident and insurance against sickness, ailment or bodily injury,
including insurance providing disability benefits pursuant to article nine of
the workmen's compensation law, except as specified in subparagraph (b)
following; and
(b) Non-cancellable disability insurance, meaning
insurance against disability resulting from sickness, ailment or bodily
injury (but not including insurance solely against accidental injury) under
any contract which does not give the insurer the option to cancel or
otherwise terminate the contract at or after one year from its effective date
or renewal date.
SECTION 2. The Corporation may also engage in the reinsurance of
the kinds of insurance business it is authorized to do.
SECTION 3. The foregoing enumeration of specific kinds of
insurance shall not be held to limit or restrict the powers of the Corporation
to carry on any other business to the extent necessarily or properly
incidental to such kinds of insurance.
SECTION 4. The Corporation shall have full power and authority
to cede and assume reinsurance of any risks subject to the Insurance Law and
the rules and regulations of the Insurance Department of the State of New
York.
SECTION 5. The Corporation shall have and may exercise such
other powers as are conferred upon it by law.
ARTICLE IV
The mode and manner in which the corporate powers of the Corporation
shall be exercised is through a Board of Directors and through such Committees
of the Board of Directors, officers and agents as such Board and the By-Laws
of the Corporation shall empower.
ARTICLE V
SECTION 1. The number of the directors of the Corporation shall
be not less than thirteen (13) nor more than twenty-three (23) and shall be
<PAGE>
determined by the provisions of the By-Laws. In no case shall the number of
directors be less than thirteen (13). In no case shall a decrease in the
number of directors shorten the term of any incumbent director.
SECTION 2. The directors shall be elected at each annual meeting
of the stockholders of the Corporation, and the directors so elected shall
hold office for one year and until their respective successors shall have been
elected and shall have qualified. The directors shall be chosen and elected
by a plurality of the whole number of shares voted.
SECTION 3. Any director may be removed with or without cause by
the majority vote of the stockholders present in person or by proxy at any
meeting of stockholders. Not less than one-third of the directors may call a
Special Meeting for the purpose of removing any director for cause and at such
Special Meeting so called, such director may be removed by the affirmative
vote of two-thirds of the remaining directors.
SECTION 4. Whenever any vacancy in the Board of Directors shall
occur by death, resignation, removal or otherwise, and whenever the number of
directors is increased, such vacancy may be filled and such additional
directors may be elected, for the remainder of the term in which such event
shall happen, by a majority vote of the directors then in office in such
manner as may be prescribed by the By-Laws.
SECTION 5. If the directors shall not be elected in any year at
the annual meeting of stockholders as hereinabove provided, or if, because of
a vacancy or vacancies on the Board of Directors, the number of the Board
shall be less than thirteen (13), the Corporation shall not for that reason be
dissolved, but every director shall continue to hold office and discharge his
duties until his successor shall have been elected.
SECTION 6. At all times a majority of the directors shall be
citizens and residents of the State of New York or of adjoining states, not
less than three (3) thereof shall be residents of the State of New York, and
each director shall be at least twenty-one (21) years of age.
ARTICLE VI
The annual meeting of shareholders shall be held on the Thursday
following the first Tuesday on or after the first day of April in each year,
if not a legal holiday, and if a legal holiday, then on the next succeeding
business day, at 10:30 o'clock a.m. or at such other hour as may from time to
time be designated by the Board of Directors.
ARTICLE VII
Except as otherwise provided by law, the presence in person or by
proxy at any meeting of stockholders of the holders of a majority of shares of
the capital stock of the Corporation issued and outstanding and entitled to
vote thereat shall constitute a quorum. If, however, such majority shall not
<PAGE>
be represented at any meeting of the stockholders, the holders of a majority
of the shares present or represented and entitled to vote thereat shall have
power to adjourn the meeting from time to time without notice until the
requisite amount of shares entitled to vote at such meeting shall be
represented. At such adjourned meeting at which the requisite number of
shares entitled to vote thereat shall be represented, any business may be
transacted which might have been transacted at the meeting as originally
notified.
ARTICLE VIII
The names and post office residence addresses of the directors who
shall serve until the first annual meeting of the Corporation, are as follows:
<TABLE>
<CAPTION>
<S> <C>
Post Office Residence Addresses
Lowell C Anderson 1731 S Victoria Road, Mendota Heights, MN
Howard E Barnhill 475 Highcroft Rd, Wayzata, MN
Alfred F Fox 64 Cotter Beech Rd, St James, NY
James J Furey 2 Wexler Court, Garnerville, NY
Alan A Grove 16385 Ringer Rd, Wayzata, MN
Thomas J Kilcher 19 Winding Hill Rd, Hopatcong, NJ
Edward A Magliaro 189 Valleyview Drive, Rockaway, NJ
Richard M. Martin 35 Skylark Lane, Stonybrook, NY
Edward A Monaco 31 N Nancy Place, N Massapequa, NY
Ralph I Oasheim 5168 Abercrombie Drive, Edina, MN
Ronald E Ryan 5909 Sun Road, Edina, MN
Wallace H Watkins RD 1 Box 666 Pequest RD, Andover, NJ
Ronald L Wobbeking 2645 Fountain Lane, Plymouth, MN
</TABLE>
ARTICLE IX
The duration of the corporate existence of this Corporation shall be
perpetual.
ARTICLE X
The holders of stock of the Corporation shall not have any
pre-emptive, preferential or other right to subscribe for or purchase or
acquire any shares of any class of stock or any other securities of the
Corporation, whether now or hereafter authorized, and whether or not
convertible into, or evidencing or carrying the right to purchase, shares of
stock of any class or any other securities now or hereafter authorized and
whether the same shall be issued for cash, services or property, or by way of
dividend, or otherwise, other than such right, if any, as the Board of
Directors in its discretion from time to time may determine; but all such
<PAGE>
shares of stock or other securities may be issued and disposed of by the Board
of Directors, to the extent permitted by law, in such manner to such person or
persons, on such terms, for such consideration and for such corporate purposes
as the Board of Directors may deem advisable.
ARTICLE XI
The amount of the authorized capital of this Corporation shall be
TWO MILLION ($2,000,000) DOLLARS, to consist of TWO HUNDRED THOUSAND (200,000)
shares of stock of the par value of TEN ($10.00) DOLLARS per share.
ARTICLE XII
The Corporation may establish, maintain and operate offices and
agencies and conduct business outside of the State of New York and in other
states, countries, territories, dependencies, protectorates and in the
District of Columbia, in such form and manner as the Board of Directors may
determine.
ARTICLE XIII
The Board of Directors shall adopt By-Laws for its own regulation
and that of the conduct of the business of the Corporation , which By-Laws
shall not be inconsistent with this Charter or with the laws of the State of
New York, and which By-Laws may be modified, rescinded or amended from time to
time by majority vote of the Board of Directors at any special meeting called
for that purpose, or at any regular meeting.
IN WITNESS WHEREOF, we have hereunto subscribed our names and
affixed our seals this 26th day of August, 1982.
<TABLE>
<CAPTION>
<S> <C>
/s/ Lowell C Anderson /s/Richard M. Martin
________________________ ________________________
Lowell C. Anderson Richard M Martin
/s/ Howard E. Barnhill /s/ Edward A. Monaco
________________________ ________________________
Howard E Barnihll Edward A. Monaco
/s/ Alfred F. Fox /s/ Ralph I Oasheim
________________________ ________________________
Alfred F. Fox Ralph I Oasheim
/s/ James J. Furey /s/ Ronald E Ryan
________________________ _________________________
James J. Furey Ronald E Ryan
<PAGE>
/s/ Alan A Grove /s/Wallace H Watkins
________________________ _________________________
Alan A Grove Wallace H Watkins
/s/Thomas J Kilcher /s/ Ronald L Wobbeking
________________________ _________________________
Thomas J Kilcher Ronald L Wobbeking
/s/Edward A Magliaro
________________________
Edward A Magliaro
</TABLE>
<PAGE>
BY-LAWS
OF
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
_________________________
ARTICLE I
SHAREHOLDERS' MEETING
SECTION 1. Annual Meeting. The annual meeting of shareholders for
the election of the directors and for transaction of such other business as
may properly come before such meeting shall be held on the first Tuesday in
April in each year or if such day is a holiday, on the next succeeding
business day. The Board of Directors may select another date for the annual
meeting in its discretion.
SECTION 2. Special Meetings. Except as otherwise provided by
statute, special meetings of the shareholders may be called for any purpose or
purposes at any time by the Chief Executive Officer (CEO) or the Board of
Directors, and shall be called by the CEO, President or Secretary upon written
request of shareholders owning ten percent (10%) or more of the stock of the
Company issued and outstanding and entitled to vote at such meetings. At a
special meeting, no business will be transacted and no corporate action shall
be taken other than that stated in the notice of the meeting except with the
unanimous consent, either in person or by proxy, of all the shareholders
entitled to vote with respect to such business.
SECTION 3. Time and Place of Meetings. All meetings of the
shareholders shall be held at the principal office of the Company, or at such
other place or places within or without the State of New York and at such time
as shall from time to time be designated in the notice of the meeting.
SECTION 4. Notice of Meetings. Written notice of all meetings of
shareholders, annual or special, shall be given to each shareholder entitled
to vote thereat, by mail or personal delivery, at least ten days and not more
than fifty days before such meeting, stating the date, time and place of such
meeting and, unless it is the annual meeting, indicating that it is being
issued by or at the direction of the person or persons calling the meeting.
Notice of a special meeting shall also state the purpose or purposes for which
the meeting is called. If mailed, such notice shall be directed to such
shareholder at his address as it appears on the books of the Company or to
<PAGE>
such other address as may be requested by such shareholder in writing.
SECTION 5. Waiver of Notice. Notice of meetings of shareholders need
not be given to any shareholder who submits a written waiver of notice,
whether before or after the meeting. The attendance of any shareholder at a
meeting in person or by proxy, without protesting prior to the conclusion of
the meeting the lack of notice of such meeting, shall constitute a waiver of
notice by such shareholder.
SECTION 6. Quorum. At every meeting of the shareholders, the holders of
a majority of the outstanding stock entitled to vote at any meeting
represented in person or by proxy, shall constitute a quorum for all purposes.
In the absence of a quorum, the shareholders entitled to vote thereat,
represented in person or by proxy, may adjourn the meeting to a day certain
and the meeting may be held as adjourned without further notice if there is a
quorum present at the commencement of such adjourned meeting. At any such
adjourned meeting, only such business as might have been transacted at the
meeting originally called may be transacted and such meeting may continue to
conclusion notwithstanding the withdrawal of enough shareholders to leave less
than a quorum.
SECTION 7. Voting. At all meetings of shareholders each share of stock
held by a shareholder entitled to vote on any matter, represented in person or
by proxy, shall be entitled to one vote, provided, however, that no
shareholder shall vote his stock within one year after the date of acquisition
thereof or until ten days after written notice of acquisition thereof has been
filed with the Superintendent of Insurance of the State of New York, whichever
shall first occur. Proxies shall be in writing and shall be signed by the
shareholder; provided, however, that if the shareholder is a corporation its
proxy shall either have its corporate seal affixed or shall be accompanied by
evidence satisfactory to the company that the proxy has been signed on behalf
of such corporate shareholder by a duly authorized officer thereof.
Inspectors shall be appointed by the presiding person at any shareholder's
meeting at which inspectors are required. At all meetings of shareholders, a
quorum being present, all matters except as otherwise provided by law or the
Company Charter or these By-Laws, shall be authorized by a majority of the
votes cast by the shareholders present in person or by proxy and entitled to
vote thereon. No proxy shall be valid after the expiration of eleven months
from the date of its execution.
SECTION 8. Written Consent. Any action required or permitted to be
taken at any meeting of shareholders may be taken without a meeting by the
written consent thereto of the shareholders, setting forth such action and
signed by the holders of all the outstanding shares entitled to vote thereon.
ARTICLE II
BOARD OF DIRECTORS
<PAGE>
SECTION 1. Number, Authority and Qualifications. The business and
property of the Company shall be conducted and managed by a Board of Directors
consisting of not less than thirteen nor more than twenty-three directors.
The number of directors shall be determined by vote of the shareholders at the
annual meeting of shareholders or at a special meeting, or by resolution of
the Board of Directors and, until amended, the number of directors shall be
thirteen. The number of directors may be increased or decreased, within the
limits prescribed in this section, by vote of the shareholders at the annual
meeting of shareholders or at a special meeting, or by resolution of the Board
of Directors, but no decrease in the number of directors so made shall shorten
the term of any incumbent director.
At all times a majority of the directors shall be citizens and residents
of the United States and not less than three directors shall be residents of
the State of New York.
At least one-third (1/3) of the members of the Board shall be persons who
are not officers or employees of the Company or of any entity controlling,
controlled by or under common control with the Company and who are not
beneficial owners of a controlling interest in the voting stock of any such
company or any such entity ("Independent Directors"). Directors must be at
least 18 years of age but need not be shareholders.
SECTION 2. Election and Removal. The Board of Directors shall be
elected at the annual meeting of shareholders by a plurality of the votes cast
thereat to serve until the next annual meeting and until their successors
shall be elected. Any or all of the directors may be removed, with or without
cause, by vote of a majority of the shares issued and outstanding and entitled
to vote thereon. A special meeting of shareholders for the purpose of
removing any other director shall be called upon a vote of at least one-third
(1/3) of the members of the Board of Directors. Immediately following any
vote by which a director is removed, the office of the removed director to be
deemed to be vacant. No director shall be elected pursuant to this section
unless a copy of the notice of election shall have been filed in the office of
the Superintendent of Insurance of the State of New York at least ten days
before the day of such election.
SECTION 3. Vacancies. Whenever any vacancy shall occur in the office of
a director, such vacancy may be filled for the unexpired term by majority vote
of the remaining directors. Where the number of directors is increased,
additional directors may be elected by the shareholders entitled to vote
thereon at the annual meeting, or by the Board of Directors. No director
elected pursuant to this section shall take office or exercise the duties
thereof until ten days after written notice of his election shall have been
filed in the office of the Superintendent of Insurance of the State of New
York.
SECTION 4. Regular Meetings. Regular meetings of the Board of Directors
<PAGE>
shall be held immediately following the annual meeting of the shareholders and
on such other dates as the Board may designate.
SECTION 5. Special Meetings. Special meetings of the Board of Directors
may be called by the Secretary or an Assistant Secretary on the request of the
CEO or the President or any Vice President or upon the request of any two
directors.
SECTION 6. Notice of Meetings. Written notice of the date, time and
place of special meetings shall be given by mail to each member at least five
days before such meeting. Such notice may also be given by telegram or
personal delivery at least two days before such meeting. No notice need by
given of regular meetings. A notice need not specify the purpose or purposes
of any meeting.
SECTION 7. Waiver of Notice. Any director or member of the Executive
Committee, Finance Committee or any other Committee, may at any time waive any
notice required to be given under these By-Laws if such waiver is given in
writing or by telegram either before, at or after the meeting to which it
relates. Presence at a meeting shall also constitute a waiver of notice
thereof unless the person attending such meeting objects to the failure to
give such notice, prior to the end of such meeting.
SECTION 8. Place of Meetings. Meetings of the Board of Directors shall
be held at the principal office of the Company or at such other place within
or without the State of New York as may be designated in the notice thereof.
SECTION 9. Business Transacted at Meetings. Any business may be
transacted and any corporate action taken at any regular or special meeting of
the Board of Directors whether stated in the notice of such meeting or not,
except as otherwise expressly required by law.
SECTION 10. Quorum. A quorum shall consist of a majority of the
directors then in office. At least one (1) Independent Director must be
included in any quorum for the transaction of business at any meeting of the
Board of Directors.
SECTION 11. Action by the Board. Subject to the provisions of Article
XII, Sections 6 and 7 hereof, any reference to corporate action to be taken by
the Board of Directors shall mean such action at a meeting of the Board.
Except as otherwise provided by law or by the Charter of the Company, the vote
of a majority of the directors present at the time of the vote, if a quorum is
present at such time, shall be the act of the Board.
SECTION 12. Compensation. The compensation of directors shall be
regulated and determined, from time to time, by resolution of the Board of
Directors; provided that nothing herein contained shall be construed to
preclude any director from serving the Company in any other capacity and
<PAGE>
receiving compensation or commissions therefor, and provided further that no
full time officer of the Company shall receive any compensation in addition to
his regular salary for serving as a director of the Company.
ARTICLE III
EXECUTIVE COMMITTEE
SECTION 1. Membership. The Board of Directors may appoint from among
its members an Executive Committee consisting of five or more directors.
Members of the Executive Committee shall be appointed by a majority of the
full Board of Directors at the annual meeting of the Board of Directors or at
a special meeting, to serve until the next succeeding annual meeting of the
Board of Directors and until their successors have been appointed. At least
one-third (1/3) of the members of the Executive Committee shall be Independent
Directors. The Executive Committee shall elect from among its members a
Chairman. The members of the Executive Committee shall serve at the pleasure
of the Board.
SECTION 2. Powers of the Executive Committee. The Executive Committee
during the intervals between meetings of the Board of Directors shall have and
may exercise, except as otherwise provided by statute, all the powers of the
Board with respect to the conduct and management of the business and property
of the Company and shall have the power to authorize the seal of the Company
to be affixed to all papers which may require it.
SECTION 3. Meetings. Meetings of the Executive Committee may be called
by order of the Chairman of the Committee or of any two members of the
Committee. The Committee shall prepare regular minutes of the transactions at
its meetings and for that purpose may appoint a secretary to record the
proceedings thereat. The Committee shall cause such minutes to be maintained
in books kept for that purpose. All actions of the Committee shall be
reported to the Board of Directors at its next meeting succeeding the date of
such action.
SECTION 4. Place of Meetings. Meetings of the Executive Committee shall
be held at the principal office of the Company, or at such other place, within
or without the State of New York, as may be designated in the notice thereof.
SECTION 5. Notice of Meetings. Notice of all meetings shall be given by
mailing to each member at least three days before such meeting, a written or
printed notice of the time and place thereof. Such notice may also be given
by telegram or personal delivery at least one day before such meeting.
SECTION 6. Quorum. A quorum shall consist of a majority of the total
number of members of the Committee then in office, but not less than three (3)
members. At least one (1) Independent Director must be included in any quorum
for the transaction of business at any meeting of the Executive Committee.
<PAGE>
ARTICLE IV
FINANCE COMMITTEE
SECTION 1. Membership. The Board of Directors may appoint from among
its members a Finance Committee consisting of five or more directors. Members
of the Finance Committee shall be appointed by a majority of the full Board of
Directors at the annual meeting of the Board of Directors, or at a special
meeting, to serve until the next succeeding annual meeting of the Board of
Directors and until their successors have been appointed. At least one-third
(1/3) of the Members of the Finance Committee shall be Independent Directors.
The Finance Committee shall elect from among its members a Chairman. The
members of the Finance Committee shall serve at the pleasure of the Board.
SECTION 2. Powers of the Finance Committee. The Finance Committee shall
possess and may exercise all the powers of the Board of Directors with respect
to the investments of the funds of the Company.
SECTION 3. Meetings. Meetings of the Finance Committee may be called by
order of the Chairman of the Committee or by any two members of the Committee.
The Committee shall prepare regular minutes of the transactions at its
meetings and for that purpose may appoint a secretary to record the
proceedings thereat. The Committee shall cause such minutes to be maintained
in books kept for that purpose. All actions of the Committee shall be
reported to the Board of Directors at its next meeting succeeding the date of
such action.
SECTION 4. Place of Meetings. Meetings of the Finance Committee shall
be held at the principal office of the Company or at such other place within
or without the State of New York as may be designated in the notice thereof.
SECTION 5. Notice of Meetings. Notice of all meetings shall be given by
mailing to each member at least three days before such meeting, a written or
printed notice of the time and place thereof. Such notice may also be given
by telegram or personal delivery at least one day before such meeting.
SECTION 6. Quorum. A quorum shall consist of a majority of the total
number of members of the Committee then in office, but not less than three (3)
members. At least on (1) Independent Director must be included in any quorum
for the transaction of business at any meeting of the Finance Committee.
ARTICLE V
AUDIT AND EVALUATION COMMITTEE
SECTION 1. Membership. The Board of Directors may appoint from among
its members an Audit and Evaluation Committee consisting of five (5) or more
directors who shall be appointed by a majority of the full Board of Directors
<PAGE>
at the annual meeting of the Board of Directors, or at a special meeting, to
serve until the next annual meeting of the Board of Directors and until their
successors have been appointed. All of the members of the Audit and
Evaluation Committee shall be Independent Directors. The Audit and Evaluation
Committee shall elect from among its members a Chairman. The members of the
Committee shall serve at the pleasure of the Board.
SECTION 1. Membership. The Board of Directors may appoint from among
its members of Audit and Evaluation Committee consisting of five (5) or more
directors who shall be appointed by a majority of the full Board of Directors
at the annual meeting of the Board of Directors, or at a special meeting, to
serve until the next annual meeting of the Board of Directors and until their
successors have been appointed. All of the members of the Audit and
Evaluation Committee shall be Independent Directors. The Audit and Evaluation
Committee shall elect from among its members a Chairman. The members of the
Committee shall serve at the pleasure of the Board.
SECTION 2. Powers of the Audit and Evaluation Committee. The Audit and
Evaluation Committee shall possess and may exercise all of the powers of the
Board of Directors with respect to the following functions:
(a) recommending the selection of independent certified public
accountants;
(b) reviewing the company's financial condition, the scope and
results of the independent audit and any internal audit;
(c) nominating candidates for director for election by shareholders
or policyholders;
(d) evaluating the performance of officers deemed to be principal
officers of the Company; and
(e) recommending to the Board of Directors the selection and
compensation of such principal officers.
SECTION 3. Meetings. Meetings of the Audit and Evaluation Committee may
be called by order of the Chairman of the Committee or of any two members of
the Committee. The Committee shall prepare regular minutes of the
transactions at its meetings and for that purpose may appoint a secretary to
record the proceedings thereat. The Committee shall cause such minutes to be
maintained in books kept for that purpose. All actions of the Committee shall
be reported to the Board of Directors at its next meeting succeeding the date
of such action.
SECTION 4. Place of Meetings. Meetings of the Audit and Evaluation
Committee shall be held at the principal office of the Company, or at such
<PAGE>
other place, within or without the State of New York, as may be designated in
the notice thereof.
SECTION 5. Notice of Meetings. Notice of all meetings shall be given by
mailing to each member at least three (3) days before such meeting, a written
or printed notice of the time and place thereof. Such notice may also be
given by telegram or personal delivery at least one (1) day before such
meeting.
SECTION 6. Quorum. A quorum shall consist of a majority of the total
number of members of the Committee then in office, but not less than three (3)
members.
ARTICLE VI
COMMITTEES - GENERAL
SECTION 1. Board Committees. the Board of Directors may from time to
time by resolution passed by a majority of the whole Board, designate one or
more committees, in addition to the Executive, Finance and Audit and
Evaluation Committees, each committee to consist of five or more of the
directors of the Company, for such purposes as the Board may from time to time
determine. Any such committee to the extent provided by resolution of the
Board shall have all the authority of the Board and shall have such functions
and duties as the Board shall prescribe.
SECTION 2. Quorum. A quorum for any such other Committee shall consist
of a majority of the total number of members of the Committee then in office,
but not less than three and at least one member constituting such quorum shall
be an Independent Director.
A majority of all the members of any such other committee may determine
its action and fix the time and place of its meetings, unless the Board of
Directors shall otherwise provide. The Board of Directors shall have power to
change the members of any committee at any time, to fill vacancies and to
discharge any such committee, either with or without cause, at any time,
except that at least one-third (1/3) of the members of any committee shall be
Independent Directors and at least one Independent Director must be included
in any quorum for the transaction of business at any meeting of any committee.
SECTION 3. Alternates and Substitutes. The Board of Directors may by
resolution passed by a majority of the whole Board designate one or more
directors as alternate members of any Committee who may replace any absent
member or members at any meeting of such committee.
SECTION 4. Compensation. Except as otherwise provided in these
By-Laws, each member of the Executive Committee, Finance Committee, Audit and
Evaluation Committee and any other Committee designated by the Board, shall be
<PAGE>
entitled to receive from the Company for each meeting of any such Committee
which he shall attend such fee, if any, as shall be fixed by the Board of
Directors, together with reimbursement, to the extent authorized by resolution
of the Board, for the reasonable expenses incurred by him in connection with
the performance of his duties.
ARTICLE VII
OFFICERS
SECTION 1. Duties in General. All officers of the Company, in addition
to the duties prescribed by these By-Laws, shall perform such duties in the
conduct and management of the business and property of the Company as may be
determined by the Board of Directors. In the case of more than one person
holding an office of the same title, any of them may perform the duties of the
office except insofar as the Board of Directors, or the President may
otherwise direct. Any two or more offices may be held by the same person
except the offices of President and Secretary.
SECTION 2. Number and Designation. The officers of the Company shall be
a President, a Secretary, a Treasurer, and such other officers including a
Chairman of the Board, one or more Vice-Presidents, Assistant Treasurers, or
Assistant Secretaries as the Board of Directors may from time to time deem
advisable.
SECTION 3. Election and Term of Office. All officers shall be elected
annually by the Board of Directors at the annual meeting of the Board, or at a
special meeting, and shall hold office at the pleasure of the Board. The
Board of Directors shall also have the power at any time and from time to time
to elect or appoint any additional officers not then elected, and any such
officer so elected or appointed shall serve at the pleasure of the Board. A
vacancy in any office resulting from death, resignation, removal,
disqualification or from any other cause, shall be filled by the Board of
Directors.
SECTION 4. CEO and Chairman of the Board. The CEO shall be the Chairman
of the Board and shall have authority to execute all contracts and instruments
in the name of and on behalf of the Company and shall preside, when present,
at meetings of shareholders and of the Board of Directors.
The CEO shall have general and active supervision and direction over the
business affairs of the Corporation, subject to the control of the Board of
Directors whose policies he shall execute.
He shall see that all orders and resolutions of the Board of Directors are
carried into effect. Except when inconsistent with the Corporation's Charter,
these By-Laws, or with the orders and resolutions of the Board of Directors,
he shall have the power to employ, fix the duties, and discharge such
<PAGE>
employees as he may deem necessary and proper. The CEO shall make such
reports to the Board of Directors as it may require. The CEO shall have such
other powers and perform such other duties as may be assigned to him by the
Board of Directors.
SECTION 5. President. In absence of the Chairman of the Board and CEO,
the President shall preside at all meetings of the shareholders and of the
Board of Directors. The President shall have such powers and perform such
duties as may be assigned to him from time to time by the Board of Directors
and the CEO.
SECTION 6. Vice-Presidents. The Vice-Presidents shall have such powers
and perform such duties as may be assigned to them from time to time by the
Board of Directors, the CEO or the President. The Board of Directors, or the
CEO may from time to time determine the order of priority as between two or
more Vice-Presidents.
SECTION 7. Secretary. The Secretary shall have custody of the minutes
of the meetings of the stockholders and of the Board of Directors, and the
minutes of the meetings of all committees appointed by the Board; shall issue
notices of meeting; shall have custody of the Company's seal and corporate
books and records; shall have charge of the issuance, transfer and
cancellation of stock certificates; shall have authority to attest and affix
the corporate seal to any instruments executed on behalf of the Company; and
shall perform such other duties as are incident to his office and as may be
required by the Board of Directors or the CEO. Any Assistant Secretary may
perform the duties of the Secretary in his absence and such of the duties of
the Secretary as may be delegated or assigned to him by the Secretary or by
the CEO or by the Board of Directors.
SECTION 8. Treasurer. The Treasurer shall be charged with the
supervision of the keeping of the funds and books of account of the
Corporation and with their safekeeping shall carry out such duties as are
incident to his office and shall further perform such other duties as may be
required by the Board of Directors or the CEO. Any Assistant Treasurer may
perform the duties of the Treasurer in his absence, and such of the duties of
the Treasurer as may be delegated or assigned to him by that officer or by the
Board of Directors or the CEO.
SECTION 9. Other Officers. Other officers who may from time to time be
elected by the Board of Directors shall have such powers and perform such
duties as may be assigned to them by the Board of Directors or the CEO or
President.
SECTION 10. Removal. Any officer may be removed either with or without
cause at any time by a vote of a majority of the entire Board of Directors.
<PAGE>
SECTION 11. Compensation. Subject to the provisions of Article II,
Section 12, the compensation of the officers shall be fixed by the Board of
Directors.
ARTICLE VIII
SHARE CERTIFICATES
SECTION 1. Form of Certificates. The shares of the Corporation shall be
represented by Certificates, in such form as the Board of Directors may from
time to time prescribe, signed by the CEO, President or a Vice-President and
the Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer, and sealed with the seal of the Corporation. Such seal may be a
facsimile, engraved or printed. Where any such certificate is signed by a
transfer agent or transfer clerk and by a registrar, the signatures of any
such CEO, President, Vice-President, Secretary, Assistant Secretary,
Treasurer, or Assistant Treasurer upon such certificates may be facsimiles,
engraved or printed. In case any such officer who has signed or whose
facsimile signature has been placed upon such certificate shall have ceased to
be such before such certificate is issued, it may be issued by the Corporation
with the same effect as if such officer had not ceased to be such at the date
of its issue.
Every certificate representing shares issued by the Corporation shall
plainly state upon the face thereof the number, kind and class of shares which
it represents.
SECTION 2. Transfers. Transfers of shares shall be made only upon the
books of the Corporation by the registered holders in person or by power of
attorney duly executed and acknowledged and filed with the Secretary of the
Corporation, or with a duly appointed Transfer Agent acting for and on behalf
of the Secretary, and upon the surrender of the certificate or certificates
for such shares duly endorsed or accompanied by a duly executed stock power.
SECTION 3. Lost or Destroyed Certificates. If any certificate of shares
shall be lost or destroyed, the holder thereof shall forthwith notify the
Corporation of the facts and the Board of Directors or the Executive Committee
may then authorize a new certificate to be used to him. The Board of
Directors or the Executive Committee may in its discretion require, as a
condition precedent, deposit of a bond in such amount and in such form and
with surety or sureties as the Board or the said Committee may direct.
SECTION 4. Record Date. For the purpose of determining the shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or to express consent to or dissent from any proposal
without a meeting, or for the purpose of determining shareholders entitled to
receive payment of any dividend or the allotment of any rights or for the
purpose of any other a action affecting the interests of shareholders, the
<PAGE>
Board of Directors may fix, in advance, a record date. Such date shall not be
more than fifty nor less than ten days before the date of any such meeting,
nor more than fifty days prior to any other action. In each such case, except
as otherwise provided by law, only such persons as shall be shareholders of
record on the date so fixed shall be entitled to notice of, and to vote at,
such meeting and any adjournment thereof, or to express such consent or
dissent, or to receive payment of such dividend, or such allotment of rights,
or otherwise to be recognized as shareholders for the related purpose,
notwithstanding any registration of transfer of shares on the books of the
Company after any such record date so fixed.
SECTION 5. Transfer Agent and Registrar. The Board of Directors may
appoint one or more transfer clerks or one or more transfer agents and one or
more registrars, and may require all certificates for shares to bear the
signature or signatures of any of them.
ARTICLE IX
DIVIDENDS
Dividends may be declared from the legally available surplus of the
Company at such times and in such amounts as the Board of Directors may
determine.
ARTICLE X
INDEMNIFICATION OF OFFICERS AND DIRECTORS
SECTION 1. To the extent permitted by law:
(a) The Corporation shall indemnify any person made a party to an action
or proceeding by or in the right of the Corporation to procure a judgment in
its favor, by reason of the fact that he, his testator or intestate, is or was
a director or officer or employee of the Corporation, against the reasonable
expenses, including attorneys' fees, actually and necessarily incurred by him
in connection with the defense of such action or proceeding, or in connection
with an appeal therein, except in relation to matters as to which such person
is adjudged to have breached his duty to the Corporation; and
(b) The Corporation shall indemnify any person made, or threatened to be
made a party to an action or proceeding other than one by or in the right of
the Corporation to procure a judgment in its favor, whether civil or criminal,
including an action by or in the right of any other corporation of any type or
kind domestic or foreign, which any director or officer or employee of the
Corporation served in any capacity at the request of the Corporation, by
reason of the fact that he, his testator or intestate, was a director or
officer or employee of the Corporation, or served such other corporation in
any capacity, against judgments, fines, amounts paid in settlement and
<PAGE>
reasonable expenses, including attorneys' fees, actually and necessarily
incurred as a result of such action or proceeding, or any appeal therein, if
such person acted in good faith, for a purpose which he reasonably believed to
be in the best interests of the Corporation and, in criminal actions or
proceedings, in addition had no reasonable cause to believe that his conduct
was unlawful.
ARTICLE XI
CONFLICT OF INTERESTS
No director or officer of the corporation shall receive, in addition to
his fixed salary or compensation, any money or valuable thing, either directly
or indirectly, or through any substantial interest in any other corporation or
business unit, for negotiating, procuring, recommending or aiding in any
purchase or sale of property, or loan, made by the corporation or any
affiliate or subsidiary thereof; nor shall he be pecuniarily interested,
either as principal, co-principal, agent or beneficiary, either directly or
indirectly, or through any substantial interest in any other corporation or
business unit, in any such purchase, sale or loan.
ARTICLE XII
MISCELLANEOUS PROVISIONS
SECTION 1. Deposits of Funds. Bills, notes, checks, negotiable
instruments or any other evidence of indebtedness payable to and received by
the Company may be endorsed for deposit to the credit of the Company by such
officers or agents of the Company as the Board of Directors may determine and,
when authorized by the Board of Directors may be endorsed for deposit to the
credit of agents of the Company in such manner as the Board of Directors may
direct.
SECTION 2. Withdrawals of Funds. All disbursements of the funds of the
Company shall be made by check, draft or other order signed by such officers
or agents of the Company as the Board of Directors may from time to time
authorize to sign the same.
SECTION 3. Voting stock of Other Corporations. The President or any
other officer designated by the Board of Directors of the Company may execute
in the name of the Company and affix the corporate seal to any proxy or power
of attorney authorizing the proxy or proxies or attorney or attorneys named
therein to vote the stock of any corporation held by this Company on any
matter on which such stock may be voted. If any stock owned by this Company
is held in any name other than the name of this Company, instructions as to
the manner in which such stock is to be voted on behalf of this Company may be
given to the holder of record by the President or any other officer designated
by the Board of Directors.
<PAGE>
SECTION 4. Notices. Any notice under these By-Laws may be given by mail
by depositing the same in a post office or postal letter box or postal mail
chute in a sealed post-paid wrapper addressed to the person entitled thereto
at his address as the same appears upon the books or records of the Company or
at such other address as may be designated by such person in a written
instrument filed with the Secretary of the Company prior to the sending of
such notice, except that notices which may be given by telegram or personal
delivery may be telegraphed or delivered, as the case may be, to such person
at such address; and such notice shall be deemed to be given at the time such
notice is mailed, telegraphed, or delivered personally. The term "telegram"
as used in these By-Laws shall include the giving of notice by telex.
SECTION 5. Seal. The corporate seal shall have inscribed thereon the
name of the Company, the year of its organization and the words "Corporate
Seal New York". The seal may be used by causing it or a facsimile thereof to
be impressed or affixed or otherwise reproduced.
SECTION 6. Action Without a Meeting. Where time is of the essence but
not in lieu of any regular or special scheduled meeting of the Board of
Directors or any committee thereof, any action required or permitted to be
taken by the Board of Directors or any committee thereof, may be taken without
a meeting if all members of the Board, or of such committee, consent in
writing to the adoption of a resolution authorizing the action. The
resolution and the written consents thereto by the members of the Board or
committee shall be filed with the minutes of the proceedings of the Board or
committee.
SECTION 7. Participation in Meeting by Telephone. Any one or more
members of the Board of Directors or any committee thereof may participate in
a meeting of the Board or of such committee by means of a conference telephone
or similar communications equipment allowing all persons participating in the
meeting to hear each other at the same time. Participation by such means
shall constitute presence in person at such meeting.
ARTICLE XIII
AMENDMENTS
SECTION 1. Power to Amend. These By-Laws may be adopted, amended or
repealed by the shareholders, at an annual or special meeting. By-Laws may
also be adopted, amended or repealed by the Board but any By-Law adopted by
the Board may be amended or repealed by the shareholders as herein above
provided.
SECTION 2. Notice to Shareholders. If any By-Law regulating an
impending election or directors is adopted, amended or repealed by the Board
of Directors, there shall be set forth in the notice of the next meeting of
<PAGE>
shareholders for the election of directors the By-Law so adopted, amended or
repealed, together with a concise statement of the changes made.
CERTIFICATE
The undersigned hereby certifies that the foregoing is a true and
complete copy of the By-Laws of PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
with all amendments to the date of this certificate.
Dated: Minneapolis, Minnesota
September 14, 1984
/s/ Alan A Grove
_____________________
Secretary
<PAGE>
Blazzard, Grodd & Hasenauer, P.C.
Suite 213, Oceanwalk Mall
101 North Ocean Drive
Hollywood, FL 33019
(305)920-4864
October 24, 1995
Board of Directors
Preferred Life Insurance Company of New York
152 W 57th Street, 18th Floor
New York, NY 10019
Re: Opinion and Consent of Counsel
Preferred Life Variable Account C
Dear Sir or Madam:
You have requested our Opinion of Counsel in connection with the filing with
the Securities and Exchange Commission pursuant to the Securities Act of 1933,
as amended, of a Registration Statement on Form N-4 for the Individual Deferred
Variable Annuity Contracts to be issued by Preferred Life Insurance Company of
New York and its separate account, Preferred Life Variable Account C.
We are of the following opinions:
1. Preferred Life Insurance Company of New York is a valid and existing
stock life insurance company of the state of New York.
2. Preferred Life Variable Account C is a separate investment account of
Preferred Life Insurance Company of New York created and validly
existing pursuant to the New York Insurance Laws and the Regulations
thereunder.
3. Upon the acceptance of purchase payments made by an Owner pursuant
to a Contract issued in accordance with the Prospectus contained in the
Registration Statement and upon compliance with applicable law, such an
Owner will have a legally-issued, fully-paid, non-assessable contractual
interest under such Contract.
You may use this opinion letter, or copy hereof, as an exhibit to the
Registration Statement.
<PAGE>
We consent to the reference to our Firm under the caption "Legal Opinions"
contained in the Statement of Additional Information which forms a part of the
Registration Statement.
Sincerely,
BLAZZARD, GRODD, & HASENAUER, P.C.
By:/S/ JUDITH A. HASENAUER
__________________________________
Judith A. Hasenauer
<PAGE>
KPMG Peat Marwick LLP
4200 Norwest Center Telephone 612 305 5000 Telefax 612 305 5039
90 South Seventh Street
Minneapolis, MN 55402
Independent Auditors' Consent
The Board of Directors
Preferred Life Insurance Company of New York:
We consent to the use of our report, dated January 20, 1995, on the financial
statements of Preferred Life Variable Account C and our report dated February
7, 1995, on the financial statements of Preferred Life Insurance Company of
New York included herein and to the reference to our Firm under the heading
"EXPERTS".
KPMG Peat Marwick LLP
Minneapolis, Minnesota
October 24, 1995
<PAGE>
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<NAME> PREFERRED LIFE VARIABLE ACCOUNT C
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 624,684,243
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<EXPENSES-NET> 4,226,246
<NET-INVESTMENT-INCOME> 22,126,482
<REALIZED-GAINS-CURRENT> 3,126,994
<APPREC-INCREASE-CURRENT> 30,161,047
<NET-CHANGE-FROM-OPS> 55,414,523
<EQUALIZATION> 0
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<PAGE>
<NET-CHANGE-IN-ASSETS> 51,731,741
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<GROSS-ADVISORY-FEES> 4,226,246
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<GROSS-EXPENSE> 4,226,246
<AVERAGE-NET-ASSETS> 603,309,804
<PER-SHARE-NAV-BEGIN> 0
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<PAGE>
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