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. 12 (X)
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 ( )
Amendment No. 18 (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
___ on (date) pursuant to paragraph (b) of Rule 485
___ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
_X_ on May 1, 1997 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 25, 1997.
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, 1997
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 payment 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 High Income 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 Mutual Shares
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 Mutual Discovery Securities Fund, the Natural Resources
Securities 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. Prior to May 1, 1997, the Natural Resources Securities Fund was
known as the Precious Metals Fund. See "Highlights" and "Tax Status -
Diversification" for a discussion of owner control of the underlying investments
in a variable annuity contract.
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,
1997 and may be amended from time to time.
This Prospectus should be kept for future reference.
Contents Page
DEFINITIONS...................................... 3
HIGHLIGHTS....................................... 4
FEE TABLE........................................ 6
CONDENSED FINANCIAL
INFORMATION..................................... 10
THE COMPANY ..................................... 12
THE VARIABLE ACCOUNT............................. 12
FRANKLIN VALUEMARK FUNDS......................... 12
General ........................................ 13
Substitution of Securities ..................... 13
Voting rights .................................. 13
CHARGES AND DEDUCTIONS .......................... 14
Deduction for Contingent Deferred
Sales Charge (Sales Load)...................... 14
Reduction or Elimination of
Contingent Deferred Sales Charge............... 14
Deduction for Mortality and
Expense Risk Charge............................ 15
Deduction for Administrative
Expense Charge ................................ 15
Deduction for Contract
Maintenance Charge ............................ 15
Deduction for Premium Taxes .................... 15
Deduction for Income Taxes. .................... 16
Deduction for Trust Expenses ................... 16
Deduction for Transfer Fee...................... 16
THE CONTRACTS.................................... 16
Ownership....................................... 16
Assignment...................................... 16
Beneficiary..................................... 17
Change of Beneficiary........................... 17
Annuitant....................................... 17
Death of the Contract Owner
Before the Income Date......................... 17
Death of the Annuitant
Prior to the Income Date....................... 18
Death of the Annuitant
After the Income Date.......................... 18
ANNUITY PROVISIONS............................... 18
Income Date..................................... 18
Change in Income Date
and Annuity Option ............................ 18
Annuity Options................................. 18
Fixed Options................................... 18
Variable Options ............................... 19
PURCHASE PAYMENTS
AND CONTRACT VALUE ............................. 19
Purchase Payments .............................. 19
Automatic Investment Plan....................... 20
Allocation of Purchase Payments ................ 20
Transfer of Contract Values .................... 20
Dollar Cost Averaging .......................... 21
Contract Value ................................. 22
Accumulation Unit .............................. 22
DISTRIBUTOR ..................................... 22
SURRENDERS ...................................... 23
Systematic Withdrawal........................... 23
Delay of Payments............................... 23
ADMINISTRATION OF THE CONTRACTS.................. 24
PERFORMANCE DATA ................................ 24
Money Market Sub-Account ....................... 24
Other Sub-Account............................... 24
Performance Ranking............................. 25
TAX STATUS....................................... 25
General......................................... 25
Diversification................................. 26
Multiple Contracts.............................. 26
Contracts Owned by
Other than Natural Persons .................... 27
Tax Treatment of Assignments ................... 27
Income Tax Withholding ......................... 27
Tax Treatment of Withdrawals -
Non-Qualified Contracts ....................... 27
Qualified Plans ................................ 27
Tax Treatment of Withdrawals -
Qualified Contracts ........................... 29
Tax-Sheltered Annuities -
Withdrawal Limitations ........................ 29
FINANCIAL STATEMENTS ............................ 30
LEGAL PROCEEDINGS ............................... 30
APPENDIX - PERFORMANCE
INFORMATION OF SELECTED
PUBLIC FUNDS.................................... 30
TABLE OF CONTENTS
OF THE STATEMENT OF
ADDITIONAL INFORMATION ......................... 31
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 of 1986, as amended (the "Code").
Qualified Contracts - Contracts issued under Qualified Plans which receive
favorable tax treatment under Sections 401, 403(b) or 408 of the 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").
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.") Currently, the state of New York does not impose
a premium tax on variable annuities.
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 591/2; (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.
<PAGE>
<TABLE>
<CAPTION>
Preferred Life Variable Account C Fee Table
- --------------------------------------------------------------------------------
Contract Owner Transaction Fees
Contingent Deferred Sales Charge*
(as a percentage of purchase payments) Years Since
Payment Charge
--------------------
<S> <C> <C>
0-1 5%
1-2 5%
2-3 4%
3-4 3%
4-5 1.5%
5+ 0%
</TABLE>
Current Transfer Fee**................................... First 12 transfers in
a Contract Year prior to the Income Date 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%
*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.
<PAGE>
<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 Fund Administration Fees below include investment advisory and other management and administrative fees not
included as "Other Expenses" that were paid to the Managers and Fund Administrators to the Trust for the 1996 calendar year except
for Funds with fee waivers/expense reductions or newer Funds without a full year of operations as of December 31, 1996 (see
explanatory footnotes below). 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.
<CAPTION>
Management
and Fund Other Total Annual
Administration Fees1Expenses Expenses
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Money Market Fund2............................................................. .51% .02% .53%
Growth and Income Fund......................................................... .48% .01% .49%
Natural Resources Securities Fund3............................................. .60% .05% .65%
Real Estate Securities Fund.................................................... .55% .02% .57%
Utility Equity Fund............................................................ .47% .03% .50%
High Income Fund............................................................... .52% .02% .54%
Templeton Global Income Securities Fund........................................ .56% .05% .61%
Income Securities Fund......................................................... .47% .03% .50%
The U.S. Government Securities Fund............................................ .49% .02% .51%
Zero Coupon Fund - 20004....................................................... .38% .02% .40%
Zero Coupon Fund - 20054....................................................... .38% .02% .40%
Zero Coupon Fund - 20104....................................................... .38% .02% .40%
Rising Dividends Fund.......................................................... .75% .01% .76%
Templeton International Equity Fund............................................ .81% .08% .89%
Templeton Pacific Growth Fund.................................................. .89% .10% .99%
Templeton Global Growth Fund................................................... .88% .05% .93%
Templeton Developing Markets Equity Fund....................................... 1.25% .24% 1.49%
Templeton Global Asset Allocation Fund......................................... .80% .06% .86%
Small Cap Fund................................................................. .75% .02% .77%
Templeton International Smaller Companies Fund5................................ 1.00% .16% 1.16%
Capital Growth Fund5........................................................... .75% .02% .77%
Mutual Discovery Securities Fund6.............................................. .96% .41% 1.37%
Mutual Shares Securities Fund6................................................. .60% .40% 1.00%
<FN>
1The Fund Administration Fee is a direct expense for the Templeton Global Asset Allocation Fund, the Templeton International
Smaller Companies Fund, the Mutual Discovery Securities Fund and the Mutual Shares Securities Fund; other Funds pay for similar
services indirectly through the Management Fee. See "Management" in the Trust Prospectus for further information regarding
Management and Fund Administration Fees.
2Franklin 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 1996 and is currently continuing this arrangement in 1997. This arrangement may be
terminated at any time. With this reduction, actual Management Fees and Total Annual Expenses of the Money Market Fund for 1996
were 0.41% and 0.43%, respectively, of the average daily net assets of the Fund.
3Prior to May 1, 1997, the Natural Resources Securities Fund was known as the Precious Metals Fund.
4Net 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, 1997 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, 1996, the Total Annual Expenses and Management and Fund Administration Fees respectively
would have been as follows: Zero Coupon Fund - 2000, .62% and .60%; Zero Coupon Fund - 2005, .65% and .63%; and Zero Coupon Fund -
2010, .65% and .63%.
5The Templeton International Smaller Companies Fund and the Capital Growth Fund commenced operations May 1, 1996. The expenses
shown are estimated expenses for the Funds for 1997.
6The Mutual Discovery Securities Fund and the Mutual Shares Securities Fund commenced operations on November 8, 1996. The expenses
shown are estimated expenses for the Funds for 1997.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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 based on a Contract account size of $30,000. 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:
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market Fund .................................................................. $63 $ 86 $113 $235
Growth and Income Fund ............................................................. $63 $ 84 $111 $231
Natural Resources Securities Fund................................................... $64 $ 89 $119 $248
Real Estate Securities Fund ........................................................ $63 $ 87 $115 $240
Utility Equity Fund................................................................. $63 $ 85 $111 $232
High Income Fund ................................................................... $63 $ 86 $113 $236
Templeton Global Income Securities Fund ............................................ $64 $ 88 $117 $244
Income Securities Fund ............................................................. $63 $ 85 $111 $232
The U.S. Government Securities Fund................................................. $63 $ 85 $112 $233
Zero Coupon Fund - 2000+............................................................ $62 $ 82 $106 $222
Zero Coupon Fund - 2005+............................................................ $62 $ 82 $106 $222
Zero Coupon Fund - 2010+............................................................ $62 $ 82 $106 $222
Rising Dividends Fund .............................................................. $65 $ 93 $125 $259
Templeton International Equity Fund ................................................ $67 $ 97 $131 $273
Templeton Pacific Growth Fund ...................................................... $68 $100 $136 $283
Templeton Global Growth Fund ....................................................... $67 $ 98 $133 $277
Templeton Developing Markets Equity Fund ........................................... $73 $114 $161 $331
Templeton Global Asset Allocation Fund ............................................. $66 $ 96 $130 $270
Small Cap Fund...................................................................... $66 $ 93 $125 $260
Templeton International Smaller Companies Fund* .................................... $69 $105 $145 $300
Capital Growth Fund*................................................................ $66 $ 93 $125 $260
Mutual Discovery Securities Fund*................................................... $72 $111 $155 $320
Mutual Shares Securities Fund*...................................................... $68 $100 $137 $284
<FN>
*Estimated
+Calculated with waiver of fees and reimbursement of expenses
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
If the Contract is not surrendered at the end of the applicable time period and no prior surrenders have occurred or are
annuitized, the Contract Owner would have incurred the following expenses on a $1,000 investment, assuming a 5% annual return on
assets compounded semi-annually:
1 Year 3 Years 5 Years 10 Years
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market Fund .................................................................. $21 $64 $109 $235
Growth and Income Fund ............................................................. $20 $62 $107 $231
Natural Resources Securities Fund .................................................. $22 $67 $115 $248
Real Estate Securities Fund ........................................................ $21 $65 $111 $240
Utility Equity Fund ................................................................ $20 $63 $108 $232
High Income Fund ................................................................... $21 $64 $110 $236
Templeton Global Income Securities Fund ............................................ $21 $66 $113 $244
Income Securities Fund ............................................................. $20 $63 $108 $232
The U.S. Government Securities Fund................................................. $20 $63 $108 $233
Zero Coupon Fund - 2000+............................................................ $19 $60 $102 $222
Zero Coupon Fund - 2005+............................................................ $19 $60 $102 $222
Zero Coupon Fund - 2010+............................................................ $19 $60 $102 $222
Rising Dividends Fund .............................................................. $23 $71 $121 $259
Templeton International Equity Fund ................................................ $24 $75 $128 $273
Templeton Pacific Growth Fund ...................................................... $25 $78 $133 $283
Templeton Global Growth Fund ....................................................... $25 $76 $130 $277
Templeton Developing Markets Equity Fund ........................................... $30 $92 $157 $331
Templeton Global Asset Allocation Fund.............................................. $24 $74 $126 $270
Small Cap Fund...................................................................... $23 $71 $121 $260
Templeton International Smaller Companies Fund*..................................... $27 $83 $141 $300
Capital Growth Fund*................................................................ $23 $71 $121 $260
Mutual Discovery Securities Fund*................................................... $29 $89 $151 $320
Mutual Shares Securities Fund*...................................................... $25 $78 $133 $284
<FN>
*Estimated
+Calculated with waiver of fees and reimbursement of expenses
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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 accumulation unit information about the financial history of each Sub-Account from the inception of each
to December 31, 1996.
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.
Year Year Year Year Year Period from
(Number of units in thousands) Ended Ended Ended Ended Ended Inception to
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
Sub-Accounts: 1996 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Money Market
Unit value at beginning of period ............ $12.883 $12.354 $12.066 $11.932 $11.742 $11.623
Unit value at end of period .................. $13.359 $12.883 $12.354 $12.066 $11.932 $11.742
Number of units outstanding at end of period . 2,433 2,218 2,487 627 301 62
Growth and Income
Unit value at beginning of period ............ $17.310 $13.215 $13.677 $12.574 $11.949 $11.061
Unit value at end of period .................. $19.490 $17.310 $13.215 $13.677 $12.574 $11.949
Number of units outstanding at end of period . 5,070 4,346 3,452 2,402 1,227 125
Natural Resources Securities*
Unit value at beginning of period ............ $14.109 $13.979 $14.464 $9.424 $10.635 $10.433
Unit value at end of period .................. $14.467 $14.109 $13.979 $14.464 $9.424 $10.635
Number of units outstanding at end of period . 566 516 647 391 30 5
High Income
Unit value at beginning of period ............ $17.252 $14.608 $15.155 $13.278 $11.583 $11.043
Unit value at end of period ............... .. $19.375 $17.252 $14.608 $15.155 $13.278 $11.583
Number of units outstanding at end of period . 2,164 2,075 1,710 1,135 266 37
Real Estate Securities
Unit value at beginning of period ............ $18.073 $15.594 $15.369 $13.095 $11.848 $10.787
Unit value at end of period .................. $23.668 $18.073 $15.594 $15.369 $13.095 $11.848
Number of units outstanding at end of period . 859 794 900 437 77 8
The U.S. Government Securities
Unit value at beginning of period ............ $16.298 $13.835 $14.698 $13.586 $12.798 $12.036
Unit value at end of period .................. $16.650 $16.298 $13.835 $14.698 $13.586 $12.798
Number of units outstanding at end of period . 6,017 5,089 5,331 6,108 2,266 213
Utility Equity
Unit value at beginning of period ............ $19.565 $15.104 $17.319 $15.889 $14.821 $13.234
Unit value at end of period .................. $20.654 $19.565 $15.104 $17.319 $15.889 $14.821
Number of units outstanding at end of period . 4,998 5,916 6,317 7,479 2,519 166
Zero Coupon - 2000
Unit value at beginning of period ............ $18.294 $15.373 $16.717 $14.595 $13.570 $12.274
Unit value at end of period .................. $18.475 $18.294 $15.373 $16.717 $14.595 $13.570
Number of units outstanding at end of period . 1,358 1,416 1,158 795 397 6
Zero Coupon - 2005
Unit value at beginning of period ............ $20.914 $16.096 $18.050 $14.975 $13.705 $12.369
Unit value at end of period .................. $20.517 $20.914 $16.096 $18.050 $14.975 $13.705
Number of units outstanding at end of period . 428 456 403 341 108 3
Zero Coupon - 2010
Unit value at beginning of period ............ $22.431 $15.930 $18.144 $14.670 $13.482 $12.013
Unit value at end of period .................. $21.522 $22.431 $15.930 $18.144 $14.670 $13.482
Number of units outstanding at end of period . 348 372 252 193 60 1
Templeton Global Income Securities
Unit value at beginning of period ............ $15.522 $13.726 $14.650 $12.733 $12.962 $12.296
Unit value at end of period .................. $16.781 $15.522 $13.726 $14.650 $12.733 $12.962
Number of units outstanding at end of period . 1,354 1,472 1,667 1,045 406 47
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Year Year Year Year Period from
(Number of units in thousands) Ended Ended Ended Ended Ended Inception to
Dec 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
Sub-Accounts: 1996 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income Securities
Unit value at beginning of period ............ $19.785 $16.392 $17.734 $15.163 $13.580 $12.811
Unit value at end of period .................. $21.708 $19.785 $16.392 $17.734 $15.163 $13.580
Number of units outstanding at end of period . 4,519 4,567 4,416 2,634 668 35
Templeton Pacific Growth
Unit value at beginning of period ............ $13.630 $12.802 $14.233 $ 9.761 $9.992** NA
Unit value at end of period .................. $14.932 $13.630 $12.802 $14.233 $ 9.761 NA
Number of units outstanding at end of period . 1,751 1,811 2,112 915 58 NA
Rising Dividends
Unit value at beginning of period ............ $12.498 $9.769 $10.327 $10.848 $9.992** NA
Unit value at end of period .................. $15.303 $12.498 $9.769 $10.327 $10.848 NA
Number of units outstanding at end of period . 3,394 3,182 2,936 2,772 617 NA
Templeton International Equity
Unit value at beginning of period ............ $13.263 $12.161 $12.226 $9.642 $9.992** NA
Unit value at end of period .................. $16.081 $13.263 $12.161 $12.226 $9.642 NA
Number of units outstanding at end of period . 4,375 4,073 4,079 1,346 88 NA
Templeton Developing Markets Equity
Unit value at beginning of period ............ $9.582 $9.454 $9.994** NA NA NA
Unit value at end of period .................. $11.487 $9.582 $9.454 NA NA NA
Number of units outstanding at end of period . 1,042 757 591 NA NA NA
Templeton Global Growth
Unit value at beginning of period ............ $11.339 $10.201 $9.984** NA NA NA
Unit value at end of period .................. $13.560 $11.339 $10.201 NA NA NA
Number of units outstanding at end of period . 2,146 1,417 921 NA NA NA
Templeton Global Asset Allocation
Unit value at beginning of period ............ $10.591 $10.322** NA NA NA NA
Unit value at end of period .................. $12.514 $10.591 NA NA NA NA
Number of units outstanding at end of period . 300 36 NA NA NA NA
Small Cap
Unit value at beginning of period ............ $12.517** NA NA NA NA NA
Unit value at end of period .................. $12.913 NA NA NA NA NA
Number of units outstanding at end of period . 416 NA NA NA NA NA
Templeton International Smaller Companies
Unit value at beginning of period ............ $10.174** NA NA NA NA NA
Unit value at end of period .................. $11.145 NA NA NA NA NA
Number of units outstanding at end of period . 65 NA NA NA NA NA
Capital Growth
Unit value at beginning of period ............ $10.214** NA NA NA NA NA
Unit value at end of period .................. $11.254 NA NA NA NA NA
Number of units outstanding at end of period . 225 NA NA NA NA NA
Mutual Discovery Securities
Unit value at beginning of period............. $10.122** NA NA NA NA NA
Unit value at end of period................... 10.180 NA NA NA NA NA
Number of units outstanding at end of period.. 27 NA NA NA NA NA
Mutual Shares Securities
Unit value at beginning of period............. $10.112** NA NA NA NA NA
Unit value at end of period................... 10.330 NA NA NA NA NA
Number of units outstanding at end of period.. 43 NA NA NA NA NA
<FN>
*Prior to May 1, 1997, the Natural Resources Securities Sub-Account was known as the Precious Metals Sub-Account.
**Unit Value at inception.
</FN>
</TABLE>
<PAGE>
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. Inception was 3/10/92 for the Rising Dividends, Templeton International
Equity, and Templeton Pacific Growth Sub-Accounts; 4/25/94 for the Templeton
Global Growth and Templeton Developing Markets Equity Sub-Accounts; 8/4/95 for
the Templeton Global Asset Allocation Sub-Account; and 6/10/96 for the Small
Cap, International Smaller Companies and Capital Growth Sub-Accounts; and
12/2/96 for the Mutual Shares Securities and Mutual Discovery Securities
Sub-Accounts.
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 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, LLC is a wholly-owned subsidiary of Allianz Life. It is
the principal underwriter of the Contracts. NALAC Financial Plans, LLC 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 Funds of Franklin Valuemark Funds ("Trust"). The
Trust is an open-end management investment company registered under the 1940
Act. The investment objectives of each Fund and a discussion of potential risks
are found in the accompanying prospectus for the Trust, which is included with
this Prospectus and incorporated herein by reference.
PURCHASERS SHOULD READ THIS PROSPECTUS AND THE ACCOMPANYING PROSPECTUS FOR THE
TRUST CAREFULLY BEFORE INVESTING.
Franklin Advisers, Inc. ("Advisers") serves as each Fund's (except the Rising
Dividends Fund, the Templeton Global Growth Fund, the Templeton Developing
Markets Equity Fund, the Templeton Global Asset Allocation Fund, the Templeton
International Smaller Companies Fund, the Mutual Shares Securities Fund and the
Mutual Discovery Securities Fund) investment manager. The investment manager for
the Templeton Global Growth Fund and the Templeton Global Asset Allocation Fund
is Templeton Global Advisors Limited. The investment manager for the Templeton
Developing Markets Equity Fund is Templeton Asset Management Ltd. The investment
manager for the Templeton International Smaller Companies Fund is Templeton
Investment Counsel, Inc. The investment manager for the Mutual Shares Securities
Fund and the Mutual Discovery Securities Fund is Franklin Mutual Advisers, Inc.
Franklin Advisory Services, Inc. replaced Advisers as the manager for the Rising
Dividends Fund on July 1, 1996. 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, 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.
Franklin Templeton Services, Inc. ("Fund Administrator") provides certain
administrative facilities and services for the Funds.
Franklin Templeton Investor Services, Inc., 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.
The following Funds are available:
FUND SEEKING STABILITY
OF PRINCIPAL AND INCOME
Money Market Fund
FUNDS SEEKING CURRENT INCOME
High Income Fund
Templeton Global Income Securities Fund
The U.S. Government Securities Fund
Zero Coupon Funds - 2000, 2005, 2010
FUNDS SEEKING GROWTH AND INCOME
Growth and Income Fund
Income Securities Fund
Mutual Shares Securities Fund
Real Estate Securities Fund
Rising Dividends Fund
Templeton Global Asset Allocation Fund
Utility Equity Fund
FUNDS SEEKING CAPITAL GROWTH
Capital Growth Fund
Mutual Discovery Securities Fund
Natural Resources Securities Fund (formerly, Precious Metals Fund)
Small Cap
Fund Templeton Developing Markets Equity Fund
Templeton Global Growth Fund
Templeton International Equity Fund
Templeton International Smaller Companies Fund
Templeton Pacific Growth Fund
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, the
substitution of shares of any Fund for another would be in the best interests of
Contract Owners in view of the purpose of the Contract, the Company may
substitute shares of another Eligible Investment (or Fund within the Trust). No
substitution of securities in any Sub-Account may take place without prior
approval of the Securities and Exchange Commission and under such requirements
as it may impose.
Voting Rights
In accordance with its view of present applicable law, the Company will vote the
shares of the Trust held in the Variable Account at special meetings of the
shareholders of the Trust in accordance with instructions received from persons
having the voting interest in the Variable Account. The Company will vote shares
for which it has not received instructions, as well as shares attributable to
it, in the same proportion as it votes shares for which it has received
instructions. The Trust does not hold regular meetings of shareholders.
The number of shares which a person has a right to vote will be determined as of
a date to be chosen by the Company not more than sixty (60) days prior to the
meeting of the Trust. Voting instructions will be solicited by written
communication at least fourteen (14) days prior to the meeting.
Trust shares are issued and redeemed only in connection with variable annuity
contracts and variable life insurance policies issued through separate accounts
of the Company and its affiliates. The Trust does not foresee any disadvantage
to Contract Owners arising out of the fact that the Trust may be made available
to separate accounts which are used in connection with both variable annuity and
variable life insurance products. Nevertheless, the Trust's Board of Trustees
intends to monitor events in order to identify any material irreconcilable
conflicts which may possibly arise and to determine what action, if any, should
be taken in response thereto. If such a conflict were to occur, one of the
separate accounts might withdraw its investment in 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 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 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 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. Currently, the state of New
York does not assess a premium tax on variable annuity contracts; however, there
is no assurance that such a tax will not be assessed in the future.
Deduction for Income Taxes
While the Company is not currently maintaining a provision for federal income
taxes, the Company has reserved the right to establish a provision for income
taxes if it determines, in its sole discretion, that it will incur a tax as a
result of the operation of the Variable Account. The Company will deduct for any
income taxes incurred by it as a result of the operation of the Variable Account
whether or not there was a provision for taxes and whether or not it was
sufficient. Currently, no federal income taxes are assessed against the Variable
Account. However, if the tax laws should change, the Company reserves the right
to deduct the amount of such taxes from the Variable Account. Deduction for
Trust Expenses
There are other deductions from, and expenses paid out of, the assets of the
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 prior to the Income Date 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, has 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 Contract 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 such death benefit
will be reduced by the sum of any applicable premium taxes, Contract Maintenance
Charges and Contingent Deferred Sales Charges. If the guaranteed death benefit
is the greater, it will be the death benefit. After the death benefit is
calculated, it will be subject to market risk. No additional purchase payments
will be accepted after the death of the Contract Owner.);
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.); or
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
Contract 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
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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-Accounts 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 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
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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.
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 Qualified Contract, the Contract Owner should contact his
or her tax adviser for maximum contributions.
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. 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
or 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
initially select up to nine Sub-Accounts, and may only be invested in a maximum
of ten Sub-Accounts at any one time throughout the life of the Contract. 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 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 prior to the Income Date
without a charge. (See "Charges and Deductions - Deduction for Transfer Fee.")
Neither the Variable Account nor the Trust is 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 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.
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 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 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 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 transfers 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. The Company does
not intend to profit from any such charge. In the event there are additional
transfers, the transfer fee may be charged. Transfers made pursuant to the
Dollar Cost Averaging program are not counted in determining the applicability
of the transfer fee.
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
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NALAC Financial Plans, LLC ("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 now permits asset based compensation. The Company may adopt an asset
based compensation 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
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While the Contract is in force and before the Income Date, the Company will,
upon 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 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 591/2; (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 591/2. 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
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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
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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 of 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 Sub-Account's average
annual total return over the most recent four calendar quarters, the period from
the Sub-Account's inception of operations, and, for Sub-Accounts in existence
for five years or more, for five years. The average annual total return is based
upon the value of the Accumulation Units acquired through a hypothetical $1,000
investment of 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, Administrative Expense Charge, Contingent Deferred
Sales Charge, and Contract Maintenance Charge. Each Sub-Account may also
advertise cumulative and total return information over different periods of time
without the Contingent Deferred Sales Charge and Contract Maintenance Charge.
The hypothetical performance of the Sub-Accounts reflects the historical
performance of the Funds whose inception dates preceded the inception dates of
the Sub-Accounts.
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 presentation of a Sub-Account's current yield or
total return for any prior period should not be considered as a representation
of what an investment may earn or what a Contract Owner's yield or total return
may be in any future period. Hypothetical performance illustrations, for a
hypothetical contract, may be prepared for sales literature or advertisements.
See "Calculation of Performance Data" in the Statement of Additional
Information.
The Appendix to this Prospectus contains performance information that you might
find informative. The Mutual Shares Securities Fund and the Mutual Discovery
Securities Fund ("New Valuemark funds") are newly created (November 8,1996) and
therefore do not yet have their own meaningful performance record. However, they
have the same investment objectives and portfolio managers and substantially the
same investment policies as two corresponding series of Franklin Mutual Series
Fund Inc. (formerly, Mutual Series Fund Inc.) which have been sold to the public
("Public Funds"). In order to show how the performance of the Public Funds would
have affected Accumulation Unit values, hypothetical performance information was
developed.
Part 1 in the Appendix shows the historical performance of the Public Funds
which reflects the deduction of the historical fees and expenses paid by the
Public Funds and not those paid by the New Valuemark funds. Part 2 shows
hypothetical performance figures for the Accumulation Units which assume the
deduction of the Mortality and Expense Risk Charge, the Administrative Expense
Charge and the fees and expenses that the Public Funds paid. Part 3 shows
hypothetical performance figures for the Accumulation Units which reflect the
deduction of the Mortality and Expense Risk Charge, the Administrative Expense
Charge, the Contract Maintenance Charge, the Contingent Deferred Sales Charge
and the fees and expenses that the Public Funds paid. The hypothetical
performance figures for the Accumulation Units have not been restated to reflect
the higher fees for the New Valuemark funds. If the higher fees were used, the
hypothetical performance shown would be lower. Future performance may vary and
the results shown are not necessarily representative of future results.
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 includible 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 includible 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 591/2; (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) paid 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 includible in the gross income of the
employee until the employee receives distributions from the Contract. The amount
of contributions to the tax-sheltered annuity is limited to certain maximums
imposed by the Code. Furthermore, the Code sets forth additional restrictions
governing such items as transferability, distributions, nondiscrimination and
withdrawals. (See "Tax Treatment of Withdrawals - Qualified Contracts" 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
includible 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 includible 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 591/2; (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; (f) distributions made to an alternate payee pursuant to
a qualified domestic relations order, and (g) distributions from an Individual
Retirement Annuity for the purchase of medical insurance (as described in
Section 213(d)(1)(D) of the Code) for the Contract Owner or Annuitant (as
applicable) and his or her spouse and dependents if the Contract Owner or
Annuitant (as applicable) has received unemployment compensation for at least 12
weeks. This exception no longer applies after the Contract Owner or Annuitant
(as applicable) has been re-employed for at least 60 days.
The exceptions stated in items (d), 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
701/2 and in some cases the later of age 701/2 or the date of retirement.
Required distributions must be over a period not exceeding the life or 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.
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 591/2;
(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, 1996 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.
Appendix
- --------------------------------------------------------------------------------
Performance Information of Selected Public Funds
The Mutual Shares Securities Fund and Mutual Discovery Securities Fund ("New
Valuemark funds") are newly created (November 8, 1996) series of Franklin
Valuemark Funds and have no meaningful performance record. The New Valuemark
funds do, however, have the same investment objective and portfolio managers,1
and substantially the same investment policies, as two corresponding series of
Franklin Mutual Series Fund Inc. (formerly "Mutual Series Fund Inc.") which have
been sold directly to the public ("Public Funds"). Thus, the performance of the
Public Funds may be considered relevant by investors.
Part 1 of the chart shows the past performance of the Public Funds, in terms of
average annual total return over the periods indicated. Average annual total
return represents the average annual change in value of an investment over the
stated periods, assuming reinvestment of dividends and capital gains at net
asset value. These figures reflect the deduction of the historical fees and
expenses paid by the Public Funds, which have been sold without sales charges.
Part 2 shows hypothetical performance of Accumulation Units of the New Valuemark
funds, based on the past average annual total return of the Public Funds and the
deduction of all current recurring expenses of the Separate Account, as
described above in this Prospectus. These figures do not reflect any Contingent
Deferred Sales Charge or Contract Maintenance Charge, and have not been restated
to reflect the higher expenses of the New Valuemark funds, which are also
described in this Prospectus; all of which would lower the hypothetical
performance shown.
Part 3 shows hypothetical performance of Accumulation Units of the New Valuemark
funds, based on the past average annual total return of the Public Funds and the
deduction of all current recurring expenses of the Separate Account, as well as
deduction of the applicable Contingent Deferred Sales Charge and Contract
Maintenance Charge, as described above in this Prospectus. These figures have
not been restated to reflect the higher expenses of the New Valuemark funds,
which are also described in this Prospectus and which would lower the
hypothetical performance shown.
Past performance cannot predict or guarantee future results of the New Valuemark
funds. In addition, the investment performance of the New Portfolios will differ
from the performance of the Public Funds because of product and portfolio
differences, including differences in portfolio size, the investments held, the
timing of purchases of similar investments, cash flows, minor differences in
certain investment policies, insurance product related tax diversification
requirements, state insurance regulations, and additional administrative and
insurance costs associated with insurance company separate accounts. These
figures are not adjusted for tax consequences.
1In November 1996, Franklin Resources, Inc., parent company of the investment
managers of the Franklin Valuemark Funds, completed the acquisition of Heine
Securities Corporation, the investment manager of Mutual Series Fund Inc. This
transaction did not, however, change the individuals responsible for the
day-to-day operations of Franklin Mutual Series Fund Inc., who are also
responsible for the day-to-day operations of the New Valuemark funds.
<PAGE>
<TABLE>
<CAPTION>
1. Public Funds' Historical Performance
Since Inception
Periods Ended 12/31/96: One-Year Five-Years Ten-Years Inception Date
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mutual Discovery Fund................24.93% -- -- 22.62 % 12/31/92
Mutual Shares Fund...................20.76 % 19.06 % 15.36 % -- 7/1/49
2. Hypothetical Accumulation Unit Performance (includes all current recurring expenses of the Separate Account)
Since Inception
Periods Ended 12/31/96: One-Year Five-Years Ten-Years Inception Date
- ------------------------------------------------------------------------------------------------------------------------------
Mutual Discovery Securities
Sub-Account .........................23.20 % -- -- 20.87 % 12/31/92
Mutual Shares Securities
Sub-Account .........................19.13 % 17.32 % 13.68 % -- 7/1/49
3. Hypothetical Accumulation Unit Performance (includes all current recurring expenses of the Separate Account and deduction of
the Contingent Deferred Sales Charge and Contract Maintenance Charge)
Since Inception
Periods Ended 12/31/96: One-Year Five-Years Ten-Years Inception Date
- ------------------------------------------------------------------------------------------------------------------------------
Mutual Discovery Securities
Sub-Account..........................18.85 % -- -- 20.68 % 12/31/92
Mutual Shares Securities
Sub-Account..........................14.78% 17.21 % 13.65 % -- 7/1/49
</TABLE>
<TABLE>
<CAPTION>
Table of Contents of the
Statement of Additional Information
- -------------------------------------------------------
Item Page
<S> <C>
Company.......................................... 2
Experts ......................................... 2
Legal Opinions................................... 2
Distributor...................................... 2
Calculation of Performance Data.................. 2
Total Return.................................... 2
Yield .......................................... 2
Performance Ranking............................. 3
Performance Information ........................ 3
Annuity Provisions .............................. 6
Variable Annuity Payout ........................ 6
Annuity Unit Value ............................. 6
Fixed Annuity Payout ........................... 6
Financial Statements ............................ 6
</TABLE>
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, 1997
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, NY 10019, (212)
586-7733.
THIS STATEMENT OF ADDITIONAL INFORMATION AND THE PROSPECTUS ARE DATED MAY 1,
1997, AND AS MAY BE AMENDED FROM TIME TO TIME.
<TABLE>
<CAPTION>
Table of Contents
- -------------------------------------------------------
Contents Page
<S> <C>
Company........................................ 2
Experts........................................ 2
Legal Opinions................................. 2
Distributor.................................... 2
Calculation of Performance Data................ 2
Total Return.................................. 2
Yield......................................... 2
Performance Ranking........................... 3
Performance Information....................... 3
Annuity Provisions............................. 6
Variable Annuity Payout....................... 6
Annuity Unit Value............................ 6
Fixed Annuity Payout.......................... 6
Financial Statements........................... 6
</TABLE>
V2NY SAI 05/97
<PAGE>
Company
- --------------------------------------------------------------------------------
Information regarding Preferred Life Insurance Company of New York (the
"Company") and its ownership is contained in the Prospectus. 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 a 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, 1996
included in this Statement of Additional Information have been audited by
_____________________, 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, LLC, a 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
- --------------------------------------------------------------------------------
Total Return
From time to time, the Company may advertise the performance data for the
Sub-Accounts in sales literature, advertisements, personalized hypothetical
illustrations, and Contract Owner communications. Such data will show the
percentage change in the value of an accumulation unit based on the performance
of a Sub-Account over a stated period of time which is determined by dividing
the increase (or decrease) in value for that unit by the accumulation unit value
at the beginning of the period.
Any such performance data will include total return figures for the one, five,
and ten year (or since inception) time periods indicated. Such total return
figures will reflect the deduction of a 1.25% Mortality and Expense Risk Charge,
a 0.15% Administrative Expense Charge, the operating expenses of the underlying
Funds and any applicable Contingent Deferred Sales Charge and Contract
Maintenance Charge ("Standardized Total Return"). The Contingent Deferred Sales
Charge and Contract Maintenance Charge deductions are calculated assuming a
Contract is surrendered at the end of the reporting period.
The hypothetical value of a Contract purchased for the time periods described
will be determined by using the actual accumulation unit values for an initial
$1,000 purchase payment, and deducting any applicable Contingent Deferred Sales
Charge and Contract Maintenance Charge to arrive at the ending hypothetical
value. The average annual total return is then determined by computing the fixed
interest rate that a $1,000 purchase payment would have to earn annually,
compounded annually, to grow to the hypothetical value at the end of the time
periods described. The formula used in these calculations is:
P(1+T)n = ERV
where:
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 purchase payment made at
the beginning of the period at the end of the period.
The Company may also advertise performance data which will be calculated in the
same manner as described above but which will not reflect the deduction of the
Contingent Deferred Sales Charge and the Contract Maintenance Charge. Cumulative
total return is calculated in a similar manner as described above except that
the results are not annualized. The Company may also advertise cumulative and
total return information over different periods of time. The Company may also
present performance information computed on a different basis ("Non-Standardized
Total Return").
<PAGE>
Yield
The Money Market Sub-Account. The Company may advertise yield information for
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 consideration when using the
Sub-Account's current yield as a basis for comparison with savings accounts or
other fixed-yield investments. The yield at any particular time is not
indicative of what the yield may be at any other time.
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 seven 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, 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.)
For the seven-day period ending on 12/31/96, the Money Market Sub-Account had a
current yield of 3.64% and an effective yield of 3.70%.
Other Sub-Accounts. The Company may also quote yield in sales literature,
advertisements, personalized hypothetical illustrations, and Contract Owner
communications for the other Sub-Accounts. 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 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:
Yield = 2 [((a-b) + 1)6 - 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 (or one month) identified in the sales literature,
advertisement, or communication. Yield calculations assume that no Contingent
Deferred Sales Charges have been deducted (see the Prospectus for information
regarding the Contingent Deferred Sales Charge). The Company does not currently
advertise yield information for any Sub-Account (other than the Money Market
Sub-Account).
Performance Ranking
Total return information for the Sub-Accounts and the Funds may be compared to
relevant indices, including U.S. domestic and international indices and data
from Lipper Analytical Services, Inc., Standard & Poor's Indices, or VARDS(R).
From time to time, evaluation of performance by independent sources may also be
used.
<PAGE>
Performance Information
Total returns reflect all aspects of a Sub-Account's return, including the
automatic reinvestment by Preferred Life Variable Account C of all distributions
and any change in a Sub-Account's value over the period. The hypothetical
performance of the Sub-Accounts reflects the historical performance of the Funds
whose inception dates preceded the inception dates of the Sub-Accounts.
The returns reflect the deduction of the Mortality and Expense Risk Charge,
Administrative Expense Charge and the operating expenses of each Fund and are
shown both with and without the deduction of the Contingent Deferred Sales
Charge and Contract Maintenance Charge.
<TABLE>
<CAPTION>
Standardized Total Return
Average Annual Total Return for the periods ended December 31, 1996:
With Contingent Deferred Sales Charge and Other Charges
Fund
Inception One Five Since
Sub-Account Date Year Year Inception
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Growth........................................................... 5/1/96 NA NA NA
Growth and Income ....................................................... 1/24/89 8.24% 10.14% 8.68%
High Income ............................................................. 1/24/89 7.96% 10.70% 8.60%
Income Securities........................................................ 1/24/89 5.37% 9.70% 10.18%
Money Market............................................................. 1/24/89 -0.66% 2.45% 3.63%
Mutual Discovery Securities.............................................. 11/8/96 NA NA NA
Mutual Shares Securities................................................. 11/8/96 NA NA NA
Natural Resources Securities*............................................ 1/24/89 -1.81% 6.20% 4.67%
Real Estate Securities .................................................. 1/24/89 26.61% 14.72% 11.38%
Rising Dividends......................................................... 1/27/92 18.09% NA 8.86%
Small Cap................................................................ 11/1/95 22.91% NA 21.42%
Templeton Developing Markets Equity...................................... 3/15/94 15.54% NA 4.24%
Templeton Global Asset Allocation........................................ 5/1/95 13.81% NA 12.32%
Templeton Global Growth.................................................. 3/15/94 15.23% NA 10.74%
Templeton Global Income Securities....................................... 1/24/89 3.75% 5.14% 6.66%
Templeton International Equity........................................... 1/27/92 16.90% NA 9.97%
Templeton International Smaller Companies ............................... 5/1/96 NA NA NA
Templeton Pacific Growth................................................. 1/27/92 5.20% NA 8.33%
U.S. Government Securities............................................... 3/14/89 -2.19% 5.25% 6.67%
Utility Equity........................................................... 1/24/89 1.22% 6.71% 9.49%
Zero Coupon - 2000....................................................... 3/14/89 -3.36% 6.22% 8.10%
Zero Coupon - 2005....................................................... 3/14/89 -6.25% 8.27% 9.57%
Zero Coupon - 2010....................................................... 3/14/89 -8.40% 9.67% 10.24%
<FN>
*Prior to May 1, 1997, the Natural Resources Securities Sub-Account was known as
the Precious Metals Sub-Account.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Non-Standardized Total Return
Total Return for the periods ended December 31, 1996:
Without Contingent Deferred Sales Charge or Contract Maintenance Charge
Annual Total Return Cumulative Total Return
------------------------------------------ -------------------------------
Fund
Inception One Three Five Since Three Five Since
Sub-Account Date Year Year Year Inception Year Year Inception
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth................. 5/1/96 NA NA NA NA NA NA 12.54%
Growth and Income.............. 1/24/89 12.59% 12.53% 10.28% 8.77% 42.50% 63.10% 94.90%
High Income.................... 1/24/89 12.31% 8.53% 10.84% 8.69% 27.84% 67.27% 93.75%
Income Securities.............. 1/24/89 9.72% 6.97% 9.84% 10.25% 22.41% 59.85% 117.08%
Money Market................... 1/24/89 3.69% 3.45% 2.61% 3.72% 10.72% 13.78% 33.59%
Mutual Discovery Securities.... 11/8/96 NA NA NA NA NA NA 1.80%
Mutual Shares Securities....... 11/8/96 NA NA NA NA NA NA 3.30%
Natural Resources
Securities*................... 1/24/89 2.54% 0.01% 6.35% 4.76% 0.03% 36.04% 44.67%
Real Estate Securities......... 1/24/89 30.96% 15.48% 14.84% 11.46% 54.00% 99.76% 136.68%
Rising Dividends............... 1/27/92 22.44% 14.01% NA 9.01% 48.18% NA 53.03%
Small Cap...................... 11/1/95 27.26% NA NA 24.49% NA NA 29.13%
Templeton Developing
Markets Equity................ 3/15/94 19.89% NA NA 5.08% NA NA 14.87%
Templeton Global
Asset Allocation.............. 5/1/95 18.16% NA NA 14.36% NA NA 25.14%
Templeton Global Growth ....... 3/15/94 19.58% NA NA 11.49% NA NA 35.60%
Templeton Global
Income Securities............. 1/24/89 8.10% 4.63% 5.30% 6.74% 14.54% 29.46% 67.81%
Templeton International
Equity........................ 1/27/92 21.25% 9.57% NA 10.11% 31.54% NA 60.81%
Templeton International
Smaller Companies............. 5/1/96 NA NA NA NA% NA NA 11.45%
Templeton Pacific Growth....... 1/27/92 9.55% 1.61% NA 8.47% 4.91% NA 49.32%
U.S. Government
Securities.................... 3/14/89 2.16% 4.24% 5.40% 6.75% 13.28% 30.10% 66.50%
Utility Equity................. 1/24/89 5.57% 6.05% 6.86% 9.57% 19.26% 39.35% 106.54%
Zero Coupon - 2000............. 3/14/89 0.99% 3.39% 6.36% 8.18% 10.51% 36.14% 84.75%
Zero Coupon - 2005............. 3/14/89 -1.90% 4.36% 8.40% 9.64% 13.67% 49.70% 105.17%
Zero Coupon - 2010............. 3/14/89 -4.05% 5.86% 9.81% 10.32% 18.62% 59.63% 115.22%
<FN>
*Prior to May 1, 1997, the Natural Resources Securities Sub-Account was known as
the Precious Metals Sub-Account.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Non-Standardized Total Return
Total Return for the periods ended December 31, 1996:
With Contingent Deferred Sales Charge and Other Charges
Cumulative
Annual Total Return Total Return
------------------------------- ---------------------
Fund
Inception One Three Since Three Since
Sub-Account Date Year Year Inception Year Inception
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Capital Growth................................. 5/1/96 NA NA NA NA 8.19%
Growth and Income.............................. 1/24/89 8.24% 11.85% 8.68% 39.94% 93.69%
High Income.................................... 1/24/89 7.96% 7.81% 8.60% 25.30% 92.56%
Income Securities.............................. 1/24/89 5.37% 6.23% 10.18% 19.87% 115.90%
Money Market................................... 1/24/89 -0.66% 2.66% 3.63% 8.21% 32.70%
Mutual Discovery Securities.................... 11/8/96 NA NA NA% NA -2.55%
Mutual Shares Securities....................... 11/8/96 NA NA NA% NA -1.05%
Natural Resources Securities*.................. 1/24/89 -1.81% -0.83% 4.67% -2.48% 43.72%
Real Estate Securities......................... 1/24/89 26.61% 14.83% 11.38% 51.41% 135.28%
Rising Dividends............................... 1/27/92 18.09% 13.34% 8.86% 45.60% 51.99%
Small Cap...................................... 11/1/95 22.91% NA 21.42% NA 25.42%
Templeton Developing Markets Equity............ 3/15/94 15.54% NA 4.24% NA 12.33%
Templeton Global Asset Allocation.............. 5/1/95 13.81% NA 12.32% NA 21.43%
Templeton Global Growth........................ 3/15/94 15.23% NA 10.74% NA 33.05%
Templeton Global Income Securities*............ 1/24/89 3.75% 3.85% 6.66% 12.01% 66.80%
Templeton International Equity................. 1/27/92 16.90% 8.85% 9.97% 28.98% 59.79%
Templeton International Smaller
Companies..................................... 5/1/96 NA NA NA NA 7.10%
Templeton Pacific Growth....................... 1/27/92 5.20% 0.79% 8.33% 2.38% 48.36%
U.S. Government Securities..................... 3/14/89 -2.19% 3.46% 6.67% 10.76% 65.51%
Utility Equity................................. 1/24/89 1.22% 5.29% 9.49% 16.72% 105.46%
Zero Coupon - 2000............................. 3/14/89 -3.36% 2.60% 8.10% 7.99% 83.71%
Zero Coupon - 2005............................. 3/14/89 -6.25% 3.58% 9.57% 11.14% 104.06%
Zero Coupon - 2010............................. 3/14/89 -8.40% 5.10% 10.24% 16.09% 114.06%
<FN>
*Prior to May 1, 1997, the Natural Resources Securities Sub-Account was known as
the Precious Metals Sub-Account.
</FN>
</TABLE>
Contract Owners should note that investment results will fluctuate over time,
and any presentation of 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 may be in any future period.
<PAGE>
Annuity Provisions
- --------------------------------------------------------------------------------
Variable Annuity Payout
A variable annuity is an annuity with payments which: (1) are not predetermined
as to dollar amount; and (2) will vary in amount with the net investment results
of the applicable Sub-Account(s) of the Variable Account. At the Income Date,
the Contract Value in each Sub-Account will be applied to the applicable Annuity
Tables. The Annuity Table used will depend upon the Annuity Option chosen. Both
sex distinct and unisex Annuity Tables are utilized by the Company, depending on
the state and type of Contract. If, as of the Income Date, the then current
Annuity Option rates applicable to this class of Contracts provide a larger
income than that guaranteed for the same form of annuity under the 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.
Annuity Unit Value
The value of an Annuity Unit for a Sub-Account is determined (see below) by
subtracting (2) from (1), dividing the result by (3) and multiplying the result
by .999866337248 (.999866337248 is the daily factor to neutralize the assumed
net investment rate 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 value of an Annuity Unit may increase or decrease from Valuation Period to
Valuation Period.
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 any joint annuitant where
allowed.
Financial Statements
- --------------------------------------------------------------------------------
The audited financial statements of the Company as of and for the year ended
December 31, 1996, 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, 1996 are also included herein.
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
a. Financial Statements
To be filed by amendment
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 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. 9 to
Registrant's Form N-4 as filed electronically on October 27, 1995.
## Incorporated by reference to Post-Effective Amendment No. 10 to
Registrants Form N-4 as filed electronically on April 18, 1996.
### To be filed by Amendment
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
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
Reinhard W. Obermueller Director
560 Lexington Ave
New York, NY 10022
</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 February 14, 1997, there were 6,200 qualified Contract Owners and 10,696
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, LLC 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, LLC:
<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
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 L. 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.
d. Preferred Life Insurace Company of New York ("Company") hereby
represents that the fees and charges deducted under the Contract described in
the Prospectus, in the aggregate, are reasonable in relation to the services
rendered, the expenses to be incurred and the risks assumed by the Company.
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 has caused this registration statement to be
signed on its behalf in the City of Minneapolis and State of Minnesota, on this
25th day of February, 1997.
<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
Lowell C. Anderson 02-25-97
Howard E. Barnhill* Director
Howard E. Barnhill 02-25-97
Ronald L. Wobbeking* Chairman, Chief Executive
Ronald L. Wobbeking Officer and Director 02-25-97
Shannon Hendricks* Treasurer
Shannon Hendricks 02-25-97
Alan A. Grove* Secretary and Director
Alan A. Grove 02-25-97
Thomas G. Brown* Director
Thomas G. Brown 02-25-97
Thomas Duncanson* Director
Thomas Duncanson 02-25-97
Edward J. Bonach* Director
Edward J. Bonach 02-25-97
Robert S. James* Director
Robert S. James 02-25-97
Thomas J. Lynch* Director
Thomas J. Lynch 02-25-97
Dennis Marion* Director
Dennis Marion 02-25-97
Richard M. Murray* Director
Richard M. Murray 02-25-97
Eugene T. Wilkinson* Director
Eugene T. Wilkinson 02-25-97
Eugene Long* Director
Eugene Long 02-25-97
Reinhard W. Obermueller* Director
Reinhard W. Obermueller 02-25-97
</TABLE>
* By /S/ ALAN A. GROVE
-----------------
Attorney-in-Fact
EXHIBITS
TO
POST-EFFECTIVE AMENDMENT NO. 12
TO
FORM N-4
PREFERRED LIFE VARIABLE ACCOUNT C
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
INDEX TO EXHIBITS
Exhibit Page
EX-99.B13 Calculation of Performance Information
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK II
Preferred Life Variable Account C
Cumulative and Average Annual Total Return Calculations
Original Purchase as of December 31, 1995
Valuation Date as of December 31, 1996
Dollar Units This Accum Accum
Date Transaction Amount Unit Value Trans Units Value
---- ----------- ------ ---------- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Growth and Income
12-31-95 Purchase $1,000.00 $17.30965999 57.771 57.771 $1,000.00
12-31-96 Contract Fee (1.00) 19.48959860 (0.051) 57.720 1,124.94
12-31-96 Value before Surr Chg 19.48959860 0.000 57.720 1,124.94
12-31-96 Surrender Charge (42.50) 19.48959860 (2.181) 55.539 1,082.44
Cumulative and Average Annual Total Returns
without/with charges 12.59% A 8.24% B
High Income
12-31-95 Purchase $1,000.00 $17.25181285 57.965 57.965 $1,000.00
12-31-96 Contract Fee (1.00) 19.37479425 (0.052) 57.913 1,122.06
12-31-96 Value before Surr Chg 19.37479425 0.000 57.913 1,122.06
12-31-96 Surrender Charge (42.50) 19.37479425 (2.194) 55.720 1,079.56
Cumulative and Average Annual Total Returns
without/with charges 12.31% A 7.96% B
Income Securities
12-31-95 Purchase $1,000.00 $19.78534185 50.542 50.542 $1,000.00
12-31-96 Contract Fee (1.00) 21.70827863 (0.046) 50.496 1,096.19
12-31-96 Value before Surr Chg 21.70827863 0.000 50.496 1,096.19
12-31-96 Surrender Charge (42.50) 21.70827863 (1.958) 48.539 1,053.69
Cumulative and Average Annual Total Returns
without/with charges 9.72% A 5.37% B
Money Market
12-31-95 Purchase $1,000.00 $12.88349436 77.619 77.619 $1,000.00
12-31-96 Contract Fee (1.00) 13.35923111 (0.075) 77.544 1,035.93
12-31-96 Value before Surr Chg 13.35923111 0.000 77.544 1,035.93
12-31-96 Surrender Charge (42.50) 13.35923111 (3.181) 74.363 993.43
Cumulative and Average Annual Total Returns
without/with charges 3.69% A -0.66% B
Natural Resources Securities
12-31-95 Purchase $1,000.00 $14.10867153 70.878 70.878 $1,000.00
12-31-96 Contract Fee (1.00) 14.46741645 (0.069) 70.809 1,024.43
12-31-96 Value before Surr Chg 14.46741645 0.000 70.809 1,024.43
12-31-96 Surrender Charge (42.50) 14.46741645 (2.938) 67.872 981.93
Cumulative and Average Annual Total Returns
without/with charges 2.54% A -1.81% B
Real Estate Securities
12-31-95 Purchase $1,000.00 $18.07282328 55.332 55.332 $1,000.00
12-31-96 Contract Fee (1.00) 23.66770609 (0.042) 55.289 1,308.57
12-31-96 Value before Surr Chg 23.66770609 0.000 55.289 1,308.57
12-31-96 Surrender Charge (42.50) 23.66770609 (1.796) 53.494 1,266.07
Cumulative and Average Annual Total Returns
without/with charges 30.96% A 26.61% B
Rising Dividends
12-31-95 Purchase $1,000.00 $12.49836348 80.010 80.010 $1,000.00
12-31-96 Contract Fee (1.00) 15.30299222 (0.065) 79.945 1,223.40
12-31-96 Value before Surr Chg 15.30299222 0.000 79.945 1,223.40
12-31-96 Surrender Charge (42.50) 15.30299222 (2.777) 77.168 1,180.90
Cumulative and Average Annual Total Returns
without/with charges 22.44% A 18.09% B
Small Cap
12-31-95 Purchase $1,000.00 $10.14638787 98.557 98.557 $1,000.00
12-31-96 Contract Fee (1.00) 12.91274591 (0.077) 98.480 1,271.64
12-31-96 Value before Surr Chg 12.91274591 0.000 98.480 1,271.64
12-31-96 Surrender Charge (42.50) 12.91274591 (3.291) 95.188 1,229.14
Cumulative and Average Annual Total Returns
without/with charges 27.26% A 22.91% B
Templeton Developing Markets Equity
12-31-95 Purchase $1,000.00 $ 9.58170209 104.366 104.366 $1,000.00
12-31-96 Contract Fee (1.00) 11.48724479 (0.087) 104.279 1,197.87
12-31-96 Value before Surr Chg 11.48724479 0.000 104.279 1,197.87
12-31-96 Surrender Charge (42.50) 11.48724479 (3.700) 100.579 1,155.37
Cumulative and Average Annual Total Returns
without/with charges 19.89% A 15.54% B
Templeton Global Asset Allocation
12-31-95 Purchase $1,000.00 $10.59122588 94.418 94.418 $1,000.00
12-31-96 Contract Fee (1.00) 12.51416879 (0.080) 94.338 1,180.56
12-31-96 Value before Surr Chg 12.51416879 0.000 94.338 1,180.56
12-31-96 Surrender Charge (42.50) 12.51416879 (3.396) 90.942 1,138.06
Cumulative and Average Annual Total Returns
without/with charges 18.16% A 13.81% B
Templeton Global Growth
12-31-95 Purchase $1,000.00 $11.33894840 88.192 88.192 $1,000.00
12-31-96 Contract Fee (1.00) 13.55953972 (0.074) 88.118 1,194.84
12-31-96 Value before Surr Chg 13.55953972 0.000 88.118 1,194.84
12-31-96 Surrender Charge (42.50) 13.55953972 (3.134) 84.984 1,152.34
Cumulative and Average Annual Total Returns
without/with charges 19.58% A 15.23% B
Templeton Global Income Securities
12-31-95 Purchase $1,000.00 $15.52246997 64.423 64.423 $1,000.00
12-31-96 Contract Fee (1.00) 16.78052472 (0.060) 64.363 1,080.05
12-31-96 Value before Surr Chg 16.78052472 0.000 64.363 1,080.05
12-31-96 Surrender Charge (42.50) 16.78052472 (2.533) 61.830 1,037.55
Cumulative and Average Annual Total Returns
without/with charges 8.10% A 3.75% B
Templeton International Equity
12-31-95 Purchase $1,000.00 $13.26267921 75.400 75.400 $1,000.00
12-31-96 Contract Fee (1.00) 16.08142393 (0.062) 75.337 1,211.53
12-31-96 Value before Surr Chg 16.08142393 0.000 75.337 1,211.53
12-31-96 Surrender Charge (42.50) 16.08142393 (2.643) 72.695 1,169.03
Cumulative and Average Annual Total Returns
without/with charges 21.25% A 16.90% B
Templeton Pacific Growth
12-31-95 Purchase $1,000.00 $13.63037545 73.366 73.366 $1,000.00
12-31-96 Contract Fee (1.00) 14.93159316 (0.067) 73.299 1,094.46
12-31-96 Value before Surr Chg 14.93159316 0.000 73.299 1,094.46
12-31-96 Surrender Charge (42.50) 14.93159316 (2.846) 70.452 1,051.96
Cumulative and Average Annual Total Returns
without/with charges 9.55% A 5.20% B
U.S. Government Securities
12-31-95 Purchase $1,000.00 $16.29770051 61.358 61.358 $1,000.00
12-31-96 Contract Fee (1.00) 16.65018339 (0.060) 61.298 1,020.63
12-31-96 Value before Surr Chg 16.65018339 0.000 61.298 1,020.63
12-31-96 Surrender Charge (42.50) 16.65018339 (2.553) 58.746 978.13
Cumulative and Average Annual Total Returns
without/with charges 2.16% A -2.19% B
Utility Equity
12-31-95 Purchase $1,000.00 $19.56451758 51.113 51.113 $1,000.00
12-31-96 Contract Fee (1.00) 20.65439774 (0.048) 51.065 1,054.71
12-31-96 Value before Surr Chg 20.65439774 0.000 51.065 1,054.71
12-31-96 Surrender Charge (42.50) 20.65439774 (2.058) 49.007 1,012.21
Cumulative and Average Annual Total Returns
without/with charges 5.57% A 1.22% B
Zero Coupon - 2000
12-31-95 Purchase $1,000.00 $18.29362036 54.664 54.664 $1,000.00
12-31-96 Contract Fee (1.00) 18.47475298 (0.054) 54.610 1,008.90
12-31-96 Value before Surr Chg 18.47475298 0.000 54.610 1,008.90
12-31-96 Surrender Charge (42.50) 18.47475298 (2.300) 52.309 966.40
Cumulative and Average Annual Total Returns
without/with charges 0.99% A -3.36% B
Zero Coupon - 2005
12-31-95 Purchase $1,000.00 $20.91363234 47.816 47.816 $1,000.00
12-31-96 Contract Fee (1.00) 20.51665706 (0.049) 47.767 980.02
12-31-96 Value before Surr Chg 20.51665706 0.000 47.767 980.02
12-31-96 Surrender Charge (42.50) 20.51665706 (2.071) 45.695 937.52
Cumulative and Average Annual Total Returns
without/with charges -1.90% A -6.25% B
Zero Coupon - 2010
12-31-95 Purchase $1,000.00 $22.43134838 44.580 44.580 $1,000.00
12-31-96 Contract Fee (1.00) 21.52246902 (0.046) 44.534 958.48
12-31-96 Value before Surr Chg 21.52246902 0.000 44.534 958.48
12-31-96 Surrender Charge (42.50) 21.52246902 (1.975) 42.559 915.98
Cumulative and Average Annual Total Returns
without/with charges -4.05% A -8.40% B
<FN>
A = (Unit Value as of December 31, 1996 - Unit Value at Purchase)/Unit Value at Purchase
B = (Accumulated Value as of December 31, 1996 - Accum. Value at Purch.)/Accum. Value at Purch.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Original Purchase as of December 31, 1993
Valuation Date as of December 31, 1996
Dollar Units This Accum Accum
Date Transaction Amount Unit Value Trans Units Value
---- ----------- ------ ---------- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Growth and Income
12-31-93 Purchase $1,000.00 $13.67694811 73.116 73.116 $1,000.00
12-31-94 Contract Fee (1.00) 13.21462941 (0.076) 73.040 965.20
12-31-95 Contract Fee (1.00) 17.30965999 (0.058) 72.982 1,263.30
12-31-96 Contract Fee (1.00) 19.48959860 (0.051) 72.931 1,421.40
12-31-96 Value before Surr Chg 19.48959860 0.000 72.931 1,421.40
12-31-96 Surrender Charge (22.00) 19.48959860 (1.129) 71.802 1,399.40
Cumulative Total Returns without/with chrgs 42.50% A 39.94% C
Avg. Annual Total Returns without/with chrgs 12.53% B 11.85% D
High Income
12-31-93 Purchase $1,000.00 $15.15511991 65.984 65.984 $1,000.00
12-31-94 Contract Fee (1.00) 14.60759128 (0.068) 65.916 962.87
12-31-95 Contract Fee (1.00) 17.25181285 (0.058) 65.858 1,136.17
12-31-96 Contract Fee (1.00) 19.37479425 (0.052) 65.806 1,274.98
12-31-96 Value before Surr Chg 19.37479425 0.000 65.806 1,274.98
12-31-96 Surrender Charge (22.00) 19.37479425 (1.135) 64.671 1,252.98
Cumulative Total Returns without/with chrgs 27.84% A 25.30% C
Avg. Annual Total Returns without/with chrgs 8.53% B 7.81% D
Income Securities
12-31-93 Purchase $1,000.00 $17.73437317 56.388 56.388 $1,000.00
12-31-94 Contract Fee (1.00) 16.39171653 (0.061) 56.327 923.29
12-31-95 Contract Fee (1.00) 19.78534185 (0.051) 56.276 1,113.44
12-31-96 Contract Fee (1.00) 21.70827863 (0.046) 56.230 1,220.66
12-31-96 Value before Surr Chg 21.70827863 0.000 56.230 1,220.66
12-31-96 Surrender Charge (22.00) 21.70827863 (1.013) 55.217 1,198.66
Cumulative Total Returns without/with chrgs 22.41% A 19.87% C
Avg. Annual Total Returns without/with chrgs 6.97% B 6.23% D
Money Market
12-31-93 Purchase $1,000.00 $12.06579747 82.879 82.879 $1,000.00
12-31-94 Contract Fee (1.00) 12.35398427 (0.081) 82.798 1,022.88
12-31-95 Contract Fee (1.00) 12.88349436 (0.078) 82.720 1,065.73
12-31-96 Contract Fee (1.00) 13.35923111 (0.075) 82.645 1,104.08
12-31-96 Value before Surr Chg 13.35923111 0.000 82.645 1,104.08
12-31-96 Surrender Charge (22.00) 13.35923111 (1.647) 80.999 1,082.08
Cumulative Total Returns without/with chrgs 10.72% A 8.21% C
Avg. Annual Total Returns without/with chrgs 3.45% B 2.66% D
Natural Resources Securities
12-31-93 Purchase $1,000.00 $14.46354903 69.139 69.139 $1,000.00
12-31-94 Contract Fee (1.00) 13.97879422 (0.072) 69.068 965.48
12-31-95 Contract Fee (1.00) 14.10867153 (0.071) 68.997 973.45
12-31-96 Contract Fee (1.00) 14.46741645 (0.069) 68.928 997.21
12-31-96 Value before Surr Chg 14.46741645 0.000 68.928 997.21
12-31-96 Surrender Charge (22.00) 14.46741645 (1.521) 67.407 975.21
Cumulative Total Returns without/with chrgs 0.03% A -2.48% C
Avg. Annual Total Returns without/with chrgs 0.01% B -0.83% D
Real Estate Securities
12-31-93 Purchase $1,000.00 $15.36898235 65.066 65.066 $1,000.00
12-31-94 Contract Fee (1.00) 15.59407180 (0.064) 65.002 1,013.65
12-31-95 Contract Fee (1.00) 18.07282328 (0.055) 64.947 1,173.77
12-31-96 Contract Fee (1.00) 23.66770609 (0.042) 64.904 1,536.14
12-31-96 Value before Surr Chg 23.66770609 0.000 64.904 1,536.14
12-31-96 Surrender Charge (22.00) 23.66770609 (0.930) 63.975 1,514.14
Cumulative Total Returns without/with chrgs 54.00% A 51.41% C
Avg. Annual Total Returns without/with chrgs 15.48% B 14.83% D
Rising Dividends
12-31-93 Purchase $1,000.00 $10.32720317 96.832 96.832 $1,000.00
12-31-94 Contract Fee (1.00) 9.76873744 (0.102) 96.729 944.92
12-31-95 Contract Fee (1.00) 12.49836348 (0.080) 96.649 1,207.96
12-31-96 Contract Fee (1.00) 15.30299222 (0.065) 96.584 1,478.02
12-31-96 Value before Surr Chg 15.30299222 0.000 96.584 1,478.02
12-31-96 Surrender Charge (22.00) 15.30299222 (1.438) 95.146 1,456.02
Cumulative Total Returns without/with chrgs 48.18% A 45.60% C
Avg. Annual Total Returns without/with chrgs 14.01% B 13.34% D
Templeton Global Income Securities
12-31-93 Purchase $1,000.00 $14.64984870 68.260 68.260 $1,000.00
12-31-94 Contract Fee (1.00) 13.72629720 (0.073) 68.187 935.96
12-31-95 Contract Fee (1.00) 15.52246997 (0.064) 68.123 1,057.43
12-31-96 Contract Fee (1.00) 16.78052472 (0.060) 68.063 1,142.14
12-31-96 Value before Surr Chg 16.78052472 0.000 68.063 1,142.14
12-31-96 Surrender Charge (22.00) 16.78052472 (1.311) 66.752 1,120.14
Cumulative Total Returns without/with chrgs 14.54% A 12.01% C
Avg. Annual Total Returns without/with chrgs 4.63% B 3.85% D
Templeton International Equity
12-31-93 Purchase $1,000.00 $12.22565227 81.795 81.795 $1,000.00
12-31-94 Contract Fee (1.00) 12.16131942 (0.082) 81.713 993.74
12-31-95 Contract Fee (1.00) 13.26267921 (0.075) 81.638 1,082.73
12-31-96 Contract Fee (1.00) 16.08142393 (0.062) 81.575 1,311.85
12-31-96 Value before Surr Chg 16.08142393 0.000 81.575 1,311.85
12-31-96 Surrender Charge (22.00) 16.08142393 (1.368) 80.207 1,289.85
Cumulative Total Returns without/with chrgs 31.54% A 28.98% C
Avg. Annual Total Returns without/with chrgs 9.57% B 8.85% D
Templeton Pacific Growth
12-31-93 Purchase $1,000.00 $14.23330574 70.258 70.258 $1,000.00
12-31-94 Contract Fee (1.00) 12.80173310 (0.078) 70.180 898.42
12-31-95 Contract Fee (1.00) 13.63037545 (0.073) 70.106 955.57
12-31-96 Contract Fee (1.00) 14.93159316 (0.067) 70.039 1,045.80
12-31-96 Value before Surr Chg 14.93159316 0.000 70.039 1,045.80
12-31-96 Surrender Charge (22.00) 14.93159316 (1.473) 68.566 1,023.80
Cumulative Total Returns without/with chrgs 4.91% A 2.38% C
Avg. Annual Total Returns without/with chrgs 1.61% B 0.79% D
U.S. Government Securities
12-31-93 Purchase $1,000.00 $14.69826319 68.035 68.035 $1,000.00
12-31-94 Contract Fee (1.00) 13.83490825 (0.072) 67.963 940.26
12-31-95 Contract Fee (1.00) 16.29770051 (0.061) 67.902 1,106.64
12-31-96 Contract Fee (1.00) 16.65018339 (0.060) 67.842 1,129.57
12-31-96 Value before Surr Chg 16.65018339 0.000 67.842 1,129.57
12-31-96 Surrender Charge (22.00) 16.65018339 (1.321) 66.520 1,107.57
Cumulative Total Returns without/with chrgs 13.28% A 10.76% C
Avg. Annual Total Returns without/with chrgs 4.24% B 3.46% D
Utility Equity
12-31-93 Purchase $1,000.00 $17.31879581 57.741 57.741 $1,000.00
12-31-94 Contract Fee (1.00) 15.10395032 (0.066) 57.675 871.11
12-31-95 Contract Fee (1.00) 19.56451758 (0.051) 57.623 1,127.37
12-31-96 Contract Fee (1.00) 20.65439774 (0.048) 57.575 1,189.18
12-31-96 Value before Surr Chg 20.65439774 0.000 57.575 1,189.18
12-31-96 Surrender Charge (22.00) 20.65439774 (1.065) 56.510 1,167.18
Cumulative Total Returns without/with chrgs 19.26% A 16.72% C
Avg. Annual Total Returns without/with chrgs 6.05% B 5.29% D
Zero Coupon - 2000
12-31-93 Purchase $1,000.00 $16.71742785 59.818 59.818 $1,000.00
12-31-94 Contract Fee (1.00) 15.37318118 (0.065) 59.753 918.59
12-31-95 Contract Fee (1.00) 18.29362036 (0.055) 59.698 1,092.09
12-31-96 Contract Fee (1.00) 18.47475298 (0.054) 59.644 1,101.91
12-31-96 Value before Surr Chg 18.47475298 0.000 59.644 1,101.91
12-31-96 Surrender Charge (22.00) 18.47475298 (1.191) 58.453 1,079.91
Cumulative Total Returns without/with chrgs 10.51% A 7.99% C
Avg. Annual Total Returns without/with chrgs 3.39% B 2.60% D
Zero Coupon - 2005
12-31-93 Purchase $1,000.00 $18.04995514 55.402 55.402 $1,000.00
12-31-94 Contract Fee (1.00) 16.09601101 (0.062) 55.340 890.75
12-31-95 Contract Fee (1.00) 20.91363234 (0.048) 55.292 1,156.35
12-31-96 Contract Fee (1.00) 20.51665706 (0.049) 55.243 1,133.40
12-31-96 Value before Surr Chg 20.51665706 0.000 55.243 1,133.40
12-31-96 Surrender Charge (22.00) 20.51665706 (1.072) 54.171 1,111.40
Cumulative Total Returns without/with chrgs 13.67% A 11.14% C
Avg. Annual Total Returns without/with chrgs 4.36% B 3.58% D
Zero Coupon - 2010
12-31-93 Purchase $1,000.00 $18.14448916 55.113 55.113 $1,000.00
12-31-94 Contract Fee (1.00) 15.92982416 (0.063) 55.050 876.94
12-31-95 Contract Fee (1.00) 22.43134838 (0.045) 55.006 1,233.85
12-31-96 Contract Fee (1.00) 21.52246902 (0.046) 54.959 1,182.86
12-31-96 Value before Surr Chg 21.52246902 0.000 54.959 1,182.86
12-31-96 Surrender Charge (22.00) 21.52246902 (1.022) 53.937 1,160.86
Cumulative Total Returns without/with chrgs 18.62% A 16.09% C
Avg. Annual Total Returns without/with chrgs 5.86% B 5.10% D
<FN>
A = (Unit Value as of December 31, 1996 - Unit Value at Purchase)/Unit Value at Purchase
B = [(A+1)^(1/3 Years)]-1
C = (Accumulated Value as of December 31, 1996 - Accum. Value at Purch.)/Accum. Value at Purch.
D = [(C+1)^(1/3 Years)]-1
</FN>
</TABLE>
<TABLE>
<CAPTION>
Original Purchase as of December 31, 1991
Valuation Date as of December 31, 1996
Dollar Units This Accum Accum
Date Transaction Amount Unit Value Trans Units Value
---- ----------- ------ ---------- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Growth and Income
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 1,051.25
12-31-93 Contract Fee (1.00) 13.67694811 (0.073) 83.534 1,142.50
12-31-94 Contract Fee (1.00) 13.21462941 (0.076) 83.459 1,102.88
12-31-95 Contract Fee (1.00) 17.30965999 (0.058) 83.401 1,443.64
12-31-96 Contract Fee (1.00) 19.48959860 (0.051) 83.350 1,624.45
12-31-96 Value before Surr Chg 19.48959860 0.000 83.350 1,624.45
12-31-96 Surrender Charge (3.75) 19.48959860 (0.192) 83.157 1,620.70
Cumulative Total Returns without/with chrgs 63.10% A 62.07% C
Avg. Annual Total Returns without/with chrgs 10.28% B 10.14% D
High Income
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 1,258.07
12-31-95 Contract Fee (1.00) 17.25181285 (0.058) 86.067 1,484.81
12-31-96 Contract Fee (1.00) 19.37479425 (0.052) 86.015 1,666.52
12-31-96 Value before Surr Chg 19.37479425 0.000 86.015 1,666.52
12-31-96 Surrender Charge (3.75) 19.37479425 (0.194) 85.821 1,662.77
Cumulative Total Returns without/with chrgs 67.27% A 66.28% C
Avg. Annual Total Returns without/with chrgs 10.84% B 10.70% D
Income Securities
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 1,452.29
12-31-96 Contract Fee (1.00) 21.70827863 (0.046) 73.356 1,592.44
12-31-96 Value before Surr Chg 21.70827863 0.000 73.356 1,592.44
12-31-96 Surrender Charge (3.75) 21.70827863 (0.173) 73.183 1,588.69
Cumulative Total Returns without/with chrgs 59.85% A 58.87% C
Avg. Annual Total Returns without/with chrgs 9.84% B 9.70% D
Money Market
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) 84.841 1,093.04
12-31-96 Contract Fee (1.00) 13.35923111 (0.075) 84.766 1,132.41
12-31-96 Value before Surr Chg 13.35923111 0.000 84.766 1,132.41
12-31-96 Surrender Charge (3.75) 13.35923111 (0.281) 84.485 1,128.66
Cumulative Total Returns without/with chrgs 13.78% A 12.87% C
Avg. Annual Total Returns without/with chrgs 2.61% B 2.45% D
Natural Resources Securities
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) 93.925 885.19
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) 93.714 1,322.17
12-31-96 Contract Fee (1.00) 14.46741645 (0.069) 93.644 1,354.79
12-31-96 Value before Surr Chg 14.46741645 0.000 93.644 1,354.79
12-31-96 Surrender Charge (3.75) 14.46741645 (0.259) 93.385 1,351.04
Cumulative Total Returns without/with chrgs 36.04% A 35.10% C
Avg. Annual Total Returns without/with chrgs 6.35% B 6.20% D
Real Estate Securities
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) 84.325 1,104.28
12-31-93 Contract Fee (1.00) 15.36898235 (0.065) 84.260 1,294.99
12-31-94 Contract Fee (1.00) 15.59407180 (0.064) 84.196 1,312.96
12-31-95 Contract Fee (1.00) 18.07282328 (0.055) 84.141 1,520.66
12-31-96 Contract Fee (1.00) 23.66770609 (0.042) 84.099 1,990.42
12-31-96 Value before Surr Chg 23.66770609 0.000 84.099 1,990.42
12-31-96 Surrender Charge (3.75) 23.66770609 (0.158) 83.940 1,986.67
Cumulative Total Returns without/with chrgs 99.76% A 98.67% C
Avg. Annual Total Returns without/with chrgs 14.84% B 14.72% D
Templeton Global Income Securities
12-31-91 Purchase $1,000.00 $12.96200318 77.149 77.149 $1,000.00
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 1,128.06
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) 76.864 1,193.13
12-31-96 Contract Fee (1.00) 16.78052472 (0.060) 76.805 1,288.83
12-31-96 Value before Surr Chg 16.78052472 0.000 76.805 1,288.83
12-31-96 Surrender Charge (3.75) 16.78052472 (0.223) 76.581 1,285.08
Cumulative Total Returns without/with chrgs 29.46% A 28.51% C
Avg. Annual Total Returns without/with chrgs 5.30% B 5.14% D
U.S. Government Securities
12-31-91 Purchase $1,000.00 $12.79761583 78.140 78.140 $1,000.00
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 1,146.43
12-31-94 Contract Fee (1.00) 13.83490825 (0.072) 77.926 1,078.09
12-31-95 Contract Fee (1.00) 16.29770051 (0.061) 77.864 1,269.01
12-31-96 Contract Fee (1.00) 16.65018339 (0.060) 77.804 1,295.45
12-31-96 Value before Surr Chg 16.65018339 0.000 77.804 1,295.45
12-31-96 Surrender Charge (3.75) 16.65018339 (0.225) 77.579 1,291.70
Cumulative Total Returns without/with chrgs 30.10% A 29.17% C
Avg. Annual Total Returns without/with chrgs 5.40% B 5.25% D
Utility Equity
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 1,166.41
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
12-31-96 Contract Fee (1.00) 20.65439774 (0.048) 67.183 1,387.63
12-31-96 Value before Surr Chg 20.65439774 0.000 67.183 1,387.63
12-31-96 Surrender Charge (3.75) 20.65439774 (0.182) 67.002 1,383.88
Cumulative Total Returns without/with chrgs 39.35% A 38.39% C
Avg. Annual Total Returns without/with chrgs 6.86% B 6.71% D
Zero Coupon - 2000
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) 73.563 1,229.78
12-31-94 Contract Fee (1.00) 15.37318118 (0.065) 73.498 1,129.89
12-31-95 Contract Fee (1.00) 18.29362036 (0.055) 73.443 1,343.54
12-31-96 Contract Fee (1.00) 18.47475298 (0.054) 73.389 1,355.84
12-31-96 Value before Surr Chg 18.47475298 0.000 73.389 1,355.84
12-31-96 Surrender Charge (3.75) 18.47475298 (0.203) 73.186 1,352.09
Cumulative Total Returns without/with chrgs 36.14% A 35.21% C
Avg. Annual Total Returns without/with chrgs 6.36% B 6.22% D
Zero Coupon - 2005
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 1,091.65
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 1,521.14
12-31-96 Contract Fee (1.00) 20.51665706 (0.049) 72.685 1,491.26
12-31-96 Value before Surr Chg 20.51665706 0.000 72.685 1,491.26
12-31-96 Surrender Charge (3.75) 20.51665706 (0.183) 72.503 1,487.51
Cumulative Total Returns without/with chrgs 49.70% A 48.75% C
Avg. Annual Total Returns without/with chrgs 8.40% B 8.27% D
Zero Coupon - 2010
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) 73.941 1,658.59
12-31-96 Contract Fee (1.00) 21.52246902 (0.046) 73.894 1,590.39
12-31-96 Value before Surr Chg 21.52246902 0.000 73.894 1,590.39
12-31-96 Surrender Charge (3.75) 21.52246902 (0.174) 73.720 1,586.64
Cumulative Total Returns without/with chrgs 59.63% A 58.66% C
Avg. Annual Total Returns without/with chrgs 9.81% B 9.67% D
<FN>
A = (Unit Value as of December 31, 1996 - Unit Value at Purchase)/Unit Value at Purchase
B = [(A+1)^(1/5 Years)]-1
C = (Accumulated Value as of December 31, 1996 - Accum. Value at Purch.)/Accum. Value at Purch.
D = [(C+1)^(1/5 Years)]-1
</FN>
</TABLE>
<TABLE>
<CAPTION>
Original Purchase as of Sub-Account Inception
Valuation Date as of December 31, 1996
Dollar Units This Accum Accum
Date Transaction Amount Unit Value Trans Units Value
---- ----------- ------ ---------- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Capital Growth
5-1-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-96 Contract Fee (1.00) 11.25417490 (0.089) 99.911 1,124.42
12-31-96 Value before Surr Chg 11.25417490 0.000 99.911 1,124.42
12-31-96 Surrender Charge (42.50) 11.25417490 (3.776) 96.135 1,081.92
Cumulative Total Returns without/with chgs 12.54% A 8.19% C
Avg. Annual Total Returns without/with chgs NA B NA D
Growth and Income
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 9.60621064 (0.104) 99.896 959.62
1-24-91 Contract Fee (1.00) 10.04911751 (0.100) 99.796 1,002.87
1-24-92 Contract Fee (1.00) 12.19460473 (0.082) 99.714 1,215.98
1-24-93 Contract Fee (1.00) 12.62194644 (0.079) 99.635 1,257.59
1-24-94 Contract Fee (1.00) 14.16249217 (0.071) 99.565 1,410.08
1-24-95 Contract Fee (1.00) 13.34952632 (0.075) 99.490 1,328.14
1-24-96 Contract Fee (1.00) 17.36302808 (0.058) 99.432 1,726.44
12-31-96 Value before Surr Chg 19.48959860 0.000 99.432 1,937.89
12-31-96 Contract Fee (1.00) 19.48959860 (0.051) 99.381 1,936.89
12-31-96 Surrender Charge 0.00 19.48959860 0.000 99.381 1,936.89
Cumulative Total Returns without/with chgs 94.90% A 93.69% C
Avg. Annual Total Returns without/with chgs 8.77% B 8.68% D
High Income
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 9.99164502 (0.100) 99.900 998.16
1-24-91 Contract Fee (1.00) 8.99722270 (0.111) 99.789 897.82
1-24-92 Contract Fee (1.00) 11.88821941 (0.084) 99.705 1,185.31
1-24-93 Contract Fee (1.00) 13.44703876 (0.074) 99.630 1,339.73
1-24-94 Contract Fee (1.00) 15.36027784 (0.065) 99.565 1,529.35
1-24-95 Contract Fee (1.00) 14.72506391 (0.068) 99.497 1,465.10
1-24-96 Contract Fee (1.00) 17.51218685 (0.057) 99.440 1,741.41
12-31-96 Value before Surr Chg 19.37479425 0.000 99.440 1,926.63
12-31-96 Contract Fee (1.00) 19.37479425 (0.052) 99.389 1,925.63
12-31-96 Surrender Charge 0.00 19.37479425 0.000 99.389 1,925.63
Cumulative Total Returns without/with chgs 93.75% A 92.56% C
Avg. Annual Total Returns without/with chgs 8.69% B 8.60% D
Income Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.71309911 (0.093) 99.907 1,070.31
1-24-91 Contract Fee (1.00) 9.95244729 (0.100) 99.806 993.32
1-24-92 Contract Fee (1.00) 14.03346495 (0.071) 99.735 1,399.63
1-24-93 Contract Fee (1.00) 15.36060973 (0.065) 99.670 1,530.99
1-24-94 Contract Fee (1.00) 17.72926867 (0.056) 99.613 1,766.07
1-24-95 Contract Fee (1.00) 16.36456157 (0.061) 99.552 1,629.13
1-24-96 Contract Fee (1.00) 20.20965612 (0.049) 99.503 2,010.92
12-31-96 Value before Surr Chg 21.70827863 0.000 99.503 2,160.04
12-31-96 Contract Fee (1.00) 21.70827863 (0.046) 99.457 2,159.04
12-31-96 Surrender Charge 0.00 21.70827863 0.000 99.457 2,159.04
Cumulative Total Returns without/with chgs 117.08% A 115.90% C
Avg. Annual Total Returns without/with chgs 10.25% B 10.18% D
Money Market
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.67978818 (0.094) 99.906 1,066.98
1-24-91 Contract Fee (1.00) 11.32877884 (0.088) 99.818 1,130.82
1-24-92 Contract Fee (1.00) 11.75876120 (0.085) 99.733 1,172.74
1-24-93 Contract Fee (1.00) 11.94119334 (0.084) 99.649 1,189.93
1-24-94 Contract Fee (1.00) 12.07592840 (0.083) 99.566 1,202.36
1-24-95 Contract Fee (1.00) 12.38828249 (0.081) 99.486 1,232.46
1-24-96 Contract Fee (1.00) 12.92030455 (0.077) 99.408 1,284.39
12-31-96 Value before Surr Chg 13.35923111 0.000 99.408 1,328.02
12-31-96 Contract Fee (1.00) 13.35923111 (0.075) 99.334 1,327.02
12-31-96 Surrender Charge 0.00 13.35923111 0.000 99.334 1,327.02
Cumulative Total Returns without/with chgs 33.59% A 32.70% C
Avg. Annual Total Returns without/with chgs 3.72% B 3.63% D
Mutual Discovery Securities
11-8-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-96 Contract Fee (1.00) 10.18045638 (0.098) 99.902 1,017.05
12-31-96 Value before Surr Chg 10.18045638 0.000 99.902 1,017.05
12-31-96 Surrender Charge (42.50) 10.18045638 (4.175) 95.727 974.55
Cumulative Total Returns without/with chgs 1.80% A -2.55% C
Avg. Annual Total Returns without/with chgs NA B NA D
Mutual Shares Securities
11-8-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-96 Contract Fee (1.00) 10.33016898 (0.097) 99.903 1,032.02
12-31-96 Value before Surr Chg 10.33016898 0.000 99.903 1,032.02
12-31-96 Surrender Charge (42.50) 10.33016898 (4.114) 95.789 989.52
Cumulative Total Returns without/with chgs 3.30% A -1.05% C
Avg. Annual Total Returns without/with chgs NA B NA D
Natural Resources Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 12.89722725 (0.078) 99.922 1,288.72
1-24-91 Contract Fee (1.00) 9.78594476 (0.102) 99.820 976.84
1-24-92 Contract Fee (1.00) 10.94243678 (0.091) 99.729 1,091.28
1-24-93 Contract Fee (1.00) 9.15485419 (0.109) 99.620 912.00
1-24-94 Contract Fee (1.00) 14.48022000 (0.069) 99.551 1,441.51
1-24-95 Contract Fee (1.00) 13.03370860 (0.077) 99.474 1,296.51
1-24-96 Contract Fee (1.00) 15.98656882 (0.063) 99.411 1,589.25
12-31-96 Value before Surr Chg 14.46741645 0.000 99.411 1,438.22
12-31-96 Contract Fee (1.00) 14.46741645 (0.069) 99.342 1,437.22
12-31-96 Surrender Charge 0.00 14.46741645 0.000 99.342 1,437.22
Cumulative Total Returns without/with chgs 44.67% A 43.72% C
Avg. Annual Total Returns without/with chgs 4.76% B 4.67% D
Real Estate Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.13988901 (0.099) 99.901 1,012.99
1-24-91 Contract Fee (1.00) 9.37706788 (0.107) 99.795 935.78
1-24-92 Contract Fee (1.00) 12.28427530 (0.081) 99.713 1,224.91
1-24-93 Contract Fee (1.00) 13.54478625 (0.074) 99.640 1,349.60
1-24-94 Contract Fee (1.00) 15.37525910 (0.065) 99.574 1,530.98
1-24-95 Contract Fee (1.00) 15.00928122 (0.067) 99.508 1,493.54
1-24-96 Contract Fee (1.00) 18.15857148 (0.055) 99.453 1,805.92
12-31-96 Value before Surr Chg 23.66770609 0.000 99.453 2,353.82
12-31-96 Contract Fee (1.00) 23.66770609 (0.042) 99.411 2,352.82
12-31-96 Surrender Charge 0.00 23.66770609 0.000 99.411 2,352.82
Cumulative Total Returns without/with chgs 136.68% A 135.28% C
Avg. Annual Total Returns without/with chgs 11.46% B 11.38% D
Rising Dividends
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Contract Fee (1.00) 10.69831588 (0.093) 99.907 1,068.83
1-27-94 Contract Fee (1.00) 10.38483458 (0.096) 99.810 1,036.51
1-27-95 Contract Fee (1.00) 9.97357882 (0.100) 99.710 994.47
1-27-96 Contract Fee (1.00) 12.53425589 (0.080) 99.630 1,248.79
12-31-96 Value before Surr Chg 15.30299222 0.000 99.630 1,524.64
12-31-96 Contract Fee (1.00) 15.30299222 (0.065) 99.565 1,523.64
12-31-96 Surrender Charge (3.75) 15.30299222 (0.245) 99.320 1,519.89
Cumulative Total Returns without/with chgs 53.03% A 51.99% C
Avg. Annual Total Returns without/with chgs 9.01% B 8.86% D
Small Cap
11-1-95 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
11-1-96 Contract Fee (1.00) 12.15810442 (0.082) 99.918 1,214.81
12-31-96 Value before Surr Chg 12.91274591 0.000 99.918 1,290.21
12-31-96 Contract Fee (1.00) 12.91274591 (0.077) 99.840 1,289.21
12-31-96 Surrender Charge (35.00) 12.91274591 (2.711) 97.130 1,254.21
Cumulative Total Returns without/with chgs 29.13% A 25.42% C
Avg. Annual Total Returns without/with chgs 24.49% B 21.42% D
Templeton Developing Markets Equity
3-15-94 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-15-95 Contract Fee (1.00) 8.62834892 (0.116) 99.884 861.83
3-15-96 Contract Fee (1.00) 10.29583833 (0.097) 99.787 1,027.39
12-31-96 Value before Surr Chg 11.48724479 0.000 99.787 1,146.28
12-31-96 Contract Fee (1.00) 11.48724479 (0.087) 99.700 1,145.28
12-31-96 Surrender Charge (22.00) 11.48724479 (1.915) 97.785 1,123.28
Cumulative Total Returns without/with chgs 14.87% A 12.33% C
Avg. Annual Total Returns without/with chgs 5.08% B 4.24% D
Templeton Global Asset Allocation
5-1-95 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-1-96 Contract Fee (1.00) 11.25238520 (0.089) 99.911 1,124.24
12-31-96 Value before Surr Chg 12.51416879 0.000 99.911 1,250.30
12-31-96 Contract Fee (1.00) 12.51416879 (0.080) 99.831 1,249.30
12-31-96 Surrender Charge (35.00) 12.51416879 (2.797) 97.034 1,214.30
Cumulative Total Returns without/with chgs 25.14% A 21.43% C
Avg. Annual Total Returns without/with chgs 14.36% B 12.32% D
Templeton Global Growth
3-15-94 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-15-95 Contract Fee (1.00) 10.10361218 (0.099) 99.901 1,009.36
3-15-96 Contract Fee (1.00) 11.81545835 (0.085) 99.816 1,179.38
12-31-96 Value before Surr Chg 13.55953972 0.000 99.816 1,353.46
12-31-96 Contract Fee (1.00) 13.55953972 (0.074) 99.743 1,352.46
12-31-96 Surrender Charge (22.00) 13.55953972 (1.622) 98.120 1,330.46
Cumulative Total Returns without/with chgs 35.60% A 33.05% C
Avg. Annual Total Returns without/with chgs 11.49% B 10.74% D
Templeton Global Income Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.86134310 (0.092) 99.908 1,085.13
1-24-91 Contract Fee (1.00) 11.78457305 (0.085) 99.823 1,176.37
1-24-92 Contract Fee (1.00) 12.96036211 (0.077) 99.746 1,292.74
1-24-93 Contract Fee (1.00) 12.79597793 (0.078) 99.668 1,275.35
1-24-94 Contract Fee (1.00) 14.83430587 (0.067) 99.600 1,477.50
1-24-95 Contract Fee (1.00) 13.57814674 (0.074) 99.527 1,351.39
1-24-96 Contract Fee (1.00) 15.44939311 (0.065) 99.462 1,536.63
12-31-96 Value before Surr Chg 16.78052472 0.000 99.462 1,669.02
12-31-96 Contract Fee (1.00) 16.78052472 (0.060) 99.402 1,668.02
12-31-96 Surrender Charge 0.00 16.78052472 0.000 99.402 1,668.02
Cumulative Total Returns without/with chgs 67.81% A 66.80% C
Avg. Annual Total Returns without/with chgs 6.74% B 6.66% D
Templeton International Equity
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Contract Fee (1.00) 9.54360836 (0.105) 99.895 953.36
1-27-94 Contract Fee (1.00) 12.87738433 (0.078) 99.818 1,285.39
1-27-95 Contract Fee (1.00) 11.94433728 (0.084) 99.734 1,191.25
1-27-96 Contract Fee (1.00) 13.57666972 (0.074) 99.660 1,353.05
12-31-96 Value before Surr Chg 16.08142393 0.000 99.660 1,602.68
12-31-96 Contract Fee (1.00) 16.08142393 (0.062) 99.598 1,601.68
12-31-96 Surrender Charge (3.75) 16.08142393 (0.233) 99.365 1,597.93
Cumulative Total Returns without/with chgs 60.81% A 59.79% C
Avg. Annual Total Returns without/with chgs 10.11% B 9.97% D
Templeton International Smaller Companies
5-1-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-96 Value before Surr Chg 11.14519961 0.000 100.000 1,114.52
12-31-96 Contract Fee (1.00) 11.14519961 (0.090) 99.910 1,113.52
12-31-96 Surrender Charge (42.50) 11.14519961 (3.813) 96.097 1,071.02
Cumulative Total Returns without/with chgs 11.45% A 7.10% C
Avg. Annual Total Returns without/with chgs NA B NA D
Templeton Pacific Growth
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Contract Fee (1.00) 9.92851087 (0.101) 99.899 991.85
1-27-94 Contract Fee (1.00) 14.10178760 (0.071) 99.828 1,407.76
1-27-95 Contract Fee (1.00) 11.94769270 (0.084) 99.745 1,191.72
1-27-96 Contract Fee (1.00) 14.49670523 (0.069) 99.676 1,444.97
12-31-96 Value before Surr Chg 14.93159316 0.000 99.676 1,488.32
12-31-96 Contract Fee (1.00) 14.93159316 (0.067) 99.609 1,487.32
12-31-96 Surrender Charge (3.75) 14.93159316 (0.251) 99.358 1,483.57
Cumulative Total Returns without/with chgs 49.32% A 48.36% C
Avg. Annual Total Returns without/with chgs 8.47% B 8.33% D
U.S. Government Securities
3-14-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-14-90 Contract Fee (1.00) 10.30827187 (0.097) 99.903 1,029.83
3-14-91 Contract Fee (1.00) 11.46249369 (0.087) 99.816 1,144.14
3-14-92 Contract Fee (1.00) 12.40064739 (0.081) 99.735 1,236.78
3-14-93 Contract Fee (1.00) 14.10187466 (0.071) 99.664 1,405.45
3-14-94 Contract Fee (1.00) 14.26756989 (0.070) 99.594 1,420.97
3-14-95 Contract Fee (1.00) 14.67370156 (0.068) 99.526 1,460.41
3-14-96 Contract Fee (1.00) 15.92525376 (0.063) 99.463 1,583.98
12-31-96 Value before Surr Chg 16.65018339 0.000 99.463 1,656.08
12-31-96 Contract Fee (1.00) 16.65018339 (0.060) 99.403 1,655.08
12-31-96 Surrender Charge 0.00 16.65018339 0.000 99.403 1,655.08
Cumulative Total Returns without/with chgs 66.50% A 65.51% C
Avg. Annual Total Returns without/with chgs 6.75% B 6.67% D
Utility Equity
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 11.48396786 (0.087) 99.913 1,147.40
1-24-91 Contract Fee (1.00) 11.97256112 (0.084) 99.829 1,195.21
1-24-92 Contract Fee (1.00) 14.23979461 (0.070) 99.759 1,420.55
1-24-93 Contract Fee (1.00) 15.97559846 (0.063) 99.697 1,592.71
1-24-94 Contract Fee (1.00) 16.50535338 (0.061) 99.636 1,644.53
1-24-95 Contract Fee (1.00) 15.57082971 (0.064) 99.572 1,550.42
1-24-96 Contract Fee (1.00) 19.81799066 (0.050) 99.521 1,972.31
12-31-96 Value before Surr Chg 20.65439774 0.000 99.521 2,055.55
12-31-96 Contract Fee (1.00) 20.65439774 (0.048) 99.473 2,054.55
12-31-96 Surrender Charge 0.00 20.65439774 0.000 99.473 2,054.55
Cumulative Total Returns without/with chgs 106.54% A 105.46% C
Avg. Annual Total Returns without/with chgs 9.57% B 9.49% D
Zero Coupon - 2000
3-14-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-14-90 Contract Fee (1.00) 10.38718687 (0.096) 99.904 1,037.72
3-14-91 Contract Fee (1.00) 11.51435997 (0.087) 99.817 1,149.33
3-14-92 Contract Fee (1.00) 12.66478418 (0.079) 99.738 1,263.16
3-14-93 Contract Fee (1.00) 15.54092694 (0.064) 99.674 1,549.02
3-14-94 Contract Fee (1.00) 16.04445243 (0.062) 99.611 1,598.21
3-14-95 Contract Fee (1.00) 16.25253463 (0.062) 99.550 1,617.94
3-14-96 Contract Fee (1.00) 17.85770371 (0.056) 99.494 1,776.73
12-31-96 Value before Surr Chg 18.47475298 0.000 99.494 1,838.12
12-31-96 Contract Fee (1.00) 18.47475298 (0.054) 99.440 1,837.12
12-31-96 Surrender Charge 0.00 18.47475298 0.000 99.440 1,837.12
Cumulative Total Returns without/with chgs 84.75% A 83.71% C
Avg. Annual Total Returns without/with chgs 8.18% B 8.10% D
Zero Coupon - 2005
3-14-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-14-90 Contract Fee (1.00) 10.39705125 (0.096) 99.904 1,038.71
3-14-91 Contract Fee (1.00) 11.55409702 (0.087) 99.817 1,153.30
3-14-92 Contract Fee (1.00) 12.66096149 (0.079) 99.738 1,262.78
3-14-93 Contract Fee (1.00) 16.42515250 (0.061) 99.677 1,637.22
3-14-94 Contract Fee (1.00) 16.93608169 (0.059) 99.618 1,687.14
3-14-95 Contract Fee (1.00) 17.21684038 (0.058) 99.560 1,714.11
3-14-96 Contract Fee (1.00) 19.49696512 (0.051) 99.509 1,940.12
12-31-96 Value before Surr Chg 20.51665706 0.000 99.509 2,041.59
12-31-96 Contract Fee (1.00) 20.51665706 (0.049) 99.460 2,040.59
12-31-96 Surrender Charge 0.00 20.51665706 0.000 99.460 2,040.59
Cumulative Total Returns without/with chgs 105.17% A 104.06% C
Avg. Annual Total Returns without/with chgs 9.64% B 9.57% D
Zero Coupon - 2010
3-14-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-14-90 Contract Fee (1.00) 10.26881437 (0.097) 99.903 1,025.88
3-14-91 Contract Fee (1.00) 11.36823998 (0.088) 99.815 1,134.72
3-14-92 Contract Fee (1.00) 12.29280886 (0.081) 99.733 1,226.00
3-14-93 Contract Fee (1.00) 16.18583635 (0.062) 99.672 1,613.27
3-14-94 Contract Fee (1.00) 16.90519720 (0.059) 99.612 1,683.97
3-14-95 Contract Fee (1.00) 17.12909328 (0.058) 99.554 1,705.27
3-14-96 Contract Fee (1.00) 19.99802778 (0.050) 99.504 1,989.88
12-31-96 Value before Surr Chg 21.52246902 0.000 99.504 2,141.57
12-31-96 Contract Fee (1.00) 21.52246902 (0.046) 99.458 2,140.57
12-31-96 Surrender Charge 0.00 21.52246902 0.000 99.458 2,140.57
Cumulative Total Returns without/with chgs 115.22% A 114.06% C
Avg. Annual Total Returns without/with chgs 10.32% B 10.24% D
<FN>
A = (Unit Value as of December 31, 1996 - Unit Value at Purchase)/Unit Value at Purchase
B = [(A+1)^(1/Years since Inception)]-1
C = (Accumulated Value as of December 31, 1996 - Accum. Value at Purch.)/Accum. Value at Purch.
D = [(C+1)^(1/Years since Inception)]-1
</FN>
</TABLE>
<TABLE>
<CAPTION>
Performance Information of Selected Public Funds
Original Purchase as of December 31, 1995
Valuation Date as of December 31, 1996
Dollar NAV Per Shrs. This Accum. Net Asset
Date Transaction Amount Share Trans. Shrs. Value
---- ----------- ------ ------ ---------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Mutual Discovery Fund
12-31-95 Purchase $1,000.00 $15.16 65.963 65.963 $1,000.00
6-14-96 Dividend Distribution ($.35/shr) 23.09 16.89 1.367 67.330 1,137.20
12-23-96 Dividend Distribution ($1.36/shr) 91.57 17.00 5.386 72.716 1,236.18
12-31-96 Current Value 17.18 0.000 72.716 1,249.27
Average Annual Total Return 24.93% A
Mutual Shares Fund
12-31-95 Purchase $1,000.00 $86.45 11.567 11.567 $1,000.00
6-14-96 Dividend Distribution ($3.00/shr) 34.70 91.93 0.377 11.945 1,098.09
12-23-96 Dividend Distribution ($8.17/shr) 97.59 92.01 1.061 13.006 1,196.64
12-31-96 Current Value 92.85 0.000 13.006 1,207.56
Average Annual Total Return 20.76% A
<FN>
A = (Net Asset Value as of December 31, 1996 - Net Asset Value at Purch.)/Net Asset Value at Purch.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
---- ----------- ------ ---------- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Mutual Discovery Securities Sub-Account
12-31-95 Purchase $1,000.00 $17.33223864 57.696 57.696 $1,000.00
12-31-96 Contract Fee (1.00) 21.35394577 (0.047) 57.649 1,231.04
12-31-96 Value before Surr Chg 21.35394577 0.000 57.649 1,231.04
12-31-96 Surrender Charge (42.50) 21.35394577 (1.990) 55.659 1,188.54
Average Annual Total Returns without/with charges 23.20% B 18.85% C
Mutual Shares Securities Sub-Account
12-31-95 Purchase $1,000.00 $499.31112267 2.003 2.003 $1,000.00
12-31-96 Contract Fee (1.00) 594.81873447 (0.002) 2.001 1,190.28
12-31-96 Value before Surr Chg 594.81873447 0.000 2.001 1,190.28
12-31-96 Surrender Charge (42.50) 594.81873447 (0.071) 1.930 1,147.78
Average Annual Total Returns without/with charges 19.13% B 14.78% C
<FN>
B = (Unit Value as of December 31, 1996 - Unit Value at Purch.)/Unit Value at Purch.
C = (Accumulated Value as of December 31, 1996 - Accum. Value at Purch.)/Accum. Value at Purch.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Original Purchase as of December 31, 1991
Valuation Date as of December 31, 1996
Dollar NAV Per Shrs. This Accum. Net Asset
Date Transaction Amount Share Trans. Shrs. Value
---- ----------- ------ ------- ---------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Mutual Shares Fund
12-31-91 Purchase $1,000.00 $64.49 15.506 15.506 $1,000.00
7-6-92 Dividend Distribution ($1.00/shr) 15.51 70.18 0.221 15.727 1,103.74
12-31-92 Dividend Distribution ($3.75/shr) 58.98 72.71 0.811 16.538 1,202.50
7-12-93 Dividend Distribution ($.70/shr) 11.58 79.65 0.145 16.684 1,328.86
12-31-93 Dividend Distribution ($6.99/shr) 116.62 80.56 1.448 18.131 1,460.66
7-11-94 Dividend Distribution ($.60/shr) 10.88 80.60 0.135 18.266 1,472.26
12-29-94 Dividend Distribution ($5.30/shr) 96.81 78.31 1.236 19.503 1,527.24
7-10-95 Dividend Distribution ($2.60/shr) 50.71 88.78 0.571 20.074 1,782.14
12-29-95 Dividend Distribution ($12.14/shr) 243.69 85.63 2.846 22.920 1,962.60
6-14-96 Dividend Distribution ($3.00/shr) 68.76 91.93 0.748 23.668 2,175.76
12-23-96 Dividend Distribution ($8.17/shr) 193.36 92.01 2.102 25.769 2,371.01
12-31-96 Current Value 92.85 0.000 25.769 2,392.66
Cumulative Total Return 139.27% A
Average Annual Total Return 19.06% B
<FN>
A = (Net Asset Value as of December 31, 1996 - Net Asset Value at Purch.)/Net Asset Value at Purch. B = [(A+1)^(1/5 Years)]-1
</FN>
</TABLE>
<TABLE>
<CAPTION>
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
---- ----------- ------ ---------- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Mutual Shares Securities Sub-Account
12-31-91 Purchase $1,000.00 $267.59225358 3.737 3.737 $1,000.00
12-31-92 Contract Fee (1.00) 319.96432021 (0.003) 3.734 1,194.72
12-31-93 Contract Fee (1.00) 381.49293860 (0.003) 3.731 1,423.46
12-31-94 Contract Fee (1.00) 393.09978847 (0.003) 3.729 1,465.77
12-31-95 Contract Fee (1.00) 499.31112267 (0.002) 3.727 1,860.80
12-31-96 Contract Fee (1.00) 594.81873447 (0.002) 3.725 2,215.73
12-31-96 Value before Surr Chg 594.81873447 0.000 3.725 2,215.73
12-31-96 Surrender Charge (3.75) 594.81873447 (0.006) 3.719 2,211.98
Cumulative Total Rtns. without/with chrgs. 122.29% C 121.20% E
Avg. Annual Total Rtns. without/with chrgs. 17.32% D 17.21% F
<FN>
C = (Unit Value as of December 31, 1996 - Unit Value at Purch.)/Unit Value at Purch.
D = [(C+1)^(1/5 Years)]-1
E = (Accumulated Value as of December 31, 1996 - Accum. Value at Purch.)/Accum. Value at Purch.
F = [(E+1)^(1/5 Years)]-1
</FN>
</TABLE>
<TABLE>
<CAPTION>
Original Purchase as of December 31, 1986
Valuation Date as of December 31, 1996
Dollar NAV Per Shrs. This Accum. Net Asset
Date Transaction Amount Share Trans. Shrs. Value
---- ----------- ------ ----- ---------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Mutual Shares Fund
12-31-86 Purchase $1,000.00 $66.04 15.142 15.142 $1,000.00
1-9-87 Dividend Distribution ($5.65/shr) 85.55 60.08 1.424 16.566 995.31
7-17-87 Dividend Distribution ($1.35/shr) 22.36 71.24 0.314 16.880 1,202.55
12-31-87 Dividend Distribution ($5.26/shr) 88.79 58.12 1.528 18.408 1,069.87
7-15-88 Dividend Distribution ($1.75/shr) 32.21 70.00 0.460 18.868 1,320.77
12-29-88 Dividend Distribution ($5.93/shr) 111.89 67.38 1.661 20.529 1,383.23
6-23-89 Dividend Distribution ($1.85/shr) 37.98 74.45 0.510 21.039 1,566.34
12-29-89 Dividend Distribution ($8.79/shr) 184.93 66.80 2.768 23.807 1,590.33
6-18-90 Dividend Distribution ($.75/shr) 17.86 66.20 0.270 24.077 1,593.90
12-31-90 Dividend Distribution ($3.48/shr) 83.79 56.16 1.492 25.569 1,435.95
7-8-91 Dividend Distribution ($.90/shr) 23.01 63.59 0.362 25.931 1,648.94
12-31-91 Dividend Distribution ($2.73/shr) 70.79 63.27 1.119 27.050 1,711.44
7-6-92 Dividend Distribution ($1.00/shr) 27.05 70.18 0.385 27.435 1,925.40
12-31-92 Dividend Distribution ($3.75/shr) 102.88 72.71 1.415 28.850 2,097.69
7-12-93 Dividend Distribution ($.70/shr) 20.20 79.65 0.254 29.104 2,318.11
12-31-93 Dividend Distribution ($6.99/shr) 203.43 80.56 2.525 31.629 2,548.03
7-11-94 Dividend Distribution ($.60/shr) 18.98 80.60 0.235 31.864 2,568.27
12-29-94 Dividend Distribution ($5.30/shr) 168.88 78.31 2.157 34.021 2,664.18
7-10-95 Dividend Distribution ($2.60/shr) 88.45 88.78 0.996 35.017 3,108.83
12-29-95 Dividend Distribution ($12.14/shr) 425.11 85.63 4.964 39.982 3,423.64
6-14-96 Dividend Distribution ($3.00/shr) 119.95 91.93 1.305 41.287 3,795.47
12-23-96 Dividend Distribution ($8.17/shr) 337.31 92.01 3.666 44.953 4,136.08
12-31-96 Current Value 92.85 0.000 44.953 4,173.84
Cumulative Total Return 317.38% A
Average Annual Total Return 15.36% B
<FN>
A = (Net Asset Value as of December 31, 1996 - Net Asset Value at Purch.)/Net Asset Value at Purch.
B = [(A+1)^(1/10 Years)]-1
</FN>
</TABLE>
<TABLE>
<CAPTION>
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
---- ----------- ------ ---------- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Mutual Shares Securities Sub-Account
12-31-86 Purchase $1,000.00 $165.05304095 6.059 6.059 $1,000.00
12-31-87 Contract Fee (1.00) 173.13664331 (0.006) 6.053 1,047.98
12-31-88 Contract Fee (1.00) 222.98420480 (0.004) 6.048 1,348.70
12-31-89 Contract Fee (1.00) 252.57163809 (0.004) 6.044 1,526.65
12-31-90 Contract Fee (1.00) 224.56176656 (0.004) 6.040 1,356.35
12-31-91 Contract Fee (1.00) 267.59225358 (0.004) 6.036 1,615.25
12-31-92 Contract Fee (1.00) 319.96432021 (0.003) 6.033 1,930.38
12-31-93 Contract Fee (1.00) 381.49293860 (0.003) 6.031 2,300.59
12-31-94 Contract Fee (1.00) 393.09978847 (0.003) 6.046 2,376.62
12-31-95 Contract Fee (1.00) 499.31112267 (0.002) 6.044 3,017.76
12-31-96 Contract Fee (1.00) 594.81873447 (0.002) 6.042 3,594.00
12-31-96 Value before Surr Chg 594.81873447 0.000 6.042 3,594.00
12-31-96 Surrender Charge 0.00 594.81873447 0.000 6.042 3,594.00
Cumulative Total Rtns. without/with chrgs. 260.38% C 259.40% E
Avg. Annual Total Rtns. without/with chrgs. 13.68% D 13.65% F
<FN>
C = (Unit Value as of December 31, 1996 - Unit Value at Purch.)/Unit Value at Purch.
D = [(C+1)^(1/10 Years)]-1 E = (Accumulated Value as of December 31, 1996 - Accum. Value at Purch.)/Accum. Value at Purch.
F = [(E+1)^(1/10 Years)]-1
</FN>
</TABLE>
<TABLE>
<CAPTION>
Original Purchase as of Inception
Valuation Date as of December 31, 1996
Dollar NAV Per Shrs. This Accum. Net Asset
Date Transaction Amount Share Trans. Shrs. Value
---- ----------- ------ ------- ---------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Mutual Discovery Fund
12-31-92 Purchase $1,000.00 $10.00 100.000 100.000 $1,000.00
12-31-93 Dividend Distribution ($.53/shr) 53.00 12.93 4.099 104.099 1,346.00
7-11-94 Dividend Distribution ($.20/shr) 20.82 13.28 1.568 105.667 1,403.25
12-29-94 Dividend Distribution ($.77/shr) 81.36 12.52 6.499 112.165 1,404.31
7-10-95 Dividend Distribution ($.13/shr) 14.58 14.49 1.006 113.172 1,639.86
12-29-95 Dividend Distribution ($.83/shr) 93.93 14.99 6.266 119.438 1,790.38
6-14-96 Dividend Distribution ($.35/shr) 41.80 16.89 2.475 121.913 2,059.11
12-23-96 Dividend Distribution ($1.36/shr) 165.80 17.00 9.753 131.666 2,238.32
12-31-96 Current Value 17.18 0.000 131.666 2,262.02
Cumulative Total Return 126.20% A
Average Annual Total Return 22.62% B
<FN>
A = (Net Asset Value as of December 31, 1996 - Net Asset Value at Purch.)/Net Asset Value at Purch.
B = [(A+1)^(1/Years since Inception)]-1
</FN>
</TABLE>
<TABLE>
<CAPTION>
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
---- ----------- ------ ---------- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Mutual Discovery Securities Sub-Account
12-31-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-93 Contract Fee (1.00) 13.39109512 (0.075) 99.925 1,338.11
12-31-94 Contract Fee (1.00) 13.67637317 (0.073) 99.852 1,365.62
12-31-95 Contract Fee (1.00) 17.33223864 (0.058) 99.795 1,729.66
12-31-96 Contract Fee (1.00) 21.35394577 (0.047) 99.748 2,130.01
12-31-96 Value before Surr Chg 21.35394577 0.000 99.925 2,133.80
12-31-96 Surrender Charge (12.00) 21.35394577 (0.562) 99.363 2,121.80
Cumulative Total Rtns. without/with chgs. 113.54% C 112.18% E
Avg. Annual Total Rtns. without/with chgs. 20.87% D 20.68% F
<FN>
C = (Unit Value as of December 31, 1996 - Unit Value at Purch.)/Unit Value atPurch.
D = [(C+1)^(1/Years since Inception)]-1
E = (Accumulated Value as of December 31, 1996 - Accum. Value at Purch.)/Accum. Value at Purch.
F = [(E+1)^(1/Years since Inception)]-1
</FN>
</TABLE>
