File Nos. 333-19173
811-05716
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ( )
Pre-Effective Amendment No. 1 (X)
Post-Effective Amendment No. ( )
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 ( )
Amendment No. 21 (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
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of this Filing.
Calculation of Registration Fee under the Securities Act of 1933:
Registrant is registering an indefinite number of securities under the
Securities Act of 1933 pursuant to Investment Company Act Rule 24f-2.
==============================================================================
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
CROSS REFERENCE SHEET
(Required by Rule 495)
<TABLE>
<CAPTION>
<S> <C> <C>
ITEM NO. LOCATION
PART A
Item 1. Cover Page.................................. Cover Page
Item 2. Definitions................................. Definitions
Item 3. Synopsis or Highlights...................... Highlights
Item 4. Condensed Financial Information............. Not Applicable
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 The Contracts
Annuity 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>
<S> <C> <C>
ITEM NO. DEFINITION
PART B
Item 15. Cover Page................................... Cover Page
Item 16. Table of Contents............................ Table of Contents
Item 17. General Information and History.............. The Company
Item 18. Services..................................... Not Applicable
Item 19. Purchase of Securities Being Offered......... Not Applicable
Item 20. Underwriters................................. Distributor
Item 21. Calculation of Performance Data.............. Calculation of
Performance Data
Item 22. Annuity Payments............................. Annuity
Provisions
Item 23. Financial Statements......................... Financial
Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item so numbered, in Part C to this Registration Statement.
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
HOME OFFICE: VIP SERVICE CENTER:
152 West 57th Street, 18th Floor P.O. Box 30343
New York, NY 10019 Tampa, FL 33630-3343
(800) 542-5427 (800) 774-5001
INDIVIDUAL IMMEDIATE
VARIABLE ANNUITY CONTRACTS
ISSUED BY
PREFERRED LIFE VARIABLE ACCOUNT C
AND
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
MAY __, 1997
The Individual Immediate Variable Annuity Contracts (the "Contracts")
described in this Prospectus provide lifetime income to the Annuitant and
Joint Annuitant, if any, under the Annuity Option selected. The Annuitant is
the Contract Owner. The Contract Owner selects the Annuity Option and the
frequency of payment (e.g., monthly, quarterly, semi-annually, annually).
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 Contracts"). They can also be purchased as a "Qualified
Contract" that is an Individual Retirement Annuity with contributions
rolled-over from tax-qualified plans such as 403(b) plans, 401 plans, or IRAs.
The Contracts are acquired by the payment of a single purchase payment
("Single Purchase Payment"). The Single Purchase Payment 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")
or to the Company's Fixed Account. Any portion of the Purchase Payment
selected to be allocated to the Fixed Account will temporarily be allocated to
the Money Market Sub-Account on the Effective Date and will be allocated to
the Fixed Account on the Annuity Calculation Date.
The Variable Account invests in shares of Franklin Valuemark Funds (the
"Trust"). The Trust is a series fund with twenty-three Funds, sixteen of which
are currently available in connection with the Contracts offered under this
Prospectus: the Money Market Fund, 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 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. See "Highlights" and "Tax Status" for a
discussion of owner control of the underlying investments in a variable
annuity contract.
Under certain circumstances, Contract Owners may make withdrawals after the
Income Date other than the Annuity Payments they will receive under the
Contract. See "Annuity Provisions - Contract Withdrawals (Liquidations)" for
more information regarding the ability to make withdrawals under the 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 CONTRACT IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE
OF THE CONTRACT OWNER'S INVESTMENT TO FLUCTUATE, AND WHEN THE CONTRACTS ARE
RETURNED WITHIN THE FREE LOOK PERIOD, THE REFUND MAY BE HIGHER OR LOWER THAN
THE PURCHASE PAYMENT.
This Prospectus concisely sets forth the information a prospective investor
should know before investing. Additional information about the Contracts is
contained in the "Statement of Additional Information," which is available at
no charge. The Statement of Additional Information has been filed with the
Securities and Exchange Commission and is incorporated herein by reference.
The Table of Contents of the Statement of Additional Information can be found
on the last page of this Prospectus. For the Statement of Additional
Information, call or write the VIP Service Center address shown above.
INQUIRIES: Any inquiries can be made by telephone or in writing to the Company
at the VIP Service Center 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 15, 1997, and may be amended from time to time.
This Prospectus should be kept for future reference.
TABLE OF CONTENTS
PAGE
DEFINITIONS
HIGHLIGHTS
FEE TABLE
THE COMPANY
THE VARIABLE ACCOUNT
FRANKLIN VALUEMARK FUNDS
General
Substitution of Securities
Voting Privileges
CHARGES AND DEDUCTIONS
Deduction for Mortality and Expense Risk Charge
Deduction for Administrative Expense Charge
Deduction for Income Taxes
Deduction for Trust Expenses
ANNUITY PROVISIONS
Income Date
Annuity Options
Contract Withdrawals (Liquidations)
Determination of Annuity Payments
THE CONTRACTS
Ownership
Assignment
Beneficiary
Change of Beneficiary
Death of Beneficiary
Annuitant
PROCEEDS PAYABLE AT DEATH
PURCHASE PAYMENTS AND CONTRACT VALUE
Single Purchase Payment
Allocation of Single Purchase Payment
Contract Value
VIP Unit
Transfers
DISTRIBUTOR
Delay of Payments
ADMINISTRATION OF THE CONTRACTS
PERFORMANCE DATA
Money Market Sub-Account
Other Sub-Accounts
Performance Ranking
TAX STATUS
General
Diversification
Multiple Contracts
Tax Treatment of Distributions - Non-Qualified Contracts
Qualified Plans
Tax Treatment of Distributions - IRA Contracts
Tax Treatment of Assignments
Income Tax Withholding
FINANCIAL STATEMENTS
LEGAL PROCEEDINGS
APPENDIX - ILLUSTRATION OF VALUES
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
DEFINITIONS
AGE - Age to the nearest month unless otherwise specified.
ANNUITANT - The primary person upon whose continuation of life any annuity
payment involving life contingencies depends. The Contract Owner is the
Annuitant. See also, Joint Annuitant.
ANNUITY CALCULATION DATE - The date on which the first annuity payment is
calculated which will be no more than 10 business days prior to the Income
Date.
ANNUITY OPTION - An arrangement under which annuity payments are made under
the Contract.
ANNUITY UNIT - An accounting unit of measure used to calculate annuity
payments after the Annuity Calculation Date.
ASSUMED INVESTMENT RETURN - The investment return upon which the annuity
payments in the Contract are based.
COMPANY - Preferred Life Insurance Company of New York at its VIP Service
Center shown on the cover page of this Prospectus.
CONTRACT ANNIVERSARY - An anniversary of the Effective Date of the Contract.
CONTRACT OWNER - The person who owns the Contract as named in the Company's
records. The Annuitant is the Contract Owner.
CONTRACT VALUE - The dollar value as of any Valuation Date prior to the
Annuity Calculation Date of all amounts accumulated under the Contract.
EFFECTIVE DATE - The date on which the Net Purchase Payment is allocated to
the Variable Account.
ELIGIBLE INVESTMENT(S) - An investment entity which can be selected by the
Contract Owner to be the underlying investment of the Contract.
FIXED ACCOUNT - The Company's general investment account which contains all the
assets of the Company with the exception of the Variable Account and other
segregated asset accounts.
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 begin.
Joint Annuitant - A person other than the Annuitant on whose life annuity
payments may also be based.
JOINT OWNER - 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. Each Joint Owner must be either an Annuitant
or Joint Annuitant.
NET ASSET VALUE - The total value of the shares of the Eligible Investment or
Fund less the liabilities of the Eligible Investment or Fund held by the
Sub-Account, as of the close of trading on a Valuation Date.
NON-QUALIFIED CONTRACTS - As used herein, Contracts issued under Non-Qualified
Plans which do not receive favorable tax treatment under Section 408 of the
Internal Revenue Code of 1986, as amended (the "Code").
QUALIFIED CONTRACTS - As used herein, Contracts issued under Qualified Plans
which receive favorable tax treatment under Section 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.
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 beginning 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, in which a portion of the Company's assets
has been allocated for the Contracts and certain other contracts.
VIP UNIT - An accounting unit of measure used to calculate the Contract Value
prior to the Annuity Calculation Date.
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") or to the Company's Fixed Account. Any portion of the
Purchase Payment to be allocated to the Fixed Account will temporarily be
allocated to the Money Market Sub-Account on the Effective Date and then will
be allocated to the Fixed Account on the Annuity Calculation Date.
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 (the
"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 had never issued it. The Company will promptly
refund the net amount allocated to the Variable Account modified for
investment experience plus any taxes deducted less any benefits paid. This may
be more or less than the Single Purchase Payment. Once the Free-Look Period
expires, under certain circumstances, Contract Owners may make withdrawals
after the Income Date other than the Annuity Payments they will receive under
the Contract. See "Annuity Provisions - Contract Withdrawals (Liquidations)"
for more information regarding the ability to make withdrawals under the
Contract. The Company has the right to allocate the Single Purchase Payment to
the Money Market Sub-Account until the expiration of the Free-Look Period. If
the Company does so allocate the Single Purchase Payment, it will refund the
Single Purchase Payment, less any benefits paid. It is the Company's current
practice to directly allocate the Single Purchase Payment to the
Sub-Account(s) (see "Purchase Payments and Contract Value - Allocation of
Purchase Payment") designated by the Contract Owner.
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.")
Under certain circumstances, there is a ten percent (10%) federal income tax
penalty that may be applied to the income portion of any distribution from the
Contracts. (See "Tax Status - Tax Treatment of Distributions - Non-Qualified
Contracts" and "Tax Status - Tax Treatment of Distributions - IRA Contracts.")
For a further discussion of the taxation of the Contracts, see "Tax Status."
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
investments underlying the contract. The issuance of such guidelines may
require the Company to impose limitations on a Contract Owner's right to
control the investments. It is not known whether any such guidelines would
have a retroactive effect (see "Tax Status - Diversification").
The Company offers deferred variable annuity contracts but does not permit
exchange of those contracts for the Contracts offered by this Prospectus.
Because of certain exemptive and exclusionary provisions, interests in the
Fixed Account are not registered under the Securities Act of 1933 and the Fixed
Account is not registered as an investment company under the Investment
Company Act of 1940, as amended. Accordingly, neither the Fixed Account nor
any interests therein are subject to the provisions of these Acts, and the
Company has been advised that the staff of the Securities and Exchange
Commission has not reviewed the disclosures in the Prospectus relating to the
Fixed Account. Disclosures regarding the Fixed Account may, however, be
subject to certain generally applicable provisions of the federal securities
laws relating to the accuracy and completeness of statements made in
prospectuses.
PREFERRED LIFE VARIABLE ACCOUNT C FEE TABLE
CONTRACT OWNER TRANSACTION FEES None
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%
The effects of the charges shown above are reflected in the illustrations of
annuity income contained in the Appendix on Page __. The illustrations are
intended to assist the purchaser in assessing the effects of these charges and
the effect of investment performance on the amount of variable annuity income.
FRANKLIN VALUEMARK FUNDS' ANNUAL EXPENSES
(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 under management. See "Franklin Valuemark
Funds" 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 by each Fund
for the 1996 calendar year except for newer Funds without a full year of
operations as of December 31, 1996 (see explanatory footnotes below). The
purpose of the Table is to assist the Contract Owner in understanding the
various costs and expenses of investing, directly or indirectly, in the
contract.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
MANAGEMENT
AND FUND TOTAL
ADMINISTRATION OTHER ANNUAL
FEES(1) EXPENSES EXPENSES
--------------- --------- ---------
Money Market Fund(2).................... 0.51% 0.02% 0.53%
Growth and Income Fund.................. 0.48% 0.02% 0.50%
Real Estate Securities Fund............. 0.55% 0.02% 0.57%
Utility Equity Fund..................... 0.47% 0.03% 0.50%
Income Securities Fund.................. 0.47% 0.03% 0.50%
Rising Dividends Fund................... 0.75% 0.01% 0.76%
Templeton International Equity Fund..... 0.81% 0.08% 0.89%
Templeton Pacific Growth Fund........... 0.89% 0.10% 0.99%
Templeton Global Growth Fund............. 0.88% 0.05% 0.93%
Templeton Developing Markets Equity
Fund................................ 1.25% 0.24% 1.49%
Templeton Global Asset Allocation
Fund................................ 0.80% 0.06% 0.86%
Small Cap Fund.......................... 0.75% 0.02% 0.77%
Templeton International Smaller
Companies Fund(3)....................... 1.00% 0.16% 1.16%
Capital Growth Fund(3).................. 0.75% 0.02% 0.77%
Mutual Discovery Securities Fund(4)..... 0.95% 0.10% 1.05%
Mutual Shares Securities Fund(4)........ 0.75% 0.10% 0.85%
<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) 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.
(4) 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.
</TABLE>
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 an affiliate of the Company. It provides
marketing services for the Company and 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 VIP Service
Center: P.O. Box 30343, Tampa, FL 33630-3343, (800) 774-5001.
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.
FRANKLIN VALUEMARK FUNDS
SIXTEEN OF THE TWENTY-THREE FUNDS CURRENTLY AVAILABLE CONSTITUTING THE
FRANKLIN VALUEMARK FUNDS ARE AVAILABLE UNDER THE CONTRACTS DESCRIBED IN THIS
PROSPECTUS. Franklin Valuemark Funds (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,
advisers 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 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
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.
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 Payment.")
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 at
disadvantageous prices.
CHARGES AND DEDUCTIONS
Various charges and deductions are made from the Single Purchase Payment and
the Variable Account. These charges and deductions are:
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 risks assumed by the Company arise from
its contractual obligation to make annuity payments for the life of the
Annuitant in accordance with annuity rates guaranteed in the Contracts. 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 Administrative Expense Charge.
The Mortality and Expense Risk Charge is guaranteed by the Company and cannot
be increased.
The Mortality and Expense Risk Charge is assessed both before and after the
Income Date. The Company will continue to assess the Mortality and Expense
Risk Charge during payment of an Annuity Option that does not involve a life
contingency even though it no longer bears any mortality risk on such payment
obligation.
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 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 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 servicing, and all accounting, valuation, regulatory and reporting
requirements.
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.
DEDUCTION FOR TRUST EXPENSES
There are other deductions from the assets of Franklin Valuemark Funds,
for operating expenses (including management fees) which are described in
the accompanying Trust Prospectus.
ANNUITY PROVISIONS
INCOME DATE
The Income Date is the date on which annuity payments begin. The Contract
Owner selects an Income Date at the time of issue. The Income Date must be the
first or fifteenth day of a calendar month and not later than 60 days from the
Effective Date.
ANNUITY OPTIONS
The Contract provides for an Annuity under any of the Annuity Options
described below, provided the Annuitant or any Joint Annuitant is alive on the
Income Date. Except for Annuity Option 6, once selected the Option is
irrevocable. The amount of each payment depends upon the Annuity Option chosen
and for Annuity Options 1-5, the Annuitant's and any Joint Annuitant's Age on
the Annuity Calculation Date. Annuity payments from the Variable Account will
vary with the investment experience of the Sub-Accounts and may be either
higher or lower than the first payment. Annuity payments from the Fixed
Account will be equal payments unless otherwise specified by the Annuity
Option selected. Annuity payments may come from the Fixed and/or Variable
Account under all Annuity options (except annuity payments under Option 6 may
only come from the Variable Account).
The Annuity Options currently available are:
OPTION 1 - LIFE ANNUITY. Monthly annuity payments are paid during the
life of the Annuitant ceasing with the last annuity payment due prior to the
Annuitant's death.
OPTION 2 - LIFE ANNUITY WITH 60, 120, 180, OR 240 MONTHLY PAYMENTS
GUARANTEED. Monthly annuity payments are paid during the life of an Annuitant
with a guarantee that if, at the Annuitant's death, annuity payments have been
made for less than a 60, 120, 180 or 240 month period as elected, then annuity
payments will be continued thereafter to the Beneficiary for the remainder of
the guaranteed period. The Beneficiary may elect to have the present value
(determined as set forth in the Contract) of the guaranteed annuity payments
remaining commuted and paid in a lump sum, less the applicable commutation fee
of 5% of the proceeds in Contract Years 1 and 2 reducing by 1% per year
until it is 1% for Contract Year 6 and thereafter (subject to applicable
state law and regulation). Variable payments will be commuted at the
Assumed Investment Return. Fixed payments will be commuted using an indexed
rate. The Company will require the return of the Contract and proof of death
prior to the payment of any commuted values.
OPTION 3 - JOINT AND LAST SURVIVOR ANNUITY. Monthly annuity payments are
paid during the joint lifetime of the Annuitant and the Joint Annuitant. Upon
the death of the Annuitant, if the Joint Annuitant is then living, payments
will be paid thereafter during the remaining lifetime of the Joint Annuitant
at a level of 100%, 75% or 50% of the original level as elected. Monthly
payments cease with the final annuity payment due prior to the survivor's
death.
OPTION 4 - JOINT AND LAST SURVIVOR ANNUITY WITH 60, 120, 180 OR 240
MONTHLY PAYMENTS GUARANTEED. Monthly annuity payments are paid during the
joint lifetime of the Annuitant and the Joint Annuitant. Monthly payments are
paid thereafter during the remaining lifetime of the Joint Annuitant at 100%
of the original level. If, after the death of both the Annuitant and the Joint
Annuitant, annuity payments have been made for less than a 60, 120, 180 or 240
month period as elected, then annuity payments will be continued thereafter
to the Beneficiary for the remainder of the guaranteed period. The Beneficiary
may elect to have the present value (determined as set forth in the Contract)
of the guaranteed annuity payments remaining commuted and paid in a lump
sum, less the applicable commutation fee of 5% of the proceeds in Contract
Years 1 and 2 reducing by 1% per year until it is 1% for Contract Year 6 and
thereafter (subject to applicable state law and regulation). Variable
payments will be commuted at the Assumed Investment Return. Fixed payments
will be commuted using an indexed rate. The Company will require the return
of the Contract and proof of death prior to the payment of any commuted
values.
OPTION 5 - REFUND LIFE ANNUITY. Monthly annuity payments are paid
during the life of the Annuitant ceasing with the last annuity payment due
prior to the Annuitant's death with a guarantee that, at the Annuitant's
death, the Beneficiary will receive a single cash payment (refund) equal to
the sum of (a) and (b) (if positive), where (a) is the dollar value of the
number of Annuity Units equal to the total Annuity Units purchased in the
Variable Account on the Effective Date, minus the total number of Annuity
Units which have been transferred to the Fixed Account or paid as annuity
payments; and (b) is the dollar value of the portion of the Net Purchase
Payment allocated to the Fixed Account, plus the amounts transferred from
the Variable Account to the Fixed Account, minus the sum of the annuity
payments made from the Fixed Account. This calculation assumes that the
allocation of Annuity Units actually in force at the time of the Annuitant's
death had been the allocation of Annuity Units at issue and at all times
thereafter.
OPTION 6 - SPECIFIED PERIOD CERTAIN ANNUITY. Monthly annuity payments are paid
for a specified period of time. The Specified Period Certain is elected by the
Contract Owner and must be specified as a whole number of years from 5 to 30.
If at the time of the last death of the Annuitant and any Joint Annuitant, the
annuity payments actually made have been for less than the Specified Period
Certain, then annuity payments will be continued thereafter to the Beneficiary
for the remainder of the Specified Period Certain. Option 6 is only available
when the entire annuity payment is allocated to the Variable Account. OPTION 6
IS NOT AVAILABLE UNTIL APPROVED BY THE NEW YORK INSURANCE DEPARTMENT.
After the first Contract Anniversary, an Option 6 payout can be exchanged for
a life contingent payout (Options 1-5) if the Total Withdrawal Value is at
least $25,000 and in the case of a Non-Qualified Contract the Contract Owner
has attained age 59 1/2 and in the case of a Qualified Contract the exchange
is made after the later of the Contract Owner attaining age 59 1/2 or 5 years
from the date of the first annuity payment, and prior to the year in which the
Contract Owner reaches age 70 1/2. The annuity purchase rates used will be
those that were in effect as of the original Effective Date of the Option 6
Contract. A new Contract will be exchanged for the existing Contract which
must be returned to the Company. The Contract Owner/Annuitant and Joint
Annuitant, if any, must be the same under both Contracts.
CONTRACT WITHDRAWALS (LIQUIDATIONS)
Annuity Options 2 and 4
If the Contract Owner has selected Annuity Option 2 or 4 and has a portion of
the annuity payments coming from the Variable Account, partial withdrawals
from the Contract may be made after the first Contract Year as follows. During
the lifetime of the Annuitant(s) and while the number of annuity payments made
is less than the guaranteed number of payments elected, the Contract Owner may
once each Contract Year request a withdrawal representing a partial
liquidation of the Total Withdrawal Value. The Total Withdrawal Value is equal
to the present value of the remaining guaranteed annuity payments from the
Variable Account, to the end of the period certain, commuted at the
Assumed Investment Return less a commutation fee of 5% of the amount withdrawn
in Contract Year 2 and reducing by 1% per year until it is 1% for
Contract Year 6 and thereafter. The commutation fee is a charge collected by
the Company equal to a percentage of the Total Withdrawal Value liquidated.
Partial liquidations will be processed on the next Annuity Calculation Date
following the Contract Owner's written request. After a partial liquidation,
the subsequent monthly annuity payment during the guaranteed period certain
originating from the Variable Account will be reduced by the percentage of
the variable portion of the Total Withdrawal Value liquidated, including the
commutation fee. After the guaranteed number of payments has been paid, the
number of Annuity Units used in calculating the monthly payments will be
restored to their original value as if no liquidations had taken place. The
total amount allowed to be liquidated as a cumulative percentage of the Total
Withdrawal Value cannot exceed 25% of the Total Withdrawal Value. The minimum
allowable partial liquidation is the lesser of $2,500 or the remaining portion
of the Total Withdrawal Value available to be liquidated. PARTIAL WITHDRAWALS
ARE NOT AVAILABLE UNTIL APPROVED BY THE NEW YORK INSURANCE DEPARTMENT.
Annuity Option 6
If the Contract Owner has selected Annuity Option 6, withdrawals from the
Contract may be made as follows. A withdrawal may be made at least once per
Contract Year up to the Total Withdrawal Value in the Contract. The Total
Withdrawal Value is equal to the present value of the remaining annuity
payments, to the end of the Specified Period Certain, commuted at the Assumed
Investment Return, less a commutation fee of 1% of the amount withdrawn in the
first Contract Year. The Company reserves the right to restrict the amount of
a partial withdrawal to a minimum of $2,500. The Company may require a
complete withdrawal if the remaining Total Withdrawal Value after a requested
partial withdrawal would be less than $35,000. Partial withdrawals will be
processed on the next Annuity Calculation Date following the Contract Owner's
written request. The Company will require the return of the Contract prior to
the payment of the entire commuted value.
See "Tax Status - Tax Treatment of Distributions - Non-Qualified Contracts"
and "Tax Status - Tax Treatment of Distributions - IRA Contracts" for a
discussion of the tax treatment of withdrawals from the Contracts.
DETERMINATION OF VARIABLE ANNUITY PAYMENTS
On the Annuity Calculation Date, a fixed number of Annuity Units will be
purchased, determined as follows:
The first annuity payment is equal to the Contract Value allocated to the
Variable Account divided first by $1,000 and then multiplied by the
appropriate annuity payment amount for each $1,000 of value for the Annuity
Option selected. In each Sub-Account the fixed number of Annuity Units is
determined by dividing the amount of the initial annuity payment determined
for each Sub-Account by the Annuity Unit value on the Annuity Calculation
Date. Thereafter, the number of Annuity Units in each Sub-Account remains
unchanged unless the Contract Owner elects to transfer between Sub-Accounts.
All calculations will appropriately reflect the annuity payment frequency
selected.
On each subsequent annuity payment date, the total annuity payment is the sum
of the annuity payments determined for each Sub-Account. The annuity payment
in each Sub-Account is determined by multiplying the number of Annuity Units
then allocated to such Sub-Account by the Annuity Unit value for that
Sub-Account. See the Statement of Additional Information for a more detailed
discussion on how Annuity Units are valued.
For each Sub-Account, the value of an Annuity Unit was initially set
arbitrarily. On each subsequent Valuation Date the value of an Annuity Unit is
determined in the following way:
FIRST: The Net Investment Factor is determined by dividing (a) by (b) and
adding (c) to the result, where:
a. is the net increase or decrease in the Net Asset Value per share of
the Fund (or other Eligible Investment) plus the per share amount of any
dividend or capital gain distribution paid by the Fund (or Eligible
Investment) during the Valuation Period, plus or minus a per share charge or
credit for any taxes incurred by or reserved for in the Sub-Account as of the
end of the current Valuation Period which the Company determines to have
resulted from maintenance of the Sub-Account; and
b. is the Net Asset Value per share of the Fund (or other Eligible
Investment) at the beginning of the Valuation Period, plus or minus a per
share charge or credit for any taxes incurred by or reserved for in the
Sub-Account as of the end of the immediately preceding Valuation Period which
the Company determines to have resulted from maintenance of the Sub-Account;
and
c. is the net result of 1.000 less the Valuation Period deduction for the
charges to the Sub-Account.
The Net Investment Factor may be more or less than one.
SECOND: The value of an Annuity Unit for a Valuation Date is equal to:
a. the value of the Annuity Unit on the immediately preceding Valuation
Date;
b. multiplied by the Net Investment Factor for the Valuation Period
ending on the current Valuation Date;
c. divided by the Assumed Net Investment Factor (see below) for the
Valuation Period.
The Assumed Net Investment Factor is equal to one plus the Assumed Investment
Return which is used in determining the basis for the purchase of an Annuity,
adjusted to reflect the particular Valuation Period. For example, with a 5%
Assumed Investment Return, the Assumed Net Investment Factor for a one-year
Valuation Period would be 1.05. For a one-day Valuation Period, the Assumed
Net Investment Factor would be 1.00013368062.
The Assumed Investment Return is the investment return upon which annuity
payments are based. Income will increase from one annuity Income Date to the
next if the annualized net rate of return during that time is greater than the
Assumed Investment Return and will decrease if the annualized net rate of
return is less than the Assumed Investment Return.
A Contract Owner may choose either a 5% or a 3% Assumed Investment Return. If
the Contract Owner does not choose one, the 5% Assumed Investment Return
automatically applies. Choosing the 5% Assumed Investment Return instead of
the 3% Assumed Investment Return will result in a higher initial amount of
income, but income will increase more slowly during periods of good investment
performance of the Trust and decrease more rapidly during periods of poor
investment performance.
The variable annuity benefits provided for under the Contract are based upon:
(a) the 1983(a) Blended Unisex Mortality Table with 50% female content,
projected to the year 2000 with Projection Scale G; (b) the Assumed Investment
Return, and (c) any applicable taxes.
DETERMINATION OF FIXED ANNUITY PAYMENTS
On the Annuity Calculation Date, a stream of annuity payments is purchased.
The amount of the fixed annuity payment will be the value in the Contract
allocated to the Fixed Account, divided by $1,000, then multiplied by the
appropriate factor for the Annuity Option selected.
THE CONTRACTS
OWNERSHIP
The Annuitant is the Contract Owner. The Contract Owner exercises all the
rights of the Contract, subject to the rights of (1) any assignee under an
assignment filed with the Company's VIP Service Center, and (2) any
irrevocably named Beneficiary.
Upon the death of the Contract Owner, the Joint Annuitant, if not already a
Joint Owner, will become the Contract Owner. On or after the Income Date, if
there is no Joint Annuitant or upon the death of the Joint Annuitant, the
Beneficiary(ies) become the Owner(s) of their respective shares.
If the Contract Owner dies before the Income Date and there is no Joint
Annuitant, the Contract will be treated as if it had never been issued and the
Company will return the Single Purchase Payment to the Contract Owner's
estate.
ASSIGNMENT
The Contract Owner may assign the Contract. A copy of any assignment must be
filed with the Company's VIP Service Center. The Company is not responsible
for the validity of any assignment. If the Contract is assigned, the Contract
Owner's rights and those of any revocably-named person will be subject to the
assignment. An assignment will not affect any payments the Company may make or
actions it may take before such assignment has been recorded at its VIP
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 by the
Contract Owner and are entitled to receive any death benefits to be paid.
CHANGE OF BENEFICIARY
The Contract Owner may change a Beneficiary or Contingent Beneficiary by
filing a written request with the Company at its VIP 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 VIP Service Center after the Contract Owner dies but
before any payment to a Beneficiary 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.
DEATH OF BENEFICIARY
Unless the Contract Owner provided otherwise, any amount payable after his/her
death and that of any Joint Annuitant will be payable:
(1) in respective shares to such Beneficiaries as are then living;
(2) if no Beneficiary is then living, payment will be made in respective
shares to such Contingent Beneficiaries as are then living;
(3) if no Beneficiary or Contingent Beneficiary is then living, payment
will be made to the Contract Owner's estate.
ANNUITANT
The Annuitant is the primary person upon whose continuation of life any
annuity payment involving life contingencies depends. The Contract Owner is
the Annuitant. A Joint Annuitant is a person other than the Annuitant on whose
life annuity payments may also be based. The Annuitant, and any Joint
Annuitant, must be a natural person.
PROCEEDS PAYABLE AT DEATH
If the Contract Owner dies before the Income Date and there is no Joint
Annuitant, the Contract will be treated as if it had never been issued and the
Company will return the Single Purchase Payment to the Contract Owner's
estate.
If the Contract Owner has chosen either Option 3, Option 4 or Option 6 with a
Joint Annuitant and either the Contract Owner or the Joint Annuitant dies
before the Income Date, the Annuity Option will be changed to Option 2 with
120 monthly payments guaranteed. If the life expectancy of the survivor is
less than 120 months, the period of guaranteed payments will be 60 months.
If the Contract Owner or Joint Annuitant die on or after the Income Date, the
death benefit, if any, will be payable under the selected Annuity Option. The
Company will require proof of death.
PURCHASE PAYMENTS AND CONTRACT VALUE
SINGLE PURCHASE PAYMENT
The Single Purchase Payment is paid to the Company at its VIP Service Center.
The minimum purchase payment the Company will accept is $35,000. Contract
Owners can acquire more than one Contract and the Single Purchase Payment for
each need not be $35,000 if the average purchase payment for each Contract is
$35,000 or more.
ALLOCATION OF SINGLE PURCHASE PAYMENT
The Single Purchase Payment is allocated to one or more of the Sub-Accounts of
the Variable Account on the Effective Date. Any portion of the Net Purchase
Payment selected to be allocated to the Fixed Account will temporarily be
allocated to the Money Market Sub-Account on the Effective Date and will be
allocated to the Fixed Account on the Annuity Calculation Date. The requested
allocation to each Sub-Account is made in percentages of the Single
Purchase Payment. Whole percentages must be used and each must be at least
10%. The Company has the right to allocate the Single Purchase Payment to the
Money Market Sub-Account until the expiration of the Free-Look Period.
Thereafter, the allocations will be made to one or more of the Sub-Accounts as
selected by the Contract Owner. The Company reserves the right to limit the
number of Sub-Accounts that a Contract Owner may invest in at any one time.
Currently, the Contract Owner may select up to ten Sub-Accounts.
When all forms required to issue the Contract are received and in good order,
the Company will apply the Single Purchase Payment to the Variable Account and
credit the Contract with VIP 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). The Company requires
proof, satisfactory to it, of the Age of the Annuitant and any Joint
Annuitant. The Company will not issue a Contract if either the Annuitant or
the Joint Annuitant are over Age 90. If the required forms for the Contract
are not in good order, the Company will attempt to get them in good order or
the Company will return the form(s) and the purchase payment within five
business days. The Company will not retain the Single Purchase Payment for
more than five business days while processing incomplete forms unless it has
been so authorized by the purchaser.
CONTRACT VALUE
The Purchase Payment is allocated among the various Sub-Accounts within the
Variable Account. For each Sub-Account, the Purchase Payment is converted into
VIP Units. The Contract Value on or before the Annuity Calculation Date is the
sum of the values for the Contract within each Sub-Account. The value within
each Sub-Account is determined by multiplying the number of VIP Units
attributable to the Contract in the Sub-Account by the VIP Unit value for the
Sub-Account. On the Annuity Calculation Date, the Contract Value is converted
to annuity payments. After the Annuity Calculation Date, there is no Contract
Value.
VIP UNIT
When the Purchase Payment is allocated to the Variable Account, the amount
allocated to each Sub-Account is converted to VIP Units. The number of VIP
Units credited to each Sub-Account is determined by dividing the portion of
the Purchase Payment that is allocated to the Sub-Account by the value of the
VIP Unit for the Sub-Account as of the Effective Date. The VIP Unit value for
each Sub-Account was arbitrarily set initially. The VIP Unit value for any
later Valuation Period on or before the Annuity Calculation Date 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 VIP 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 VIP Units outstanding at the end of such Valuation
Period.
The VIP Unit value may increase or decrease from Valuation Period to Valuation
Period.
TRANSFERS
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. No transfers may take place from the Fixed Account to the Variable
Account.
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.
All transfers are subject to the following:
a. no partial transfer will be made if it would result in any selected
Sub-Account or the Fixed Account providing less than 10% of the benefits
under the Contract.
b. 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. No transfers may occur until
the end of the Free-Look Period. (See "Highlights.")
c. any transfer direction must clearly specify the new allocation
percentage(s) and the Sub- Accounts and/or the Fixed Account which are to
be re-allocated.
d. at least one allocation to the Fixed Account is permitted. Both the
initial allocation to the Fixed Account and each transfer to the Fixed Account
will be treated as an allocation.
e. the Company reserves the right to limit the number of transfers among
Sub-Accounts to not fewer than 6 transfers per calendar year. The Company also
reserves the right at any time and without prior notice to any party to modify
the transfer provisions described above, subject to applicable state law and
regulation.
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.
DISTRIBUTOR
NALAC Financial Plans, LLC ("NFP"), 1750 Hennepin Avenue, Minneapolis,
Minnesota, acts as the distributor of the Contracts. NFP is an affiliate of
the Company. 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 and expense
reimbursements will be paid to broker-dealers who sell the Contracts.
Broker-dealers will be paid commissions at the time of purchase up to 4% of
the Single Purchase Payment.
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.
The Company reserves the right to postpone withdrawals from the Fixed Account
for a period up to six months.
ADMINISTRATION OF THE CONTRACTS
While the Company has primary responsibility for all administration of the
Contracts, it has retained the services of Templeton Funds Annuity Company
("TFAC" or "VIP 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 TFAC. TFAC
is an indirect wholly-owned subsidiary of Franklin Resources, Inc. which is
also the ultimate parent of all Managers to the Trust. TFAC will enter into a
reinsurance agreement with the Company with respect to certain risks under the
Contracts.
PERFORMANCE DATA
MONEY MARKET SUB-ACCOUNT
From time to time, the Company or NFP may advertise the "yield" and "effective
yield" of the Money Market Sub-Account. Both yield figures will be based on
historical earnings and are not intended to indicate future performance. The
"yield" of the Money Market Sub-Account refers to the income generated by
Contract Values in the Money Market Sub-Account over a seven-day period (which
period will be stated in the advertisement). This income is then "annualized."
That is, the amount of income generated by the investment during that week is
assumed to be generated each week over a 52-week period and is shown as a
percentage of the Contract Values in the Money Market Sub-Account. The
"effective yield" is calculated similarly but, when annualized, the income
earned by Contract Values in the Money Market Sub-Account is assumed to be
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment. The
computation of the yield calculation includes a deduction for the Mortality
and Expense Risk Charge and Administrative Expense 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 VIP
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 VIP Units acquired through a hypothetical $1,000 investment of the VIP
Unit value at the beginning of the specified period and the value of the
VIP Unit at the end of such period, assuming reinvestment of all distributions
and the deduction of the Mortality and Expense Risk Charge and the
Administrative Expense Charge. Each Sub-Account may also advertise
cumulative and total return information over different periods of time.
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 advertising 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 Internal Revenue Code of 1986, as amended (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 Annuity Option
elected.
For annuity payments, the portion of a payment includable in income equals the
excess of the payment over the exclusion amount. The exclusion amount for
payments based on a variable annuity option is determined by dividing the
investment in the Contract (adjusted for any period certain or refund
guarantee) by the number of years over which the annuity is expected to be
paid (determined by Treasury Regulations). 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 guarantee) bears to the expected return under the
Contract. Payments received after the investment in the Contract has been
recovered (i.e. the total of the excludable amounts equal the investment
in the Contract) are fully taxable. The taxable portion of an annuity
payment 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 the 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
Section 72(e)(11) of 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. The
legislative history of Section 72(e)(11) indicates that it was not intended to
apply to immediate annuities. However, the legislative history also states
that no inference is intended as to whether the Treasury Department, under its
authority to prescribe rules to enforce the tax laws, may treat the
combination purchase of a deferred annuity contract with an immediate annuity
contract as a single contract for purposes of determining the tax consequences
of any distribution.
TAX TREATMENT OF DISTRIBUTIONS - NON-QUALIFIED CONTRACTS
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the Contract Value exceeds the aggregate
purchase payments made, any amount withdrawn will be treated as coming first
from the earnings and then, only after the income portion is exhausted, as
coming from the principal. Withdrawn earnings are includable in gross income.
It further provides that a ten percent (10%) penalty will apply to the income
portion of any distribution. However, the penalty is not imposed on amounts
received: (a) after the taxpayer reaches age 59 1/2; (b) after the death of
the Contract Owner; (c) if the taxpayer is totally disabled (for this purpose
disability is as defined in Section 72(m)(7) of the Code); d) in a
series of substantially equal periodic payments made not less frequently than
annually for the life (or life expectancy) of the taxpayer and his
Beneficiary; (e) as an annuity payment under an immediate annuity; or (f)
which are allocable to purchase payments made prior to August 14, 1982.
The above information does not apply to Qualified Contracts. However, separate
tax withdrawal penalties and restrictions may apply to such Qualified
Contracts. (See "Tax Treatment of Distributions -IRA Contracts.")
The availability of total or partial withdrawals from an immediate annuity is
not expressly provided for in the Code or Treasury Regulations. The only tax
guidance currently available for such issue is a Private Letter Ruling holding
that the right to make withdrawals does not prevent a contract from qualifying
as an immediate annuity. However, the Private Letter Ruling does not address
the issue of whether the making of a withdrawal would adversely affect the
favorable tax treatment of annuity payments made before or after such partial
withdrawal because of the requirement that all immediate annuity payments must
be "substantially equal". The loss of favorable tax treatment would mean that
the income portion of each annuity payment received prior to the taxpayer's
attaining age 59 1/2 would be subject to a 10% penalty tax unless another
exception to the penalty tax applies. While the Company currently believes
that such withdrawals will not adversely affect the favorable tax treatment of
annuity payments received before or after a withdrawal and the Company intends
to perform its tax reporting functions accordingly, there can be no assurance
that the Internal Revenue Service will not take a contrary position. Contract
Owners should obtain competent tax advice prior to making a partial or total
withdrawal.
QUALIFIED PLANS
The Contracts offered by this Prospectus may also be used with a plan
qualified under Section 408(b) of the Code ("IRA Contracts"). Contract Owners,
Annuitants and Beneficiaries are cautioned that benefits under an IRA Contract
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. The following
discussion of IRA Contracts is not exhaustive and is for general informational
purposes only. The tax rules regarding IRA Contracts are very complex and will
have differing applications depending on individual facts and circumstances.
Each purchaser should obtain competent tax advice prior to purchasing IRA
Contracts.
IRA Contracts include special provisions restricting Contract provisions that
may otherwise be available as described in this Prospectus. Generally, IRA
Contracts are not transferable except upon surrender or annuitization.
Various penalty and excise taxes may apply to contributions or distributions
made in violation of applicable limitations. Furthermore, certain withdrawal
penalties and restrictions may apply to distributions from IRA Contracts. (See
"Tax Treatment of Distributions - IRA Contracts".)
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. IRA Contracts will utilize annuity tables which do
not differentiate on the basis of sex because of the use of the IRA Contracts
in a Simplified Employee Pension. Such annuity tables will also be available
for use in connection with certain non-qualified deferred compensation plans.
Under applicable limitations, certain amounts may be contributed to an IRA
Contract which will be deductible from the individual's gross income. These
IRAs are subject to limitations on eligibility, contributions, transferability
and distributions. (See "Tax Treatment of Distributions - IRA 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
Contract. Sales of Contracts for use as IRA Contracts 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.
TAX TREATMENT OF DISTRIBUTIONS - IRA CONTRACTS
In the case of a withdrawal under a Qualified Contract, a ratable portion of
the amount received is taxable, generally based on the ratio of the
individual's cost basis to the individual's total accrued benefit under the
retirement plan. Special tax rules may be available for certain distributions
from a Qualified Contract.
Section 72(t) of the Code imposes a 10% penalty tax on the taxable portion of
any distribution from qualified retirement plans, including IRA Contracts. To
the extent amounts are not includible in gross income because they have been
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
Annuitant reaches age 59 1/2; (b) distributions following the death or
disability of the Annuitant (for this purpose disability is as defined in
Section 72(m)(7) of the Code); (c) distributions that are part of a series of
substantially equal periodic payments made not less frequently than annually
for the life (or life expectancy) of the Annuitant or the joint lives (or
joint life expectancies) of the Annuitant and his or her designated
Beneficiary; (d) distributions made to the Annuitant to the extent such
distributions do not exceed the amount allowable as a deduction under Code
Section 213 to the Annuitant for amounts paid during the taxable year for
medical care; and (e) distributions from an IRA Contract for the purchase of
medical insurance (as described in Section 213 (d)(1)(D) of the Code) for the
Annuitant and his or her spouse and dependents if the Annuitant has received
unemployment compensation for at least 12 weeks. This exception will no
longer apply after the Annuitant has been re-employed for at least 60 days.
With respect to (c) above, if the series of substantially equal periodic
payments is modified before the later of the Annuitant attaining age 59 1/2 or
5 years from the date of the first annuity payment, then the tax for the year
of the modification is increased by an amount equal to the tax which would
have been imposed (the 10% penalty tax) but for the exception, plus interest
for the tax years in which the exception was used. A partial withdrawal may
result in the modification of the series of annuity payments made after such
withdrawal and therefore could result in the imposition of the 10% penalty
tax and interest for the period as described above. Competent tax advice
should be obtained prior to making any withdrawals from an IRA Contract. Any
amounts distributed will only be paid to the Annuitant, Joint Annuitant
or Beneficiary. The Company will not transfer or pay such amounts to another
IRA or tax qualified plan.
Generally, distributions from an IRA Contract must commence no later than
April 1 of the calendar year, following the year in which the employee attains
age 70 1/2. Generally, 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 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.
FINANCIAL STATEMENTS
Audited financial statements of the Company and audited financial
statements of the Variable Account as of and for the year ended December 31,
1996 are included in the Statement of Additional Information.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Variable Account or the
Distributor is a party or to which the assets of the Variable Account are
subject. The Company is not involved in any litigation that is of material
importance in relation to its total assets or that relates to the Variable
Account.
APPENDIX - ILLUSTRATION OF VALUES
The following tables have been prepared to show how investment performance
affects variable annuity income over time. The variable annuity income amounts
reflect three different assumptions for a constant investment return before
all expenses: 0%, 6% and 12%. These are hypothetical rates of return and, of
course, the Company does not guarantee that the Contract will earn these
returns for any one year or any sustained period of time. The tables are for
illustrative purposes only and do not represent past or future investment
returns.
The variable annuity income may be more or less than the income shown if the
actual returns of the Eligible Investments are different than those
illustrated. Since it is very likely that investment returns will fluctuate
over time, the amount of variable annuity income will also fluctuate. The
total amount of annuity income ultimately received will depend on cumulative
investment returns and how long the Annuitant lives and the option chosen.
Another factor which determines the amount of variable annuity income is the
Assumed Investment Return. Income will increase from one annuity Income Date
to the next if the annualized Net Rate of Return during that time is greater
than the Assumed Investment Return, and will decrease if the annualized Net
Rate of Return is less than the Assumed Investment Return.
Two illustrations follow. The first is based on a 3% Assumed Investment
Return, and the second is based on a 5% Assumed Investment Return.
The income amounts shown reflect the deduction of all fees and expenses.
Actual Trust fees and expenses will vary from year to year and from Fund to
Fund and may thus be higher or lower than the assumed rate. The illustrations
assume that each Fund of the Trust will incur expenses at an annual rate of
0.76% of the average daily net assets of the Fund. This is the average in
1996, weighted by Fund net assets as of 12/31/96. The Mortality and Expense
Risk Charge and Administrative Expense Charge are calculated, in the
aggregate, at an annual rate of 1.40% of the average daily net assets of the
Variable Account. After taking these expenses and charges into consideration,
the illustrated gross investment returns of 0%, 6% and 12% are approximately
equal to net rates of -2.17%, 3.70% and 9.57%, respectively.
VALUEMARK INCOME PLUS ILLUSTRATION
ANNUITANT: John Doe ANNUITY PURCHASE AMOUNT: $100,000
DATE OF BIRTH: 1/1/28 EFFECTIVE DATE: 12/1/97
ANNUITY INCOME OPTION: Single Life Annuity FIRST ANNUITY INCOME DATE: 1/1/98
PREMIUM TAX: 0% FREQUENCY OF ANNUITY INCOME: Monthly
ASSUMED INVESTMENT RETURN: 3%
The amount of monthly variable annuity income shown in the table below and the
graph that follows assumes a constant annual investment return. The amount of
variable annuity income that is actually received will depend on the
investment performance of the underlying Fund(s) selected. The variable
annuity income can go up or down and no minimum dollar amount of variable
annuity income is guaranteed. The amounts shown are based on a 3% Assumed
Investment Return. Income will remain constant at $625 per month when the
annualized net rate of return after expenses is 3%.
MONTHLY ANNUITY PAYMENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Annual rate of return before expenses: 0% 6% 12%
Annuity Income Date Age Annual rate of return after expenses: -2.17% 3.70% 9.57%
- ------------------- --- -------------------------------------- ------ ----- -------
January 1, 1998 70 $ 622 $ 625 $ 628
January 1, 1999 71 591 629 668
January 1, 2000 72 561 634 711
January 1, 2001 73 533 638 756
January 1, 2002 74 506 642 804
January 1, 2007 79 391 664 1,096
January 1, 2012 84 303 688 1,494
January 1, 2017 89 234 711 2,035
January 1, 2022 94 181 736 2,773
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY AND
SHOULD NOT BE DEEMED TO REPRESENT PAST OR FUTURE INVESTMENT PERFORMANCE.
ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS.
The following table summarizes Annuity Income with an Assumed Investment
Return of 3%. This table is presented graphically in the printed prospectus.
MONTHLY PAYMENT AMOUNT
<TABLE>
<CAPTION>
<S> <C> <C> <C>
-2.17% 3.70% 9.57%
Annual Rate Annual Rate Annual Rate
of Return of Return of Return
Year After Expenses After Expenses After Expenses
- ---- ---------------- ---------------- ----------------
1 $ 622 $ 625 $ 628
2 591 629 668
3 561 634 711
4 533 638 756
5 506 642 804
6 481 647 856
7 457 651 910
8 434 655 969
9 412 660 1,030
10 391 664 1,096
11 372 669 1,166
12 353 674 1,241
13 335 678 1,320
14 319 683 1,404
15 303 688 1,494
16 287 692 1,589
17 273 697 1,690
18 259 702 1,798
19 246 706 1,913
20 234 711 2,035
21 222 716 2,165
22 211 721 2,303
23 200 726 2,450
24 190 731 2,607
25 181 736 2,773
</TABLE>
VALUEMARK INCOME PLUS ILLUSTRATION
ANNUITANT: John Doe ANNUITY PURCHASE AMOUNT: $100,000
DATE OF BIRTH: 1/1/28 EFFECTIVE DATE: 12/1/97
ANNUITY INCOME OPTION: Single Life Annuity FIRST ANNUITY INCOME DATE: 1/1/98
PREMIUM TAX: 0% FREQUENCY OF ANNUITY INCOME: Monthly
ASSUMED INVESTMENT RETURN: 5%
The amount of monthly variable annuity income shown in the table below and the
graph that follows assumes a constant annual investment return. The amount of
variable annuity income that is actually received will depend on the
investment performance of the underlying Fund(s) selected. The variable
annuity income can go up or down and no minimum dollar amount of variable
annuity income is guaranteed. The amounts shown are based on a 5% Assumed
Investment Return. Income will remain constant at $742 per month when the
annual rate of return after expenses is 5%.
MONTHLY ANNUITY PAYMENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Annual rate of return before expenses: 0% 6% 12%
Annuity Income Date Age Annual rate of return after expenses: -2.17% 3.70% 9.57%
- ------------------- --- -------------------------------------- ------ ----- -------
January 1, 1998 70 $ 738 $ 741 $ 745
January 1, 1999 71 687 732 777
January 1, 2000 72 640 723 811
January 1, 2001 73 597 714 847
January 1, 2002 74 556 705 884
January 1, 2007 79 390 663 1,094
January 1, 2012 84 274 623 1,353
January 1, 2017 89 193 586 1,675
January 1, 2022 94 135 550 2,073
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY AND
SHOULD NOT BE DEEMED TO REPRESENT PAST OR FUTURE INVESTMENT PERFORMANCE.
ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS.
The following table summarizes Annuity Income with an Assumed Investment
Return of 5%. This table is presented graphically in the printed prospectus.
MONTHLY PAYMENT AMOUNT
<TABLE>
<CAPTION>
<S> <C> <C> <C>
-2.17% 3.70% 9.57%
Annual Rate Annual Rate Annual Rate
of Return of Return of Return
Year After Expenses After Expenses After Expenses
- ---- ---------------- ---------------- ----------------
1 $ 738 $ 741 $ 745
2 687 732 777
3 640 723 811
4 597 714 847
5 556 705 884
6 518 697 922
7 483 688 962
8 450 680 1,004
9 419 671 1,048
10 390 663 1,094
11 364 655 1,141
12 339 647 1,191
13 316 639 1,243
14 294 631 1,297
15 274 623 1,353
16 255 615 1,412
17 238 608 1,474
18 222 600 1,538
19 207 593 1,605
20 193 586 1,675
21 179 578 1,748
22 167 571 1,824
23 156 564 1,904
24 145 557 1,987
25 135 550 2,073
</TABLE>
TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
ITEM PAGE
Company ....................................................... 3
Experts ....................................................... 3
Legal Opinions ............................................... 3
Distributor ................................................... 3
Calculation of Performance Data ............................ 3
Total Return ............................................ 3
Yield .................................................... 4
Performance Ranking ..................................... 5
Performance Information ................................. 5
Annuity Income .......................................... 5
Annuity Provisions ........................................... 6
Variable Annuity Payout ................................ 6
Fixed Annuity Payout .................................. 6
Financial Statements ......................................... 7
PART B
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL IMMEDIATE
VARIABLE ANNUITY CONTRACTS
ISSUED BY
PREFERRED LIFE VARIABLE ACCOUNT C
AND
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
MAY __, 1997
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS FOR THE INDIVIDUAL IMMEDIATE 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. (800)
542-5427.
THIS STATEMENT OF ADDITIONAL INFORMATION AND THE PROSPECTUS ARE DATED
MAY __, 1997 AND AS MAY BE AMENDED FROM TIME TO TIME.
TABLE OF CONTENTS
CONTENTS PAGE
Company ....................................................... 3
Experts ....................................................... 3
Legal Opinions ............................................... 3
Distributor ................................................... 3
Calculation of Performance Data ............................ 3
Total Return ............................................ 3
Yield .................................................... 4
Performance Ranking ..................................... 5
Performance Information ................................. 5
Annuity Income .......................................... 5
Annuity Provisions ........................................... 6
Variable Annuity Payout ................................ 6
Fixed Annuity Payout ................................ 6
Financial Statements ......................................... 7
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+ (Superior, Group 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, an affiliate of the Company, 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 and personalized hypothetical
illustrations and Contract Owner communications. Such data will show the
percentage change in the value of a VIP Unit based on the performance of a
Sub-Account over a stated period of time, usually a calendar year, which is
determined by dividing the increase (or decrease) in value for that unit by
the VIP 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 and the operating expenses of the
underlying Funds.
The hypothetical value of a Contract purchased for the time periods described
in the advertisement will be determined by using the actual VIP Unit Values
for an initial $1,000 purchase payment. 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:
n
P(1+T) = 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 cumulative and total return information over
different periods of time. Cumulative total return is calculated in a similar
manner as described above except that the results are not annualized.
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, 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 VIP 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 VIP 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 and the Administrative
Expense Charge.
The effective yield reflects the effects of compounding and represents an
annualization of the current return with all dividends reinvested. (Effective
yield = [(Base Period Return + 1)365/7]-1.)
For the seven-day period ending on 12/31/96, the Money Market Sub-Account had
a current yield of 3.64% and an effective yield of 3.70%.
Other Sub-Accounts. The Company may also quote yield in sales literature,
advertisements, personalized hypothetical illustrations and Contract Owner
communications for the other Sub-Accounts. Each Sub-Account (other than the
Money Market Sub-Account) will publish standardized total return information
with any quotation of current yield.
The yield computation is determined by dividing the net investment income per
VIP Unit earned during the period (minus the deduction for the Mortality and
Expense Risk Charge and Administrative Expense Charge) by the VIP Unit Value
on the last day of the period and annualizing the resulting figure, according
to the following formula:
6
Yield = 2 [((a-b) + 1) - 1]
-----
cd
where:
a = net investment income earned during the period by the Fund
attributable to shares owned by the Sub-Account;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of VIP Units outstanding during the period;
d = the maximum offering price per VIP 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. 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 taxable
bond 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 Funds of Franklin Valuemark Funds have been in existence for some time
(except the Capital Growth, Templeton International Smaller Companies, Mutual
Shares Securities and Mutual Discovery Securities Funds) and have investment
performance history. In order to show how investment performance of the Funds
affects VIP Unit values, the following performance information was developed.
Performance of the Sub-Accounts reflects results achieved prior to the date
the Contracts first invested in the Sub-Accounts and the Funds.
The returns reflect the deduction of the Mortality and Expense Risk Charge,
Administrative Expense Charge and the operating expenses of each Fund. Past
performance does not guarantee future results.
<TABLE>
<CAPTION>
Standardized Total Return
Average Annual Total Return for the periods ended December 31, 1996:
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 12.59% 10.28% 8.77%
Income Securities...................................................... 1/24/89 9.72% 9.84% 10.25%
Money Market+.......................................................... 1/24/89 3.69% 2.61% 3.72%
Mutual Discovery Securities............................................ 11/8/96 NA NA NA
Mutual Shares Securities............................................... 11/8/96 NA NA NA
Real Estate Securities................................................. 1/24/89 30.96% 14.84% 11.46%
Rising Dividends....................................................... 1/27/92 22.44% NA 9.01%
Small Cap.............................................................. 11/1/95 27.26% NA 24.49%
Templeton Developing Markets Equity.................................... 3/15/94 19.89% NA 5.08%
Templeton Global Asset Allocation...................................... 5/1/95 18.16% NA 14.36%
Templeton Global Growth................................................ 3/15/94 19.58% NA 11.49%
Templeton International Equity......................................... 1/27/92 21.25% NA 10.11%
Templeton International Smaller Companies.............................. 5/1/96 NA NA NA
Templeton Pacific Growth............................................... 1/27/92 9.55% NA 8.47%
Utility Equity......................................................... 1/24/89 5.57% 6.86% 9.57%
<FN>
+Calculated with waiver of fees.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Non-Standardized Total Return
Total Return for the periods ended December 31, 1996:
Annual Total Return Cumulative Total Return
-------------------------------------- -----------------------------
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%
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%
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 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%
Utility Equity...................... 1/24/89 5.57% 6.05% 6.86% 9.57% 19.26% 39.35% 106.54%
<FN>
+Calculated with waiver of fees.
</FN>
</TABLE>
The Company may also present performance information computed on a different
basis.
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.
ANNUITY INCOME
Periodic annuity income amounts may be illustrated using the historical
performance of the Sub-Accounts, the Standard & Poor's 500 Composite Stock
Price Index or other recognized investment benchmark portfolios. All
illustrations will reflect the 1.25% annual Mortality and Expense Risk Charge
and the 0.15% Administrative Expense Charge and actual or assumed Fund
expenses.
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.
Annuity payments also depend upon the Age of the Annuitant and any Joint
Annuitant and the Assumed Net Investment Factor utilized. On the Annuity
Calculation 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. Unisex Annuity Tables are utilized by the Company. 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 Annuity Calculation 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. For each Sub-Account, the fixed number of Annuity Units is multiplied
by the Annuity Unit value on each subsequent annuity payment date. This result
is the dollar amount of the payment for each Sub-Account.
3. The total dollar amount of each Variable Annuity variable payout is
the sum of all Sub-Account Variable Annuity payments.
FIXED ANNUITY PAYOUT
Annuity payments from the Fixed Account will be equal payments unless otherwise
specified by the Annuity Option selected.
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>
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 Immediate Variable Annuity Contract*
4a. Joint Owners Endorsement*
4b. Period Certain and Partial Liquidation Endorsement*
5. Application for Individual Immediate Variable Annuity Contract*
6. (i) Copy of Articles of Incorporation of the Company*
(ii) Copy of the Bylaws of the Company (to be filed by
Amendment)
7. Not Applicable
8. Form of Fund Participation Agreement*
9. Opinion and Consent of Counsel
10. Independent Auditors' Consent
11. Not Applicable
12. Not Applicable
13. Calculation of Performance Information
14. Company Organizational Chart*
27. Financial Data Schedule - Not Applicable
* incorporated by reference to Registrant's initial Form N-4 filed
electronically on January 2, 1997.
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The following are the Officers and Directors of the Company:
<TABLE>
<CAPTION>
<S> <C>
Name and Principal Positions and Offices
Business Address with Depositor
- ------------------------------ ----------------------------------
Lowell C. Anderson Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Ronald L. Wobbeking Chairman, Chief Executive
1750 Hennepin Avenue and Director
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
Reinhard Obermueller Director
560 Lexington Avenue
New York, NY 10022
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 Marketing Officer
1750 Hennepin Avenue and Director
Minneapolis, MN 55403
Carol B. Shaw Second Vice President
152 W. 57th Street, 18th Floor
New York, NY 10019
Timothy J. Tongson Appointed Actuary
1750 Hennepin Avenue
Minneapolis, MN 55403
W. Michael Carroll Director
48 Comell Road
PO Box 867
Latham, NY 12110
Stephen R. Herbert Director
900 Third Avenue
New York, NY 10022
Jack F. Rockett Director
140 E. 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 was filed as Exhibit 14 in
Registrant's initial Form N-4 (File No. 333-19173) and is incorporated
herein by reference.
ITEM 27. NUMBER OF CONTRACT OWNERS
Not Applicable.
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>
<S> <C>
Name & Principal Positions and Offices
Business Address with Underwriter
- ---------------------- ----------------------
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.
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, as amended, the Registrant certifies that it has caused this
registration statement to be signed on its behalf in the City of Minneapolis
and State of Minnesota, on this 9th day of May, 1997.
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
____________________________________________
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 5-9-97
- ----------------------- -------
Lowell C. Anderson
Ronald L. Wobbeking* Chairman, Chief Executive 5-9-97
- ----------------------- -------
Ronald L. Wobbeking Officer and Director
Shannon Hendricks* Treasurer 5-9-97
- ----------------------- -------
Shannon Hendricks
Alan A. Grove* Secretary and Director 5-9-97
- ----------------------- -------
Alan A. Grove
Thomas G. Brown* Director 5-9-97
- ----------------------- -------
Thomas G. Brown
Edward J. Bonach* Director 5-9-97
- ----------------------- -------
Edward J. Bonach
Robert S. James* Director 5-9-97
- ----------------------- -------
Robert S. James
Thomas J. Lynch* Director 5-9-97
- ----------------------- -------
Thomas J. Lynch
Dennis Marion* Director 5-9-97
- ----------------------- -------
Dennis Marion
Eugene T. Wilkinson* Director 5-9-97
- ----------------------- -------
Eugene T. Wilkinson
Eugene Long* Director 5-9-97
- ----------------------- -------
Eugene Long
Reinhard W. Obermueller* Director 5-9-97
- ----------------------- -------
Reinhard W. Obermueller
Director
- ----------------------- -------
W. Michael Carroll
Director
- ----------------------- -------
Stephen R. Herbert
Director
- ----------------------- -------
Jack F. Rockett
</TABLE>
* By /S/ ALAN A. GROVE
____________________________________
Attorney-in-Fact
EXHIBITS
TO
PRE-EFFECTIVE AMENDMENT NO. 1
FORM N-4 (FILE NO. 333-19173)
PREFERRED LIFE VARIABLE ACCOUNT C
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
INDEX TO EXHIBITS
EXHIBIT PAGE
EX-99.B3 Principal Underwriters Agreement
EX-99.B9 Opinion and Consent of Counsel
EX-99.B10 Independent Auditors' Consent
EX-99.B13 Calculation of Performance Information
PRINCIPAL UNDERWRITER'S AGREEMENT
IT IS HEREBY AGREED by and between PREFERRED LIFE INSURANCE COMPANY OF NEW
YORK ("INSURANCE COMPANY") on behalf of PREFERRED LIFE VARIABLE ACCOUNT C (the
"Variable Account") and NALAC FINANCIAL PLANS, LLC ("PRINCIPAL UNDERWRITER" as
follows:
I
INSURANCE COMPANY proposes to issue and sell certain Variable Annuities (the
"Contracts") to the public through PRINCIPAL UNDERWRITER. The PRINCIPAL
UNDERWRITER agrees to provide sales service subject to the terms and
conditions hereof. The Contracts to be sold are more fully described in the
registration statement and the prospectuses hereinafter mentioned. Such
Contracts will be issued by INSURANCE COMPANY through the Variable Account.
II
INSURANCE COMPANY grants PRINCIPAL UNDERWRITER the exclusive right, during the
term of this Agreement, subject to registration requirements of the Securities
Act of 1933 and the Investment Company Act of 1940 and the provisions of the
Securities Exchange Act of 1934, to be the distributor of the contracts issued
through the Variable Account. PRINCIPAL UNDERWRITER will sell the Contracts
under such terms as set by INSURANCE COMPANY and will make such sales to
purchasers permitted to buy such Contracts as specified in the prospectus.
III
PRINCIPAL UNDERWRITER agrees that it shall undertake at its own expense, to
perform all duties and functions which are necessary and proper for the
distribution of the Contracts.
IV
PRINCIPAL UNDERWRITER shall be compensated for its distribution services with
respect to the Contracts covered hereby to the extent necessary for PRINCIPAL
UNDERWRITER to meet its obligations pursuant to selling agreements with
approved broker/dealers.
V
On behalf of the Variable Account, INSURANCE COMPANY shall furnish PRINCIPAL
UNDERWRITER with copies of all prospectuses, financial statements and other
documents which PRINCIPAL UNDERWRITER reasonably requests for use in
connection with the distribution of the Contracts. INSURANCE COMPANY shall
provide to PRINCIPAL UNDERWRITER such number of copies of the current
effective prospectus as PRINCIPAL UNDERWRITER shall request.
VI
PRINCIPAL UNDERWRITER is not authorized to give any information, or to make
any representations concerning the Contracts or the Variable Account of
INSURANCE COMPANY other than those contained in the current registration
statement or prospectus filed with the Securities and Exchange Commission or
such sales literature as may be authorized by INSURANCE COMPANY.
VII
Both parties to this Agreement agree to keep the necessary records as
indicated by applicable state and federal law and to render the necessary
assistance to one another for the accurate and timely preparation of such
records.
VIII
This Agreement shall be effective upon the execution hereof and will remain in
effect unless terminated as hereinafter provided. This Agreement shall
automatically be terminated in the event of its assignment by PRINCIPAL
UNDERWRITER.
This Agreement may at any time be terminated by either party hereto upon 60
days written notice to the other party.
IX
All notices, requests, demands and other communications under this Agreement
shall be in writing and shall be deemed to have been given on the date of
service if served personally on the party to whom notice is to be given,
or on the date of mailing if sent by First Class Mail, Registered or Certified,
postage prepaid and properly addressed.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
signed on their behalf by their respective officers thereunto duly
authorized.
INSURANCE COMPANY
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
By: /s/ THOMAS J. LYNCH
-----------------------
Thomas J. Lynch
ATTEST: /s/ ALAN A. GROVE
- -------------------------
Alan A. Grove
PRINCIPAL UNDERWRITER
NALAC FINANCIAL PLANS, LLC
By: /s/ THOMAS B. CLIFFORD
--------------------------
Thomas B. Clifford
ATTEST: /s/ MICHAEL T. WESTERMEYER
- ----------------------------------
Michael T. Westermeyer
Blazzard, Grodd & Hasenauer, P.C.
943 Post Road East
Westport, CT 06880
(203) 226-7866
May 13, 1997
Board of Directors
Preferred Life Insurance Company
of New York
152 West 57th Street, 18th Floor
New York, NY 10019
RE: Opinion of Counsel - Preferred Life Variable Account C
Gentlemen:
You have requested our Opinion of Counsel in connection with the filing with the
Securities and Exchange Commission of a Pre-Effective Amendment to a
Registration Statement on Form N-4 for the Individual Immediate Variable Annuity
Contracts (the "Contracts") to be issued by Preferred Life Insurance Company of
New York and its separate account, Preferred Life Variable Account C.
We have made such examination of the law and have examined such records and
documents as in our judgment are necessary or appropriate to enable us to render
the opinions expressed below.
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 an Owner pursuant to a
Contract issued in accordance with the Prospectus contained in the Registration
Statement and upon compliance with applicable law, such an Owner will have a
legally-issued, fully paid, non-assessable contractual interest under such
Contract.
You may use this opinion letter, or a copy thereof, 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 the 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".
/s/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
May 9, 1997
<TABLE>
<CAPTION>
FRANKLIN TEMPLETON VALUEMARK INCOME PLUS
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 Current Value 19.48959860 0.000 57.771 1,125.94
Cumulative and Average Annual Total Returns 12.59% A
INCOME SECURITIES
12-31-95 Purchase $1,000.00 $19.78534185 50.542 50.542 $1,000.00
12-31-96 Current Value 21.70827863 0.000 50.542 1,097.19
Cumulative and Average Annual Total Returns 9.72% A
MONEY MARKET
12-31-95 Purchase $1,000.00 $12.88349436 77.619 77.619 $1,000.00
12-31-96 Current Value 13.35923111 0.000 77.619 1,036.93
Cumulative and Average Annual Total Returns 3.69% A
REAL ESTATE SECURITIES
12-31-95 Purchase $1,000.00 $18.07282328 55.332 55.332 $1,000.00
12-31-96 Current Value 23.66770609 0.000 55.332 1,309.57
Cumulative and Average Annual Total Returns 30.96% A
RISING DIVIDENDS
12-31-95 Purchase $1,000.00 $12.49836348 80.010 80.010 $1,000.00
12-31-96 Current Value 15.30299222 0.000 80.010 1,224.40
Cumulative and Average Annual Total Returns 22.44% A
SMALL CAP
12-31-95 Purchase $1,000.00 $10.14638787 98.557 98.557 $1,000.00
12-31-96 Current Value 11.48724479 0.000 98.557 1,272.64
Cumulative and Average Annual Total Returns 27.26% A
TEMPLETON DEVELOPING MARKETS EQUITY
12-31-95 Purchase $1,000.00 $9.58170209 104.366 104.366 $1,000.00
12-31-96 Current Value 11.48724479 0.000 104.366 1,198.87
Cumulative and Average Annual Total Returns 19.89% A
TEMPLETON GLOBAL ASSET ALLOCATION
12-31-95 Purchase $1,000.00 $10.59122588 94.418 94.418 $1,000.00
12-31-96 Current Value 12.51416879 0.000 94.418 1,181.56
Cumulative and Average Annual Total Returns 18.16% A
TEMPLETON GLOBAL GROWTH
12-31-95 Purchase $1,000.00 $11.33894840 88.192 88.192 $1,000.00
12-31-96 Current Value 13.55953972 0.000 88.192 1,195.84
Cumulative and Average Annual Total Returns 19.58% A
TEMPLETON INTERNATIONAL EQUITY
12-31-95 Purchase $1,000.00 $13.26267921 75.400 75.400 $1,000.00
12-31-96 Current Value 16.08142393 0.000 75.400 1,212.53
Cumulative and Average Annual Total Returns 21.25% A
TEMPLETON PACIFIC GROWTH
12-31-95 Purchase $1,000.00 $13.63037545 73.366 73.366 $1,000.00
12-31-96 Current Value 14.93159316 0.000 73.366 1,095.46
Cumulative and Average Annual Total Returns 9.55% A
UTILITY EQUITY
12-31-95 Purchase $1,000.00 $19.56451758 51.113 51.113 $1,000.00
12-31-96 Current Value 20.65439774 0.000 51.113 1,055.71
Cumulative and Average Annual Total Returns 5.57% A
<FN>
A = (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 Current Value 13.21462941 0.000 73.116 966.20
12-31-95 Current Value 17.30965999 0.000 73.116 1,265.61
12-31-96 Current Value 19.48959860 0.000 73.116 1,425.00
Cumulative Total Return 42.50% A
Average Annual Total Return 12.53% B
INCOME SECURITIES
12-31-93 Purchase $1,000.00 $17.73437317 56.388 56.388 $1,000.00
12-31-94 Current Value 16.39171653 0.000 56.388 924.29
12-31-95 Current Value 19.78534185 0.000 56.388 1,115.65
12-31-96 Current Value 21.70827863 0.000 56.388 1,224.08
Cumulative Total Return 22.41% A
Average Annual Total Return 6.97% B
MONEY MARKET
12-31-93 Purchase $1,000.00 $12.06579747 82.879 82.879 $1,000.00
12-31-94 Current Value 12.35398427 0.000 82.879 1,023.88
12-31-95 Current Value 12.88349436 0.000 82.879 1,067.77
12-31-96 Current Value 13.35923111 0.000 82.879 1,107.20
Cumulative Total Return 10.72% A
Average Annual Total Return 3.45% B
REAL ESTATE SECURITIES
12-31-93 Purchase $1,000.00 $15.36898235 65.066 65.066 $1,000.00
12-31-94 Current Value 15.59407180 0.000 65.066 1,014.65
12-31-95 Current Value 18.07282328 0.000 65.066 1,175.93
12-31-96 Current Value 23.66770609 0.000 65.066 1,539.97
Cumulative Total Return 54.00% A
Average Annual Total Return 15.48% B
RISING DIVIDENDS
12-31-93 Purchase $1,000.00 $10.32720317 96.832 96.832 $1,000.00
12-31-94 Current Value 9.76873744 0.000 96.832 945.92
12-31-95 Current Value 12.49836348 0.000 96.832 1,210.24
12-31-96 Current Value 15.30299222 0.000 96.832 1,481.81
Cumulative Total Return 48.18% A
Average Annual Total Return 14.01% B
TEMPLETON INTERNATIONAL EQUITY
12-31-93 Purchase $1,000.00 $12.22565227 81.795 81.795 $1,000.00
12-31-94 Current Value 12.16131942 0.000 81.795 994.74
12-31-95 Current Value 13.26267921 0.000 81.795 1,084.82
12-31-96 Current Value 16.08142393 0.000 81.795 1,315.38
Cumulative Total Return 31.54% A
Average Annual Total Return 9.57% B
TEMPLETON PACIFIC GROWTH
12-31-93 Purchase $1,000.00 $14.23330574 70.258 70.258 $1,000.00
12-31-94 Current Value 12.80173310 0.000 70.258 899.42
12-31-95 Current Value 13.63037545 0.000 70.258 957.64
12-31-96 Current Value 14.93159316 0.000 70.258 1,049.06
Cumulative Total Return 4.91% A
Average Annual Total Return 1.61% B
UTILITY EQUITY
12-31-93 Purchase $1,000.00 $17.31879581 57.741 57.741 $1,000.00
12-31-94 Current Value 15.10395032 0.000 57.741 872.11
12-31-95 Current Value 19.56451758 0.000 57.741 1,129.67
12-31-96 Current Value 20.65439774 0.000 57.741 1,192.60
Cumulative Total Return 19.26% A
Average Annual Total Return 6.05% B
<FN>
A = (Accumulated Value as of December 31, 1996 - Accum. Value at Purch.)/Accum. Value at Purch.
B = [(A+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 Current Value 12.57361730 0.000 83.687 1,052.25
12-31-93 Current Value 13.67694811 0.000 83.687 1,144.58
12-31-94 Current Value 13.21462941 0.000 83.687 1,105.89
12-31-95 Current Value 17.30965999 0.000 83.687 1,448.59
12-31-96 Current Value 19.48959860 0.000 83.687 1,631.03
Cumulative Total Return 63.10% A
Average Annual Total Return 10.28% B
INCOME SECURITIES
12-31-91 Purchase $1,000.00 $13.58029545 73.636 73.636 $1,000.00
12-31-92 Current Value 15.16252410 0.000 73.636 1,116.51
12-31-93 Current Value 17.73437317 0.000 73.636 1,305.89
12-31-94 Current Value 16.39171653 0.000 73.636 1,207.02
12-31-95 Current Value 19.78534185 0.000 73.636 1,456.92
12-31-96 Current Value 21.70827863 0.000 73.636 1,598.51
Cumulative Total Return 59.85% A
Average Annual Total Return 9.84% B
MONEY MARKET
12-31-91 Purchase $1,000.00 $11.74177967 85.166 85.166 $1,000.00
12-31-92 Current Value 11.93209752 0.000 85.166 1,016.21
12-31-93 Current Value 12.06579747 0.000 85.166 1,027.60
12-31-94 Current Value 12.35398427 0.000 85.166 1,052.14
12-31-95 Current Value 12.88349436 0.000 85.166 1,097.24
12-31-96 Current Value 13.35923111 0.000 85.166 1,137.75
Cumulative Total Return 13.78% A
Average Annual Total Return 2.61% B
REAL ESTATE SECURITIES
12-31-91 Purchase $1,000.00 $11.84810701 84.402 84.402 $1,000.00
12-31-92 Current Value 13.09547341 0.000 84.402 1,105.28
12-31-93 Current Value 15.36898235 0.000 84.402 1,297.17
12-31-94 Current Value 15.59407180 0.000 84.402 1,316.17
12-31-95 Current Value 18.07282328 0.000 84.402 1,525.38
12-31-96 Current Value 23.66770609 0.000 84.402 1,997.59
Cumulative Total Return 99.76% A
Average Annual Total Return 14.84% B
UTILITY EQUITY
12-31-91 Purchase $1,000.00 $14.82143005 67.470 67.470 $1,000.00
12-31-92 Current Value 15.88865152 0.000 67.470 1,072.01
12-31-93 Current Value 17.31879581 0.000 67.470 1,168.50
12-31-94 Current Value 15.10395032 0.000 67.470 1,019.06
12-31-95 Current Value 19.56451758 0.000 67.470 1,320.02
12-31-96 Current Value 20.65439774 0.000 67.470 1,393.55
Cumulative Total Return 39.35% A
Average Annual Total Return 6.86% B
<FN>
A = (Accumulated Value as of December 31, 1996 - Accum. Value at Purch.)/Accum. Value at Purch.
B = [(A+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 Current Value 11.25417490 0.000 100.000 1,125.42
Cumulative Total Return 12.54% A
Average Annual Total Return NA B
GROWTH AND INCOME
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Current Value 9.60621064 0.000 100.000 960.62
1-24-91 Current Value 10.04911751 0.000 100.000 1,004.91
1-24-92 Current Value 12.19460473 0.000 100.000 1,219.46
1-24-93 Current Value 12.62194644 0.000 100.000 1,262.19
1-24-94 Current Value 14.16249217 0.000 100.000 1,416.25
1-24-95 Current Value 13.34952632 0.000 100.000 1,334.95
1-24-96 Current Value 17.36302808 0.000 100.000 1,736.30
12-31-96 Current Value 19.48959860 0.000 100.000 1,948.96
Cumulative Total Return 94.90% A
Average Annual Total Return 8.77% B
INCOME SECURITIES
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Current Value 10.71309911 0.000 100.000 1,071.31
1-24-91 Current Value 9.95244729 0.000 100.000 995.24
1-24-92 Current Value 14.03346495 0.000 100.000 1,403.35
1-24-93 Current Value 15.36060973 0.000 100.000 1,536.06
1-24-94 Current Value 17.72926867 0.000 100.000 1,772.93
1-24-95 Current Value 16.36456157 0.000 100.000 1,636.46
1-24-96 Current Value 20.20965612 0.000 100.000 2,020.97
12-31-96 Current Value 21.70827863 0.000 100.000 2,170.83
Cumulative Total Return 117.08% A
Average Annual Total Return 10.25% B
MONEY MARKET
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Current Value 10.67978818 0.000 100.000 1,067.98
1-24-91 Current Value 11.32877884 0.000 100.000 1,132.88
1-24-92 Current Value 11.75876120 0.000 100.000 1,175.88
1-24-93 Current Value 11.94119334 0.000 100.000 1,194.12
1-24-94 Current Value 12.07592840 0.000 100.000 1,207.59
1-24-95 Current Value 12.38828249 0.000 100.000 1,238.83
1-24-96 Current Value 12.92030455 0.000 100.000 1,292.03
12-31-96 Current Value 13.35923111 0.000 100.000 1,335.92
Cumulative Total Return 33.59% A
Average Annual Total Return 3.72% B
MUTUAL DISCOVERY SECURITIES
11-8-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-96 Current Value 10.18045638 0.000 100.000 1,018.05
Cumulative Total Return 1.80% A
Average Annual Total Return NA B
MUTUAL SHARES SECURITIES
11-8-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-96 Current Value 10.33016898 0.000 100.000 1,033.02
Cumulative Total Return 3.30% A
Average Annual Total Return NA B
REAL ESTATE SECURITIES
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Current Value 10.13988901 0.000 100.000 1,013.99
1-24-91 Current Value 9.37706788 0.000 100.000 937.71
1-24-92 Current Value 12.28427530 0.000 100.000 1,228.43
1-24-93 Current Value 13.54478625 0.000 100.000 1,354.48
1-24-94 Current Value 15.37525910 0.000 100.000 1,537.53
1-24-95 Current Value 15.00928122 0.000 100.000 1,500.93
1-24-96 Current Value 18.15857148 0.000 100.000 1,815.86
12-31-96 Current Value 23.66770609 0.000 100.000 2,366.77
Cumulative Total Return 136.68% A
Average Annual Total Return 11.46% B
RISING DIVIDENDS
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Current Value 10.69831588 0.000 100.000 1,069.83
1-27-94 Current Value 10.38483458 0.000 100.000 1,038.48
1-27-95 Current Value 9.97357882 0.000 100.000 997.36
1-27-96 Current Value 12.53425589 0.000 100.000 1,253.43
12-31-96 Current Value 15.30299222 0.000 100.000 1,530.30
Cumulative Total Return 53.03% A
Average Annual Total Return 9.01% B
SMALL CAP
11-1-95 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
11-1-96 Current Value 12.15810442 0.000 100.000 1,215.81
12-31-96 Current Value 12.91274591 0.000 100.000 1,291.27
Cumulative Total Return 29.13% A
Average Annual Total Return 24.49% B
TEMPLETON DEVELOPING MARKETS EQUITY
3-15-94 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-15-95 Current Value 8.62834892 0.000 100.000 862.83
3-15-96 Current Value 10.29583833 0.000 100.000 1,029.58
12-31-96 Current Value 11.48724479 0.000 100.000 1,148.72
Cumulative Total Return 14.87% A
Average Annual Total Return 5.08% B
TEMPLETON GLOBAL ASSET ALLOCATION
5-1-95 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-1-96 Current Value 11.25238520 0.000 100.000 1,125.24
12-31-96 Current Value 12.51416879 0.000 100.000 1,251.42
Cumulative Total Return 25.14% A
Average Annual Total Return 14.36% B
TEMPLETON GLOBAL GROWTH
3-15-94 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-15-95 Current Value 10.10361218 0.000 100.000 1,010.36
3-15-96 Current Value 11.81545835 0.000 100.000 1,181.55
12-31-96 Current Value 13.55953972 0.000 100.000 1,355.95
Cumulative Total Return 35.60% A
Average Annual Total Return 11.49% B
TEMPLETON INTERNATIONAL EQUITY
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Current Value 9.54360836 0.000 100.000 954.36
1-27-94 Current Value 12.87738433 0.000 100.000 1,287.74
1-27-95 Current Value 11.94433728 0.000 100.000 1,194.43
1-27-96 Current Value 13.57666972 0.000 100.000 1,357.67
12-31-96 Current Value 16.08142393 0.000 100.000 1,608.14
Cumulative Total Return 60.81% A
Average Annual Total Return 10.11% B
TEMPLETON INTERNATIONAL SMALLER COMPANIES
5-1-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-96 Current Value 11.14519961 0.000 100.000 1,114.52
Cumulative Total Return 11.45% A
Average Annual Total Return NA B
TEMPLETON PACIFIC GROWTH
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Current Value 9.92851087 0.000 100.000 992.85
1-27-94 Current Value 14.10178760 0.000 100.000 1,410.18
1-27-95 Current Value 11.94769270 0.000 100.000 1,194.77
1-27-96 Current Value 14.49670523 0.000 100.000 1,449.67
12-31-96 Current Value 14.93159316 0.000 100.000 1,493.16
Cumulative Total Return 49.32% A
Average Annual Total Return 8.47% B
UTILITY EQUITY
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Current Value 11.48396786 0.000 100.000 1,148.40
1-24-91 Current Value 11.97256112 0.000 100.000 1,197.26
1-24-92 Current Value 14.23979461 0.000 100.000 1,423.98
1-24-93 Current Value 15.97559846 0.000 100.000 1,597.56
1-24-94 Current Value 16.50535338 0.000 100.000 1,650.54
1-24-95 Current Value 15.57082971 0.000 100.000 1,557.08
1-24-96 Current Value 19.81799066 0.000 100.000 1,981.80
12-31-96 Current Value 20.65439774 0.000 100.000 2,065.44
Cumulative Total Return 106.54% A
Average Annual Total Return 9.57% B
<FN>
A = (Accumulated Value as of December 31, 1996 - Accum. Value at Purch.)/Accum. Value at Purch.
B = [(A+1)^(1/Years since Inception)]-1
</FN>
</TABLE>