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. 13 (X)
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 ( )
Amendment No. 19 (X)
(Check appropriate box or boxes.)
PREFERRED LIFE VARIABLE ACCOUNT C
---------------------------------
(Exact Name of Registrant)
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
--------------------------------------------
(Name of Depositor)
152 West 57th Street, 18th Floor, New York, New York 10019
---------------------------------------------------- ---------
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (212) 586-7733
Name and Address of Agent for Service
- -------------------------------------
Eugene Long
Preferred Life Insurance Company of New York
152 West 57th Street, 18th Floor
New York, New York 10019
Copies to:
Judith A. Hasenauer
Blazzard, Grodd & Hasenauer, P.C.
P.O. Box 5108
Westport, CT 06881
(203) 226-7866
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b) of Rule 485
_X_ on May 1, 1997 pursuant to paragraph (b) of Rule 485
___ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
___ on (date) pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following:
___ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has declared that it has registered an indefinite number or amount of
securities in accordance with Rule 24f-2 under the Investment Company Act of
1940. Registrant filed a Rule 24f-2 Notice for the most recent fiscal year on or
about February 24, 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.
PART A
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 IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
STATE, COUNTRY, OR JURISDICTION IN WHICH THE OFFERING IS UNAUTHORIZED. NO SALES
REPRESENTATIVE, DEALER OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR
MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS.
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 Privileges .............................. 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............................ 14
Deduction for Administrative
Expense Charge ................................ 15
Deduction for Contract
Maintenance Charge ............................ 15
Deduction for Premium Taxes .................... 15
Deduction for Income Taxes. .................... 15
Deduction for Trust Expenses ................... 15
Deduction for Transfer Fee...................... 15
THE CONTRACTS.................................... 16
Ownership....................................... 16
Assignment...................................... 16
Beneficiary..................................... 16
Change of Beneficiary........................... 16
Annuitant....................................... 16
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 ............................... 18
PURCHASE PAYMENTS
AND CONTRACT VALUE ............................. 19
Purchase Payments .............................. 19
Automatic Investment Plan ...................... 19
Allocation of Purchase Payments ................ 20
Transfer of Contract Values .................... 20
Dollar Cost Averaging .......................... 21
Contract Value ................................. 21
Accumulation Unit .............................. 21
DISTRIBUTOR ..................................... 22
SURRENDERS ...................................... 22
Systematic Withdrawal........................... 22
Delay of Payments............................... 23
ADMINISTRATION OF THE CONTRACTS.................. 23
PERFORMANCE DATA ................................ 23
Money Market Sub-Account ....................... 23
Other Sub-Accounts.............................. 23
Performance Ranking............................. 24
TAX STATUS....................................... 24
General......................................... 24
Diversification................................. 25
Multiple Contracts.............................. 26
Contracts Owned by
Other than Natural Persons .................... 26
Tax Treatment of Assignments ................... 26
Income Tax Withholding ......................... 26
Tax Treatment of Surrenders -
Non-Qualified Contracts ....................... 26
Qualified Plans ................................ 26
Tax Treatment of Surrenders -
Qualified Contracts ........................... 28
Tax-Sheltered Annuities -
Surrender Limitations ......................... 28
FINANCIAL STATEMENTS ............................ 29
LEGAL PROCEEDINGS ............................... 29
TABLE OF CONTENTS
OF THE STATEMENT OF
ADDITIONAL INFORMATION ......................... 29
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
surrenders. 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 surrenders, 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 surrender is made during a Contract Year, the 15%
is cumulative into future years. If less than 15% is surrendered 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
Surrenders - Non-Qualified Contracts" and "Tax Treatment of Surrenders -
Qualified Contracts.") For a further discussion of the taxation of the
Contracts, see "Tax Status."
For contracts purchased in connection with 403 (b) plans, surrenders 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, surrenders 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 surrenders 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
surrenders 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 - Surrender
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 forContracts having Contract
Values or purchase payments less
surrenders 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 surrender is made during a Contract
Year, the 15% is cumulative into future years. If less than 15% is surrendered
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. Market
timing transfers may not be permitted.
<PAGE>
<TABLE>
<CAPTION>
Franklin Valuemark Funds' Annual Expense
(as a percentage of Franklin Valuemark Funds' average net assets).
The Management and Fund Administration Fees for each Fund are based on a percentage of that Fund's net assets. 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 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 costs of investing, directly or indirectly,
in the Contract.
Management
and Fund Other Total Annual
Administration Fees1Expenses Expenses
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Money Market Fund2 ............................................................ .51% .02% .53%
Growth and Income Fund ........................................................ .48% .02% .50%
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%
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 ............................................. .95% .10% 1.05%
Mutual Shares Securities Fund6 ................................................ .75% .10% .85%
<FN>
1 The 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.
2 Franklin Advisers, Inc. agreed in advance to waive a portion of its Management Fee and to make certain payments to reduce
expenses of the Money Market Fund during 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.
3 Prior to May 1, 1997, the Natural Resources Securities Fund was known as the Precious Metals Fund.
4 Net of management fees waived. 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 each Zero Coupon Fund will not exceed 0.40% of each Fund's net assets. Absent the management
fee waivers 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%. There were no expense reimbursements during 1996 for the Zero Coupon Funds.
5 The 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.
6 The Mutual Discovery Securities Fund and the Mutual Shares Securities Fund commenced operations 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
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 $ 85 $111 $232
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
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* .................................................. $68 $101 $139 $289
Mutual Shares Securities Fund* ..................................................... $66 $ 95 $129 $268
<FN>
*Estimated
+Calculated with waiver of fees
</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 is
annuitized, the Contract Owner would have incurred the following expenses on a $1,000 investment, assuming a 5% annual return on
assets compounded 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 $63 $108 $232
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
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* .................................................. $26 $79 $136 $289
Mutual Shares Securities Fund* ..................................................... $24 $73 $125 $268
<FN>
*Estimated
+Calculated with waiver of fees
</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 THE 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
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 39 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 THE 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>
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; 6/10/96 for the Small Cap,
Templeton 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.
PURCHASERS SHOULD READ THIS PROSPECTUS AND THE ACCOMPANYING PROSPECTUS FOR THE
TRUST CAREFULLY BEFORE INVESTING.
Franklin Advisers, Inc. 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. is the investment manager for the Rising Dividends Fund.
All investment managers and 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
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 Privileges
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 as 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 surrender is made during a Contract
Year, the 15% is cumulative into future years. If less than 15% is surrendered
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.
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. 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.
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.
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
surrenders 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 the assets of the Franklin Valuemark Funds for
operating expenses (including management fees), 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 at its Valuemark Service
Center. 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 persons 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. In addition, 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 surrender 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 surrender 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, surrenders 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 surrenders 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
surrenders 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 surrender 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 Surrenders - Qualified Contracts.") Contract Owners
entering into such a plan instruct the Company to surrender 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%
free surrender amount which is allowable each year. Any other surrender 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 sales literature, 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.
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 Surrenders -
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 surrendered will be treated as coming first from the
earnings and then, only after the income portion is exhausted, as coming from
the principal. Surrenderd 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) 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 surrender penalties and restrictions may apply to such Qualified Contracts.
(See "Tax Treatment of Surrenders - 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 surrender penalties and
restrictions may apply to surrenders from Qualified Contracts. (See "Tax
Treatment of Surrenders - 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 and
surrenders. (See "Tax Treatment of Surrenders 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
surrenders. (See "Tax Treatment of Surrenders - Qualified Contracts" and "Tax
Sheltered Annuities - Surrender 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 Surrenders - 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 and surrenders.
Participant loans are not allowed under the Contracts purchased in connection
with these Plans. (See "Tax Treatment of Surrenders - 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 Surrenders -
Qualified Contracts
In the case of a surrender 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 will no longer apply 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 - Surrender Limitations
The Code limits the surrender 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,
surrenders 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 surrenders 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
surrenders 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.
Table of Contents of the
Statement of Additional Information
- --------------------------------------------------------------------------------
Item Page
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
<PAGE>
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
- -------------------------------------------------------
<S> <C>
Contents Page
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 KPMG
Peat Marwick LLP, independent auditors, as indicated in their reports included
in this Statement of Additional Information and are included herein in reliance
upon such reports and upon the authority of said firm as experts in accounting
and auditing.
Legal Opinions
- --------------------------------------------------------------------------------
Legal matters in connection with the Contracts described herein are being passed
upon by the law firm of Blazzard, Grodd & Hasenauer, P.C., Westport,
Connecticut.
Distributor
- --------------------------------------------------------------------------------
NALAC Financial Plans, 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").
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%. The yield information
assumes that the Sub-Account was invested in the Money Market Fund for the time
period shown.
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.
From time to time, evaluation of performance by independent sources may also be
used.
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. Past performance does not guarantee
future results.
<PAGE>
<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 Years 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.
+Calculated with waiver of fees.
</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 Years Years Inception Years Years 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.
+Calculated with waiver of fees.
</FN>
</TABLE>
<PAGE>
<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 Years Inception Years 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.
+Calculated with waiver of fees.
</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.
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
================================================================================
Independent Auditors' Report
The Board of Directors of Preferred Life Insurance Company of New York and
Contract Owners of Preferred Life Variable Account C:
We have audited the accompanying statements of assets and liabilities of the
sub-accounts of Preferred Life Variable Account C as of December 31, 1996, the
related statements of operations for the year then ended and the statements of
changes in net assets for each of the years in the two-years then ended. These
financial statements are the responsibility of the Variable Account's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Investment
securities held in custody for the benefit of the Variable Account were
confirmed to us by the Franklin Valuemark Funds. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets and liabilities of the sub-accounts of
Preferred Life Variable Account C at December 31, 1996, the results of their
operations for the year then ended and the changes in their net assets for
each of the years in the two-years then ended, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 24, 1997
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
===========================================================================================================================
Financial Statements
Statements of Assets and Liabilities
December 31, 1996
(In thousands except per unit data)
Money Growth and Precious High Real Estate U.S. Government
Market Income Metals Income Securities Securities
Fund Fund Fund Fund Fund Fund
------ ------- ------ ----- ------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Money Market Fund, 32,512 shares, cost $32,512................ $32,512 - - - - -
Growth and Income Fund, 5,631 shares, cost $83,512............ - 98,827 - - - -
Precious Metals Fund, 573 shares, cost $8,470................. - - 8,191 - - -
High Income Fund, 2,961 shares, cost $38,665.................. - - - 41,925 - -
Real Estate Securities Fund, 918 shares, cost $14,703......... - - - - 20,338 -
U.S. Government Securities Fund, 7,438 shares, cost $99,440... - - - - - 100,191
------- ------- ----- ------ ------- -------
Total assets.............................................. 32,512 98,827 8,191 41,925 20,338 100,191
------- ------- ----- ------ ------- -------
Liabilities:
Accrued mortality and expense risk charges..................... 4 5 2 4 3 5
Accrued administrative charges................................. - 1 - - - 1
------- ------ ----- ------ ------ -------
Total liabilities......................................... 4 6 2 4 3 6
------- ------ ----- ------ ------ -------
Net assets................................................ $32,508 98,821 8,189 41,921 20,335 100,185
======= ====== ===== ====== ====== =======
Contract owners' equity (note 5)................................ $32,508 98,821 8,189 41,921 20,335 100,185
======= ====== ===== ====== ====== =======
Accumulation units outstanding................................. 2,433 5,070 566 2,164 859 6,017
======= ====== ====== ====== ====== =======
Accumulation unit value per unit............................... $13.359 19.490 14.467 19.375 23.668 16.650
======= ====== ====== ====== ====== =======
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
===========================================================================================================================
Financial Statements (cont.)
Statements of Assets and Liabilities (cont.)
December 31, 1996
(In thousands except per unit data)
Templeton
Utility Zero Zero Zero Global Income Income
Equity Coupon Coupon Coupon Securities Securities
Fund Fund - 2000 Fund - 2005 Fund - 2010 Fund Fund
------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Utility Equity Fund, 5,678 shares, cost $92,724.......... $103,231 - - - - -
Zero Coupon Fund - 2000, 1,652 shares, cost $23,884...... - 25,088 - - - -
Zero Coupon Fund - 2005, 537 shares, cost $8,057......... - - 8,780 - - -
Zero Coupon Fund - 2010, 460 shares, cost $6,894......... - - - 7,495 - -
Templeton Global Income Securities Fund, 1,668 shares,
cost $21,451............................................ - - - - 22,722 -
Income Securities Fund, 5,701 shares, cost $86,292....... - - - - - 98,115
-------- ------ ------ ------ ------ ------
Total assets......................................... 103,231 25,088 8,780 7,495 22,722 98,115
-------- ------ ------ ------ ------ ------
Liabilities:
Accrued mortality and expense risk charges................ 5 3 3 3 3 5
Accrued administrative charges............................ 1 - - - - 1
-------- ------ ------ ------ ------ ------
Total liabilities.................................... 6 3 3 3 3 6
-------- ------ ------ ------ ------ ------
Net assets........................................... $103,225 25,085 8,777 7,492 22,719 98,109
======== ====== ====== ====== ====== ======
Contract owners' equity (note 5)........................... $103,225 25,085 8,777 7,492 22,719 9
======== ====== ====== ====== ====== ======
Accumulation units outstanding............................ 4,998 1,358 428 348 1,354 4,519
======== ====== ====== ====== ====== ======
Accumulation unit value per unit.......................... $20.654 18.475 20.517 21.522 16.781 21.708
======== ====== ====== ====== ====== ======
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
===========================================================================================================================
Financial Statements (cont.)
Statements of Assets and Liabilities (cont.)
December 31, 1996
(In thousands except per unit data)
Templeton Templeton Templeton Templeton Templeton
Pacific Rising International Developing Global Global Asset
Growth Dividends Equity Markets Equity Growth Allocation
Fund Fund Fund Fund Fund Fund
------- -------- ----------- -------------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Templeton Pacific Growth Fund, 1,772 shares, cost $24,758. $26,152 - - - - -
Rising Dividends Fund, 3,373 shares, cost $37,522......... - 51,938 - - - -
Templeton International Equity Fund, 4,555 shares,
cost $59,120............................................. - - 70,367 - - -
Templeton Developing Markets Equity Fund, 1,033 shares,
cost $10,766............................................. - - - 11,973 - -
Templeton Global Growth Fund, 2,109 shares, cost $24,277.. - - - - 29,106 -
Templeton Global Asset Allocation Fund, 299 shares,
cost $3,359.............................................. - - - - - 3,762
------- ------ ------ ------ ------ ------
Total assets.......................................... 26,152 51,938 70,367 11,973 29,106 3,762
------- ------ ------ ------ ------ ------
Liabilities:
Accrued mortality and expense risk charges................. 4 4 4 3 3 3
Accrued administrative charges............................. - - 1 - - -
------- ------ ------ ------ ------ ------
Total liabilities..................................... 4 4 5 3 3 3
------- ------ ------ ------ ------ ------
Net assets............................................ $26,148 51,934 70,362 11,970 29,103 3,759
======= ====== ====== ====== ====== ======
Contract owners' equity (note 5)............................ $26,148 51,934 70,362 11,970 29,103 3,759
======= ====== ====== ====== ====== ======
Accumulation units outstanding............................. 1,751 3,394 4,375 1,042 2,146 300
======= ====== ====== ====== ====== ======
Accumulation unit value per unit........................... $14.932 15.303 16.081 11.487 13.560 12.514
======= ====== ====== ====== ====== ======
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
===========================================================================================================================
Financial Statements (cont.)
Statements of Assets and Liabilities (cont.)
December 31, 1996
(In thousands except per unit data)
Templeton
International Mutual Mutual
Capital Smaller Discovery Shares Total
Small Cap Growth Companies Securities Securities All
Fund Fund Fund Fund Fund Funds
--------- ------- ----------- ---------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Small Cap Fund, 407 shares, cost $5,158........................... $5,372 - - - -
Capital Growth Fund, 223 shares, cost $2,448...................... - 2,532 - - -
Templeton International Smaller Companies Fund, 64 shares,
cost $677........................................................ - - 725 - -
Mutual Discovery Securities Fund, 27 shares, cost $275............ - - - 278 -
Mutual Shares Securities Fund, 43 shares, cost $434............... - - - - 442
------- ------ ------ ------ ------
Total assets.................................................. 5,372 2,532 725 278 442 770,062
------- ------ ------ ------ ------ -------
Liabilities:
Accrued mortality and expense risk charges......................... 3 3 3 - - 75
Accrued administrative charges..................................... - - - - - 5
------- ------ ------ ------ ------ -------
Total liabilities............................................. 3 3 3 - - 80
------- ------ ------ ------ ------ -------
Net assets.................................................... $5,369 2,529 722 278 442 769,982
======= ====== ====== ====== ====== =======
Contract owners' equity (note 5).................................... $5,369 2,529 722 278 442 769,982
======= ====== ====== ====== ====== =======
Accumulation units outstanding..................................... 416 225 65 27 43 43,898
======= ====== ====== ====== ====== =======
Accumulation unit value per unit................................... $12.913 11.254 11.145 10.180 10.330
======= ====== ====== ====== ======
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
===========================================================================================================================
Financial Statements (cont.)
Statements of Operations
For the year ended December 31, 1996
(In thousands)
Money Growth and Precious High Real Estate U.S. Government
Market Income Metals Income Securities Securities
Fund Fund Fund Fund Fund Fund
------ ---------- ------- ------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares.......................... $ 1,621 2,058 114 2,915 652 5,488
------- ------ ----- ------ ----- ------
Expenses:
Mortality and expense risk charges........................... 407 1,112 113 464 205 1,040
Administrative charges....................................... 49 133 14 56 25 125
------- ------ ----- ------ ----- ------
Total expenses.......................................... 456 1,245 127 520 230 1,165
------- ------ ----- ------ ----- ------
Investment income (loss), net........................... 1,165 813 (13) 2,395 422 4,323
Realized gains (losses) and unrealized appreciation
(depreciation) on investments:
Realized capital gain distributions on mutual funds......... - 7,289 105 155 - -
------- ------ ----- ------ ----- ------
Realized gains (losses) on sales of investments:
Proceeds from sales........................................ 45,742 12,271 5,134 16,229 2,671 14,379
Cost of investments sold................................... (45,742) (10,552) (4,733) (15,052) (2,196) (14,419)
------- ------ ----- ------ ----- ------
Total realized gains (losses) on sales of
investments, net....................................... - 1,719 401 1,177 475 (40)
------- ------ ----- ------ ----- ------
Realized gains (losses) on investments, net............. - 9,008 506 1,332 475 (40)
Net change in unrealized appreciation (depreciation) on
investments................................................ - 960 (480) 754 3,748 (2,399)
------- ------ ----- ------ ----- ------
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments, net........ - 9,968 26 2,086 4,223 (2,439)
------- ------ ----- ------ ----- ------
Net increase (decrease) in net assets from operations......... $ 1,165 10,781 13 4,481 4,645 1,884
======= ====== ===== ====== ===== ======
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
===========================================================================================================================
Financial Statements (cont.)
Statements of Operations (cont.)
For the year ended December 31, 1996
(In thousands)
Templeton Investment
Utility Zero Zero Zero Global Income Grade
Equity Coupon Coupon Coupon Securities Intermediate
Fund Fund-2000 Fund-2005 Fund-2010 Fund Bond Fund
------ --------- --------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares........................ $ 5,502 1,407 465 397 1,696 819
------ ------- ------- ------ ------- -------
Expenses:
Mortality and expense risk charges......................... 1,371 320 112 95 284 162
Administrative charges..................................... 164 38 13 11 34 19
------ ------- ------- ------ ------- -------
Total expenses........................................ 1,535 358 125 106 318 181
------ ------- ------- ------ ------- -------
Investment income (loss), net......................... 3,967 1,049 340 291 1,378 638
Realized gains (losses) and unrealized appreciation
(depreciation) on investments:
Realized capital gain distributions on mutual funds....... - 14 - 108 - -
------ ------- ------- ------ ------- -------
Realized gains (losses) on sales of investments:
Proceeds from sales...................................... 21,660 3,492 1,880 2,947 3,972 17,097
Cost of investments sold................................. (20,008) (3,337) (1,747) (2,761) (3,865) (16,737)
------ ------- ------- ------ ------- -------
Total realized gains (losses) on sales of
investments, net..................................... 1,652 155 133 186 107 360
------ ------- ------- ------ ------- -------
Realized gains (losses) on investments, net........... 1,652 169 133 294 107 360
Net change in unrealized appreciation (depreciation) on
investments.............................................. (4) (990) (672) (957) 271 (737)
------ ------- ------- ------ ------- -------
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments, net...... 1,648 (821) (539) (663) 378 (377)
------ ------- ------- ------ ------- -------
Net increase (decrease) in net assets from operations....... $ 5,615 228 (199) (372) 1,756 261
====== ======= ======= ====== ======= =======
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
===========================================================================================================================
Financial Statements (cont.)
Statements of Operations (cont.)
For the year ended December 31, 1996
(In thousands)
Templeton Templeton Templeton
Income Adjustable U.S. Pacific Rising International Developing
Securities Government Growth Dividends Equity Markets Equity
Fund Fund Fund Fund Fund Fund
---------- ------------- --------- --------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares...................... $ 4,813 1,013 799 912 1,626 92
------ -------- ------- ------ ------- -------
Expenses:
Mortality and expense risk charges....................... 1,186 144 345 566 796 129
Administrative charges................................... 142 17 41 68 96 15
------ -------- ------- ------ ------- -------
Total expenses...................................... 1,328 161 386 634 892 144
------ -------- ------- ------ ------- -------
Investment income (loss), net....................... 3,485 852 413 278 734 (52)
Realized gains (losses) and unrealized appreciation
(depreciation) on investments:
Realized capital gain distributions on mutual funds..... 800 - 463 - 1,990 170
------ -------- ------- ------ ------- -------
Realized gains (losses) on sales of investments:
Proceeds from sales.................................... 10,171 17,081 12,517 4,769 9,752 2,310
Cost of investments sold............................... (9,284) (17,814) (11,609) (3,837) (8,796) (2,183)
------ -------- ------- ------ ------- -------
Total realized gains (losses) on sales of
investments, net................................... 887 (733) 908 932 956 127
------ -------- ------- ------ ------- -------
Realized gains (losses) on investments, net......... 1,687 (733) 1,371 932 2,946 297
Net change in unrealized appreciation (depreciation) on
investments............................................ 3,616 356 605 8,111 8,342 1,405
------ -------- ------- ------ ------- -------
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments, net.... 5,303 (377) 1,976 9,043 11,288 1,702
------ -------- ------- ------ ------- -------
Net increase (decrease) in net assets from operations..... $ 8,788 475 2,389 9,321 12,022 1,650
====== ======== ======= ====== ======= =======
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
===========================================================================================================================
Financial Statements (cont.)
Statements of Operations (cont.)
For the year ended December 31, 1996
(In thousands)
Templeton
Templeton Templeton International Mutual Mutual
Global Global Asset Small Capital Smaller Discovery Shares Total
Growth Allocation Cap Growth Companies Securities Securities All
Fund Fund Fund Fund Fund Fund Fund Funds
------- ------------ ----- -------- -------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares............ $ 365 1 - - - - - 32,755
------ ---- ------ ----- ------ --- --- -------
Expenses:
Mortality and expense risk charges............. 288 27 19 7 3 - - 9,195
Administrative charges......................... 35 3 2 1 - - - 1,101
------ ---- ------ ----- ------ --- --- -------
Total expenses............................ 323 30 21 8 3 - - 10,296
------ ---- ------ ----- ------ --- --- -------
Investment income (loss), net............. 42 (29) (21) (8) (3) - - 22,459
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions on mutual
funds........................................ 365 2 - - - - - 11,461
------ ---- ------ ---- ------ --- --- -------
Realized gains (losses) on sales of investments:
Proceeds from sales.......................... 1,137 229 6,080 460 93 - - 212,073
Cost of investments sold..................... (1,007) (213) (5,985) (440) (91) - - (202,408)
------ ---- ------ ----- ------ --- --- -------
Total realized gains (losses) on sales of
investments, net......................... 130 16 95 20 2 - - 9,665
------ ---- ------ ----- ------ --- --- -------
Realized gains (losses) on investments, net 495 18 95 20 2 - - 21,126
Net change in unrealized appreciation
(depreciation) on investments............... 3,541 398 215 84 48 3 8 26,226
------ ---- ------ ----- ------ --- --- -------
Total realized gains (losses) and
unrealized appreciation (depreciation) on
investments, net........................ 4,036 416 310 104 50 3 8 47,352
------- ---- ------ ----- ------ --- --- -------
Net increase (decrease) in net assets from
operations..................................... $4,078 387 289 96 47 3 8 69,811
======= ==== ====== ===== ====== === === =======
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
===========================================================================================================================
Financial Statements (cont.)
Statements of Changes in Net Assets
For the years ended December 31, 1996 and 1995
(In thousands)
Growth and Precious Real Estate
Money Market Fund Income Fund Metals Fund High Income Fund Securities Fund
----------------- ------------ ----------- ---------------- ---------------
1996 1995 1996 1995 1996 1995 1996 1995 1996 1995
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net............ $ 1,165 1,272 813 (131) (13) 1 2,395 1,556 422 258
Realized gains (losses) on
investments, net........................ - - 9,008 2,371 506 194 1,332 184 475 186
Net change in unrealized appreciation
(depreciation) on investments........... - - 960 13,509 (480) (159) 754 3,050 3,748 1,571
------ ------ ------ ------ ----- ----- ------ ------ ------ ------
Net increase (decrease) in net assets
from operations..................... 1,165 1,272 10,781 15,749 13 36 4,481 4,790 4,645 2,015
------ ------ ------ ------ ----- ----- ------ ------ ------ ------
Contract transactions (note 5):
Purchase payments........................ 14,336 10,218 15,819 9,814 1,159 519 5,922 5,160 1,633 855
Transfers between funds.................. (3,631) (4,384) 6,402 9,626 669 (1,029) 1,603 4,955 1,434 (1,207)
Surrenders and terminations.............. (7,844) (9,094) (9,128) (5,346) (915)(1,297) (5,831) (3,966) (1,728) (1,337)
Rescissions.............................. (83) (157) (264) (240) (13) (10) (53) (140) (21) (3)
Other transactions (note 2).............. (6) (14) (29) 21 (2) 9 (9) 26 28 (14)
------ ------ ------ ------ ----- ----- ------ ------ ------ ------
Net increase (decrease) in net assets
resulting from contract
transactions........................ 2,772 (3,431) 12,800 13,875 898 (1,808) 1,632 6,035 1,346 (1,706)
------ ------ ------ ------ ----- ----- ------ ------ ------ ------
Increase (decrease) in net assets.......... 3,937 (2,159) 23,581 29,624 911 (1,772) 6,113 10,825 5,991 309
Net assets at beginning of year............ 28,571 30,730 75,240 45,616 7,278 9,050 35,808 24,983 14,344 14,035
------ ------ ------ ------ ----- ----- ------ ------ ------ ------
Net assets at end of year.................. $32,508 28,571 98,821 75,240 8,189 7,278 41,921 35,808 20,335 14,344
====== ====== ====== ====== ===== ===== ====== ====== ====== ======
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
===========================================================================================================================
Financial Statements (cont.)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1996 and 1995
(In thousands)
U.S. Government Zero Coupon Zero Coupon Zero Coupon
Securities Fund Utility Equity Fund Fund-1995 Fund-2000 Fund-2005
--------------- ------------------- ----------- ----------- -----------
1996 1995 1996 1995 1996 1995 1996 1995 1996 1995
------- ------ ------ ------ ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net............ $ 4,323 4,337 3,967 4,316 - 252 1,049 703 340 222
Realized gains (losses) on
investments, net........................ (40) 267 1,652 56 - (190) 169 127 133 93
Net change in unrealized appreciation
(depreciation) on investments........... (2,399) 8,141 (4) 22,858 - 189 (990) 2,954 (672) 1,761
------- ------ ------- ------- --- ----- ------ ------ ----- -----
Net increase (decrease) in net
assets from operations.............. 1,884 12,745 5,615 27,230 - 251 228 3,784 (199) 2,076
------- ------ ------- ------- --- ----- ------ ------ ----- -----
Contract transactions (note 5):
Purchase payments........................ 7,463 6,927 5,199 5,661 - 98 2,220 4,576 1,208 1,474
Transfers between funds.................. 19,458 192 (9,257) 13 - (4,137) (1,036) 1,668 (671) 234
Surrenders and terminations.............. (11,371) (10,634) (14,003) (12,439) - (1,151) (2,141) (1,821)(1,026) (674)
Rescissions.............................. (165) (103) (61) (78) - - (85) (85) (64) (57)
Other transactions (note 2).............. (19) 60 (11) (59) - (3) (10) (10) (2) (5)
------- ------ ------- ------- --- ----- ------ ------ ----- -----
Net increase (decrease) in net
assets resulting from contract
transactions........................ 15,366 (3,558) (18,133) (6,902) - (5,193) (1,052) 4,328 (555) 972
------- ------ ------- ------- --- ----- ------ ------ ----- -----
Increase (decrease) in net assets.......... 17,250 9,187 (12,518) 20,328 - (4,942) (824) 8,112 (754) 3,048
Net assets at beginning of year............ 82,935 73,748 115,743 95,415 - 4,942 25,909 17,797 9,531 6,483
------- ------ ------- ------- --- ----- ------ ------ ----- -----
Net assets at end of year.................. $100,185 82,935 103,225 115,743 - - 25,085 25,909 8,777 9,531
======= ====== ======= ======= === ===== ====== ====== ===== =====
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
===========================================================================================================================
Financial Statements (cont.)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1996 and 1995
(In thousands)
Templeton Investment Grade Adjustable U.S.
Zero Coupon Global Income Intermediate Income Government
Fund - 2010 Securities Fund Bond Fund Securities Fund Fund
------------ --------------- ---------------- --------------- ---------------
1996 1995 1996 1995 1996 1995 1996 1995 1996 1995
------ ----- ------ ------ ------ ----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net........... $ 291 104 1,378 532 638 408 3,485 3,335 852 834
Realized gains (losses) on
investments, net....................... 294 136 107 (1) 360 113 1,687 728 (733) 30
Net change in unrealized appreciation
(depreciation) on investments.......... (957) 1,835 271 2,221 (737) 742 3,616 10,992 356 408
------ ----- ------ ------ ------ ------ ------ ------ ------ ------
Net increase (decrease) in net
assets from operations............. (372) 2,075 1,756 2,752 261 1,263 8,788 15,055 475 1,272
------ ----- ------ ------ ------ ------ ------ ------ ------ ------
Contract transactions (note 5):
Purchase payments....................... 1,097 1,373 1,712 1,801 939 1,410 10,882 9,139 1,552 3,443
Transfers between funds................. (935) 1,450 (928) (2,122) (15,408) (567) (1,355) 3,107 (15,809) (6,777)
Surrenders and terminations............. (595) (546) (2,722) (2,408) (1,630) (1,685) (10,309) (9,000) (1,613) (1,984)
Rescissions............................. (27) (37) (1) (56) (14) (109) (259) (300) (53) (109)
Other transactions (note 2)............. (5) 6 50 (3) 40 30 (1) (26) 25 6
------ ----- ------ ------ ------ ------ ------ ------ ------ -----
Net increase (decrease) in net
assets resulting from contract
transactions....................... (465) 2,246 (1,889) (2,788) (16,073) (921) (1,042) 2,920 (15,898) (5,421)
------ ----- ------ ------ ------ ------ ------ ------ ------ -----
Increase (decrease) in net assets......... (837) 4,321 (133) (36) (15,812) 342 7,746 17,975 (15,423) (4,149)
Net assets at beginning of year........... 8,329 4,008 22,852 22,888 15,812 15,470 90,363 72,388 15,423 19,572
------ ----- ------ ------ ------ ------ ------ ------ ------ ------
Net assets at end of year................. $7,492 8,329 22,719 22,852 - 15,812 98,109 90,363 - 15,423
====== ===== ====== ====== ====== ====== ====== ====== ====== ======
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
===========================================================================================================================
Financial Statements (cont.)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1996 and 1995
(In thousands)
Templeton
Templeton Developing Templeton
Templeton Pacific Rising International Markets Global
Growth Fund Dividends Fund Equity Fund Equity Fund Growth Fund
----------------- -------------- ------------- ----------- -----------
1996 1995 1996 1995 1996 1995 1996 1995 1996 1995
------ ------ ------ ------ ------ ------ ------ ----- ------ ------
<S> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net............ $ 413 122 278 234 734 137 (52) (67) 42 (108)
Realized gains (losses) on
investments, net........................ 1,371 178 932 172 2,946 1,571 297 (82) 495 40
Net change in unrealized appreciation
(depreciation) on investments........... 605 1,218 8,111 7,803 8,342 2,706 1,405 195 3,541 1,297
------ ------ ------ ------ ------ ------ ------ ----- ------ ------
Net increase (decrease) in net
assets from operations.............. 2,389 1,518 9,321 8,209 12,022 4,414 1,650 46 4,078 1,229
------ ------ ------ ------ ------ ------ ------ ----- ------ ------
Contract transactions (note 5):
Purchase payments........................ 2,063 2,320 5,191 3,197 6,974 6,496 2,224 1,669 6,947 4,462
Transfers between funds.................. 439 (3,819) 2,038 2,459 3,648 (1,789) 1,512 275 3,817 1,693
Surrenders and terminations.............. (3,400) (2,341) (4,321) (2,693) (6,296) (4,550) (633) (335) (1,698) (719)
Rescissions.............................. (20) (28) (78) (85) (18) (162) (32) - (114) (13)
Other transactions (note 2).............. (17) 7 13 (2) 14 1 (6) 11 13 8
------ ------ ------ ------ ------ ------ ------ ----- ------ ------
Net increase (decrease) in net
assets resulting from contract
transactions........................ (935) (3,861) 2,843 2,876 4,322 (4) 3,065 1,620 8,965 5,431
------ ------ ------ ------ ------ ------ ------ ----- ------ ------
Increase (decrease) in net assets.......... 1,454 (2,343) 12,164 11,085 16,344 4,410 4,715 1,666 13,043 6,660
Net assets at beginning of year............ 24,694 27,037 39,770 28,685 54,018 49,608 7,255 5,589 16,060 9,400
------ ------ ------ ------ ------ ------ ------ ----- ------ ------
Net assets at end of year.................. $26,148 24,694 51,934 39,770 70,362 54,018 11,970 7,255 29,103 16,060
====== ====== ====== ====== ====== ====== ====== ===== ====== ======
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
===========================================================================================================================
Financial Statements (cont.)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1996 and 1995
(In thousands)
Templeton
Templeton International Mutual Mutual
Global Asset Capital Smaller Discovery Shares
Allocation Small Growth Companies Securities Securities
Fund Cap Fund Fund Fund Fund Fund Total All Funds
----------- -------- ------- ----------- ---------- ---------- ---------------
1996 1995 1996 1995 1996 1995 1996 1995 1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- --- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net...... $ (29) 6 (21) - (8) - (3) - - - - - 22,459 18,323
Realized gains (losses) on
investments, net.................. 18 - 95 - 20 - 2 - - - - - 21,126 6,173
Net change in unrealized
appreciation (depreciation) on
investments....................... 398 4 215 - 84 - 48 - 3 - 8 - 26,226 83,295
----- --- ----- --- ----- --- --- --- --- --- --- --- ------- -------
Net increase (decrease) in net
assets from operations....... 387 10 289 - 96 - 47 - 3 - 8 - 69,811 107,791
----- --- ----- --- ----- --- --- --- --- --- --- --- ------- -------
Contract transactions (note 5):
Purchase payments.................. 1,950 210 1,263 - 788 - 229 - 18 - 50 - 98,838 80,822
Transfers between funds............ 1,240 159 3,907 - 1,776 - 446 - 257 - 384 - - -
Surrenders and terminations........ (162) - (74) - (128) - - - - - - - (87,568) (74,020)
Rescissions........................ (35) - (15) - (3) - - - - - - - (1,478) (1,772)
Other transactions (note 2)........ - - (1) - - - - - - - - - 65 49
----- --- ----- --- ----- --- --- --- --- --- --- --- ------- -------
Net increase (decrease) in net
assets resulting from contract
transactions.................. 2,993 369 5,080 - 2,433 - 675 - 275 - 434 - 9,857 5,079
----- --- ----- --- ----- --- --- --- --- --- --- --- ------- -------
Increase (decrease) in net assets... 3,380 379 5,369 - 2,529 - 722 - 278 - 442 - 79,668 112,870
Net assets at beginning of year...... 379 - - - - - - - - - - - 690,314 577,444
----- --- ----- --- ----- --- --- --- --- --- --- --- ------- -------
Net assets at end of year........... $3,759 379 5,369 - 2,529 - 722 - 278 - 442 - 769,982 690,314
===== === ===== === ===== === === === === === === === ======= =======
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
================================================================================
Notes to Financial Statements
December 31, 1996
1. Organization
Preferred Life Variable Account C (Variable Account) is a segregated investment
account of Preferred Life Insurance Company of New York (Preferred Life) and is
registered with the Securities and Exchange Commission as a unit investment
trust pursuant to the provisions of the Investment Company Act of 1940 (as
amended). The Variable Account was established by Preferred Life on February 26,
1988 and commenced operations September 6, 1991. Accordingly, it is an
accounting entity wherein all segregated account transactions are reflected.
The Variable Account's assets are the property of Preferred Life and are held
for the benefit of the owners and other persons entitled to payments under
variable annuity contracts issued through the Variable Account and underwritten
by Preferred Life. The assets of the Variable Account, equal to the reserves and
other liabilities of the Variable Account, are not chargeable with liabilities
that arise from any other business which Preferred Life may conduct.
The Variable Account's sub-accounts may invest, at net asset values, in one or
more of the funds of the Franklin Valuemark Funds (FVF), managed by Franklin
Advisers, Inc. or other of its affiliated adviser entities, in accordance with
the selection made by the contract owner.
Certain officers and trustees of the FVF are also officers and/or directors of
Franklin Advisers, Inc. and/or Preferred Life.
2. Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Investments
Investments of the Variable Account are valued daily at market value using net
asset values provided by Franklin Advisers, Inc.
Realized investment gains include gains on the sale of fund shares as determined
by the average cost method. Dividend distributions received from the FVF are
reinvested in additional shares of the FVF and are recorded as income to the
Variable Account on the ex-dividend date.
The Templeton Global Asset Allocation Fund was added as an available investment
option on August 4, 1995. The Zero Coupon - 1995 Fund matured and was closed on
December 15, 1995. The Small Cap Fund, Capital Growth Fund and Templeton
International Smaller Companies Fund were added as available investment
options on June 10, 1996. The Mutual Discovery Securities Fund and Mutual Shares
Securities Fund were added as available investment options on December 2, 1996.
The Investment Grade Intermediate Bond Fund and Adjustable U.S. Government Fund
were closed on October 25, 1996 when shares of the U.S. Government Securities
Fund were substituted for all shares of both funds.
On May 1, 1995, the Equity Growth Fund name was changed to Growth and Income
Fund. The Global Income Fund name was changed to Templeton Global Income
Securities Fund on May 1, 1996.
Expenses
Asset Based Expenses
A mortality and expense risk charge is deducted from the Variable Account on a
daily basis equal, on an annual basis, to 1.25% of the daily net assets of the
Variable Account.
An administrative charge is deducted from the Variable Account on a daily basis
equal, on an annual basis, to 0.15% of the daily net assets of the Variable
Account.
Contract Based Expenses
A contract maintenance charge is paid by the contract owner annually from each
contract by liquidating contract units at the end of the contract year and at
the time of full surrender. The amount of the charge is $30 each year. Contract
maintenance charges deducted during the years ended December 31, 1996 and 1995
were $468,180 and $475,980, respectively. These contract charges are reflected
in the Statements of Changes in Net Assets as other transactions.
<PAGE>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
================================================================================
Notes to Financial Statements (cont.)
December 31, 1996
2. Significant Accounting Policies (cont.)
Contract Based Expenses (cont.)
A contingent deferred sales charge is deducted from the contract value at the
time of a surrender. This charge applies only to a surrender of purchase
payments received within five years of the date of surrender. For this purpose,
purchase payments are allocated on a first-in, first-out basis. The amount of
the contingent deferred sales charge is calculated by: (a) allocating purchase
payments to the amount surrendered; and (b) multiplying each allocated purchase
payment that has been held under the contract for the period shown below by the
charge shown below:
<TABLE>
<CAPTION>
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>
and (c) adding the products of each multiplication in (b) above.
A contract owner may, not more frequently than once annually on a cumulative
basis, make a surrender each contract year of fifteen percent (15%) of
purchase payments paid less any prior surrenders without incurring a contingent
deferred sales charge. For a partial surrender, the contingent deferred sales
charge will be deducted from the remaining contract value, if sufficient;
otherwise it will be deducted from the amount surrendered. Total contingent
deferred sales charges paid by the contract owners for the years ended December
31, 1996 and 1995 were $1,012,666 and $1,304,496, respectively.
Currently, twelve transfers are permitted each contract year. Thereafter, the
fee is $25 per transfer, or 2% of the amount transferred, if less. Currently,
transfers associated with the dollar cost averaging program are not counted.
Total transfer charges for the years ended December 31, 1996 and 1995 were
$11,086 and $9,505, respectively.
Premium taxes or other taxes payable to a state or other governmental entity
will be charged against the contract values. Preferred Life may, at its sole
discretion, pay taxes when due and deduct that amount from the contract value
at a later date. Payment at an earlier date does not waive any right Preferred
Life may have to deduct such amounts at a later date.
On certain contracts, a systematic withdrawal plan is available which allows an
owner to withdraw up to 9% of purchase payments less prior surrenders annually,
paid quarterly, without incurring a contingent deferred sales charge. The
exercise of the systematic withdrawal plan in any contract year replaces the 15%
penalty free privilege for that year.
A rescission is defined as a contract that is returned to the company and
canceled within the free-look period, generally within 10 days.
3. Investment Transactions
The sub-account purchases of fund shares, including reinvestment of dividend
distributions, were as follows during the year ended December 31, 1996 (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Money Market Fund................................. $49,638
Growth and Income Fund............................ 33,090
Precious Metals Fund.............................. 6,115
High Income Fund.................................. 20,371
Real Estate Securities Fund....................... 4,423
U.S. Government Securities Fund................... 33,976
Utility Equity Fund............................... 7,363
Zero Coupon Fund - 2000........................... 3,474
Zero Coupon Fund - 2005........................... 1,655
Zero Coupon Fund - 2010........................... 2,872
Templeton Global Income Securities Fund........... 3,437
Investment Grade Intermediate Bond Fund........... 1,645
Income Securities Fund............................ 13,313
Adjustable U.S. Government Fund................... 2,012
Templeton Pacific Growth Fund..................... 12,431
Rising Dividends Fund............................. 7,847
Templeton International Equity Fund............... 16,740
Templeton Developing Markets Equity Fund.......... 5,486
Templeton Global Growth Fund...................... 10,491
Templeton Global Asset Allocation Fund............ 3,196
Small Cap Fund.................................... 11,143
Capital Growth Fund............................... 2,888
Templeton International Smaller Companies Fund.... 769
Mutual Discovery Securities Fund.................. 275
Mutual Shares Securities Fund..................... 434
</TABLE>
<PAGE>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
================================================================================
Notes to Financial Statements (cont.)
December 31, 1996
4. Federal Income Taxes
Operations of the Variable Account form a part of, and are taxed with,
operations of Preferred Life, which is taxed as a life insurance company under
the Internal Revenue Code.
Preferred Life does not expect to incur any federal income taxes in the
operation of the Variable Account. If, in the future, Preferred Life determines
that the Variable Account may incur federal income taxes, it may then assess a
charge against the Variable Account for such taxes.
5. Contract Transactions - Unit Activity (In thousands)
Transactions in units for each fund for the years ended December 31, 1996 and
1995 were as follows:
<TABLE>
<CAPTION>
Growth U.S. Zero Zero
Money and Precious High Real Estate Government Utility Coupon Coupon
Market Income Metals Income Securities Securities Equity Fund - Fund -
Fund Fund Fund Fund Fund Fund Fund 1995 2000
----- ---- ---- ------ ---------- ------ ----- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation units outstanding at December 31, 1994.... 2,487 3,452 647 1,710 900 5,331 6,317 344 1,158
Contract transactions:
Purchase payments..................................... 809 638 38 314 53 450 333 7 273
Transfers between funds............................... (344) 626 (75) 305 (76) 12 4 (273) 98
Surrenders and terminations........................... (721) (355) (94) (247) (82) (701) (730) (78) (107)
Rescissions........................................... (12) (16) (1) (9) - (7) (5) - (5)
Other transactions.................................... (1) 1 1 2 (1) 4 (3) - (1)
----- ----- ---- ----- ----- ----- ----- ----- -----
Net increase (decrease) in accumulation units
resulting from contract transactions............ (269) 894 (131) 365 (106) (242) (401) (344) 258
----- ----- ---- ----- ----- ----- ----- ----- -----
Accumulation units outstanding at December 31, 1995.... 2,218 4,346 516 2,075 794 5,089 5,916 - 1,416
===== ===== ==== ===== ===== ===== ===== ===== =====
Contract transactions:
Purchase payments..................................... 1,093 882 73 329 83 462 265 - 123
Transfers between funds............................... (274) 360 37 84 68 1,177 (471) - (56)
Surrenders and terminations........................... (597) (501) (59) (321) (87) (700) (708) - (119)
Rescissions........................................... (6) (15) (1) (3) (1) (10) (3) - (5)
Other transactions.................................... (1) (2) - - 2 (1) (1) - (1)
----- ----- ---- ----- ----- ----- ----- ----- -----
Net increase (decrease) in accumulation units
resulting from contract transactions............ 215 724 50 89 65 928 (918) - (58)
----- ----- ---- ----- ----- ----- ----- ----- -----
Accumulation units outstanding at December 31, 1996.... 2,433 5,070 566 2,164 859 6,017 4,998 - 1,358
===== ===== ==== ===== ===== ===== ===== ===== =====
</TABLE>
<PAGE>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
================================================================================
Notes to Financial Statements (cont.)
December 31, 1996
5. Contract Transactions - Unit Activity (In thousands) (cont.)
<TABLE>
<CAPTION>
Templeton
Zero Zero Global Investment Adjustable Templeton Templeton
Coupon Coupon Income Grade Income U.S. Pacific Rising International
Fund - Fund - Securities Intermediate Securities Government Growth Dividends Equity
2005 2010 Fund Bond Fund Fund Fund Fund Fund Fund
----- ----- ---------- ----------- ---------- ----------- ------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation units outstanding at
December 31, 1994.................... 403 252 1,667 1,085 4,416 1,767 2,112 2,936 4,079
Contract transactions:
Purchase payments.................... 79 73 124 94 502 296 180 284 509
Transfers between funds.............. 14 76 (148) (38) 168 (591) (298) 215 (146)
Surrenders and terminations.......... (37) (27) (167) (114) (501) (172) (181) (246) (356)
Rescissions.......................... (3) (2) (4) (7) (17) (9) (2) (7) (13)
Other transactions................... - - - 2 (1) - - - -
----- ------ ------- ------- ------- ------- ------- ------ -------
Net increase (decrease) in
accumulation units resulting
from contract transactions..... 53 120 (195) (63) 151 (476) (301) 246 (6)
----- ----- ------- ------- ------- ------- ------- ------ -------
Accumulation units outstanding at
December 31, 1995.................... 456 372 1,472 1,022 4,567 1,291 1,811 3,182 4,073
===== ===== ======= ======= ======= ======= ======= ====== =======
Contract transactions:
Purchase payments.................... 61 54 109 61 537 128 140 388 479
Transfers between funds.............. (34) (47) (58) (980) (69) (1,284) 32 147 251
Surrenders and terminations.......... (52) (29) (172) (105) (503) (133) (230) (318) (428)
Rescissions.......................... (3) (1) - (1) (13) (4) (1) (6) (1)
Other transactions................... - (1) 3 3 - 2 (1) 1 1
----- ----- ------- ------- ------- ------- ------- ------ ------
Net increase (decrease) in
accumulation units resulting
from contract transactions..... (28) (24) (118) (1,022) (48) (1,291) (60) 212 302
----- ------ ------- ------- ------- ------- ------- ------ ------
Accumulation units outstanding at
December 31, 1996.................... 428 348 1,354 - 4,519 - 1,751 3,394 4,375
===== ===== ======= ======= ======= ======= ======= ====== ======
</TABLE>
<PAGE>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
================================================================================
Notes to Financial Statements (cont.)
December 31, 1996
5. Contract Transactions - Unit Activity (In thousands) (cont.)
<TABLE>
<CAPTION>
Templeton
Templeton Templeton Templeton International Mutual Mutual
Developing Global Global Asset Small Capital Smaller Discovery Shares Total
Markets Equity Growth Allocation Cap Growth Companies Securities Securities All
Fund Fund Fund Fund Fund Fund Fund Fund Funds
------------ --------- ------------ ----- ------ ----------- --------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation units outstanding at
December 31, 1994...................... 591 922 - - - - - - 42,576
Contract transactions:
Purchase payments...................... 176 410 21 - - - - - 5,663
Transfers between funds................ 24 152 15 - - - - - (280)
Surrenders and terminations............ (35) (67) - - - - - - (5,018)
Rescissions............................ - (1) - - - - - - (120)
Other transactions..................... 1 1 - - - - - - 5
------- ------- ----- ----- ---- ------ ------ ------ ------
Net increase (decrease) in
accumulation units resulting
from contract transactions....... 166 495 36 - - - - - 250
------- ------- ----- ----- ---- ------ ------ ------ ------
Accumulation units outstanding at
December 31, 1995...................... 757 1,417 36 - - - - - 42,826
======= ======= ===== ===== ==== ====== ====== ====== ======
Contract transactions:
Purchase payments...................... 206 564 172 103 71 22 2 5 6,412
Transfers between funds................ 140 310 109 320 165 43 25 38 33
Surrenders and terminations............ (58) (136) (14) (6) (11) - - - (5,287)
Rescissions............................ (3) (10) (3) (1) - - - - (91)
Other transactions..................... - 1 - - - - - - 5
------- ------- ----- ----- ---- ------ ------- ------ ------
Net increase (decrease) in
accumulation units resulting
from contract transactions....... 285 729 264 416 225 65 27 43 1,072
------- ------- ----- ----- ---- ------ ------- ------ ------
Accumulation units outstanding at
December 31, 1996...................... 1,042 2,146 300 416 225 65 27 43 43,898
======= ======= ===== ===== ==== ====== ======= ====== ======
</TABLE>
<PAGE>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
================================================================================
Notes to Financial Statements (cont.)
December 31, 1996
6. Unit Values
A summary of accumulation unit values and accumulation units outstanding for
variable annuity contracts and the expense ratios, including expenses of the
underlying funds, for each of the five years in the period ended December 31,
1996 follows.
<TABLE>
<CAPTION>
Accumulation Ratio of Expenses
Units Outstanding Accumulation Net Assets to Average
(in thousands) Unit Value (in thousands) Net Assets*
----------------- ------------ -------------- ----------
<S> <C> <C> <C> <C>
Money Market Fund
December 31,
1996........................................................... 2,433 $13.359 $ 32,508 1.83%
1995........................................................... 2,218 12.883 28,571 1.80
1994........................................................... 2,487 12.354 30,730 1.86
1993........................................................... 627 12.066 7,566 2.06
1992........................................................... 301 11.932 3,587 2.09
Growth and Income Fund
December 31,
1996........................................................... 5,070 19.490 98,821 1.90
1995........................................................... 4,347 17.310 75,240 1.92
1994........................................................... 3,452 13.215 45,616 1.94
1993........................................................... 2,402 13.677 32,857 1.98
1992........................................................... 1,227 12.574 15,424 2.02
Precious Metals Fund
December 31,
1996........................................................... 566 14.467 8,189 2.05
1995........................................................... 516 14.109 7,278 2.06
1994........................................................... 647 13.979 9,050 2.08
1993........................................................... 391 14.464 5,656 2.08
1992........................................................... 30 9.424 279 2.09
High Income Fund
December 31,
1996........................................................... 2,164 19.375 41,921 1.94
1995........................................................... 2,076 17.252 35,808 1.96
1994........................................................... 1,710 14.608 24,984 2.00
1993........................................................... 1,135 15.155 17,207 2.04
1992........................................................... 266 13.278 3,532 2.08
Real Estate Securities Fund
December 31,
1996........................................................... 859 23.668 20,335 1.97
1995........................................................... 794 18.073 14,344 1.99
1994........................................................... 900 15.594 14,035 2.02
1993........................................................... 437 15.369 6,712 2.07
1992........................................................... 77 13.095 1,012 2.09
U.S. Government Securities Fund
December 31,
1996........................................................... 6,017 16.650 100,185 1.91
1995........................................................... 5,089 16.298 82,935 1.92
1994........................................................... 5,331 13.835 73,747 1.93
1993........................................................... 6,108 14.698 89,774 1.94
1992........................................................... 2,266 13.586 30,781 1.99
</TABLE>
<PAGE>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
================================================================================
Notes to Financial Statements (cont.)
December 31, 1996
6. Unit Values (cont.)
<TABLE>
<CAPTION>
Accumulation Ratio of Expenses
Units Outstanding Accumulation Net Assets to Average
(in thousands) Unit Value (in thousands) Net Assets*
----------------- ------------ -------------- -----------
<S> <C> <C> <C> <C>
Utility Equity Fund
December 31,
1996........................................................... 4,998 $20.654 $103,225 1.90%
1995........................................................... 5,916 19.555 115,743 1.90
1994........................................................... 6,317 15.104 95,415 1.92
1993........................................................... 7,479 17.319 129,527 1.91
1992........................................................... 2,519 15.889 40,022 1.95
Zero Coupon Fund - 1995
December 31,
1995 1......................................................... 269 15.200 4,082 1.80+
1994........................................................... 344 14.380 4,942 1.80
1993........................................................... 270 14.480 3,906 1.76
1992........................................................... 171 13.665 2,343 1.65
Zero Coupon Fund - 2000
December 31,
1996........................................................... 1,358 18.475 25,085 1.80
1995........................................................... 1,416 18.294 25,910 1.80
1994........................................................... 1,158 15.373 17,797 1.80
1993........................................................... 795 16.717 13,297 1.77
1992........................................................... 397 14.595 5,789 1.65
Zero Coupon Fund - 2005
December 31,
1996........................................................... 428 20.517 8,777 1.80
1995........................................................... 456 20.914 9,531 1.80
1994........................................................... 403 16.096 6,483 1.80
1993........................................................... 341 18.050 6,159 1.77
1992........................................................... 108 14.975 1,622 1.65
Zero Coupon Fund - 2010
December 31,
1996........................................................... 348 21.522 7,492 1.80
1995........................................................... 371 22.431 8,329 1.80
1994........................................................... 252 15.930 4,008 1.80
1993........................................................... 193 18.144 3,502 1.65
1992........................................................... 60 14.670 885 1.65
Templeton Global Income Securities Fund
December 31,
1996........................................................... 1,354 16.781 22,719 2.01
1995........................................................... 1,472 15.522 22,851 2.04
1994........................................................... 1,667 13.726 22,888 2.11
1993........................................................... 1,045 14.650 15,302 2.13
1992........................................................... 406 12.733 5,164 2.07
Investment Grade Intermediate Bond Fund
December 31,
1996 2......................................................... 891 15.740 14,032 2.00+
1995........................................................... 1,023 15.463 15,812 2.01
1994........................................................... 1,085 14.257 15,470 2.03
1993........................................................... 893 14.389 12,850 2.06
1992........................................................... 352 13.442 4,725 2.08
</TABLE>
<PAGE>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
================================================================================
Notes to Financial Statements (cont.)
December 31, 1996
6. Unit Values (cont.)
<TABLE>
<CAPTION>
Accumulation Ratio of Expenses
Units Outstanding Accumulation Net Assets to Average
(in thousands) Unit Value (in thousands) Net Assets*
----------------- ------------ -------------- -----------
<S> <C> <C> <C> <C>
Income Securities Fund
December 31,
1996........................................................... 4,519 $21.708 $ 98,109 1.90%
1995........................................................... 4,567 19.785 90,364 1.91
1994........................................................... 4,416 16.392 72,389 1.94
1993........................................................... 2,634 17.734 46,707 1.96
1992........................................................... 668 15.163 10,128 2.07
Adjustable U.S. Government Fund
December 31,
1996 2......................................................... 912 12.389 11,298 1.99+
1995........................................................... 1,290 11.951 15,423 1.99
1994........................................................... 1,767 11.077 19,571 1.97
1993........................................................... 1,971 11.254 22,179 1.98
1992........................................................... 1,453 11.020 16,007 2.00
Templeton Pacific Growth Fund
December 31,
1996........................................................... 1,751 14.932 26,148 2.39
1995........................................................... 1,812 13.630 24,693 2.41
1994........................................................... 2,112 12.802 27,037 2.47
1993........................................................... 915 14.233 13,023 2.54
1992 3......................................................... 58 9.761 568 2.71+
Rising Dividends Fund
December 31,
1996........................................................... 3,394 15.303 51,934 2.16
1995........................................................... 3,182 12.498 39,770 2.18
1994........................................................... 2,936 9.769 28,685 2.20
1993........................................................... 2,772 10.327 28,623 2.19
1992 3......................................................... 617 10.848 6,696 2.07+
Templeton International Equity Fund
December 31,
1996........................................................... 4,375 16.081 70,362 2.29
1995........................................................... 4,073 13.263 54,018 2.32
1994........................................................... 4,079 12.161 49,607 2.39
1993........................................................... 1,346 12.226 16,451 2.52
1992 3......................................................... 88 9.642 849 3.17+
Templeton Developing Markets Equity Fund
December 31,
1996........................................................... 1,042 11.487 11,970 2.89
1995........................................................... 757 9.582 7,254 2.81
1994 4......................................................... 591 9.454 5,589 2.93+
Templeton Global Growth Fund
December 31,
1996........................................................... 2,146 13.560 29,103 2.33
1995........................................................... 1,416 11.339 16,061 2.37
1994 4......................................................... 922 10.201 9,400 2.54+
Templeton Global Asset Allocation Fund
December 31,
1996........................................................... 300 12.514 3,759 2.26
1995 5......................................................... 36 10.591 379 2.30+
</TABLE>
<PAGE>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
================================================================================
Notes to Financial Statements (cont.)
December 31, 1996
6. Unit Values (cont.)
<TABLE>
<CAPTION>
Accumulation Ratio of Expenses
Units Outstanding Accumulation Net Assets to Average
(in thousands) Unit Value (in thousands) Net Assets*
----------------- ------------ -------------- ----------
<S> <C> <C> <C> <C>
Small Cap Fund
December 31,
1996 6......................................................... 416 $12.913 $ 5,369 2.17+%
Capital Growth Fund
December 31,
1996 6......................................................... 225 11.254 2,529 2.17+
Templeton International Smaller Companies Fund
December 31,
1996 6......................................................... 65 11.145 722 2.18+
Mutual Discovery Securities Fund
December 31,
1996 7......................................................... 27 10.180 278 2.77+
Mutual Shares Securities Fund
December 31,
1996 7......................................................... 43 10.330 442 2.40+
<FN>
*For the year ended December 31, including the effect of the expenses of the
underlying funds.
+Annualized.
1Period from January 1, 1995 to December 15, 1995 (fund closure).
2Period from January 1, 1996 to October 25, 1996 (fund closure).
3Period from March 10, 1992 (fund commencement) to December 31, 1992.
4Period from April 25, 1994 (fund commencement) to December 31, 1994.
5Period from August 4, 1995 (fund commencement) to December 31, 1995.
6Period from June 10, 1996 (fund commencement) to December 31, 1996.
7Period from December 2, 1996 (fund commencement) to December 31, 1996.
</FN>
</TABLE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Financial Statements
December 31, 1996 and 1995
<PAGE>
KPMG Peat Marwick LLP
4200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Preferred Life Insurance Company of New York:
We have audited the accompanying balance sheets of Preferred Life Insurance
Company of New York (a wholly owned subsidiary of Allianz Life Insurance Company
of North America) as of December 31, 1996 and 1995, and the related statements
of income, stockholder's equity and cash flows for each of the years in the
three-year period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Preferred Life Insurance
Company of New York as of December 31, 1996 and 1995, and the results of its
operations, changes in stockholder's equity and cash flows for each of the years
in the three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles.
In 1994, as discussed in note 1 to the financial statements, the Company adopted
the provisions of the Financial Accounting Standards Board's Statement of
Financial Accounting Standards Statement No. 115, Accounting for Certain
Investments in Debt and Equity Securities.
KPMG Peat Marwick LLP
February 4, 1997
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Balance Sheets
December 31, 1996 and 1995
(in thousands except share data)
Assets 1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investments:
Fixed maturities, at market $ 20,412 15,128
Certificates of deposit and short-term securities 2,389 800
- --------------------------------------------------------------------------------------------------------------
Total investments 22,801 15,928
Cash 4,976 3,233
Receivables 4,046 4,820
Reinsurance receivable:
Recoverable on future policy benefit reserves 162 161
Recoverable on unpaid claims 9,674 11,515
Receivable on paid claims 1,393 1,522
Prepaid insurance premiums 429 431
Deferred acquisition costs 38,245 38,586
Accrued investment income 295 228
Other assets 111 959
- --------------------------------------------------------------------------------------------------------------
Assets, exclusive of separate account assets 82,132 77,383
Separate account assets 769,981 690,262
- --------------------------------------------------------------------------------------------------------------
Total assets $852,113 767,645
==============================================================================================================
Liabilities and Stockholder's Equity
- --------------------------------------------------------------------------------------------------------------
Liabilities:
Future life policy benefit reserves $ 1,219 594
Future annuity benefit reserves 325 6
Policy and contract claims 25,119 26,167
Unearned premiums 1,887 2,330
Other policyholder funds 679 691
Reinsurance payable 2,133 1,252
Deferred income taxes 8,740 6,510
Accrued expenses and other liabilities 2,462 3,985
Commissions due and accrued 822 824
Payable to parent 1,102 663
- --------------------------------------------------------------------------------------------------------------
Liabilities, exclusive of separate account liabilities 44,488 43,022
Separate account liabilities 769,981 690,262
- --------------------------------------------------------------------------------------------------------------
Total liabilities 814,469 733,284
Stockholder's equity:
Common stock, $10 par value; 200,000 shares
authorized, issued and outstanding 2,000 2,000
Additional paid-in capital 15,500 15,500
Net unrealized (loss) gain on investments,
net of deferred federal income taxes (34) 274
Retained earnings 20,178 16,587
- --------------------------------------------------------------------------------------------------------------
Total stockholder's equity 37,644 34,361
Commitments and contingencies (notes 6 and 11)
- --------------------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity $852,113 767,645
==============================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Statements of Income
Years Ended December 31, 1996, 1995 and 1994
(in thousands)
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Life insurance premiums $ 9,174 10,291 10,465
Annuity considerations 11,725 10,679 8,781
Accident and health premiums 22,105 22,406 24,586
- ------------------------------------------------------------------------------------------------------------------------
Total premiums and considerations 43,004 43,376 43,832
Premiums ceded 11,574 13,462 16,341
- ------------------------------------------------------------------------------------------------------------------------
Net premiums and considerations 31,430 29,914 27,491
Investment income, net 1,220 605 371
Realized investment losses, net (62) (13) (113)
- ------------------------------------------------------------------------------------------------------------------------
Total revenue 32,588 30,506 27,749
- ------------------------------------------------------------------------------------------------------------------------
Benefits and expenses:
Life insurance benefits 5,971 8,202 10,577
Annuity benefits 202 (100) 357
Accident and health insurance benefits 13,406 14,743 15,455
- ------------------------------------------------------------------------------------------------------------------------
Total benefits 19,579 22,845 26,389
Benefit recoveries 6,614 9,116 11,999
- ------------------------------------------------------------------------------------------------------------------------
Net benefits 12,965 13,729 14,390
Commissions and other agent compensation 8,596 7,278 12,974
General and administrative expenses 3,576 3,132 3,079
Taxes, licenses and fees 688 479 943
Change in deferred acquisition costs, net 341 (1,009) (8,090)
- ------------------------------------------------------------------------------------------------------------------------
Total benefits and expenses 26,166 23,609 23,296
- ------------------------------------------------------------------------------------------------------------------------
Income from operations before
income taxes 6,422 6,897 4,453
- ------------------------------------------------------------------------------------------------------------------------
Income tax expense (benefit):
Current 435 (109) 154
Deferred 2,396 1,612 1,099
- ------------------------------------------------------------------------------------------------------------------------
Total income tax expense 2,831 1,503 1,253
- ------------------------------------------------------------------------------------------------------------------------
Net income $ 3,591 5,394 3,200
========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Statements of Stockholder's Equity
Years Ended December 31, 1996, 1995 and 1994
(in thousands)
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common stock:
Balance at beginning and end of year $ 2,000 2,000 2,000
- ------------------------------------------------------------------------------------------------------------------------
Additional paid-in capital:
Balance at beginning of year 15,500 15,500 9,000
Additional contribution from parent 0 0 6,500
- ------------------------------------------------------------------------------------------------------------------------
Balance at end of year 15,500 15,500 15,500
- ------------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses) on investments:
Balance at beginning of year 274 (268) 0
Cumulative effect of the implementation of SFAS
No. 115, net of deferred federal income taxes 0 0 82
Net unrealized gain (loss) during the year,
net of deferred federal income taxes (308) 542 (350)
- ------------------------------------------------------------------------------------------------------------------------
Balance at end of year (34) 274 (268)
- ------------------------------------------------------------------------------------------------------------------------
Retained earnings:
Balance at beginning of year 16,587 11,193 7,993
Net income 3,591 5,394 3,200
- ------------------------------------------------------------------------------------------------------------------------
Balance at end of year 20,178 16,587 11,193
- ------------------------------------------------------------------------------------------------------------------------
Total stockholder's equity $ 37,644 34,361 28,425
========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Statements of Cash Flow
Years Ended December 31, 1996, 1995 and 1994
(in thousands)
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows used in operating activities:
Net income $ 3,591 5,394 3,200
- ------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash used in
operating activities:
Realized losses on investments 62 13 113
Deferred federal income tax expense 2,396 1,612 1,099
Change in:
Receivables and other assets 3,526 62 (2,320)
Deferred acquisition costs 341 (1,009) (8,090)
Future policy benefit reserves 944 (182) 238
Policy and contract claims (1,048) (1,145) 5,296
Unearned premiums (443) 45 196
Other policyholder funds (12) (194) 410
Reinsurance payable 881 (806) (884)
Accrued expenses and other liabilities (1,523) (158) 1,968
Commissions due and accrued (2) (56) (1,024)
Due to parent 439 97 573
Depreciation and amortization (46) (185) (63)
Other, net 0 0 (46)
- ------------------------------------------------------------------------------------------------------------------------
Total adjustments 5,515 (1,906) (2,534)
- ------------------------------------------------------------------------------------------------------------------------
Net cash from (used in) operating activities 9,106 3,488 666
- ------------------------------------------------------------------------------------------------------------------------
Cash flows from (used in) investing activities:
Purchase of fixed maturities, at market (8,525) (15,328) 0
Sale of fixed maturities, at market 2,654 4,522 3,428
Other investments, net (1,492) 2,589 (3,133)
- ------------------------------------------------------------------------------------------------------------------------
Net cash from (used in) investing activities (7,363) (8,217) 295
- ------------------------------------------------------------------------------------------------------------------------
Cash flows from (used in) financing activities:
Capital contribution from parent 0 0 6,500
Net change in bank overdraft 0 0 (1,240)
- ------------------------------------------------------------------------------------------------------------------------
Net cash from financing activities 0 0 5,260
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 1,743 (4,729) 6,221
Cash at beginning of year 3,233 7,962 1,741
- ------------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 4,976 3,233 7,962
========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Notes to Financial Statements
December 31, 1996, 1995 and 1994
(in thousands)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Preferred Life Insurance Company of New York (the Company) is a wholly owned
subsidiary of Allianz Life Insurance Company of North America (Allianz Life)
which, in turn, is a wholly-owned subsidiary of Allianz of America, Inc. (AZOA),
a majority-owned subsidiary of Allianz A.G. Holding, a Federal Republic of
Germany company.
The Company is a life insurance company licensed to sell group life and accident
and health and individual variable annuity policies in six states and the
District of Columbia. Based on 1996 gross premium volume, 7%, 17% and 76% of the
Company's business is life, accident and health and annuity, respectively. The
Company's primary distribution channels are through strategic alliances with
third party marketing organizations. The Company has a significant relationship
with a mutual fund company and its broker/dealer network for marketing its
variable annuity products.
Following is a summary of the significant accounting policies reflected in the
accompanying financial statements.
BASIS OF PRESENTATION
The financial statements have been prepared in accordance with generally
accepted accounting principles (GAAP) which vary in certain respects from
accounting rules prescribed or permitted by state insurance regulatory
authorities. Certain amounts as previously reported have been reclassified to be
consistent with the current year's presentation.
The preparation of financial statements in conformity with GAAP requires
management to make certain estimates and assumptions that affect reported assets
and liabilities including reporting or disclosure of contingent assets and
liabilities as of the balance sheet date and the reported amounts of revenues
and expenses during the reporting period. Actual results could vary
significantly from management's estimates.
RECOGNITION OF TRADITIONAL LIFE, GROUP LIFE AND GROUP ACCIDENT AND HEALTH
REVENUE
Traditional life products include products with guaranteed premiums and benefits
and consist solely of policies converted from group life business.
Premiums on traditional life and group life products are recognized as income
when due. Group accident and health premiums are recognized as earned on a pro
rata basis over the risk coverage periods. Benefits and expenses are matched
with earned premiums so that profits are recognized over the premium paying
periods of the contracts. This matching is accomplished by establishing
provisions for future policy benefits and policy and contract claims, and
deferring and amortizing related policy acquisition costs.
RECOGNITION OF VARIABLE ANNUITY REVENUE
Variable annuity contracts do not have significant mortality or morbidity risks
and are accounted for in a manner consistent with interest bearing financial
instruments. Accordingly, premium receipts are reported as deposits to the
contractholder's account, while revenues consist of amounts assessed against
contractholders including surrender charges and earned administrative service
fees. Benefits consist of claims and benefits incurred in excess of the
contractholder's balance.
<PAGE>
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Notes to Financial Statements
December 31, 1996, 1995 and 1994
(in thousands)
DEFERRED ACQUISITION COSTS
Acquisition costs, consisting of commissions and other costs, which vary with
and are primarily related to production of new business, are deferred. For
variable annuity contracts, acquisition costs are amortized in relation to the
present value of expected gross profits from investment margins and expense
charges. Acquisition costs for group life and group accident and health products
are deferred and amortized over the lives of the policies in the same manner as
premiums are earned. Deferred acquisition costs amortized during 1996, 1995 and
1994 were $6,541, $4,517 and $3,739, respectively.
FUTURE POLICY BENEFIT RESERVES
Future policy benefits on life insurance products are computed by net level
premium methods and the commissioners reserve valuation method based upon
estimated future investment yield and mortality, commensurate with the Company's
experience.
Future policy benefit reserves for variable annuity products are carried at
accumulated contract values. Any additional reserves for any death benefits
which may exceed the accumulated contract values are carried at an amount
greater than or equal to a one year term cost.
POLICY AND CONTRACT CLAIMS
Policy and contract claims represent an estimate of claims and claim adjustment
expenses that have been reported but not yet paid and incurred but not yet
reported as of December 31.
INVESTMENTS
On January 1, 1994, the Company adopted Statement of Financial Accounting
Standard (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity
Securities which addresses the accounting and reporting for investments in
equity securities that have readily determinable fair values and for all
investments in debt securities. Those investments are classified in one of three
categories. Debt securities that the Company has the positive intent and ability
to hold to maturity are classified as "held-to-maturity securities" and reported
at amortized cost. Debt and equity securities bought and held principally for
the purpose of selling them in the near term are classified as "trading
securities" and reported at fair value, with unrealized gains and losses
included in earnings. Debt and equity securities not classified as either
"held-to-maturity securities" or "trading securities" are classified as
"available-for-sale securities" and reported at fair value, with unrealized
gains and losses reported as a separate component of stockholders' equity, net
of deferred income taxes. SFAS No. 115 did not permit retroactive application of
its provisions. The Company classified all of its debt and equity investment
portfolio as "available-for-sale securities" at January 1, 1994.
Realized gains and losses are computed based on the specific identification
method.
Short term investments, which include certificate of deposits, are carried at
amortized cost which approximates market.
As of December 31, 1996 and 1995, investments with a carrying value of $1,596
and $1,665, respectively, were pledged to the New York Superintendent of
Insurance as required by statutory regulation.
The fair values of invested assets are deemed by management to approximate their
estimated market values. Changes in market conditions subsequent to December 31
may cause estimates of fair values to differ from the amounts presented herein.
<PAGE>
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Notes to Financial Statements
December 31, 1996, 1995 and 1994
(in thousands)
REINSURANCE
Insurance liabilities are reported before the effects of reinsurance. Amounts
paid or deemed to have been paid for claims covered by reinsurance contracts are
recorded as reinsurance receivables. Estimated reinsurance receivables are
recognized in a manner consistent with the liabilities related to the underlying
reinsured contracts.
SEPARATE ACCOUNTS
Separate accounts represent funds for which investment income and investment
gains and losses accrue directly to the contractholders. Each account has
specific investment objectives and the assets are carried at market value. The
assets of each account are legally segregated and are not subject to claims
which arise out of any other business of the Company.
Fair values of separate account assets were determined using the market value of
the investments held in segregated fund accounts. Fair values of separate
account liabilities were determined using the cash surrender values of the
contractholders' accounts.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the period that
includes the enactment date.
RECEIVABLES
Receivable balances approximate estimated fair values. This is based on
pertinent information available to management as of year end including the
financial condition and credit worthiness of the parties underlying the
receivables. Changes in market conditions subsequent to year end may cause
estimates of fair values to differ from the amounts presented herein.
ACCOUNTING CHANGES
In 1996, the Company adopted SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount. SFAS
No. 121 also addresses the accounting for long-lived assets that are expected to
be disposed of by a company. No adjustments were made to the financial
statements upon adoption of this pronouncement.
<PAGE>
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Notes to Financial Statements
December 31, 1996, 1995 and 1994
(in thousands)
(2) INVESTMENTS
<TABLE>
<CAPTION>
Investments at December 31, 1996 consist of:
Amount
Amortized Estimated shown on
cost fair balance
or cost value sheet
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities:
U.S. Government $ 19,571 19,506 19,506
Mortgage backed securities 894 906 906
- ----------------------------------------------------------------------------------------
Total fixed maturities 20,465 20,412 20,412
========================================================================================
Other investments:
Short-term securities 2,389 XXXXXXX 2,389
- ----------------------------------------------------------------------------------------
Total other investments 2,389 XXXXXXX 2,389
- ----------------------------------------------------------------------------------------
Total investments $ 22,854 XXXXXXX 22,801
========================================================================================
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1996 and 1995, the amortized cost, gross unrealized gains, gross
unrealized losses and estimated fair values of fixed maturities are as follows:
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996:
U.S. Government $ 19,571 66 131 19,506
Mortgage backed securities 894 12 0 906
- ----------------------------------------------------------------------------------------------------------------
Total fixed maturities $ 20,465 78 131 20,412
================================================================================================================
1995:
U.S. Government $ 13,749 380 0 14,129
Mortgage backed securities 957 42 0 999
- ----------------------------------------------------------------------------------------------------------------
Total fixed maturities $ 14,706 422 0 15,128
================================================================================================================
</TABLE>
The changes in unrealized gains (losses) from fixed maturities were $(475), $835
and $(540) for the years ended December 31, 1996, 1995 and 1994, respectively.
<PAGE>
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Notes to Financial Statements
December 31, 1996, 1995 and 1994
(in thousands)
The amortized cost and estimated fair value of fixed maturities at December 31,
1996, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
cost fair value
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Due after one year through five years $ 6,077 6,011
Due after five years through ten years 13,494 13,495
Mortgage backed securities 894 906
- -------------------------------------------------------------------------------------------
Totals $ 20,465 20,412
===========================================================================================
</TABLE>
Proceeds from sales of investments in available-for-sale securities during 1996,
1995 and 1994 were $2,654, $4,522 and $3,428, respectively. Gross gains of $0,
$64 and $110 and gross losses of $62, $77 and $209 were realized on sales of
available-for-sale securities in 1996, 1995 and 1994, respectively. The related
tax benefit was $22, $4 and $35 in 1996, 1995 and 1994, respectively.
<TABLE>
<CAPTION>
Net realized investment losses for the respective years ended December 31 are
summarized as follows:
1996 1995 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities, at market $ (62) (13) (99)
Other 0 0 (14)
- --------------------------------------------------------------------------------------------------
Net losses before taxes (62) (13) (113)
Tax benefit on net realized losses (22) (4) (38)
- --------------------------------------------------------------------------------------------------
Net losses after tax benefit $ (40) (9) (75)
==================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Major categories of net investment income for the respective years ended
December 31 are:
1996 1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest:
Fixed maturities, at market $ 1,132 410 309
Short-term investments 98 0 0
Other 1 201 69
- --------------------------------------------------------------------------------------------------------
Total investment income 1,231 611 378
Investment expenses 11 6 7
- --------------------------------------------------------------------------------------------------------
Net investment income $ 1,220 605 371
========================================================================================================
</TABLE>
<PAGE>
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Notes to Financial Statements
December 31, 1996, 1995 and 1994
(in thousands)
(3) SUMMARY TABLE OF FAIR VALUE DISCLOSURES
<TABLE>
<CAPTION>
1996 1995
- ----------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Financial assets
- ----------------
Fixed maturities, at market
U.S. Government $ 19,506 $ 19,506 $ 14,129 $ 14,129
Mortgage backed securities 906 906 999 999
Certificates of deposit
and other short term investments 2,389 2,389 800 800
Receivables 4,046 4,046 4,820 4,820
Separate account assets 769,981 769,981 690,262 690,262
Financial liabilities
- ---------------------
Separate account liabilities 769,981 756,349 690,262 672,655
- ----------------------------------------------------------------------------------------------------------
<FN>
See Note 1 "Summary of Significant Accounting Policies" for description of the
methods and significant assumptions used to estimate fair values.
</FN>
</TABLE>
(4) RECEIVABLES
<TABLE>
<CAPTION>
Receivables at December 31 consist of the following:
1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C>
Premiums due $ 3,318 3,468
Reinsurance commission receivable 450 371
Due from administrators 0 198
Other 278 783
- ---------------------------------------------------------------------------
Total receivables $ 4,046 4,820
===========================================================================
</TABLE>
<PAGE>
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Notes to Financial Statements
December 31, 1996, 1995 and 1994
(in thousands)
(5) ACCIDENT AND HEALTH CLAIMS RESERVES
Accident and health claims reserves are based on long-range projections subject
to uncertainty. Uncertainty regarding reserves of a given accident year is
gradually reduced as new information emerges each succeeding year, allowing more
reliable re-evaluations of such reserves. While management believes that
reserves as of December 31, 1996 are adequate, uncertainties in the reserving
process could cause such reserves to develop favorably or unfavorably in the
near term as new or additional information emerges. Any adjustments to reserves
are reflected in the operating results of the periods in which they are made.
Movements in reserves which are small relative to the amount of such reserves
could significantly impact future reported earnings of the Company.
<TABLE>
<CAPTION>
Activity in the accident and health claims reserves, exclusive of hospital
indemnity and AIDS reserves of $293, $287 and $205 in 1996, 1995 and 1994,
respectively, is summarized as follows:
1996 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, net of reinsurance
recoverables of $9,249, $10,049 and $8,117 $ 11,000 10,149 7,823
Incurred related to:
Current year 11,372 10,502 10,061
Prior years (3,079) (2,245) (2,839)
- -------------------------------------------------------------------------------------------------
Total incurred 8,293 8,257 7,222
- -------------------------------------------------------------------------------------------------
Paid related to:
Current year 1,458 1,097 1,073
Prior years 6,500 6,309 3,823
- -------------------------------------------------------------------------------------------------
Total paid 7,958 7,406 4,896
- -------------------------------------------------------------------------------------------------
Balance at December 31, net of reinsurance
recoverables of $7,476, $9,249 and $10,049 $ 11,335 11,000 10,149
=================================================================================================
</TABLE>
Due to lower than anticipated losses related to prior years, the provision for
claims and claim adjustment expenses decreased.
(6) REINSURANCE
In the normal course of business, the Company seeks to limit its exposure to
loss on any single insured and to recover a portion of benefits paid by ceding
risks under excess coverage and coinsurance contracts. The Company retains a
maximum of $50 coverage per individual life.
Reinsurance contracts do not relieve the Company from its obligations to
policyholders. Failure of reinsurers to honor their obligations could result in
losses to the Company; consequently, allowances are established for amounts
deemed uncollectible. The Company evaluates the financial condition of its
reinsurers and monitors concentrations of credit risk to minimize its exposure
to significant losses from reinsurer insolvencies.
Included in reinsurance receivables at December 31, 1996 and 1995 are
recoverables on paid and unpaid claims from Allianz Life for $1,554 and $1,556,
respectively. A contingent liability exists to the extent that Allianz Life or
the Company's unaffiliated reinsurers are unable to meet their contractual
obligations under reinsurance contracts. Management is of the opinion that no
liability will accrue to the Company with respect to this contingency.
<PAGE>
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Notes to Financial Statements
December 31, 1996, 1995 and 1994
(in thousands)
<TABLE>
<CAPTION>
Life insurance, annuities and accident and health business assumed from and
ceded to other companies is as follows:
Percentage
Assumed Ceded of amount
Gross from other to other Net assumed
Year ended amount companies companies amount to net
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
December 31, 1996:
Life insurance In force $ 1,700,286 0 647,863 1,052,423 0.0%
- -----------------------------------------------------------------------------------------------------------------
Premiums:
Life insurance 9,174 0 2,304 6,870 0.0%
Annuities 11,725 0 0 11,725 0.0%
Accident and health insurance 15,482 6,623 9,270 12,835 51.6%
- -----------------------------------------------------------------------------------------------------------------
Total premiums 36,381 6,623 11,574 31,430 21.1%
=================================================================================================================
December 31, 1995:
Life insurance In force $ 1,826,979 0 715,945 1,111,034 0.0%
- -----------------------------------------------------------------------------------------------------------------
Premiums:
Life insurance 10,291 0 2,642 7,649 0.0%
Annuities 10,679 0 0 10,679 0.0%
Accident and health insurance 15,717 6,689 10,820 11,586 57.7%
- -----------------------------------------------------------------------------------------------------------------
Total premiums 36,687 6,689 13,462 29,914 22.4%
=================================================================================================================
December 31, 1994:
Life insurance In force $ 1,320,843 0 740,856 579,987 0.0%
- -----------------------------------------------------------------------------------------------------------------
Premiums:
Life insurance 10,467 (2) 2,898 7,567 0.0%
Annuities 8,781 0 0 8,781 0.0%
Accident and health insurance 15,759 8,827 13,443 11,143 79.2%
- -----------------------------------------------------------------------------------------------------------------
Total premiums 35,007 8,825 16,341 27,491 32.1%
=================================================================================================================
</TABLE>
<PAGE>
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Notes to Financial Statements
December 31, 1996, 1995 and 1994
(in thousands)
<TABLE>
<CAPTION>
Of the amounts assumed from and ceded to other companies, life and accident and
health insurance assumed from and ceded to Allianz Life is as follows:
Assumed Ceded
--------------------------------- ------------------------------
1996 1995 1994 1996 1995 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Life insurance in force $ 0 0 0 2,432 2,930 2,745
- -------------------------------------------------------------------------------------------------------
Premiums:
Life insurance $ 0 0 0 36 55 69
Accident and health insurance 2,547 2,959 2,600 766 921 784
- -------------------------------------------------------------------------------------------------------
Total premiums $ 2,547 2,959 2,600 802 976 853
=======================================================================================================
</TABLE>
(7) INCOME TAXES
INCOME TAX EXPENSE
<TABLE>
<CAPTION>
Total income tax expenses (benefits) for the years ended December 31 are as
follows:
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense attributable to operations:
Current tax expense (benefit) $ 435 (109) 154
Deferred tax expense 2,396 1,612 1,099
- -------------------------------------------------------------------------------------------------------------
Total income tax expense attributable to operations $ 2,831 1,503 1,253
Income tax effect on equity:
Income tax allocated to stockholder's equity,
Adoption of SFAS No. 115 0 0 44
Attributable to unrealized gains and losses
for the year (166) 292 (189)
- -------------------------------------------------------------------------------------------------------------
Total income tax effect on equity $ 2,665 1,795 1,108
=============================================================================================================
</TABLE>
COMPONENTS OF INCOME TAX EXPENSE
<TABLE>
<CAPTION>
Income tax expense computed at the statutory rate of 35% varies from tax expense
reported in the Statements of Income for the respective years ended December 31
as follows:
1996 1995 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense computed at the statutory rate $ 2,248 2,414 1,558
Other 583 (911) (305)
- -----------------------------------------------------------------------------------------
Income tax expense as reported $ 2,831 1,503 1,253
=========================================================================================
</TABLE>
<PAGE>
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Notes to Financial Statements
December 31, 1996, 1995 and 1994
(in thousands)
COMPONENTS OF DEFERRED TAX ASSETS AND LIABILITIES ON THE BALANCE SHEET
<TABLE>
<CAPTION>
Tax effects of temporary differences giving rise to the significant components
of the net deferred tax liabilities at December 31, 1996 and 1995 are as
follows:
1996 1995
- ----------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Future policy benefit reserves $ 3,427 4,808
Unrealized losses on investments 19 0
- ----------------------------------------------------------------
Total deferred tax assets 3,446 4,808
================================================================
Deferred tax liabilities:
Deferred acquisition costs 10,757 10,481
Unrealized gains on investments 0 147
Investments 1,429 690
- ----------------------------------------------------------------
Total deferred tax liabilities 12,186 11,318
================================================================
Net deferred tax liability $ 8,740 6,510
================================================================
</TABLE>
Although realization is not assured, the Company believes it is not necessary to
establish a valuation allowance for the deferred tax asset as it is more likely
than not the deferred tax asset will be realized principally through future
reversals of existing taxable temporary differences and future taxable income.
The amount of the deferred tax asset considered realizable, however, could be
reduced in the near term if estimates of future reversals of existing taxable
temporary differences and future taxable income are reduced.
The Company files a consolidated federal income tax return with AZOA and all of
its wholly owned subsidiaries. The consolidated tax allocation agreement
stipulates that each company participating in the return will bear its share of
the tax liability pursuant to United States Treasury Department regulations. The
Company accrues income taxes payable to Allianz Life under AZOA intercompany tax
allocation agreements. The Company's liability for current taxes was $504 and
$142 as of December 31, 1996 and 1995, respectively, and is included in payable
to parent in the liablity section of the accompanying balance sheet.
(8) RELATED PARTY TRANSACTIONS
In 1994, Allianz Life contributed additional paid-in capital to the Company of
$6,500.
Allianz Life performs certain administrative services for the Company. The
Company reimbursed Allianz Life $1,246, $1,115 and $1,994 in 1996, 1995 and
1994, respectively, for related administrative expenses incurred. The Company's
liability to Allianz Life for incurred but unpaid service fees as of December
31, 1996 and 1995 was $598 and $521, respectively, and is included in payable to
parent in the liability section of the accompanying balance sheet.
AZOA's investment division manages the Company's investment portfolio. The
Company paid AZOA $11, $5 and $4 in 1996, 1995 and 1994, respectively, for
investment advisory fees. The Company had no incurred but unpaid fees to AZOA as
of December 31, 1996 and 1995.
<PAGE>
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Notes to Financial Statements
December 31, 1996, 1995 and 1994
(in thousands)
(9) EMPLOYEE BENEFIT PLANS
The Company participates in the Allianz Primary Retirement Plan (Primary
Retirement Plan), a defined contribution plan. The Company makes contributions
to a money purchase pension plan on behalf of eligible participants. All
employees are eligible to participate in the Primary Retirement Plan after two
years of service. The contributions are based on a percentage of the
participant's salary with the participants being 100% vested upon eligibility.
It is the Company's policy to fund the plan costs as accrued. Total pension
contributions were $29, $16 and $18 in 1996, 1995 and 1994, respectively.
The Company participates in the Allianz Asset Accumulation Plan (Allianz Plan),
a defined contribution plan sponsored by AZOA. Under the Allianz Plan
provisions, the Company will match from 50% to 100% of eligible employees'
contributions up to a maximum of 6% of a participant's compensation. The total
Company match for 1996, 1995 and 1994 Plan participants was 100%. All employees
are eligible to participate after one year of service and are fully vested in
the Company's matching contribution after three years of service. The Allianz
Plan will accept participants' pretax or after-tax contributions up to 15% of
the participant's compensation. It is the Company's policy to fund the Allianz
Plan costs as accrued. The Company accrued $41, $5 and $35 in 1996, 1995 and
1994, respectively, toward planned contributions.
(10) STATUTORY FINANCIAL DATA AND DIVIDEND RESTRICTIONS
Statutory accounting is directed toward insurer solvency and protection of
policyholders. Accordingly, certain items recorded in financial statements
prepared under GAAP are excluded or vary in determining statutory policyholders'
surplus and gain from operations. These items include, among others, deferred
acquisition costs, furniture and fixtures, accident and health premiums
receivable which are more than 90 days past due, deferred taxes and undeclared
dividends to policyholders. Additionally, future life and annuity policy benefit
reserves calculated for statutory accounting do not include provisions for
withdrawals.
<TABLE>
<CAPTION>
The differences between stockholder's equity and net income reported in
accordance with statutory accounting practices and the accompanying financial
statements for the years ended December 31 are as follows:
Stockholder's equity Net Income
--------------------------- --------------------------------
1996 1995 1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statutory basis $ 21,886 18,359 2,358 2,821 (796)
Adjustments:
Change in reserve basis (13,696) (17,857) 4,070 3,281 (2,812)
Deferred acquisition costs 38,245 38,586 (341) 1,009 8,090
Deferred taxes (8,740) (6,510) (2,396) (1,612) (1,099)
Nonadmitted assets 154 119 0 0 0
Interest maintenance reserve (68) 31 (99) (105) (183)
Asset Valuation Reserve 7 2 0 0 0
Liability for unauthorized reinsurers 0 1,209 0 0 0
Unrealized losses on investments (53) 422 0 0 0
Other (91) 0 (1) 0 0
- ------------------------------------------------------------------------------------------------------
As reported in the
accompanying financial statements $ 37,644 34,361 3,591 5,394 3,200
======================================================================================================
</TABLE>
The Company is required to meet minimum capital and surplus requirements. At
December 31, 1996 and 1995, the Company was in compliance with these
requirements. In accordance with New York Statutes, the Company may not pay a
stockholder dividend without prior approval by the Superintendent of Insurance.
The Company paid no dividends in 1996, 1995 and 1994.
<PAGE>
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Notes to Financial Statements
December 31, 1996, 1995 and 1994
(in thousands)
REGULATORY RISK BASED CAPITAL
An insurance enterprise's state of domicile imposes minimum risk-based capital
requirements that were developed by the National Association of Insurance
Commissioners (NAIC). The formulas for determining the amount of risk-based
capital specify various weighting factors that are applied to financial balances
or various levels of activity based on the perceived degree of risk. Regulatory
compliance is determined by a ratio of an enterprise's regulatory total adjusted
capital to its authorized control level risk-based capital, as defined by the
NAIC. Enterprises below specific triggerpoints or ratios are classified within
certain levels, each of which requires specified corrective action. The levels
and ratios are as follows:
Ratio of total adjusted capital to
authorized control level risk-based
Regulatory Event Capital (less than or equal to)
------------------ -------------------------------------
Company action level 2 (or 2.5 with negative trends)
Regulatory action level 1.5
Authorized control level 1
Mandatory control level 0.7
The Company met the minimum risk-based capital requirements as of December 31,
1996 and 1995.
PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company is required to file annual statements with insurance regulatory
authorities which are prepared on an accounting basis prescribed or permitted by
such authorities. Currently prescribed statutory accounting practices include
state laws, regulations, and general administrative rules, as well as a variety
of publications of the NAIC. Permitted statutory accounting practices encompass
all accounting practices that are not prescribed; such practices differ from
state to state, may differ from company to company within a state, and may
change in the future. The NAIC currently has a project underway to codify
statutory accounting practices, the result of which is expected to constitute
the only source of "prescribed" statutory accounting practices. Accordingly,
that project will likely change the definition of what comprises prescribed
versus permitted statutory accounting practices, and may result in changes to
existing accounting policies that insurance enterprises use to prepare their
statutory financial statements. The Company does not currently use permitted
statutory accounting practices which have a significant impact on its statutory
financial statements.
STATE EXAMINATION
Preferred Life is currently under routine examination by the New York State
Department of Insurance. No matters of significance or adjustments to Preferred
Life's statutory financial statements have been brought to management's
attention as a result of this examination.
(11) COMMITMENTS AND CONTINGENCIES
The Company is subject to claims and lawsuits that arise in the ordinary course
of business. In the opinion of management, the ultimate resolution of such
litigation will not have a material adverse effect on the financial position of
the Company.
The Company is contingently liable for possible future assessments under
regulatory requirements pertaining to insolvencies and impairments of
unaffiliated insurance companies. Provision has been made for assessments
currently received and assessments anticipated for known insolvencies.
<PAGE>
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Notes to Financial Statements
December 31, 1996, 1995 and 1994
(in thousands)
(12) SUPPLEMENTARY INSURANCE INFORMATION
<TABLE>
<CAPTION>
The following table summarizes certain financial information by line of business
for 1996, 1995 and 1994:
As of December 31 For the year ended December 31
--------------------------------------------- ----------------------------------------------------------------
Future Benefits, Net
policy Other Premium claims change
benefits, policy revenue losses, in
Deferred losses, claims and other Net and policy
policy claims and contract invest- settle- acquisi- Other Premiums
acquistion and loss Unearned benefits consider- ment ment tion operating written
costs expense premiums payable ations income expenses cost (a) expenses (b)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996:
Life insurance $ 290 1,219 908 5,151 6,870 268 4,371 (27) 2,297
Annuities 37,855 325 0 864 11,725 0 202 265 7,069
Accident and
health insurance 100 0 979 19,104 12,835 952 8,392 103 3,494
- -----------------------------------------------------------------------------------------------------------------------------------
$ 38,245 1,544 1,887 25,119 31,430 1,220 12,965 341 12,860
===================================================================================================================================
1995:
Life insurance $ 263 594 844 5,615 7,649 104 5,428 (6) 2,374
Annuities 38,120 6 0 16 10,679 0 (100) (1,008) 6,180
Accident and
health insurance 203 0 1,486 20,536 11,586 501 8,401 5 2,335
- -----------------------------------------------------------------------------------------------------------------------------------
$ 38,586 600 2,330 26,167 29,914 605 13,729 (1,009) 10,889
===================================================================================================================================
1994:
Life insurance $ 257 511 834 6,909 7,567 80 6,702 (47) 2,275
Annuities 37,112 271 0 0 8,781 0 357 (8,121) 12,200
Accident and
health insurance 208 0 1,451 20,403 11,143 291 7,331 78 2,521
- -----------------------------------------------------------------------------------------------------------------------------------
$ 37,577 782 2,285 27,312 27,491 371 14,390 (8,090) 16,996
===================================================================================================================================
<FN>
(a) See note 1 for aggregate gross amortization.
(b) Premiums written are not applicable for life insurance companies.
</FN>
</TABLE>
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
a. Financial Statements
The following financial statements of the Company are included in Part
B hereof.
1. Independent Auditors' Report.
2. Balance Sheets as of December 31, 1996 and 1995.
3. Statements of Income for the years ended December 31, 1996, 1995
and 1994.
4. Statements of Stockholder's Equity for the years ended
December 31, 1996, 1995 and 1994.
5. Statements of Cash Flow for the years ended December 31, 1996,
1995 and 1994.
6. Notes to Financial Statements - December 31, 1996, 1995 and 1994.
The following financial statements of the Variable Account are
included in Part B hereof.
1. Independent Auditors' Report.
2. Statements of Assets and Liabilities as of December 31, 1996.
3. Statements of Operations for the year ended December 31, 1996.
4. Statements of Changes in Net Assets for the years ended
December 31, 1996 and 1995.
5. Notes to Financial Statements - December 31, 1996.
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. Not Applicable
* 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.
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
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
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
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
W. Michael Carroll Director
48 Cornell Road
PO Box 867
Latham, NY 12110
Stephen R. Herbert Director
900 Third Avenue
New York, NY 10022
Jack F. Rockett Director
140 East 95th Street, Ste 6A
New York, NY 10129
</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 Insurance 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 certifies that it meets the requirements of
Securities Act Rule 485(b) for effectiveness of this registration statement and
has caused this registration statement to be signed on its behalf in the City of
Minneapolis and State of Minnesota, on this 24th day of April, 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 4-24-97
Ronald L. Wobbeking* Chairman, Chief Executive
Ronald L. Wobbeking Officer and Director 4-24-97
Shannon Hendricks* Treasurer
Shannon Hendricks 4-24-97
Alan A. Grove* Secretary and Director
Alan A. Grove 4-24-97
Thomas G. Brown* Director
Thomas G. Brown 4-24-97
Edward J. Bonach* Director
Edward J. Bonach 4-24-97
Robert S. James* Director
Robert S. James 4-24-97
Thomas J. Lynch* Director
Thomas J. Lynch 4-24-97
Dennis Marion* Director
Dennis Marion 4-24-97
Eugene T. Wilkinson* Director
Eugene T. Wilkinson 4-24-97
Eugene Long* Director
Eugene Long 4-24-97
Reinhard W. Obermueller*Director
Reinhard W. Obermueller 4-24-97
Director
W. Michael Carroll _______
Director
Stephen R. Herbert _______
Director
Jack F. Rockett _______
</TABLE>
* By /S/ ALAN A. GROVE
-----------------
Attorney-in-Fact
EXHIBITS
TO
POST-EFFECTIVE AMENDMENT NO. 13
TO
FORM N-4
PREFERRED LIFE VARIABLE ACCOUNT C
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
INDEX TO EXHIBITS
Exhibit Page
EX-99.B9 Opinion and Consent of Counsel
EX-99.B10 Independent Auditors' Consent
EX-99.B13 Calculation of Performance Information
Blazzard, Grodd & Hasenauer, P.C.
943 Post Road East
Westport, CT 06880
(203) 226-7866
April 18, 1997
Board of Directors
Preferred Life Insurance Company of New York
152 W 57th Street, 18th Floor
New York, NY 10019
Re: Opinion and Consent of Counsel
Preferred Life Variable Account C
Dear Sir or Madam:
You have requested our Opinion of Counsel in connection with the filing with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended, of a Registration Statement on Form N-4 for the Individual Deferred
Variable Annuity Contracts to be issued by Preferred Life Insurance Company of
New York and its separate account, Preferred Life Variable Account C.
We are of the following opinions:
1. Preferred Life Variable Account C is a unit investment trust as that term is
defined in Section 4(2) of the Investment Company Act of 1940 (the "Act"),
and is currently registered with the Securities and Exchange Commission,
pursuant to Section 8(a) of the Act.
2. Upon the acceptance of purchase payments made by a Contract Owner pursuant
to a Contract issued in accordance with the Prospectus contained in the
Registration Statement and upon compliance with applicable law, such a
Contract Owner will have a legally-issued, fully-paid, non-assessable
contractual interest under such Contract.
You may use this opinion letter, or copy hereof, as an exhibit to the
Registration Statement.
We consent to the reference to our Firm under the caption "Legal Opinions"
contained in the Statement of Additional Information which forms a part of the
Registration Statement.
Sincerely,
BLAZZARD, GRODD, & HASENAUER, P.C.
By: /s/ LYNN KORMAN STONE
- ----------------------------------
Lynn Korman Stone
KPMG Peat Marwick LLP
4200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
Independent Auditors' Consent
The Board of Directors of Preferred Life Insurance Company of New York
and Contract Owners of Preferred Life Variable Account C:
We consent to the use of our report, dated January 24, 1997, on the financial
statements of Preferred Life Variable Account C and our report dated February 4,
1997, on the financial statements of Preferred Life Insurance Company of New
York included herein and to the reference to our Firm under the heading
"EXPERTS".
KPMG Peat Marwick LLP
Minneapolis, Minnesota
April 24, 1997
<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>
