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
May 1, 1996
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 ,
MAY 1, 1996 AND AS MAY BE AMENDED FROM TIME TO TIME.
TABLE OF CONTENTS
Page
COMPANY
EXPERTS
LEGAL OPINIONS
DISTRIBUTOR
CALCULATION OF PERFORMANCE DATA
ANNUITY PROVISIONS
Variable Annuity Payout
Fixed Annuity Payout
FINANCIAL STATEMENTS
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 and for the year ended December
31, 1995, 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. The Company
does not currently advertise the yield of the Money Market Sub-Account.
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.
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]
____
cd
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.
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:
<TABLE>
<CAPTION>
<S> <C>
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.
</TABLE>
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 and for the year ended
December 31, 1995, 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
and for the year ended December 31, 1995 are also included herein.
PREFERRED LIFE VARIABLE ACCOUNT C
of
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements
December 31, 1995
<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, 1995, the
related statements of operations for the year then ended and the statements of
changes in net assets for each of the years in the two-years then ended.
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 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.
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, 1995, the results of their
operations for the year then ended and the changes in their net assets for
each of the years in the two-years then ended, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 22, 1996
<PAGE>
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<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
of
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Statements of Assets and Liabilities
December 31, 1995
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>
Investments at net asset value:
Franklin Valuemark Funds:
Money Market Fund, 28,616,253
shares, cost $28,616,253 $28,616,253 - - - - -
Growth and Income Fund, 4,394,911
shares, cost $60,973,198 - 75,328,781 - - - -
Precious Metals Fund, 517,704
shares, cost $7,087,492 - - 7,289,270 - - -
High Income Fund, 2,624,571
shares, cost $33,346,493 - - - 35,851,643 - -
Real Estate Securities Fund,
825,468 shares, cost $12,476,703 - - - - 14,363,143 -
U.S. Government Securities Fund,
5,930,900 shares, cost $79,882,566 - - - - - 83,032,596
----------- ---------- --------- ---------- ---------- ----------
Total assets 28,616,253 75,328,781 7,289,270 35,851,643 14,363,143 83,032,596
----------- ---------- --------- ---------- ---------- ----------
Liabilities:
Accrued mortality and expense risk charges 40,678 78,913 9,742 38,776 17,536 87,383
Accrued administrative charges 4,881 9,469 1,169 4,653 2,104 10,486
----------- ---------- --------- ---------- ---------- ----------
Total liabilities 45,559 88,382 10,911 43,429 19,640 97,869
----------- ---------- --------- ---------- ---------- ----------
Net assets $28,570,694 75,240,399 7,278,359 35,808,214 14,343,503 82,934,727
=========== ========== ========= ========== ========== ==========
Contract owners' equity (note 5) $28,570,694 75,240,399 7,278,359 35,808,214 14,343,503 82,934,727
=========== ========== ========= ========== ========== ==========
</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, 1995
Zero Zero Zero
Utility Coupon Coupon Coupon Global
Equity Fund - Fund - Fund - Income
Fund 2000 2005 2010 Fund
------------ ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Utility Equity Fund, 6,473,700
shares, cost $105,368,128 $115,879,236 - - - -
Zero Coupon Fund - 2000, 1,649,204
shares, cost $23,746,948 - 25,941,979 - - -
Zero Coupon Fund - 2005, 549,178
shares, cost $8,149,304 - - 9,544,710 - -
Zero Coupon Fund - 2010, 462,374
shares, cost $6,782,664 - - - 8,341,232 -
Global Income Fund, 1,699,803
shares, cost $21,878,611 - - - - 22,879,348
------------ ---------- --------- --------- ----------
Total assets 115,879,236 25,941,979 9,544,710 8,341,232 22,879,348
------------ ---------- --------- --------- ----------
Liabilities:
Accrued mortality and expense risk charges 121,746 28,423 12,398 11,226 25,406
Accrued administrative charges 14,610 3,411 1,488 1,347 3,049
------------ ---------- --------- --------- ----------
Total liabilities 136,356 31,834 13,886 12,573 28,455
------------ ---------- --------- --------- ----------
Net assets $115,742,880 25,910,145 9,530,824 8,328,659 22,850,893
============ ========== ========= ========= ==========
Contract owners' equity (note 5) $115,742,880 25,910,145 9,530,824 8,328,659 22,850,893
============ ========== ========= ========= ==========
</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, 1995
Investment Adjustable Templeton Templeton
Grade Income U.S. Pacific Rising International
Intermediate Securities Government Growth Dividends Equity
Bond Fund Fund Fund Fund Fund Fund
------------- ---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Investment Grade Intermediate Bond Fund,
1,126,912 shares, cost $15,095,668 $ 15,833,118 - - - - -
Income Securities Fund, 5,493,020
shares, cost $82,263,813 - 90,470,044 - - - -
Adjustable U.S. Government Fund,
1,435,234 shares, cost $15,798,935 - - 15,443,114 - - -
Templeton Pacific Growth Fund,
1,777,444 shares, cost $23,935,347 - - - 24,724,244 - -
Rising Dividends Fund, 3,145,163
shares, cost $33,512,716 - - - - 39,817,759 -
Templeton International Equity Fund,
4,060,207 shares, cost $51,176,118 - - - - - 54,081,956
------------- ---------- ---------- ---------- ---------- -------------
Total assets 15,833,118 90,470,044 15,443,114 24,724,244 39,817,759 54,081,956
------------- ---------- ---------- ---------- ---------- -------------
Liabilities:
Accrued mortality and expense risk charges 18,756 94,418 17,872 27,795 42,921 57,325
Accrued administrative charges 2,251 11,330 2,145 3,335 5,150 6,879
------------- ---------- ---------- ---------- ---------- -------------
Total liabilities 21,007 105,748 20,017 31,130 48,071 64,204
------------- ---------- ---------- ---------- ---------- -------------
Net assets $ 15,812,111 90,364,296 15,423,097 24,693,114 39,769,688 54,017,752
============= ========== ========== ========== ========== =============
Contract owners' equity (note 5) $ 15,812,111 90,364,296 15,423,097 24,693,114 39,769,688 54,017,752
============= ========== ========== ========== ========== =============
</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, 1995
Templeton Templeton
Developing Templeton Global
Markets Global Asset Total
Equity Growth Allocation All
Fund Fund Fund Funds
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Templeton Developing Markets Equity Fund,
742,850 shares, cost $7,462,623 $ 7,265,075 - -
Templeton Global Growth Fund,
1,368,630 shares, cost $14,792,088 - 16,081,401 -
Templeton Global Asset Allocation Fund,
36,125 shares, cost $375,595 - - 380,039
----------- ---------- ----------
Total assets 7,265,075 16,081,401 380,039 691,164,941
----------- ---------- ---------- -----------
Liabilities:
Accrued mortality and expense risk charges 9,851 17,922 692 759,779
Accrued administrative charges 1,182 2,151 83 91,173
----------- ---------- ---------- -----------
Total liabilities 11,033 20,073 775 850,952
----------- ---------- ---------- -----------
Net assets $ 7,254,042 16,061,328 379,264 690,313,989
=========== ========== ========== ===========
Contract owners' equity (note 5) $ 7,254,042 16,061,328 379,264 690,313,989
=========== ========== ========== ===========
</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, 1995
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>
Investment income:
Dividends reinvested in fund shares $ 1,702,719 686,196 114,561 1,981,032 449,629 5,443,054
------------- ----------- ----------- ----------- ----------- -----------
Expenses:
Mortality and expense risk charges 384,368 729,516 101,362 379,560 171,462 987,589
Administrative charges 46,124 87,542 12,163 45,547 20,575 118,511
------------- ----------- ----------- ----------- ----------- -----------
Total expenses 430,492 817,058 113,525 425,107 192,037 1,106,100
------------- ----------- ----------- ----------- ----------- -----------
Investment income (loss), net 1,272,227 (130,862) 1,036 1,555,925 257,592 4,336,954
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 34,706,801 6,248,121 3,571,693 3,114,040 3,371,551 9,941,087
Cost of investments sold (34,706,801) (5,370,730) (3,462,116) (2,930,236) (3,185,183) (9,673,610)
------------- ----------- ----------- ----------- ----------- -----------
Total realized gains (losses) on
sales of investments, net - 877,391 109,577 183,804 186,368 267,477
------------- ----------- ----------- ----------- ----------- -----------
Realized gains (losses)
on investments, net - 2,371,092 194,387 183,804 186,368 267,477
Net change in unrealized appreciation
(depreciation) on investments - 13,508,956 (159,374) 3,050,410 1,571,058 8,140,679
------------- ----------- ----------- ----------- ----------- -----------
Total realized gains (losses)
and unrealized appreciation
(depreciation) on investments, net - 15,880,048 35,013 3,234,214 1,757,426 8,408,156
------------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in
net assets from operations $ 1,272,227 15,749,186 36,049 4,790,139 2,015,018 12,745,110
============= =========== =========== =========== =========== ===========
</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, 1995
Zero Zero Zero Zero
Utility Coupon Coupon Coupon Coupon Global
Equity Fund - Fund - Fund - Fund - Income
Fund 1995 2000 2005 2010 Fund
------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ 5,790,676 305,200 1,020,445 335,762 190,626 848,947
------------- ----------- ----------- ----------- ----------- -----------
Expenses:
Mortality and expense risk charges 1,316,445 47,905 283,564 101,234 77,260 282,767
Administrative charges 157,973 5,749 34,028 12,148 9,271 33,932
------------- ----------- ----------- ----------- ----------- -----------
Total expenses 1,474,418 53,654 317,592 113,382 86,531 316,699
------------- ----------- ----------- ----------- ----------- -----------
Investment income (loss), net 4,316,258 251,546 702,853 222,380 104,095 532,248
Realized gains (losses) and
unrealized appreciation
(depreciation) on investments:
Realized capital gain
distributions on mutual funds - 1,505 - - - -
------------- ----------- ----------- ----------- ----------- -----------
Realized gains (losses)
on sales of investments:
Proceeds from sales 13,252,568 5,370,197 1,966,586 1,126,263 1,248,944 4,501,239
Cost of investments sold (13,196,612) (5,562,152) (1,839,860) (1,032,980) (1,112,897) (4,502,654)
------------- ----------- ----------- ----------- ----------- -----------
Total realized gains (losses) on
sales of investments, net 55,956 (191,955) 126,726 93,283 136,047 (1,415)
------------- ----------- ----------- ----------- ----------- -----------
Realized gains (losses)
on investments, net 55,956 (190,450) 126,726 93,283 136,047 (1,415)
Net change in unrealized appreciation
(depreciation) on investments 22,857,816 189,438 2,953,835 1,761,299 1,835,020 2,220,962
------------- ----------- ----------- ----------- ----------- -----------
Total realized gains (losses)
and unrealized appreciation
(depreciation) on investments, net 22,913,772 (1,012) 3,080,561 1,854,582 1,971,067 2,219,547
------------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in
net assets from operations $ 27,230,030 250,534 3,783,414 2,076,962 2,075,162 2,751,795
============= =========== =========== =========== =========== ===========
</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, 1995
Investment Adjustable Templeton Templeton
Grade Income U.S. Pacific Rising International
Intermediate Securities Government Growth Dividends Equity
Bond Fund Fund Fund Fund Fund Fund
-------------- ----------- ----------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ 625,846 4,463,912 1,064,752 475,320 705,270 868,500
-------------- ----------- ----------- ------------ ----------- --------------
Expenses:
Mortality and expense risk charges 194,807 1,007,879 205,641 315,150 420,881 652,856
Administrative charges 23,377 120,945 24,677 37,818 50,506 78,343
-------------- ----------- ----------- ------------ ----------- --------------
Total expenses 218,184 1,128,824 230,318 352,968 471,387 731,199
-------------- ----------- ----------- ------------ ----------- --------------
Investment income (loss), net 407,662 3,335,088 834,434 122,352 233,883 137,301
Realized gains (losses) and
unrealized appreciation
(depreciation) on investments:
Realized capital gain
distributions on mutual funds - 359,303 - 197,651 - 1,076,084
-------------- ----------- ----------- ------------ ----------- --------------
Realized gains (losses)
on sales of investments:
Proceeds from sales 2,396,819 7,645,636 8,638,265 10,736,934 3,225,174 11,357,476
Cost of investments sold (2,283,330) (7,277,276) (8,608,092) (10,757,017) (3,053,289) (10,862,358)
-------------- ----------- ----------- ------------ ----------- --------------
Total realized gains (losses) on
sales of investments, net 113,489 368,360 30,173 (20,083) 171,885 495,118
-------------- ----------- ----------- ------------ ----------- --------------
Realized gains (losses)
on investments, net 113,489 727,663 30,173 177,568 171,885 1,571,202
Net change in unrealized appreciation
(depreciation) on investments 741,960 10,991,916 408,278 1,218,429 7,802,711 2,705,597
-------------- ----------- ----------- ------------ ----------- --------------
Total realized gains (losses)
and unrealized appreciation
(depreciation) on investments, net 855,449 11,719,579 438,451 1,395,997 7,974,596 4,276,799
-------------- ----------- ----------- ------------ ----------- --------------
Net increase (decrease) in
net assets from operations $ 1,263,111 15,054,667 1,272,885 1,518,349 8,208,479 4,414,100
============== =========== =========== ============ =========== ==============
</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, 1995
Templeton Templeton
Developing Templeton Global
Markets Global Asset Total
Equity Growth Allocation All
Fund Fund Fund Funds
------------ ----------- ----------- -------------
<S> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ 24,621 62,358 6,393 27,165,819
------------ ----------- ----------- -------------
Expenses:
Mortality and expense risk charges 82,308 152,297 691 7,895,542
Administrative charges 9,877 18,276 83 947,465
------------ ----------- ----------- -------------
Total expenses 92,185 170,573 774 8,843,007
------------ ----------- ----------- -------------
Investment income (loss), net (67,564) (108,215) 5,619 18,322,812
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions on mutual funds 5,785 - - 3,218,839
------------ ----------- ----------- -------------
Realized gains (losses) on sales of investments:
Proceeds from sales 1,468,510 1,168,762 5 135,056,671
Cost of investments sold (1,555,799) (1,129,187) (5) (132,102,184)
------------ ----------- ----------- -------------
Total realized gains (losses) on
sales of investments, net (87,289) 39,575 - 2,954,487
------------ ----------- ----------- -------------
Realized gains (losses) on investments, net (81,504) 39,575 - 6,173,326
Net change in unrealized appreciation
(depreciation) on investments 194,657 1,297,011 4,444 83,295,102
------------ ----------- ----------- -------------
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments, net 113,153 1,336,586 4,444 89,468,428
------------ ----------- ----------- -------------
Net increase (decrease) in net assets from operations $ 45,589 1,228,371 10,063 107,791,240
============ =========== =========== =============
</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, 1995 and 1994
Growth Growth
Money Money and and Precious Precious
Market Market Income Income Metals Metals
Fund Fund Fund Fund Fund Fund
------------ ----------- ----------- ----------- ----------- -----------
1995 1994 1995 1994 1995 1994
------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 1,272,227 564,232 (130,862) (284,817) 1,036 (64,893)
Realized gains (losses) on investments, net - - 2,371,092 850,469 194,387 166,832
Net change in unrealized appreciation
(depreciation) on investments - - 13,508,956 (2,200,082) (159,374) (466,699)
------------ ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
from operations 1,272,227 564,232 15,749,186 (1,634,430) 36,049 (364,760)
------------ ----------- ----------- ----------- ----------- -----------
Contract transactions (note 5):
Purchase payments 10,218,144 20,235,166 9,813,889 12,533,220 519,389 3,576,266
Transfers between funds (4,383,738) 9,008,938 9,626,678 4,254,917 (1,028,654) 1,278,991
Surrenders and terminations (9,093,964) (6,138,474) (5,346,187) (2,158,598) (1,296,763) (1,073,457)
Rescissions (157,205) (611,504) (240,118) (226,365) (10,660) (22,490)
Other transactions (note 2) (14,462) 105,617 20,814 (9,269) 8,924 (317)
------------ ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from contract transactions (3,431,225) 22,599,743 13,875,076 14,393,905 (1,807,764) 3,758,993
------------ ----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets (2,158,998) 23,163,975 29,624,262 12,759,475 (1,771,715) 3,394,233
------------ ----------- ----------- ----------- ----------- -----------
Net assets at beginning of year 30,729,692 7,565,717 45,616,137 32,856,662 9,050,074 5,655,841
------------ ----------- ----------- ----------- ----------- -----------
Net assets at end of year $28,570,694 30,729,692 75,240,399 45,616,137 7,278,359 9,050,074
============ =========== =========== =========== =========== ===========
</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, 1995 and 1994
Real Real U.S. U.S.
High High Estate Estate Government Government
Income Income Securities Securities Securities Securities
Fund Fund Fund Fund Fund Fund
------------ ----------- ----------- ----------- ------------ ------------
1995 1994 1995 1994 1995 1994
------------ ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 1,555,925 704,962 257,592 (27,841) 4,336,954 3,017,608
Realized gains (losses) on investments, net 183,804 153,346 186,368 12,292 267,477 (473,434)
Net change in unrealized appreciation
(depreciation) on investments 3,050,410 (1,605,134) 1,571,058 (9,769) 8,140,679 (7,889,476)
------------ ----------- ----------- ----------- ------------ ------------
Net increase (decrease) in net assets
from operations 4,790,139 (746,826) 2,015,018 (25,318) 12,745,110 (5,345,302)
------------ ----------- ----------- ----------- ------------ ------------
Contract transactions (note 5):
Purchase payments 5,159,574 8,837,799 855,153 4,925,336 6,926,791 15,371,426
Transfers between funds 4,954,937 1,621,416 (1,207,296) 3,344,209 191,742 (16,943,563)
Surrenders and terminations (3,965,674) (1,841,609) (1,337,000) (912,278) (10,633,602) (8,269,859)
Rescissions (140,311) (104,329) (3,433) (23,872) (102,845) (826,373)
Other transactions (note 2) 26,007 10,298 (13,953) 15,171 60,100 (12,573)
------------ ----------- ----------- ----------- ------------ ------------
Net increase (decrease) in net assets
resulting from contract transactions 6,034,533 8,523,575 (1,706,529) 7,348,566 (3,557,814) (10,680,942)
------------ ----------- ----------- ----------- ------------ ------------
Increase (decrease) in net assets 10,824,672 7,776,749 308,489 7,323,248 9,187,296 (16,026,244)
------------ ----------- ----------- ----------- ------------ ------------
Net assets at beginning of year 24,983,542 17,206,793 14,035,014 6,711,766 73,747,431 89,773,675
------------ ----------- ----------- ----------- ------------ ------------
Net assets at end of year $35,808,214 24,983,542 14,343,503 14,035,014 82,934,727 73,747,431
============ =========== =========== =========== ============ ============
</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, 1995 and 1994
Zero Zero Zero Zero
Utility Utility Coupon Coupon Coupon Coupon
Equity Equity Fund - Fund - Fund - Fund -
Fund Fund 1995 1995 2000 2000
------------- ------------ ----------- ---------- ----------- -----------
1995 1994 1995 1994 1995 1994
------------- ------------ ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 4,316,258 2,838,666 251,546 206,133 702,853 524,224
Realized gains (losses) on investments, net 55,956 (1,415,406) (190,450) (8,594) 126,726 91,297
Net change in unrealized appreciation
(depreciation) on investments 22,857,816 (17,590,119) 189,438 (222,658) 2,953,835 (1,812,252)
------------- ------------ ----------- ---------- ----------- -----------
Net increase (decrease) in net assets
from operations 27,230,030 (16,166,859) 250,534 (25,119) 3,783,414 (1,196,731)
------------- ------------ ----------- ---------- ----------- -----------
Contract transactions (note 5):
Purchase payments 5,661,401 16,521,939 98,208 1,016,548 4,576,315 6,524,472
Transfers between funds 12,705 (26,596,445) (4,136,645) 612,501 1,668,576 1,062,503
Surrenders and terminations (12,439,249) (7,474,582) (1,151,452) (515,158) (1,821,211) (1,747,638)
Rescissions (77,953) (383,473) - (51,312) (83,503) (150,398)
Other transactions (note 2) (58,695) (13,092) (2,549) (1,699) (10,464) 7,579
------------- ------------ ----------- ---------- ----------- -----------
Net increase (decrease) in net assets
resulting from contract transactions (6,901,791) (17,945,653) (5,192,438) 1,060,880 4,329,713 5,696,518
------------- ------------ ----------- ---------- ----------- -----------
Increase (decrease) in net assets 20,328,239 (34,112,512) (4,941,904) 1,035,761 8,113,127 4,499,787
------------- ------------ ----------- ---------- ----------- -----------
Net assets at beginning of year 95,414,641 129,527,153 4,941,904 3,906,143 17,797,018 13,297,231
------------- ------------ ----------- ---------- ----------- -----------
Net assets at end of year $115,742,880 95,414,641 - 4,941,904 25,910,145 17,797,018
============= ============ =========== ========== =========== ===========
</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, 1995 and 1994
Zero Zero Zero Zero
Coupon Coupon Coupon Coupon Global Global
Fund - Fund - Fund - Fund - Income Income
2005 2005 2010 2010 Fund Fund
----------- ---------- ---------- ---------- ----------- -----------
1995 1994 1995 1994 1995 1994
----------- ---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 222,380 151,642 104,095 94,989 532,248 276,443
Realized gains (losses) on investments, net 93,283 86,433 136,047 18,712 (1,415) 155,497
Net change in unrealized appreciation
(depreciation) on investments 1,761,299 (887,768) 1,835,020 (515,561) 2,220,962 (1,886,070)
----------- ---------- ---------- ---------- ----------- -----------
Net increase (decrease) in net assets
from operations 2,076,962 (649,693) 2,075,162 (401,860) 2,751,795 (1,454,130)
----------- ---------- ---------- ---------- ----------- -----------
Contract transactions (note 5):
Purchase payments 1,473,577 2,062,590 1,372,656 1,257,365 1,801,423 8,011,192
Transfers between funds 233,767 (716,211) 1,449,788 (205,063) (2,122,962) 2,676,522
Surrenders and terminations (674,347) (342,303) (546,211) (118,829) (2,408,309) (1,501,529)
Rescissions (57,421) (25,851) (37,383) (23,229) (55,851) (163,384)
Other transactions (note 2) (5,108) (3,720) 6,378 (2,063) (2,956) 16,850
----------- ---------- ---------- ---------- ----------- -----------
Net increase (decrease) in net assets
resulting from contract transactions 970,468 974,505 2,245,228 908,181 (2,788,655) 9,039,651
----------- ---------- ---------- ---------- ----------- -----------
Increase (decrease) in net assets 3,047,430 324,812 4,320,390 506,321 (36,860) 7,585,521
----------- ---------- ---------- ---------- ----------- -----------
Net assets at beginning of year 6,483,394 6,158,582 4,008,269 3,501,948 22,887,753 15,302,232
----------- ---------- ---------- ---------- ----------- -----------
Net assets at end of year $9,530,824 6,483,394 8,328,659 4,008,269 22,850,893 22,887,753
=========== ========== ========== ========== =========== ===========
</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, 1995 and 1994
Investment Investment Adjustable Adjustable
Grade Grade Income Income U.S. U.S.
Intermediate Intermediate Securities Securities Government Government
Bond Fund Bond Fund Fund Fund Fund Fund
-------------- ------------- ----------- ----------- ----------- ------------
1995 1994 1995 1994 1995 1994
-------------- ------------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 407,662 213,851 3,335,088 1,073,586 834,434 664,691
Realized gains (losses) on investments, net 113,489 76,610 727,663 260,851 30,173 (264,507)
Net change in unrealized appreciation
(depreciation) on investments 741,960 (412,173) 10,991,916 (6,238,272) 408,278 (745,000)
-------------- ------------- ----------- ----------- ----------- ------------
Net increase (decrease) in net assets
from operations 1,263,111 (121,712) 15,054,667 (4,903,835) 1,272,885 (344,816)
-------------- ------------- ----------- ----------- ----------- ------------
Contract transactions (note 5):
Purchase payments 1,409,677 4,279,682 9,139,669 29,130,260 3,442,581 10,829,027
Transfers between funds (567,286) (536,649) 3,107,003 6,471,357 (6,776,712) (11,523,439)
Surrenders and terminations (1,684,507) (953,308) (9,000,292) (4,321,170) (1,983,546) (1,461,901)
Rescissions (109,318) (52,789) (299,389) (694,175) (109,220) (97,065)
Other transactions (note 2) 29,946 4,934 (26,339) (110) 5,818 (9,159)
-------------- ------------- ----------- ----------- ----------- ------------
Net increase (decrease) in net assets
resulting from contract transactions (921,488) 2,741,870 2,920,652 30,586,162 (5,421,079) (2,262,537)
-------------- ------------- ----------- ----------- ----------- ------------
Increase (decrease) in net assets 341,623 2,620,158 17,975,319 25,682,327 (4,148,194) (2,607,353)
-------------- ------------- ----------- ----------- ----------- ------------
Net assets at beginning of year 15,470,488 12,850,330 72,388,977 46,706,650 19,571,291 22,178,644
-------------- ------------- ----------- ----------- ----------- ------------
Net assets at end of year $ 15,812,111 15,470,488 90,364,296 72,388,977 15,423,097 19,571,291
============== ============= =========== =========== =========== ============
</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, 1995 and 1994
Templeton Templeton Templeton Templeton
Pacific Pacific Rising Rising International International
Growth Growth Dividends Dividends Equity Equity
Fund Fund Fund Fund Fund Fund
------------ ----------- ----------- ----------- -------------- --------------
1995 1994 1995 1994 1995 1994
------------ ----------- ----------- ----------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 122,352 (266,437) 233,883 83,405 137,301 (423,506)
Realized gains (losses)
on investments, net 177,568 417,268 171,885 (150,567) 1,571,202 520,885
Net change in unrealized
appreciation (depreciation)
on investments 1,218,429 (2,435,240) 7,802,711 (1,515,045) 2,705,597 (1,575,004)
------------ ----------- ----------- ----------- -------------- --------------
Net increase (decrease) in
net assets from operations 1,518,349 (2,284,409) 8,208,479 (1,582,207) 4,414,100 (1,477,625)
------------ ----------- ----------- ----------- -------------- --------------
Contract transactions (note 5):
Purchase payments 2,319,030 12,437,434 3,197,446 5,956,165 6,496,208 21,636,160
Transfers between funds (3,818,916) 6,046,223 2,459,150 (2,607,296) (1,789,112) 15,583,976
Surrenders and terminations (2,340,908) (2,090,878) (2,693,128) (1,593,730) (4,549,735) (2,203,244)
Rescissions (28,713) (108,539) (85,057) (105,012) (162,298) (401,811)
Other transactions (note 2) 7,196 14,043 (1,840) (6,097) 1,255 19,358
------------ ----------- ----------- ----------- -------------- --------------
Net increase (decrease)
in net assets resulting
from contract transactions (3,862,311) 16,298,283 2,876,571 1,644,030 (3,682) 34,634,439
------------ ----------- ----------- ----------- -------------- --------------
Increase (decrease) in net assets (2,343,962) 14,013,874 11,085,050 61,823 4,410,418 33,156,814
------------ ----------- ----------- ----------- -------------- --------------
Net assets at beginning of year 27,037,076 13,023,202 28,684,638 28,622,815 49,607,334 16,450,520
------------ ----------- ----------- ----------- -------------- --------------
Net assets at end of year $24,693,114 27,037,076 39,769,688 28,684,638 54,017,752 49,607,334
============ =========== =========== =========== ============== ==============
</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, 1995 and 1994
Templeton Templeton Templeton Templeton
Developing Developing Templeton Templeton Global Global
Markets Markets Global Global Asset Asset
Equity Equity Growth Growth Allocation Allocation
Fund Fund Fund Fund Fund Fund
------------ ----------- ----------- ---------- ----------- ----------
1995 1994 1995 1994 1995 1994
------------ ----------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ (67,564) (25,848) (108,215) (42,501) 5,619 -
Realized gains (losses)
on investments, net (81,504) 2,075 39,575 208 - -
Net change in unrealized
appreciation (depreciation)
on investments 194,657 (392,205) 1,297,011 (7,698) 4,444 -
------------ ----------- ----------- ---------- ----------- ----------
Net increase (decrease) in
net assets from operations 45,589 (415,978) 1,228,371 (49,991) 10,063 -
------------ ----------- ----------- ---------- ----------- ----------
Contract transactions (note 5):
Purchase payments 1,669,155 3,620,848 4,461,457 4,944,049 210,368 -
Transfers between funds 274,802 2,487,493 1,693,077 4,679,620 159,096 -
Surrenders and terminations (335,121) (83,207) (718,944) (138,417) (250) -
Rescissions - (24,211) (11,376) (33,934) - -
Other transactions (note 2) 10,658 4,014 8,442 (1,026) (13) -
------------ ----------- ----------- ---------- ----------- ----------
Net increase (decrease)
in net assets resulting
from contract transactions 1,619,494 6,004,937 5,432,656 9,450,292 369,201 -
------------ ----------- ----------- ---------- ----------- ----------
Increase (decrease) in net assets 1,665,083 5,588,959 6,661,027 9,400,301 379,264 -
------------ ----------- ----------- ---------- ----------- ----------
Net assets at beginning of year 5,588,959 - 9,400,301 - - -
------------ ----------- ----------- ---------- ----------- ----------
Net assets at end of year $ 7,254,042 5,588,959 16,061,328 9,400,301 379,264 -
============ =========== =========== ========== =========== ==========
</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, 1995 and 1994
Total Total
All All
Funds Funds
------------- ------------
1995 1994
------------- ------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 18,322,812 9,278,589
Realized gains (losses) on investments, net 6,173,326 500,267
Net change in unrealized appreciation
(depreciation) on investments 83,295,102 (48,406,225)
------------- ------------
Net increase (decrease) in net assets
from operations 107,791,240 (38,627,369)
------------- ------------
Contract transactions (note 5):
Purchase payments 80,822,111 193,706,944
Transfers between funds - -
Surrenders and terminations (74,020,400) (44,940,169)
Rescissions (1,772,054) (4,130,116)
Other transactions (note 2) 49,159 138,739
------------- ------------
Net increase (decrease) in net assets
resulting from contract transactions 5,078,816 144,775,398
------------- ------------
Increase (decrease) in net assets 112,870,056 106,148,029
------------- ------------
Net assets at beginning of year 577,443,933 471,295,904
------------- ------------
Net assets at end of year $690,313,989 577,443,933
============= ============
</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
December 31, 1995
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
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
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. The Templeton
Global Asset Allocation Fund was added as an available investment option on
August 4, 1995. The Zero Coupon - 1995 Fund matured and was closed on
December 15, 1995.
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 0.15% 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, 1995
and 1994 were $475,980 and $369,180, 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
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, 1995 and 1994 were $1,304,496 and $944,991, 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, 1995 and 1994 were
$9,505 and $12,900, 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 up to 9% of purchase payments less prior surrenders
annually, 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, 1995:
<TABLE>
<CAPTION>
<S> <C>
Money Market Fund $32,584,295
Growth and Income Fund 21,568,094
Precious Metals Fund 1,857,301
High Income Fund 10,743,605
Real Estate Securities Fund 1,938,652
U.S. Government Securities Fund 10,810,327
Utility Equity Fund 10,793,452
Zero Coupon Fund - 1995 427,463
Zero Coupon Fund - 2000 7,026,743
Zero Coupon Fund - 2005 2,330,493
Zero Coupon Fund - 2010 3,607,798
Global Income Fund 2,269,532
Investment Grade Intermediate Bond Fund 1,900,177
Income Securities Fund 14,358,504
Adjustable U.S. Government Fund 4,067,937
Templeton Pacific Growth Fund 7,221,593
Rising Dividends Fund 6,379,014
Templeton International Equity Fund 12,625,379
Templeton Developing Markets Equity Fund 3,034,409
Templeton Global Growth Fund 6,509,776
Templeton Global Asset Allocation Fund 375,601
</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 years ended December 31, 1995 and
1994 were as follows:
<TABLE>
<CAPTION>
Growth U.S.
Money and Precious High Real 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:
Purchase payments 808,615 638,299 37,598 314,237 53,324 450,010
Transfers between funds (343,975) 625,732 (75,156) 305,234 (76,349) 12,062
Surrenders and terminations (720,868) (354,878) (93,799) (247,052) (82,254) (701,350)
Rescissions (12,471) (15,727) (826) (8,639) (216) (6,620)
Other transactions (1,113) 1,361 646 1,528 (877) 4,103
------------ ----------- ---------- ----------- ------------ -----------
Net increase (decrease) in
accumulation units resulting
from contract transactions (269,812) 894,787 (131,537) 365,308 (106,372) (241,795)
------------ ----------- ---------- ----------- ------------ -----------
Units outstanding at December 31, 1995 2,217,620 4,346,729 515,878 2,075,620 793,650 5,088,736
============ =========== ========== =========== ============ ===========
Accumulation unit value
per unit at December 31, 1995 $ 12.883 17.310 14.109 17.252 18.073 16.298
============ =========== ========== =========== ============ ===========
Accumulation net assets at December 31, 1995 $28,570,694 75,240,399 7,278,359 35,808,214 14,343,503 82,934,727
============ =========== ========== =========== ============ ===========
</TABLE>
<PAGE>
5. CONTRACT TRANSACTIONS - UNIT ACTIVITY (CONTINUED)
<TABLE>
<CAPTION>
Zero Zero Zero Zero
Utility Coupon Coupon Coupon Coupon Global
Equity Fund - Fund - Fund - Fund - Income
Fund 1995 2000 2005 2010 Fund
------------- --------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding at December 31, 1993 7,478,993 269,765 795,411 341,197 193,003 1,044,532
Contract transactions:
Purchase payments 1,051,921 70,708 414,919 125,015 76,028 561,113
Transfers between funds (1,696,778) 42,828 68,710 (40,577) (8,676) 180,054
Surrenders and terminations (491,312) (35,886) (112,129) (21,155) (7,322) (107,849)
Rescissions (24,704) (3,621) (9,747) (1,457) (1,286) (11,608)
Other transactions (922) (118) 503 (227) (127) 1,196
------------- --------- ----------- ---------- ---------- -----------
Net increase (decrease) in accumulation
units resulting from contract transactions (1,161,795) 73,911 362,256 61,599 58,617 622,906
------------- --------- ----------- ---------- ---------- -----------
Units outstanding at December 31, 1994 6,317,198 343,676 1,157,667 402,796 251,620 1,667,438
============= ========= =========== ========== ========== ===========
Accumulation unit value per unit at December 31, 1994 $ 15.104 14.380 15.373 16.096 15.930 13.726
============= ========= =========== ========== ========== ===========
Contract transactions:
Purchase payments 333,194 6,693 273,272 79,107 72,448 124,367
Transfers between funds 3,713 (272,809) 98,289 13,994 76,355 (148,545)
Surrenders and terminations (730,042) (77,389) (107,109) (36,702) (27,481) (167,077)
Rescissions (4,745) - (5,154) (3,194) (1,958) (3,868)
Other transactions (3,359) (171) (616) (278) 311 (199)
------------- --------- ----------- ---------- ---------- -----------
Net increase (decrease) in accumulation
units resulting from contract transactions (401,239) (343,676) 258,682 52,927 119,675 (195,322)
------------- --------- ----------- ---------- ---------- -----------
Units outstanding at December 31, 1995 5,915,959 - 1,416,349 455,723 371,295 1,472,116
============= ========= =========== ========== ========== ===========
Accumulation unit value per unit at December 31, 1995 $ 19.565 - 18.294 20.914 22.431 15.522
============= ========= =========== ========== ========== ===========
Accumulation net assets at December 31, 1995 $115,742,880 - 25,910,145 9,530,824 8,328,659 22,850,893
============= ========= =========== ========== ========== ===========
</TABLE>
<PAGE>
5. CONTRACT TRANSACTIONS - UNIT ACTIVITY (CONTINUED)
<TABLE>
<CAPTION>
Investment Adjustable Templeton
Grade Income U.S. Pacific Rising
Intermediate Securities Government Growth Dividends
Bond Fund Fund Fund Fund Fund
-------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Units outstanding at December 31, 1993 893,048 2,633,679 1,970,803 914,981 2,771,594
Contract transactions:
Purchase payments 300,084 1,705,232 968,718 921,042 599,000
Transfers between funds (37,700) 374,341 (1,032,132) 440,484 (261,335)
Surrenders and terminations (66,963) (256,277) (130,996) (157,447) (161,474)
Rescissions (3,708) (40,792) (8,659) (8,240) (10,761)
Other transactions 348 9 (819) 1,165 (653)
-------------- ----------- ----------- ----------- -----------
Net increase (decrease) in accumulation
units resulting from contract transactions 192,061 1,782,513 (203,888) 1,197,004 164,777
-------------- ----------- ----------- ----------- -----------
Units outstanding at December 31, 1994 1,085,109 4,416,192 1,766,915 2,111,985 2,936,371
============== =========== =========== =========== ===========
Accumulation unit value per unit at December 31, 1994 $ 14.257 16.392 11.077 12.802 9.769
============== =========== =========== =========== ===========
Contract transactions:
Purchase payments 94,073 501,986 295,879 180,173 283,866
Transfers between funds (37,800) 168,155 (590,890) (297,776) 215,526
Surrenders and terminations (113,583) (501,023) (172,610) (181,062) (246,273)
Rescissions (7,335) (16,684) (9,352) (2,214) (7,459)
Other transactions 2,084 (1,392) 549 517 (39)
-------------- ----------- ----------- ----------- -----------
Net increase (decrease) in accumulation
units resulting from contract transactions (62,561) 151,042 (476,424) (300,362) 245,621
-------------- ----------- ----------- ----------- -----------
Units outstanding at December 31, 1995 1,022,548 4,567,234 1,290,491 1,811,623 3,181,992
============== =========== =========== =========== ===========
Accumulation unit value per unit at December 31, 1995 $ 15.463 19.785 11.951 13.630 12.498
============== =========== =========== =========== ===========
Accumulation net assets at December 31, 1995 $ 15,812,111 90,364,296 15,423,097 24,693,114 39,769,688
============== =========== =========== =========== ===========
</TABLE>
<PAGE>
5. CONTRACT TRANSACTIONS - UNIT ACTIVITY (CONTINUED)
<TABLE>
<CAPTION>
Templeton Templeton
Templeton Developing Templeton Global
International Markets Global Asset Total
Equity Equity Growth Allocation All
Fund Fund Fund Fund Funds
--------------- ----------- ----------- ----------- ------------
<S> <C> <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 -
=============== =========== =========== ===========
Contract transactions:
Purchase payments 509,261 176,313 410,139 20,426 5,663,280
Transfers between funds (146,606) 23,378 151,645 15,409 (280,414)
Surrenders and terminations (356,227) (34,856) (66,588) (24) (5,018,247)
Rescissions (12,742) - (1,052) - (120,256)
Other transactions 120 1,079 808 (2) 5,060
--------------- ----------- ----------- ----------- ------------
Net increase (decrease) in accumulation
units resulting from contract transactions (6,194) 165,914 494,952 35,809 249,423
--------------- ----------- ----------- ----------- ------------
Units outstanding at December 31, 1995 4,072,914 757,072 1,416,473 35,809 42,825,831
=============== =========== =========== =========== ============
Accumulation unit value per unit at December 31, 1995 $ 13.263 9.582 11.339 10.591
=============== =========== =========== ===========
Accumulation net assets at December 31, 1995 $ 54,017,752 7,254,042 16,061,328 379,264 690,313,989
=============== =========== =========== =========== ============
</TABLE>
<PAGE>
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements
December 31, 1995 and 1994
<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, 1995 and 1994, 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, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, 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, 1995 and 1994, 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, 1995, in conformity with
generally accepted accounting principles.
In 1994, as discussed in note 1 to the financial statements, the Company
adopted the provisions of the Financial Accounting Standards Board's Statement
of Financial Accounting Standards Statement No. 115, Accounting for Certain
Investments in Debt and Equity Securities. In 1993, as discussed in note 1 to
the financial statements, the Company adopted the provisions of the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes.
KPMG Peat Marwick LLP
February 6, 1996
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Balance Sheets
December 31, 1995 and 1994
(in thousands except share data)
Assets 1995 1994
- --------------------------------------------------------------------- -------- ---------
<S> <C> <C>
Investments:
Fixed maturities, at market $ 15,128 3,516
Certificates of deposit and short-term securities 800 3,188
-------- ---------
Total investments 15,928 6,704
Cash 0 4,872
Receivables 4,820 5,091
Reinsurance receivable:
Recoverable on future policy benefit reserves 161 160
Recoverable on unpaid claims 11,515 13,672
Receivable on paid claims 1,522 114
Prepaid insurance premiums 431 426
Deferred acquisition costs 38,586 37,577
Accrued investment income 228 74
Other assets 959 161
-------- ---------
Assets, exclusive of separate account assets 74,150 68,851
Separate account assets 690,262 577,444
-------- ---------
Total assets $764,412 646,295
======== =========
Liabilities and Stockholder's Equity
- ---------------------------------------------------------------------
Liabilities:
Future life policy benefit reserves $ 594 511
Future annuity benefit reserves 6 271
Policy and contract claims 26,167 27,312
Unearned premiums 2,330 2,285
Other policyholder funds 691 885
Reinsurance payable 1,252 2,058
Deferred income taxes 6,510 4,605
Accrued expenses and other liabilities 752 1,053
Commissions due and accrued 824 880
Payable to parent 663 566
-------- ---------
Liabilities, exclusive of separate account liabilities 39,789 40,426
Separate account liabilities 690,262 577,444
-------- ---------
Total liabilities 730,051 617,870
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 15,500
Net unrealized holding gain (loss) on securities
available-for-sale, net of deferred federal income taxes 274 (268)
Retained earnings 16,587 11,193
-------- ---------
Total stockholder's equity 34,361 28,425
Commitments and contingencies (notes 6 and 11)
Total liabilities and stockholder's equity $764,412 646,295
======== =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Statements of Income
Years Ended December 31, 1995, 1994 and 1993
(in thousands)
1995 1994 1993
-------- ------- --------
<S> <C> <C> <C>
Revenue:
Life insurance premiums $10,291 10,465 9,504
Annuity considerations 10,679 8,781 4,450
Accident and health premiums 22,406 24,586 24,160
-------- ------- --------
Total premiums and considerations 43,376 43,832 38,114
Premiums ceded 13,462 16,341 12,683
-------- ------- --------
Net premiums and considerations 29,914 27,491 25,431
Investment income, net 605 371 372
Realized investment gains (losses), net (13) (113) 649
-------- ------- --------
Total revenue 30,506 27,749 26,452
-------- ------- --------
Benefits and expenses:
Life insurance benefits 8,202 10,577 9,501
Annuity benefits (100) 357 (56)
Accident and health insurance benefits 14,743 15,455 15,117
-------- ------- --------
Total benefits 22,845 26,389 24,562
Benefit recoveries 9,116 11,999 9,424
-------- ------- --------
Net benefits 13,729 14,390 15,138
Commissions and other agent compensation 7,278 12,974 23,033
General and administrative expenses 3,132 3,079 3,079
Taxes, licenses and fees 479 943 766
Increase in deferred acquisition costs, net (1,009) (8,090) (18,017)
-------- ------- --------
Total benefits and expenses 23,609 23,296 23,999
-------- ------- --------
Income from operations before income taxes 6,897 4,453 2,453
-------- ------- --------
Income tax expense (benefit):
Current (109) 154 (376)
Deferred 1,612 1,099 1,177
-------- ------- --------
Total income tax expense 1,503 1,253 801
-------- ------- --------
Income before cumulative effect of
changes in accounting 5,394 3,200 1,652
Cumulative effect of changes in accounting 0 0 (1,084)
-------- ------- --------
Net income $ 5,394 3,200 568
======== ======= ========
</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, 1995, 1994 and 1993
(in thousands)
1995 1994 1993
-------- ------- ------
<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 15,500 9,000 4,000
Additional contribution from parent 0 6,500 5,000
-------- ------- ------
Balance at end of year 15,500 15,500 9,000
-------- ------- ------
Net unrealized gains (losses) on investments:
Balance at beginning of year (268) 0 0
Cumulative effect of the implementation of SFAS
No. 115, net of deferred federal income taxes 0 82 0
Net unrealized gain (loss) during the year,
net of deferred federal income taxes 542 (350) 0
-------- ------- ------
Balance at end of year 274 (268) 0
-------- ------- ------
Retained earnings:
Balance at beginning of year 11,193 7,993 7,425
Net income 5,394 3,200 568
-------- ------- ------
Balance at end of year 16,587 11,193 7,993
-------- ------- ------
Total stockholder's equity $34,361 28,425 18,993
======== ======= ======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Statements of Cash Flow
Years Ended December 31, 1995, 1994 and 1993
(in thousands)
1995 1994 1993
--------- ------- --------
<S> <C> <C> <C>
Cash flows used in operating activities:
Net income $ 5,394 3,200 568
--------- ------- --------
Adjustments to reconcile net income to net
cash used in operating activities:
Realized losses (gains)on investments 13 113 (649)
Deferred federal income tax expense 1,612 1,099 1,177
Cumulative effect of changes in accounting 0 (1,084)
Change in:
Receivables and other assets 62 (2,320) (188)
Deferred acquisition costs (1,009) (8,090) (18,017)
Future policy benefit reserves (182) 238 353
Policy and contract claims (1,145) 5,296 1,479
Unearned premiums 45 196 542
Other policyholder funds (194) 410 (2,919)
Reinsurance payable (806) (884) 611
Deferred tax liability 0 0 2,168
Accrued expenses and other liabilities (301) 619 (32)
Commissions due and accrued (56) (1,024) 657
Due to/from parent 97 573 17
Depreciation and amortization (185) (63) 20
Other, net 0 (46) 11
--------- ------- --------
Total adjustments (2,049) (3,883) (15,854)
--------- ------- --------
Net cash from (used in) operating activities 3,345 (683) (15,286)
--------- ------- --------
Cash flows from (used in) investing activities:
Purchase of fixed maturities, at amortized cost 0 0 (6,027)
Purchase of fixed maturities, at market (15,328) 0 0
Sale of fixed maturities, at amortized cost 0 0 12,261
Matured fixed maturities, at amortized cost 0 0 650
Sale of fixed maturities, at market 4,522 3,428 0
Other investments, net 2,589 (3,133) 0
--------- ------- --------
Net cash from (used in) investing activities (8,217) 295 6,884
--------- ------- --------
Cash flows from (used in) financing activities:
Capital contribution from parent 0 6,500 5,000
Net change in bank overdraft 0 (1,240) 1,240
--------- ------- --------
Net cash from financing activities 0 5,260 6,240
--------- ------- --------
Net increase (decrease) in cash (4,872) 4,872 (2,162)
Cash at beginning of year 4,872 0 2,162
--------- ------- --------
Cash at end of year $ 0 4,872 0
========= ======= ========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Notes to Financial Statements
December 31, 1995, 1994 and 1993
(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.
The Company is a life insurance company licensed to sell group life and
accident and health and individual variable annuity policies in six states and
the District of Columbia. Based on 1995 gross premium volume, 10%, 15% and
75% of the Company's business is life, accident and health and annuity,
respectively. The Company's primary distribution channels are through
strategic alliances with third party marketing organizations. The Company has
a significant relationship at December 31, 1995 with a mutual fund company and
its broker/dealer network for marketing its variable annuity products.
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.
The preparation of financial statements in conformity with GAAP requires
management to make certain estimates and assumptions that affect reported
assets and liabilities including reporting or disclosure of contingent assets
and liabilities as of the balance sheet date and the reported amounts of
revenues and expenses during the reporting period. Actual results could vary
significantly from management's estimates.
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
1995, 1994 and 1993 were $4,517, $3,739 and $2,325, respectively.
FUTURE POLICY BENEFIT RESERVES
Future policy benefits on life insurance products are computed by net level
premium methods and the commissioners reserve valuation method 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 reported at amortized cost. Debt and equity securities bought
and held principally for the purpose of selling them in the near term are
classified as "trading securities" and 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 reported at fair value, with
unrealized gains and losses reported as a separate component of stockholders'
equity, net of deferred income taxes. SFAS No. 115 did not permit retroactive
application of its provisions. The Company classified all of its investment
portfolio as "available-for-sale securities" at January 1, 1994.
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, 1995 and 1994, investments with a carrying value of $1,665
and $649, 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.
<PAGE>
REINSURANCE
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 contractholders. 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.
INCOME TAXES
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. 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.
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
The impact of implementation of SFAS No. 115 in 1994 was an increase in equity
of $82 at January 1, 1994.
The table below presents the cumulative effect of changes, net of tax, in
accounting principles implemented in 1993 on net income:
<TABLE>
<CAPTION>
<S> <C>
SFAS No. 109, Accounting for Income Taxes $(1,084)
--------
Total cumulative effect on net income of changes in accounting principles $(1,084)
========
</TABLE>
<PAGE>
ACCOUNTING PRONOUNCEMENTS TO BE ADOPTED
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of, which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. SFAS No. 121 also addresses the
accounting for long-lived assets that are expected to be disposed of by a
company. The Company will adopt SFAS No. 121 in the first quarter of 1996
and, based on current circumstances, does not believe the effect of adoption
will be material.
(2) INVESTMENTS
<TABLE>
<CAPTION>
Investments at December 31, 1995 consist of:
Amount
Amortized Estimated shown on
cost fair balance
or cost value sheet
---------- --------- --------
<S> <C> <C> <C>
Fixed maturities - Available-for-sale
U.S. government $ 13,749 14,129 14,129
Mortgage backed securities 957 999 999
---------- --------- --------
Total fixed maturities 14,706 15,128 15,128
---------- --------- --------
Other investments:
Short-term securities 800 XXXXXXX 800
---------- --------- --------
Total other investments 800 XXXXXXX 800
---------- --------- --------
Total investments $ 15,506 XXXXXXX 15,928
========== ========= ========
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1995 and 1994, the amortized cost, gross unrealized gains,
gross unrealized losses and estimated fair values of fixed maturities are as
follows:
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
1995:
Available-for-sale:
U.S. government $ 13,749 380 0 14,129
Mortgage backed securities 957 42 0 999
---------- ---------- ---------- ---------
Total fixed maturities $ 14,706 422 0 15,128
========== ========== ========== =========
<PAGE>
1994:
U.S. government $ 3,929 0 413 3,516
---------- ---------- ---------- ---------
Total fixed maturities $ 3,929 0 413 3,516
========== ========== ========== =========
</TABLE>
The changes in unrealized gains (losses) from fixed maturities were $835,
$(540) and $(490) for the years ended December 31, 1995, 1994
and 1993, respectively.
The amortized cost and estimated fair value of fixed maturities at December
31, 1995, 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>
Amortized Estimated
cost fair value
---------- ----------
<S> <C> <C>
Available-for-sale:
Due in one year or less $ 651 655
Due after one year through five years 6,097 6,196
Due after five years through ten years 7,001 7,278
Mortgage backed securities 957 999
---------- ----------
Totals $ 14,706 15,128
========== ==========
</TABLE>
Proceeds from sales of investments in available-for-sale securities during
1995 and 1994 were $4,522 and $3,428, respectively. Gross gains of $64 and
$110 and gross losses of $77 and $209 were realized on sales of
available-for-sale securities in 1995 and 1994, respectively. The related tax
benefit was $4 and $35 in 1995 and 1994, respectively. Proceeds from sales of
fixed maturity securities in 1993 were $12,261. Gross gains of $656 and gross
losses of $6 were realized on sales of fixed maturities in 1993; related taxes
were $227.
<TABLE>
<CAPTION>
Net realized investment gains (losses) for the respective years ended December
31 are summarized as follows:
1995 1994 1993
------ ----- -----
<S> <C> <C> <C>
Fixed maturities, at amortized cost $ 0 0 650
Fixed maturities, at market (13) (99) 0
Other 0 (14) (1)
------ ----- -----
Net gains (losses) before taxes (13) (113) 649
Tax (benefit) expense on net realized gains (4) (38) 227
------ ----- -----
Net gains (losses) after taxes $ (9) (75) 422
====== ===== =====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Major categories of net investment income for the respective years ended
December 31 are:
1995 1994 1993
----- ---- ----
<S> <C> <C> <C>
Interest:
Fixed maturities, at amortized cost $ 0 0 483
Fixed maturities, at market 410 309 0
Short-term investments 201 69 50
----- ---- ----
Total investment income 611 378 533
Investment expenses 6 7 161
----- ---- ----
Net investment income $ 605 371 372
===== ==== ====
</TABLE>
(3) SUMMARY TABLE OF FAIR VALUE DISCLOSURES
<TABLE>
<CAPTION>
1995 1995 1994 1994
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Financial assets
- ----------------------------------------
Fixed maturities, at market
U.S. Government $ 14,129 $ 14,129 $ 3,516 $ 3,516
Mortgage backed securities 999 999 0 0
Certificates of deposit
and other short term investments 800 800 3,188 3,188
Receivables 4,838 4,838 5,091 5,091
Separate accounts assets 690,262 690,262 577,444 577,444
Financial liabilities
- ----------------------------------------
Separate account liabilities 690,262 672,655 577,444 555,839
</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:
<PAGE>
1995 1994
------ -----
<S> <C> <C>
Premiums due $3,468 3,722
Reinsurance commission receivable 371 489
Due from administrators 198 321
Other 783 559
------ -----
Total receivables $4,820 5,091
====== =====
</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, 1995 are adequate, uncertainties in
the reserving process could cause such reserves to develop favorably or
unfavorably in the near term 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.
<TABLE>
<CAPTION>
Activity in the accident and health claims reserves, exclusive of hospital
indemnity and AIDS reserves of $287, $205 and $186 in 1995, 1994 and 1993, is
summarized as follows:
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Balance at January 1, net of reinsurance
recoverables of $10,049, $8,117 and $7,982 $10,149 7,823 7,162
Incurred related to:
Current year 10,502 10,061 11,240
Prior years (2,245) (2,839) (2,493)
-------- ------- -------
Total incurred 8,257 7,222 8,747
-------- ------- -------
Paid related to:
Current year 1,097 1,073 3,920
Prior years 6,309 3,823 4,166
-------- ------- -------
Total paid 7,406 4,896 8,086
-------- ------- -------
Balance at December 31, net of reinsurance
reccoverables of $9,249, $10,049 and $8,117 $11,000 10,149 7,823
======== ======= =======
</TABLE>
<PAGE>
(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.
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, 1995 are recoverables from
Allianz Life for $1,683. 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.
<TABLE>
<CAPTION>
Life insurance, annuities and accident and health business assumed from and ceded to other
companies is as follows:
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, 1995:
Life insurance In force $1,826,979 0 715,945 1,111,034 -
---------- ----------- --------- --------- -----------
Premiums:
Life insurance 10,291 0 2,642 7,649 -
Annuities 10,679 0 0 10,679 -
Accident and health insurance 15,717 6,689 10,820 11,586 57.7%
---------- ----------- --------- --------- -----------
Total premiums 36,687 6,689 13,462 29,914 22.4%
========== =========== ========= ========= ===========
December 31, 1994:
Life insurance In force $1,320,843 0 740,856 579,987 -
---------- ----------- --------- --------- -----------
Premiums:
Life insurance 10,467 (2) 2,898 7,567 -
Annuities 8,781 0 0 8,781 -
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%
========== =========== ========= ========= ===========
<PAGE>
December 31, 1993:
Life insurance In force $1,676,382 0 664,449 1,011,933 -
---------- ----------- --------- --------- -----------
Premiums:
Life insurance 9,498 6 2,324 7,180 0.1%
Annuities 4,450 0 0 4,450 -
Accident and health insurance 14,286 9,874 10,359 13,801 71.5%
---------- ----------- --------- --------- -----------
Total premiums 28,234 9,880 12,683 25,431 38.9%
========== =========== ========= ========= ===========
</TABLE>
<TABLE>
<CAPTION>
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:
Assumed Assumed Assumed Ceded Ceded Ceded
-------- ------- ------- ----- ----- -----
1995 1994 1993 1995 1994 1993
-------- ------- ------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Life insurance in force $ 0 0 0 2,930 2,745 2,925
-------- ------- ------- ----- ----- -----
Premiums:
Life insurance $ 0 0 0 55 69 35
Accident and health insurance 2,959 2,600 4,801 921 784 463
-------- ------- ------- ----- ----- -----
Total premiums $ 2,959 2,600 4,801 976 853 498
======== ======= ======= ===== ===== =====
</TABLE>
(7) INCOME TAXES
INCOME TAX EXPENSE
<TABLE>
<CAPTION>
Total income tax expenses (benefits) for the years ended December 31 are as follows:
1995 1994 1993
------- ------ ------
<S> <C> <C> <C>
Income tax expense attributable to operations:
Current tax expense (benefit) $ (109) 154 (376)
------- ------ ------
Deferred tax expense 1,612 1,099 1,104
Adjustment of deferred tax assets and
liabilities for enacted change in tax rates 0 0 73
------- ------ ------
Total deferred tax expense 1,612 1,099 1,177
------- ------ ------
Total income tax expense attributable to operations $1,503 1,253 801
<PAGE>
Income tax effect on equity:
Income tax allocated to stockholder's equity,
Adoption of SFAS No. 115 0 44 0
Attributable to unrealized gains and losses for the year 292 (189) 0
------- ------ ------
Total income tax effect on equity $1,795 1,108 801
======= ====== ======
</TABLE>
COMPONENTS OF INCOME TAX EXPENSE
<TABLE>
<CAPTION>
Income tax expense computed at the statutory rate of 35% in 1995, 1994 and 1993,
varies from tax expense reported in the Statements of Income for the respective
years ended December 31 as follows:
1995 1994 1993
------- ------ -----
<S> <C> <C> <C>
Income tax expense computed at the statutory rate $2,414 1,558 858
Impact of statutory rate change on deferred tax liability 0 0 73
Dividend received deduction (917) (315) (138)
Other 6 10 8
------- ------ -----
Income tax expense as reported $1,503 1,253 801
======= ====== =====
</TABLE>
COMPONENTS OF DEFERRED TAX ASSETS AND LIABILITIES ON THE BALANCE SHEET
<TABLE>
<CAPTION>
Tax effects of temporary differences giving rise to the significant components of the
net deferred tax liabilities at December 31, 1995 and 1994 are as follows:
1995 1994
------- ------
<S> <C> <C>
Deferred tax assets:
Future policy benefit reserves $ 4,808 5,960
Unrealized losses on investments in available for sale securities 0 145
------- ------
Total deferred tax assets 4,808 6,105
------- ------
Deferred tax liabilities:
Deferred acquisition costs 10,481 10,326
Unrealized gains on investments in available for sale securities 147 0
Investments 690 384
------- ------
Total deferred tax liabilities 11,318 10,710
------- ------
Net deferred tax liability $ 6,510 4,605
======= ======
</TABLE>
<PAGE>
Although realization is not assured, the Company believes 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. The amount of the deferred tax asset considered realizable, however,
could be reduced in the near term if estimates of future reversals of existing
taxable temporary differences and future taxable income are reduced.
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 a tax
recoverable of $109 as of December 31, 1995 and a tax payable of $154 as of
December 31, 1994.
8) RELATED PARTY TRANSACTIONS
In 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 $1,115, $1,994 and $885 in 1995, 1994 and
1993, respectively, for related administrative expenses incurred. The
Company's liability to Allianz Life for incurred but unpaid service fees as of
December 31, 1995 and 1994 was $663 and $566, respectively and is included as
a separate component in the liability section of the accompanying balance
sheet.
Allianz Investment Corporation (AIC) manages the Company's investment
portfolio. The Company paid AIC $5, $4 and $27 in 1995, 1994 and 1993,
respectively, for investment advisory fees. The Company had no incurred but
unpaid fees to AIC as of December 31, 1995 and 1994.
(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 $16, $18 and $22 in 1995, 1994 and
1993, 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. The
total Company match for 1995, 1994 and 1993 Plan participants 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 accrued $5, $35 and $21
in 1995, 1994 and 1993, respectively, toward planned contributions.
<PAGE>
(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
calculated for statutory accounting do not include provisions for withdrawals.
<TABLE>
<CAPTION>
The differences between stockholder's equity and net income reported in accordance with statutory
accounting practices and the accompanying financial statements for the years ended December 31 are as
follows:
Stockholder's Stockholder's Net Net Net
equity equity Income Income Income
--------------- -------------- ------- ------- --------
1995 1994 1995 1994 1993
--------------- -------------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Statutory basis $ 18,359 16,817 2,821 (796) (3,406)
Adjustments:
Change in reserve basis (17,857) (21,139) 3,281 (2,812) (12,023)
Deferred acquisition costs 38,586 37,577 1,009 8,090 18,017
Deferred taxes (6,510) (4,605) (1,612) (1,099) (1,177)
Nonadmitted assets 119 35 0 0 0
Statutory interest maintenance reserve 31 136 (105) (183) 241
Asset Valuation Reserve 2 0 0 0 0
Liability for unauthorized reinsurers 1,209 17 0 0 0
Unrealized gains (losses) on investments 422 (413) 0 0 0
Cumulative effect of accounting change 0 0 0 0 (1,084)
--------------- -------------- ------- ------- --------
As reported in the
accompanying financial statements $ 34,361 28,425 5,394 3,200 568
=============== ============== ======= ======= ========
</TABLE>
The Company is required to meet minimum capital and surplus requirements. At
December 31, 1995 and 1994, the Company was in compliance with these
requirements. 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 1995 and 1994.
REGULATORY RISK BASED CAPITAL
<TABLE>
<CAPTION>
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:
<PAGE>
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, 1995 and 1994.
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. Currently 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. The NAIC currently has a
project underway to codify statutory accounting practices, the result of which
is expected to constitute the only source of "prescribed" statutory accounting
practices. Accordingly, that project will likely change the definition of
what comprises prescribed versus permitted statutory accounting practices, and
may result in changes to existing accounting policies that insurance
enterprises use to prepare their statutory financial statements. The Company
does not currently use permitted statutory accounting practices which 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.
<PAGE>
(12) SUPPLEMENTARY INSURANCE INFORMATION
<TABLE>
<CAPTION>
The following table summarizes certain financial information by line of business for 1995, 1994 and 1993:
As of December 31 For the year ended December 31
--------- --------- -------- -------- --------- ------- ---------- --------- --------- ---------
Amortiz-
Future Premium Benefits, ation
policy Other revenue claims of
Deferred benefits, policy and losses, deferred
policy losses, claims other Net and policy
acquis- claims and contract invest- settle- acquis- Other Premiums
ition and loss Unearned benefits consider- ment ment ition operating written
costs expense premiums payable ations income expenses costs (a) expenses (b)
--------- --------- -------- -------- --------- ------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995:
Life insurance $ 263 594 844 5,615 7,649 104 5,428 (6) 2,374
Annuities 38,120 6 0 16 10,679 0 (100) (1,008) 6,180
Accident and
health insurance 203 0 1,486 20,536 11,586 501 8,401 5 2,335
--------- --------- -------- -------- --------- ------- ---------- --------- ---------
$ 38,586 600 2,330 26,167 29,914 605 13,729 (1,009) 10,889
========= ========= ======== ======== ========= ======= ========== ========= =========
1994:
Life insurance $ 257 511 834 6,909 7,567 80 6,702 (47) 2,275
Annuities 37,112 271 0 0 8,781 0 357 (8,121) 12,200
Accident and
health insurance 208 0 1,451 20,403 11,143 291 7,331 78 2,521
--------- --------- -------- -------- --------- ------- ---------- --------- ---------
$ 37,577 782 2,285 27,312 27,491 371 14,390 (8,090) 16,996
========= ========= ======== ======== ========= ======= ========== ========= =========
1993:
Life insurance $ 210 544 906 5,806 7,180 86 6,358 (146) 2,221
Annuities 28,990 0 0 84 4,450 0 (56) (18,044) 21,290
Accident and
health insurance 287 0 1,183 16,126 13,801 286 8,836 173 3,367
--------- --------- -------- -------- --------- ------- ---------- --------- ---------
$ 29,487 544 2,089 22,016 25,431 372 15,138 (18,017) 26,878
========= ========= ======== ======== ========= ======= ========== ========= =========
</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>
