File Nos. 33-26646
811-5716
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ( )
Pre-Effective Amendment No. ( )
Post-Effective Amendment No. 10 (X)
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 ( )
Amendment No. 13 (X)
(Check appropriate box or boxes.)
PREFERRED LIFE VARIABLE ACCOUNT C
_________________________________
(Exact Name of Registrant)
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
____________________________________________
(Name of Depositor)
152 West 57th Street, 18th Floor, New York, New York 10019
____________________________________________________ _________
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (212) 586-7733
Name and Address of Agent for Service
_____________________________________
Eugene Long
Preferred Life Insurance Company of New York
152 West 57th Street, 18th Floor
New York, New York 10019
Copies to:
Judith A. Hasenauer
Blazzard, Grodd & Hasenauer, P.C.
P.O. Box 5108
Westport, CT 06881
(203) 226-7866
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b) of Rule 485
_X_ on May 1, 1996 pursuant to paragraph (b) of Rule 485
___ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
___ on (date) pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following:
___ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has declared that it has registered an indefinite number or amount
of securities in accordance with Rule 24f-2 under the Investment Company Act
of 1940. Registrant filed a Rule 24f-2 Notice for the most recent fiscal year
on or about February 28, 1996.
CROSS REFERENCE SHEET
(Required by Rule 495)
<TABLE>
<CAPTION>
Item No. Location
<S> <C> <C>
PART A
Item 1. Cover Page............................. Cover Page
Item 2. Definitions............................ Definitions
Item 3. Synopsis or Highlights................. Highlights
Item 4. Condensed Financial Information........ Condensed Financial
Information
Item 5. General Description of Registrant,
Depositor, and Portfolio Companies..... The Company; The
Variable Account;
Franklin Valuemark Funds
Item 6. Deductions............................. Charges and Deductions
Item 7. General Description of Variable
Annuity Contracts...................... The Contracts
Item 8. Annuity Period......................... Annuity Provisions
Item 9. Death Benefit.......................... The Contracts; Annuity
Provisions
Item 10. Purchases and Contract Value........... Purchase Payments and
Contract Value
Item 11. Redemptions............................ Surrenders
Item 12. Taxes.................................. Tax Status
Item 13. Legal Proceedings...................... Legal Proceedings
Item 14. Table of Contents of the Statement of
Additional Information................. Table of Contents of the
Statement of Additional
Information
</TABLE>
<TABLE>
<CAPTION>
Item No. Location
<S> <C> <C>
PART B
Item 15. Cover Page.............................. Cover Page
Item 16. Table of Contents....................... Table of Contents
Item 17. General Information and History......... The Company
Item 18. Services................................ Not Applicable
Item 19. Purchase of Securities Being Offered.... Not Applicable
Item 20. Underwriters............................ Distributor
Item 21. Calculation of Performance Data......... Calculation of
Performance Data
Item 22. Annuity Payments........................ Annuity Provisions
Item 23. Financial Statements.................... Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item so numbered, in Part C to this Registration Statement.
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Home Office: Valuemark Service Center
152 West 57th Street, 18th Floor 300 Berwyn Park
New York, NY 10019 P.O. Box 3031
(800) 542-5427 Berwyn, PA 19312-0031
(800) 624-0197
INDIVIDUAL FLEXIBLE PAYMENT
VARIABLE ANNUITY CONTRACTS
issued by
PREFERRED LIFE VARIABLE ACCOUNT C
and
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
May 1, 1996
The Individual Flexible Payment Variable Annuity Contracts (the "Contracts")
described in this Prospectus provide for accumulation of Contract Values and
eventual payment of monthly annuity payments. The Contracts are designed to
aid individuals in long-term planning for retirement or other long-term
purposes. This is not appropriate as a trading vehicle.
The Contracts are available for retirement plans which do not qualify for the
special federal tax advantages available under the Internal Revenue Code
("Non-Qualified Plans") and for retirement plans which do qualify for the
federal tax advantages available under the Internal Revenue Code ("Qualified
Plans"). (See "Tax Status - Qualified Plans.") However, because of the
minimum purchase requirements, these Contracts may not be appropriate for some
periodic payment retirement plans.
Purchase payments for the Contracts will be allocated to a segregated
investment account of Preferred Life Insurance Company of New York (the
"Company") which account has been designated Preferred Life Variable Account C
(the "Variable Account"). The Variable Account invests in shares of Franklin
Valuemark Funds (the "Trust"). The Trust is a series fund with twenty-
three Funds: the Money Market Fund, the Adjustable U.S. Government
Fund, the High Income Fund, the Investment Grade Intermediate
Bond Fund, the Templeton Global Income Securities Fund, The U. S.
Government Securities Fund, the Zero Coupon Funds - 2000, 2005 and 2010,
the Growth and Income Fund, the Income Securities Fund, the Real Estate
Securities Fund, the Rising Dividends Fund, the Templeton Global Asset
Allocation Fund, the Utility Equity Fund, the Capital Growth Fund, the
Precious Metals Fund, the Small Cap Fund, the Templeton Developing Markets
Equity Fund, the Templeton Global Growth Fund, the Templeton International
Equity Fund , the Templeton International Smaller Companies Fund, and the
Templeton Pacific Growth Fund. SUBJECT TO REGULATORY APPROVAL, SHARES OF
THE U.S. GOVERNMENT SECURITIES FUND WILL BE SUBSTITUTED FOR SHARES OF THE
ADJUSTABLE U.S. GOVERNMENT FUND AND THE INVESTMENT GRADE INTERMEDIATE BOND FUND
ON OCTOBER 25, 1996, OR AS SOON AS POSSIBLE THEREAFTER. THUS, FOLLOWING THE
SUBSTITUTION THE ADJUSTABLE U.S. GOVERNMENT FUND AND THE INVESTMENT GRADE
INTERMEDIATE BOND FUND WILL NO LONGER BE AVAILABLE AS ELIGIBLE INVESTMENTS FOR
CONTRACT OWNERS. SEE "FRANKLIN VALUEMARK FUNDS - PROPOSED SUBSTITUTION
TRANSACTION." Prior to May 1, 1996, the Templeton Global Income Securities
Fund was known as the Global Income Fund. See "Highlights" and "Tax
Status - Diversification" for a discussion of owner control of the underlying
investments in a variable annuity contract.
THE SMALL CAP FUND , THE TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND,
AND THE CAPITAL GROWTH FUND ARE NOT AVAILABLE IN NEW YORK UNTIL APPROVED
BY THE NEW YORK INSURANCE DEPARTMENT. (CHECK WITH YOUR AGENT REGARDING
AVAILABILITY.)
THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY FINANCIAL INSTITUTION AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
INVESTMENT IN THE CONTRACTS IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF
THE CONTRACT OWNER'S INVESTMENT TO FLUCTUATE, AND WHEN THE CONTRACTS ARE
SURRENDERED, THE VALUE MAY BE HIGHER OR LOWER THAN THE PURCHASE PAYMENTS.
This Prospectus concisely sets forth the information a prospective investor
should know before investing. Additional information about the Contracts is
contained in the "Statement of Additional Information", which is available at
no charge. The Statement of Additional Information has been filed with the
Securities and Exchange Commission and is incorporated herein by reference.
The Table of Contents of the Statement of Additional Information can be found
on the last page of this Prospectus. For the "Statement of Additional
Information," call or write the Home Office address shown above.
INQUIRIES:
Any inquiries can be made by telephone or in writing to the Company at the
Home Office phone number or address listed above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THIS PROSPECTUS MUST BE ACCOMPANIED BY OR PRECEDED BY A CURRENT PROSPECTUS FOR
FRANKLIN VALUEMARK FUNDS.
This Prospectus and the Statement of Additional Information are dated
May 1, 1996 , and may be amended from time to time.
This Prospectus should be kept for future reference.
CONTENTS
Page
DEFINITIONS
HIGHLIGHTS
FEE TABLE
CONDENSED FINANCIAL INFORMATION
THE COMPANY
THE VARIABLE ACCOUNT
FRANKLIN VALUEMARK FUNDS
Description of the Funds
General
Substitution of Securities
Proposed Substitution Transaction
Voting Rights
CHARGES AND DEDUCTIONS
Deduction for Contingent Deferred Sales Charge (Sales Load)
Reduction or Elimination of Contingent Deferred Sales Charge
Deduction for Mortality and Expense Risk Charge
Deduction for Administrative Expense Charge
Deduction for Contract Maintenance Charge
Deduction for Premium Taxes
Deduction for Income Taxes
Deduction for Trust Expenses
Deduction for Transfer Fee
THE CONTRACTS
Ownership
Assignment
Beneficiary
Change of Beneficiary
Annuitant
Death of the Contract Owner Before the Income Date
Death of the Annuitant Prior to the Income Date
Death of the Annuitant After the Income Date
ANNUITY PROVISIONS
Income Date
Change in Income Date and Annuity Option
Annuity Options
Fixed Options
Variable Options
PURCHASE PAYMENTS AND CONTRACT VALUE
Purchase Payments
Allocation of Purchase Payments
Transfer of Contract Values
Dollar Cost Averaging
Contract Value
Accumulation Unit
DISTRIBUTOR
SURRENDERS
Systematic Withdrawal
Delay of Payments
ADMINISTRATION OF THE CONTRACTS
PERFORMANCE DATA
Money Market Sub-Account
Other Sub-Accounts
Performance Ranking
TAX STATUS
General
Diversification
Multiple Contracts
Contracts Owned by Other than Natural Persons
Tax Treatment of Assignments
Income Tax Withholding
Tax Treatment of Withdrawals - Non-Qualified Contracts
Qualified Plans
Tax Treatment of Withdrawals - Qualified Contracts
Tax-Sheltered Annuities - Withdrawal Limitations
FINANCIAL STATEMENTS
LEGAL PROCEEDINGS
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
DEFINITIONS
Accumulation Unit - An accounting unit of measure used to calculate the
Contract Value prior to the Income Date.
Annuitant - The person upon whose continuation of life any annuity payment
involving life contingencies depends. The Annuitant may be changed at any
time prior to the Income Date unless the Contract Owner is not a natural
person.
Annuity Option - An arrangement under which annuity payments are made under
the Contract.
Annuity Period - The period starting on the Income Date.
Annuity Unit - An accounting unit of measure used to calculate annuity
payments after the Income Date.
Company - Preferred Life Insurance Company of New York at its Valuemark
Service Center shown on the cover page of this Prospectus.
Contingent Owner - In those Contracts containing Contingent Owner provisions,
the Contingent Owner is named in the application, unless changed. Only the
spouse of the Owner may be the Contingent Owner.
Contract Anniversary - An anniversary of the Effective Date of the Contract.
Contract Owner - The Contract Owner is named in the application, unless
changed, and has all rights under the Contract.
Contract Value - The dollar value as of any Valuation Date of all amounts
accumulated under the Contract.
Contract Year - Any period of twelve (12) months commencing with the Effective
Date and each Contract Anniversary thereafter.
Effective Date - The date on which the first Contract Year begins.
Eligible Investment(s) - An investment entity which can be selected by the
Contract Owner to be the underlying investment of the Contract.
Fund - A segment of an Eligible Investment which constitutes a separate and
distinct class of interests under an Eligible Investment.
Income Date - The date on which annuity payments are to commence.
Joint Owner - In Contracts containing Joint Owner provisions, if there is more
than one Contract Owner, each Contract Owner shall be a Joint Owner of the
Contract. Joint Owners have equal ownership rights and must both authorize
any exercising of those ownership rights unless otherwise allowed by the
Company. Any Joint Owner must be the spouse of the other Joint Owner. If
there are Joint Owners, any reference to the age of the Contract Owner (or
taxpayer) will be the age of the older Joint Owner.
Non-Qualified Contracts - Contracts issued under Non-Qualified Plans which
do not receive favorable tax treatment under Sections 401, 403(b) or 408 of
the Internal Revenue Code.
Qualified Contracts - Contracts issued under Qualified Plans which receive
favorable tax treatment under Sections 401, 403(b) or 408 of the Internal
Revenue Code.
Sub-Account - A segment of the Variable Account. Each Sub-Account is
invested in shares of a Fund of an Eligible Investment.
Surrender Value - The Contract Value for the Valuation Period next following
the Valuation Period during which the written request to the Company for
surrender is received, reduced by the sum of: (i) any applicable premium taxes
not previously deducted; (ii) any applicable Contract Maintenance Charge; and
(iii) any applicable Contingent Deferred Sales Charge.
Valuation Date - The Variable Account will be valued each day that the New
York Stock Exchange is open for trading which is Monday through Friday, except
for normal business holidays.
Valuation Period - The period commencing at the close of business of the New
York Stock Exchange on each Valuation Date and ending at the close of business
for the next succeeding Valuation Date.
Variable Account - A separate investment account of the Company, designated as
Preferred Life Variable Account C, into which purchase payments may be
allocated.
HIGHLIGHTS
Purchase payments for the Contracts will be allocated to a segregated
investment account of Preferred Life Insurance Company of New York (the
"Company") which has been designated Preferred Life Variable Account C (the
"Variable Account"). SUBJECT TO REGULATORY APPROVAL, SHARES OF THE U.S.
GOVERNMENT SECURITIES FUND WILL BE SUBSTITUTED FOR SHARES OF THE ADJUSTABLE
U.S. GOVERNMENT FUND AND THE INVESTMENT GRADE INTERMEDIATE BOND FUND ON OCTOBER
25, 1996, OR AS SOON AS POSSIBLE THEREAFTER. THUS, FOLLOWING THE SUBSTITUTION
THE ADJUSTABLE U.S. GOVERNMENT FUND AND THE INVESTMENT GRADE INTERMEDIATE BOND
FUND WILL NO LONGER BE AVAILABLE AS ELIGIBLE INVESTMENTS FOR CONTRACT OWNERS.
SEE "FRANKLIN VALUEMARK FUNDS - PROPOSED SUBSTITUTION TRANSACTION." THE
SMALL CAP FUND , THE TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND, AND
THE CAPITAL GROWTH FUND ARE NOT AVAILABLE IN NEW YORK UNTIL APPROVED BY
THE NEW YORK INSURANCE DEPARTMENT. (CHECK WITH YOUR AGENT REGARDING
AVAILABILITY.) The Variable Account invests in shares of Franklin Valuemark
Funds (the "Trust"). (See "Franklin Valuemark Funds.") Contract Owners bear
the investment risk for all amounts allocated to the Variable Account.
The Contract may be returned within 10 days after it is received ("Free Look
Period"). It can be mailed or delivered to either the Company or the agent
who sold it. Return of the Contract by mail is effective on being postmarked,
properly addressed and postage prepaid. The returned Contract will be treated
as if the Company never had issued it. The Company will promptly refund the
Contract Value as of the date of surrender. This may be more or less than the
purchase payments. Where the Contract is issued pursuant to an Individual
Retirement Annuity, the Company will promptly refund the purchase payments,
less withdrawals. The Company has the right to allocate initial purchase
payments to the Money Market Sub-Account until the expiration of 15 days from
the date the Contract is mailed from the Valuemark Service Center. If the
Company does so allocate initial purchase payments to the Money Market
Sub-Account, it will refund the greater of the purchase payments, less any
withdrawals, or the Contract Value. It is the Company's current practice to
directly allocate the initial purchase payment to the Sub-Accounts as selected
by the Contract Owner.
A Contingent Deferred Sales Charge (sales load) may be deducted in the event
of a surrender. The Contingent Deferred Sales Charge is imposed on surrenders
of purchase payments within five (5) years after their being made. Once each
Contract Year, Contract Owners may surrender up to fifteen percent (15%) of
purchase payments paid less any prior surrenders without incurring a
Contingent Deferred Sales Charge. If no withdrawal is made during a Contract
Year, the 15% is cumulative into future years. If less than 15% is withdrawn
in a Contract Year, the remaining percentage is not available in future years.
The Contingent Deferred Sales Charge will vary in amount depending upon the
Contract Year in which the purchase payment being surrendered was made. The
Company currently makes available a systematic withdrawal plan which allows
for additional options in some instances. (See "Surrenders - Systematic
Withdrawal.") The Contingent Deferred Sales Charge is found in the Fee Table.
(See also "Charges and Deductions - Deduction for Contingent Deferred Sales
Charge (Sales Load).") The maximum Contingent Deferred Sales Charge is 5% of
purchase payments. For purposes of determining the applicability of the
Contingent Deferred Sales Charge, surrenders are deemed to be on a first-in,
first-out basis.
There is a Mortality and Expense Risk Charge which is equal, on an annual
basis, to 1.25% of the average daily net assets of the Variable Account. This
Charge compensates the Company for assuming the mortality and expense risks
under the Contracts. (See "Charges and Deductions - Deduction for Mortality
and Expense Risk Charge.")
There is an Administrative Expense Charge which is equal, on an annual basis,
to 0.15% of the average daily net assets of the Variable Account. This Charge
compensates the Company for costs associated with the administration of the
Contracts and the Variable Account. (See "Charges and Deductions - Deduction
for Administrative Expense Charge.")
There is an annual Contract Maintenance Charge of $30 each Contract Year. (See
"Charges and Deductions - Deduction for Contract Maintenance Charge.")
Premium taxes or other taxes payable to a state or other governmental entity
will be charged against the Contract Values. (See "Charges and
Deductions - Deduction for Premium Taxes.")
Under certain circumstances there may be assessed a transfer fee when a
Contract Owner transfers Contract Values. (See "Charges and Deductions -
Deduction for Transfer Fee.")
There is a ten percent (10%) federal income tax penalty that may be
applied to the income portion of any distribution from the Contracts.
However, the penalty is not imposed under certain circumstances. See "Tax
Status - Tax Treatment of Withdrawals - Non-Qualified Contracts" and "Tax
Treatment of Withdrawals - Qualified Contracts." For a further
discussion of the taxation of the Contracts, see "Tax Status."
Withdrawals of amounts attributable to contributions made pursuant to a salary
reduction agreement (as defined in Section 403(b)(11) of the Code) are limited
to circumstances only when the Contract Owner: (1) attains age 59 1/2; (2)
separates from service; (3) dies; (4) becomes disabled (within the meaning of
Section 72(m)(7) of the Code); or (5) in the case of hardship. However,
withdrawals for hardship are restricted to the portion of the Contract Owner's
Contract Value which represents contributions made by the Contract Owner and
does not include any investment results. The limitations on withdrawals
became effective on January 1, 1989 and only apply to (i) salary reduction
contributions made after December 31, 1988; (ii) to income attributable to
such contributions; and (iii) to income attributable to amounts held as of
December 31, 1988. The limitations on withdrawals do not affect rollovers or
transfers between certain Qualified Plans. Contract Owners should consult
their own tax counsel or other tax adviser regarding distributions. (See "Tax
Status - Tax Sheltered Annuities - Withdrawal Limitations.")
The Treasury Department has indicated that guidelines may be forthcoming under
which a variable annuity contract will not be treated as an annuity contract
for tax purposes if the owner of the contract has excessive control over the
investment underlying the contract. The issuance of such guidelines may
require the Company to impose limitations on a Contract Owner's right to
control the investment. It is not known whether any such guidelines would
have a retroactive effect. (See "Tax Status - Diversification.")
The Company may offer other deferred variable annuity contracts but
does not permit exchange of those contracts for the Contracts offered by
this Prospectus.
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C FEE TABLE
______________________________________________________________
<S> <C> <C>
Contract Owner Transaction Fees
Contingent Deferred Sales Charge* Years Since
(as a percentage of purchase payments) Payment Charge
___________ _______
0-1 5%
1-2 5%
2-3 4%
3-4 3%
4-5 1.5%
5+ 0%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Current Transfer Fee** First 12 transfers in a
Contract Year are free.
Thereafter, the fee is $25
(or 2% of the amount
transferred, if less).
Prescheduled automatic
dollar cost averaging
transfers are not counted.
Contract Maintenance Charge $30 per Contract per year
(Prior to the Income Date the charge is
waived for Contracts having Contract Values
or purchase payments less withdrawals of
$100,000 or more.)
Variable Account Annual Expenses
(as a percentage of average account value)
Mortality and Expense Risk Charge 1.25%
Administrative Expense Charge .15%
_____
Total Variable Account Annual Expenses 1.40%
</TABLE>
<TABLE>
<CAPTION>
<C> <S>
* Once each Contract Year, a Contract Owner may surrender up to fifteen
percent (15%) of purchase payments paid less any prior surrenders
without incurring a Contingent Deferred Sales Charge. If no withdrawal
is made during a Contract Year, the 15% is cumulative into future
years. If less than 15% is withdrawn in a Contract Year, the remaining
percentage is not available in future years. See also "Surrenders -
Systematic Withdrawal" for additional options.
** The Contract provides that if more than three transfers have been made
in a Contract Year, the Company reserves the right to deduct a transfer
fee which shall not exceed the lesser of $25 or 2% of the amount
transferred.
</TABLE>
FRANKLIN VALUEMARK FUNDS' ANNUAL EXPENSES
(as a percentage of Franklin Valuemark Funds' average net assets).
The Management Fees for each Fund are based on a percentage of that Fund's
assets under management. See "Charges and Deductions" in this Prospectus and
"Management" in the Trust prospectus.
The Management and Business Management Fees include investment advisory,
other management, and administrative fees not included as "Other Expenses"
below that were paid to the Managers and Business Managers to
the Trust for the 1995 calendar year (except for the Money Market Fund, the
Zero Coupon Fund-2000, the Zero Coupon Fund-2005, the Zero Coupon Fund-2010,
the Small Cap Fund, the Templeton Global Asset Allocation Fund, the
Templeton International Smaller Companies Fund and the Capital Growth Fund).
The purpose of the Table is to assist the Contract Owner in understanding the
various costs and expenses that a Contract Owner will incur, directly or
indirectly, on amounts allocated to the Variable Account.
<TABLE>
<CAPTION>
Management
and Business Total
Management Other Annual
Fees (1/) Expenses Expenses
____________ ________ ________
<S> <C> <C> <C>
Money Market Fund (2/) .51% .02% .53%
Growth and Income Fund .49% .03% .52%
Precious Metals Fund .61% .05% .66%
Real Estate Securities Fund .56% .03% .59%
Utility Equity Fund .47% .03% .50%
High Income Fund .53% .03% .56%
Templeton Global Income Securities Fund (3/) .55% .09% .64%
Investment Grade Intermediate Bond Fund .58% .03% .61%
Income Securities Fund .47% .04% .51%
The U.S. Government Securities Fund .49% .03% .52%
Adjustable U.S. Government Fund .56% .03% .59%
Zero Coupon Fund-2000(4/) .37% .03% .40%
Zero Coupon Fund-2005(4/) .37% .03% .40%
Zero Coupon Fund-2010(4/) .37% .03% .40%
Rising Dividends Fund .75% .03% .78%
Templeton International Equity Fund .83% .09% .92%
Templeton Pacific Growth Fund .90% .11% 1.01%
Templeton Global Growth Fund .93% .04% .97%
Templeton Developing Markets Equity Fund 1.25% .16% 1.41%
Templeton Global Asset Allocation Fund (5/) .80% .10% .90%
Small Cap Fund (6/) .75% .15% .90%
Templeton International Smaller Companies Fund (7/) 1.00% .10% 1.10%
Capital Growth Fund (7/) .75% .04% .79%
<FN>
1/ The Business Management Fee is a direct expense for the Templeton
Global Asset Allocation Fund and the Templeton International Smaller
Companies Fund; the other Funds pay for similar services
indirectly through the Management Fee. See "Management" in the Trust
Prospectus for further information regarding Management and Business
Management Fees.
2/ Franklin Advisers Inc. agreed in advance to waive a portion of its
Management Fee and to make certain payments to reduce expenses of the Money
Market Fund during 1995 and is currently continuing this arrangement in 1996.
This arrangement may be terminated at any time. With this reduction, Management
Fees and Total Annual Expenses of the Money Market Fund represented 0.38%
and 0.40%, respectively, of the average daily net assets of the Fund.
3/ Prior to May 1, 1996, the Templeton Global Income Securities Fund
was known as the Global Income Fund.
4/ Net of management fees waived and/or expense reimbursements.
Although not obligated to, Franklin Advisers, Inc. has agreed in advance to
waive a portion of its management fees and to make certain payments to
reduce expenses of the three Zero Coupon Funds through at least December 31,
1996 such that the aggregate expenses of the Zero Coupon Fund-2000, the Zero
Coupon Fund-2005 and the Zero Coupon Fund-2010 will not exceed 0.40% of each
Fund's net assets. Absent the management fee waivers and expense payments,
for the year ended December 31, 1995, the Total Annual Expenses and Management
and Business Management Fees would have been as follows: Zero Coupon Fund -
2000, .63% and .60%; Zero Coupon Fund - 2005, .66% and .63%; and Zero Coupon
Fund - 2010, .66% and .63%.
5/ The Templeton Global Asset Allocation Fund commenced operations on May
1, 1995. The expenses shown are estimated expenses for the Fund for 1996.
6/ The Small Cap Fund commenced operations November 1, 1995, however,
the Fund is not an Eligible Investment until approved by the New York Insurance
Department. The expenses shown are estimated expenses for the Fund for 1996.
7/ The Templeton International Smaller Companies Fund and the Capital
Growth Fund have not yet commenced operations. The expenses shown are
estimated expenses for the Funds for 1996.
</TABLE>
The following Tables reflect expenses of the Variable Account as well as of
the Trust. The dollar figures should not be considered a representation of
past or future expenses. Actual expenses may be greater or less than those
shown. The $30 Contract Maintenance Charge is included in the Examples as
a prorated charge of $1. Since the average Contract account size for the
Contracts described in this Prospectus is greater than $1,000, the expense
effect of the Contract Maintenance Charge is reduced accordingly. For
additional information, see "Charges and Deductions" in this Prospectus and
"Management" in the Trust Prospectus.
Premium taxes are not reflected in the Tables. Premium taxes may apply.
EXAMPLES
If the Contract is fully surrendered at the end of the applicable time period
and no prior surrenders have occurred, the Contract Owner would have incurred
the following expenses on a $1,000 investment, assuming a 5% annual return on
assets compounded semi-annually:
<TABLE>
<CAPTION>
1 3 5 10
Year Years Years Years
____ ______ ______ ______
<S> <C> <C> <C> <C>
Money Market Fund $ 63 $ 89 $ 125 $ 292
Growth and Income Fund $ 64 $ 89 $ 124 $ 291
Precious Metals Fund $ 65 $ 93 $ 132 $ 310
Real Estate Securities Fund $ 64 $ 91 $ 128 $ 300
Utility Equity Fund $ 63 $ 88 $ 123 $ 288
High Income Fund $ 64 $ 90 $ 126 $ 296
Templeton Global Income Securities Fund $ 65 $ 93 $ 131 $ 307
Investment Grade Intermediate Bond Fund $ 65 $ 92 $ 129 $ 303
Income Securities Fund $ 63 $ 88 $ 123 $ 290
The U.S. Government Securities Fund $ 64 $ 89 $ 124 $ 291
Adjustable U.S. Government Fund $ 64 $ 91 $ 128 $ 300
Zero Coupon Fund-2000# $ 62 $ 85 $ 117 $ 275
Zero Coupon Fund-2005# $ 62 $ 85 $ 117 $ 275
Zero Coupon Fund-2010# $ 62 $ 85 $ 117 $ 275
Rising Dividends Fund $ 66 $ 97 $ 139 $ 325
Templeton International Equity Fund $ 68 $ 102 $ 147 $ 344
Templeton Pacific Growth Fund $ 69 $ 104 $ 152 $ 355
Templeton Global Growth Fund $ 68 $ 103 $ 150 $ 350
Templeton Developing Markets Equity Fund $ 73 $ 117 $ 174 $ 405
Templeton Global Asset Allocation Fund* $ 67 $ 101 $ 146 $ 341
Small Cap Fund* $ 67 $ 101 $ 146 $ 341
Templeton International Smaller Companies Fund** $ 69 $ 107 $ 157 $ 367
Capital Growth Fund** $ 66 $ 97 $ 135 $ 327
<FN>
* Annualized
** Estimated
# Calculated with waiver of fees and reimbursement of expenses
</TABLE>
If the Contract is not surrendered at the end of the applicable time period
and no prior surrenders have occurred, the Contract Owner would have incurred
the following expenses on a $1,000 investment, assuming a 5% annual return on
assets compounded semi-annually:
<TABLE>
<CAPTION>
1 3 5 10
Year Years Years Years
____ ______ ______ ______
<S> <C> <C> <C> <C>
Money Market Fund $ 21 $ 67 $ 121 $ 292
Growth and Income Fund $ 21 $ 67 $ 120 $ 291
Precious Metals Fund $ 22 $ 71 $ 128 $ 310
Real Estate Securities Fund $ 21 $ 69 $ 124 $ 300
Utility Equity Fund $ 20 $ 66 $ 119 $ 288
High Income Fund $ 21 $ 68 $ 122 $ 296
Templeton Global Income Securities Fund $ 22 $ 71 $ 127 $ 307
Investment Grade Intermediate Bond Fund $ 22 $ 70 $ 125 $ 303
Income Securities Fund $ 20 $ 66 $ 119 $ 290
The U.S. Government Securities Fund $ 21 $ 67 $ 120 $ 291
Adjustable U.S. Government Fund $ 21 $ 69 $ 124 $ 300
Zero Coupon Fund-2000# $ 19 $ 63 $ 113 $ 275
Zero Coupon Fund-2005# $ 19 $ 63 $ 113 $ 275
Zero Coupon Fund-2010# $ 19 $ 63 $ 113 $ 275
Rising Dividends Fund $ 23 $ 75 $ 135 $ 325
Templeton International Equity Fund $ 25 $ 80 $ 143 $ 344
Templeton Pacific Growth Fund $ 26 $ 82 $ 148 $ 355
Templeton Global Growth Fund $ 25 $ 81 $ 146 $ 350
Templeton Developing Markets Equity Fund $ 30 $ 95 $ 170 $ 405
Templeton Global Asset Allocation Fund* $ 24 $ 79 $ 142 $ 341
Small Cap Fund* $ 24 $ 79 $ 142 $ 341
Templeton International Smaller Companies Fund** $ 26 $ 85 $ 153 $ 367
Capital Growth Fund** $ 23 $ 75 $ 135 $ 327
<FN>
* Annualized
** Estimated
# Calculated with waiver of fees and reimbursement of expenses
</TABLE>
CONDENSED FINANCIAL INFORMATION
The financial statements of Preferred Life Insurance Company of New York and
of Preferred Life Variable Account C may be found in the Statement of
Additional Information.
The table below gives per unit information about the financial history of each
Sub-Account from the inception of each to December 31, 1995.#
This information should be read in conjunction with the financial statements
and related notes to the Variable Account included in the Statement of
Additional Information.
<TABLE>
<CAPTION>
(Number of units in thousands) Period from
Year ended Year ended Year ended Year ended Inception to
December 31 December 31, December 31, December 31, December 31,
Franklin Valuemark Funds: 1995 1994 1993 1992 1991
_____________ _____________ _____________ _____________ ______________
<S> <C> <C> <C> <C> <C>
Money Market Fund
Unit value at beginning of period $ 12.354 $12.066 $11.932 $11.742 $11.623
Unit value at end of period $ 12.883 $12.354 $12.066 $11.932 $11.742
Number of units outstanding at end of period 2,218 2,487 627 301 62
Growth and Income Fund
Unit value at beginning of period $ 13.215 $13.677 $12.574 $11.949 $11.061
Unit value at end of period $ 17.310 $13.215 $13.677 $12.574 $11.949
Number of units outstanding at end of period 4,347 3,452 2,402 1,227 125
Precious Metals Fund
Unit value at beginning of period $ 13.979 $14.464 $9.424 $10.635 $10.433
Unit value at end of period $ 14.109 $13.979 $14.464 $9.424 $10.635
Number of units outstanding at end of period 516 647 391 30 5
High Income Fund
Unit value at beginning of period $ 14.608 $15.155 $13.278 $11.583 $11.043
Unit value at end of period $ 17.252 $14.608 $15.155 $13.278 $11.583
Number of units outstanding at end of period 2,076 1,710 1,135 266 37
Real Estate Securities Fund
Unit value at beginning of period $ 15.594 $15.369 $13.095 $11.848 $10.787
Unit value at end of period $ 18.073 $15.594 $15.369 $13.095 $11.848
Number of units outstanding at end of period 794 900 437 77 8
The U.S. Government Securities Fund
Unit value at beginning of period $ 13.835 $14.698 $13.586 $12.798 $12.036
Unit value at end of period $ 16.298 $13.835 $14.698 $13.586 $12.798
Number of units outstanding at end of period 5,089 5,331 6,108 2,266 213
Utility Equity Fund
Unit value at beginning of period $ 15.104 $17.319 $15.889 $14.821 $13.234
Unit value at end of period $ 19.555 $15.104 $17.319 $15.889 $14.821
Number of units outstanding at end of period 5,916 6,317 7,479 2,519 166
Zero Coupon Fund - 2000
Unit value at beginning of period $ 15.373 $16.717 $14.595 $13.570 $12.274
Unit value at end of period $ 18.294 $15.373 $16.717 $14.595 $13.570
Number of units outstanding at end of period 1,416 1,158 795 397 6
Zero Coupon Fund - 2005
Unit value at beginning of period $ 16.096 $18.050 $14.975 $13.705 $12.369
Unit value at end of period $ 20.914 $16.096 $18.050 $14.975 $13.705
Number of units outstanding at end of period 456 403 341 108 3
Zero Coupon Fund - 2010
Unit value at beginning of period $ 15.930 $18.144 $14.670 $13.482 $12.013
Unit value at end of period $ 22.431 $15.930 $18.144 $14.670 $13.482
Number of units outstanding at end of period 371 252 193 60 1
Templeton Global Income Securities Fund*
Unit value at beginning of period $ 13.726 $14.650 $12.733 $12.962 $12.296
Unit value at end of period $ 15.522 $13.726 $14.650 $12.733 $12.962
Number of units outstanding at end of period 1,472 1,667 1,045 406 47
Investment Grade Intermediate Bond Fund
Unit value at beginning of period $ 14.257 $14.389 $13.442 $12.879 $12.105
Unit value at end of period $ 15.463 $14.257 $14.389 $13.442 $12.879
Number of units outstanding at end of period 1,023 1,085 893 352 26
Income Securities Fund
Unit value at beginning of period $ 16.392 $17.734 $15.163 $13.580 $12.811
Unit value at end of period $ 19.785 $16.392 $17.734 $15.163 $13.580
Number of units outstanding at end of period 4,567 4,416 2,634 668 35
Adjustable U.S. Government Fund
Unit value at beginning of period $ 11.077 $11.254 $11.020 $10.698 $10.498
Unit value at end of period $ 11.951 $11.077 $11.254 $11.020 $10.698
Number of units outstanding at end of period 1,290 1,767 1,971 1,453 126
Templeton Pacific Growth Fund
Unit value at beginning of period $ 12.802 $14.233 $9.761 $10.000** NA
Unit value at end of period $ 13.630 $12.802 $14.233 $9.761 NA
Number of units outstanding at end of period 1,812 2,112 915 58 NA
Rising Dividends Fund
Unit value at beginning of period $ 9.769 $10.327 $10.848 $10.000** NA
Unit value at end of period $ 12.498 $9.769 $10.327 $10.848 NA
Number of units outstanding at end of period 3,182 2,936 2,772 617 NA
Templeton International Equity Fund
Unit value at beginning of period $ 12.161 $12.226 $9.642 $10.000** NA
Unit value at end of period $ 13.263 $12.161 $12.226 $9.642 NA
Number of units outstanding at end of period 4,073 4,079 1,346 88 NA
Templeton Developing Markets Equity Fund
Unit value at beginning of period $ 9.454 $10.000** NA NA NA
Unit value at end of period $ 9.582 $9.454 NA NA NA
Number of units outstanding at end of period 757 591 NA NA NA
Templeton Global Growth Equity Fund
Unit value at beginning of period $ 10.201 $10.000** NA NA NA
Unit value at end of period $ 11.339 $10.201 NA NA NA
Number of units outstanding at end of period 1,416 921 NA NA NA
Templeton Global Asset Allocation Fund
Unit value at beginning of period $ 10.000** NA NA NA NA
Unit value at end of period $ 10.591 NA NA NA NA
Number of units outstanding at end of period 36 NA NA NA NA
<FN>
# As of December 31, 1995, the Small Cap Sub-Account, the Templeton International Smaller
Companies Sub-Account and the Capital Growth Sub-Account had not yet commenced operations.
* Prior to May 1, 1996, the Templeton Global Income Securities Fund was known as the
Global Income Fund.
** Unit Value at inception was $10.00.
</TABLE>
The Accumulation Unit Value for each Sub-Account was initially arbitrarily set.
The inception date for all Sub-Accounts, except those noted below, was September
6, 1991. The inception date for the Rising Dividends Sub-Account, the Templeton
International Equity Sub-Account, and the Templeton Pacific Growth Sub-Account
was March 10, 1992. Inception was March 15, 1994 for the Templeton Global
Growth Sub-Account and the Templeton Developing Markets Equity Sub-Account and
May 1, 1995 for the Templeton Global Asset Allocation Sub-Account. As of
December 31, 1995 the Small Cap Sub-Account had not commenced operations. The
Templeton International Smaller Companies Sub-Account and the Capital Growth
Sub-Account are new in 1996.
THE COMPANY
Preferred Life Insurance Company of New York (the "Company") is a stock life
insurance company organized under the laws of the state of New York. The
Company is a wholly-owned subsidiary of Allianz Life Insurance Company of
North America ("Allianz Life"). Allianz Life, formerly North American Life
and Casualty Company, is headquartered in Minneapolis, Minnesota. The Company
is authorized to do direct business in six states, including New York. The
Company offers group life, group accident and health insurance and variable
annuity products.
NALAC Financial Plans, Inc. is a wholly-owned subsidiary of Allianz Life. It
is the principal underwriter of the Contracts. NALAC Financial Plans, Inc.
is reimbursed for expenses incurred in the distribution of the Contracts.
Administration for the Contract is provided at the Company's Valuemark Service
Center: Preferred Life Annuity Service Office, 300 Berwyn Park, P.O. Box 3031,
Berwyn, Pennsylvania 19312-0031, (800) 624-0197.
THE VARIABLE ACCOUNT
The Variable Account was established pursuant to a resolution of the Board of
Directors on February 26, 1988. The Variable Account is registered with the
Securities and Exchange Commission as a unit investment trust under the
Investment Company Act of 1940, as amended (the "1940 Act").
The assets of the Variable Account are the property of the Company. However,
the assets of the Variable Account equal to the reserves and other contract
liabilities with respect to the Variable Account are not chargeable with
liabilities arising out of any other business the Company may conduct. Income,
gains and losses, whether or not realized, are, in accordance with the
Contracts, credited to or charged against the Variable Account without regard
to other income, gains or losses of the Company. The Company's obligations
arising under the Contracts are general corporate obligations.
The Variable Account meets the definition of a "separate account" under the
federal securities laws.
The Variable Account is divided into Sub-Accounts with the assets of each
Sub-Account invested in one of the Funds of Franklin Valuemark Funds.
Currently, there are twenty- three Funds available under Franklin
Valuemark Funds.
FRANKLIN VALUEMARK FUNDS
Each of the twenty- three Sub-Accounts of the Variable Account is
invested solely in the shares of one of the twenty- three Funds of
Franklin Valuemark Funds ("Trust"). The Trust is an open-end management
investment company registered under the 1940 Act. While a brief summary of
the investment objectives is set forth below, more comprehensive information,
including a discussion of potential risks, is found in the accompanying
prospectus for the Trust, which is included with this Prospectus. PURCHASERS
SHOULD READ THIS PROSPECTUS AND THE ACCOMPANYING PROSPECTUS FOR THE TRUST
CAREFULLY BEFORE INVESTING.
Franklin Advisers, Inc. ("Advisers"), 777 Mariners Island Blvd., San Mateo,
California 94404, serves as each Fund's (except the Templeton Global Growth
Fund, the Templeton Developing Markets Equity Fund, the Templeton Global
Asset Allocation Fund and the Templeton International Smaller Companies Fund)
investment manager. The investment manager for the Templeton Global Growth
Fund and the Templeton Global Asset Allocation Fund is Templeton Global
Advisors Limited, formerly known as Templeton, Galbraith & Hansberger, Ltd.,
Lyford Cay Nassau, N.P. Bahamas. As of October 1, 1995 the investment manager
for the Templeton Developing Markets Equity Fund is Templeton Asset Management
Ltd., formerly known as Templeton Investment Management (Singapore) Pte Ltd.,
20 Raffles Place, Ocean Towers, Singapore. The investment manager for the
Templeton International Smaller Companies Fund is Templeton Investment
Counsel, Inc., Broward Financial Centre, Fort Lauderdale, Florida. All
investment managers or subadvisers are referred to collectively as
"Managers." The Managers are direct or indirect wholly-owned subsidiaries of
Franklin Resources, Inc., a publicly-owned holding company. The Managers,
subject to the overall policies, control and direction and review of the
Board of Trustees of the Trust, are responsible for recommending and
providing advice with respect to each Fund's investments, and for determining
which securities will be purchased, retained or sold as well as for execution
of portfolio transactions. Certain Managers have retained one or more
subadvisers. Advisers act as investment manager or administrator to 36 U.S.
registered investment companies (119 separate series) with aggregate assets of
over $81 billion.
Templeton Global Investors, Inc. ("Business Manager") , Broward
Financial Centre, Suite 2100, Ft. Lauderdale, Florida, provides certain
administrative facilities and services for certain of the Funds.
Franklin Templeton Investor Services, Inc., 777 Mariners Island Blvd., San
Mateo, California 94404, also a wholly-owned subsidiary of Franklin Resources,
Inc., maintains the records of the Trust's shareholder accounts, processes
purchases and redemptions of shares, and serves as each Fund's dividend paying
agent.
DESCRIPTION OF THE FUNDS
FUND SEEKING STABILITY
OF PRINCIPAL AND INCOME
Money Market Fund
The Money Market Fund seeks high current income consistent with capital
preservation and liquidity. The Fund will pursue its objective by investing
exclusively in high quality money market instruments. An investment in the
Money Market Fund is neither insured nor guaranteed by the U.S. Government.
The Money Market Fund attempts to maintain a stable net asset value of $1.00
per share, although no assurances can be given that the Fund will be able to
do so.
FUNDS SEEKING CURRENT INCOME
Adjustable U.S. Government Fund
The Adjustable U.S. Government Fund seeks a high level of current income,
consistent with lower volatility of principal, by investing primarily in
adjustable rate securities which are issued or guaranteed by the U.S.
government, its agencies or instrumentalities. SUBJECT TO REGULATORY
APPROVAL, SHARES OF THE U.S. GOVERNMENT SECURITIES FUND WILL BE
SUBSTITUTED FOR SHARES OF THE FUND ON OCTOBER 25, 1996, OR AS SOON AS
POSSIBLE THEREAFTER, AND THUS, FOLLOWING THE SUBSTITUTION, THE FUND
WOULD NO LONGER BE AVAILABLE AS AN ELIGIBLE INVESTMENT FOR CONTRACT OWNERS.
SEE "PROPOSED SUBSTITUTION TRANSACTION" BELOW.
High Income Fund
The High Income Fund seeks a high level of current income, with capital
appreciation as a secondary objective, by investing in debt obligations and
dividend-paying common and preferred stocks. Debt obligations include high
yield, high risk, lower rated obligations (commonly referred to as "junk
bonds") which involve increased risks related to the creditworthiness of their
issuers.
Investment Grade Intermediate Bond Fund
The Investment Grade Intermediate Bond Fund seeks current income, consistent
with preservation of capital, primarily through investments in
intermediate-term investment grade corporate obligations and in U.S.
government securities. SUBJECT TO REGULATORY APPROVAL, SHARES OF THE U.S.
GOVERNMENT SECURITIES FUND WILL BE SUBSTITUTED FOR SHARES OF THE FUND ON
OCTOBER 25, 1996, OR AS SOON AS POSSIBLE THEREAFTER, AND THUS, FOLLOWING
THE SUBSTITUTION, THE FUND WOULD NO LONGER BE AVAILABLE AS AN ELIGIBLE
INVESTMENT FOR CONTRACT OWNERS. SEE "PROPOSED SUBSTITUTION TRANSACTION" BELOW.
Templeton Global Income Securities Fund
The Templeton Global Income Securities Fund (formerly the Global Income
Fund)seeks a high level of current income, consistent with preservation
of capital, with capital appreciation as a secondary consideration, through
investing in foreign and domestic debt obligations, including up to 25%
in high yield, high risk, lower rated debt obligations (commonly referred
to as "junk bonds") and related currency transactions. Investing in a
non-diversified fund of global securities, including those of developing
markets issuers, involves increased susceptibility to the special risks
associated with foreign investing.
The U.S. Government Securities Fund
The U.S. Government Securities Fund seeks current income and safety of capital
by investing exclusively in obligations issued or guaranteed by the U.S.
government or its agencies or instrumentalities.
Zero Coupon Funds
There are three Zero Coupon Funds. Each of the Funds mature in the
specified target year as follows:
Zero Coupon Fund - 2000
Zero Coupon Fund - 2005
Zero Coupon Fund - 2010
The three Zero Coupon Funds seek a high investment return consistent with the
preservation of capital by investing primarily in zero coupon securities. In
response to interest rate changes, these securities may experience greater
fluctuations in market value than interest-paying securities of similar
maturities. The Funds may not be appropriate for short-term investors or
those who intend to withdraw money before the maturity date.
Additional Zero Coupon Funds may be added to the Trust in the future. Should
any such Funds be available for investment at the maturity date of any
existing Zero Coupon Fund, such Funds will be available as an investment
option for Contract Owners who select such option. If no selection has been
made by a Contract Owner prior to the maturity date of a Zero Coupon Fund, the
Account Value held in the Sub-Account underlying the Owner's Contract will be
automatically transferred to the Money Market Sub-Account. The Company will
notify the Owner of a maturing Zero Coupon Fund in writing at least 30 days
prior to the maturity. Included with the notification will be investment
options available at that time as well as the automatic Money Market option.
The Zero Coupon Funds may not be appropriate for Contract Owners who
do not plan to have their purchase payments invested in the Zero Coupon
Sub-Accounts for the long-term or until maturity of the portfolio.
FUNDS SEEKING GROWTH AND INCOME
Growth and Income Fund
The Growth and Income Fund seeks capital appreciation, with current income
return as a secondary objective, by investing primarily in U.S. common
stocks, securities convertible into common stocks and preferred stocks.
Income Securities Fund
The Income Securities Fund seeks to maximize income while maintaining
prospects for capital appreciation by investing in a diversified portfolio of
domestic and foreign, including developing markets, debt obligations and/or
equity securities. Debt obligations include high yield, high risk lower
rated obligations (commonly referred to as "junk bonds") which involve
increased risks related to the creditworthiness of their issuers.
Real Estate Securities Fund
The Real Estate Securities Fund seeks capital appreciation, with current
income return as a secondary objective, by concentrating its investments in
publicly traded securities of U.S. companies in the real estate industry.
Rising Dividends Fund
The Rising Dividends Fund seeks capital appreciation, primarily through
investment in the equity securities of companies that have paid consistently
rising dividends over the past ten years. Preservation of capital is also an
important consideration. The Fund seeks current income incidental to capital
appreciation.
Templeton Global Asset Allocation Fund
The Templeton Global Asset Allocation Fund seeks a high level of total return
through a flexible policy of investing in equity securities, debt obligations,
including up to 25% in high yield, high risk, lower rated debt obligations
(commonly referred to as "junk bonds"), and money market instruments of
issuers in any nation, including developing markets nations. The mix of
investments among the three market segments will be adjusted in an attempt to
capitalize on total return potential produced by changing economic conditions
throughout the world. Foreign investing involves special risks.
Utility Equity Fund
The Utility Equity Fund seeks both capital appreciation and current income by
investing in securities of domestic and foreign issuers, including developing
markets issuers, engaged in the public utilities industry.
FUNDS SEEKING CAPITAL GROWTH
Capital Growth Fund
The Capital Growth Fund seeks capital appreciation, with current income as a
secondary consideration. The Fund invests primarily in equity securities,
including common stocks and securities convertible into common stocks.
Precious Metals Fund
The Precious Metals Fund seeks capital appreciation, with current income
return as a secondary objective, by concentrating its investments in
securities of U.S. and foreign companies including those in developing
markets, engaged in mining, processing or dealing in gold and other precious
metals.
Small Cap Fund
The Small Cap Fund seeks long-term capital growth. The Fund seeks to
accomplish its objective by investing primarily in equity securities of small
capitalization growth companies. The Fund may also invest in foreign
securities, including those of developing markets issuers. Because of the
Fund's investment in small capitalization companies, an investment in the
Fund may involve greater risks and higher volatility and should not be
considered a complete investment program.
Templeton Developing Markets Equity Fund
The Templeton Developing Markets Equity Fund seeks long-term capital
appreciation. The Fund seeks to achieve this objective by investing primarily
in equities of issuers in countries having developing markets. The Fund is
subject to the heightened foreign securities investment risks that accompany
foreign developing markets and an investment in the Fund may be considered
speculative.
Templeton Global Growth Fund
The Templeton Global Growth Fund seeks long-term capital growth. The Fund
hopes to achieve its objective through a flexible policy of investing in
stocks and debt obligations of companies and governments of any nation,
including developing markets. The realization of income, if any, is only
incidental to accomplishment of the Fund's objective of long-term capital
growth. Foreign investing involves special risks.
Templeton International Equity Fund
The Templeton International Equity Fund seeks long-term growth of capital.
Under normal conditions, the Templeton International Equity Fund will invest
at least 65% of its total assets in an internationally mixed portfolio of
foreign equity securities which trade on markets in countries other than
the U.S., including developing markets, and are (i) issued by companies
domiciled in countries other than the U.S. or (ii) issued by companies that
derive at least 50% of either their revenues or pre-tax income from activities
outside of the U.S. Foreign investing involves special risks.
Templeton International Smaller Companies Fund
The Templeton International Smaller Companies Fund seeks long-term capital
appreciation. The Fund seeks to achieve this objective by investing
primarily in equity securities of smaller companies outside the U.S.,
including developing markets. Foreign investing involves special risks
and smaller company investments may involve higher volatility. An
investment in the Fund may not be considered a complete investment
program.
Templeton Pacific Growth Fund
The Templeton Pacific Growth Fund seeks long-term growth of capital primarily
through investing at least 65% of its total assets in equity securities which
trade on markets in the Pacific Rim, including developing markets, and (i) are
issued by companies domiciled in the Pacific Rim including developing markets
or (ii) issued by companies that derive at least 50% of either their revenues
or pre-tax income from activities in the Pacific Rim. Investing in a portfolio
of geographically concentrated foreign securities, including developing markets,
involves increased susceptibility to the special risks of foreign investing and
an investment in the Fund may be considered speculative.
THE TEMPLETON GLOBAL ASSET ALLOCATION FUND, TEMPLETON DEVELOPING MARKETS
EQUITY FUND, TEMPLETON GLOBAL GROWTH FUND, TEMPLETON GLOBAL INCOME
SECURITIES FUND, GROWTH AND INCOME FUND, INCOME SECURITIES FUND, INVESTMENT
GRADE INTERMEDIATE BOND FUND, TEMPLETON INTERNATIONAL EQUITY FUND, TEMPLETON
INTERNATIONAL SMALLER COMPANIES FUND, MONEY MARKET FUND, TEMPLETON PACIFIC
GROWTH FUND, PRECIOUS METALS FUND, SMALL CAP FUND, AND UTILITY EQUITY
FUND MAY INVEST MORE THAN 10% OF THEIR TOTAL NET ASSETS IN FOREIGN SECURITIES
WHICH ARE SUBJECT TO SPECIAL AND ADDITIONAL RISKS RELATED TO CURRENCY
FLUCTUATIONS, MARKET VOLATILITY AND ECONOMIC, SOCIAL AND POLITICAL UNCERTAINTY;
INVESTING IN DEVELOPING MARKETS INVOLVES SIMILAR BUT HEIGHTENED RISKS RELATED
TO THE RELATIVELY SMALL SIZE AND LESSER LIQUIDITY OF THESE MARKETS. SEE
"HIGHLIGHTED RISK CONSIDERATIONS, FOREIGN TRANSACTIONS" IN THE TRUST PROSPECTUS.
THE HIGH INCOME FUND AND THE INCOME SECURITIES FUND MAY INVEST UP TO 100% OF
THEIR RESPECTIVE NET ASSETS IN DEBT OBLIGATIONS RATED BELOW INVESTMENT GRADE,
COMMONLY KNOWN AS "JUNK BONDS", OR IN OBLIGATIONS WHICH HAVE NOT BEEN RATED BY
ANY RATING AGENCY. INVESTMENTS RATED BELOW INVESTMENT GRADE INVOLVE GREATER
RISKS, INCLUDING PRICE VOLATILITY AND RISK OF DEFAULT THAN INVESTMENTS IN
HIGHER RATED OBLIGATIONS. INVESTORS SHOULD CAREFULLY CONSIDER THE RISKS
ASSOCIATED WITH AN INVESTMENT IN THESE FUNDS, IN LIGHT OF THE SECURITIES IN
WHICH THEY INVEST. SEE "HIGHLIGHTED RISK CONSIDERATIONS, LOWER RATED DEBT
OBLIGATIONS" IN THE TRUST PROSPECTUS.
General
There is no assurance that the investment objectives of any of the Funds will
be met. Contract Owners bear the complete investment risk for Contract Values
allocated to a Sub-Account.
Additional Funds and/or additional Eligible Investments may, from time to
time, be made available as investments to underlie the Contract. However, the
right to make such selections will be limited by the terms and conditions
imposed on such transactions by the Company. (See "Purchase Payments and
Contract Value - Allocation of Purchase Payments.")
Substitution of Securities
If the shares of any Fund of the Trust should no longer be available for
investment by the Variable Account or if, in the judgment of the Company,
further investment in such shares should become inappropriate in view of the
purpose of the Contract, the Company may substitute shares of another Eligible
Investment (or Fund within the Trust). No substitution of securities in any
Sub-Account may take place without prior approval of the Securities and
Exchange Commission and under such requirements as it may impose.
Proposed Substitution Transaction
1. Description. Under its authority described above, the Company has
proposed a substitution transaction (the "Substitution") such that shares of
The U.S. Government Securities Fund ("Government Fund") would be substituted for
all shares of both the Adjustable U.S. Government Fund ("Adjustable Fund") and
the Investment Grade Intermediate Bond Fund ("Bond Fund") held by Sub-Accounts
of the Variable Account. Contract Owners' interests in the Adjustable and Bond
Funds Sub-Accounts would be replaced by interests of equivalent value in the
Government Fund Sub-Account. As a result, the Adjustable Fund and Bond Fund
Sub-Accounts would no longer be available to Contract Owners.
In April, 1996, the Company and the Variable Account filed an application with
the Securities and Exchange Commission requesting an order approving the
Substitution. Upon obtaining the order, and subject to any prior approval by
applicable state insurance authorities, the Company and the Variable Account
propose to complete the Substitution on October 25, 1996, or as soon as possible
thereafter.
2. Reasons for Substitution. The Company has proposed the Substitution for
several reasons: the similarity of the affected Funds' investment objectives,
strategies and risks; the limited recent demand by Contract Owners for
fixed-income investment choices; and the potential to benefit Contract Owners
through economies of scale, including potentially lower operating expenses,
by consolidating the affected Funds' assets.
3. Effect on Contract Owners. Except as stated in this paragraph, Contract
Owners may continue to redeem or transfer their Contract Values as stated
under "PURCHASE PAYMENTS AND CONTRACT VALUE - Transfer of Contract Values."
Within five days after the Substitution, the Company will send to Contract
Owners a written notice showing the shares of the Adjustable Fund and the
Bond Fund that have been eliminated and the shares of the Government Fund
that have been substituted (the "Notice"). For a 30-day period beginning on
the date following the mailing of the Notice, transfers out of the Government
Fund Sub-Account to any other available Sub-Account will not count toward the
limit on the annual number of free transfers. However, transfers pursuant to
a "market timing" strategy will continue to be subject to the applicable
restrictions on such transfers, as described under "Transfer of Contract
Values."
Contract Owners considering new purchases or transfers to either the
Adjustable or Bond Funds may also wish to consider the Government Fund, which
has similar investment objectives and policies, and to consult with their
investment representative. See the accompanying Franklin Valuemark Funds
prospectus.
Immediately following the Substitution, the Company will treat the Sub-Accounts
invested in shares of the Adjustable Fund, Bond Fund and Government Fund as a
single Sub-Account of the Variable Account for administrative purposes. The
Company will effect the Substitution by simultaneously placing orders to redeem
all shares of the Adjustable Fund and Bond Fund and to purchase shares of the
Government Fund equal in value to the shares redeemed. The net asset values of
all affected shares will be determined as of the close of the business day
immediately before the date of these orders. The Company will bear the expenses
of the Substitution, and will send affected Contract Owners a notice within
five days after the Substitution. The Company believes, based on its review of
existing federal income tax laws and regulations, that the Substitution will
not have any tax consequences to Contract Owners.
Effective immediately, Contract Owners may elect to use the Government Fund
Sub-Account as the source account for investments in other Funds through the
Dollar Cost Averaging ("DCA") program. If the Adjustable Fund Sub-Account is a
Contract Owner's DCA source account at the time of the Substitution, the
Government Fund Sub-Account will automatically become the DCA source account
after the Substitution. If a Contract Owner is using DCA to invest in the Bond
Fund Sub-Account, his or her DCA program will be adjusted to reflect DCA
into the Government Fund Sub-Account using the same allocation percentages when
the Substitution occurs, unless he or she has previously contacted the Company
to select other Sub-Accounts. For further information, please contact the
Valuemark Service Center at (800) 624-0197.
Voting Rights
In accordance with its view of present applicable law, the Company will vote
the shares of the Trust held in the Variable Account at special meetings of
the shareholders of the Trust in accordance with instructions received from
persons having the voting interest in the Variable Account. The Company will
vote shares for which it has not received instructions, as well as shares
attributable to it, in the same proportion as it votes shares for which it has
received instructions. The Trust does not hold regular meetings of
shareholders.
The number of shares which a person has a right to vote will be determined as
of a date to be chosen by the Company not more than sixty (60) days prior to
the meeting of the Trust. Voting instructions will be solicited by written
communication at least fourteen (14) days prior to the meeting.
Trust shares are issued and redeemed only in connection with variable annuity
contracts and variable life insurance policies issued through separate
accounts of the Company and its affiliates. The Trust does not foresee any
disadvantage to Contract Owners arising out of the fact that the Trust may be
made available to separate accounts which are used in connection with both
variable annuity and variable life insurance products. Nevertheless, the
Trust's Board of Trustees intends to monitor events in order to identify any
material irreconcilable conflicts which may possibly arise and to determine
what action, if any, should be taken in response thereto. If such a conflict
were to occur, one of the separate accounts might withdraw its investment in
the Trust. This might force the Trust to sell portfolio securities at
disadvantageous prices.
CHARGES AND DEDUCTIONS
Various charges and deductions are made from Contract Values and the Variable
Account. These charges and deductions are:
Deduction for Contingent Deferred Sales Charge (Sales Load)
If all or a portion of the Surrender Value (see "Surrenders") is surrendered,
a Contingent Deferred Sales Charge (sales load) will be calculated at the time
of each surrender and will be deducted from the Contract Value. This Charge
reimburses the Company for expenses incurred in connection with the promotion,
sale and distribution of the Contracts. The Contingent Deferred Sales Charge
applies only to those purchase payments received within five (5) years of the
date of surrender. In calculating the Contingent Deferred Sales Charge,
purchase payments are allocated to the amount surrendered on a first-in,
first-out basis. The amount of the Contingent Deferred Sales Charge is
calculated by: (a) allocating purchase payments to the amount surrendered;
(b) multiplying each such allocated purchase payment that has been held under
the Contract for the period shown below by the charge shown below:
Years Since Payment Charge
___________________ ______
0-1 5%
1-2 5%
2-3 4%
3-4 3%
4-5 1.5%
5+ 0
and (c) adding the products of each multiplication in (b) above. The charge
will not exceed 5% of the purchase payments.
Once each Contract Year, Contract Owners may surrender up to fifteen percent
(15%) of purchase payments paid less any prior surrenders without incurring a
Contingent Deferred Sales Charge. If no withdrawal is made during a Contract
Year, the 15% is cumulative into future years. If less than 15% is withdrawn
in a Contract Year, the remaining percentage is not available in future years.
No Contingent Deferred Sales Charge will be deducted from purchase payments
which have been held under the Contract for more than five (5) Contract Years
or as annuity payments. See also "Surrenders - Systematic Withdrawal." The
Company may also eliminate or reduce the Contingent Deferred Sales Charge
under the Company procedures then in effect. (See "Charges and Deductions -
Reduction or Elimination of Contingent Deferred Sales Charge.")
For a partial surrender, the Contingent Deferred Sales Charge will be deducted
from the remaining Contract Value, if sufficient; otherwise it will be
deducted from the amount surrendered. The amount deducted from the Contract
Value will be determined by canceling Accumulation Units from each applicable
Sub-Account in the ratio that the value of each Sub-Account bears to the total
Contract Value. The Contract Owner must specify in writing in advance which
units are to be canceled if other than the above method of cancellation is
desired.
To the extent that the Contingent Deferred Sales Charge is insufficient to
cover the actual cost of distribution, the Company may use any of its
corporate assets, including potential profit which may arise from the
Mortality and Expense Risk Charge, to make up any difference.
Reduction or Elimination of Contingent Deferred Sales Charge
The amount of the Contingent Deferred Sales Charge on the Contracts may be
reduced or eliminated when sales of the Contracts are made to individuals or
to a group of individuals in a manner that results in savings of sales
expenses. The entitlement to a reduction of the Contingent Deferred Sales Charge
will be determined by the Company after examination of the following factors:
(1) the size of the group; (2) the total amount of purchase payments expected
to be received from the group; (3) the nature of the group for which the
Contracts are purchased, and the persistency expected in that group; (4) the
purpose for which the Contracts are purchased and whether that purpose makes
it likely that expenses will be reduced; and (5) any other circumstances which
the Company believes to be relevant to determining whether reduced sales or
administrative expenses may be expected. None of the reductions in charges
for sales is contractually guaranteed.
The Contingent Deferred Sales Charge may be eliminated when the Contracts are
issued to an officer, director or employee of the Company or any of its
affiliates. In no event will reductions or elimination of the Contingent
Deferred Sales Charge be permitted where reductions or elimination will
unfairly discriminate against any person.
Deduction for Mortality and Expense Risk Charge
The Company deducts on each Valuation Date a Mortality and Expense Risk Charge
which is equal, on an annual basis, to 1.25% of the average daily net assets
of the Variable Account (consisting of approximately .90% for mortality risks
and approximately .35% for expense risks). The mortality risk borne by the
Company arises from its contractual obligation to make annuity payments
(determined in accordance with the Annuity Options and other provisions
contained in the Contract) regardless of how long all Annuitants may live.
This undertaking assures that neither an Annuitant's own longevity, nor an
improvement in life expectancy greater than expected, will have any adverse
effect on the annuity payments the Annuitant will receive under the Contract.
Furthermore, the Company bears a mortality risk, regardless of the Annuity
Option selected, in that it guarantees the purchase rates for the annuity
income options available under the Contract whether for fixed payment options
or variable payment options. In addition, the Company assumes a mortality risk
for the guaranteed minimum death benefit provided under the Contract. The
expense risk assumed by the Company is that all actual expenses involved in
administering the Contracts, including Contract maintenance costs,
administrative costs, mailing costs, data processing costs, legal fees,
accounting fees, filing fees, and the costs of other services may exceed the
amount recovered from the Contract Maintenance Charge and the Administrative
Expense Charge.
If the Mortality and Expense Risk Charge is insufficient to cover the actual
costs, the loss will be borne by the Company. Conversely, if the amount
deducted proves more than sufficient, the excess will be a profit to the
Company. The Company expects to profit from this charge.
The Mortality and Expense Risk Charge is guaranteed by the Company and cannot
be increased.
Deduction for Administrative Expense Charge
The Company deducts on each Valuation Date an Administrative Expense Charge
which is equal, on an annual basis, to 0.15% of the average daily net assets
of the Variable Account. This charge, together with the Contract Maintenance
Charge (see below), is to reimburse the Company for the expenses it incurs in
the establishment and maintenance of the Contracts and the Variable Account.
These expenses include but are not limited to: preparation of the Contracts,
confirmations, annual reports and statements, maintenance of Contract Owner
records, maintenance of Variable Account records, administrative personnel
costs, mailing costs, data processing costs, legal fees, accounting fees,
filing fees, the costs of other services necessary for Contract Owner
servicing and all accounting, valuation, regulatory and reporting
requirements. The Company does not intend to profit from this charge. This
charge will be reduced to the extent that the amount of this charge is in
excess of that necessary to reimburse the Company for its administrative
expenses. Should this charge prove to be insufficient, the Company will not
increase this charge and will incur the loss.
Deduction for Contract Maintenance Charge
The Company deducts an annual Contract Maintenance Charge of $30 from the
Contract Value on each Contract Anniversary. Prior to the Income Date, the
charge is waived for contracts having Contract Values or purchase payments less
withdrawals of $100,000.00 or more. This charge is to reimburse the Company
for its administrative expenses (see above). Prior to the Income Date, this
charge is deducted by canceling Accumulation Units from each applicable
Sub-Account in the ratio that the value of each Sub-Account bears to the total
Contract Value. When the Contract is surrendered for its full Surrender Value
on other than a Contract Anniversary, the entire Contract Maintenance Charge
will be deducted at the time of surrender. On and after the Income Date, the
Contract Maintenance Charge will be collected pro rata on a monthly basis
($2.50 per month) and will result in a reduction of the monthly annuity
payments.
Deduction for Premium Taxes
Premium taxes or other taxes payable to a state, municipality or other
governmental entity will be charged against the Contract Values. Premium
taxes currently imposed by certain states on the Contracts offered hereby
range from 0% to 3% of premiums paid. Some states assess premium taxes at the
time purchase payments are made; others assess premium taxes at the time
annuity payments begin. The Company will, in its sole discretion, determine
when taxes have resulted from: the investment experience of the Variable
Account; receipt by the Company of the purchase payment(s); or commencement of
annuity payments. The Company may, at its sole discretion, pay taxes when due
and deduct that amount from the Contract Value at a later date. Payment at an
earlier date does not waive any right the Company may have to deduct amounts
at a later date.
Deduction for Income Taxes
While the Company is not currently maintaining a provision for federal income
taxes, the Company has reserved the right to establish a provision for income
taxes if it determines, in its sole discretion, that it will incur a tax as a
result of the operation of the Variable Account. The Company will deduct for
any income taxes incurred by it as a result of the operation of the Variable
Account whether or not there was a provision for taxes and whether or not it
was sufficient. Currently, no federal income taxes are assessed against the
Variable Account. However, if the tax laws should change, the Company
reserves the right to deduct the amount of such taxes from the Variable
Account.
Deduction for Trust Expenses
There are other deductions from, and expenses paid out of, the assets of
Franklin Valuemark Funds, which are described in the accompanying
Trust prospectus.
Deduction for Transfer Fee
A Contract Owner may transfer all or a part of the Contract Owner's interest
among the Sub-Accounts without the imposition of any fee or charge if there
have been no more than three transfers made in the Contract Year. If more
than three transfers have been made in the Contract Year, the Company reserves
the right to deduct a transfer fee. The maximum transfer fee that the Company
may deduct, per transfer, is the lesser of $25 or 2% of the amount
transferred. Currently, twelve transfers may be made in a Contract Year
without a charge. Thereafter, the fee is $25 (or 2% of the amount transferred,
if less.) Currently, prescheduled automatic dollar cost averaging transfers
are not counted. The Company charges a fee for all transfers after the
Income Date, which fee, per transfer, will not exceed the lesser of $25 or 2% of
the amount transferred. The transfer fee at any given time will not be set
at a level greater than its cost and will contain no element of profit.
THE CONTRACTS
Ownership
The Contract Owner and if provided for in the Contract, any Joint Owner as
named on the Contract Schedule, have all rights and may receive all benefits
under the Contract. The Contract Owner, if provided for in the Contract, may
name a Contingent Owner or change the Contract Owner at any time. Any Joint
Owner must be the spouse of the other Joint Owner and any Contingent Owner
must be the spouse of the Contract Owner. Upon the death of the Contract
Owner, the Contingent Owner or surviving Joint Owner (as applicable) may elect
to keep the Contract in force and become the new Contract Owner. The
Annuitant becomes the Owner on and after the Income Date. A change of
Contract Owner or Contingent Owner will automatically revoke any prior
designation of Contract Owner or Contingent Owner. A request for change must
be: (1) made in writing; and (2) received by the Company as its Annuity
Service Office. After the transfer is recorded, the change will become
effective as of the date the written request is signed. A new designation of
Contract Owner (as applicable) will not apply to any payment made or action
taken by the Company prior to the time it was received.
For Non-Qualified Contracts, in accordance with Code Section 72(u), a deferred
annuity contract held by a corporation or other entity that is not a natural
person is not treated as an annuity contract for tax purposes. Income on the
contract is treated as ordinary income received by the owner during the
taxable year. However, for purposes of Code Section 72(u), an annuity contract
held by a trust or other entity as agent for a natural person is considered
held by a natural person and treated as an annuity contract for tax purposes.
Tax advice should be sought prior to purchasing a Contract which is to be
owned by a trust or other non-natural person.
Assignment
The Contract Owner may assign the Contract at any time during his or her
lifetime. A copy of any assignment must be filed with the Valuemark Service
Center. The Company is not responsible for the validity of any assignment.
If the Contract Owner assigns the Contract, the Contract Owner's rights and
those of any revocably-named person will be subject to the assignment. The
Company will not be bound by any assignment until written notice is received
by the Company at its Valuemark Service Center.
If the Contract is issued pursuant to a Qualified Plan, it may not be
assigned, pledged or otherwise transferred except as may be allowed under
applicable law.
Beneficiary
One or more Beneficiaries and/or Contingent Beneficiaries are named in the
application, and unless changed, are entitled to receive any death benefits to
be paid. Upon the death of the Contract Owner, the Contingent Owner or
surviving Joint Owner (as applicable) will be the designated Beneficiary and
any other Beneficiary named will be treated as a Contingent Beneficiary,
unless otherwise indicated.
Change of Beneficiary
The Contract Owner may change a Beneficiary or Contingent Beneficiary by
filing a written request with the Company at its Valuemark Service Center
unless an irrevocable Beneficiary designation was previously filed. After the
change is recorded, it will take effect as of the date the request was
signed. If the request reaches the Valuemark Service Center after the
Annuitant or Contract Owner, as applicable, dies but before any payment is
made, the change will be valid. The Company will not be liable for any
payment made or action taken before it records the change.
Annuitant
The Annuitant must be a natural person. The maximum age of the Annuitant on
the Effective Date is 80 years old. The Annuitant may be changed at any time
prior to the Income Date unless the Contract is owned by a non-natural person.
(See "Death of the Annuitant Prior to the Income Date.") Joint Annuitants
are allowed at the time of annuitization only. The Annuitant has no rights or
privileges prior to the Income Date. When an Annuity Option is elected, the
amount payable as of the Income Date is based on the age (and sex, where
permissible) of the Annuitant, as well as the Option selected and the Contract
Value. The Annuitant becomes the Contract Owner on or after the Income Date.
Death of the Contract Owner Before the Income Date
In those Contracts where a Contingent Owner has been named, in the event of
the death of the Contract Owner prior to the Income Date, the Contingent
Owner, if any becomes the designated Beneficiary and any other Beneficiary
named will be treated as a Contingent Beneficiary, unless otherwise indicated.
In those Contracts where Joint Owners have been named, upon the death of
either Joint Owner prior to the Income Date, the surviving Joint Owner, if
any, becomes the designated Beneficiary and any other Beneficiary named will
be treated as a Contingent Beneficiary, unless otherwise indicated. Only the
Owner's spouse may be the Contingent Owner or a Joint Owner. If there is no
surviving Contingent Owner or Joint Owner, a death benefit is payable to the
Beneficiary designated by the Contract Owner. The value of the death benefit
will be determined as of the Valuation Period next following the date both due
proof of death and a payment election are received by the Company.
The guaranteed death benefit is:
1. On the date of issue, the guaranteed death benefit is equal to the
purchase payment.
2. After the date of issue, the guaranteed death benefit will be the
sum of all purchase payments made minus any amounts surrendered or paid by the
Company.
The guaranteed death benefit will never be less than the Contract Value as of
the most recent five year Contract Anniversary preceding the earlier of (a)
the date of death of the Contract Owner or (b) the date of the Contract Owner's
81st birthday, plus subsequent Purchase Payments minus subsequent surrenders.
The Beneficiary may, at any time before the end of a sixty (60) day period
following receipt of proof of death, elect the death benefit to be paid under
one of the following options:
A. Lump sum payment of the death benefit; (The value of the death benefit
is equal to the greater of the guaranteed death benefit or the Surrender Value
as of the Valuation Period next following the date due proof of death and a
payment election are received by the Company).
B. Payment of the entire death benefit within five years of the date of
the Contract Owner's death; The value of the death benefit under Option B is
determined by comparing the guaranteed death benefit to the Contract Value as
of the Valuation Period next following the date both due proof of death and
a payment election are received by the Company. If the Contract Value is the
greater, it will be the death benefit. Any distribution of death benefit will
be reduced by the sum of any applicable premium taxes, Contract Maintenance
Charge and Contingent Deferred Sales Charge. If the guaranteed death benefit
is greater, it will be the death benefit. The death benefit will no longer be
guaranteed by the company.
C. Payment over the lifetime of the designated Beneficiary or over a
period not extending beyond the life expectancy of the designated Beneficiary
with distribution beginning within one year of the date of death of the
Contract Owner (see "Annuity Provisions - Annuity Options"). The value of the
death benefit under Option C is determined by comparing the guaranteed death
benefit to the Contract Value as of the Valuation Period next following the
date both due proof of death and a payment election are received by the
Company. If the Contract Value is greater, it will be treated as the death
benefit. If the guaranteed death benefit is greater, it will be the death
benefit.
D. If the designated Beneficiary is the Contract Owner's spouse,
he/she can continue the Contract in his/her own name. The value of the death
benefit under Option D is determined by comparing the guaranteed death benefit
to the Contract Value as of the Valuation Period next following the date both
due proof of death and a payment election are received by the Company. If the
Contract Value is greater, it will remain the Contract Value. If the
guaranteed death benefit is greater, it will become the new Contract Value.
Any distribution by the new Owner will be reduced by the
sum of any applicable premium taxes, Contract Maintenance Charges and
Contingent Deferred Sales Charges.
If no payment option is elected, a single sum settlement will be made at the
end of the sixty (60) day period following receipt of proof of death.
Death of the Annuitant Prior to the Income Date
If the Annuitant dies on or before the Income Date and the Annuitant is
different from the Contract Owner, the Contract Owner may designate a new
Annuitant. If one is not designated, the Contract Owner will be the Annuitant,
provided the Contract Owner is a natural person.
If the Contract Owner is a non-natural person, then for the purposes of the
death benefit, the Annuitant shall be treated as the Contract Owner and the
death of the Annuitant shall be treated as a death of the Contract Owner.
Death of the Annuitant After the Income Date
If the Annuitant dies on or after the Income Date, the death benefit, if any,
will be payable to the Beneficiary as specified in the Annuity Option elected.
The Company will require proof of the Annuitant's death. Death benefits will
be paid at least as rapidly as under the method of distribution in effect at
the Annuitant's death.
ANNUITY PROVISIONS
Income Date
The Contract Owner selects an Income Date at the time of application (or at
the time of issue for certain Contracts). The Income Date must always be the
first day of a calendar month. The earliest Income Date is five years after
the Effective Date. The Income Date may not be later than the month following
the Annuitant's 85th birthday or 10 years from the Effective Date if later.
If no Income Date is selected on the application, the date will be the later
of the Annuitant's 65th birthday (or 85th birthday for certain Contracts or 10
years from the effective date).
Change in Income Date and Annuity Option
The Contract Owner may, upon at least thirty (30) days prior written notice to
the Company, at any time prior to the Income Date, change the Income Date.
The Income Date must always be the first day of a calendar month. The Income
Date may not be later than the month following the Annuitant's 85th birthday,
or 10 years from the Effective Date, if later.
The Contract Owner may, upon at least thirty (30) days prior written notice to
the Company, at any time prior to the Income Date, select and/or change the
Annuity Option.
Annuity Options
Instead of having the proceeds paid in one sum, the Contract Owner may select
one of the Annuity Options. These may be on a fixed or variable basis, or a
combination thereof. The Annuity Option must be selected at least 30 days
prior to the Income Date. The Company may, at the time of election of an
Annuity Option, offer more favorable rates in lieu of those guaranteed. The
Company also may make available other options.
Fixed Options
Under a fixed option, once the selection has been made and payments have
begun, the amount of the payments will not vary. The fixed options currently
available are:
OPTION 1 - LIFE ANNUITY WITH OPTIONAL GUARANTEE PERIOD. The Company will make
equal monthly payments during the life of the Annuitant, but at least for the
minimum period shown in the annuity tables contained in the Contract. The
amount of each monthly payment per $1,000 of proceeds is based on the age (and
sex, where permissible) of the Annuitant when the first payment is made and on
the guaranteed period chosen. If the Annuitant dies within the guaranteed
period, the discounted value of the unpaid guaranteed payments will be paid by
the Company as a final payment.
OPTION 2 - LIFE ANNUITY WITH CASH REFUND. The Company will pay equal monthly
payments during the life of the Annuitant. Upon the death of the Annuitant,
after payments have started, the Company will pay in one sum any excess of the
amount of the proceeds applied under this Option over the total of all
payments made under this Option. The amount of each monthly payment per
$1,000 of proceeds is based on the age (and sex, where permissible) of the
Annuitant when the first payment is made.
Variable Options
The actual dollar amount of variable annuity payments is dependent upon (i)
the Contract Value at the time of annuitization, (ii) the annuity table
specified in the Contract, (iii) the Annuity Option selected, and (iv) the
investment performance of the Sub-Account selected.
The dollar amount of the first monthly variable annuity payment is determined
by applying the available value (after deduction of any premium taxes not
previously deducted) to the table using the age (and sex, where permissible)
of the Annuitant and any joint Annuitant. The number of Annuity Units is then
determined by dividing this dollar amount by the then current Annuity Unit
value. Thereafter, the number of Annuity Units remains unchanged during the
period of annuity payments. This determination is made separately for each
Sub-Account of the Variable Account. The number of Annuity Units is
determined for each Sub-Account and is based upon the available value in each
Sub-Account as of the date annuity payments are to begin. The dollar amount
determined for each Sub-Account will then be aggregated for purposes of making
payments.
The dollar amount of the second and later variable annuity payments is equal
to the number of Annuity Units determined for each Sub-Account times the
Annuity Unit value for that Sub-Account as of the due date of the payment.
This amount may increase or decrease from month to month.
The annuity tables contained in the Contract are based on a five percent
(5%) assumed investment rate ("AIR"). Other AIR choices may be available at the
time of annuitization. If the actual net investment rate exceeds the AIR,
payments will increase. Conversely, if the actual net investment rate is less
than the AIR, subsequent annuity payments will decrease. Annuity payments will
not decrease as long as the investment return of the Variable Account assets
equals or exceeds the AIR plus 1.40% on an annual basis (that is 6.4% for the
5% AIR). If an assumed investment rate greater than 5% is used, the initial
payment will be higher but the actual net investment rate will have to be higher
in order for annuity payments to remain level or increase. If an AIR less
than 5% is used, the initial payment will be lower but the actual net investment
rate will not have to be as high for payments to remain level or increase.
The Annuitant receives the value of a fixed number of Annuity Units each
month. The value of a fixed number of Annuity Units will reflect the
investment performance of the Sub-Account selected and the amount of each
annuity payment will vary accordingly.
The value of an Annuity Unit for a Sub-Account is determined by subtracting
(2) from (1) and dividing the result by (3) and multiplying the result by
.99986303 (.99986303 is the daily factor to neutralize the assumed net
investment rate, discussed above, of 5% per annum which is built into the
annuity rate table) where:
1. is the net result of
a. the assets of the Sub-Account attributable to the Annuity Units; plus
or minus
b. the cumulative charge or credit for taxes reserved which is
determined by the Company to have resulted from the operation of the
Sub-Account;
2. is the cumulative unpaid charge for the Mortality and Expense Risk
Charge and for the Administrative Expense Charge; and
3. is the number of Annuity Units outstanding at the end of the Valuation
Period.
The Company utilizes sex distinct and unisex annuity rate tables. (See "Tax
Status - Qualified Plans.")
The value of an Annuity Unit may increase or decrease from Valuation Period to
Valuation Period.
The variable options currently available are:
OPTION 3 - LIFE ANNUITY. Monthly annuity payments are paid during the
life of an Annuitant, ceasing with the last annuity payment due prior to the
Annuitant's death.
OPTION 4 - LIFE ANNUITY WITH 10-YEAR GUARANTEE. Monthly annuity payments are
paid during the life of an Annuitant, but at least for the 10-year minimum
period.
OPTION 5 - JOINT AND LAST SURVIVOR ANNUITY. Monthly annuity payments are paid
during the joint lifetime of the Annuitant and a designated second person and
are paid thereafter during the remaining lifetime of the survivor, ceasing
with the last annuity payment due prior to the survivor's death.
PURCHASE PAYMENTS AND CONTRACT VALUE
Purchase Payments
The Contracts may be purchased under a flexible purchase payment plan.
Purchase payments are payable in the frequency and in the amount selected by
the Contract Owner. The initial purchase payment is due on the Effective
Date. The initial purchase payment must be at least $2,000. Subsequent
purchase payments must be at least $250. These minimum amounts are not waived
for Qualified Plans. The Company reserves the right to decline any
application or purchase payment. Amounts in excess of $1 million require
preapproval by the Company. The Company may, at its sole discretion, waive
the minimum payment requirements under specific circumstances. The
Contract Owner may elect to increase, decrease or change the frequency of
purchase payments.
Allocation of Purchase Payments
Purchase payments are allocated to one or more of the Sub-Accounts within the
Variable Account as selected by the Contract Owner. SUBJECT TO REGULATORY
APPROVAL, SHARES OF THE U.S. GOVERNMENT SECURITIES FUND WILL BE SUBSTITUTED
FOR SHARES OF THE ADJUSTABLE U.S. GOVERNMENT FUND AND THE INVESTMENT GRADE
INTERMEDIATE BOND FUND ON OCTOBER 25, 1996, OR AS SOON AS POSSIBLE THEREAFTER.
THUS, FOLLOWING THE SUBSTITUTION, THE ADJUSTABLE U.S. GOVERNMENT FUND
AND THE INVESTMENT GRADE INTERMEDIATE BOND FUND WILL NO LONGER BE AVAILABLE AS
ELIGIBLE INVESTMENTS FOR CONTRACT OWNERS. SEE "FRANKLIN VALUEMARK FUNDS -
PROPOSED SUBSTITUTION TRANSACTION." THE SMALL CAP FUND, THE TEMPLETON
INTERNATIONAL SMALLER COMPANIES FUND AND THE CAPITAL GROWTH FUND ARE NOT
AVAILABLE IN NEW YORK UNTIL APPROVED BY THE NEW YORK INSURANCE DEPARTMENT.
(CHECK WITH YOUR AGENT REGARDING AVAILABILITY.) For each Sub-Account, purchase
payments are converted into Accumulation Units. The number of Accumulation
Units credited to the Contract is determined by dividing the purchase payment
allocated to the Sub-Account by the value of the Accumulation Unit for the
Sub-Account.
The Company has the right to allocate initial purchase payments to the Money
Market Sub-Account until the expiration of 15 days from the date the Contract
is mailed from the Valuemark Service Center. In the event that the Company
does so allocate initial purchase payments, at the end of this 15-day period
the Contract Value will be allocated to the Sub-Account(s) selected by the
Contract Owner. Currently, however, the Company will allocate the initial
purchase payment directly to the Sub-Account(s) selected by the Contract
Owner.
Transfers do not necessarily affect the allocation instructions for future
payments. Subsequent payments will be allocated as directed by the Contract
Owner; if no direction is given, the allocation will be that which has been
most recently directed for payments by the Contract Owner. The Contract Owner
may change the allocation of future payments without fee, penalty or other
charge upon written notice to the Valuemark Service Center. A change will be
effective for payments received on or after receipt of the written notice or
telephone instructions.
The Company reserves the right to limit the number of Sub-Accounts that a
Contract Owner may have at any one time. Currently, the Contract Owner may
select up to nine Sub-Accounts. The Company reserves the right to change the
maximum number of Sub-Accounts in the future.
For initial purchase payments, if the application for a Contract is in good
order, the Company will apply the purchase payment to the Variable Account and
credit the Contract with Accumulation Units and credit the Contract with
dollars within two business days of receipt.
In addition to the underwriting requirements of the Company, good order means
that the Company has received federal funds (monies credited to a bank's
account with its regional Federal Reserve Bank). If the application for a
Contract is not in good order, the Company will attempt to get it in good
order or the Company will return the application and the purchase payment
within five business days. The Company will not retain purchase payments for
more than five business days while processing an incomplete application,
unless it has been so authorized by the purchaser.
For subsequent purchase payments, the Company will apply purchase payments to
the Variable Account and credit the Contract with Accumulation Units during
the Valuation Period next following the Valuation Period during which the
purchase payment was received in good order.
Transfer of Contract Values
Prior to the Income Date, the Contract Owner may transfer all or part of the
Contract Owner's interest in a Sub-Account to another Sub-Account without the
imposition of any fee or charge if there have been no more than three
transfers made in the Contract Year. If more than three transfers have been
made in the Contract Year, the Company reserves the right to deduct a transfer
fee. Currently, 12 transfers may be made in a Contract Year without a charge.
(See "Charges and Deductions - Deduction for Transfer Fee.") Upon
regulatory approval of the proposed Substitution transaction, Contract
Owners who have selected the Adjustable U.S. Government Fund or the Investment
Grade Intermediate Bond Fund may be entitled to certain special transfer
rights. See "Franklin Valuemark Funds - Proposed Substitution
Transaction."
Neither the Variable Account nor the Trust are designed for professional
market timing organizations, other entities or individuals using
programmed, large, or frequent transfers. A pattern of exchanges that
coincides with a "market timing" strategy may be disruptive to a Fund and
may be refused. Accounts under common ownership or control may be aggregated
for purposes of transfer limits. In coordination with the Trust, the
Company reserves the right to restrict the transfer privilege or reject any
specific purchase payment allocation request for any person whose transactions
seem to follow a timing pattern.
After the Income Date, provided a variable annuity option was selected, the
Contract Owner may make transfers. The Company charges for all transfers after
the Income Date.
All transfers are subject to the following:
a. The deduction of any transfer fee that may be imposed. The transfer
fee will be deducted from the amount which is transferred if the entire amount
in the Sub-Account is being transferred; otherwise from the amount remaining
in the Sub-Account from which the transfer is made.
b. The minimum amount which may be transferred is the lesser of (i)
$1,000 from each Sub-Account; or (ii) the Contract Owner's entire interest in
the Sub-Account.
c. No partial transfer will be made if the Contract Owner's remaining
Contract Value in the Sub-Account will be less than $1,000.
d. Transfers will be effected during the Valuation Period next following
receipt by the Company of a written transfer request (or by telephone, if
authorized) containing all required information. However, no transfer may be
made effective within seven calendar days of the date on which the first
annuity payment is due. No transfers may occur until the end of the Free-Look
Period. (See "Highlights.")
e. Any transfer direction must clearly specify the amount which is to be
transferred and the Sub-Accounts which are to be affected.
f. After the Income Date, no transfers may be made if it would result in
any selected Sub-Account providing less than 10% of the annuity benefits under
the Contract.
g. After the Income Date, transfers may not take place between a Fixed
Annuity Option and a Variable Annuity Option.
A Contract Owner may elect to make transfers by telephone. To elect this
option the Contract Owner must do so in writing to the Company. If there are
Joint Owners, unless the Company is informed to the contrary, instructions
will be accepted from either one of the Joint Owners. The Company will use
reasonable procedures to confirm that instructions communicated by telephone
are genuine. If it does not, the Company may be liable for any losses due to
unauthorized or fraudulent instructions. The Company tape records
all telephone instructions. Transfers do not change the allocation
instructions for future payments. (See "Purchase Payments and Contract Value
- - Allocation of Purchase Payments.")
Dollar Cost Averaging
Dollar Cost Averaging is a program which, if elected, enables a Contract Owner
to systematically allocate specified dollar amounts from the Money Market
Sub-Account or the Adjustable U.S. Government Sub-Account or The U.S.
Government Securities Sub-Account to the Contract's other Sub-Accounts
(maximum of eight) at regular intervals. By allocating on a regularly
scheduled basis as opposed to allocating the total amount at one particular
time, a Contract Owner may be less susceptible to the impact of market
fluctuations. Upon regulatory approval of the proposed Substitution
transaction, the Adjustable U.S. Government and the Investment Grade
Intermediate Bond Funds will not be available in the Dollar Cost Averaging
program. See "Franklin Valuemark Funds - Proposed Substitution Transaction."
Dollar Cost Averaging may be selected for 12 to 36 months. The minimum amount
per period to allocate is $1,000. All dollar cost averaging transfers will be
made effective the tenth of the month (or the next Valuation Date if the tenth
of the month is not a Valuation Date). Election into this program may occur
at any time by properly completing the Dollar Cost Averaging election form,
returning it to the Company by the first of the month, to be effective that
month, and insuring that sufficient value is in either the Money Market
Sub-Account or the Adjustable U.S. Government Sub-Account or The U.S.
Government Securities Sub-Account. When utilizing the Dollar Cost Averaging
program, a Contract Owner must be invested in either the Money Market Sub-
Account, the Adjustable U.S. Government Sub-Account or The U.S. Government
Securities Sub-Account and may invest in a maximum of eight of the other
Sub-Accounts.
Dollar Cost Averaging will terminate when any of the following occurs: (1) the
number of designated transfers has been completed; (2) the value of the Money
Market Sub-Account, the Adjustable U.S. Government Sub-Account or The U.S.
Government Securities Sub-Account (as applicable) is insufficient to complete
the next transfer; (3) the Contract Owner requests termination in writing and
such writing is received by the first of the month in order to cancel the
transfer scheduled to take effect that month; or (4) the Contract is
terminated. The Dollar Cost Averaging program may not be active following
the Income Date. There is no current charge for Dollar Cost Averaging but
the Company reserves the right to charge for this program. In the event
there are additional transfers, the transfer fee may be charged. The Company
does not intend to profit from any such charge. Transfers made pursuant
to the dollar cost averaging program are not counted in determining the
applicability of the transfer fee.
Automatic Investment Plan
The Automatic Investment Plan (AIP) is a program by which a Contract Owner
may make monthly or quarterly investments by electronic funds transfer from
their checking or savings account if their bank is a member of an Automatic
Clearing House. Election of this program may occur at the time a contract is
issued, or at any time thereafter by completing and signing the appropriate
form and returning it to the Company. The form must be received in good order
by the first of the month in order for AIP to begin that same month.
Investments take place on the 20th of the month, or the next business day. AIP
may not be used for the initial purchase payment. The minimum investment that
may be made by AIP is $250.
AIP is subject to any regulations that may govern the bank account, the
Automatic Clearing House, or the Contract. The Company may correct any error
by a debit or credit to the Contract Owner's bank account and/or Contract.
Participation in AIP may be stopped at any time at the request of the Contract
Owner. When the Company is advised to stop AIP, no automatic investments will
be processed until signed authorization is received to initiate the plan again.
The Company will need to be notified by the first of the month in order to
stop or change AIP within that month. If a transaction is rejected or returned
to the Company for any reason, including stop payment, insufficient funds, or
account closed, the respective number of units will be removed from the
Contract Owner's account, and AIP will be discontinued.
If AIP is used for a tax-qualified Contract, the Contract Owner should contact
his or her tax adviser for maximum contributions.
Contract Value
The value of the Contract is the sum of the values attributable to the
Contract for each Sub-Account. The value of each Sub-Account is determined by
multiplying the number of Accumulation Units attributable to the Contract in
the Sub-Account by the value of an Accumulation Unit for the Sub-Account.
Accumulation Unit
For each Sub-Account, purchase payments are converted into Accumulation Units.
This is done by dividing each purchase payment by the value of an
Accumulation Unit for the Valuation Period during which the purchase payment
is allocated to the Sub-Account. The Accumulation Unit value for each
Sub-Account was initially arbitrarily set. The Accumulation Unit value for
any later Valuation Period is determined by subtracting (b) from (a) and
dividing the result by (c) where:
a. is the net result of
1) the assets of the Sub-Account attributable to Accumulation Units
(i.e., the aggregate value of the underlying Eligible Investments held at the
end of such Valuation Period); plus or minus
2) the cumulative charge or credit for taxes reserved which is
determined by the Company to have resulted from the operation of the
Sub-Account;
b. is the cumulative unpaid charge for the Mortality and Expense Risk Charge
and for the Administrative Expense Charge (See "Charges and Deductions"); and
c. is the number of Accumulation Units outstanding at the end of such
Valuation Period.
The Accumulation Unit value may increase or decrease from Valuation Period to
Valuation Period.
DISTRIBUTOR
NALAC Financial Plans, Inc. ("NFP"), 1750 Hennepin Avenue, Minneapolis,
Minnesota, acts as the distributor of the Contracts. NFP is a wholly-owned
subsidiary of Allianz Life, the Company's parent. The Contracts are offered on
a continuous basis. NFP has subcontracted with Franklin Advisers, Inc.
("Advisers") for it and/or certain of its affiliates to provide certain
marketing support services and NFP compensates these entities for their
services. Commissions will be paid to broker-dealers who sell the Contracts.
Broker-dealers will be paid commissions and expense reimbursements up to an
amount equal to 6.0% of purchase payments for promotional or distribution
expenses associated with the marketing of the Contracts. The New York
Insurance Department is currently considering adopting a regulation which would
permit asset based compensation. If such a regulation is adopted, the Company
may adopt such a program in addition to, or in lieu of, the present compensation
program . Commissions may be recovered from broker-dealers if a full or
partial surrender occurs within 12 months of a purchase payment.
SURRENDERS
While the Contract is in force and before the Income Date, the Company will,
upon written request to the Company by the Contract Owner, allow the surrender
of all or a portion of the Contract for its Surrender Value. Surrenders will
result in the cancellation of Accumulation Units from each applicable
Sub-Account in the ratio that the value of each Sub-Account bears to the total
Contract Value. The Contract Owner must specify in writing in advance which
units are to be canceled if other than the above mentioned method of
cancellation is desired. The Company will pay the amount of any surrender
from the Variable Account within seven (7) days of receipt of a valid request,
unless the "Delay of Payments" provision is in effect. (See "Surrenders -
Delay of Payments.")
Certain tax withdrawal penalties and restrictions may apply to surrenders from
the Contracts. (See "Tax Status.") For Contracts purchased in connection
with 403(b) plans, the Code limits the withdrawal of amounts attributable to
contributions made pursuant to a salary reduction agreement (as defined in
Section 403(b)(11) of the Code) to circumstances only when the Contract Owner:
(1) attains age 59 1/2; (2) separates from service; (3) dies; (4) becomes
disabled (within the meaning of Section 72(m)(7) of the Code); or (5) in the
case of hardship.
However, withdrawals for hardship are restricted to the portion of the
Contract Owner's Contract Value which represents contributions by the Contract
Owner and does not include any investment results. The limitations on
withdrawals became effective January 1, 1989 and apply only to salary
reduction contributions made after December 31, 1988, to income attributable
to such contributions and to income attributable to amounts held as of
December 31, 1988. The limitations on withdrawals do not affect rollovers or
transfers between certain Qualified Plans. Contract Owners should consult
their own tax counsel or other tax adviser regarding any distributions.
Systematic Withdrawal
The Company permits a systematic withdrawal plan which enables a Contract
Owner to pre-authorize a periodic exercise of the contractual withdrawal
rights described above. Systematic withdrawal is not available for
Non-Qualified Contracts where the Contract Owner is under age 59 1/2. Certain
tax penalties and restrictions may apply to systematic withdrawals from the
Contracts. (See "Tax Status - Tax Treatment of Withdrawals - Qualified
Contracts.") Contract Owners entering into such a plan instruct the Company to
withdraw a level dollar amount from the Contract on a monthly or quarterly
basis. Currently, systematic withdrawal on a monthly or quarterly basis is
available to Contract Owners who have a Contract Value of $50,000 or more and
on a quarterly basis only to Contract Owners who have a Contract Value of at
least $20,000 but less than $50,000. The amount deducted will result in the
cancellation of Accumulation Units from each applicable Sub-Account in the
ratio that the value of each Sub-Account bears to the total Contract Value.
The Contract Owner must specify in writing in advance which units are to be
canceled if other than the above mentioned method of cancellation is desired.
The Company reserves the right to modify the eligibility rules at any time,
without notice. The total systematic withdrawal in a Contract Year which can
be made without incurring a Contingent Deferred Sales Charge is limited to not
more than 9% of the Contract Value. However, the 9% limit may be increased to
allow systematic withdrawals to meet applicable minimum distribution
requirements for Qualified Contracts. The exercise of the systematic
withdrawal plan in any Contract Year replaces the 15% amount which is
allowable per year without incurring a Contingent Deferred Sales Charge. Any
other withdrawal in a year when the systematic withdrawal plan has been
utilized will be subject to the Contingent Deferred Sales Charge.
Delay of Payments
The Company reserves the right to suspend or postpone payments for any period
when:
1. the New York Stock Exchange is closed (other than customary weekend
and holiday closings);
2. trading on the New York Stock Exchange is restricted;
3. an emergency exists as a result of which disposal of securities held
in the Variable Account is not reasonably practicable or it is not reasonably
practicable to determine the value of the Variable Account's net assets; or
4. during any other period when the Securities and Exchange Commission,
by order, so permits for the protection of Contract Owners.
The applicable rules and regulations of the Securities and Exchange Commission
will govern as to whether the conditions described in 2. and 3. exist.
ADMINISTRATION OF THE CONTRACTS
While the Company has primary responsibility for all administration of the
Contracts, it has retained the services of Delaware Valley Financial Services,
Inc. ("DVFS" or "Valuemark Service Center") pursuant to an Administration
Agreement. Such administrative services include issuance of the Contracts and
maintenance of Contract Owners' records. The Company pays all fees and
charges of DVFS. DVFS serves as the administrator to various insurance
companies offering variable and fixed annuity and variable life insurance
contracts. The Company's ability to administer the Contracts could be
adversely affected should DVFS elect to terminate the Agreement.
PERFORMANCE DATA
Money Market Sub-Account
From time to time the Company or NFP may advertise the "yield" and "effective
yield" of the Money Market Sub-Account. Both yield figures will be based on
historical earnings and are not intended to indicate future performance. The
"yield" of the Money Market Sub-Account refers to the income generated by
Contract Values in the Money Market Sub-Account over a seven-day period (which
period will be stated in the advertisement). This income is then "annualized."
That is, the amount of income generated by the investment during that week is
assumed to be generated each week over a 52-week period and is shown as a
percentage of the Contract Values in the Money Market Sub-Account. The
"effective yield" is calculated similarly but, when annualized, the income
earned by Contract Values in the Money Market Sub-Account is assumed to be
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment. The
computation of the yield calculation includes a deduction for the Mortality
and Expense Risk Charge, the Administrative Expense Charge and the Contract
Maintenance Charge.
Other Sub-Accounts
From time to time, the Company or NFP may publish the current yields and total
returns for the other Sub-Accounts in advertisements and communications to
Contract Owners. The current yield for each Sub-Account will be calculated by
dividing the annualization of the interest income earned by the underlying
Fund during a recent 30-day period by the maximum Accumulation Unit value at
the end of such period. Total return information will include the underlying
Fund's average annual compounded rate of return over the most recent four
calendar quarters and the period from the underlying Fund's inception of
operations, based upon the value of the Accumulation Units acquired through a
hypothetical $1,000 investment at the Accumulation Unit value at the beginning
of the specified period and the value of the Accumulation Unit at the end of
such period, assuming reinvestment of all distributions and the deduction of
the Mortality and Expense Risk Charge, the Administrative Expense Charge and
the prorated Contract Maintenance Charge. Each Sub-Account may also advertise
aggregate and average total return information over different periods of time.
In each case, the yield and total return figures will reflect all recurring
charges against the Sub-Account's income, including the deduction for the
Mortality and Expense Risk Charge, the Administrative Expense Charge and the
Contract Maintenance Charge for the applicable time period. The Company or
NFP may, in addition, advertise or present yield or total return performance
information computed on a different basis, or for the Funds. Contract Owners
should note that the investment results of each Sub-Account will fluctuate
over time, and any resentation of a Sub-Account's current yield or total
return for any prior period should not be considered as a representation of
what an investment may earn or what a Contract Owner's yield or total return
may be in any future period. Hypothetical performance illustrations for a
hypothetical contract may be prepared for sales literature or advertisements.
See "Calculation of Performance Data" in the Statement of Additional
Information.
Performance Ranking
The performance of each or all of the Sub-Accounts of the Variable Account may
be compared in its advertisements and sales literature to the performance of
other variable annuity issuers in general or to the performance of particular
types of variable annuities investing in mutual funds, or series of mutual
funds with investment objectives similar to each of the Sub-Accounts of the
Variable Account or indices. Lipper Analytical Services, Inc. ("Lipper") and
the Variable Annuity Research and Data Service ("VARDS") are independent
services which monitor and rank the performance of variable annuity issuers in
each of the major categories of investment objectives on an industry-wide
basis.
Lipper's rankings include variable life issuers as well as variable annuity
issuers. VARDS rankings compare only variable annuity issuers. The
performance analyses prepared by Lipper and VARDS rank such issuers on the
basis of total return, assuming reinvestment of distributions, but do not take
sales charges, redemption fees or certain expense deductions at the separate
account level into consideration. In addition, VARDS prepares risk adjusted
rankings, which consider the effects of market risk on total return
performance. This type of ranking may address the question as to which funds
provide the highest total return with the least amount of risk. Other ranking
services may be used as sources of performance comparison, such as
CDA/Weisenberger and Morningstar.
TAX STATUS
NOTE: The following description is based upon the Company's understanding of
current federal income tax law applicable to annuities in general. The
Company cannot predict the probability that any changes in such laws will be
made. Purchasers are cautioned to seek competent tax advice regarding the
possibility of such changes. The Company does not guarantee the tax status of
the Contracts. Purchasers bear the complete risk that the Contracts may not
be treated as "annuity contracts" under federal income tax laws. It should be
further understood that the following discussion is not exhaustive and that
special rules not described in this Prospectus may be applicable in certain
situations. Moreover, no attempt has been made to consider any applicable
state or other tax laws.
General
Section 72 of the Code governs taxation of annuities in general. A Contract
Owner is not taxed on increases in the value of a Contract until distribution
occurs, either in the form of a lump sum payment or as annuity payments under
the Settlement Option elected. For a lump sum payment received as a total
surrender (total redemption) or death benefit, the recipient is taxed on the
portion of the payment that exceeds the cost basis of the Contract. For
Non-Qualified Contracts, this cost basis is generally the purchase payments,
while for Qualified Contracts there may be no cost basis. The taxable portion
of the lump sum payment is taxed at ordinary income tax rates.
For annuity payments, a portion of each payment in excess of an exclusion
amount is includable in taxable income. The exclusion amount for payments
based on a fixed annuity option is determined by multiplying the payment by
the ratio that the cost basis of the Contract (adjusted for any period certain
or refund feature) bears to the expected return under the Contract. The
exclusion amount for payments based on a variable annuity option is determined
by dividing the cost basis of the Contract (adjusted for any period certain or
refund guarantee) by the number of years over which the annuity is expected to
be paid. Payments received after the investment in the Contract has been
recovered (i.e. when the total of the excludable amounts equal the investment
in the Contract) are fully taxable. The taxable portion is taxed at ordinary
income rates. For certain types of Qualified Plans there may be no cost basis
in the Contract within the meaning of Section 72 of the Code. Contract
Owners, Annuitants and Beneficiaries under the Contracts should seek competent
financial advice about the tax consequences of any distributions.
The Company is taxed as a life insurance company under the Code. For federal
income tax purposes, the Variable Account is not a separate entity from the
Company and its operations form a part of the Company.
Diversification
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not
adequately diversified in accordance with regulations prescribed by the United
States Treasury Department ("Treasury Department"). Disqualification of the
Contract as an annuity contract would result in imposition of federal income
tax to the Contract Owner with respect to earnings allocable to the Contract
prior to the receipt of payments under the Contract. The Code contains a safe
harbor provision which provides that annuity contracts such as the Contracts
meet the diversification requirements if, as of the end of each quarter, the
underlying assets meet the diversification standards for a regulated
investment company and no more than fifty-five percent (55%) of the total
assets consist of cash, cash items, U.S. government securities and securities
of other regulated investment companies.
On March 2, 1989, the Treasury Department issued Regulations (Treas. Reg.
1.817-5) which established diversification requirements for the investment
portfolios underlying variable contracts such as the Contracts. The
Regulations amplify the diversification requirements for variable contracts
set forth in the Code and provide an alternative to the safe harbor provision
described above. Under the Regulations, an investment portfolio will be
deemed adequately diversified if: (1) no more than 55% of the value of the
total assets of the portfolio is represented by any one investment; (2) no
more than 70% of the value of the total assets of the portfolio is represented
by any two investments; (3) no more than 80% of the value of the total assets
of the portfolio is represented by any three investments; and (4) no more than
90% of the value of the total assets of the portfolio is represented by any
four investments.
The Code provides that for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable
contracts by Section 817(h) of the Code have been met, "each United States
government agency or instrumentality shall be treated as a separate issuer."
The Company intends that all Funds of the Trust underlying the Contracts will
be managed by the Managers for the Trust in such a manner as to comply with
these diversification requirements.
The Treasury Department has indicated that the diversification Regulations do
not provide guidance regarding the circumstances in which Contract Owner
control of the investments of the Variable Account will cause the Contract
Owner to be treated as the owner of the assets of the Variable Account,
thereby resulting in the loss of favorable tax treatment for the Contract. At
this time it cannot be determined whether additional guidance will be provided
and what standards may be contained in such guidance.
The amount of Contract Owner control which may be exercised under the Contract
is different in some respects from the situations addressed in published
rulings issued by the Internal Revenue Service in which it was held that the
policy owner was not the owner of the assets of the separate account. It is
unknown whether these differences, such as the Contract Owner's ability to
transfer among investment choices or the number and type of investment choices
available, would cause the Contract Owner to be considered as the owner of the
assets of the Variable Account resulting in the imposition of federal income
tax to the Contract Owner with respect to earnings allocable to the Contract
prior to receipt of payments under the Contract.
In the event any forthcoming guidance or ruling is considered to set forth a
new position, such guidance or ruling will generally be applied only
prospectively. However, if such ruling or guidance was not considered to set
forth a new position, it may be applied retroactively resulting in the
Contract Owner being retroactively determined to be the owner of the assets of
the Variable Account.
Due to the uncertainty in this area, the Company reserves the right to modify
the Contract in an attempt to maintain favorable tax treatment.
Multiple Contracts
The Code provides that multiple non-qualified annuity contracts which are
issued within a calendar year period to the same contract owner by one company
or its affiliates are treated as one annuity contract for purposes of
determining the tax consequences of any distribution. Such treatment may
result in adverse tax consequences, including more rapid taxation of the
distributed amounts from such combination of contracts. Contract Owners
should consult a tax adviser prior to purchasing more than one non-qualified
annuity contract in any calendar year period.
Contracts Owned by Other than Natural Persons
Under Section 72(u) of the Code, the investment earnings on premiums for the
Contracts will be taxed currently to the Contract Owner if the Owner is a
non-natural person, e.g., a corporation, or certain other entities. Such
Contracts generally will not be treated as annuities for federal income tax
purposes. However, this treatment is not applied to Contracts held by a
trust or other entity as an agent for a natural person nor to Contracts held
by Qualified Plans. Purchasers should consult their own tax counsel or other
tax adviser before purchasing a Contract to be owned by a non-natural person.
Tax Treatment of Assignments
An assignment or pledge of a Contract may be a taxable event. Contract Owners
should therefore consult competent tax advisers should they wish to assign
their Contracts.
Income Tax Withholding
All distributions or the portion thereof which is includible in the gross
income of the Contract Owner are subject to federal income tax withholding.
Generally, amounts are withheld from periodic payments at the same rate as
wages and at the rate of 10% from non-periodic payments. However, the
Contract Owner, in most cases, may elect not to have taxes withheld or to have
withholding done at a different rate.
Effective January 1, 1993, certain distributions from retirement plans
qualified under Section 401 or Section 403(b) of the Code, which are not
directly rolled over to another eligible retirement plan or individual
retirement account or individual retirement annuity, are subject to a
mandatory 20% withholding for federal income tax. The 20% withholding
requirement generally does not apply to: a) a series of substantially
equal payments made at least annually for the life or life
expectancy of the participant or joint and last survivor expectancy of the
participant and a designated beneficiary or for a specified
period of 10 years or more; or b) distributions which are required minimum
distributions; or c) the portion of the distributions not includible in gross
income (i.e. returns of after-tax contributions.) Participants should consult
their own tax counsel or other tax adviser regarding withholding requirements.
Tax Treatment of Withdrawals - Non-Qualified Contracts
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the Contract Value exceeds the aggregate
purchase payments made, any amount withdrawn will be treated as coming first
from the earnings and then, only after the income portion is exhausted, as
coming from the principal. Withdrawn earnings are includable in gross income.
It further provides that a ten percent (10%) penalty will apply to the income
portion of any distribution. However, the penalty is not imposed on amounts
received: (a) after the taxpayer reaches age 59 1/2; (b) after the death of
the Contract Owner; (c) if the taxpayer is totally disabled (for this purpose
disability is as defined in Section 72(m)(7) of the Code); (d) in a series of
substantially equal periodic payments made not less frequently than annually
for the life (or life expectancy) of the taxpayer or for the joint lives (or
joint life expectancies) of the taxpayer and his Beneficiary; (e) under an
immediate annuity; or (f) which are allocable to purchase payments made prior
to August 14, 1982.
The above information does not apply to Qualified Contracts. However,
separate tax withdrawal penalties and restrictions may apply to such Qualified
Contracts. (See "Tax Treatment of Withdrawals - Qualified Contracts.")
Qualified Plans
The Contracts offered by this Prospectus are designed to be suitable for use
under various types of Qualified Plans. Because of the minimum purchase
payment requirements, these Contracts may not be appropriate for some periodic
payment retirement plans. Taxation of participants in each Qualified Plan
varies with the type of plan and terms and conditions of each specific plan.
Contract Owners, Annuitants and Beneficiaries are cautioned that benefits
under a Qualified Plan may be subject to the terms and conditions of the plan
regardless of the terms and conditions of the Contracts issued pursuant to the
plan. Some retirement plans are subject to distribution and other
requirements that are not incorporated into the Company's administrative
procedures. Contract Owners, participants and Beneficiaries are responsible
for determining that contributions, distributions and other transactions with
respect to the Contracts comply with applicable law. Following are general
descriptions of the types of Qualified Plans with which the Contracts may be
used. Such descriptions are not exhaustive and are for general informational
purposes only. The tax rules regarding Qualified Plans are very complex and
will have differing applications depending on individual facts and
circumstances. Each purchaser should obtain competent tax advice prior to
purchasing a Contract issued under a Qualified Plan.
On July 6, 1983, the Supreme Court decided in ARIZONA GOVERNING COMMITTEE V.
NORRIS that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. The Contracts sold by the Company in connection
with Qualified Plans will utilize annuity tables which do not differentiate on
the basis of sex. Such annuity tables will also be available for use in
connection with certain non-qualified deferred compensation plans.
Contracts issued pursuant to Qualified Plans include special provisions
restricting Contract provisions that may otherwise be available and described
in this Prospectus. Generally, Contracts issued pursuant to Qualified Plans
are not transferable except upon surrender or annuitization. Various penalty
and excise taxes may apply to contributions or distributions made in violation
of applicable limitations. Furthermore, certain withdrawal penalties and
restrictions may apply to surrenders from Qualified Contracts. (See "Tax
Treatment of Withdrawals - Qualified Contracts.")
a. H.R. 10 Plans
Section 401 of the Code permits self-employed individuals to establish
Qualified Plans for themselves and their employees, commonly referred to as
"H.R. 10" or "Keogh" plans. Contributions made to the Plan for the benefit of
the employees will not be included in the gross income of the employees until
distributed from the Plan. The tax consequences to participants may vary,
depending upon the particular plan design. However, the Code places
limitations and restrictions on all Plans, including on such items as:
amounts of allowable contributions; form, manner and timing of distributions;
transferability of benefits; vesting and nonforfeitability of interests;
nondiscrimination in eligibility and participation, and the tax treatment of
distributions, withdrawals and surrenders. (See "Tax Treatment of Withdrawals
- - Qualified Contracts.") Purchasers of Contracts for use with an H.R. 10 Plan
should obtain competent tax advice as to the tax treatment and suitability of
such an investment.
b. Tax-Sheltered Annuities
Section 403(b) of the Code permits the purchase of "tax-sheltered
annuities" by public schools and certain charitable, educational and
scientific organizations described in Section 501(c)(3) of the Code. These
qualifying employers may make contributions to the Contracts for the benefit
of their employees. Such contributions are not includable in the gross income
of the employee until the employee receives distributions from the Contract.
The amount of contributions to the tax-sheltered annuity is limited to certain
maximums imposed by the Code. Furthermore, the Code sets forth additional
restrictions governing such items as transferability, distributions,
nondiscrimination and withdrawals. (See "Tax Treatment of Withdrawals -
Qualified Contracts" and "Tax Sheltered Annuities - Withdrawal Limitations.")
Employee loans are not allowed under these Contracts. Any employee should
obtain competent tax advice as to the tax treatment and suitability of such
an investment.
c. Individual Retirement Annuities
Section 408(b) of the Code permits eligible individuals to contribute to
an individual retirement program known as an "Individual Retirement Annuity"
("IRA"). Under applicable limitations, certain amounts may be contributed to
an IRA which may be deductible from the individual's gross income. These IRAs
are subject to limitations on eligibility, contributions, transferability and
distributions. (See "Tax Treatment of Withdrawals - Qualified Contracts.")
Under certain conditions, distributions from other IRAs and other Qualified
Plans may be rolled over or transferred on a tax-deferred basis into an IRA.
Sales of Contracts for use with IRAs are subject to special requirements
imposed by the Code, including the requirement that certain informational
disclosure be given to persons desiring to establish an IRA. Purchasers of
Contracts to be qualified as Individual Retirement Annuities should obtain
competent tax advice as to the tax treatment and suitability of such an
investment.
d. Corporate Pension and Profit-Sharing Plans
Sections 401(a) and 401(k) of the Code permit corporate employers to
establish various types of retirement plans for employees. These retirement
plans may permit the purchase of the Contracts to provide benefits under the
Plan. Contributions to the Plan for the benefit of employees will not be
includable in the gross income of the employee until distributed from the
Plan. The tax consequences to participants may vary, depending upon the
particular plan design. However, the Code places limitations and restrictions
on all Plans, including on such items as: amount of allowable contributions;
form, manner and timing of distributions; transferability of benefits; vesting
and nonforfeitability of interests; nondiscrimination in eligibility and
participation, and the tax treatment of distributions, withdrawals and
surrenders. Participant loans are not allowed under the Contracts purchased
in connection with these Plans. (See "Tax Treatment of Withdrawals -
Qualified Contracts.") Purchasers of Contracts for use with Corporate Pension
or Profit-Sharing Plans should obtain competent tax advice as to the tax
treatment and suitability of such an investment.
Tax Treatment of Withdrawals - Qualified Contracts
In the case of a withdrawal under a Qualified Contract, a ratable portion of
the amount received is taxable, generally based on the ratio of the
individual's cost basis to the individual's total accrued benefit under the
retirement plan. Special tax rules may be available for certain distributions
from a Qualified Contract. Section 72(t) of the Code imposes a 10% penalty
tax on the taxable portion of any distribution from qualified retirement
plans, including Contracts issued and qualified under Code Sections 401 (H.R.
10 and Corporate Pension and Profit-Sharing Plans), 403(b) (Tax-Sheltered
Annuities) and 408(b) (Individual Retirement Annuities). To the extent amounts
are not includable in gross income because they have been properly rolled over
to an IRA or to another eligible Qualified Plan, no tax penalty will be
imposed. The tax penalty will not apply to the following distributions: (a)
if distribution is made on or after the date on which the Contract Owner or
Annuitant (as applicable) reaches age 59 1/2; (b) distributions following the
death or disability of the Contract Owner or Annuitant (as applicable) (for
this purpose disability is as defined in Section 72(m)(7) of the Code); (c)
after separation from service, distributions that are part of substantially
equal periodic payments made not less frequently than annually for the life
(or life expectancy) of the Contract Owner or Annuitant (as applicable) or the
joint lives (or joint life expectancies) of such Contract Owner or Annuitant
(as applicable) and his designated beneficiary; (d) distributions to a
Contract Owner or Annuitant (as applicable) who has separated from service
after he has attained age 55; (e) distributions made to the Contract Owner or
Annuitant (as applicable) to the extent such distributions do not exceed the
amount allowable as a deduction under Code Section 213 to the Contract Owner
or Annuitant (as applicable) for amounts paid during the taxable year for
medical care; and (f) distributions made to an alternate payee pursuant to a
qualified domestic relations order.
The exceptions stated in items (d), (e) and (f) above do not apply in the case
of an Individual Retirement Annuity. The exception stated in item (c) applies
to an Individual Retirement Annuity without the requirement that there be a
separation from service.
Generally, distributions from a Qualified Plan must commence no later than
April 1 of the calendar year following the year in which the employee attains
age 70 1/2. Required distributions must be over a period not exceeding the
life expectancy of the individual or the joint lives or life expectancies of
the individual and his or her designated beneficiary. If the required minimum
distributions are not made, a 50% penalty tax is imposed as to the amount not
distributed. In addition, distributions in excess of $150,000 per year may be
subject to an additional 15% excise tax unless an exception applies.
Tax-Sheltered Annuities - Withdrawal Limitations
The Code limits the withdrawal of amounts attributable to contributions made
pursuant to a salary reduction agreement (as defined in Section 403(b)(11) of
the Code) to circumstances only when the Contract Owner: (1) attains age 59
1/2; (2) separates from service; (3) dies; (4) becomes disabled (within the
meaning of Section 72(m)(7) of the Code); or (5) in the case of hardship.
However, withdrawals for hardship are restricted to the portion of the
Contract Owner's Contract Value which represents contributions by the Contract
Owner and does not include any investment results. The limitations on
withdrawals became effective on January 1, 1989 and apply only to salary
reduction contributions made after December 31, 1988, to income attributable
to such contributions and to income attributable to amounts held as of
December 31, 1988. The limitations on withdrawals do not affect rollovers or
transfers between certain Qualified Plans. Contract Owners should consult
their own tax counsel or other tax adviser regarding any distributions.
FINANCIAL STATEMENTS
Audited financial statements of the Company and audited financial statements
of the Variable Account as of and for the year ended December 31, 1995
are included in the Statement of Additional Information.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Variable Account or the Distributor
is a party or to which the assets of the Variable Account are subject. The
Company is not involved in any litigation that is of material importance in
relation to its total assets or that relates to the Variable Account.
TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
Item Page
Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . .
Distributor. . . . . . . . . . . . . . . . . . . . . . . . . . .
Calculation of Performance Data. . . . . . . . . . . . . . . . .
Annuity Provisions. . . . . . . . . . . . . . . . . . . . . . . .
Variable Annuity Payout. . . . . . . . . . . . . . . . . . .
Financial Statements. . . . . . . . . . . . . . . . . . . . . . .
PART B
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:
1. The dollar amount of the first annuity payment is divided by the
value of an Annuity Unit as of the Income Date. This establishes the number
of Annuity Units for each monthly payment. The number of Annuity Units
remains fixed during the annuity payment period.
2. The fixed number of Annuity Units is multiplied by the Annuity Unit
value for the last Valuation Period of the month preceding the month for which
the payment is due. This result is the dollar amount of the payment.
3. The total dollar amount of each Variable Annuity variable payout is
the sum of all Sub-Account Variable Annuity payments reduced by the Contract
Maintenance Charge.
Fixed Annuity Payout
A fixed annuity is an annuity with payments which are guaranteed as to dollar
amount by the Company and do not vary with the investment experience of the
Variable Account. The Fixed Account value on the day immediately preceding
the Annuity Date will be used to determine the Fixed Annuity monthly payment.
The monthly Annuity Payment will be based upon the Contract Value at the time
of annuitization, the Annuity Option selected, the age of the annuitant and
any joint annuitant and the sex of the annuitant and joint annuitant where
allowed.
FINANCIAL STATEMENTS
The audited financial statements of the Company as of 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>
<TABLE>
<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>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
a. Financial Statements
The following financial statements of the Company are included in Part B
hereof:
1. Independent Auditors' Report.
2. Balance Sheets as of December 31, 1995 and 1994.
3. Statements of Income for the years ended December 31, 1995, 1994
and 1993.
4. Statements of Stockholder's Equity for the years ended December
31, 1995, 1994 and 1993.
5. Statements of Cash Flows for the years ended December 31, 1995,
1994 and 1993.
6. Notes to Financial Statements - December 31, 1995, 1994 and
1993.
The following financial statements of the Variable Account are included
in Part B hereof:
1. Independent Auditors' Report.
2. Statements of Net Assets as of December 31, 1995.
3. Statements of Operations for the years ended December 31, 1995
and 1994.
4. Statements of Changes in Net Assets for the years ended December
31, 1995 and 1994.
5. Notes to Financial Statements - December 31, 1995.
b. Exhibits
1. Resolution of Board of Directors of the Company authorizing the
establishment of the Variable Account #
2. Not Applicable
3. Principal Underwriter Agreement*
4. Individual Variable Annuity Contract
5. Application for Individual Variable Annuity Contract
6. (i) Copy of Articles of Incorporation of the Company #
(ii) Copy of the Bylaws of the Company #
7. Not Applicable
8. Form of Fund Participation Agreement
9. Opinion and Consent of Counsel
10. Independent Auditors' Consent
11. Not Applicable
12. Not Applicable
13. Calculation of Performance Information
14. Company Organizational Chart****
27. Financial Data Schedule
* Incorporated by reference to Registrant's Form N-4 filed on January 19,
1989.
** Incorporated by reference to Pre-Effective Amendment No. 1 to
Registrant's Form N-4 filed on November 22, 1989.
*** Incorporated by reference to Post-Effective Amendment No. 1 to
Registrant's Form N-4 filed on April 27, 1990.
**** Incorporated by reference to Post-Effective Amendment No. 6 to
Registrant's Form N-4 as filed on April 30, 1993.
***** Incorporated by reference to Post-Effective Amendment No. 8 to
Registrant's Form N-4 as filed on April 24, 1995.
# Incorporated by reference to Post-Effective Amendment No. 9 to
Registrant's Form N-4 as filed electronically on October 27, 1995.
Item 25. Directors and Officers of the Depositor
The following are the Officers and Directors of the Company:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices
Business Address with Depositor
_________________ ______________________________
<S> <C>
Lowell C. Anderson Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Howard E. Barnhill Director
475 Highcroft Road
Wayzata, MN 55391
Ronald L. Wobbeking Chairman, Chief Executive Officer and Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Thomas G. Brown Director
One Liberty Plaza,
45th Floor
New York, NY 10006
Thomas Duncanson Director
12778 Mariner Court
Palm City, FL 34990
Edward J. Bonach Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Alan A. Grove Secretary and Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Shannon Hendricks Treasurer
1750 Hennepin Avenue
Minneapolis, MN 55403
Dennis Marion Director
500 Valley Road
Wayne, NJ 07470
John C. Morrison Director
2 Sutton Place
New York, NY 10022
Timothy J. Tongson Appointed Actuary
1750 Hennepin Avenue
Minneapolis, MN 55403
Robert S. James Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Eugene T. Wilkinson Director
14 Commerce Drive
Cranford, NJ 07016
Richard M. Murray Director
60 Remsen Street, Apt. 10C
Brooklyn Heights, NY 11201
Eugene Long Vice President of Operations
152 W. 57th Street and Director
18th Floor
New York, NY 10019
Thomas J. Lynch President, Chief
1750 Hennepin Avenue Marketing Officer
Minneapolis, MN 55403 and Director
Carol B. Shaw Second Vice President
152 W. 57th Street, 18th Floor
New York, NY 10019
</TABLE>
Item 26. Persons Controlled by or Under Common Control with the Depositor
or Registrant
The Company organizational chart is incorporated by reference to Registrant's
Post-Effective Amendment No. 6 to Form N-4.
Item 27. Number of Contract Owners
As of March 13, 1996, there were 6,328 qualified Contract Owners and 10,209
non-qualified Contract Owners.
Item 28. Indemnification
The Bylaws of the Company provide that:
Each person (and the heirs, executors, and administrators of such person) made
or threatened to be made a party to any action, civil or criminal, by reason
of being or having been a Director, officer, or employee of the corporation
(or by reason of serving any other organization at the request of the
corporation) shall be indemnified to the extent permitted by the laws of the
State of New York, and in the manner prescribed therein.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted for directors and officers or controlling persons of the
Company pursuant to the foregoing, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
Item 29. Principal Underwriters
a. NALAC Financial Plans, Inc. is the principal underwriter for the
Contracts. It also is the principal underwriter for:
Allianz Life Variable Account A
Allianz Life Variable Account B
b. The following are the officers and directors of NALAC Financial
Plans, Inc.:
<TABLE>
<CAPTION>
Name & Principal Positions and Offices
Business Address with Underwriter
________________ _____________________
<S> <C>
Alan A. Grove Director
1750 Hennepin Avenue
Minneapolis, MN 55403
James P. Kelso Director
1750 Hennepin Ave.
Minneapolis, MN 55403
Mark L. Solverud Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Thomas B. Clifford President and Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Michael T. Westermeyer Secretary and Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Michael J. Yates Treasurer
1750 Hennepin Avenue
Minneapolis, MN 55403
Edward J. Bonach Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Catherine Mielke Compliance Officer
1750 Hennepin Avenue
Minneapolis, MN 55403
</TABLE>
c. Not Applicable
Item 30. Location of Accounts and Records
Thomas Clifford, whose address is 1750 Hennepin Avenue, Minneapolis,
Minnesota, maintains physical possession of the accounts, books or documents
of the Variable Account required to be maintained by Section 31(a) of the
Investment Company Act of 1940, as amended, and the rules promulgated
thereunder.
Item 31. Management Services
Not Applicable
Item 32. Undertakings
a. Registrant hereby undertakes to file a post-effective amendment to
this registration statement as frequently as is necessary to ensure that the
audited financial statements in the registration statement are never more than
sixteen (16) months old for so long as payment under the variable annuity
contracts may be accepted.
b. Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
postcard or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement of Additional
Information.
c. Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form promptly upon written or oral request.
REPRESENTATIONS
The Company hereby represents that it is relying upon a No-Action Letter
issued to the American Council of Life Insurance, dated November 28, 1988
(Commission ref. IP-6-88), and that the following provisions have been
complied with:
1. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration statement, including the
prospectus, used in connection with the offer of the contract;
2. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in connection with
the offer of the contract;
3. Instruct sales representatives who solicit participants to purchase
the contract specifically to bring the redemption restrictions imposed by
Section 403(b)(11) to the attention of the potential participants;
4. Obtain from each plan participant who purchases a Section 403(b)
annuity contract, prior to or at the time of such purchase, a signed statement
acknowledging the participant's understanding of (1) the restrictions on
redemption imposed by Section 403(b)(11), and (2) other investment
alternatives available under the employer's Section 403(b) arrangement to
which the participant may elect to transfer his contract value.
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, as amended, the Registrant certifies that it meets the requirements of
Securities Act Rule 485(b) for effectiveness of this registration statement
and has caused this registration statement to be signed on its behalf in the
City of Minneapolis and State of Minnesota, on this __ day of March, 1996.
<TABLE>
<CAPTION>
<S> <C>
PREFERRED LIFE VARIABLE
ACCOUNT C
(Registrant)
By: PREFERRED LIFE INSURANCE
COMPANY OF NEW YORK
(Depositor)
By: /s/ ALAN A. GROVE
________________________
PREFERRED LIFE INSURANCE
COMPANY OF NEW YORK
By: /s/ ALAN A. GROVE
________________________
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on
the dates indicated.
Signature and Title
<TABLE>
<CAPTION>
<S> <C> <C>
Lowell C. Anderson* Director 4-17-96
Lowell C. Anderson Date
Howard E. Barnhill* Director 4-17-96
Howard E. Barnhill Date
Ronald L. Wobbeking* Chairman, Chief Executive 4-17-96
Ronald L. Wobbeking Officer and Director Date
Shannon Hendricks* Treasurer 4-17-96
Shannon Hendricks Date
Alan A. Grove* Secretary and Director 4-17-96
Alan A. Grove Date
Thomas G. Brown* Director 4-17-96
Thomas G. Brown Date
Thomas Duncanson* Director 4-17-96
Thomas Duncanson Date
Edward J. Bonach* Director 4-17-96
Edward J. Bonach Date
Robert S. James* Director 4-17-96
Robert S. James Date
Thomas J. Lynch* Director 4-17-96
Thomas J. Lynch Date
Dennis Marion* Director 4-17-96
Dennis Marion Date
John C. Morrison* Director 4-17-96
John C. Morrison Date
Richard M. Murray* Director 4-17-96
Richard M. Murray Date
Eugene T. Wilkinson* Director 4-17-96
Eugene T. Wilkinson Date
Eugene Long* Director 4-17-96
Eugene Long Date
</TABLE>
* By /S/ ALAN A. GROVE
_________________
Attorney-in-Fact
EXHIBITS
TO
POST-EFFECTIVE AMENDMENT NO. 10
TO
FORM N-4
PREFERRED LIFE VARIABLE ACCOUNT C
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
INDEX TO EXHIBITS
Exhibit Page
EX-99.B4 Individual Variable Annuity Contract
EX-99.B5 Application for Individual Variable Annuity Contract
EX-99.B8 Form of Fund Participation Agreement
EX-99.B9 Opinion and Consent of Counsel
EX-99.B10 Independent Auditors' Consent
EX-99.B13 Calculation of Performance Information
EX-27 Financial Data Schedule
(Preferred Life Logo)
152 West 57th Street, 18th Floor
New York, New York 10019
This is a legal contract between the Contract Owner (referred to in this
contract as you and your) and Preferred Life Insurance Company of New York
(herein referred to as - we, us, and our). In this contract, the words you and
your refer to the Contract Owner. We will make annuity payments to the
Annuitant as set forth in this contract beginning on the Income Date.
This contract is issued in consideration of the attached application and of
the payment of the initial purchase payment.
READ YOUR CONTRACT CAREFULLY
RIGHT TO CANCEL THIS CONTRACT
This contract may be returned within 10 days after you receive it. It can be
mailed or delivered to either us or the agent who sold it. Return of this
contract by mail is effective on being postmarked, properly ddressed and
postage pre-paid. The returned contract will be treated as if we had never
issued it. We will promptly refund the Contract Value as of the date of
surrender. This may be more or less than the purchase payments.
THIS IS A VARIABLE ANNUITY CONTRACT WITH ANNUITY PAYMENTS AND CONTRACT VALUES
INCREASING OR DECREASING DEPENDING ON THE EXPERIENCE OF THE VARIABLE ACCOUNT
WHICH IS SET FORTH IN THE CONTRACT SCHEDULE.
Signed by the Company:
(Alan A. Grove) (Ronald L Wobbeking)
____________________________ ____________________
Vice President and Secretary President
INDIVIDUAL FLEXIBLE PAYMENT VARIABLE ANNUITY
NONPARTICIPATING
Annuity payments will not decrease as long as the investment return of the
variable account assets equals or exceeds 6.4% on an annual basis. Variable
Account expenses consist of a mortality and expense risk charge, an
administrative charge, a contract maintenance charge, and transfer fees.
These are shown on the Contract Schedule page.
The variable provisions can be found on pages 4, 5, and 8 of this contract.
TABLE OF CONTENTS
Right to Cancel this Contract
Contract Schedule
Definitions
Accumulation Unit
Age
Annuitant
Annuity Option
Annuity Unit
Contingent Owner
Contract Anniversary
Contract Owner
Contract Value
Contract Year
Effective Date
Eligible Investments
Fund
Income Date
Valuation Date
Valuation Period
Variable Account
General Provisions
The Contract
Non-Participation in Surplus
Incontestability
Misstatement of Age or Sex
Contract Settlement
Reports
Taxes
Evidence of Survival
Protection of Proceeds
Modification of Contract
Ownership Provisions
Contract Owner
Transfer of Ownership
Assignment
Beneficiary Provisions
Beneficiary
Change of Beneficiary
Death of Beneficiary
Purchase Payment Provisions
Purchase Payments
Change in Purchase Payments
No Default
Allocation of Purchase Payments
Variable Account
General Description
Investment Allocations to the Variable Account
Valuation of Assets
Contract Value
Transfers
Accumulation Unit
Mortality and Expense Risk Charge
Administrative Expense Charge
Mortality and Expense Guarantee
Contract Maintenance Charge
Deduction for Contract Maintenance Charge
Annuity Provisions
Income Date
Change in Income Date
Annuity Options
Change in Annuity Options
Fixed Options
Option 1 - Life Annuity with Guarantee for Minimum Period
Option 2 - Life Annuity with Cash Refund
Table of Fixed Settlement Options
Vairable Options
Option 3 - Life Annuity
Option 4 - Life Annuity with 10 Year Guarantee
Option 5 - Joint and Last Survivor Annuity
Table of Variable Settlement Options
Proceeds Payable on Death
Death of the Contract Owner prior to the Income Date
Death of the Annuitant
Surrender Provisions
Surrender
Calculation of Contingent Deferred Sales Charge
DEFINITIONS
ACCUMULATION UNIT - An accounting unit of measure used to calculate the
Contract Value prior to the Income Date.
AGE - Age last birthday unless otherwise specified.
ANNUITANT - The person upon whose continuation of life any annuity payment
involving life contingencies depends.
ANNUITY OPTION - An arrangement under which annuity payments are made under
this contract.
ANNUITY UNIT - An accounting unit of measure used to calculate annuity
payments after the Income Date.
CONTINGENT OWNER - As named in the application, unless changed. Only the
spouse of the Contract Owner may be the Contingent Owner.
CONTRACT ANNIVERSARY - An anniversary of the Effective Date of this contract.
CONTRACT OWNER - The Contract Owner is named in the application, unless
changed, and has all rights under this contract.
CONTRACT VALUE - The dollar value as of any Valuation Date of all amounts
accumulated under this contract.
CONTRACT YEAR - Any period of twelve (12) months commencing with the Effective
Date and each contract Anniversary thereafter.
EFFECTIVE DATE - The date shown on the Contract Schedule on which the first
Contract Year begins.
ELIGIBLE INVESTMENT(S) - Those investments available under the contract.
Current Eligible Investments are shown on the Contract Schedule.
FUND - A segment of an Eligible Investment which constitutes a separate and
distinct class of interests under an Eligible Investment.
INCOME DATE - The date on which annuity payments are to commence.
VALUATION DATE - The Variable Account will be valued each day that the New
York Stock Exchange is open for trading.
VALUATION PERIOD - The period commencing at the close of business of the New
York Stock Exchange on each Valuation Date and ending at the close of business
for the next succeeding Valuation Date.
VARIABLE ACCOUNT - A separate account maintained by us in which a portion of
our assets has been allocated for this and certain other contracts. It has
been designated on the Contract Schedule.
GENERAL PROVISIONS
THE CONTRACT - The entire contract consists of this contract, and any attached
endorsements or riders, and the application, a copy of which is attached. This
contract may be changed or altered only by our President or Secretary. Any
change, modification or waiver must be made in writing.
NON-PARTICIPATION IN SURPLUS - This contract does not share in any
distribution of our profits or surplus.
INCONTESTABILITY - We will not contest this contract from its Effective Date.
MISSTATEMENT OF AGE OR SEX - We may require proof of Age of the Annuitant
before making any life annuity payment provided for by this contract. If the
Age or sex of the Annuitant has been misstated, the amount payable will be the
amount that the purchase payments would have provided at the true Age or sex.
Once monthly life annuity payments have begun, any underpayments will be made
up in one sum including interest at the annual rate of 5% with the next
annuity payment and overpayments including interest at the annual rate of 5%
will be deducted from the future annuity payments until the total is repaid.
CONTRACT SETTLEMENT - This contract must be returned to us upon any
settlement. Prior to any settlement as a death claim, due proof of death must
be submitted to us.
REPORTS - We will furnish you with a report showing the Contract Value at
least once each calendar year. We will also furnish an annual report of the
Variable Account. These reports will be sent to your last known address.
TAXES - Any taxes paid to any governmental entity will be charged against the
Contract Value. We will, in our sole discretion, determine when taxes have
resulted from: the investment experience of the Variable Account; receipt by
us of the purchase payment(s); or commencement of annuity payments. We may,
at our 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 we may have to deduct amounts at a later date.
EVIDENCE OF SURVIVAL - Where any benefits under this contract are contingent
upon the recipient being alive on a given date, we may require proof
satisfactory to it that the condition has been met.
PROTECTION OF PROCEEDS - No Beneficiary may commute, encumber, alienate or
assign any payments under this contract before they are due. To the extent
permitted by law, no payments will be subject to the debts, contracts or
engagements of any Beneficiary or to any judicial process to levy upon or
attach the same for payment thereof.
MODIFICATION OF CONTRACT - This contract may not be modified by us without
your consent except as ay be required by applicable law. If the state
insurance laws or regulations, the federal securities laws or regulations, or
any regulations under which the contract would qualify as an annuity change,
the Company will amend the contract to comply with these changes.
OWNERSHIP PROVISIONS
CONTRACT OWNER - The Contract Owner and any Contingent Owner are named in the
application. Only the spouse of the Contract Owner may be the Contingent
Owner. Such Contingent Owner will be treated as the designated Beneficiary in
the case of the death of the Contract Owner. Any designations may be changed
by the Contract Owner.
The Contract Owner may exercise all the rights of this contract, subject to
the rights of:
1. any assignee under an assignment filed with our Service Office; and
2. any irrevocably named Beneficiary.
If an Owner dies, the Oner's rights will pass to any surviving Contingent
Owner than alive.
TRANSFER OF OWNERSHIP - You may transfer ownership of this contract. A
written request, dated and signed by you, must be sent to our Service Office.
We may require this contract for endorsement. The transfer will take effect
as of the date the request was signed.
Any transfer of ownership terminates the interest of any existing Contingent
Owner. It does not change the Beneficiary, nor transfer the Beneficiary's
interest. Any change or transfer of ownership is subject to any payment made
by us before endorsement.
ASSIGNMENT - You may assign this contract. A copy of any assignment must be
filed with our Service Office. We are not responsible for the validity of any
assignment. If you assign this contract, your rights and those of any
revocably-named person will be subject to the assignment. An assignment will
not affect any payments we may make or actions we may take before such
assignment has been recorded at our Service Office.
BENEFICIARY PROVISIONS
BENEFICIARY - The Beneficiary and any Contingent Beneficiary are named in the
application. They may be changed by you.
CHANGE OF BENEFICIARY - You may change the Beneficiary. A written request,
dated and signed by you, must be filed at our Service Office. After the
change is recorded, it will take effect as of the date the request was signed.
If the request reaches our Service Office after the Annuitant or Contract
Owner, as applicable, dies but before any payment is made, the change will be
valid.
DEATH OF BENEFICIARY - If all of the named Beneficiaries die prior to the
Annuitant's or Contract Owner's death we will pay the death benefit in one sum
to your estate.
PURCHASE PAYMENT PROVISIONS
PURCHASE PAYMENTS - The initial purchase payment is due on the Effective
Date. Thereafter, purchase payments may be made at any time in any amount,
subject to the minimum shown on the Contract Schedule page. When a payment is
from multiple sources and/or at multiple times due to administrative and/or
valuation procedures, we will consider the total amount in review of the
minimum premium constraints. A purchase payment which brings the total paid
in excess of $1 million is acceptable only with prior Company approval. We
reserve the right to decline any application or purchase payment where we
determine that the ages of and/or relationships between the Contract Owner
Annuitant and/or Beneficiary make it inappropriate to issue the Contract.
CHANGE IN PURCHASE PAYMENTS - You may elect to increase or decrease or to
change the frequency of purchase payments, with no notice to us.
NO DEFAULT - Unless surrendered, this contract remains in force until the
Income Date and will not be in default if no additional purchase payments are
made.
ALLOCATION OF PURCHASE PAYMENTS - Payments are allocated to one or more of the
sub-accounts of the Variable Account. Whole percentages must be used.
The maximum number of allocations that you can have at any one time is shown
on the Contract Schedule page.
VARIABLE ACCOUNT
GENERAL DESCRIPTION - The name of the Variable Account is shown in the
Contract Schedule. The assets of the Variable Account are our property but
are not chargeable with the liabilities arising out of any other business we
may conduct, except to the extent that the assets of the Variable Account
exceed the liabilities of the Variable Account arising under the contracts
supported by the Variable Account.
INVESTMENT ALLOCATIONS TO THE VARIABLE ACCOUNT - The assets of the Variable
Account are segregated by Eligible Investments or Funds and where appropriate
by Funds within the Eligible Fund, thus establishing a series of sub-accounts
within the Variable Account.
We may, from time to time, and with the prior approval of the Superintendent
of Insurance of the State of New York, add additional Eligible Investments or
Funds. In such event, you may be permitted to select from these other
Eligible Investments or Funds limited by the terms and conditions we may
impose on such transactions.
We may also substitute other Eligible Investments or Funds. The investment
policy of the Variable Account will not be changed without the approval of the
Superintendent of Insurance of the State of New York. If required, approval of
or change of any investment policy will be filed with the Insurance Department
of the state where this contract is delivered.
VALUATION OF ASSETS - Assets of Eligible Investments within each sub-account
will be valued at their net asset value on each Valuation Date.
CONTRACT VALUE - Purchase payments are allocated among the various
sub-accounts within the Variable Account. For each sub-account, the purchase
payments are converted into Accumulation Units. The number of Accumulation
Units credited to the contract is determined by dividing the purchase payments
allocated to the sub-account by the value of the Accumulation Unit for the
sub-account. Surrenders will result in the cancellation of Accumulation
Units. The value of the contract is the sum of the values for the contract
within each sub-account. The value of each sub-account is determined by
multiplying the number of Accumulation Units attributable to the sub-account
by the Accumulation Unit value for the sub-account.
TRANSFERS - Prior to the Income Date, you may transfer all or a part of your
interest in a sub-account to another sub-account. The current and maximum
charges are shown on the Contract Schedule. After the Income Date, provided a
variable annuity option was selected, you may make transfers. The charge for
all transfers after the Income Date is the maximum charge as shown on the
Contract Schedule.
There is no limit to the number of transfers allowed either before or after
the Income Date. All transfers are subject to the following:
The deduction of any transfer fee that may be imposed as shown in the Contract
Schedule. The transfer fee will be deducted from the amount which is
transferred if the entire amount in the sub-account is being transferred,
otherwise from the sub-account from which the transfer is made.
The minimum amount which may be transferred is the lesser of (A) $1,000; or
(B) your entire interest in the sub-account.
No partial transfer will be made if your remaining Contract Value in the
sub-account will be less than $1,000.
Transfers will be effected during the Valuation Period next following receipt
by us of a written transfer request (or by telephone, if authorized)
containing all required information. However, no transfer may be
effective within seven calendar days of the date on which the first
annuity payment is due. No transfers may occur until the end of the
Free Look Period.
Any transfer direction must clearly specify:
the amount which is to be transferred; and
the sub-accounts which are to be affected.
6. After the Income Date, transfers may not take place between a fixed
annuity option and a variable annuity option.
ACCUMULATION UNIT - Purchase payments are converted into Accumulation Units
by dividing each purchase payment by the Accumulation Unit value for the
Valuation Period during which the purchase payment is allocated to the
Variable Account. The Accumulation Unit value for each sub-account was
arbitrarily set initially. The accumulation Unit value for any later
Valuation Period is determined by subtracting (2) from (1) and dividing the
result by (3) where:
1. is the net result of
a. the assets of the sub-account attributable to Accumulation
Units; plus or minus
b. the cumulative charge or credit for taxes reserved which is
determined by us to have resulted from the operation of the sub-account;
2. is the cumulative unpaid charge for the Mortality and Expense Risk
Charge and for the Administrative Expense Charge, which are shown on the
Contract Schedule; and
3. is the number of Accumulation Units outstanding at the end of the
Valuation Period.
The Accumulation Unit value may increase or decrease from Valuation
Period to Valuation Period.
MORTALITY AND EXPENSE RISK CHARGE - We deduct a Mortality and Expense
Risk Charge equal, on an annual basis, to the amount shown on the
Contract Schedule. The Mortality and Expense Risk Charge compensates us
for assuming the mortality and expense risks under this contract.
ADMINISTRATIVE EXPENSE CHARGE - We deduct an Administrative Expense
Charge equal, on an annual basis, to the amount shown on the Contract
Schedule. The Administrative Expense Charge compensates us for some of
the costs associated with the administration of this contract and the
Variable Account.
MORTALITY AND EXPENSE GUARANTEE - We guarantee that the dollar amount
of each annuity payment after the first will not be affected by
variations in mortality or expense experience.
CONTRACT MAINTENANCE CHARGE
DEDUCTION FOR CONTRACT MAINTENANCE CHARGE - We deduct an annual Contract
Maintenance Charge shown on the Contract Schedule. Prior to the Income Date,
this will be deducted from the Contract Value by cancelling Accumulation Units
to reimburse us for expenses relating to maintenance of this contract. The
Contract Maintenance Charge will be deducted from the Contract Value on each
Contract Anniversary while this contract is in force. The number of
Accumulation Units to be cancelled will be from each applicable sub-account
in the ratio that the value of each sub-account bears to the total Contract
Value.
If this contract is surrendered for its full Surrender Value on other
than the Contract Anniversary, the full Contract Maintenance Charge
will be deducted at the time of surrender.
On and after the Income Date, the Contract Maintenance Charge will be
collected on a monthly basis and this will result in a reduction of the
monthly annuity payments.
ANNUITY PROVISIONS
INCOME DATE - You select an Income Date at the time of application. The
Income Date must always be the first day of a calendar month. The earliest
Income Date is one month after the Effective Date. The latest Income Date is
the later of the first day of the first calendar month following the
Annuitant's 85th birthday or 10 years from the Effective Date.
CHANGE IN INCOME DATE - You may, upon at least thirty (30) days prior written
notice to us, at any time prior to the Income Date, change the Income Date.
The Income Date must always be the first day of a calendar month. The Income
Date may not be later than the first day of the first calendar month following
the Annuitant's 85th birthday or 10 years from the Effective Date.
ANNUITY OPTIONS
CHANGE IN ANNUITY OPTION - You may, upon at least thirty (30) days prior
written notice to us, at any time prior to the Income Date, select and/or
change the Annuity Option.
Instead of having the proceeds paid in one sum, the Owner may select one of
the Annuity Options. These may be on a fixed or variable basis, or a
combination thereof. The Annuity Option must be selected at least 30 days
prior to the Income Date. We may, at the time of election of an Annuity
Option, offer more favorable rates in lieu of those here guaranteed. We also
may make available other options.
FIXED OPTIONS
OPTION 1 - LIFE ANNUITY WITH GUARANTEE FOR MINIMUM PERIOD. We will make equal
monthly payments during the life of the Annuitant, but at least for the
minimum period shown in the Table. The amount of each monthly payment per
$1000 of proceeds is based on the Age and sex of the Annuitant when the first
payment is made and on the guaranteed period chosen. If the Annuitant dies
within the guaranteed period, the discounted value of the unpaid guaranteed
payments, commuted on the basis of interest at the rate of 2 1/2 per cent per
year, compounded yearly, will be paid by us as a final payment.
OPTION 2 - LIFE ANNUITY WITH CASH REFUND. We will pay equal monthly payments
during the life of the Annuitant. Upon the death of the Annuitant, after
payments have started, we will pay in one sum any excess of the amount of the
proceeds applied under this Option over the total of all payments made under
this Option. The amount of each monthly payment per $1000 of proceeds is
based on the Age and sex of the Annuitant when the first payment is made.
FIXED ANNUITY OPTIONS (CONTINUED)
Monthly Payments of $1,000.00 of Proceeds
APPLIED UNDER OPTIONS 1 AND 2
Payee Payee Opt 1 Opt 1 Opt 2 Payee Payee Opt 1 Opt 1 Opt 2
Age Age 10 Yr 20 Yr Age Age 10 Yr 20 Yr
Male Fem Min Min Male Fem Min Min
11und $2.63 $2.61 $2.59 46 51 $4.09 $3.09 $3.80
12 2.64 2.63 2.60 47 52 4.17 3.95 3.86
13 2.66 2.65 2.63 48 53 4.33 4.07 3.92
14 2.67 2.66 2.63 49 54 4.33 4.07 3.98
10und 15 2.69 2.68 2.65 50 55 4.42 4.12 4.04
11 16 2.71 2.70 2.67 51 56 4.50 4.18 4.11
12 17 2.73 2.71 2.68 52 57 4.60 4.24 4.18
13 18 2.74 2.73 2.70 53 58 4.69 4.30 4.25
14 19 2.76 2.75 2.72 54 59 4.79 4.36 4.33
15 20 2.78 2.77 2.74 55 60 4.90 4.41 4.40
16 21 2.81 2.79 2.76 56 61 5.01 4.47 4.49
17 22 2.83 2.81 2.78 57 62 5.12 4.53 4.57
18 23 2.85 2.84 2.80 58 63 5.23 4.59 4.66
19 24 2.88 2.86 2.82 59 64 5.35 4.64 4.75
20 25 2.90 2.88 2.84 60 65 5.48 4.70 4.85
21 26 2.93 2.91 2.87 61 66 5.61 4.75 4.95
22 27 2.95 2.93 2.89 62 67 5.74 4.80 5.05
23 28 2.98 2.96 2.92 63 68 5.87 4.85 5.16
24 29 3.01 2.99 2.94 64 69 6.01 4.90 5.27
25 30 3.04 3.02 2.97 65 70 6.16 4.94 5.39
26 31 3.08 3.05 3.00 66 71 6.30 4.98 5.52
27 32 3.11 3.08 3.02 67 72 6.45 5.02 5.65
28 33 3.14 3.11 3.05 68 73 6.60 5.05 5.78
29 34 3.18 3.15 3.08 69 74 6.76 5.09 5.92
30 35 3.22 3.18 3.11 70 75 6.91 5.12 6.07
31 36 3.26 3.22 3.15 71 76 7.07 5.14 6.23
32 37 3.30 3.25 3.18 72 77 7.23 5.17 6.39
33 38 3.34 3.29 3.22 73 78 7.38 5.19 6.56
34 39 3.39 3.33 3.25 74 79 7.54 5.20 6.74
35 40 3.43 3.37 3.29 75 80 7.69 5.22 6.92
36 41 3.48 3.41 3.33 76 81 7.84 5.23 7.12
37 42 3.53 3.45 3.37 77 82 7.98 5.24 7.33
38 43 3.59 3.50 3.41 78 83 8.13 5.25 7.55
39 44 3.64 3.54 3.45 79 84 8.26 5.26 7.78
40 45 3.70 3.59 3.50 80 85ov 8.39 5.26 8.02
41 46 3.76 3.64 3.54 81 8.51 5.26 8.27
42 47 3.82 3.69 3.59 82 8.63 5.26 8.54
43 48 3.88 3.74 3.64 83 8.73 5.26 8.83
44 49 3.95 3.79 3.69 84 8.83 5.26 9.12
45 50 4.02 3.84 3.74 85ov 8.92 5.26 9.43
Age of payee equals age of payee nearest Birthday when first payment is
made.
Moneys unpaid at the death of an Annuitant will be paid to the
Beneficiary or Owner's estate unless otherwise provided.
The above fixed settlement option rates are guaranteed by us for the
life of the contract.
The annuity tables shown do not reflect the Contract Maintenance Charge which
is assessed by us as described in this contract.
In states requiring unisex rates, female guaranteed rates apply.
VARIABLE OPTIONS
The amount of the first monthly payment depends on the optional annuity form
elected and the Age and sex of the Annuitant. This contract contains tables
indicating the dollar amount of the first monthly payment under each optional
annuity form for each $1,000 of value applied. The tables are determined from
the 1983 Individual Annuitant Mortality Table with interest at the rate of 5%
per annum. If, when annuity payments are elected, we are using tables of
annuity rates for these contracts which result in larger annuity payments, we
will use those tables instead.
The 5% interest rate assumed in the annuity tables would produce level annuity
payments if the net investment rate remained constant at 5% per year.
Subsequent payments will be less than, equal to, or greater than the first
payment depending upon whether the actual net investment rate is less than,
equal to, or greater than 5%.
The dollar amount of the first monthly variable annuity payment is determined
by applying the available value (after deduction of any premium taxes not
previously deducted) to the table using the Age and sex of the Annuitant
and any joint Annuitant. A number of Annuity Units is then determined by
dividing this dollar amount by the then current Annuity Unit value.
Thereafter, the number of Annuity Units remains unchanged during the period
of annuity payments. This determination is made separately for each
sub-account of the Variable Account. The number of Annuity Units is
determined for each sub-account and is based upon the available value in each
sub-account as of the date annuity payments are to begin.
The dollar amount determined for each sub-account will then be aggregated
for purposes of making payments.
The dollar amount of the second and later variable annuity payments is equal
to the number of Annuity Units determined for each sub-account times the
Annuity Unit Value for that sub-account as of the due date of the payment.
This amount may increase or decrease from month to month.
The value of an Annuity Unit for a sub-account is determined by subtracting
(2) from (1) and dividing the result by (3) and multiplying the result by
.99986303 (.99986303 is the daily factor to neutralize the assumed net
investment rate, discussed above, of 5% per annum which is built into the
annuity rate tables below and which is not applicable because the actual net
investment rate is credited instead) where:
1. is the net result of
a. the assets of the sub-account attributable to the Annuity Units;
plus or minus
b. the cumulative charge or credit for taxes reserved which is
determined by us to have resulted from the operation of the sub-account;
2. is the cumulative unpaid charge for the Mortality and Expense Risk
Charge and for the Administrative Expense Charge, which are shown in the
Contract Schedule; and
3. is the number of Annuity Units outstanding at the end of the
Valuation Period.
The value of an annuity Unit may increase or decrease from Valuation Period to
Valuation Period.
OPTION 3 - LIFE ANNUITY. Monthly annuity payments are paid during the life of
an Annuitant ceasing with the last Annuity Payment due prior to the
Annuitant's death.
OPTION 4 - LIFE ANNUITY WITH 10 YEAR GUARANTEE. Monthly annuity
payments are paid during the life of an Annuitant, but at least for the 10
year minimum period.
OPTION 5 - JOINT AND LAST SURVIVOR ANNUITY. Monthly annuity payments are paid
during the joint lifetime of the Annuitant and a designated second person and
are paid thereafter during the remaining lifetime of the survivor, ceasing
with the last annuity payment due prior to the survivor's death.
OPTIONS ON A VARIABLE BASIS
OPTION 3: LIFE INCOME*
MONTHLY INCOME PER $1,000 ANNUITIZED
Age Male Fem Age Male Fem Age Male Fem Age Male Fem
30 4.43 4.33 44 4.85 4.64 58 5.79 5.36 72 8.22 7.24
31 4.45 4.34 45 4.89 4.67 59 5.89 5.44 73 8.50 7.48
32 4.47 4.36 46 4.94 4.71 60 6.0 5.52 74 8.81 7.73
33 4.49 4.37 47 4.99 4.74 61 6.12 5.61 75 9.13 8.01
34 4.51 4.39 48 5.05 4.78 62 6.25 5.71 76 9.49 8.31
35 4.54 4.41 49 5.10 4.83 63 6.39 5.82 77 9.87 8.64
36 4.56 4.43 50 5.16 4.87 64 6.54 5.93 78 10.2 9.00
37 4.59 4.45 51 5.22 4.92 65 6.70 6.06 79 10.7 9.39
38 4.62 4.47 52 5.29 4.97 66 6.88 6.19 80 11.2 9.82
39 4.65 4.50 53 5.36 5.03 67 7.06 6.33 81 11.7 10.2
40 4.69 4.52 54 5.44 5.08 68 7.26 6.48 82 12.3 10.8
41 4.72 4.55 55 5.52 5.15 69 7.48 6.65 83 12.9 11.3
42 4.76 4.58 56 5.60 5.21 70 7.71 6.83 84 13.6 12.0
43 4.80 4.80 57 5.69 5.28 71 7.96 7.03 85 14.3 12.7
OPTION 4: LIFE INCOME WITH 10 YEARS PAYMENTS GUARANTEED*
MONTHLY INCOME PER $1,000 ANNUITIZED
Age Male Fem Age Male Fem Age Male Fem Age Male Fem
30 4.42 4.33 44 4.83 4.63 58 5.70 5.31 72 7.55 6.94
31 4.44 4.34 45 4.87 4.66 59 5.79 5.39 73 7.73 7.12
32 4.46 4.36 46 4.82 4.70 60 5.89 5.47 74 7.61 7.30
33 4.48 4.37 47 4.96 4.73 61 5.99 5.55 75 8.09 7.50
34 4.51 4.39 48 5.01 4.77 62 6.10 5.64 76 8.28 7.70
35 4.53 4.41 49 5.06 4.81 63 6.22 5.74 77 8.47 7.90
36 4.56 4.43 50 5.12 4.86 64 6.34 5.84 78 8.65 8.11
37 4.58 4.45 51 5.18 4.90 65 6.47 5.95 79 8.83 8.33
38 4.61 4.47 52 5.24 4.95 66 6.61 6.07 80 9.01 8.54
39 4.64 4.49 53 5.31 5.00 67 6.75 6.19 81 9.18 8.75
40 4.68 4.52 54 5.37 5.06 68 6.90 6.32 82 9.34 8.96
41 4.71 4.54 55 5.45 5.12 69 7.05 6.47 83 9.50 9.16
42 4.75 4.57 56 5.53 5.18 70 7.21 6.61 84 9.64 9.34
43 4.79 4.60 57 5.61 5.24 71 7.38 6.77 85 9.77 9.51
OPTION 5: JOINT (MALE AND FEMALE) AND LAST SURVIVOR*
MONTHLY INCOME PER $1,000 ANNUITIZED
Fem Age -- 40 45 50 55 60 65 70 75
Male Age
40 4.39 4.45 4.49 4.53 4.57 4.59 4.61 4.63
45 4.42 4.50 4.57 4.64 4.70 4.74 4.78 4.81
50 4.45 4.54 4.65 4.75 4.84 4.93 5.00 5.05
60 4.48 4.60 4.75 4.93 5.12 5.32 5.51 5.67
70 4.49 4.63 4.82 5.05 5.34 5.69 6.10 6.52
75 4.50 4.64 4.84 5.08 5.40 5.82 6.34 6.95
Values not shown are available on request from our home office.
*The annuity tables shown do not reflect the Contract Maintenance Charge
which is assessed by us as described in this contract.
Where unisex rates are required, female guaranteed rates apply.
DEATH BENEFIT
DEATH OF THE CONTRACT OWNER PRIOR TO THE INCOME DATE - In the event of your
death prior to the Income Date, the Contingent Owner, if any, becomes the
Contract Owner and this contract continues in the same manner as before your
death. If there is no Contingent Owner, a death benefit is payable to the
Beneficiary designated by you. The value of the death benefit will be
determined as of the Valuation Period next following the date both due proof
of death and a payment election are received by us. The value of the death
benefit is equal to the greater of the purchase payments paid less any amounts
previously surrendered or the Surrender Value. The Beneficiary may elect the
death benefit to be paid as follows:
1. the payment of the entire death benefit within 5 years of the date of
the Contract Owner's death;
2. or payment over the lifetime of the designated Beneficiary with
distribution beginning within 1 year of the date of death of the Contract
Owner (see Annuity Options section of this contract); or
3. if the designated Beneficiary is your spouse, he/she can continue the
contract in his/her own name.
If no payment option is elected, a single sum settlement will be made at the
end of the sixty (60) day period following receipt of proof of death.
DEATH OF THE ANNUITANT - If the Annuitant dies before the Income Date, a new
Annuitant may be named. If no Annuitant is named, the Contract Owner will be
the Annuitant. If the Annuitant dies after the Income Date, the death
benefit, if any, will be as specified in the Annuity Option elected. We will
require proof of the Annuitant's death. Death benefits will be paid at least
as rapidly as under the method of distribution in effect at the Annuitant's
death.
SURRENDER PROVISIONS
SURRENDER - While this contract is in force and before the Income Date,
we will, upon written request, allow the surrender of all or a portion of
this contract for its Surrender Value. Surrenders will result in the
cancellation of Accumulation Units from each applicable sub-account in the
ratio that the value of each sub-account bears to the total Contract Value.
You must specify in writing in advance which units are to be cancelled if
other than the above mentioned method of cancellation is desired. We will pay
the amount of any surrender within seven (7) days of receipt of a request
unless the "Delay of Payments" provision is in effect.
The Surrender Value will be the Contract Value for the Valuation Period next
following the Valuation Period during which the written request to
us for surrender is received reduced by the sum of:
1. any applicable premium taxes not previously deducted;
2. any applicable Contract Maintenance Charge; and
3. any applicable Contingent Deferred Sales Charge.
CALCULATION OF CONTINGENT DEFERRED SALES CHARGE - If all or a portion of the
Surrender Value is surrendered, a Contingent Deferred Sales Charge will be
calculated at the time of each surrender and will be deducted
from the Contract Value. In calculating the Contingent Deferred Sales
Charge, purchase payments will be allocated to the amount surrendered on a
first-in, first-out basis.
The amount of the Contingent Deferred Sales Charge is calculated by:
1. allocating purchase payments to the amount surrendered; and
2. multiplying each such allocated purchase payment that has been
held under the contract for the period shown below by the charge shown below:
Years
Since
Pmt Charge
0-1 5%
1-2 5%
2-3 4%
3-4 3%
4-5 1.5%
5+ 0
3. adding the products of each multiplication in (2) above.
For a partial surrender, the Contingent Deferred Sales Charge will be deducted
from the remaining Contract Value, if sufficient; otherwise it will be
deducted from the amount surrendered. The amount deducted from the Contract
Value will be determined by cancelling Accumulation Units from each applicable
sub-account in the ratio that the value of each sub-account bears to the total
Contract Value. You must specify in writing in advance which units are to be
cancelled if other than the above method of cancellation is desired.
You 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 Sale
Charge.
DELAY OF PAYMENTS
We will make any payments under this contract within 7 days for a
request received in good order. We reserve the right to suspend or postpone
any type of payment from the Variable Account for any period when:
1. the New York Stock Exchange is closed for other than customary
weekend and holiday closings;
2. trading on the Exchange is restricted;
3. an emergency exists as a result of which it is not reasonably
practicable to dispose of securities held in the Variable Account or
determine their value; or
4. the Securities and Exchange Commission so permits delay for the
protection of security holders.
The applicable rules of the Securities and Exchange Commission will
govern as to whether the conditions in (2) or (3) exist.
NEW YORK
(FRANKLIN VALUEMARK II LOGO)
A Variable Annuity Issued by
Preferred Life Insurance
Company of New York
VARIABLE ANNUITY APPLICATION
________________________________________________________________________
OWNER
Name Last First Middle Home Office Use Only
GA
Address Street City State Zip Code
Telephone Day Evening Social Security Number
Date of Birth Sex Contingent Owner(spouse only)
________________________________________________________________________
DESIGNATED ANNUITANT
Name Last First Middle Social Security Number
Address Street City State Zip Code
Date of Birth Sex Relationship to Owner
________________________________________________________________________
OWNER'S BENEFICIARY DESIGNATION
Full Name of Beneficiary(ies) and Relationship to Owner
Primary: Relationship:
Contingent: Relationship:
Unless otherwise stated, Beneficiaries of like class shall share
equally with right of survivorship. The Owner reserves the right
to change the Beneficiary(ies) unless indicated above.
________________________________________________________________________
PURCHASE PAYMENT
Purchase Payment $ __________________ Make check payable to:
PREFERRED LIFE INSURANCE
COMPANY OF NEW YORK
Tax Qualified? __Yes __ No
If "Yes", type of plan: Selected Income Date: Mo/Day/Yr
If no date is selected, Income Date
will be later of age 65 or 10th
Contract anniversary.
Is this Annuity intended to replace or change existing life
insurance or annuities: Yes ___ No____
_____________________________________________________________________
_____________________________________________________________________
INITIAL INVESTMENT ALLOCATION FOR FRANKLIN VALUEMARK ANNUITY
<TABLE>
<CAPTION>
PLICNY VARIABLE ACCOUNT C Select up to 7 funds. Use whole percentages
only.
<S> <C>
__ Adjustable US Govt Fund __ Templeton Global Asset Aloc Fund
__ Global Income Fund __ Templeton Global Growth Fund
__ Growth and Income Fund __ Templeton International Eq Fund
__ High Income Fund __ Templeton Pacific Growth Fund
__ Income Securities Fund __ US Government Securities Fund
__ Inv Grade Intermediate Bond Fund __ Utility Equity Fund
__ Money Market Fund __ Zero Coupon Fund 2000
__ Precious Metal Fund __ Zero Coupon Fund 2005
__ Real Estate Securities Fund __ Zero Coupon Fund 2010
__ Rising Dividends Fund __ TOTAL (must equal 100%)
__ Templeton Develop Mkts Eq Fund
</TABLE>
________________________________________________________________________
HOME OFFICE USE ONLY
________________________________________________________________________
<TABLE>
<CAPTION>
MAIL APPLICATION TO: FOR OVERNIGHT DELIVERIES:
<S> <C>
Preferred Life Insurance Preferred Life Insurance
Company of New York Company of New York
PO Box 11129 Lock Box Department 3W
Church Street Station PO Box 11129
New York, NY 10286-1129 101 Barclay Street
New York, NY 10286-1129
</TABLE>
P40004 (4/94) Application continued on reverse. V2NYAPP 8/95
NEW YORK
________________________________________________________________________
ACKNOWLEDGEMENT:
BY SIGNING BELOW, THE OWNER UNDERSTANDS THAT:
a) THE ANNUITY VALUE MAY INCREASE OR DECREASE DEPENDING ON THE
CONTRACT'S INVESTMENT RESULTS;
b) NO MINIMUM CASH VALUE IS GUARANTEED
c) THIS ANNUITY IS A LONG TERM COMMITMENT TO MEET INSURANCE NEEDS AND
FINANCIAL GOALS; AND I ACKNOWLEDGE RECEIPT OF THE MOST RECENT
PROSPECTUS; and
d) THE VARIABLE ANNUITY APPLIED FOR IS NOT UNSUITABLE FOR MY INSURANCE
INVESTMENT OBJECTIVES, FINANCIAL SITUATION AND NEEDS.
________________________________________________________________________
________________________________________________________________________
NOTICE:
The owner agrees that to the best of his/her knowledge and belief, all
statements and answers in this application are complete and true. It is
further agreed that these statements and answers will become a part of any
contract to be issued. No representative is authorized to modify his
agreement or waive any of PLICNY's rights or requirements. If PLICNY makes a
change in the space designated Home Office Use Only in order to correct any
apparent errors or omissions, it will be approved by acceptance of the
contract; however, any material change must be accepted in writing by the
Owner.
________________________________________________________________________
I HAVE READ AND UNDERSTAND THE ACKNOWLEDGEMENT AND NOTICE.
__ Please send Statements of Additional Information
<TABLE>
<CAPTION>
Signed at ____________________________________ ________________________
City State Date
<S> <C>
__________________________________ ___________________________________
Owner Witness and Registered Rep/Agent
__________________________________ ___________________________________
Broker-Dealer Print Name of Registered Rep/Agent
__________________________________ ___________________________________
Branch Office Registered Rep/Agent Teleph Number
</TABLE>
________________________________________________________________________
REGISTERED REP/AGENT CERTIFICATION:
By signing above, the Registered Rep/Agent certifies that:
a) The questions contained in this application were asked of the Owner and the
answers duly recorded; that this application is complete and true to the best
of my knowledge and belief; and
b) I am NASD registered and state licensed for variable annuity contracts
where this application is written and delivered; and
c) To the best of my knowledge and belief, this application __does
__ does not involve replacement of existing life insurance or annuities. If
replacement is involved, attach a copy of each disclosure statement and a list
of companies involved and indicate cost basis:
preTEFRA $ _____________; post TEFRA $ _________________; and
d) I received $ _______________________ as the purchase payment.
________________________________________________________________________
This form may be reproduced
PARTICIPATION AGREEMENT
Between
FRANKLIN VALUEMARK FUNDS
and
NORTH AMERICAN LIFE AND CASUALTY COMPANY
THIS AGREEMENT, effective the 1st day of January, 1990 by and between North
American Life and Casualty Company, a Minnesota corporation (hereinafter the
"Company") on its own behalf and on behalf of one or more segregated asset
accounts of the Company or its affiliates (hereinafter the "Account"), and
Franklin Valuemark Funds, a Massachusetts business trust (hereinafter the
"Trust").
WHEREAS, the Trust engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance policies and variable annuity contracts
(collectively, the "Variable Insurance Products") to be offered by the Company
and its affiliates (hereinafter the "Company"); and
WHEREAS, the beneficial Interest in the Trust is divided into several series of
shares, each designated a "Fund" and each representing the interests in a
particular managed pool of securities and other assets; and
WHEREAS, the Trust has obtained an order from the Securities and Exchange
Commission, dated September 7, 1989 (File No. 812-7303), granting the Company
and variable annuity and variable life insurance separate accounts exemptions
from certain provisions of the Investment Company Act of 1940, as amended,
(hereinafter the "1940 Act") and certain Rules thereunder, to the extent
necessary to permit shares of the Trust to be sold to and held by variable
annuity and variable life insurance separate accounts of the Company
(hereinafter the "Mixed Funding Exemptive Order"); and
WHEREAS, the Trust is registered as an open-end management investment company
under the 1940 Act and its shares are registered under the Securities Act of
1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the company has registered or will register certain variable annuity
and/or life insurance contracts under the 1933 Act (hereinafter "Contracts");
and
WHEREAS, the Account is a duly organized, validly existing segregated asset
account, established by resolution of the Board of Directors of the Company, to
set aside and invest assets attributable to the aforesaid variable contracts
(the Contract(s) and the Account(s) covered by this Agreement, and the
corresponding Funds covered by this Agreement in which the Account(s) invest,
are specified in Schedule A attached hereto as may be modified from time to
time); and
WHEREAS, the Company has registered or will register the Account as a unit
investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
the Company intends to purchase shares in the Fund on behalf of the Account to
fund the Contracts;
NOW, THEREFORE, in consideration or their mutual promises, the Trust and the
Company agree as follows:
ARTICLE 1. SALE OF TRUST SHARES
1.1 The Trust agrees to sell to the company those shares of the Trust which the
Account orders, executing such orders on a daily basis at the net value next
computed after receipt by the Trust or its designee of the order for the shares
of the Trust. For purposes of this Section 1.1, the Company shall be the
designee of the Trust for receipt of such orders and receipt by such designee
shall constitute receipt by the Trust; provided that the Trust received notice
of such order by 9:30 a.m. New York time on the next following business day.
"Business Day" shall mean any day on which the New York Stock Exchange is open
for trading and on which the Trust calculates its net asset value pursuant to
the rules of the Securities and Exchange Commission.
1.2. The Trust agrees to make Trust shares available for the duration or this
Agreement for purchase at the applicable net asset value per share by the
Company and its Account on those days on which the Trust calculates its net
asset value pursuant to rules of the Securities and Exchange Commission and the
Trust shall use reasonable efforts to calculate such net asset value on each day
on which the New York Stock Exchange is open for trading. Notwithstanding the
foregoing, the Board of Trustees of the Trust (hereinafter the "Trustees") may
refuse to sell shares of any Funds to any person, or suspend or terminate the
offering of shares of any Fund if such action is required by law or regulatory
authorities having jurisdiction or is, in the sole discretion of the Trustees
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Fund.
1.3. The Trust agrees that shares of the Trust will be sold only to the Company
and their separate accounts. No shares of any Fund will be sold to the general
public.
1.4. The Trust agrees to redeem for cash, on the Company's request, any full or
fractional shares of the Trust held by the Company, executing such requests on a
daily basis at the net asset value next computed after receipt by the Trust or
its designee of the request for redemption. For purposes of this Section 1.4,
the Company shall be the designee of the Trust for receipt of requests for
redemption and receipt by such designee shall constitute receipt by the Trust
provided that the Trust receives notice of such request for redemption by 9:30
a.m. New York time on the next following Business Day.
1.5. The company shall pay for the Trust shares on the next Business Day after
an order to purchase shares is made in accordance with the provisions of Section
1.1 hereof. Payment shall be in federal funds transmitted by wire or by a credit
for any shares redeemed.
1.6. Issuance and transfer of the Trust's shares will be by book entry only.
Stock certificates will not be issued to the Company or the Account. Shares
ordered from the Trust will be recorded in an appropriate title for the Account
or the appropriate subaccount of the Account.
1.7. The Trust shall furnish same day notice (by wire or telephone followed by
written confirmation) to the Company of any income, dividends or capital gain
distributions payable on the Trust's shares. The Company hereby elects to
receive all such dividends and distributions as are payable on the Fund shares
in additional shares of that Fund. The Company reserves the right to revoke this
election and to receive all such dividends and distributions in cash. The Trust
shall notify the Company of the number of shares so issued as payment of such
dividends and distributions.
1.8. The Trust shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated and shall use its best efforts to
make such net asset value per share available by 6:30 p.m. New York time.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act (or exempt therefrom), that the Contracts will be
issued and sold in compliance in all material respects with all applicable
federal and state laws and that the sale of the Contracts shall comply in all
material respects with state insurance suitability requirements. The Company
further represents and warrants that it is an insurance company duly organized
and in good standing under applicable law and that it has legally and validly
established the Account as a segregated asset account under Minnesota law and
has registered or, prior to any issuance or sale of the Contracts, will register
the Account as a unit investment trust in accordance with the provisions of the
1940 Act (unless exempt therefrom) to serve as a segregated investment account
for the Contracts.
2.2. The Trust represents and warrants that Trust shares sold pursuant to this
Agreement shall be registered under the 1933 Act, duly authorized for issuance
and sold in compliance with the laws or Massachusetts and all applicable federal
and state securities laws and that the Trust is and shall remain registered
under the 1940 Act. The Trust shall amend the Registration Statement for its
shares under the 1933 Act and the 1940 Act from time to time as required in
order to affect the continuous offering of its shares. The Trust shall register
and qualify the shares for sale in accordance with the laws of the various
states only if and to the extent deemed advisable by the Trust.
2.3. The Trust represents that the Trust is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, (the
"Code") and that every effort will be made to maintain such qualifications
(under Subchapter M or any successor or similar provision) and that the Trust
will notify the Company immediately upon having a reasonable basis for believing
that the Trust has ceased to so qualify or that the Trust might not so qualify
in the future.
2.4. The Trust undertakes to have a Board of Trustees, a majority of whom are
not interested persons of the Trust, formulate and approve of any plan under
Rule 12b-1 to finance distribution expenses.
2.5. The Trust represents that it will sell and distribute the Trust shares in
accordance with all applicable state and federal securities laws, including
without limitation the 1933 Act, the 1934 Act, and the 1940 Act.
2.6. The Trust represents that it is lawfully organized and validly existing
under the laws of the State of Massachusetts and that it does and will comply
with the 1940 Act.
ARTICLE III. PROSPECTUS AND PROXY STATEMENTS; VOTING
3.1. The Trust shall provide the Company (at the Trust's expense) with as many
copies of the Trust's current prospectus as the Company may reasonably request.
If requested by the Company in lieu thereof, the Trust shall provide such
documentation (including a final "camera ready" copy of the new prospectus as
set in type at the Trust's expense) and other assistance as is reasonably
necessary in order for the Company once a year (or more frequently if the
prospectus for the Trust is supplemented or amended) to have the prospectus for
the Contracts and the Trust's prospectus printed together in one document (such
printing to be at the Trust's expense).
3.2. The Trust's prospectus shall state that the Statement of Additional
Information for the Trust is available from the Trust. The Trust, at its
expense, shall print and provide such Statement free of charge to the Company
and to any owner of a contract or prospective owner who requests such Statement.
3.3. The Trust, at its expense, shall provide the Company with copies of its
proxy material, reports to stockholders and other communications to stockholders
in such quantity as the Company shall reasonably require for distributing to
Contract owners.
3.4. If and to the extent required by law (or the Mixed Funding Exemptive Order)
the Company shall:
1. solicit voting instructions from contract owners;
2. vote the Trust shares in accordance with instructions received from Contract
owners; and
3. vote Trust shares for which no instructions have been received in the same
proportion as Trust shares of such Fund for which instructions have been
received;
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges or
variable contract owners. The Company reserves the right to vote Trust shares
held in any segregated asset account in its own right, to the extent permitted
by law. The Company shall be responsible, with the guidance and assistance of
the Trust, assuring that each of their separate account participating in the
Trust calculates voting privileges in a manner consistent with the standards set
forth on Schedule B attached hereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the Trust or
its designee, each piece of sales literature or other promotional material in
which the Trust, its investment adviser or underwriter is named, a reasonable
time prior to its use. No such material shall be used if the Trust or its
designee object to such use within 15 Business Days after receipt of such
material.
4.2. The Company shall not give any information or make any representations or
statements on behalf of the Trust or concerning the Trust in connection with the
sale of the Contracts other than the information or representations contained in
the registration statement or prospectus for the Trust shares, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in reports or proxy statements for the Trust, or in sales literature
or other promotional material approved by the Trust or its designee except with
the permission of the Trust.
4.3. The Trust shall furnish, or shall cause to be furnished, to the Company or
its designee, each piece of sales literature or other promotional material in
which the Company and/or its separate account(s), is named a reasonable time
prior to its use. No such material shall be used if the Company or its designee
object to such use within 15 Business Days after receipt or such material.
4.4. The Trust shall not give any information or make any representations on
behalf of the Company or concerning the Company, the Account, or the Contracts
other than information or representations contained in a registration statement
or prospectus for the Contracts, as such registration statement and prospectus
may be amended or supplemented from time to time, or in reports for the Account
approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5. The Trust will provide to the Company at least one complete copy of all
registration statements, prospectuses, Statements of Additional Information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no action letters, and all amendments
to any of the above, that relate to the Trust or its shares, prior to or
contemporaneously with the filing of such document with the Securities and
Exchange Commission or other regulatory authorities. The Trust shall also
promptly inform the Company of the results or any examination by the Securities
and Exchange Commission (or other regulatory authorities), and shall provide the
Company with a copy of any "deficiency letter" or other correspondence or
written report regarding any such examination.
4.6. For purposes of this Article IV, the phrase "sales literature or other
promotional material" means advertisements (such as material published, or
designed for use in, a newspaper, magazine, or other periodical, radio,
television, telephone or tape recording, videotape display, signs or billboard),
and sales literature (such as brochures, circulars, market letters and form
letters), distributed or made generally available to customers or the public.
ARTICLE V. FEES AND EXPENSES
5.1. The Trust shall pay no Fee or other compensation to the Company under this
Agreement, and the Company shall pay no fee or other compensation to the Trust.
5.2. All expenses incident to performance by the Trust under this Agreement
shall be paid by the Trust. The Trust shall see to it that all its shares are
registered and authorized for issuance in accordance with applicable federal law
and, if and to the extent deemed advisable by the Trust, in accordance with
applicable state laws prior to their sale. The Trust shall bear the expenses for
the cost of registration and qualification of the Trust's shares, preparation
and filing of the Trust's prospectus and registration statement, proxy materials
and reports, setting the prospectus in type, setting in type and printing the
proxy materials and reports to shareholders (including the costs of printing a
prospectus that constitutes an annual report), the preparation of all statements
and notices required by federal or state law, and all taxes on the issuance or
transfer of the Trust's shares.
5.3. The Trust shall bear the expenses of printing and distributing the Trust's
prospectus to owners of Contracts issued by the Company and or distributing the
Trust's proxy materials and reports to such Contract owners.
5.4. In the event the Trust adds one or more additional Funds and the Company
desires to make such Funds available to its Contract owners as an underlying
investment medium, a new Schedule A or an amendment to this Agreement shall be
executed by the parties authorizing the issuance of shares or the new Funds to
the Account.
ARTICLE VI. DIVERSIFICATION
6.1. The Trust represents, and warrants that the Trust will at all times invest
its assets in such a manner as to ensure that the Contracts will be treated as
annuity, endowment, or life insurance contracts under the code and the
regulations issued thereunder. Without limiting the scope of the foregoing, the
Trust will at all times comply with Section 817(h) of the Code and the
Regulations Section 1.817-5, relating to the diversification requirements for
variable annuity, endowment, or life insurance contracts and any amendments or
other modifications to such Section or Regulation.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board of Trustees of the Trust (the "Board") will monitor the Trust for
the existence of any material irreconcilable conflict between the interest of
the Contract owners of all separate accounts investing in the Trust. A material
irreconcilable conflict may arise for a variety of reasons, including: (a) an
Action by any state insurance regulatory authority; (b) a change in applicable
federal or state insurance, tax, or securities laws or regulations, or a public
ruling, private letter ruling, no action or interpretive letter or any similar
action by insurance, tax or securities regulatory authorities (c) an
administrative or judicial decision in any relevant proceeding; (d) the manner
in which the investments of any Fund are being managed; (e) a difference in
voting instructions given by variable annuity contract and variable life
insurance contract owners; or (f) a decision by an insurer to disregard the
voting instructions or Contract owners. The Board shall promptly inform the
Company to determine that a material irreconcilable conflict exists and the
implications thereof.
7.2. If it is determined by a majority of the Board, or a majority of its
disinterested Trustees, that a material irreconcilable conflict exists, the
Company shall, at its expense, and to the extent reasonably practicable (as
determined by a majority or the disinterested Trustees) take whatever steps are
necessary to remedy or eliminate the irreconcilable material conflict, up to and
including: (1) withdrawing the assets, allocable to some or all of the separate
accounts from the Trust or any Fund and reinvesting such assets in a different
investment medium, including (but not limited to) another Fund of the Trust, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity Contract owners or life insurance Contract
owners) that votes in favor of such Segregation, or offering to the affected
Contract owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account.
7.3. If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with the
majority of other state regulators, then the Company will withdraw the Account's
investment in the Trust and terminate this Agreement within six months after the
Board informs the Company in writing that it has determined that such decision
has created an irreconcilable material conflict, provided, however, that such
withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
disinterested members of the Board. Until the end of the foregoing six month
period, the Trust shall continue to accept and implement orders by the Company
for the purchase and redemption of shares of the Trust.
7.4. For purposes of Section 7.2 though 7.4 of this Agreement, a majority of the
disinterested members of the Board shall determine whether or not any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Trust be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.2 to establish a new funding
medium for the Contracts, if an offer to do so has been declined by vote of a
majority or Contract owners materially adversely affected by the irreconcilable
material conflict. In the event that the Board determines that any proposed
action does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw the Account's investment in the Fund and terminate this
Agreement within six (6) months after the Board informs the Company in writing
of the foregoing determination, provided, however, that such withdrawal and
termination shall be limited to the extent required by any such material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board.
ARTICLE VIII.INDEMNIFICATION
8.1 INDEMNIFICATION BY THE COMPANY
8.1(a). The Company agrees to indemnify and hold harmless the Trust and each of
its Trustees and officers and each person, if any, who controls the Trust within
the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 8.1) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Company) or litigation (including legal and other expenses), to
which the Indemnified Parties may become subject under any statute, regulation,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are related to the
sale or acquisition of the Trust's shares or the Contracts and:
1. arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in the Registration Statement or
prospectus for the Contracts or contained in the Contracts or sales
literature for the Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any indemnified Party if such
statement or omission or such alleged statement or omission was made in
reliance upon and in conformity with information furnished to the Company
by or on behalf of the Trust for use in the Registration Statement or
prospectus for the Contracts or in the Contracts or sales literature (or
any amendment or supplement) or otherwise for use in connection with the
sale of the Contracts or Trust shares; or
2. arise out of or as a result of statements or representations (other than
statements or representations contained in the Registration Statement,
prospectus or sales literature of the Trust not supplied by the Company, or
persons under its control) or wrongful conduct of the Company or persons
under its control, with respect to the sale or distribution of the
Contracts or Trust Shares; or
3. arise out of any untrue statement or alleged untrue statement of a material
fact contained in a Registration Statement, prospectus, or sales literature
of the Trust or any amendment thereof or supplement thereto or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading if such
statement or omission was made in reliance upon information furnished to
the Trust by or on behalf of the company; or
4. arise out of or result from any material breach of any representation
and/or warranty made by the Company in this Agreement or arise out of or
result from any other material breach of this Agreement by the Company,
except to the extent provided in Sections 8.1(b) and 8.1(c) hereof.
8.1(b). The Company shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation to which
an Indemnified Party would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations or duties under this Agreement or to the Trust,
whichever is applicable.
8.1(c) The Company shall not be liable under this indemnification provision with
respect to any claim made against an Indemnified Party unless such Indemnified
Party shall have notified the Company in writing within a reasonable time after
the summons or other first legal process giving information of the nature of the
claim shall have been served upon such indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify the Company of any such claim shall not relieve
the Company from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Company shall be entitled to participate, at its own
expense, in the defense of such action. The Company also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Company to such party of the Company's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Company will be not
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.l(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Trust Shares or the Contracts or the operation of
the Trust and the Indemnified Parties will provide the Company with all relevant
information and documents requested by the Company. For purposes of this Section
8.1(d), the "commencement" of proceedings shall include any informal or formal
communications from the Securities and Exchange Commission or its staff (or the
receipt of information from any other persons or entities) indicating that
enforcement action by said Commission or staff may be contemplated or
forthcoming.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws or Minnesota.
9.2 This Agreement shall be subject to the provisions of the 1933, 1934 and 1940
Acts, and the rules and regulations and rulings thereunder, including such
exemptions from those statutes, rules and regulations as the Securities and
Exchange Commission may grant (including, but not limited to, the Mixed Funding
Exemptive Order) and the terms hereof shall be interpreted and construed in
accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate with respect to one, some, or all Funds for
one, some, or all Contracts or Accounts:
1. at the option of any party upon six month's advance written notice to the
other parties;
2. at the option of the Company to the extent that shares of Funds are not
reasonably available to meet the requirements of the Contracts or are not
appropriate funding vehicles for the Contracts, as determined by the
Company reasonably and in good faith. Prompt notice of the election to
terminate for such cause and an explanation or such cause shall be
furnished by the Company; or
3. as provided in Article VII.
10.2. The notice shall specify the Fund(s) and Contract(s) or Account(s) as to
which the Agreement is to be terminated.
10.3. It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 1O.1 (a) may be exercised for cause
or for no cause.
10.4. Effect of Termination. Notwithstanding any termination of this Agreement,
the Trust shall at the option of the Company, continue to make available
additional shares of the Trust pursuant to the terms and conditions of this
Agreement, for all Contracts in effect on the effective date of termination of
this Agreement (hereinafter referred to as "Existing Contracts"). Specifically,
without limitation, the owners of the existing contracts shall be permitted to
reallocate investments in the Trust, redeem investments in the Trust and/or
invest in the Trust upon the making of additional purchase payments under the
Existing Contracts. The parties agree that this Section 10.4 shall not apply to
any terminations under Article VII and the effect of such Article VII
terminations shall be governed by Article VII of this Agreement.
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or certified mail
to the other party at the address of such party set forth below or at such other
address as such party may from time to time specify in writing to the other
party.
If to the Trust: Deborah Gatzek, Vice President
Franklin Resources, Inc.
777 Mariners Island Boulevard
San Mateo, California 94404
If to the Company: Mr. Robert S. James, President-Financial Markets
North American Life and Casualty Company 1750 Hennepin
Avenue
Minneapolis, Minnesota 55403
ARTICLE XII. MISCELLANEOUS
12.1. Subject to the requirements of legal process and regulatory authority,
each party hereto shall treat as confidential the names and addresses of the
owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party until such time as it may come into the public domain.
12.2. The captions in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or otherwise
affect their construction or effect.
12.3. This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together shall constitute one and the same instrument.
12.4. If any provision or this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
12.5. The Schedules attached hereto, as modified from time to time, are
incorporated herein by reference and are part of this Agreement.
12.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitations the
Securities and Exchange Commission, the NASD and state insurance regulators) and
shall permit such authorities reasonable access to its books and records in
connection with any investigation or inquiry relating to this Agreement or the
transactions contemplated hereby.
12.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
IN WITNESS WHEREOF, each of the parties has cause this Agreement to be executed
in its name and on its behalf by its duly authorized representative and its seal
to be hereunder affixed hereto as or the date specified below.
Company:
By two authorized officers,
By: /s/Robert S. James
Title: President, Financial Markets Division
Date: 5/24/92
By: /s/Michael T. Westermeyer
Title: Second Vice President and Senior Counsel
Date: 5/20/92
Trust:
By its authorized officers,
By: /s/Deborah Gatzek
Title: Secretary
Date: 3/31/92
SCHEDULE A
Franklin Valuemark Funds (Trust) is a diversified, open-end management
investment company consisting of the following separate Funds:
Adjustable U.S. Government Fund Equity Growth Fund Global Income Fund High
Income Fund Income Securities Fund Investment Grade Intermediate Bond Fund
Money Market Fund Precious Metals Funds Real Estate Securities Fund U.S.
Government Securities Fund Utility Equity Fund Zero Coupon Fund - 1995
Zero Coupon Fund - 2000 Zero Coupon Fund - 2005 Zero Coupon Fund - 2010
Effective March 1, 1992:
Rising Dividend Fund
International Equity Fund
Pacific Growth Fund
Amendment to Participation Agreement
Effective as of the dates specified below, Allianz Life Insurance Company of
North America, formerly known as North American Life and Casualty Company, a
Minnesota corporation, and Franklin Valuemark Funds, a Massachussetts business
trust, hereby amend Schedule A of their Participation Agreement effective
January 1, 1990, by adding the following language to the bottom of the list of
the Funds which make up the Franklin Valuemark Funds:
"Effective March 15, 1994:
Templeton Developing Markets Equity Fund
Templeton Global Growth Fund"
"Effective May 1, 1995:
Templeton Global Asset Allocation Fund"
IN WITNESS WHEREOF, each of the Parties has caused this Amendment to be executed
in its name and on its behalf by its duly authorized representatives as of the
date specified below.
Allianz Life Insurance Company of North America
By: /s/James P. Kelso
James P. Kelso
Title: Vice President,
Variable Products
Date: 6/30/95
Franklin Valuemark Funds
By: /s/Karen L. Skidmore
Karen L. Skidmore
Title: Assistant Vice President
& Assistant Secretary
Date: 6/16/95
Amendment to Participation Agreement
Effective as of the dates specified below, Allianz Life Insurance Company of
North America, formerly known as North American Life and Casualty Company, a
Minnesota corporation, and Franklin Valuemark Funds, a Massachussetts business
trust, hereby amend Schedule A of their Participation Agreement effective
January 1, 1990, by adding the following language to the bottom of the list of
the Funds which make up the Franklin Valuemark Funds:
"Effective November 1, 1995:
Small Cap Fund"
IN WITNESS WHEREOF, each of the Parties has caused this Amendment to be
executed in its name and on its behalf by its duly authorized representatives
as of the date specified below.
Allianz Life Insurance Company of North America
By: /s/James P. Kelso
James P. Kelso
Title: Vice President,
Variable Products
Franklin Valuemark Funds
By: /s/Karen L. Skidmore
Karen L. Skidmore
Title: Assistant Vice President
& Assistant Secretary
Amendment to Participation Agreement
Effective as of the dates specified below, Allianz Life Insurance Company of
North America, formerly known as North American Life and Casualty Company, a
Minnesota corporation, and Franklin Valuemark Funds, a Massachussetts business
trust, hereby amend Schedule A of their Participation Agreement effective
January 1, 1990, by adding the following language to the bottom of the list of
the Funds which make up the Franklin Valuemark Funds:
"Effective May 1, 1996:
Capital Growth Fund
Templeton International Smaller Companies Fund"
IN WITNESS WHEREOF, each of the Parties has caused this Amendment to be
executed in its name and on its behalf by its duly authorized representatives
as of the date specified below.
Allianz Life Insurance Company of North America
By: /s/James P. Kelso
James P. Kelso
Title: Vice President,
Variable Products
Franklin Valuemark Funds
By: /s/Karen L. Skidmore
Karen L. Skidmore
Title: Assistant Vice President
& Assistant Secretary
Blazzard, Grodd & Hasenauer, P.C.
943 Post Road East
Westport, CT 06880
(203) 226-7866
April 19, 1996
Board of Directors
Preferred Life Insurance Company of New York
152 W 57th Street, 18th Floor
New York, NY 10019
Re: Opinion and Consent of Counsel
Preferred Life Variable Account C
Dear Sir or Madam:
You have requested our Opinion of Counsel in connection with the filing with
the Securities and Exchange Commission pursuant to the Securities Act of 1933,
as amended, of a Registration Statement on Form N-4 for the Individual Deferred
Variable Annuity Contracts to be issued by Preferred Life Insurance Company of
New York and its separate account, Preferred Life Variable Account C.
We are of the following opinions:
1. Preferred Life Insurance Company of New York is a valid and existing
stock life insurance company of the state of New York.
2. Preferred Life Variable Account C is a separate investment account of
Preferred Life Insurance Company of New York created and validly
existing pursuant to the New York Insurance Laws and the Regulations
thereunder.
3. Upon the acceptance of purchase payments made by an Owner pursuant
to a Contract issued in accordance with the Prospectus contained in the
Registration Statement and upon compliance with applicable law, such an
Owner will have a legally-issued, fully-paid, non-assessable contractual
interest under such Contract.
You may use this opinion letter, or copy hereof, as an exhibit to the
Registration Statement.
We consent to the reference to our Firm under the caption "Legal Opinions"
contained in the Statement of Additional Information which forms a part of the
Registration Statement.
Sincerely,
BLAZZARD, GRODD, & HASENAUER, P.C.
By: /s/ LYNN KORMAN STONE
__________________________________
Lynn Korman Stone
elaine
KPMG Peat Marwick LLP
4200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
Independent Auditors' Consent
The Board of Directors
Preferred Life Insurance Company of New York:
We consent to the use of our report, dated January 22, 1995, on the financial
statements of Preferred Life Variable Account C and our report dated February
6, 1995, on the financial statements of Preferred Life Insurance Company of
New York included herein and to the reference to our Firm under the heading
"EXPERTS".
KPMG Peat Marwick LLP
Minneapolis, Minnesota
April 17, 1996
EXHIBIT 13
CALCULATION OF PERFORMANCE INFORMATION
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK II
PREFERRED LIFE VARIABLE ACCOUNT C
AVERAGE ANNUAL TOTAL RETURN
VALUATION DATE DECEMBER 31, 1995
PURCHASE YEARS TOTAL 1995 AVERAGE TOTAL
FUND AMOUNT INVESTED VALUE ANNUAL RETURN RETURN
- ---------------------------------------- --------- -------- --------- -------------- -------
<S> <C> <C> <C> <C> <C>
Money Market Fund $1,000.00 4 $1,093.04 4.19% 9.30%
Growth and Income Fund $1,000.00 4 $1,443.63 30.90% 44.36%
Precious Metals Fund $1,000.00 4 $1,322.17 0.85% 32.22%
High Income Fund $1,000.00 4 $1,484.81 18.02% 48.48%
Real Estate Securities Fund $1,000.00 4 $1,520.68 15.82% 52.07%
U.S. Government Securities Fund $1,000.00 4 $1,269.02 17.71% 26.90%
Utility Equity Fund $1,000.00 4 $1,315.36 29.43% 31.54%
Zero Coupon - 2000 Fund $1,000.00 4 $1,343.52 18.91% 34.35%
Zero Coupon - 2005 Fund $1,000.00 4 $1,521.13 29.84% 52.11%
Zero Coupon - 2010 Fund $1,000.00 4 $1,658.57 40.73% 65.86%
Global Income Fund $1,000.00 4 $1,193.13 12.99% 19.31%
Investment Grade Intermediate Bond Fund $1,000.00 4 $1,196.41 8.37% 19.64%
Income Securities Fund $1,000.00 4 $1,452.28 20.62% 45.23%
Adjustable U.S. Government Fund $1,000.00 4 $1,112.98 7.80% 11.30%
Templeton Pacific Growth Fund $1,000.00 3 $1,393.41 6.40% 39.34%
Rising Dividends Fund $1,000.00 3 $1,148.67 27.83% 14.87%
Templeton International Equity Fund $1,000.00 3 $1,372.28 8.98% 37.23%
Templeton Developing Markets Equity Fund $1,000.00 1 $1,012.49 1.25% 1.25%
Templeton Global Growth Fund $1,000.00 1 $1,110.57 11.06% 11.06%
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK II
PREFERRED LIFE VARIABLE ACCOUNT C
AVERAGE ANNUAL TOTAL RETURN
ORIGINAL PURCHASE DECEMBER 31, 1991
VALUATION DATE DECEMBER 31, 1995
DOLLAR UNITS THIS ACCUMULATED ACCUMULATED
DATE TRANSACTION AMOUNT UNIT VALUE TRANSACTION UNITS VALUE
- -------- ------------ ------------ --------------- ------------ ----------- ------------
<C> <S> <C> <C> <C> <C> <C>
Money Market Fund
------------ --------------- ------------
12-31-91 Purchase $ 1,000.00 11.74177967 85.166 85.166 $ 1,000.00
12-31-92 Contract Fee ($1.00) 11.93209752 (0.084) 85.082 $ 1,015.21
12-31-93 Contract Fee ($1.00) 12.06579747 (0.083) 84.999 $ 1,025.58
12-31-94 Contract Fee ($1.00) 12.35398427 (0.081) 84.918 $ 1,049.08
12-31-95 Contract Fee ($1.00) 12.88349436 (0.078) 84.840 $ 1,093.04
Growth and Income Fund
------------ --------------- ------------
12-31-91 Purchase $ 1,000.00 11.94928651 83.687 83.687 $ 1,000.00
12-31-92 Contract Fee ($1.00) 12.57361730 (0.080) 83.607 $ 1,051.24
12-31-93 Contract Fee ($1.00) 13.67694811 (0.073) 83.534 $ 1,142.49
12-31-94 Contract Fee ($1.00) 13.21462941 (0.076) 83.458 $ 1,102.87
12-31-95 Contract Fee ($1.00) 17.30965999 (0.058) 83.400 $ 1,443.63
Precious Metals Fund
------------ --------------- ------------
12-31-91 Purchase $ 1,000.00 10.63476279 94.031 94.031 $ 1,000.00
12-31-92 Contract Fee ($1.00) 9.42437104 (0.106) 93.925 $ 885.18
12-31-93 Contract Fee ($1.00) 14.46354903 (0.069) 93.856 $ 1,357.49
12-31-94 Contract Fee ($1.00) 13.97879422 (0.072) 93.784 $ 1,310.99
12-31-95 Contract Fee ($1.00) 14.10867153 (0.071) 93.713 $ 1,322.17
High Income Fund
------------ --------------- ------------
12-31-91 Purchase $ 1,000.00 11.58287531 86.334 86.334 $ 1,000.00
12-31-92 Contract Fee ($1.00) 13.27789297 (0.075) 86.259 $ 1,145.34
12-31-93 Contract Fee ($1.00) 15.15511991 (0.066) 86.193 $ 1,306.27
12-31-94 Contract Fee ($1.00) 14.60759128 (0.068) 86.125 $ 1,258.08
12-31-95 Contract Fee ($1.00) 17.25181285 (0.058) 86.067 $ 1,484.81
Real Estate Securities Fund
------------ --------------- ------------ -----------
12-31-91 Purchase $ 1,000.00 11.84810701 84.402 84.402 $ 1,000.00
12-31-92 Contract Fee ($1.00) 13.09547341 (0.076) 84.326 $ 1,104.29
12-31-93 Contract Fee ($1.00) 15.36898235 (0.065) 84.261 $ 1,295.01
12-31-94 Contract Fee ($1.00) 15.59407180 (0.064) 84.197 $ 1,312.97
12-31-95 Contract Fee ($1.00) 18.07282328 (0.055) 84.142 $ 1,520.68
U.S. Government Securities Fund
------------ --------------- ------------ -----------
12-31-91 Purchase $ 1,000.00 12.79761583 78.140 78.140 $ 1,000.01
12-31-92 Contract Fee ($1.00) 13.58621153 (0.074) 78.066 $ 1,060.62
12-31-93 Contract Fee ($1.00) 14.69826319 (0.068) 77.998 $ 1,146.44
12-31-94 Contract Fee ($1.00) 13.83490825 (0.072) 77.926 $ 1,078.10
12-31-95 Contract Fee ($1.00) 16.29770051 (0.061) 77.865 $ 1,269.02
Utility Equity Fund
------------ --------------- ------------
12-31-91 Purchase $ 1,000.00 14.82143005 67.470 67.470 $ 1,000.00
12-31-92 Contract Fee ($1.00) 15.88865152 (0.063) 67.407 $ 1,071.01
12-31-93 Contract Fee ($1.00) 17.31879581 (0.058) 67.349 $ 1,166.40
12-31-94 Contract Fee ($1.00) 15.10395032 (0.066) 67.283 $ 1,016.24
12-31-95 Contract Fee ($1.00) 19.56451758 (0.051) 67.232 $ 1,315.36
Zero Coupon - 2000 Fund
------------ --------------- ------------ -----------
12-31-91 Purchase $ 1,000.00 13.57017992 73.691 73.691 $ 1,000.00
12-31-92 Contract Fee ($1.00) 14.59489368 (0.069) 73.622 $ 1,074.51
12-31-93 Contract Fee ($1.00) 16.71742785 (0.060) 73.562 $ 1,229.77
12-31-94 Contract Fee ($1.00) 15.37318118 (0.065) 73.497 $ 1,129.88
12-31-95 Contract Fee ($1.00) 18.29362036 (0.055) 73.442 $ 1,343.52
Zero Coupon - 2005 Fund
------------ --------------- ------------ -----------
12-31-91 Purchase $ 1,000.00 13.70496151 72.966 72.966 $ 1,000.00
12-31-92 Contract Fee ($1.00) 14.97467685 (0.067) 72.899 $ 1,091.64
12-31-93 Contract Fee ($1.00) 18.04995514 (0.055) 72.844 $ 1,314.83
12-31-94 Contract Fee ($1.00) 16.09601101 (0.062) 72.782 $ 1,171.50
12-31-95 Contract Fee ($1.00) 20.91363234 (0.048) 72.734 $ 1,521.13
Zero Coupon - 2010 Fund
------------ --------------- ------------ -----------
12-31-91 Purchase $ 1,000.00 13.48230431 74.171 74.171 $ 1,000.00
12-31-92 Contract Fee ($1.00) 14.66961344 (0.068) 74.103 $ 1,087.06
12-31-93 Contract Fee ($1.00) 18.14448916 (0.055) 74.048 $ 1,343.56
12-31-94 Contract Fee ($1.00) 15.92982416 (0.063) 73.985 $ 1,178.57
12-31-95 Contract Fee ($1.00) 22.43134838 (0.045) 73.940 $ 1,658.57
Global Income Fund
------------ --------------- ------------
12-31-91 Purchase $ 1,000.00 12.96200318 77.149 77.149 $ 1,000.01
12-31-92 Contract Fee ($1.00) 12.73250766 (0.079) 77.070 $ 981.29
12-31-93 Contract Fee ($1.00) 14.64984870 (0.068) 77.002 $ 1,128.07
12-31-94 Contract Fee ($1.00) 13.72629720 (0.073) 76.929 $ 1,055.95
12-31-95 Contract Fee ($1.00) 15.52246997 (0.064) 76.865 $ 1,193.13
Investment Grade Intermediate Bond Fund
------------ ------------ --------------- ------------ -----------
12-31-91 Purchase $ 1,000.00 12.87857355 77.648 77.648 $ 1,000.00
12-31-92 Contract Fee ($1.00) 13.44210000 (0.074) 77.574 $ 1,042.76
12-31-93 Contract Fee ($1.00) 14.38929401 (0.069) 77.505 $ 1,115.24
12-31-94 Contract Fee ($1.00) 14.25707517 (0.070) 77.435 $ 1,104.00
12-31-95 Contract Fee ($1.00) 15.46342330 (0.065) 77.370 $ 1,196.41
Income Securities Fund
------------ --------------- ------------
12-31-91 Purchase $ 1,000.00 13.58029545 73.636 73.636 $ 1,000.00
12-31-92 Contract Fee ($1.00) 15.16252410 (0.066) 73.570 $ 1,115.51
12-31-93 Contract Fee ($1.00) 17.73437317 (0.056) 73.514 $ 1,303.72
12-31-94 Contract Fee ($1.00) 16.39171653 (0.061) 73.453 $ 1,204.02
12-31-95 Contract Fee ($1.00) 19.78534185 (0.051) 73.402 $ 1,452.28
Adjustable U.S. Government Fund
------------ --------------- ------------
12-31-91 Purchase $ 1,000.00 10.69751831 93.480 93.480 $ 1,000.00
12-31-92 Contract Fee ($1.00) 11.01976506 (0.091) 93.389 $ 1,029.12
12-31-93 Contract Fee ($1.00) 11.25360475 (0.089) 93.300 $ 1,049.96
12-31-94 Contract Fee ($1.00) 11.07653376 (0.090) 93.210 $ 1,032.44
12-31-95 Contract Fee ($1.00) 11.95134157 (0.084) 93.126 $ 1,112.98
Templeton Pacific Growth Fund
------------ --------------- ------------ -----------
12-31-92 Purchase $ 1,000.00 9.76096735 102.449 102.449 $ 1,000.00
12-31-93 Contract Fee ($1.00) 14.23330574 (0.070) 102.379 $ 1,457.19
12-31-94 Contract Fee ($1.00) 12.80173310 (0.078) 102.301 $ 1,309.63
12-31-95 Contract Fee ($1.00) 13.63037545 (0.073) 102.228 $ 1,393.41
Rising Dividends Fund
------------ --------------- ------------
12-31-92 Purchase $ 1,000.00 10.84771473 92.185 92.185 $ 1,000.00
12-31-93 Contract Fee ($1.00) 10.32720317 (0.097) 92.088 $ 951.01
12-31-94 Contract Fee ($1.00) 9.76873744 (0.102) 91.986 $ 898.59
12-31-95 Contract Fee ($1.00) 12.49836348 (0.080) 91.906 $ 1,148.67
Templeton International Equity Fund
------------ --------------- ------------ -----------
12-31-92 Purchase $ 1,000.00 9.64241309 103.708 103.708 $ 1,000.00
12-31-93 Contract Fee ($1.00) 12.22565227 (0.082) 103.626 $ 1,266.90
12-31-94 Contract Fee ($1.00) 12.16131942 (0.082) 103.544 $ 1,259.23
12-31-95 Contract Fee ($1.00) 13.26267921 (0.075) 103.469 $ 1,372.28
Templeton Developing Markets Equity Fund
------------ ------------ --------------- ------------ -----------
12-31-94 Purchase $ 1,000.00 9.45424664 105.773 105.773 $ 1,000.00
12-31-95 Contract Fee ($1.00) 9.58170209 (0.104) 105.669 $ 1,012.49
Templeton Global Growth Fund
------------ --------------- ------------ -----------
12-31-94 Purchase $ 1,000.00 10.20085584 98.031 98.031 $ 1,000.00
12-31-95 Contract Fee ($1.00) 11.33894840 (0.088) 97.943 $ 1,110.57
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000845775
<NAME> PREFERRED LIFE VARIABLE ACCOUNT C
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 632,721,263
<INVESTMENTS-AT-VALUE> 691,164,941
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 691,164,941
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 850,952
<TOTAL-LIABILITIES> 850,952
<SENIOR-EQUITY> 592,531,986
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 42,825,831
<SHARES-COMMON-PRIOR> 42,576,408
<ACCUMULATED-NII-CURRENT> 30,951,794
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8,386,533
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 58,443,676
<NET-ASSETS> 690,313,989
<DIVIDEND-INCOME> 27,165,819
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 8,843,007
<NET-INVESTMENT-INCOME> 18,322,812
<REALIZED-GAINS-CURRENT> 6,173,326
<APPREC-INCREASE-CURRENT> 83,295,102
<NET-CHANGE-FROM-OPS> 107,791,240
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,418,917
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 112,870,056
<ACCUMULATED-NII-PRIOR> 12,628,982
<ACCUMULATED-GAINS-PRIOR> 2,213,207
<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 8,843,007
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8,843,007
<AVERAGE-NET-ASSETS> 633,878,961
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<EXPENSE-RATIO> .014
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
