File Nos. 33-26646
811-5716
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ( )
Pre-Effective Amendment No. ( )
Post-Effective Amendment No. 14 (X)
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 ( )
Amendment No. 24 (X)
(Check appropriate box or boxes.)
PREFERRED LIFE VARIABLE ACCOUNT C
---------------------------------
(Exact Name of Registrant)
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
--------------------------------------------
(Name of Depositor)
152 West 57th Street, 18th Floor, New York, New York 10019
---------------------------------------------------- ---------
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (212) 586-7733
Name and Address of Agent for Service
- -------------------------------------
Eugene Long
Preferred Life Insurance Company of New York
152 West 57th Street, 18th Floor
New York, New York 10019
Copies to:
Judith A. Hasenauer
Blazzard, Grodd & Hasenauer, P.C.
P.O. Box 5108
Westport, CT 06881
(203) 226-7866
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b) of Rule 485
_X_ on May 1, 1998 pursuant to paragraph (b) of Rule 485
___ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
___ on (date) pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following:
___ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Registered:
Individual Deferred Variable Annuity Contracts
CROSS REFERENCE SHEET
(Required by Rule 495)
<TABLE>
<CAPTION>
Item No. Location
<S> <C> <C>
PART A
Item 1. Cover Page............................. Cover Page
Item 2. Definitions............................ Definitions
Item 3. Synopsis or Highlights................. Highlights
Item 4. Condensed Financial Information........ Condensed Financial
Information
Item 5. General Description of Registrant,
Depositor, and Portfolio Companies..... The Company; The
Variable Account;
Franklin Valuemark Funds
Item 6. Deductions............................. Charges and Deductions
Item 7. General Description of Variable
Annuity Contracts...................... The Contracts
Item 8. Annuity Period......................... Annuity Provisions
Item 9. Death Benefit.......................... The Contracts; Annuity
Provisions
Item 10. Purchases and Contract Value........... Purchase Payments and
Contract Value
Item 11. Redemptions............................ Surrenders
Item 12. Taxes.................................. Federal Tax Status
Item 13. Legal Proceedings...................... Legal Proceedings
Item 14. Table of Contents of the Statement of
Additional Information................. Table of Contents of the
Statement of Additional
Information
</TABLE>
<TABLE>
<CAPTION>
Item No. Location
<S> <C> <C>
PART B
Item 15. Cover Page.............................. Cover Page
Item 16. Table of Contents....................... Table of Contents
Item 17. General Information and History......... The Company
Item 18. Services................................ Not Applicable
Item 19. Purchase of Securities Being Offered.... Not Applicable
Item 20. Underwriters............................ Distributor
Item 21. Calculation of Performance Data......... Calculation of
Performance Data
Item 22. Annuity Payments........................ Annuity Provisions
Item 23. Financial Statements.................... Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the appropriate
Item so numbered, in Part C to this Registration Statement.
PART A
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Home Office: Valuemark Service Center
152 West 57th Street, 18th Floor 300 Berwyn Park
New York, NY 10019 P.O. Box 3031
(800) 542-5427 Berwyn, PA 19312-0031
(800) 624-0197
INDIVIDUAL FLEXIBLE PAYMENT
VARIABLE ANNUITY CONTRACTS
issued by
PREFERRED LIFE VARIABLE ACCOUNT C
and
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
May 1, 1998
The Individual Flexible Payment Variable Annuity Contracts (the "Contracts")
described in this Prospectus provide for accumulation of Contract Values and
eventual payment of monthly annuity payments. The Contracts are designed to aid
individuals in long-term planning for retirement or other long-term purposes.
This is not appropriate as a trading vehicle.
The Contracts are available for retirement plans which do not qualify for the
special federal tax advantages available under the Internal Revenue Code
("Non-Qualified Plans") and for retirement plans which do qualify for the
federal tax advantages available under the Internal Revenue Code ("Qualified
Plans"). (See "Tax Status - Qualified Plans.") However, because of the minimum
purchase payment requirements, these Contracts may not be appropriate for some
periodic payment retirement plans.
Purchase payments for the Contracts will be allocated to a segregated investment
account of Preferred Life Insurance Company of New York (the "Company"), which
account has been designated Preferred Life Variable Account C (the "Variable
Account"). The Variable Account invests in shares of Franklin Valuemark Funds
(the "Trust"). The Trust is a series fund with twenty-five Portfolios: the
Capital Growth Fund, the Global Health Care Securities Fund, the Global
Utilities Securities Fund, the Growth and Income Fund, the High Income Fund, the
Income Securities Fund, the Money Market Fund, the Mutual Discovery Securities
Fund, the Mutual Shares Securities Fund, the Natural Resources Securities Fund,
the Real Estate Securities Fund, the Rising Dividends Fund, the Small Cap Fund,
the Templeton Developing Markets Equity Fund, the Templeton Global Asset
Allocation Fund, the Templeton Global Growth Fund, the Templeton Global Income
Securities Fund, the Templeton International Equity Fund, the Templeton
International Smaller Companies Fund, the Templeton Pacific Growth Fund, the
U.S. Government Securities Fund, the Value Securities Fund and the Zero Coupon
Funds - 2000, 2005, and 2010. Prior to May 1, 1998, the Global Utilities
Securities Fund was known as the Utility Equity Fund. THE GLOBAL HEALTH CARE
SECURITIES FUND AND THE VALUE SECURITIES FUND ARE NOT AVAILABLE IN NEW YORK
UNTIL APPROVED BY THE NEW YORK INSURANCE DEPARTMENT. (CHECK WITH YOUR REGISTERED
REPRESENTATIVE REGARDING AVAILABILITY.) See "Highlights" and "Federal Tax Status
- - Diversification" for a discussion of owner control of the underlying
investments in a variable annuity contract.
THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
ANY FINANCIAL INSTITUTION AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
INVESTMENT IN THE CONTRACTS IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF THE
CONTRACT OWNER'S INVESTMENT TO FLUCTUATE, AND WHEN THE CONTRACTS ARE
SURRENDERED, THE VALUE MAY BE HIGHER OR LOWER THAN THE PURCHASE PAYMENTS.
This Prospectus concisely sets forth the information a prospective investor
should know before investing. Additional information about the Contracts is
contained in the "Statement of Additional Information" (SAI), which is available
at no charge. The SAI has been filed with the Securities and Exchange Commission
and is incorporated herein by reference. The Table of Contents of the SAI can be
found on the last page of this Prospectus. The SEC maintains a Web site
(http://www.sec.gov) that contains the SAI, material incorporated by reference
and other information about registrants that file electronically with the SEC.
For a free copy of the SAI, call or write the Home Office address shown above.
INQUIRIES: Any inquiries can be made by telephone or in writing to the Company
at the Home Office phone number or address listed above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
STATE, COUNTRY, OR JURISDICTION IN WHICH THE OFFERING IS UNAUTHORIZED. NO SALES
REPRESENTATIVE, DEALER OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR
MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS.
THIS PROSPECTUS MUST BE ACCOMPANIED BY OR PRECEDED BY A CURRENT PROSPECTUS FOR
FRANKLIN VALUEMARK FUNDS.
This Prospectus and the Statement of Additional Information are dated May 1,
1998 and may be amended from time to time.
This Prospectus should be kept for future reference.
Contents Page
DEFINITIONS ..................................... 3
HIGHLIGHTS ...................................... 4
FEE TABLE. ...................................... 6
CONDENSED FINANCIAL
INFORMATION .................................... 10
THE COMPANY ..................................... 13
THE VARIABLE ACCOUNT ............................ 13
FRANKLIN VALUEMARK FUNDS ........................ 13
General ........................................ 14
Substitution of Securities ..................... 14
Voting Privileges .............................. 14
CHARGES AND DEDUCTIONS .......................... 15
Deduction for Contingent Deferred
Sales Charge (Sales Load) ..................... 15
Reduction or Elimination of
Contingent Deferred Sales Charge .............. 15
Deduction for Mortality and
Expense Risk Charge ...... ..................... 15
Deduction for Administrative
Expense Charge ................................ 16
Deduction for Contract
Maintenance Charge ............................ 16
Deduction for Premium Taxes .................... 16
Deduction for Income Taxes. .................... 16
Deduction for Trust Expenses ................... 17
Deduction for Transfer Fee ..................... 17
THE CONTRACTS ................................... 17
Ownership ...................................... 17
Assignment ..................................... 17
Beneficiary .................................... 17
Change of Beneficiary .......................... 17
Annuitant ...................................... 18
Death of the Contract Owner
Before the Income Date ........................ 18
Death of the Annuitant
Prior to the Income Date ...................... 19
Death of the Annuitant
After the Income Date ......................... 19
ANNUITY PROVISIONS .............................. 19
Income Date .................................... 19
Change in Income Date
and Annuity Option ............................ 19
Annuity Options ................................ 19
Fixed Options .................................. 19
Variable Options ............................... 20
PURCHASE PAYMENTS
AND CONTRACT VALUE ............................. 20
Purchase Payments .............................. 20
Automatic Investment Plan ...................... 20
Allocation of Purchase Payments ................ 21
Transfer of Contract Values .................... 21
Dollar Cost Averaging .......................... 22
Contract Value ................................. 23
Accumulation Unit .............................. 23
DISTRIBUTOR ..................................... 23
SURRENDERS ...................................... 24
Systematic Withdrawal .......................... 24
Delay of Payments .............................. 24
ADMINISTRATION OF
THE CONTRACTS .................................. 25
PERFORMANCE DATA ................................ 25
Money Market Sub-Account ....................... 25
Other Contract Sub-Accounts .................... 25
Performance Ranking ............................ 25
FEDERAL TAX STATUS .............................. 26
General ........................................ 26
Diversification ................................ 26
Multiple Contracts ............................. 27
Contracts Owned by
Other than Natural Persons .................... 27
Tax Treatment of Assignments ................... 27
Income Tax Withholding ......................... 28
Tax Treatment of Surrenders -
Non-Qualified Contracts ....................... 28
Qualified Plans ................................ 28
Tax Treatment of Surrenders -
Qualified Contracts ........................... 30
Tax-Sheltered Annuities -
Surrender Limitations ......................... 31
FINANCIAL STATEMENTS ............................ 31
LEGAL PROCEEDINGS ............................... 31
TABLE OF CONTENTS
OF THE STATEMENT OF
ADDITIONAL INFORMATION ......................... 31
Definitions
- --------------------------------------------------------------------------------
Accumulation Unit - An accounting unit of measure used to calculate the Contract
Value prior to the Income Date.
Annuitant - The person upon whose continuation of life any annuity payment
involving life contingencies depends. The Annuitant may be changed at any time
prior to the Income Date unless the Contract Owner is not a natural person.
Annuity Option - An arrangement under which annuity payments are made under the
Contract.
Annuity Period - The period starting on the Income Date.
Annuity Unit - An accounting unit of measure used to calculate annuity payments
after the Income Date.
Company - Preferred Life Insurance Company of New York at its Valuemark Service
Center shown on the cover page of this Prospectus.
Contingent Owner - In those Contracts containing Contingent Owner provisions,
the Contingent Owner is named in the application, unless changed. Only the
spouse of the Owner may be the Contingent Owner.
Contract Anniversary - An anniversary of the Effective Date of the Contract.
Contract Owner - The Contract Owner is named in the application, unless changed,
and has all rights under the Contract.
Contract Sub-Account (referred to in the Contract as "Sub-Account") - A segment
of the Variable Account. Each Contract Sub-Account is invested in shares of a
Portfolio of an Eligible Investment .
Contract Value - The dollar value as of any Valuation Date of all amounts
accumulated under the Contract.
Contract Year - Any period of twelve (12) months commencing with the Effective
Date and each Contract Anniversary thereafter.
Effective Date - The date on which the first Contract Year begins.
Eligible Investment(s) - An investment entity which can be selected by the
Contract Owner to be the underlying investment of the Contract.
Income Date - The date on which annuity payments are to commence.
Joint Owner - In Contracts containing Joint Owner provisions, if there is more
than one Contract Owner, each Contract Owner shall be a Joint Owner of the
Contract. Joint Owners have equal ownership rights and must both authorize any
exercising of those ownership rights unless otherwise allowed by the Company. If
there are Joint Owners, any reference to the age of the Contract Owner (or
taxpayer) will be the age of the older Joint Owner.
Non-Qualified Contracts - Contracts issued under Non-Qualified Plans which do
not receive favorable tax treatment under Sections 401, 403(b) or 408 of the
Internal Revenue Code of 1986, as amended (the "Code").
Portfolio (referred to in the Contract as "Fund") - A segment of an Eligible
Investment which constitutes a separate and distinct class of interests under an
Eligible Investment .
Qualified Contracts - Contracts issued under Qualified Plans which receive
favorable tax treatment under Sections 401, 403(b) or 408 of the Code.
Surrender Value - The Contract Value for the Valuation Period next following the
Valuation Period during which the written request to the Company for surrender
is received, reduced by the sum of: (i) any applicable premium taxes not
previously deducted; (ii) any applicable Contract Maintenance Charge; and (iii)
any applicable Contingent Deferred Sales Charge.
Valuation Date - The Variable Account will be valued each day that the New York
Stock Exchange is open for trading which is Monday through Friday, except for
normal business holidays.
Valuation Period - The period commencing at the close of business of the New
York Stock Exchange on each Valuation Date and ending at the close of business
for the next succeeding Valuation Date.
Variable Account - A separate investment account of the Company, designated as
Preferred Life Variable Account C, into which purchase payments may be
allocated.
Highlights
- --------------------------------------------------------------------------------
Purchase payments for the Contracts will be allocated to a segregated investment
account of Preferred Life Insurance Company of New York (the "Company") which
has been designated Preferred Life Variable Account C (the "Variable Account").
The Variable Account invests in shares of Franklin Valuemark Funds (the
"Trust"). (See "Franklin Valuemark Funds.") CONTRACT OWNERS BEAR THE INVESTMENT
RISK FOR ALL AMOUNTS ALLOCATED TO THE VARIABLE ACCOUNT.
The Contract may be returned within 10 days after it is received ("Free-Look
Period"). It can be mailed or delivered to either the Company or the agent who
sold it. Return of the Contract by mail is effective on being postmarked,
properly addressed and postage prepaid. The returned Contract will be treated as
if the Company never had issued it. The Company will promptly refund the
Contract Value as of the date of surrender. This may be more or less than the
purchase payments. Where the Contract is issued pursuant to an Individual
Retirement Annuity, the Company will promptly refund the purchase payments, less
surrenders. The Company has the right to allocate initial purchase payments to
the Money Market Sub-Account until the expiration of 15 days from the date the
Contract is mailed from the Valuemark Service Center. If the Company does so
allocate initial purchase payments to the Money Market Sub-Account, it will
refund the greater of the purchase payments, less any surrenders, or the
Contract Value. It is the Company's current practice to directly allocate the
initial purchase payment to the Contract Sub-Accounts as selected by the
Contract Owner.
A Contingent Deferred Sales Charge (sales load) may be deducted in the event of
a surrender. The Contingent Deferred Sales Charge is imposed on surrenders of
purchase payments within five (5) years after their being made. Once each
Contract Year, Contract Owners may surrender up to fifteen percent (15%) of
purchase payments paid less any prior surrenders without incurring a Contingent
Deferred Sales Charge. If no surrender is made during a Contract Year, the 15%
is cumulative into future years. If less than 15% is surrendered in a Contract
Year, the remaining percentage is not available in future years. The Contingent
Deferred Sales Charge will vary in amount depending upon the Contract Year in
which the purchase payment being surrendered was made. The Company currently
makes available a systematic withdrawal plan which allows for additional options
in some instances. (See "Surrenders - Systematic Withdrawal.") The Contingent
Deferred Sales Charge is found in the Fee Table. (See also "Charges and
Deductions - Deduction for Contingent Deferred Sales Charge (Sales Load).") The
maximum Contingent Deferred Sales Charge is 5% of purchase payments. For
purposes of determining the applicability of the Contingent Deferred Sales
Charge, surrenders are deemed to be on a first-in, first-out basis.
There is a Mortality and Expense Risk Charge which is equal, on an annual basis,
to 1.25% of the average daily net assets of the Variable Account. This charge
compensates the Company for assuming the mortality and expense risks under the
Contracts. (See "Charges and Deductions - Deduction for Mortality and Expense
Risk Charge.")
There is an Administrative Expense Charge which is equal, on an annual basis, to
0.15% of the average daily net assets of the Variable Account. This charge
compensates the Company for costs associated with the administration of the
Contracts and the Variable Account. (See "Charges and Deductions - Deduction for
Administrative Expense Charge.")
There is an annual Contract Maintenance Charge of $30 each Contract Year. (See
"Charges and Deductions - Deduction for Contract Maintenance Charge.")
Premium taxes or other taxes payable to a state or other governmental entity
will be charged against the Contract Values. (See "Charges and Deductions -
Deduction for Premium Taxes.") Currently, the state of New York does not impose
a premium tax on variable annuities.
Under certain circumstances there may be assessed a transfer fee when a Contract
Owner transfers Contract Values. (See "Charges and Deductions - Deduction for
Transfer Fee.")
There is a ten percent (10%) federal income tax penalty that may be applied to
the income portion of any distribution from the Contracts. However, the penalty
is not imposed under certain circumstances. (See "Federal Tax Status - Tax
Treatment of Surrenders - Non-Qualified Contracts" and "Tax Treatment of
Surrenders - Qualified Contracts.") For a further discussion of the taxation of
the Contracts, see "Federal Tax Status."
For Contracts purchased in connection with 403 (b) plans, surrenders of amounts
attributable to contributions made pursuant to a salary reduction agreement (as
defined in Section 403(b)(11) of the Code) are limited to circumstances only
when the Contract Owner: (1) attains age 591/2; (2) separates from service; (3)
dies; (4) becomes disabled (within the meaning of Section 72(m)(7) of the Code);
or (5) in the case of hardship. However, surrenders for hardship are restricted
to the portion of the Contract Owner's Contract Value which represents
contributions made by the Contract Owner and does not include any investment
results. The limitations on surrenders became effective on January 1, 1989 and
only apply to (i) salary reduction contributions made after December 31, 1988;
(ii) to income attributable to such contributions; and (iii) to income
attributable to amounts held as of December 31, 1988. The limitations on
surrenders do not affect rollovers or transfers between certain Qualified Plans.
Contract Owners should consult their own tax counsel or other tax adviser
regarding distributions. (See "Federal Tax Status - Tax Sheltered Annuities -
Surrender Limitations.")
The Treasury Department has indicated that guidelines may be forthcoming under
which a variable annuity contract will not be treated as an annuity contract for
tax purposes if the owner of the contract has excessive control over the
investment underlying the contract. The issuance of such guidelines may require
the Company to impose limitations on a Contract Owner's right to control the
investment. It is not known whether any such guidelines would have a retroactive
effect. (See "Federal Tax Status - Diversification.")
The Company may offer other deferred variable annuity contracts but does not
permit exchange of those contracts for the Contracts offered by this Prospectus.
Preferred Life Variable Account C Fee Table
Contract Owner Transaction Fees
Contingent Deferred Sales Charge*
(as a percentage of purchase payments)
<TABLE>
<CAPTION>
Years Since
Payment Charge
-----------------------
<S> <C>
0-1 5%
1-2 5%
2-3 4%
3-4 3%
4-5 1.5%
5+ 0%
</TABLE>
Current Transfer Fee** First 12 transfers in a Contract Year prior to the Income
Date are free. Thereafter, the fee is $25 (or 2% of the amount transferred, if
less). Prescheduled automatic dollar cost averaging transfers are not counted.
Contract Maintenance Charge $30 per Contract per year
(Prior to the Income Date the charge is waived for Contracts having Contract
Values or purchase payments less surrenders of $100,000 or more. Currently, the
charge is also waived during the Annuity Period if the Contract Valueat the time
of annuitization is at least $100,000.)
Variable Account Annual Expenses
(as a percentage of average account value)
Mortality and Expense Risk Charge 1.25%
Administrative Expense Charge .15%
-------
Total Variable Account Annual Expenses 1.40%
*Once each Contract Year, a Contract Owner may surrender up to fifteen percent
(15%) of purchase payments paid less any prior surrenders without incurring a
Contingent Deferred Sales Charge. If no surrender is made during a Contract
Year, the 15% is cumulative into future years. If less than 15% is surrendered
in a Contract Year, the remaining percentage is not available in future years.
See also "Surrenders - Systematic Withdrawal" for additional options. **The
Contract provides that if more than three transfers have been made in a Contract
Year, the Company reserves the right to deduct a transfer fee which shall not
exceed the lesser of $25 or 2% of the amount transferred.
<PAGE>
<TABLE>
<CAPTION>
Franklin Valuemark Funds' Annual Expenses
(as a percentage of Franklin Valuemark Funds' average net assets).
The Management and Portfolio Administration Fees for each Portfolio are based on a percentage of that Portfolio's net assets. See
"Charges and Deductions" in this Prospectus and "Management" in the Trust prospectus.
The Management and Portfolio Administration Fees below include investment advisory and other management and administrative fees
not included as "Other Expenses" that were paid to the Managers and Portfolio Administrators to the Trust for the 1997 calendar
year except for Portfolios with fee waivers or newer Portfolios without a full year of operations as of December 31, 1997 (see
explanatory footnotes below). The purpose of the Table is to assist the Contract Owner in understanding the costs of investing,
directly or indirectly, in the Contract. Management and Portfolio Other Total Annual Administration Fees1 Expenses Expenses
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital Growth Fund .75% .02% .77%
Global Health Care Securities Fund2 .75% .11% .86%
Global Utilities Securities Fund3 .47% .03% .50%
Growth and Income Fund .47% .02% .49%
High Income Fund .50% .03% .53%
Income Securities Fund .47% .03% .50%
Money Market Fund4 .51% .02% .53%
Mutual Discovery Securities Fund .80% .26% 1.06%
Mutual Shares Securities Fund .60% .20% .80%
Natural Resources Securities Fund .62% .07% .69%
Real Estate Securities Fund .51% .03% .54%
Rising Dividends Fund .72% .02% .74%
Small Cap Fund .75% .02% .77%
Templeton Developing Markets Equity Fund 1.25% .17% 1.42%
Templeton Global Asset Allocation Fund .65% .29% .94%
Templeton Global Growth Fund .83% .05% .88%
Templeton Global Income Securities Fund .56% .06% .62%
Templeton International Equity Fund .80% .09% .89%
Templeton International Smaller Companies Fund .85% .21% 1.06%
Templeton Pacific Growth Fund .92% .11% 1.03%
U.S. Government Securities Fund .48% .02% .50%
Value Securities Fund2 .75% .06% .81%
Zero Coupon Fund - 20005 .37% .03% .40%
Zero Coupon Fund - 20055 .37% .03% .40%
Zero Coupon Fund - 20105 .37% .03% .40%
<FN>
1The Portfolio Administration Fee is a direct expense for the Global Health Care Securities Fund, the Mutual Discovery Securities
Fund, the Mutual Shares Securities Fund, the Templeton Global Asset Allocation Fund, the Templeton International Smaller Companies
Fund, and the Value Securities Fund; other Portfolios pay for similar services indirectly through the Management Fee. See the
Franklin Valuemark Funds prospectus for further information regarding these fees.
2The Global Health Care Securities Fund and the Value Securities Fund commenced operations May 1, 1998. The expenses shown above
for these Portfolios are therefore estimated for 1998.
3Prior to May 1, 1998, the Global Utilities Securities Fund was known as the Utility Equity Fund.
4Franklin Advisers, Inc. agreed in advance to waive a portion of its Management Fee and to pay certain expenses of the Money
Market Fund during 1997. It is currently continuing this arrangement in 1998. This arrangement may be terminated at any time. With
this reduction, the Portfolio's actual total annual expenses for 1997 were .45%, of the average daily net assets of the Portfolio.
5 Although not obligated to, Franklin Advisers, Inc. has agreed to waive a portion of its Management Fees and to pay certain
expenses of the three Zero Coupon Funds through at least December 31, 1998 so that the total expenses of each Zero Coupon Fund
will not exceed 0.40% of each Portfolio's net assets. Absent the management fee waivers, for the year ended December 31, 1997, the
Total Annual Expenses and Management and Portfolio Administration Fees, would have been as follows: Zero Coupon Fund - 2000, .63%
and .60%; Zero Coupon Fund - 2005, .65% and .62%; and Zero Coupon Fund - 2010, .65% and .62%. There were no expense reimbursements
during 1997 for the Zero Coupon Funds.
</FN>
</TABLE>
The following Examples reflect the 1997 expenses of the Variable Account as well
as of the Trust. The dollar figures should not be considered a representation of
past or future expenses. Actual expenses may be greater or less than those
shown. The $30 Contract Maintenance Charge is included in the Examples as a
prorated charge of $1 based on a Contract size of $30,000. For additional
information, see "Charges and Deductions" in this Prospectus and "Management" in
the Trust Prospectus.
Premium taxes are not reflected in the Examples. Premium taxes may apply.
Examples
<TABLE>
<CAPTION>
If the Contract is fully surrendered at the end of the applicable time period and no prior surrenders have occurred, the Contract
Owner would have incurred the following expenses on a $1,000 investment, assuming a 5% annual return on assets compounded
annually:
1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Growth Fund $66 $ 93 $125 $260
Global Health Care Securities Fund* $66 $ 96 $130 $270
Global Utilities Securities Fund $63 $ 85 $111 $232
Growth and Income Fund $63 $ 84 $111 $231
High Income Fund $63 $ 86 $113 $235
Income Securities Fund $63 $ 85 $111 $232
Money Market Fund $63 $ 86 $113 $235
Mutual Discovery Securities Fund $68 $102 $140 $290
Mutual Shares Securities Fund $66 $ 94 $127 $263
Natural Resources Securities Fund $65 $ 90 $121 $252
Real Estate Securities Fund $63 $ 86 $113 $236
Rising Dividends Fund $65 $ 92 $124 $257
Small Cap Fund $66 $ 93 $125 $260
Templeton Developing Markets Equity Fund $72 $112 $158 $325
Templeton Global Asset Allocation Fund $67 $ 98 $134 $278
Templeton Global Growth Fund $67 $ 96 $131 $272
Templeton Global Income Securities Fund $64 $ 88 $118 $245
Templeton International Equity Fund $67 $ 97 $131 $273
Templeton International Smaller Companies Fund $68 $102 $140 $290
Templeton Pacific Growth Fund $68 $101 $138 $287
U.S. Government Securities Fund $63 $ 85 $111 $232
Value Securities Fund* $66 $ 94 $127 $264
Zero Coupon Fund - 2000+ $62 $ 82 $106 $222
Zero Coupon Fund - 2005+ $62 $ 82 $106 $222
Zero Coupon Fund - 2010+ $62 $ 82 $106 $222
<FN>
*Estimated
+Calculated with waiver of fees
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
If the Contract is not surrendered at the end of the applicable time period and no prior surrenders have occurred or is
annuitized, the Contract Owner would have incurred the following expenses on a $1,000 investment, assuming a 5% annual return on
assets compounded annually:
1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Growth Fund $23 $71 $121 $260
Global Health Care Securities Fund* $24 $74 $126 $270
Global Utilities Securities Fund $20 $63 $108 $232
Growth and Income Fund $20 $62 $107 $231
High Income Fund $21 $64 $109 $235
Income Securities Fund $20 $63 $108 $232
Money Market Fund $21 $64 $109 $235
Mutual Discovery Securities Fund $26 $80 $136 $290
Mutual Shares Securities Fund $23 $72 $123 $263
Natural Resources Securities Fund $22 $68 $117 $252
Real Estate Securities Fund $21 $64 $110 $236
Rising Dividends Fund $23 $70 $120 $257
Small Cap Fund $23 $71 $121 $260
Templeton Developing Markets Equity Fund $30 $90 $154 $325
Templeton Global Asset Allocation Fund $25 $76 $130 $278
Templeton Global Growth Fund $24 $74 $127 $272
Templeton Global Income Securities Fund $22 $66 $114 $245
Templeton International Equity Fund $24 $75 $128 $273
Templeton International Smaller Companies Fund $26 $80 $136 $290
Templeton Pacific Growth Fund $26 $79 $135 $287
U.S. Government Securities Fund $20 $63 $108 $232
Value Securities Fund* $23 $72 $123 $264
Zero Coupon Fund - 2000+ $19 $60 $102 $222
Zero Coupon Fund - 2005+ $19 $60 $102 $222
Zero Coupon Fund - 2010+ $19 $60 $102 $222
<FN>
*Estimated
+Calculated with waiver of fees
</FN>
</TABLE>
<PAGE>
Condensed Financial Information
<TABLE>
<CAPTION>
The financial statements of Preferred Life Insurance Company of New York and of Preferred Life Variable Account C may be found in
the Statement of Additional Information.
The table below gives per accumulation unit information about the financial history of each Contract Sub-Account from the
inception of each to December 31, 1997.+
This information should be read in conjunction with the financial statements and related notes to the Variable Account included in
the Statement of Additional Information.
(Number of units in thousands) Global Global Growth Mutual
Capital Health CareUtilities and High Income Money Discovery
Contract Sub-Accounts: Growth Securities+Securities*Income Income Securities Market Securities
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended Dec. 31, 1997
Unit value at
beginning of period $11.254 NA $20.654 $19.490 $19.375 $21.708 $13.359 $10.180
Unit value at end of period $13.130 NA $25.818 $24.551 $21.312 $25.065 $13.865 $11.983
Number of units outstanding
at end of period 622 NA 3,699 4,952 2,110 3,991 2,155 924
Year Ended Dec. 31, 1996
Unit value at
beginning of period $10.214**NA $19.565 $17.310 $17.252 $19.785 $12.883 $10.122**
Unit value at end of period $11.254 NA $20.654 $19.490 $19.375 $21.708 $13.359 $10.180
Number of units outstanding
at end of period 225 NA 4,998 5,070 2,164 4,519 2,433 27
Year Ended Dec. 31, 1995
Unit value at
beginning of period NA NA $15.104 $13.215 $14.608 $16.392 $12.354 NA
Unit value at end of period NA NA $19.565 $17.310 $17.252 $19.785 $12.883 NA
Number of units outstanding
at end of period NA NA 5,916 4,346 2,075 4,567 2,218 NA
Year Ended Dec. 31, 1994
Unit value at
beginning of period NA NA $17.319 $13.677 $15.155 $17.734 $12.066 NA
Unit value at end of period NA NA $15.104 $13.215 $14.608 $16.392 $12.354 NA
Number of units outstanding
at end of period NA NA 6,317 3,452 1,710 4,416 2,487 NA
Year Ended Dec. 31, 1993
Unit value at
beginning of period NA NA $15.889 $12.574 $13.278 $15.163 $11.932 NA
Unit value at end of period NA NA $17.319 $13.677 $15.155 $17.734 $12.066 NA
Number of units outstanding at
end of period NA NA 7,479 2,402 1,135 2,634 627 NA
Year Ended Dec. 31, 1992
Unit value at
beginning of period NA NA $14.821 $11.949 $11.583 $13.580 $11.742 NA
Unit value at end of period NA NA $15.889 $12.574 $13.278 $15.163 $11.932 NA
Number of units outstanding at
end of period NA NA 2,519 1,227 266 668 301 NA
Period from Inception**
to Dec. 31, 1991 NA NA $13.234 $11.061 $11.043 $12.811 $11.623 NA
Unit value at end of period NA NA $14.821 $11.949 $11.583 $13.580 $11.742 NA
Number of units outstanding
at end of period NA NA 166 125 37 35 62 NA
</TABLE>
<TABLE>
<CAPTION>
(Number of units in thousands)Mutual Natural Real Templeton Templeton Templeton
Shares Resources Estate Rising Small Developing Global Asset Global
Contract Sub-Accounts: Securities Securities Securities Dividends Cap Markets EquityAllocation Growth
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended Dec. 31, 1997
Unit value at
beginning of period $10.330 $14.467 $23.668 $15.303 $12.913 $11.487 $12.514 $13.560
Unit value at
end of period $11.993 $11.559 $28.169 $20.074 $14.952 $10.340 $13.786 $15.176
Number of units
outstanding at
end of period 1,823 458 942 3,489 938 1,160 424 2,594
Year Ended Dec. 31, 1996
Unit value at
beginning of period $10.112**$14.109 $18.073 $12.498 $12.517**$ 9.582 $10.591 $11.339
Unit value at
end of period $10.330 $14.467 $23.668 $15.303 $12.913 $11.487 $12.514 $13.560
Number of units
outstanding at
end of period 43 566 859 3,394 416 1,042 300 2,146
Year Ended Dec. 31, 1995
Unit value at
beginning of period NA $13.979 $15.594 $ 9.769 NA $ 9.454 $10.322**$10.201
Unit value at
end of period NA $14.109 $18.073 $12.498 NA $ 9.582 $10.591 $11.339
Number of units
outstanding at
end of period NA 516 794 3,182 NA 757 36 1.417
Year Ended Dec. 31, 1994
Unit value at
beginning of period NA $14.464 $15.369 $10.327 NA $ 9.994** NA $ 9.984**
Unit value at
end of period NA $13.979 $15.594 $ 9.769 NA $ 9.454 NA $10.201
Number of units
outstanding at
end of period NA 647 900 2,936 NA 591 NA 921
Year Ended Dec. 31, 1993
Unit value at
beginning of period NA $ 9.424 $13.095 $10.848 NA NA NA NA
Unit value at
end of period NA $14.464 $15.369 $10.327 NA NA NA NA
Number of units
outstanding at
end of period NA 391 437 2,772 NA NA NA NA
Year Ended Dec. 31, 1992
Unit value at
beginning of period NA $10.635 $11.848 $ 9.992** NA NA NA NA
Unit value at
end of period NA $ 9.424 $13.095 $10.848 NA NA NA NA
Number of units
outstanding at
end of period NA 30 77 617 NA NA NA NA
Period from Inception**
to Dec. 31, 1991 NA $10.433 $10.787 NA NA NA NA NA
Unit value at
end of period NA $10.635 $11.848 NA NA NA NA NA
Number of units
outstanding at
end of period NA 5 8 NA NA NA NA NA
</TABLE>
<TABLE>
<CAPTION>
(Number of units in thousands)
Templeton Templeton Templeton U.S.
Global Inter- Inter- Templeton Govern- Zero Zero Zero
Contract Income national national Pacific ment Value Coupon Coupon Coupon
Sub-Accounts: Securities Equity Smaller Cos. Growth Securities Securities+ 2000 2005 2010
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended Dec. 31, 1997
Unit value at
beginning of period $16.781 $16.081 $11.145 $14.932 $16.650 NA $18.475 $20.517 $21.522
Unit value at
end of period $16.957 $17.711 $10.825 $ 9.431 $17.947 NA $19.512 $22.532 $24.740
Number of units
outstanding at
end of period 1,072 4,063 173 1,251 4,844 NA 1,087 345 292
Year Ended Dec. 31, 1996
Unit value at
beginning of period $15.522 $13.263 $10.174**$13.630 $16.298 NA $18.294 $20.914 $22.431
Unit value at
end of period $16.781 $16.081 $11.145 $14.932 $16.650 NA $18.475 $20.517 $21.522
Number of units
outstanding at
end of period 1,354 4,375 65 1,751 6,017 NA 1,358 428 348
Year Ended Dec. 31, 1995
Unit value at
beginning of period $13.726 $12.161 NA $12.802 $13.835 NA $15.373 $16.096 $15.930
Unit value at
end of period $15.522 $13.263 NA $13.630 $16.298 NA $18.294 $20.914 $22.431
Number of units
outstanding at
end of period 1,472 4,073 NA 1,811 5,089 NA 1,416 456 372
Year Ended Dec. 31, 1994
Unit value at
beginning of period $14.650 $12.226 NA $14.233 $14.698 NA $16.717 $18.050 $18.144
Unit value at
end of period $13.726 $12.161 NA $12.802 $13.835 NA $15.373 $16.096 $15.930
Number of units
outstanding at
end of period 1,667 4,079 NA 2,112 5,331 NA 1,158 403 252
Year Ended Dec. 31, 1993
Unit value at
beginning of period $12.733 $ 9.642 NA $ 9.761 $13.586 NA $14.595 $14.975 $14.670
Unit value at
end of period $14.650 $12.226 NA $14.233 $14.698 NA $16.717 $18.050 $18.144
Number of units
outstanding at
end of period 1,045 1,346 NA 915 6,108 NA 795 341 193
Year Ended Dec. 31, 1992
Unit value at
beginning of period $12.962 $ 9.992** NA $ 9.992**$12.798 NA $13.570 $13.705 $13.482
Unit value at
end of period $12.733 $ 9.642 NA $ 9.761 $13.586 NA $14.595 $14.975 $14.670
Number of units
outstanding at
end of period 406 88 NA 58 2,266 NA 397 108 60
Period from Inception**
to Dec. 31, 1991 $12.296 NA NA NA $12.036 NA $12.274 $12.369 $12.013
Unit value at
end of period $12.962 NA NA NA $12.798 NA $13.570 $13.705 $13.482
Number of units
outstanding at
end of period 47 NA NA NA 213 NA 6 3 1
<FN>
+The Global Health Care Securities Sub-Account and the Value Securities Sub-Account commenced operations May 1, 1998.
*Prior to May 1, 1998, the Global Utilities Securities Sub-Account was known as the Utility Equity Sub-Account.
**Unit Value at inception.
</FN>
</TABLE>
The Accumulation Unit Value for each Contract Sub-Account was initially
arbitrarily set. The inception date for all Contract Sub-Accounts, except those
noted below, was September 6, 1991. Inception was 3/10/92 for the Rising
Dividends, Templeton International Equity, and Templeton Pacific Growth
Sub-Accounts; 4/25/94 for the Templeton Developing Markets Equity and Templeton
Global Growth Sub-Accounts; 8/4/95 for the Templeton Global Asset Allocation
Sub-Account; 6/10/96 for the Capital Growth, Small Cap, and Templeton
International Smaller Companies Sub-Accounts; and 12/2/96 for the Mutual
Discovery Securities and Mutual Shares Securities Sub-Accounts. The Global
Health Care Securities and Value Securities Sub-Accounts will commence
operations when they are approved by the New York Insurance Department.
The Company
- -------------------------------------------------------------------------------
Preferred Life Insurance Company of New York (the "Company") is a stock life
insurance company organized under the laws of the state of New York. The Company
is a wholly-owned subsidiary of Allianz Life Insurance Company of North America
("Allianz Life"). Allianz Life is headquartered in Minneapolis, Minnesota. The
Company is authorized to do direct business in six states, including New York.
The Company offers group life, group accident and health insurance and variable
annuity products.
NALAC Financial Plans, LLC is a wholly-owned subsidiary of Allianz Life. It is
the principal underwriter of the Contracts. NALAC Financial Plans, LLC is
reimbursed for expenses incurred in the distribution of the Contracts.
Administration for the Contract is provided at the Company's Valuemark Service
Center: Preferred Life Annuity Service Office, 300 Berwyn Park, P.O. Box 3031,
Berwyn, Pennsylvania 19312-0031, (800) 624-0197.
The Variable Account
- --------------------------------------------------------------------------------
The Variable Account was established pursuant to a resolution of the Board of
Directors on February 26, 1988. The Variable Account is registered with the
Securities and Exchange Commission as a unit investment trust under the
Investment Company Act of 1940, as amended (the "1940 Act"). The assets of the
Variable Account are the property of the Company. However, the assets of the
Variable Account equal to the reserves and other contract liabilities with
respect to the Variable Account are not chargeable with liabilities arising out
of any other business the Company may conduct. Income, gains and losses, whether
or not realized, are, in accordance with the Contracts, credited to or charged
against the Variable Account without regard to other income, gains or losses of
the Company. The Company's obligations arising under the Contracts are general
corporate obligations.
The Variable Account meets the definition of a "separate account" under the
federal securities laws.
The Variable Account is divided into Contract Sub-Accounts with the assets of
each Contract Sub-Account invested in one of the Portfolios of Franklin
Valuemark Funds. Currently, there are twenty-five Portfolios available under
Franklin Valuemark Funds.
Franklin Valuemark Funds
- -------------------------------------------------------------------------------
Each of the Contract Sub-Accounts of the Variable Account is invested solely in
the shares of one of the Portfolios of Franklin Valuemark Funds ("Trust"). The
Trust is an open-end management investment company registered under the 1940
Act. The investment objectives of each Portfolio and a discussion of potential
risks are found in the accompanying prospectus for the Trust, which is included
with this Prospectus. THE GLOBAL HEALTH CARE SECURITIES FUND AND THE VALUE
SECURITIES FUND ARE NOT AVAILABLE IN NEW YORK UNTIL APPROVED BY THE NEW YORK
INSURANCE DEPARTMENT. (CHECK WITH YOUR REGISTERED REPRESENTATIVE REGARDING
AVAILABILITY.)
PURCHASERS SHOULD READ THIS PROSPECTUS AND THE ACCOMPANYING PROSPECTUS FOR THE
TRUST CAREFULLY BEFORE INVESTING.
Investment managers for each Portfolio are listed in the table below and are as
follows: Franklin Advisers, Inc. (FA), Franklin Advisory Services, Inc. (FAS),
Franklin Mutual Advisers, Inc. (FMA), Templeton Asset Management Ltd. (TAM),
Templeton Global Advisors Limited (TGA), and Templeton Investment Counsel, Inc.
(TIC). Certain managers have retained one or more affiliated subadvisers. The
following is a list of the Portfolios available under the Contract:
<TABLE>
<CAPTION>
Investment
Available Portfolios Managers
- --------------------------------------------------------------------------------
<S> <C>
PORTFOLIO SEEKING STABILITY
OF PRINCIPAL AND INCOME
Money Market Fund FA
PORTFOLIOS SEEKING
CURRENT INCOME
High Income Fund FA
Templeton Global
Income Securities Fund FA
U.S. Government Securities Fund FA
Zero Coupon Funds -
2000, 2005, 2010 FA
PORTFOLIOS SEEKING
GROWTH AND INCOME
Global Utilities Securities Fund
(formerly, Utility Equity Fund) FA
Growth and Income Fund FA
Income Securities Fund FA
Mutual Shares Securities Fund FMA
Real Estate Securities Fund FA
Rising Dividends Fund FAS
Templeton Global Asset
Allocation Fund TGA
Value Securities Fund FAS
PORTFOLIOS SEEKING
CAPITAL GROWTH
Capital Growth Fund FA
Global Health Care Securities Fund FA
Mutual Discovery Securities Fund FMA
Natural Resources Securities Fund FA
Small Cap Fund FA
Templeton Developing Markets
Equity Fund TAM
Templeton Global Growth Fund TGA
Templeton International
Equity Fund FA
Templeton International
Smaller Companies Fund TIC
Templeton Pacific Growth Fund FA
- --------------------------------------------------------------------------------
</TABLE>
General
There is no assurance that the investment objectives of any of the Portfolios
will be met. Contract Owners bear the complete investment risk for Contract
Values allocated to a Contract Sub-Account.
Additional Portfolios and/or additional Eligible Investments may, from time to
time, be made available as investments to underlie the Contract. However, the
right to make such selections will be limited by the terms and conditions
imposed on such transactions by the Company. (See "Purchase Payments and
Contract Value - Allocation of Purchase Payments.")
Substitution of Securities
The Company may substitute one of the Portfolios Contract Owners have selected
with another Portfolio. The Company would not do this without the prior approval
of the Securities and Exchange Commission. The Company will give Contract Owners
notice of its intention to do this.
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 Contract Values and the Variable
Account. These charges and deductions are:
Deduction for Contingent Deferred
Sales Charge (Sales Load)
If all or a portion of the Surrender Value (see "Surrenders") is surrendered, a
Contingent Deferred Sales Charge (sales load) will be calculated at the time of
each surrender and will be deducted from the Contract Value. This Charge
reimburses the Company for expenses incurred in connection with the promotion,
sale and distribution of the Contracts. The Contingent Deferred Sales Charge
applies only to those purchase payments received within five (5) years of the
date of surrender. In calculating the Contingent Deferred Sales Charge, purchase
payments are allocated to the amount surrendered on a first-in, first-out basis.
The amount of the Contingent Deferred Sales Charge is calculated by: (a)
allocating purchase payments to the amount surrendered; (b) multiplying each
such allocated purchase payment that has been held under the Contract for the
period by the charge shown below:
<TABLE>
<CAPTION>
Years Since
Payment Charge
--------------------
<S> <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. The charge will
not exceed 5% of the purchase payments.
Once each Contract Year, Contract Owners may surrender up to fifteen percent
(15%) of purchase payments paid less any prior surrenders without incurring a
Contingent Deferred Sales Charge. If no surrender is made during a Contract
Year, the 15% is cumulative into future years. If less than 15% is surrendered
in a Contract Year, the remaining percentage is not available in future years.
No Contingent Deferred Sales Charge will be deducted from purchase payments
which have been held under the Contract for more than five (5) Contract Years or
as annuity payments. See also "Surrenders - Systematic Withdrawal." The Company
may also eliminate or reduce the Contingent Deferred Sales Charge under the
Company procedures then in effect. (See "Charges and Deductions - Reduction or
Elimination of Contingent Deferred Sales Charge.")
For a partial surrender, the Contingent Deferred Sales Charge will be deducted
from the remaining Contract Value, if sufficient; otherwise it will be deducted
from the amount surrendered. The amount deducted from the Contract Value will be
determined by canceling Accumulation Units from each applicable Contract
Sub-Account in the ratio that the value of each Contract Sub-Account bears to
the total Contract Value. The Contract Owner must specify in writing in advance
which units are to be canceled if other than the above method of cancellation is
desired.
Reduction or Elimination of
Contingent Deferred Sales Charge
The amount of the Contingent Deferred Sales Charge on the Contracts may be
reduced or eliminated when sales of the Contracts are made to individuals or to
a group of individuals in a manner that results in savings of sales expenses.
The entitlement to a reduction of the Contingent Deferred Sales Charge will be
determined by the Company after examination of the following factors: (1) the
size of the group; (2) the total amount of purchase payments expected to be
received from the group; (3) the nature of the group for which the Contracts are
purchased, and the persistency expected in that group; (4) the purpose for which
the Contracts are purchased and whether that purpose makes it likely that
expenses will be reduced; and (5) any other circumstances which the Company
believes to be relevant to determining whether reduced sales or administrative
expenses may be expected. None of the reductions in charges for sales is
contractually guaranteed.
The Contingent Deferred Sales Charge may be eliminated when the Contracts are
issued to an officer, director or employee of the Company or any of its
affiliates. In no event will reductions or elimination of the Contingent
Deferred Sales Charge be permitted where reductions or elimination will unfairly
discriminate against any person.
Deduction for Mortality and Expense Risk Charge
The Company deducts on each Valuation Date a Mortality and Expense Risk Charge
which is equal, on an annual basis, to 1.25% of the average daily net assets of
the Variable Account. The mortality risk borne by the Company arises from its
contractual obligation to make annuity payments (determined in accordance with
the Annuity Options and other provisions contained in the Contract) regardless
of how long all Annuitants may live. This undertaking assures that neither an
Annuitant's own longevity, nor an improvement in life expectancy greater than
expected, will have any adverse effect on the annuity payments the Annuitant
will receive under the Contract.
Furthermore, the Company bears a mortality risk, regardless of the Annuity
Option selected, in that it guarantees the purchase rates for the annuity income
options available under the Contract whether for fixed payment options or
variable payment options. In addition, the Company assumes a mortality risk for
the guaranteed death benefit provided under the Contract. The expense risk
assumed by the Company is that all actual expenses involved in administering the
Contracts, including Contract maintenance costs, administrative costs, mailing
costs, data processing costs, legal fees, accounting fees, filing fees, and the
costs of other services may exceed the amount recovered from the Contract
Maintenance Charge and the Administrative Expense Charge.
The Mortality and Expense Risk Charge is guaranteed by the Company and cannot be
increased.
Deduction for Administrative Expense Charge
The Company deducts on each Valuation Date an Administrative Expense Charge
which is equal, on an annual basis, to 0.15% of the average daily net assets of
the Variable Account. This charge, together with the Contract Maintenance Charge
(see below), is to reimburse the Company for the expenses it incurs in the
establishment and maintenance of the Contracts and the Variable Account. These
expenses include but are not limited to: preparation of the Contracts,
confirmations, annual reports and statements, maintenance of Contract Owner
records, maintenance of Variable Account records, administrative personnel
costs, mailing costs, data processing costs, legal fees, accounting fees, filing
fees, the costs of other services necessary for Contract Owner servicing and all
accounting, valuation, regulatory and reporting requirements.
Deduction for Contract Maintenance Charge
The Company deducts an annual Contract Maintenance Charge of $30 from the
Contract Value on each Contract Anniversary. Prior to the Income Date, the
charge is waived for contracts having Contract Values or purchase payments less
surrenders of $100,000.00 or more. Currently, the charge is also waived during
the Annuity Period if the Contract Value at the time of annuitization is at
least $100,000. This charge is to reimburse the Company for its administrative
expenses (see above). Prior to the Income Date, this charge is deducted by
canceling Accumulation Units from each applicable Contract Sub-Account in the
ratio that the value of each Contract Sub-Account bears to the total Contract
Value. When the Contract is surrendered for its full Surrender Value on other
than a Contract Anniversary, the entire Contract Maintenance Charge will be
deducted at the time of surrender. On and after the Income Date, if the Contract
Maintenance Charge is deducted, the charge will be collected pro rata on a
monthly basis ($2.50 per month) and will result in a reduction of the monthly
annuity payments.
Deduction for Premium Taxes
Premium taxes or other taxes payable to a state, municipality or other
governmental entity will be charged against the Contract Values. Premium taxes
currently imposed by certain states on the Contracts range from 0% to 3% of
premiums paid. Some states assess premium taxes at the time purchase payments
are made; others assess premium taxes at the time annuity payments begin. The
Company will, in its sole discretion, determine when taxes have resulted from:
the investment experience of the Variable Account; receipt by the Company of the
purchase payment(s); or commencement of annuity payments. The Company may, at
its sole discretion, pay taxes when due and deduct that amount from the Contract
Value at a later date. Payment at an earlier date does not waive any right the
Company may have to deduct amounts at a later date. Currently, the state of New
York does not assess a premium tax on variable annuity contracts; however, there
is no assurance that such a tax will not be assessed in the future.
Deduction for Income Taxes
While the Company is not currently maintaining a provision for federal income
taxes, the Company has reserved the right to establish a provision for income
taxes if it determines, in its sole discretion, that it will incur a tax as a
result of the operation of the Variable Account. The Company will deduct for any
income taxes incurred by it as a result of the operation of the Variable Account
whether or not there was a provision for taxes and whether or not it was
sufficient. Currently, no federal income taxes are assessed against the Variable
Account. However, if the tax laws should change, the Company reserves the right
to deduct the amount of such taxes from the Variable Account.
Deduction for Trust Expenses
There are other deductions from the assets of the Franklin Valuemark Funds for
operating expenses (including management fees), which are described in the
accompanying Trust prospectus.
Deduction for Transfer Fee
A Contract Owner may transfer all or a part of the Contract Owner's interest
among the Contract Sub-Accounts without the imposition of any fee or charge if
there have been no more than three transfers made in the Contract Year. If more
than three transfers have been made in the Contract Year, the Company reserves
the right to deduct a transfer fee. The maximum transfer fee that the Company
may deduct, per transfer, is the lesser of $25 or 2% of the amount transferred.
Currently, twelve transfers may be made in a Contract Year prior to the Income
Date without a charge. Thereafter, the fee is $25 (or 2% of the amount
transferred, if less). Currently, prescheduled automatic dollar cost averaging
transfers are not counted. The Company charges a fee for all transfers after the
Income Date, which fee, per transfer, will not exceed the lesser of $25 or 2% of
the amount transferred. The transfer fee at any given time will not be set at a
level greater than its cost and will contain no element of profit.
The Contracts
- -------------------------------------------------------------------------------
Ownership
The Contract Owner and if provided for in the Contract, any Joint Owner, has all
rights and may receive all benefits under the Contract. The Contract Owner, if
provided for in the Contract, may name a Contingent Owner or change the Contract
Owner at any time. Any Contingent Owner must be the spouse of the Contract
Owner. Upon the death of the Contract Owner, the Contingent Owner or surviving
Joint Owner (as applicable) may elect to keep the Contract in force and become
the new Contract Owner. The Annuitant becomes the Owner on and after the Income
Date. A change of Contract Owner or Contingent Owner will automatically revoke
any prior designation of Contract Owner or Contingent Owner. A request for
change must be: (1) made in writing; and (2) received by the Company at its
Valuemark Service Center. After the transfer is recorded, the change will become
effective as of the date the written request is signed. A new designation of
Contract Owner (as applicable) will not apply to any payment made or action
taken by the Company prior to the time it was received.
For Non-Qualified Contracts, in accordance with Code Section 72(u), a deferred
annuity contract held by a corporation or other entity that is not a natural
person is not treated as an annuity contract for tax purposes. Income on the
contract is treated as ordinary income received by the owner during the taxable
year. However, for purposes of Code Section 72(u), an annuity contract held by a
trust or other entity as agent for a natural person is considered held by a
natural person and treated as an annuity contract for tax purposes. Tax advice
should be sought prior to purchasing a Contract which is to be owned by a trust
or other non-natural person.
Assignment
The Contract Owner may assign the Contract at any time during his or her
lifetime. A copy of any assignment must be filed with the Valuemark Service
Center. The Company is not responsible for the validity of any assignment. If
the Contract Owner assigns the Contract, the Contract Owner's rights and those
of any revocably-named person will be subject to the assignment. The Company
will not be bound by any assignment until written notice is received by the
Company at its Valuemark Service Center.
If the Contract is issued pursuant to a Qualified Plan, it may not be assigned,
pledged or otherwise transferred except as may be allowed under applicable law.
Beneficiary
One or more Beneficiaries and/or Contingent Beneficiaries are named in the
application, and unless changed, are entitled to receive any death benefits to
be paid. Upon the death of the Contract Owner, the Contingent Owner or surviving
Joint Owner (as applicable) will be the designated Beneficiary and any other
Beneficiary named will be treated as a Contingent Beneficiary, unless otherwise
indicated.
Change of Beneficiary
The Contract Owner may change a Beneficiary or Contingent Beneficiary by filing
a written request with the Company at its Valuemark Service Center unless an
irrevocable Beneficiary designation was previously filed. After the change is
recorded, it will take effect as of the date the request was signed. If the
request reaches the Valuemark Service Center after the Annuitant or Contract
Owner, as applicable, dies but before any payment is made, the change will be
valid. The Company will not be liable for any payment made or action taken
before it records the change.
Annuitant
The Annuitant must be a natural person. The maximum age of the Annuitant on the
Effective Date is 80 years old. The Annuitant may be changed at any time prior
to the Income Date unless the Contract is owned by a non-natural person. (See
"Death of the Annuitant Prior to the Income Date.") Joint Annuitants are allowed
at the time of annuitization only. The Annuitant has no rights or privileges
prior to the Income Date. When an Annuity Option is elected, the amount payable
as of the Income Date is based on the age (and sex, where permissible) of the
Annuitant, as well as the Option selected and the Contract Value. The Annuitant
becomes the Contract Owner on or after the Income Date.
Death of the Contract Owner
Before the Income Date
In those Contracts where a Contingent Owner has been named, in the event of the
death of the Contract Owner prior to the Income Date, the Contingent Owner, if
any becomes the designated Beneficiary and any other Beneficiary named will be
treated as a Contingent Beneficiary, unless otherwise indicated. In those
Contracts where Joint Owners have been named, upon the death of either Joint
Owner prior to the Income Date, the surviving Joint Owner, if any, becomes the
designated Beneficiary and any other Beneficiary named will be treated as a
Contingent Beneficiary, unless otherwise indicated. Only the Contract Owner's
spouse may be the Contingent Owner. If there is no surviving Contingent Owner or
Joint Owner, a death benefit is payable to the Beneficiary designated by the
Contract Owner. The value of the death benefit will be determined as of the
Valuation Period next computed after receipt of both due proof of death and a
payment election by the Company at the Valuemark Service Center. Some states,
including New York, require the submission of tax forms in connection with death
benefit proceeds under certain circumstances. Receipt of such forms by the
Company may delay the payment of death benefits. During any period occasioned by
such delay, the Company will place the proceeds in the Company's general account
and the proceeds will accrue interest until the date of payment.
The guaranteed death benefit is:
1. On the date of issue, the guaranteed death benefit is equal to the purchase
payment.
2. After the date of issue, the guaranteed death benefit will be the sum of all
purchase payments made minus any amounts surrendered or paid by the Company.
The guaranteed death benefit will never be less than the Contract Value as of
the most recent five year Contract Anniversary preceding the earlier of (a) the
date of death of the Contract Owner or (b) the date of the Contract Owner's 81st
birthday, plus subsequent purchase payments minus subsequent surrenders.
The Beneficiary may, at any time before the end of a sixty (60) day period
following receipt of proof of death, elect the death benefit to be paid under
one of the following options:
A. Lump sum payment of the death benefit (The value of the death benefit is
equal to the greater of the guaranteed death benefit or the Surrender Value as
of the Valuation Period next computed after receipt of both due proof of death
and a payment election by the Company);
B. Payment of the entire death benefit within five years of the date of the
Contract Owner's death (The value of the death benefit under Option B is
determined by comparing the guaranteed death benefit to the Contract Value as of
the Valuation Period next computed after receipt of both due proof of death and
a payment election by the Company. If the Contract Value is the greater, it will
be the death benefit. Any distribution of such death benefit will be reduced by
the sum of any applicable premium taxes, Contract Maintenance Charges and
Contingent Deferred Sales Charges. If the guaranteed death benefit is the
greater, it will be the death benefit. After the death benefit is calculated, it
will be subject to market risk. No additional purchase payments will be accepted
after the death of the Contract Owner.);
C. Payment over the lifetime of the designated Beneficiary or over a period not
extending beyond the life expectancy of the designated Beneficiary with
distribution beginning within one year of the date of death of the Contract
Owner (see "Annuity Provisions - Annuity Options"). (The value of the death
benefit under Option C is determined by comparing the guaranteed death benefit
to the Contract Value as of the Valuation Period next computed after receipt of
both due proof of death and a payment election by the Company. If the Contract
Value is greater, it will be treated as the death benefit. If the guaranteed
death benefit is greater, it will be the death benefit.); or
D. If the designated Beneficiary is the Contract Owner's spouse, he/she can
continue the Contract in his/her own name. (The value of the death benefit under
Option D is determined by comparing the guaranteed death benefit to the Contract
Value as of the Valuation Period next computed after receipt of both due proof
of death and a payment election by the Company. If the Contract Value is
greater, it will remain the Contract Value. If the guaranteed death benefit is
greater, it will become the new Contract Value. Any distribution by the new
Contract Owner will be reduced by the sum of any applicable premium taxes,
Contract Maintenance Charges and Contingent Deferred Sales Charges.)
If no payment option is elected, a single sum settlement will be made at the end
of the sixty (60) day period following receipt of proof of death and receipt of
any required state tax forms.
Death of the Annuitant Prior to the Income Date
If the Annuitant dies on or before the Income Date and the Annuitant is
different from the Contract Owner, the Contract Owner may designate a new
Annuitant. If one is not designated, the Contract Owner will be the Annuitant,
provided the Contract Owner is a natural person.
If the Contract Owner is a non-natural person, then for the purposes of the
death benefit, the Annuitant shall be treated as the Contract Owner and the
death of the Annuitant shall be treated as a death of the Contract Owner.
Death of the Annuitant After the Income Date
If the Annuitant dies on or after the Income Date, the remaining payments, if
any, will be payable to the Beneficiary as specified in the Annuity Option
elected. The Company will require proof of the Annuitant's death. The remaining
payments will be paid at least as rapidly as under the method of distribution in
effect at the Annuitant's death.
Annuity Provisions
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Income Date
The Contract Owner selects an Income Date at the time of application (or at the
time of issue for certain Contracts). The Income Date must always be the first
day of a calendar month. The earliest Income Date is five years after the
Effective Date. The Income Date may not be later than the month following the
Annuitant's 85th birthday or 10 years from the Effective Date if later. If no
Income Date is selected on the application, the date will be the later of the
Annuitant's 65th birthday (or 85th birthday for certain Contracts) or 10 years
from the effective date.
Change in Income Date and Annuity Option
The Contract Owner may, upon at least thirty (30) days prior written notice to
the Company, at any time prior to the Income Date, change the Income Date. The
Income Date must always be the first day of a calendar month. The Income Date
may not be later than the month following the Annuitant's 85th birthday, or 10
years from the Effective Date, if later. The Contract Owner may, upon at least
thirty (30) days prior written notice to the Company, at any time prior to the
Income Date, select and/or change the Annuity Option.
Annuity Options
Instead of having the proceeds paid in one sum, the Contract Owner may select
one of the Annuity Options. These may be on a fixed or variable basis, or a
combination thereof. The Annuity Option must be selected at least 30 days prior
to the Income Date. The Company may, at the time of election of an Annuity
Option, offer more favorable rates in lieu of those guaranteed. The Company also
may make available other options.
Fixed Options
Under a fixed option, once the selection has been made and payments have begun,
the amount of the payments will not vary. The fixed options currently available
are:
OPTION 1 - LIFE ANNUITY WITH OPTIONAL GUARANTEE PERIOD. The Company will make
equal monthly payments during the life of the Annuitant, but at least for the
minimum period shown in the annuity tables contained in the Contract. The amount
of each monthly payment per $1,000 of proceeds is based on the age (and sex,
where permissible) of the Annuitant when the first payment is made and on the
guaranteed period chosen. If the Annuitant dies within the guaranteed period,
the discounted value of the unpaid guaranteed payments will be paid by the
Company as a final payment.
OPTION 2 - LIFE ANNUITY WITH CASH REFUND. The Company will pay equal monthly
payments during the life of the Annuitant. Upon the death of the Annuitant,
after payments have started, the Company will pay in one sum any excess of the
amount of the proceeds applied under this Option over the total of all payments
made under this Option. The amount of each monthly payment per $1,000 of
proceeds is based on the age (and sex, where permissible) of the Annuitant when
the first payment is made.
Variable Options
The actual dollar amount of variable annuity payments is dependent upon (i) the
Contract Value at the time of annuitization, (ii) the annuity table specified in
the Contract, (iii) the Annuity Option selected, and (iv) the investment
performance of the Contract Sub-Accounts selected.
The dollar amount of the first monthly variable annuity payment is determined by
applying the available value (after deduction of any premium taxes not
previously deducted) to the table using the age (and sex, where permissible) of
the Annuitant and any joint Annuitant. The number of Annuity Units is then
determined by dividing this dollar amount by the then current Annuity Unit
value. Thereafter, the number of Annuity Units remains unchanged during the
period of annuity payments. This determination is made separately for each
Contract Sub-Account of the Variable Account. The number of Annuity Units is
determined for each Contract Sub-Account and is based upon the available value
in each Contract Sub-Account as of the date annuity payments are to begin. The
dollar amount determined for each Contract Sub-Account will then be aggregated
for purposes of making payments.
The dollar amount of the second and later variable annuity payments is equal to
the number of Annuity Units determined for each Contract Sub-Account times the
Annuity Unit value for that Contract Sub-Account as of the due date of the
payment. This amount may increase or decrease from month to month.
The annuity tables contained in the Contract are based on a five percent (5%)
assumed investment rate ("AIR"). Other AIR choices may be available at the time
of annuitization. If the actual net investment rate exceeds the AIR, payments
will increase. Conversely, if the actual net investment rate is less than the
AIR, subsequent annuity payments will decrease. Annuity payments will not
decrease as long as the investment return of the Variable Account assets equals
or exceeds the AIR plus 1.40% on an annual basis (that is 6.4% for the 5% AIR).
If an assumed investment rate greater than 5% is used, the initial payment will
be higher but the actual net investment rate will have to be higher in order for
annuity payments to remain level or increase. If an AIR less than 5% is used,
the initial payment will be lower but the actual net investment rate will not
have to be as high for payments to remain level or increase.
The Annuitant receives the value of a fixed number of Annuity Units each month.
The value of a fixed number of Annuity Units will reflect the investment
performance of the Contract Sub-Account selected and the amount of each annuity
payment will vary accordingly.
The variable options currently available are:
OPTION 3 - LIFE ANNUITY. Monthly annuity payments are paid during the life of an
Annuitant, ceasing with the last annuity payment due prior to the Annuitant's
death.
OPTION 4 - LIFE ANNUITY WITH 10-YEAR GUARANTEE. Monthly annuity payments are
paid during the life of an Annuitant, but at least for the 10-year minimum
period.
OPTION 5 - JOINT AND LAST SURVIVOR ANNUITY. Monthly annuity payments are paid
during the joint lifetime of the Annuitant and a designated second person and
are paid thereafter during the remaining lifetime of the survivor, ceasing with
the last annuity payment due prior to the survivor's death.
Purchase Payments and Contract Value
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Purchase Payments
The Contracts may be purchased under a flexible purchase payment plan. Purchase
payments are payable in the frequency and in the amount selected by the Contract
Owner. The initial purchase payment is due on the Effective Date. The initial
purchase payment must be at least $2,000. Subsequent purchase payments must be
at least $250. These minimum amounts are not waived for Qualified Plans. The
Company reserves the right to decline any application or purchase payment.
Amounts in excess of $1 million require preapproval by the Company. The Company
may, at its sole discretion, waive the minimum payment requirements under
specific circumstances. The Contract Owner may elect to increase, decrease or
change the frequency of purchase payments. Neither the Variable Account nor the
Trust is designed for professional market timing organizations, other entities,
or persons using programmed, large or frequent transfers.
Automatic Investment Plan
The Automatic Investment Plan (AIP) is a program by which a Contract Owner may
make monthly or quarterly investments by electronic funds transfer from their
checking or savings account if their bank is a member of an Automatic Clearing
House. Election of this program may occur at the time a Contract is issued, or
at any time thereafter by completing and signing the appropriate form and
returning it to the Company. The form must be received in good order by the
first of the month in order for AIP to begin that same month. Investments take
place on the 20th of the month, or the next business day. AIP may not be used
for the initial purchase payment.
The minimum investment that may be made by AIP is $250.
AIP is subject to any regulations that may govern the bank account, the
Automatic Clearing House, or the Contract. The Company may correct any error by
a debit or credit to the Contract Owner's bank account and/or Contract.
Participation in AIP may be stopped at any time at the request of the Contract
Owner. When the Company is advised to stop AIP, no automatic investments will be
processed until signed authorization is received to initiate the plan again. The
Company will need to be notified by the first of the month in order to stop or
change AIP within that month. If a transaction is rejected or returned to the
Company for any reason, including stop payment, insufficient funds, or account
closed, the respective number of units will be removed from the Contract Owner's
account, and AIP will be discontinued.
If AIP is used for a Qualified Contract, the Contract Owner should contact his
or her tax adviser for maximum contributions.
Allocation of Purchase Payments
Purchase payments are allocated to one or more of the Contract Sub-Accounts
within the Variable Account as selected by the Contract Owner. For each Contract
Sub-Account, purchase payments are converted into Accumulation Units. The number
of Accumulation Units credited to the Contract is determined by dividing the
purchase payment allocated to the Contract Sub-Account by the value of the
Accumulation Unit for the Contract Sub-Account.
The Company has the right to allocate initial purchase payments to the Money
Market Sub-Account until the expiration of 15 days from the date the Contract is
mailed from the Valuemark Service Center. In the event that the Company does so
allocate initial purchase payments, at the end of this 15-day period the
Contract Value will be allocated to the Contract Sub-Account(s) selected by the
Contract Owner. Currently, however, the Company will allocate the initial
purchase payment directly to the Contract Sub-Account(s) selected by the
Contract Owner.
Transfers do not necessarily affect the allocation instructions for future
payments. Subsequent payments will be allocated as directed by the Contract
Owner; if no direction is given, the allocation will be that which has been most
recently directed for payments by the Contract Owner. The Contract Owner may
change the allocation of future payments without fee, penalty or other charge
upon written notice to the Valuemark Service Center. A change will be effective
or payments received on or after receipt of the written notice or telephone
instructions.
The Company reserves the right to limit the number of Contract Sub-Accounts that
a Contract Owner may have at any one time. Currently, the Contract Owner may
initially select up to nine Contract Sub-Accounts, and may only be invested in a
maximum of ten Contract Sub-Accounts at any one time throughout the life of the
Contract. The Company reserves the right to change the maximum number of
Contract Sub-Accounts in the future.
For initial purchase payments, if the application for a Contract is in good
order, the Company will apply the purchase payment to the Variable Account and
credit the Contract with Accumulation Units within two business days of receipt.
In addition to the underwriting requirements of the Company, good order means
that the Company has received federal funds (monies credited to a bank's account
with its regional Federal Reserve Bank). If the application for a Contract is
not in good order, the Company will attempt to get it in good order or the
Company will return the application and the purchase payment within five
business days. The Company will not retain purchase payments for more than five
business days while processing an incomplete application, unless it has been so
authorized by the purchaser.
For subsequent purchase payments, the Company will apply purchase payments to
the Variable Account and credit the Contract with Accumulation Units during the
Valuation Period next following the Valuation Period during which the purchase
payment was received in good order.
Transfer of Contract Values
Prior to the Income Date, the Contract Owner may transfer all or part of the
Contract Owner's interest in a Contract Sub-Account to another Contract
Sub-Account without the imposition of any fee or charge if there have been no
more than three transfers made in the Contract Year. If more than three
transfers have been made in the Contract Year, the Company reserves the right to
deduct a transfer fee. Currently, 12 transfers may be made in a Contract Year
prior to the Income Date without a charge. (See "Charges and Deductions -
Deduction for Transfer Fee.")
Neither the Variable Account nor the Trust is designed for professional market
timing organizations, other entities, or persons using programmed, large or
frequent transfers. A pattern of exchanges that coincides with a "market timing"
strategy may be disruptive to a Portfolio and may be refused. Contracts 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, if in the Portfolio managers' judgment, a Portfolio would be
unable to invest effectively in accordance with its investment objectives and
policies, or would otherwise potentially be adversely affected.
After the Income Date, provided a variable annuity option was selected, the
Contract Owner may make transfers. The Company charges for all transfers after
the Income Date.
All transfers are subject to the following:
a. The deduction of any transfer fee that may be imposed. The transfer fee will
be deducted from the amount which is transferred if the entire amount in the
Contract Sub-Account is being transferred; otherwise from the amount remaining
in the Contract Sub-Account from which the transfer is made.
b. The minimum amount which may be transferred is the lesser of (i) $1,000 from
each Contract Sub-Account; or (ii) the Contract Owner's entire interest in the
Contract Sub-Account.
c. No partial transfer will be made if the Contract Owner's remaining Contract
Value in the Contract Sub-Account will be less than $1,000.
d. Transfers will be effected during the Valuation Period next following receipt
by the Company of a written transfer request (or by telephone, if authorized)
containing all required information. However, no transfer may be made effective
within seven calendar days of the date on which the first annuity payment is
due. No transfers may occur until the end of the Free Look Period. (See
"Highlights.")
e. Any transfer direction must clearly specify the amount which is to be
transferred and the Contract Sub-Accounts which are to be affected.
f. After the Income Date, no transfers may be made if it would result in any
selected Contract Sub-Account providing less than 10% of the annuity benefits
under the Contract.
g. After the Income Date, transfers may not take place between a Fixed Annuity
Option and a Variable Annuity Option.
A Contract Owner may elect to make transfers by telephone. To elect this option
the Contract Owner must do so in writing to the Company. If there are Joint
Owners, unless the Company is informed to the contrary, instructions will be
accepted from either one of the Joint Owners. The Company will use reasonable
procedures to confirm that instructions communicated by telephone are genuine.
If it does not, the Company may be liable for any losses due to unauthorized or
fraudulent instructions. The Company tape records all telephone instructions.
Transfers do not change the allocation instructions for future payments. (See
"Purchase Payments and Contract Value - Allocation of Purchase Payments.")
Dollar Cost Averaging
Dollar Cost Averaging is a program which, if elected, enables a Contract Owner
to systematically allocate specified dollar amounts from the Money Market
Sub-Account or the U.S. Government Securities Sub-Account to the other Contract
Sub-Accounts (maximum of eight) at regular intervals. By allocating on a
regularly scheduled basis as opposed to allocating the total amount at one
particular time, a Contract Owner may be less susceptible to the impact of
market fluctuations.
Dollar Cost Averaging may be selected for 12 to 36 months. The minimum amount
per period to allocate is $1,000. All Dollar Cost Averaging transfers will be
made effective the tenth of the month (or the next Valuation Date if the tenth
of the month is not a Valuation Date). Election into this program may occur at
any time by properly completing the Dollar Cost Averaging election form,
returning it to the Company by the first of the month, to be effective that
month, and insuring that sufficient value is in either the Money Market
Sub-Account or the U.S. Government Securities Sub-Account. When utilizing the
Dollar Cost Averaging program, a Contract Owner must be invested in either the
Money Market Sub-Account or the U.S. Government Securities Sub-Account and may
invest in a maximum of eight of the other Contract Sub-Accounts.
Dollar Cost Averaging will terminate when any of the following occurs: (1) the
number of designated transfers has been completed; (2) the value of the Money
Market Sub-Account or the U.S. Government Securities Sub-Account (as applicable)
is insufficient to complete the next transfer; (3) the Contract Owner requests
termination in writing and such writing is received by the first of the month in
order to cancel the transfers scheduled to take effect that month; or (4) the
Contract is terminated. The Dollar Cost Averaging program may not be active
following the Income Date. There is no current charge for Dollar Cost Averaging
but the Company reserves the right to charge for this program. The Company does
not intend to profit from any such charge. In the event there are additional
transfers, the transfer fee may be charged. Transfers made pursuant to the
Dollar Cost Averaging program are not counted in determining the applicability
of the transfer fee.
Contract Value
The value of the Contract is the sum of the values attributable to the Contract
for each Contract Sub-Account. The value of each Contract Sub-Account is
determined by multiplying the number of Accumulation Units attributable to the
Contract in the Contract Sub-Account by the value of an Accumulation Unit for
the Contract Sub-Account.
Accumulation Unit
For each Contract Sub-Account, purchase payments are converted into Accumulation
Units. This is done by dividing each purchase payment by the value of an
Accumulation Unit for the Valuation Period during which the purchase payment is
allocated to the Contract Sub-Account. The Accumulation Unit value for each
Contract Sub-Account was initially arbitrarily set. The Accumulation Unit value
for any later Valuation Period is determined by subtracting (b) from (a) and
dividing the result by (c) where:
a. is the net result of
1) the assets of the Contract Sub-Account attributable to Accumulation Units
(i.e., the aggregate value of the underlying Eligible Investments held at the
end of such Valuation Period); plus or minus
2) the cumulative charge or credit for taxes reserved which is determined by
the Company to have resulted from the operation of the Contract Sub-Account;
b. is the cumulative unpaid charge for the Mortality and Expense Risk Charge and
for the Administrative Expense Charge (See "Charges and Deductions"); and
c. is the number of Accumulation Units outstanding at the end of such Valuation
Period.
The Company has determined that mathematically there is an alternative method
for calculating the Accumulation Unit value which will result in equal values.
The Company may choose to use that method at its discretion. That method is the
following: The Accumulation Unit value is determined by dividing A by B and
multiplying by one minus C where:
A is the net asset value per share of the Portfolio held by the Contract
Sub-Account at the end of the current Valuation Period, plus any dividend or
capital gains per share declared on behalf of the Portfolio that has an
ex-dividend date within the current Valuation Period.
B is the net asset value per share of the Portfolio held by the Contract
Sub-Account for the immediately preceding Valuation Period.
C is the Valuation period equivalent of the daily Mortality and Expense Risk
Charge, the Administrative Charge, plus a charge factor, if any, for taxes or
any tax reserve the Company has established as a result of the operation or
maintenance of the Contract Sub-Account.
The Accumulation Unit value may increase or decrease from Valuation Period to
Valuation Period.
Distributor
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NALAC Financial Plans, LLC ("NFP"), 1750 Hennepin Avenue, Minneapolis,
Minnesota, 55403, acts as the distributor of the Contracts. NFP is a
wholly-owned subsidiary of Allianz Life, the Company's parent. The Contracts are
offered on a continuous basis. NFP has subcontracted with Franklin Advisers,
Inc. ("Advisers") for it and/or certain of its affiliates to provide certain
marketing support services and NFP compensates these entities for their
services.
Commissions will be paid to broker-dealers who sell the Contracts.
Broker-dealers will be paid commissions and expense reimbursements up to an
amount equal to 6.0% of purchase payments for promotional or distribution
expenses associated with the marketing of the Contracts. The New York Insurance
Department now permits asset based compensation. The Company may adopt an asset
based compensation program in addition to, or in lieu of, the present
compensation program. In addition, commissions may be recovered from
broker-dealers if a full or partial surrender occurs within 12 months of a
purchase payment.
Surrenders
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While the Contract is in force and before the Income Date, the Company will,
upon request to the Company by the Contract Owner, allow the surrender of all or
a portion of the Contract for its Surrender Value. Surrenders will result in the
cancellation of Accumulation Units from each applicable Contract Sub-Account in
the ratio that the value of each Contract Sub-Account bears to the total
Contract Value. The Contract Owner must specify which units are to be canceled
if other than the above mentioned method of cancellation is desired. The Company
will pay the amount of any surrender from the Variable Account within seven (7)
days of receipt of a valid request, unless the "Delay of Payments" provision is
in effect. (See "Surrenders - Delay of Payments.")
Certain tax surrender penalties and restrictions may apply to surrenders from
the Contracts. (See "Tax Status.") For Contracts purchased in connection with
403(b) plans, the Code limits the surrender of amounts attributable to
contributions made pursuant to a salary reduction agreement (as defined in
Section 403(b)(11) of the Code) to circumstances only when the Contract Owner:
(1) attains age 591/2; (2) separates from service; (3) dies; (4) becomes
disabled (within the meaning of Section 72(m)(7) of the Code); or (5) in the
case of hardship. However, surrenders for hardship are restricted to the portion
of the Contract Owner's Contract Value which represents contributions by the
Contract Owner and does not include any investment results. The limitations on
surrenders became effective January 1, 1989 and apply only to salary reduction
contributions made after December 31, 1988, to income attributable to such
contributions and to income attributable to amounts held as of December 31,
1988. The limitations on surrenders do not affect rollovers or transfers between
certain Qualified Plans. Contract Owners should consult their own tax counsel or
other tax adviser regarding any distributions.
Systematic Withdrawal
The Company permits a systematic withdrawal plan which enables a Contract Owner
to pre-authorize a periodic exercise of the contractual surrender rights
described above. Income taxes and certain tax penalties and restrictions may
apply to systematic withdrawals from the Contracts. (See "Federal Tax Status -
Tax Treatment of Surrenders - Non-Qualified Contracts" and "Tax Treatment of
Surrenders - Qualified Contracts.") Contract Owners entering into such a plan
instruct the Company to surrender a level dollar amount from the Contract on a
monthly or quarterly basis. Currently, systematic withdrawal on a monthly or
quarterly basis is available to Contract Owners who have a Contract Value of
$50,000 or more and on a quarterly basis only to Contract Owners who have a
Contract Value of at least $20,000 but less than $50,000. The amount deducted
will result in the cancellation of Accumulation Units from each applicable
Contract Sub-Account in the ratio that the value of each Contract Sub-Account
bears to the total Contract Value. The Contract Owner must specify in writing in
advance which units are to be canceled if other than the above mentioned method
of cancellation is desired. The Company reserves the right to modify the
eligibility rules at any time, without notice. The total systematic withdrawal
in a Contract Year which can be made without incurring a Contingent Deferred
Sales Charge is limited to not more than 9% of the Contract Value. However, the
9% limit may be increased to allow systematic withdrawals to meet applicable
minimum distribution requirements for Qualified Contracts. The exercise of the
systematic withdrawal plan in any Contract Year replaces the 15% free surrender
amount which is allowable each year. Any other surrender in a year when the
systematic withdrawal plan has been utilized will be subject to the Contingent
Deferred Sales Charge.
Delay of Payments
The Company reserves the right to suspend or postpone payments for any period
when:
1. the New York Stock Exchange is closed (other than customary weekend and
holiday closings);
2. trading on the New York Stock Exchange is restricted;
3. an emergency exists as a result of which disposal of securities held in the
Variable Account is not reasonably practicable or it is not reasonably
practicable to determine the value of the Variable Account's net assets; or
4. during any other period when the Securities and Exchange Commission, by
order, so permits for the protection of Contract Owners.
The applicable rules and regulations of the Securities and Exchange Commission
will govern as to whether the conditions described in 2. and 3. exist.
Administration of the Contracts
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While the Company has primary responsibility for all administration of the
Contracts, it has retained the services of Delaware Valley Financial Services,
Inc. ("DVFS" or "Valuemark Service Center") pursuant to an Administration
Agreement. Such administrative services include issuance of the Contracts and
maintenance of Contract Owners' records. The Company pays all fees and charges
of DVFS. DVFS serves as the administrator to various insurance companies
offering variable and fixed annuity and variable life insurance contracts. The
Company's ability to administer the Contracts could be adversely affected should
DVFS elect to terminate the Agreement.
Performance Data
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Money Market Sub-Account
From time to time, the Company may advertise the "yield" and "effective yield"
of the Money Market Sub-Account. Both yield figures will be based on historical
earnings and are not intended to indicate future performance. The "yield" of the
Money Market Sub-Account refers to the income generated by Contract Values in
the Money Market Sub-Account over a seven-day period (which period will be
stated in the advertisement). This income is then "annualized." That is, the
amount of income generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
Contract Values in the Money Market Sub-Account. The "effective yield" is
calculated similarly but, when annualized, the income earned by Contract Values
in the Money Market Sub-Account is assumed to be reinvested. The "effective
yield" will be slightly higher than the "yield" because of the compounding
effect of this assumed reinvestment. The computation of the yield calculation
includes a deduction for the Mortality and Expense Risk Charge, the
Administrative Expense Charge and the Contract Maintenance Charge.
Other Contract Sub-Accounts
From time to time, the Company may publish the current yields and total returns
of the other Contract Sub-Accounts in sales literature, advertisements and
communications to Contract Owners. The current yield for each Contract
Sub-Account will be calculated by dividing the annualization of the interest
income earned by the underlying Portfolio during a recent 30-day period by the
maximum Accumulation Unit value at the end of such period. Total return
information will include the Contract Sub-Account's average annual total return
over the most recent four calendar quarters, the period from the Contract
Sub-Account's inception of operations, and, for Contract Sub-Accounts in
existence for five years or more, for five years. The average annual total
return is based upon the value of the Accumulation Units acquired through a
hypothetical $1,000 investment of the Accumulation Unit value at the beginning
of the specified period and the value of the Accumulation Unit at the end of
such period, assuming reinvestment of all distributions and the deduction of the
Mortality and Expense Risk Charge, Administrative Expense Charge, Contingent
Deferred Sales Charge, and Contract Maintenance Charge. Each Contract
Sub-Account may also advertise cumulative and total return information over
different periods of time without the Contingent Deferred Sales Charge and
Contract Maintenance Charge. The performance of the Contract Sub-Accounts
reflects the historical performance of the Portfolios whose inception dates
preceded the inception dates of the Contract Sub-Accounts. Performance
information for the Portfolios may also be advertised; see the Trust prospectus
for more information.
The Company may, in addition, advertise or present yield or total return
performance information computed on a different basis. Contract Owners should
note that the investment results of each Contract Sub-Account will fluctuate
over time, and any presentation of a Contract 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 Contract Sub-Accounts of the Variable
Account may be compared in its advertisements and sales literature to the
performance of other variable annuity issuers in general or to the performance
of particular types of variable annuities investing in mutual funds, or series
of mutual funds with investment objectives similar to each of the Contract
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 Portfolios 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.
Federal Tax Status
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NOTE: The following description is based upon the Company's understanding of
current federal income tax law applicable to annuities in general. The Company
cannot predict the probability that any changes in such laws will be made.
Purchasers are cautioned to seek competent tax advice regarding the possibility
of such changes. The Company does not guarantee the tax status of the Contracts.
Purchasers bear the complete risk that the Contracts may not be treated as
"annuity contracts" under federal income tax laws. It should be further
understood that the following discussion is not exhaustive and that special
rules not described in this Prospectus may be applicable in certain situations.
Moreover, no attempt has been made to consider any applicable state or other tax
laws.
General
Section 72 of the Code governs taxation of annuities in general. A Contract
Owner is not taxed on increases in the value of a Contract until distribution
occurs, either in the form of a lump sum payment or as annuity payments under
the Settlement Option elected. For a lump sum payment received as a total
surrender (total redemption) or death benefit, the recipient is taxed on the
portion of the payment that exceeds the cost basis of the Contract. For
Non-Qualified Contracts, this cost basis is generally the purchase payments,
while for Qualified Contracts there may be no cost basis. The taxable portion of
the lump sum payment is taxed at ordinary income tax rates.
For annuity payments, a portion of each payment in excess of an exclusion amount
is includible in taxable income. The exclusion amount for payments based on a
fixed annuity option is determined by multiplying the payment by the ratio that
the cost basis of the Contract (adjusted for any period certain or refund
feature) bears to the expected return under the Contract. The exclusion amount
for payments based on a variable annuity option is determined by dividing the
cost basis of the Contract (adjusted for any period certain or refund guarantee)
by the number of years over which the annuity is expected to be paid. Payments
received after the investment in the Contract has been recovered (i.e., when the
total of the excludable amounts equal the investment in the Contract) are fully
taxable. The taxable portion is taxed at ordinary income rates. For certain
types of Qualified Plans there may be no cost basis in the Contract within the
meaning of Section 72 of the Code. Contract Owners, Annuitants and Beneficiaries
under the Contracts should seek competent financial advice about the tax
consequences of any distributions.
The Company is taxed as a life insurance company under the Code. For federal
income tax purposes, the Variable Account is not a separate entity from the
Company and its operations form a part of the Company.
Diversification
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not adequately
diversified in accordance with regulations prescribed by the United States
Treasury Department ("Treasury Department"). Disqualification of the Contract as
an annuity contract would result in imposition of federal income tax to the
Contract Owner with respect to earnings allocable to the Contract prior to the
receipt of payments under the Contract. The Code contains a safe harbor
provision which provides that annuity contracts such as the Contracts meet the
diversification requirements if, as of the end of each quarter, the underlying
assets meet the diversification standards for a regulated investment company and
no more than fifty-five percent (55%) of the total assets consist of cash, cash
items, U.S. government securities and securities of other regulated investment
companies.
On March 2, 1989, the Treasury Department issued Regulations (Treas. Reg.
1.817-5) which established diversification requirements for the investment
portfolios underlying variable contracts such as the Contracts. The Regulations
amplify the diversification requirements for variable contracts set forth in the
Code and provide an alternative to the safe harbor provision described above.
Under the Regulations, an investment portfolio will be deemed adequately
diversified if: (1) no more than 55% of the value of the total assets of the
portfolio is represented by any one investment; (2) no more than 70% of the
value of the total assets of the portfolio is represented by any two
investments; (3) no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and (4) no more than 90% of
the value of the total assets of the portfolio is represented by any four
investments.
The Code provides that for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable contracts
by Section 817(h) of the Code have been met, "each United States government
agency or instrumentality shall be treated as a separate issuer."
The Company intends that all Portfolios of the Trust underlying the Contracts
will be managed by the managers for the Trust in such a manner as to comply with
these diversification requirements.
The Treasury Department has indicated that the diversification Regulations do
not provide guidance regarding the circumstances in which Contract Owner control
of the investments of the Variable Account will cause the Contract Owner to be
treated as the owner of the assets of the Variable Account, thereby resulting in
the loss of favorable tax treatment for the Contract. At this time it cannot be
determined whether additional guidance will be provided and what standards may
be contained in such guidance.
The amount of Contract Owner control which may be exercised under the Contract
is different in some respects from the situations addressed in published rulings
issued by the Internal Revenue Service in which it was held that the policy
owner was not the owner of the assets of the separate account. It is unknown
whether these differences, such as the Contract Owner's ability to transfer
among investment choices or the number and type of investment choices available,
would cause the Contract Owner to be considered as the owner of the assets of
the Variable Account resulting in the imposition of federal income tax to the
Contract Owner with respect to earnings allocable to the Contract prior to
receipt of payments under the Contract.
In the event any forthcoming guidance or ruling is considered to set forth a new
position, such guidance or ruling will generally be applied only prospectively.
However, if such ruling or guidance was not considered to set forth a new
position, it may be applied retroactively resulting in the Contract Owner being
retroactively determined to be the owner of the assets of the Variable Account.
Due to the uncertainty in this area, the Company reserves the right to modify
the Contract in an attempt to maintain favorable tax treatment.
Multiple Contracts
The Code provides that multiple non-qualified annuity contracts which are issued
within a calendar year period to the same contract owner by one company or its
affiliates are treated as one annuity contract for purposes of determining the
tax consequences of any distribution. Such treatment may result in adverse tax
consequences, including more rapid taxation of the distributed amounts from such
combination of contracts. Contract Owners should consult a tax adviser prior to
purchasing more than one non-qualified annuity contract in any calendar year
period.
Contracts Owned by Other than Natural Persons
Under Section 72(u) of the Code, the investment earnings on premiums for the
Contracts will be taxed currently to the Contract Owner if the Owner is a
non-natural person, e.g., a corporation, or certain other entities. Such
Contracts generally will not be treated as annuities for federal income tax
purposes. However, this treatment is not applied to Contracts held by a trust or
other entity as an agent for a natural person nor to Contracts held by Qualified
Plans. Purchasers should consult their own tax counsel or other tax adviser
before purchasing a Contract to be owned by a non-natural person.
Tax Treatment of Assignments
An assignment or pledge of a Contract may be a taxable event. Contract Owners
should therefore consult competent tax advisers should they wish to assign their
Contracts.
Income Tax Withholding
All distributions or the portion thereof which is includible in the gross income
of the Contract Owner are subject to federal income tax withholding. Generally,
amounts are withheld from periodic payments at the same rate as wages and at the
rate of 10% from non-periodic payments. However, the Contract Owner, in most
cases, may elect not to have taxes withheld or to have withholding done at a
different rate.
Effective January 1, 1993, certain distributions from retirement plans qualified
under Section 401 or Section 403(b) of the Code, which are not directly rolled
over to another eligible retirement plan or individual retirement account or
individual retirement annuity, are subject to a mandatory 20% withholding for
federal income tax. The 20% withholding requirement generally does not apply to:
a) a series of substantially equal payments made at least annually for the life
or life expectancy of the participant or joint and last survivor expectancy of
the participant and a designated beneficiary, or for a specified period of 10
years or more; or b) distributions which are required minimum distributions; or
c) the portion of the distributions not includible in gross income (i.e. returns
of after-tax contributions.) Participants should consult their own tax counsel
or other tax adviser regarding withholding requirements.
Tax Treatment of Surrenders -
Non-Qualified Contracts
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the Contract Value exceeds the aggregate purchase
payments made, any amount surrendered will be treated as coming first from the
earnings and then, only after the income portion is exhausted, as coming from
the principal. Surrendered earnings are includible in gross income. It further
provides that a ten percent (10%) penalty will apply to the income portion of
any distribution. However, the penalty is not imposed on amounts received: (a)
after the taxpayer reaches age 591/2; (b) after the death of the Contract Owner;
(c) if the taxpayer is totally disabled (for this purpose disability is as
defined in Section 72(m)(7) of the Code); (d) in a series of substantially equal
periodic payments made not less frequently than annually for the life (or life
expectancy) of the taxpayer or for the joint lives (or joint life expectancies)
of the taxpayer and his Beneficiary; (e) under an immediate annuity; or (f)
which are allocable to purchase payments made prior to August 14, 1982.
The above information does not apply to Qualified Contracts. However, separate
tax surrender penalties and restrictions may apply to such Qualified Contracts.
(See "Tax Treatment of Surrenders - Qualified Contracts.")
Qualified Plans
The Contracts offered by this Prospectus are designed to be suitable for use
under various types of Qualified Plans. Because of the minimum purchase payment
requirements, these Contracts may not be appropriate for some periodic payment
retirement plans. Taxation of participants in each Qualified Plan varies with
the type of plan and terms and conditions of each specific plan. Contract
Owners, Annuitants and Beneficiaries are cautioned that benefits under a
Qualified Plan may be subject to the terms and conditions of the plan regardless
of the terms and conditions of the Contracts issued pursuant to the plan. Some
retirement plans are subject to distribution and other requirements that are not
incorporated into the Company's administrative procedures. Contract Owners,
participants and Beneficiaries are responsible for determining that
contributions, distributions and other transactions with respect to the
Contracts comply with applicable law. Following are general descriptions of the
types of Qualified Plans with which the Contracts may be used. Such descriptions
are not exhaustive and are for general informational purposes only. The tax
rules regarding Qualified Plans are very complex and will have differing
applications depending on individual facts and circumstances. Each purchaser
should obtain competent tax advice prior to purchasing a Contract issued under a
Qualified Plan.
On July 6, 1983, the Supreme Court decided in Arizona Governing Committee v.
Norris that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. The Contracts sold by the Company in connection with
Qualified Plans will utilize annuity tables which do not differentiate on the
basis of sex. Such annuity tables will also be available for use in connection
with certain non-qualified deferred compensation plans.
Contracts issued pursuant to Qualified Plans include special provisions
restricting Contract provisions that may otherwise be available and described in
this Prospectus. Generally, Contracts issued pursuant to Qualified Plans are not
transferable except upon surrender or annuitization. Various penalty and excise
taxes may apply to contributions or distributions made in violation of
applicable limitations. Furthermore, certain surrender penalties and
restrictions may apply to surrenders from Qualified Contracts. (See "Tax
Treatment of Surrenders - Qualified Contracts.")
a. H.R. 10 Plans
Section 401 of the Code permits self-employed individuals to establish
Qualified Plans for themselves and their employees, commonly referred to as
"H.R. 10" or "Keogh" plans. Contributions made to the Plan for the benefit of
the employees will not be included in the gross income of the employees until
distributed from the Plan. The tax consequences to participants may vary,
depending upon the particular plan design. However, the Code places limitations
and restrictions on all Plans, including on such items as: amounts of allowable
contributions; form, manner and timing of distributions; transferability of
benefits; vesting and nonforfeitability of interests; nondiscrimination in
eligibility and participation, and the tax treatment of distributions and
surrenders. (See "Tax Treatment of Surrenders Qualified Contracts.") Purchasers
of Contracts for use with an H.R. 10 Plan should obtain competent tax advice as
to the tax treatment and suitability of such an investment.
b. Tax-Sheltered Annuities
Section 403(b) of the Code permits the purchase of "tax-sheltered annuities"
by public schools and certain charitable, educational and scientific
organizations described in Section 501(c)(3) of the Code. These qualifying
employers may make contributions to the Contracts for the benefit of their
employees. Such contributions are not includible in the gross income of the
employee until the employee receives distributions from the Contract. The amount
of contributions to the tax-sheltered annuity is limited to certain maximums
imposed by the Code. Furthermore, the Code sets forth additional restrictions
governing such items as transferability, distributions, nondiscrimination and
surrenders. (See "Tax Treatment of Surrenders - Qualified Contracts" and "Tax
Sheltered Annuities - Surrender Limitations.") Employee loans are not allowed
under these Contracts. Any employee should obtain competent tax advice as to the
tax treatment and suitability of such an investment.
c. Individual Retirement Annuities
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity"
("IRA"). Under applicable limitations, certain amounts may be contributed to an
IRA which may be deductible from the individual's gross income. These IRAs are
subject to limitations on eligibility, contributions, transferability and
distributions. (See "Tax Treatment of Surrenders - Qualified Contracts.") Under
certain conditions, distributions from other IRAs and other Qualified Plans may
be rolled over or transferred on a tax-deferred basis into an IRA. Sales of
Contracts for use with IRAs are subject to special requirements imposed by the
Code, including the requirement that certain informational disclosure be given
to persons desiring to establish an IRA. Purchasers of Contracts to be qualified
as Individual Retirement Annuities should obtain competent tax advice as to the
tax treatment and suitability of such an investment.
Roth IRAs
Beginning in 1998, individuals may purchase a new type of non-deductible IRA,
known as a Roth IRA. Purchase payments for a Roth IRA are limited to a maximum
of $2,000 per year. Lower maximum limitations apply to individuals with adjusted
gross incomes between $95,000 and $110,000 in the case of single taxpayers,
between $150,000 and $160,000 in the case of married taxpayers filing joint
returns, and between $0 and $10,000 in the case of married taxpayers filing
separately. An overall $2,000 annual limitation continues to apply to all of a
taxpayer's IRA contributions, including Roth IRA and non-Roth IRAs.
Qualified distributions from Roth IRAs are free from federal income tax. A
qualified distribution requires that an individual has held the Roth IRA for at
least five years and, in addition, that the distribution is made either after
the individual reaches age 591/2, on the individual's death or disability, or as
a qualified first-time home purchase, subject to a $10,000 lifetime maximum, for
the individual, a spouse, child, grandchild, or ancestor. Any distribution which
is not a qualified distribution is taxable to the extent of earnings in the
distribution. Distributions are treated as made from contributions first and
therefore no distributions are taxable until distributions exceed the amount of
contributions to the Roth IRA. The 10% penalty tax and the regular IRA
exceptions to the 10% penalty tax apply to taxable distributions from a Roth
IRA.
Amounts may be rolled over from one Roth IRA to another Roth IRA.
Furthermore, an individual may make a rollover contribution from a non-Roth IRA
to a Roth IRA, unless the individual has adjusted gross income over $100,000 or
the individual is a married taxpayer filing a separate return. The individual
must pay tax on any portion of the IRA being rolled over that represents income
or a previously deductible IRA contribution. However, for rollovers in 1998, the
individual may pay that tax ratably over the four taxable year periods beginning
with tax year 1998.
Purchasers of Contracts to be qualified as a Roth IRA should obtain competent
tax advice as to the tax treatment and suitability of such an investment.
d. Corporate Pension and Profit-Sharing Plans
Sections 401(a) and 401(k) of the Code permit corporate employers to
establish various types of retirement plans for employees. These retirement
plans may permit the purchase of the Contracts to provide benefits under the
Plan. Contributions to the Plan for the benefit of employees will not be
includible in the gross income of the employee until distributed from the Plan.
The tax consequences to participants may vary, depending upon the particular
plan design. However, the Code places limitations and restrictions on all Plans,
including on such items as: amount of allowable contributions; form, manner and
timing of distributions; transferability of benefits; vesting and
nonforfeitability of interests; nondiscrimination in eligibility and
participation; and the tax treatment of distributions and surrenders.
Participant loans are not allowed under the Contracts purchased in connection
with these Plans. (See "Tax Treatment of Surrenders - Qualified Contracts.")
Purchasers of Contracts for use with Corporate Pension or Profit-Sharing Plans
should obtain competent tax advice as to the tax treatment and suitability of
such an investment.
Tax Treatment of Surrenders -
Qualified Contracts
In the case of a surrender under a Qualified Contract, a ratable portion of the
amount received is taxable, generally based on the ratio of the individual's
cost basis to the individual's total accrued benefit under the retirement plan.
Special tax rules may be available for certain distributions from a Qualified
Contract. Section 72(t) of the Code imposes a 10% penalty tax on the taxable
portion of any distribution from qualified retirement plans, including Contracts
issued and qualified under Code Sections 401 (H.R. 10 and Corporate Pension and
Profit-Sharing Plans), 403(b) (Tax-Sheltered Annuities) and 408(b) (Individual
Retirement Annuities). To the extent amounts are not includible in gross income
because they have been properly rolled over to an IRA or to another eligible
Qualified Plan, no tax penalty will be imposed. The tax penalty will not apply
to the following distributions: (a) if distribution is made on or after the date
on which the Contract Owner or Annuitant (as applicable) reaches age 591/2; (b)
distributions following the death or disability of the Contract Owner or
Annuitant (as applicable) (for this purpose disability is as defined in Section
72(m)(7) of the Code); (c) after separation from service, distributions that are
part of substantially equal periodic payments made not less frequently than
annually for the life (or life expectancy) of the Contract Owner or Annuitant
(as applicable) or the joint lives (or joint life expectancies) of such Contract
Owner or Annuitant (as applicable) and his designated beneficiary; (d)
distributions to a Contract Owner or Annuitant (as applicable) who has separated
from service after he has attained age 55; (e) distributions made to the
Contract Owner or Annuitant (as applicable) to the extent such distributions do
not exceed the amount allowable as a deduction under Code Section 213 to the
Contract Owner or Annuitant (as applicable) for amounts paid during the taxable
year for medical care; (f) distributions made to an alternate payee pursuant to
a qualified domestic relations order; (g) distributions from an Individual
Retirement Annuity for the purchase of medical insurance (as described in
Section 213(d)(1)(D) of the Code) for the Contract Owner or Annuitant (as
applicable) and his or her spouse and dependents if the Contract Owner or
Annuitant (as applicable) has received unemployment compensation for at least 12
weeks (this exception will no longer apply after the Contract Owner or Annuitant
(as applicable) has been re-employed for at least 60 days); (h) distributions
from an Individual Retirement Annuity made to the Owner or Annuitant (as
applicable) to the extent such distributions do not exceed the qualified higher
education expenses (as defined in Section 72(t)(7) of the Code) of the Owner or
Annuitant (as applicable) for the taxable year; and (i) distributions from an
Individual Retirement Annuity made to the Owner or Annuitant (as applicable)
which are qualified first-time home buyer distributions (as defined in Section
72(t)(8) of the Code). The exceptions stated in items (d), and (f) above do not
apply in the case of an Individual Retirement Annuity. The exception stated in
item (c) applies to an Individual Retirement Annuity without the requirement
that there be a separation from service.
Generally, distributions from a Qualified Plan must commence no later than April
1 of the calendar year following the later of: (a) the year in which the
employee attains age 701/2 or (b) the calendar year in which the employee
retires. The date set forth in (b) does not apply to an Individual Retirement
Annuity. Required distributions must be over a period not exceeding the life or
life expectancy of the individual or the joint lives or life expectancies of the
individual and his or her designated beneficiary. If the required minimum
distributions are not made, a 50% penalty tax is imposed as to the amount not
distributed.
Tax-Sheltered Annuities - Surrender Limitations
The Code limits the surrender of amounts attributable to contributions made
pursuant to a salary reduction agreement (as defined in Section 403(b)(11) of
the Code) to circumstances only when the Contract Owner: (1) attains age 591/2;
(2) separates from service; (3) dies; (4) becomes disabled (within the meaning
of Section 72(m)(7) of the Code); or (5) in the case of hardship. However,
surrenders for hardship are restricted to the portion of the Contract Owner's
Contract Value which represents contributions by the Contract Owner and does not
include any investment results. The limitations on surrenders became effective
on January 1, 1989 and apply only to salary reduction contributions made after
December 31, 1988, to income attributable to such contributions and to income
attributable to amounts held as of December 31, 1988. The limitations on
surrenders do not affect rollovers or transfers between certain Qualified Plans.
Contract Owners should consult their own tax counsel or other tax adviser
regarding any distributions.
Financial Statements
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Audited financial statements of the Company and audited financial statements of
the Variable Account as of and for the year ended December 31, 1997 are included
in the Statement of Additional Information.
Legal Proceedings
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There are no legal proceedings to which the Variable Account or the Distributor
is a party or to which the assets of the Variable Account are subject. The
Company is not involved in any litigation that is of material importance in
relation to its total assets or that relates to the Variable Account.
Table of Contents of the
Statement of Additional Information
- -------------------------------------------------------------------------------
Item Page
Company ......................................... 2
Experts ......................................... 2
Legal Opinions .................................. 2
Distributor ..................................... 2
Calculation of Performance Data ................. 2
Total Return .................................. 2
Yield ......................................... 2
Performance Ranking ........................... 3
Performance Information ....................... 3
Annuity Provisions .............................. 6
Variable Annuity Payout ....................... 6
Annuity Unit Value ............................ 6
Fixed Annuity Payout .......................... 7
Financial Statements ............................ 7
PART B
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL FLEXIBLE PAYMENT
VARIABLE ANNUITY CONTRACTS
issued by
PREFERRED LIFE VARIABLE ACCOUNT C
and
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
May 1, 1998
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS FOR THE INDIVIDUAL FLEXIBLE PAYMENT
VARIABLE ANNUITY CONTRACTS WHICH ARE REFERRED TO HEREIN.
THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT A PROSPECTIVE INVESTOR
OUGHT TO KNOW BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS, CALL OR WRITE THE
COMPANY AT: 152 West 57th Street, 18th Floor, New York, NY 10019, (800)
342-3863.
THIS STATEMENT OF ADDITIONAL INFORMATION AND THE PROSPECTUS ARE DATED MAY 1,
1998, AND AS MAY BE AMENDED FROM TIME TO TIME.
Table of Contents
Contents Page
Company........................................ 2
Experts........................................ 2
Legal Opinions................................. 2
Distributor.................................... 2
Calculation of Performance Data................ 2
Total Return.................................. 2
Yield......................................... 2
Performance Ranking........................... 3
Performance Information....................... 3
Annuity Provisions............................. 6
Variable Annuity Payout....................... 6
Annuity Unit Value............................ 6
Fixed Annuity Payout.......................... 7
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+e (Superior, parent rating) by A.M. BEST, an independent analyst of the
insurance industry. The financial strength of an insurance company may be
relevant insofar as the ability of a company to make fixed annuity payments from
its general account.
Experts
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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, 1997
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
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Blazzard, Grodd & Hasenauer, P.C., Westport, Connecticut has provided advice on
certain matters relating to the federal securities and income tax laws in
connection with the Contracts.
Distributor
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NALAC Financial Plans, LLC, a subsidiary of Allianz Life Insurance Company of
North America, the Company's parent, acts as the distributor. The offering is on
a continuous basis.
Calculation of Performance Data
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Total Return
From time to time, the Company may advertise the performance data for the
Contract Sub-Accounts in sales literature, advertisements, personalized
hypothetical illustrations, and Contract Owner communications. Such data will
show the percentage change in the value of an accumulation unit based on the
performance of a Contract Sub-Account over a stated period of time which is
determined by dividing the increase (or decrease) in value for that unit by the
accumulation unit value at the beginning of the period.
Any such performance data will include total return figures for the one, five,
and ten year (or since inception) time periods indicated. Such total return
figures will reflect the deduction of a 1.25% Mortality and Expense Risk Charge,
a 0.15% Administrative Expense Charge, the operating expenses of the underlying
Portfolios and any applicable Contingent Deferred Sales Charge and Contract
Maintenance Charge ("Standardized Total Return"). The Contingent Deferred Sales
Charge and Contract Maintenance Charge deductions are calculated assuming a
Contract is surrendered at the end of the reporting period.
The hypothetical value of a Contract purchased for the time periods described
will be determined by using the actual accumulation unit values for an initial
$1,000 purchase payment, and deducting any applicable Contingent Deferred Sales
Charge and Contract Maintenance Charge to arrive at the ending hypothetical
value. The average annual total return is then determined by computing the fixed
interest rate that a $1,000 purchase payment would have to earn annually,
compounded annually, to grow to the hypothetical value at the end of the time
periods described. The formula used in these calculations is:
P(1+T)n = ERV
where:
P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years;
ERV = ending redeemable value of a hypothetical $1,000 purchase payment made at
the beginning of the period at the end of the period.
The Company may also advertise performance data which will be calculated in the
same manner as described above but which will not reflect the deduction of the
Contingent Deferred Sales Charge and the Contract Maintenance Charge. Cumulative
total return is calculated in a similar manner as described above except that
the results are not annualized. The Company may also advertise cumulative and
total return information over different periods of time. The Company may also
present performance information computed on a different basis ("Non-Standardized
Total Return").
Yield
The Money Market Sub-Account. The Company may advertise yield information for
the Money Market Sub-Account. The Money Market Sub-Account's current yield may
vary each day, depending upon, among other things, the average maturity of the
underlying Portfolio's investment securities and changes in interest rates,
operating expenses, the deduction of the Mortality and Expense Risk Charge, the
Administrative Expense Charge and the Contract Maintenance Charge and, in
certain instances, the value of the underlying Portfolio's investment
securities. The fact that the Contract Sub-Account's current yield will
fluctuate and that the principal is not guaranteed should be taken into
consideration when using the Contract Sub-Account's current yield as a basis for
comparison with savings accounts or other fixed-yield investments. The yield at
any particular time is not indicative of what the yield may be at any other
time.
The Money Market Sub-Account's current yield is computed on a base period return
of a hypothetical Contract having a beginning balance of one accumulation unit
for a particular period of time (generally seven days). The return is determined
by dividing the net change (exclusive of any capital changes) in such
accumulation unit by its beginning value, and then multiplying it by 365/7 to
get the annualized current yield. The calculation of net change reflects the
value of additional shares purchased with the dividends paid by the Portfolio,
and the deduction of the Mortality and Expense Risk Charge, Administrative
Expense Charge and Contract Maintenance Charge.
The effective yield reflects the effects of compounding and represents an
annualization of the current return with all dividends reinvested. (Effective
yield = [(Base Period Return + 1)365/7]-1.)
For the seven-day period ending on 12/31/97, the Money Market Sub-Account had a
current yield of 3.88% and an effective yield of 3.95%. The yield information
assumes that the Contract Sub-Account was invested in the Money Market Fund for
the time period shown.
Other Contract Sub-Accounts. The Company may also quote yield in sales
literature, advertisements, personalized hypothetical illustrations, and
Contract Owner communications for the other Contract Sub-Accounts. Each Contract
Sub-Account (other than the Money Market Sub-Account) will publish standardized
total return information with any quotation of current yield.
The yield computation is determined by dividing the net investment income per
accumulation unit earned during the period (minus the deduction for the
Mortality and Expense Risk Charge, Administrative Expense Charge and Contract
Maintenance Charge) by the accumulation unit value on the last day of the period
and annualizing the resulting figure, according to the following formula:
Yield = 2 [((a-b) + 1)6 - 1]
-----
cd
where:
a = net investment income earned during the period by the Fund attributable to
shares owned by the Contract Sub-Account;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of accumulation units outstanding during the
period;
d = the maximum offering price per accumulation unit on the last day of the
period.
The above formula will be used in calculating quotations of yield, based on
specified 30-day periods (or one month) identified in the sales literature,
advertisement, or communication. Yield calculations assume that no Contingent
Deferred Sales Charges have been deducted (see the Prospectus for information
regarding the Contingent Deferred Sales Charge). The Company does not currently
advertise yield information for any Contract Sub-Account (other than the Money
Market Sub-Account).
Performance Ranking
Total return information for the Contract Sub-Accounts and the Portfolios may be
compared to relevant indices, including U.S. domestic and international indices
and data from Lipper Analytical Services, Inc., Standard & Poor's Indices, or
VARDS(R).
From time to time, evaluation of performance by independent sources may also be
used.
Performance Information
Total returns reflect all aspects of a Contract Sub-Account's return, including
the automatic reinvestment by Preferred Life Variable Account C of all
distributions and any change in a Contract Sub-Account's value over the period.
The performance of the Contract Sub-Accounts reflects the historical performance
of the Portfolios whose inception dates preceded the inception dates of the
Contract Sub-Accounts.
The returns reflect the deduction of the Mortality and Expense Risk Charge,
Administrative Expense Charge and the operating expenses of each Portfolio and
are shown both with and without the deduction of the Contingent Deferred Sales
Charge and Contract Maintenance Charge. Past performance does not guarantee
future results.
<TABLE>
<CAPTION>
Standardized Total Return
Average Annual Total Return for the periods ended December 31, 1997: With Contingent Deferred Sales Charge and Other Charges
Portfolio
Inception One Five Since
Sub-Account Date Year Year Inception
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Growth ........................................................... 5/1/96 12.31% NA 15.72%
Global Health Care Securities1 ........................................... 5/1/98 NA NA NA
Global Utilities Securities2 ............................................. 1/24/89 20.65% 10.05% 11.12%
Growth and Income ........................................................ 1/24/89 21.62% 14.19% 10.49%
High Income .............................................................. 1/24/89 5.65% 9.79% 8.75%
Income Securities ........................................................ 1/24/89 11.11% 10.44% 10.75%
Money Market ............................................................. 1/24/89 -0.57% 2.89% 3.64%
Mutual Discovery Securities .............................................. 11/8/96 13.36% NA 13.95%
Mutual Shares Securities ................................................. 11/8/96 11.75% NA 14.03%
Natural Resources Securities ............................................. 1/24/89 -24.45% 4.03% 1.55%
Real Estate Securities ................................................... 1/24/89 14.67% 16.43% 12.20%
Rising Dividends ........................................................ 1/27/92 26.83% 12.96% 12.37%
Small Cap ................................................................ 11/1/95 11.44% NA 19.46%
Templeton Developing Markets Equity ...................................... 3/15/94 -14.34% NA .47%
Templeton Global Asset Allocation ........................................ 5/1/95 5.81% NA 11.99%
Templeton Global Growth .................................................. 3/15/94 7.57% NA 11.28%
Templeton Global Income Securities ....................................... 1/24/89 -3.30% 5.75% 6.01%
Templeton International Equity .......................................... 1/27/92 5.79% 12.81% 10.03%
Templeton International Smaller Companies ................................ 5/1/96 -7.22% NA 2.71%
Templeton Pacific Growth ................................................. 1/27/92 -41.19% -.84% -1.07%
U.S. Government Securities ............................................... 3/14/89 3.44% 5.57% 6.79%
Value Securities1 ........................................................ 5/1/98 NA NA NA
Zero Coupon - 2000+ ...................................................... 3/14/89 1.27% 5.83% 7.81%
Zero Coupon - 2005+ ..................................................... 3/14/89 5.47% 8.38% 9.59%
Zero Coupon - 2010+ ..................................................... 3/14/89 10.60% 10.89% 10.76%
<FN>
1As of December 31, 1997, the Global Health Care Securities and the Value Securities Sub-Accounts had not yet commenced
operations.
2Prior to May 1, 1998, the Global Utilities Securities Sub-Account was known as the Utility Equity Sub-Account.
+Calculated with waiver of fees.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Non-Standardized Total Return
Total Return for the periods ended December 31, 1997: Without Contingent Deferred Sales Charge or Contract Maintenance Charge
Annual Total Return Cumulative Total Return
------------------------------ -----------------------
Portfolio
Inception One Three Five Since Three Five Since
Sub-Account Date Year Year Year Inception Year Year Inception
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth .................... 5/1/96 16.66% NA NA 17.73% NA NA 31.30%
Global Health Care
Securities1 ...................... 5/1/98 NA NA NA NA NA NA NA
Global Utilities Securities2 ...... 1/24/89 25.00% 19.57% 10.20% 11.19% 70.94% 62.50% 158.18%
Growth and Income ................. 1/24/89 25.97% 22.93% 14.32% 10.57% 85.78% 95.26% 145.51%
High Income ....................... 1/24/89 10.00% 13.42% 9.93% 8.83% 45.89% 60.50% 113.12%
Income Securities ................. 1/24/89 15.46% 15.21% 10.58% 10.83% 52.91% 65.31% 150.65%
Money Market ...................... 1/24/89 3.78% 3.92% 3.05% 3.72% 12.23% 16.20% 38.65%
Mutual Discovery Securities....... 11/8/96 17.71% NA NA 17.11% NA NA 19.83%
Mutual Shares Securities .......... 11/8/96 16.10% NA NA 17.20% NA NA 19.93%
Natural Resources Securities ...... 1/24/89 -20.10% -6.14% 4.17% 1.63% -17.31% 22.65% 15.59%
Real Estate Securities ............ 1/24/89 19.02% 21.79% 16.56% 12.28% 80.64% 115.11% 181.69%
Rising Dividends .................. 1/27/92 31.18% 27.14% 13.10% 12.47% 105.50% 85.06% 100.74%
Small Cap ......................... 11/1/95 15.79% NA NA 20.40% NA NA 49.52%
</TABLE>
<TABLE>
<CAPTION>
Non-Standardized Total Return (cont.)
Total Return for the periods ended December 31, 1997: Without Contingent Deferred Sales Charge or Contract Maintenance Charge
Annual Total Return Cumulative Total Return
------------------------------ -----------------------
Portfolio
Inception One Three Five Since Three Five Since
Sub-Account (cont.) Date Year Year Year Inception Year Year Inception
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Templeton Developing
Markets Equity ................... 3/15/94 -9.99% 3.03% NA .88% 9.37% NA 3.40%
Templeton Global Asset
Allocation ....................... 5/1/95 10.16% NA NA 12.77% NA NA 37.86%
Templeton Global Growth ........... 3/15/94 11.92% 14.16% NA 11.60% 48.77% NA 51.76%
Templeton Global Income
Securities ....................... 1/24/89 1.05% 7.30% 5.90% 6.09% 23.53% 33.18% 69.57%
Templeton International
Equity ........................... 1/27/92 10.14% 13.35% 12.93% 10.12% 45.64% 83.68% 77.11%
Templeton International
Smaller Companies ................ 5/1/96 -2.87% NA NA 4.87% NA NA 8.25%
Templeton Pacific Growth .......... 1/27/92 -36.84% -9.68% -.69% -.98% -26.33% -3.38% -5.69%
U.S. Government Securities ........ 3/14/89 7.79% 9.06% 5.73% 6.87% 29.72% 32.10% 79.47%
Value Securities1 ................. 5/1/98 NA NA NA NA NA NA NA
Zero Coupon - 2000+ ............... 3/14/89 5.62% 8.27% 5.98% 7.89% 26.92% 33.69% 95.12%
Zero Coupon - 2005+ ............... 3/14/89 9.82% 11.87% 8.51% 9.66% 39.99% 50.47% 125.32%
Zero Coupon - 2010+ ............... 3/14/89 14.95% 15.81% 11.02% 10.83% 55.30% 68.65% 147.40%
<FN>
1As of December 31, 1997, the Global Health Care Securities and the Value Securities Sub-Accounts had not yet commenced
operations.
2Prior to May 1, 1998, the Global Utilities Securities Sub-Account was known as the Utility Equity Sub-Account.
+Calculated with waiver of fees.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Non-Standardized Total Return
Total Return for the periods ended December 31, 1997:
With Contingent Deferred Sales Charge and Other Charges
Annual Total Return Cumulative Total Return
------------------------------ -----------------------
Portfolio
Inception One Three Five Since Three Five Since
Contract Sub-Account Date Year Year Year Inception Year Year Inc
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth .................... 5/1/96 12.31% NA NA 15.72% NA NA 27.58%
Global Health Care
Securities1 ...................... 5/1/98 NA NA NA NA NA NA NA
Global Utilities Securities2 ...... 1/24/89 20.65% 18.97% 10.05% 11.12% 68.38% 61.44% 156.72%
Growth and Income ................. 1/24/89 21.62% 22.36% 14.19% 10.49% 83.22% 94.15% 143.89%
High Income ....................... 1/24/89 5.65% 12.76% 9.79% 8.75% 43.36% 59.51% 111.71%
Income Securities ................. 1/24/89 11.11% 14.56% 10.44% 10.75% 50.37% 64.29% 149.19%
Money Market ...................... 1/24/89 -.57% 3.14% 2.89% 3.64% 9.72% 15.28% 37.62%
Mutual Discovery Securities ....... 11/8/96 13.36% NA NA 13.95% NA NA 16.13%
Mutual Shares Securities .......... 11/8/96 11.75% NA NA 14.03% NA NA 16.23%
Natural Resources
Securities ....................... 1/24/89 -24.45% -7.08% 4.03% 1.55% -19.77% 21.85% 14.73%
Real Estate Securities ............ 1/24/89 14.67% 21.21% 16.43% 12.20% 78.07% 113.99% 179.94%
Rising Dividends .................. 1/27/92 26.83% 26.60% 12.96% 12.37% 102.90% 83.89% 99.77%
Small Cap ......................... 11/1/95 11.44% NA NA 19.46% NA NA 47.00%
Templeton Developing
Markets Equity ................... 3/15/94 -14.34% 2.24% NA .47% 6.87% NA 1.80%
Templeton Global Asset
Allocation ....................... 5/1/95 5.81% NA NA 11.99% NA NA 35.33%
Templeton Global
Growth ........................... 3/15/94 7.57% 13.50% NA 11.28% 46.23% NA 50.08%
</TABLE>
<TABLE>
<CAPTION>
Non-Standardized Total Return
Total Return for the periods ended December 31, 1997:
With Contingent Deferred Sales Charge and Other Charges
Annual Total Return Cumulative Total Return
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio
Inception One Three Five Since Three Five Since
Contract Sub-Account (cont.) Date Year Year Year Inception Year Year Inception
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Templeton Global Income
Securities ....................... 1/24/89 -3.30% 6.57% 5.75% 6.01% 21.02% 32.25% 68.45%
Templeton International
Equity ........................... 1/27/92 5.79% 12.69% 12.81% 10.03% 43.09% 82.67% 76.30%
Templeton International
Smaller Companies ................ 5/1/96 -7.22% NA NA 2.71% NA NA 4.56%
Templeton Pacific
Growth ........................... 1/27/92 -41.19% -10.69% -.84% -1.07% -28.76% -4.13% -6.16%
U.S. Government
Securities ....................... 3/14/89 3.44% 8.35% 5.57% 6.79% 27.21% 31.15% 78.30%
Value Securities1 ................. 5/1/98 NA NA NA NA NA NA NA
Zero Coupon - 2000+ ............... 3/14/89 1.27% 7.55% 5.83% 7.81% 24.41% 32.76% 93.93%
Zero Coupon - 2005+ ............... 3/14/89 5.47% 11.19% 8.38% 9.59% 37.47% 49.51% 124.00%
Zero Coupon - 2010+ ............... 3/14/89 10.60% 15.17% 10.89% 10.76% 52.78% 67.65% 145.95%
<FN>
1As of December 31, 1997, the Global Health Care Securities and the Value Securities Sub-Accounts had not yet commenced
operations.
2Prior to May 1, 1998, the Global Utilities Securities Sub-Account was known as the Utility Equity Sub-Account.
+Calculated with waiver of fees.
</FN>
</TABLE>
Contract Owners should note that investment results will fluctuate over time,
and any presentation of total return for any period should not be considered as
a representation of what an investment may earn or what a Contract Owner's total
return may be in any future period.
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 Contract Sub-Account(s) of the Variable Account. At the Income
Date, the Contract Value in each Contract Sub-Account will be applied to the
applicable Annuity Tables. The Annuity Table used will depend upon the Annuity
Option chosen. Both sex distinct and unisex Annuity Tables are utilized by the
Company, depending on the state and type of Contract. If, as of the Income Date,
the then current Annuity Option rates applicable to this class of Contracts
provide a larger income than that guaranteed for the same form of annuity under
the Contract, the larger amount will be paid. The dollar amount of annuity
payments after the first is determined as follows:
1. The dollar amount of the first annuity payment is divided by the value of an
Annuity Unit as of the Income Date. This establishes the number of Annuity Units
for each monthly payment. The number of Annuity Units remains fixed during the
annuity payment period.
2. The fixed number of Annuity Units is multiplied by the Annuity Unit value for
the last Valuation Period of the month preceding the month for which the payment
is due. This result is the dollar amount of the payment.
3. The total dollar amount of each Variable Annuity variable payout is the sum
of all Contract Sub-Account Variable Annuity payments, reduced by the Contract
Maintenance Charge.
Annuity Unit Value
The value of an Annuity Unit for a Contract Sub-Account is determined (see
below) by subtracting (2) from (1), dividing the result by (3) and multiplying
the result by .999866337248 (.999866337248 is the daily factor to neutralize the
assumed net investment rate of 5% per annum which is built into the annuity rate
table) where:
1. is the net result of
a. the assets of the Contract Sub-Account attributable to the Annuity Units;
plus or minus
b. the cumulative charge or credit for taxes reserved which is determined by
the Company to have resulted from the operation of the Contract Sub-Account;
2. is the cumulative unpaid charge for the Mortality and Expense Risk Charge and
for the Administrative Expense Charge; and
3. is the number of Annuity Units outstanding at the end of the Valuation
Period.
The value of an Annuity Unit may increase or decrease from Valuation Period to
Valuation Period.
Fixed Annuity Payout
A fixed annuity is an annuity with payments which are guaranteed as to dollar
amount by the Company and do not vary with the investment experience of the
Variable Account. The Fixed Account value on the day immediately preceding the
Annuity Date will be used to determine the Fixed Annuity monthly payment. The
monthly Annuity Payment will be based upon the Contract Value at the time of
annuitization, the Annuity Option selected, the age of the annuitant and any
joint annuitant and the sex of the annuitant and any joint annuitant where
allowed.
Financial Statements
- --------------------------------------------------------------------------------
The audited financial statements of the Company as of and for the year ended
December 31, 1997, 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, 1997 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, 1997, 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, 1997, 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 30, 1998
<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, 1997
(In thousands except per unit data)
Mutual
Capital Growth and High Income Money Discovery
Growth Income Income Securities Market Securities
Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Capital Growth Fund, 609 shares, cost $7,415 $8,170 - - - - -
Growth and Income Fund, 5,787 shares, cost $90,320 - 121,582 - - - -
High Income Fund, 3,110 shares, cost $41,808 - - 44,969 - - -
Income Securities Fund, 5,446 shares, cost $83,608 - - - 100,035 - -
Money Market Fund, 29,886 shares, cost $29,886 - - - - 29,886 -
Mutual Discovery Securities Fund, 910 shares,
cost $10,299 - - - - - 11,073
- ---------------------------------------------------------------------------------------------------------------------------
Total assets 8,170 121,582 44,969 100,035 29,886 11,073
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities:
Accrued mortality and expense risk charges 3 11 5 9 4 3
Accrued administrative charges - 1 1 1 1 -
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 3 12 6 10 5 3
- ---------------------------------------------------------------------------------------------------------------------------
Net assets $8,167 121,570 44,963 100,025 29,881 11,070
- ---------------------------------------------------------------------------------------------------------------------------
Contract owners' equity (notes 4 and 5) $8,167 121,570 44,963 100,025 29,881 11,070
===========================================================================================================================
<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 (continued)
Statements of Assets and Liabilities (cont.)
December 31, 1997
(In thousands except per unit data)
Mutual Natural Templeton
Shares Resources Real Estate Rising Small Developing
Securities Securities Securities Dividends Cap Markets
Fund Fund Fund Fund Fund Equity Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Mutual Shares Securities Fund, 1,795 shares,
cost $20,138 $21,862 - - - - -
Natural Resources Securities Fund, 465 shares,
cost $6,752 - 5,302 - - - -
Real Estate Securities Fund, 1,037 shares, cost $18,495 - - 26,537 - - -
Rising Dividends Fund, 3,559 shares, cost $43,289 - - - 70,049 - -
Small Cap Fund, 932 shares, cost $12,990 - - - - 14,026 -
Templeton Developing Markets Equity Fund, 1,166 shares,
cost $12,958 - - - - - 11,995
- ---------------------------------------------------------------------------------------------------------------------------
Total assets 21,862 5,302 26,537 70,049 14,026 11,995
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities:
Accrued mortality and expense risk charges 4 3 4 7 4 3
Accrued administrative charges - - 1 1 - -
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 4 3 5 8 4 3
- ---------------------------------------------------------------------------------------------------------------------------
Net assets $21,858 5,299 26,532 70,041 14,022 11,992
- ---------------------------------------------------------------------------------------------------------------------------
Contract owners' equity (notes 4 and 5) $21,858 5,299 26,532 70,041 14,022 11,992
===========================================================================================================================
<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 (continued)
Statements of Assets and Liabilities (cont.)
December 31, 1997
(In thousands except per unit data)
Templeton
Templeton Templeton Templeton Templeton International Templeton
Global Asset Global Global Income International Smaller Pacific
Allocation Growth Securities Equity Companies Growth
Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Templeton Global Asset Allocation Fund,
427 shares, cost $5,157 $5,853 - - - - -
Templeton Global Growth Fund,
2,566 shares, cost $31,653 - 39,370 - - - -
Templeton Global Income Securities Fund,
1,402 shares, cost $18,016 - - 18,181 - - -
Templeton International Equity Fund,
4,465 shares, cost $60,514 - - - 71,973 - -
Templeton International Smaller Companies Fund,
170 shares, cost $1,938 - - - - 1,877 -
Templeton Pacific Growth Fund,
1,271 shares, cost $17,818 - - - - - 11,796
- ---------------------------------------------------------------------------------------------------------------------------
Total assets 5,853 39,370 18,181 71,973 1,877 11,796
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities:
Accrued mortality and expense risk charges 3 5 4 7 2 3
Accrued administrative charges - 1 - 1 - -
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 3 6 4 8 2 3
- ---------------------------------------------------------------------------------------------------------------------------
Net assets $5,850 39,364 18,177 71,965 1,875 11,793
- --------------------------------------------------------------------------------------------------------------------------
Contract owners' equity (notes 4 and 5) $5,850 39,364 18,177 71,965 1,875 11,793
===========================================================================================================================
<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 (continued)
Statements of Assets and Liabilities (cont.)
December 31, 1997
(In thousands except per unit data)
U.S. Government Utility Zero Zero Zero Total
Securities Equity Coupon Coupon Coupon All
Fund Fund Fund - 2000 Fund - 2005 Fund - 2010 Funds
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
U.S. Government Securities Fund,
6,246 shares, cost $83,483 $86,946 - - - -
Utility Equity Fund,
4,698 shares, cost $77,174 - 95,507 - - -
Zero Coupon Fund - 2000
1,401 shares, cost $20,285 - - 21,208 - -
Zero Coupon Fund - 2005
456 shares, cost $6,921 - - - 7,775 -
Zero Coupon Fund - 2010
405 shares, cost $6,215 - - - - 7,223
- ---------------------------------------------------------------------------------------------------------------------------
Total assets 86,946 95,507 21,208 7,775 7,223 833,195
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities:
Accrued mortality and expense risk charges 8 9 4 2 3 110
Accrued administrative charges 1 1 - 1 - 11
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 9 10 4 3 3 121
- ---------------------------------------------------------------------------------------------------------------------------
Net assets $86,937 95,497 21,204 7,772 7,220 833,074
- ---------------------------------------------------------------------------------------------------------------------------
Contract owners' equity (notes 4 and 5) $86,937 95,497 21,204 7,772 7,220 833,074
===========================================================================================================================
<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 (continued)
Statements of Operations
For the year ended December 31, 1997
(In thousands)
Mutual
Capital Growth and High Income Money Discovery
Growth Income Income Securities Market Securities
Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ 7 3,629 3,340 7,199 1,674 2
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges 63 1,396 524 1,235 410 71
Administrative charges 8 167 63 148 49 9
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 71 1,563 587 1,383 459 80
- ---------------------------------------------------------------------------------------------------------------------------
Investment income (loss), net (64) 2,066 2,753 5,816 1,215 (78)
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions on mutual funds - 3,519 110 1,546 - -
Realized gains (losses) on sales of investments, net 92 3,835 1,131 2,091 - 15
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on investments, net 92 7,354 1,241 3,637 - 15
Net change in unrealized appreciation
(depreciation) on investments 670 15,947 (99) 4,604 - 771
- ---------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments, net 762 23,301 1,142 8,241 - 786
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations $698 25,367 3,895 14,057 1,215 708
===========================================================================================================================
<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 (continued)
Statements of Operations (cont.)
For the year ended December 31, 1997
(In thousands)
Mutual Natural Templeton
Shares Resources Real Estate Rising Small Developing
Securities Securities Securities Dividends Cap Markets
Fund Fund Fund Fund Fund Equity Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ 4 102 661 884 20 167
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges 138 83 294 772 119 181
Administrative charges 17 10 35 93 14 22
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 155 93 329 865 133 203
- ---------------------------------------------------------------------------------------------------------------------------
Investment income (loss), net (151) 9 332 19 (113) (36)
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions on mutual funds - - 316 1,510 232 265
Realized gains (losses) on sales of investments, net 15 (353) 1,074 2,406 262 147
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on investments, net 15 (353) 1,390 3,916 494 412
Net change in unrealized appreciation
(depreciation) on investments 1,716 (1,172) 2,407 12,343 821 (2,170)
- ---------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments, net 1,731 (1,525) 3,797 16,259 1,315 (1,758)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations $1,580 (1,516) 4,129 16,278 1,202 (1,794)
===========================================================================================================================
<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 (continued)
Statements of Operations (cont.)
For the year ended December 31, 1997
(In thousands)
Templeton
Templeton Templeton Templeton Templeton International Templeton
Global Asset Global Global Income International Smaller Pacific
Allocation Growth Securities Equity Companies Growth
Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ 96 570 1,440 2,045 9 438
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges 64 455 252 953 20 256
Administrative charges 8 55 30 114 2 31
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 72 510 282 1,067 22 287
- ---------------------------------------------------------------------------------------------------------------------------
Investment income (loss), net 24 60 1,158 978 (13) 151
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions on mutual funds 28 19 - 3,136 - -
Realized gains (losses) on sales of investments, net 104 494 111 2,899 38 (474)
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on investments, net 132 684 111 6,035 38 (474)
Net change in unrealized appreciation
(depreciation) on investments 293 2,887 (1,107) 211 (109) (7,415)
- ---------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments, net 425 3,571 (996) 6,246 (71) (7,889)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations $449 3,631 162 7,224 (84) (7,738)
===========================================================================================================================
<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 (continued)
Statements of Operations (cont.)
For the year ended December 31, 1997
(In thousands)
U.S. Government Utility Zero Zero Zero Total
Securities Equity Coupon Coupon Coupon All
Fund Fund Fund - 2000 Fund - 2005 Fund - 2010 Funds
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $5,093 4,714 1,569 476 406 34,545
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges 1,160 1,180 288 98 86 10,098
Administrative charges 139 142 35 12 10 1,213
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 1,299 1,322 323 110 96 11,311
- ---------------------------------------------------------------------------------------------------------------------------
Investment income (loss), net 3,794 3,392 1,246 366 310 23,234
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions on mutual
funds - 6,522 35 2 3 17,414
Realized gains (losses) on sales of investments,
net 352 2,677 227 198 196 17,537
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on investments, net 352 9,199 262 200 199 34,951
Net change in unrealized appreciation
(depreciation) on investments 2,712 7,826 (281) 131 407 41,393
- ---------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments, net 3,064 17,025 (19) 331 606 76,344
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from
operations $6,858 20,417 1,227 697 916 99,578
===========================================================================================================================
<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 (continued)
Statements of Changes in Net Assets
For the years ended December 31, 1997 and 1996
(In thousands)
Adjustable U.S.
Government Fund Capital Growth Fund Growth and Income Fund High Income Fund
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $- 852 (64) (8) 2,066 813 2,753 2,395
Realized gains (losses) on
investments, net - (733) 92 20 7,354 9,008 1,241 1,332
Net change in unrealized appreciation
(depreciation) on investments - 356 670 84 15,947 960 (99) 754
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations - 475 698 96 25,367 10,781 3,895 4,481
---------------------------------------------------------------------------------------------------------------------------
Contract transactions (note 4):
Purchase payments - 1,552 3,011 788 10,533 15,819 6,687 5,922
Transfers between funds - (15,809) 2,196 1,776 4,602 6,402 (631) 1,603
Surrenders and terminations - (1,613) (237) (128 (17,705) (9,128) (6,845) (5,831)
Rescissions - (53) (33) (3) (126) (264) (120) (53)
Other transactions (note 2) - 25 3 - 78 (29) 56 (9)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from contract
transactions - (15,898) 4,940 2,433 (2,618) 12,800 (853) 1,632
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets - (15,423) 5,638 2,529 22,749 23,581 3,042 6,113
Net assets at beginning of year - 15,423 2,529 - 98,821 75,240 41,921 35,808
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $- - 8,167 2,529 121,570 98,821 44,963 41,921
===========================================================================================================================
<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 (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1997 and 1996
(In thousands)
Mutual Discovery Mutual Shares
Income Securities Fund Money Market Fund Securities Fund Securities Fund
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 5,816 3,485 1,215 1,165 (78) - (151) -
Realized gains (losses)
on investments, net 3,637 1,687 - - 15 - 15 -
Net change in unrealized
appreciation (depreciation)
on investments 4,604 3,616 - - 771 3 1,716 8
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets from operations 14,057 8,788 1,215 1,165 708 3 1,580 8
- ---------------------------------------------------------------------------------------------------------------------------
Contract transactions (note 4):
Purchase payments 7,073 10,882 14,086 14,336 4,882 18 11,012 50
Transfers between funds (2,645) (1,355) (6,695) (3,631) 5,667 257 9,916 384
Surrenders and terminations (16,530) (10,309) (11,292) (7,844) (427) - (992) -
Rescissions (78) (259) (53) (83) (29) - (95) -
Other transactions (note 2) 39 (1) 112 (6) (9) - (5) -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions (12,141) (1,042) (3,842) 2,772 10,084 275 19,836 434
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 1,916 7,746 (2,627) 3,937 10,792 278 21,416 442
Net assets at beginning of year 98,109 90,363 32,508 28,571 278 - 442 -
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $100,025 98,109 29,881 32,508 11,070 278 21,858 442
===========================================================================================================================
<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 (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1997 and 1996
(In thousands)
Natural Resources
Securities Fund Real Estate Securities Fund Rising Dividends Fund Small Cap Fund
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 9 (13) 332 422 19 278 (113) (21)
Realized gains (losses)
on investments, net (353) 506 1,390 475 3,916 932 494 95
Net change in unrealized
appreciation (depreciation)
on investments (1,172) (480) 2,407 3,748 12,343 8,111 821 215
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets from operations (1,516) 13 4,129 4,645 16,278 9,321 1,202 289
- ---------------------------------------------------------------------------------------------------------------------------
Contract transactions (note 4):
Purchase payments 496 1,159 2,849 1,633 7,130 5,191 3,879 1,263
Transfers between funds (698) 669 1,804 1,434 4,129 2,038 4,438 3,907
Surrenders and terminations (1,164) (915) (2,578) (1,728) (9,509) (4,321) (814) (74)
Rescissions (10) (13) (10) (21) (36) (78) (48) (15)
Other transactions (note 2) 2 (2) 3 28 115 13 (4) (1)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from
contract transactions (1,374) 898 2,068 1,346 1,829 2,843 7,451 5,080
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (2,890) 911 6,197 5,991 18,107 12,164 8,653 5,369
Net assets at beginning of year 8,189 7,278 20,335 14,344 51,934 39,770 5,369 -
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $5,299 8,189 26,532 20,335 70,041 51,934 14,022 5,369
===========================================================================================================================
<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 (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1997 and 1996
(In thousands)
Templeton Developing Templeton Global Templeton Global Templeton Global
Markets Equity Fund Asset Allocation Fund Growth Fund Income Securities Fund
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ (36) (52) 24 (29) 60 42 1,158 1,378
Realized gains (losses)
on investments, net 412 297 132 18 684 495 111 107
Net change in unrealized
appreciation (depreciation)
on investments (2,170) 1,405 293 398 2,887 3,541 (1,107) 271
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets from operations (1,794) 1,650 449 387 3,631 4,078 162 1,756
- ---------------------------------------------------------------------------------------------------------------------------
Contract transactions (note 4):
Purchase payments 2,943 2,224 1,533 1,950 7,275 6,947 1,089 1,712
Transfers between funds 192 1,512 632 1,240 2,733 3,817 (2,668) (928)
Surrenders and terminations (1,291) (633) (504) (162) (3,295) (1,698) (3,152) (2,722)
Rescissions (25) (32) (18) (35) (128) (114) (3) (1)
Other transactions (note 2) (3) (6) (1) - 45 13 30 50
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions 1,816 3,065 1,642 2,993 6,630 8,965 (4,704) (1,889)
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 22 4,715 2,091 3,380 10,261 13,043 (4,542) (133)
Net assets at beginning of year 11,970 7,255 3,759 379 29,103 16,060 22,719 22,852
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $11,992 11,970 5,850 3,759 39,364 29,103 18,177 22,719
===========================================================================================================================
<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 (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1997 and 1996
(In thousands)
Templeton International Investment Grade Templeton International Templeton Pacific
Equity Fund Intermediate Bond Fund Smaller Companies Fund Growth Fund
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 978 734 - 638 (13) (3) 151 413
Realized gains (losses)
on investments, net 6,035 2,946 - 360 38 2 (474) 1,371
Net change in unrealized
appreciation (depreciation)
on investments 211 8,342 - (737) (109) 48 (7,415) 605
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets from operations 7,224 12,022 - 261 (84) 47 (7,738) 2,389
---------------------------------------------------------------------------------------------------------------------------
Contract transactions (note 4):
Purchase payments 5,493 6,974 - 939 964 229 502 2,063
Transfers between funds (443) 3,648 - (15,408) 577 446 (4,197) 439
Surrenders and terminations (10,782) (6,296) - (1,630) (304) - (2,904) (3,400)
Rescissions (50) (18) - (14) - - (14) (20)
Other transactions (note 2) 161 14 - 40 - - (4) (17)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions (5,621) 4,322 - (16,073) 1,237 675 (6,617) (935)
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 1,603 16,344 - (15,812) 1,153 722 (14,355) 1,454
Net assets at beginning of year 70,362 54,018 - 15,812 722 - 26,148 24,694
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $71,965 70,362 - - 1,875 722 11,793 26,148
===========================================================================================================================
<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 (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1997 and 1996
(In thousands)
U.S. Government
Securities Fund Utility Equity Fund Zero Coupon Fund - 2000 Zero Coupon Fund - 2005
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 3,794 4,323 3,392 3,967 1,246 1,049 366 340
Realized gains (losses) on
investments, net 352 (40) 9,199 1,652 262 169 200 133
Net change in unrealized
appreciation (depreciation)
on investments 2,712 (2,399) 7,826 (4) (281) (990) 131 (672)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets from operations 6,858 1,884 20,417 5,615 1,227 228 697 (199)
- ---------------------------------------------------------------------------------------------------------------------------
Contract transactions (note 4):
Purchase payments 5,076 7,463 1,846 5,199 839 2,220 767 1,208
Transfers between funds (6,248) 19,458 (9,521) (9,257) (1,349) (1,036) (735) (671)
Surrenders and terminations (18,871) (11,371) (20,611) (14,003) (4,616) (2,141) (1,730) (1,026)
Rescissions (49) (165) (4) (61) - (85) - (64)
Other transactions (note 2) (14) (19) 145 (1) 18 (10) (4) (2)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from
contract transactions (20,106) 15,366 (28,145) (18,133) (5,108) (1,052) (1,702) (555)
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (13,248) 17,250 (7,728) (12,518) (3,881) (824) (1,005) (754)
Net assets at beginning of year 100,185 82,935 103,225 115,743 25,085 25,909 8,777 9,531
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $86,937 100,185 95,497 103,225 21,204 25,085 7,772 8,777
===========================================================================================================================
<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 (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1997 and 1996
(In thousands)
Zero Coupon Fund - 2010 Total All Funds
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 310 291 23,234 22,459
Realized gains (losses) on investments, net 199 294 34,951 21,126
Net change in unrealized appreciation
(depreciation) on investments 407 (957) 41,393 26,226
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations 916 (372) 99,578 69,811
- ---------------------------------------------------------------------------------------------------------------------------
Contract transactions (note 4):
Purchase payments 794 1,097 100,759 98,838
Transfers between funds (1,056) (935) - -
Surrenders and terminations (922) (595) (137,075) (87,568)
Rescissions - (27) (929) (1,478)
Other transactions (note 2) (4) (5) 759 65
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract transactions (1,188) (465) (36,486) 9,857
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (272) (837) 63,092 79,668
Net assets at beginning of year 7,492 8,329 769,982 690,314
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $7,220 7,492 833,074 769,982
===========================================================================================================================
<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, 1997
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. and its Templeton and Franklin affiliates, 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 the 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 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, 1996, the Global Income Fund name was changed to Templeton Global
Income Securities Fund. The Precious Metals Fund name was changed to Natural
Resources Securities Fund on May 1, 1997.
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.
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES (cont.)
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, 1997 and 1996
were $478,510 and $468,180, respectively. These contract charges are reflected
in the Statements of Changes in Net Assets as Other transactions.
A contingent deferred sales charge is deducted from the contract value at the
time of a surrender. This charge applies only to a surrender of purchase
payments received within five years of the date of surrender. For this purpose,
purchase payments are allocated on a first-in, first-out basis. The amount of
the contingent deferred sales charge is calculated by: (a) allocating purchase
payments to the amount surrendered; and (b) multiplying each allocated purchase
payment that has been held under the contract for the period shown below by the
charge shown below:
Years Since Payment Charge
--------------------- -------
0-1 5%
1-2 5%
2-3 4%
3-4 3%
4-5 1.5%
5 + 0%
and (c) adding the products of each multiplication in (b) above.
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, 1997 and 1996 were
$983,164 and $1,012,666, 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, 1997 and 1996 were
$4,226 and $11,086, 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.
<PAGE>
3. 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.
4. CONTRACT TRANSACTIONS - UNIT ACTIVITY (In thousands)
Transactions in units for each fund for the years ended December 31, 1997 and
1996 were as follows:
<TABLE>
<CAPTION>
Adjustable Growth Investment Mutual Mutual
U.S Capital and High Income Grade Money Discovery Shares
Government Growth Income Income Securities Intermediate Market Securities Securities
Fund Fund Fund Fund Fund Bond Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation units outstanding
at December 31, 1995 1,291 - 4,346 2,075 4,567 1,022 2,218 - -
Contract transactions:
Purchase payments 128 71 882 329 537 61 1,093 2 5
Transfers between funds (1,284) 165 360 84 (69) (980) (274) 25 38
Surrenders and terminations (133) (11) (501) (321) (503) (105) (597) - -
Rescissions (4) - (15) (3) (13) (1) (6) - -
Other transactions 2 - (2) - - 3 (1) - -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
accumulation units resulting
from contract transactions (1,291) 225 724 89 (48) (1,022) 215 27 43
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding
at December 31, 1996 - 225 5,070 2,164 4,519 - 2,433 27 43
===========================================================================================================================
Contract transactions:
Purchase payments - 241 483 330 309 - 1,035 428 981
Transfers between funds - 178 210 (44) (119) - (487) 511 893
Surrenders and terminations - (19) (809) (337) (717) - (830) (38) (86)
Rescissions - (3) (6) (6) (3) - (4) (3) (8)
Other transactions - - 4 3 2 - 8 (1) -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
accumulation units resulting
from contract transactions - 397 (118) (54) (528) - (278) 897 1,780
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding
at December 31, 1997 - 622 4,952 2,110 3,991 - 2,155 924 1,823
===========================================================================================================================
</TABLE>
<PAGE>
4. CONTRACT TRANSACTIONS - UNIT ACTIVITY (In thousands) (cont.)
<TABLE>
<CAPTION>
Natural Templeton Templeton Templeton Templeton Templeton
Resources Real Estate Rising Small Developing Global Asset Global Global Income International
Securities Securities Dividends Cap Markets Allocation Growth Securities Equity
Fund Fund Fund Fund Equity Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation units outstanding
at December 31, 1995 516 794 3,182 - 757 36 1,417 1,472 4,073
Contract transactions:
Purchase payments 73 83 388 103 206 172 564 109 479
Transfers between funds 37 68 147 320 140 109 310 (58) 251
Surrenders and terminations (59) (87) (318 (6) (58) (14) (136) (172) (428)
Rescissions (1) (1) (6) (1) (3) (3) (10) - (1)
Other transactions - 2 1 - - - 1 3 1
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
accumulation units resulting
from contract transactions 50 65 212 416 285 264 729 (118) 302
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding
at December 31, 1996 566 859 3,394 416 1,042 300 2,146 1,354 4,375
============================================================================================================================
Contract transactions:
Purchase payments 37 114 399 275 231 114 489 65 313
Transfers between funds (58) 72 225 310 (9) 48 184 (160) (23)
Surrenders and terminations (86) (103) (533) (59) (102) (37) (219) (189) (608)
Rescissions (1) - (2) (4) (2) (1) (9) - (3)
Other transactions - - 6 - - - 3 2 9
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
accumulation units resulting
from contract transactions (108) 83 95 522 118 124 448 (282) (312)
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding
at December 31, 1997 458 942 3,489 938 1,160 424 2,594 1,072 4,063
===========================================================================================================================
</TABLE>
<PAGE>
4. CONTRACT TRANSACTIONS - UNIT ACTIVITY (In thousands) (cont.)
<TABLE>
<CAPTION>
Templeton
International Templeton U.S. Zero Zero Zero
Smaller Pacific Government Utility Coupon Coupon Coupon Total
Companies Growth Securities Equity Fund - Fund - Fund - All
Fund Fund Fund Fund 2000 2005 2010 Funds
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation units outstanding
at December 31, 1995 - 1,811 5,089 5,916 1,416 456 372 42,826
Contract transactions:
Purchase payments 22 140 462 265 123 61 54 6,412
Transfers between funds 43 32 1,177 (471) (56) (34) (47) 33
Surrenders and terminations - (230) (700) (708) (119) (52) (29) (5,287)
Rescissions - (1) (10) (3) (5) (3) (1) (91)
Other transactions - (1) (1) (1) (1) - (1) 5
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
accumulation units resulting
from contract transactions 65 (60) 928 (918) (58) (28) (24) 1,072
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding
at December 31, 1996 65 1,751 6,017 4,998 1,358 428 348 43,898
===========================================================================================================================
Contract transactions:
Purchase payments 84 37 297 86 44 36 34 6,462
Transfers between funds 50 (324) (370) (449) (72) (37) (49) 480
Surrenders and terminations (26) (212) (1,096) (943) (244) (82) (41) (7,416)
Rescissions - (1) (3) - - - - (59)
Other transactions - - (1) 7 1 - - 43
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
accumulation units resulting
from contract transactions 108 (500) (1,173) (1,299) (271) (83) (56) (490)
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding
at December 31, 1997 173 1,251 4,844 3,699 1,087 345 292 43,408
===========================================================================================================================
</TABLE>
<PAGE>
5. UNIT VALUES
<TABLE>
<CAPTION>
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 year of the five-year period ended December 31, 1997
follows:
Accumulation Ratio of
Units Expenses
Outstanding Accumulation Net Assets to Average
(in thousands) Unit Value (in thousands) Net Assets*
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Adjustable U.S. Government Fund
December 31,
19961 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
Capital Growth Fund
December 31,
1997 622 13.130 8,167 2.17
19962 225 11.254 2,529 2.17+
Growth and Income Fund
December 31,
1997 4,952 24.551 121,570 1.89
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
High Income Fund
December 31,
1997 2,110 21.312 44,963 1.93
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
Income Securities Fund
December 31,
1997 3,991 25.065 100,025 1.90
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
Investment Grade Intermediate Bond Fund
December 31,
19961 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
</TABLE>
<PAGE>
5. UNIT VALUES (cont.)
<TABLE>
<CAPTION>
Accumulation Ratio of
Units Expenses
Outstanding Accumulation Net Assets to Average
(in thousands) Unit Value (in thousands) Net Assets*
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market Fund
December 31,
1997 2,155 $13.865 $29,881 1.85%
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
Mutual Discovery Securities Fund
December 31,
1997 924 11.983 11,070 2.46
19963 27 10.180 278 2.77+
Mutual Shares Securities Fund
December 31,
1997 1,823 11.993 21,858 2.20
19963 43 10.330 442 2.40+
Natural Resources Securities Fund
December 31,
1997 458 11.559 5,299 2.09
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
Real Estate Securities Fund
December 31,
1997 942 28.169 26,532 1.94
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
Rising Dividends Fund
December 31,
1997 3,489 20.074 70,041 2.14
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
Small Cap Fund
December 31,
1997 938 14.952 14,022 2.17
19962 416 12.913 5,369 2.17+
</TABLE>
<PAGE>
5. UNIT VALUES (cont.)
<TABLE>
<CAPTION>
Accumulation Ratio of
Units Expenses
Outstanding Accumulation Net Assets to Average
(in thousands) Unit Value (in thousands) Net Assets*
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Templeton Developing Markets Equity Fund
December 31,
1997 1,160 $10.340 $11,992 2.82%
1996 1,042 11.487 11,970 2.89
1995 757 9.582 7,254 2.81
19944 591 9.454 5,589 2.93+
Templeton Global Asset Allocation Fund
December 31,
1997 424 13.786 5,850 2.34
1996 300 12.514 3,759 2.26
19955 36 10.591 379 2.30+
Templeton Global Growth Fund
December 31,
1997 2,594 15.176 39,364 2.28
1996 2,146 13.560 29,103 2.33
1995 1,416 11.339 16,061 2.37
19944 922 10.201 9,400 2.54+
Templeton Global Income Securities Fund
December 31,
1997 1,072 16.957 18,177 2.02
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
Templeton International Equity Fund
December 31,
1997 4,063 17.711 71,965 2.29
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
Templeton International Smaller Companies Fund
December 31,
1997 173 10.825 1,875 2.46
19962 65 11.145 722 2.18+
Templeton Pacific Growth Fund
December 31,
1997 1,251 9.431 11,793 2.43
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
</TABLE>
<PAGE>
5. UNIT VALUES (cont.)
<TABLE>
<CAPTION>
Accumulation Ratio of
Units Expenses
Outstanding Accumulation Net Assets to Average
(in thousands) Unit Value (in thousands) Net Assets*
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government Securities Fund
December 31,
1997 4,844 $17.947 $86,937 1.90%
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
Utility Equity Fund
December 31,
1997 3,699 25.818 95,497 1.90
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
Zero Coupon Fund - 2000
December 31,
1997 1,087 19.512 21,204 1.80
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
Zero Coupon Fund - 2005
December 31,
1997 345 22.532 7,772 1.80
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
Zero Coupon Fund - 2010
December 31,
1997 292 24.740 7,220 1.80
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
<FN>
*For the year ended December 31, including the effect of the expenses of the underlying funds.
+Annualized.
1 Period from January 1, 1996 to October 25, 1996 (fund closure).
2 Period from June 10, 1996 (fund commencement) to December 31, 1996.
3 Period from December 2, 1996 (fund commencement) to December 31, 1996.
4 Period from April 25, 1994 (fund commencement) to December 31, 1994.
5 Period from August 4, 1995 (fund commencement) to December 31, 1995.
</FN>
</TABLE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Financial Statements
December 31, 1997 and 1996
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
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 as of December 31, 1997 and 1996, 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, 1997. 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, 1997 and 1996, 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, 1997, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 4, 1998
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Financial Statements
Balance Sheets
December 31, 1997 and 1996
(In thousands except share data)
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments:
Fixed maturities, at market $ 30,106 20,412
Certificates of deposit and short-term securities 698 2,389
- ---------------------------------------------------------------------------------------------------------------------------
Total Investments 30,804 22,801
Cash 5,321 4,976
Receivables 5,006 4,046
Reinsurance receivable:
Recoverable on future benefit reserves 166 162
Recoverable on unpaid claims 10,537 9,674
Receivable on paid claims 2,500 1,393
Deferred acquisition costs 37,447 38,245
Other Assets 1,162 835
- ---------------------------------------------------------------------------------------------------------------------------
Assets, exclusive of separate account assets 92,943 82,132
Separate account assets 833,083 769,981
- ---------------------------------------------------------------------------------------------------------------------------
Total Assets $926,026 852,113
===========================================================================================================================
Liabilities and Stockholder's Equity
Liabilities:
Future benefit reserves:
Life $ 1,362 1,219
Annuity 634 325
Policy and contract claims 24,944 25,119
Unearned premiums 1,590 1,887
Other policyholder funds 1,230 679
Reinsurance payable 2,116 2,133
Deferred income taxes 10,173 8,740
Accrued expenses and other liabilities 3,113 2,462
Commissions due and accrued 930 822
Payable to parent 3,180 1,102
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities, exclusive of separate account liabilities 49,272 44,488
Separate account liabilities 833,083 769,981
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 882,355 814,469
Stockholders 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 gain (loss) on investments, net of deferred federal income taxes 716 (34)
Retained earnings 25,455 20,178
- ---------------------------------------------------------------------------------------------------------------------------
Total stockholder's equity 43,671 37,644
Commitments and contingencies (notes 6 and 11)
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity $926,026 852,113
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Financial Statements (continued)
Statements of Income
Years ended December 31, 1997, 1996 and 1995
(In thousands)
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Life insurance premiums $ 8,866 9,174 10,291
Annuity considerations 12,791 11,725 10,679
Accident and health premiums 22,114 22,105 22,406
- ---------------------------------------------------------------------------------------------------------------------------
Total premiums and considerations 43,771 43,004 43,376
Premiums ceded 12,939 11,574 13,462
- ---------------------------------------------------------------------------------------------------------------------------
Net premiums and considerations 30,832 31,430 29,914
Investment income, net 1,626 1,220 605
Realized investment losses, net (1) (62) (13)
Other income 93 0 0
- ---------------------------------------------------------------------------------------------------------------------------
Total revenue 32,550 32,588 30,506
- ---------------------------------------------------------------------------------------------------------------------------
Benefits and expenses:
Life insurance benefits 5,074 5,971 8,202
Annuity benefits 323 202 (100)
Accident and health insurance benefits 14,709 13,406 14,743
- ---------------------------------------------------------------------------------------------------------------------------
Total benefits 20,106 19,579 22,845
Benefit recoveries 9,200 6,614 9,116
- ---------------------------------------------------------------------------------------------------------------------------
Net benefits 10,906 12,965 13,729
Commissions and other agent compensation 8,295 8,596 7,278
General and administrative expenses 4,018 3,576 3,132
Taxes, licenses and fees 654 688 479
Change in deferred acquisition costs, net 798 341 (1,009)
- ---------------------------------------------------------------------------------------------------------------------------
Total benefits and expenses 24,671 26,166 23,609
- ---------------------------------------------------------------------------------------------------------------------------
Income from operations before income taxes 7,879 6,422 6,897
- ---------------------------------------------------------------------------------------------------------------------------
Income tax expense (benefit):
Current 1,573 435 (109)
Deferred 1,029 2,396 1,612
- ---------------------------------------------------------------------------------------------------------------------------
Total income tax expense 2,602 2,831 1,503
Net income $ 5,277 3,591 5,394
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Financial Statements (continued)
Statements of Stockholder's Equity
Years ended December 31, 1997, 1996 and 1995
(In thousands)
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<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 and end of year 15,500 15,500 15,500
- ---------------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses) on investments:
Balance at beginning of year (34) 274 (268)
Net unrealized gain (loss) during the year, net of deferred federal income taxes 750 (308) 542
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of year 716 (34) 274
- ---------------------------------------------------------------------------------------------------------------------------
Retained earnings:
Balance at beginning of year 20,178 16,587 11,193
Net income 5,277 3,591 5,394
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of year 25,455 20,178 16,587
Total Stockholder's equity $43,671 37,644 34,361
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Financial Statements (continued)
Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
(In thousands)
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net Income $5,277 3,591 5,394
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Realized losses on investments, net 1 62 13
Deferred federal income tax expense 1,029 2,396 1,612
Change in:
Receivables and other assets (3,261) 3,526 62
Deferred acquisition costs 798 341 (1,009)
Future benefit reserves 452 944 (182)
Policy and contract claims (175) (1,048) (1,145)
Unearned premiums (297) (443) 45
Other policyholder funds 551 (12) (194)
Reinsurance payable (17) 881 (806)
Accrued expenses and other liabilities 649 (1,523) (158)
Commissions due and accrued 108 (2) (56)
Due to parent 2,080 439 97
Depreciation and amortization (110) (46) (185)
- ---------------------------------------------------------------------------------------------------------------------------
Total adjustments 1,808 5,515 (1,906)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 7,085 9,106 3,488
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows provided by (used in) investing activities:
Purchase of fixed maturities, at market (8,680) (8,525) (15,328)
Sale of fixed maturities, at market 81 2,654 4,522
Other investments, net 1,859 (1,492) 2,589
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (6,740) (7,363) (8,217)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 345 1,743 (4,729)
Cash at beginning of year 4,976 3,233 7,962
- ---------------------------------------------------------------------------------------------------------------------------
Cash at end of year $5,321 4,976 3,233
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements
(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 policies and individual variable annuity contracts in six states and
the District of Columbia. Based on 1997 premiums and considerations, 21%, 41%
and 38% of the Company's business is life, annuity and accident and health,
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.
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 1997, 1996 and
1995 were $10,147, $6,541 and $4,517, respectively.
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements (cont.)
(in thousands)
(1) Summary of Significant Accounting Policies (cont.)
Future Benefit Reserves
Future 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 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
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, 1997 and 1996, investments with a carrying value of $1,645
and $1,596, 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.
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 underlying 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.
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements (cont.)
(in thousands)
(1) Summary of Significant Accounting Policies (cont.)
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 Statement of Financial Accounting Standards (SFAS)
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of. No adjustments were made to the financial statements
upon adoption of this pronouncement.
In 1997 the Company adopted SFAS No. 129, Disclosure of Information about
Capital Structure, which establishes standards for disclosing information about
an entity's capital structure. No additional disclosures were required.
Accounting Pronouncements to be Adopted
In June, 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
130 Reporting Comprehensive Income, which establishes standards for reporting
and displaying comprehensive income and its components in general purpose
financial statements, and SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, which requires certain business enterprises
to report specified information about their operating segments in a complete set
of financial statements to shareholders. SFAS No. 130 and SFAS No. 131 will be
adopted in 1998.
<TABLE>
<CAPTION>
(2) Investments
Investments at December 31, 1997 consist of:
Amount
Amortized cost Estimated shown on
or cost fair value balance sheet
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities
U.S. government $28,189 29,256 29,256
Mortgage backed securities 815 850 850
- ---------------------------------------------------------------------------------------------------------------------------
Total fixed maturities 29,004 30,106 30,106
===========================================================================================================================
Other investments:
Short-term securities 698 xx 698
- ---------------------------------------------------------------------------------------------------------------------------
Total other investments 698 xx 698
- ---------------------------------------------------------------------------------------------------------------------------
Total investments $29,702 xx 30,804
===========================================================================================================================
</TABLE>
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements (cont.)
(in thousands)
(2) Investments (cont.)
<TABLE>
<CAPTION>
At December 31, 1997 and 1996, the amortized cost, gross unrealized gains, gross
unrealized losses and estimated fair values of fixed maturities are as follows:
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
U.S. government $28,189 1,070 3 29,256
Mortgage backed securities 815 35 0 850
- ---------------------------------------------------------------------------------------------------------------------------
Total fixed maturities $29,004 1,105 3 30,106
===========================================================================================================================
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
===========================================================================================================================
</TABLE>
The changes in gross unrealized gains (losses) from fixed maturities were
$1,155, $(475) and $835 for the years ended December 31, 1997, 1996 and 1995,
respectively.
The amortized cost and estimated fair value of fixed maturities at December 31,
1997, 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: $ 6,057 6,069
Due after five years through ten years 13,451 13,922
Due after ten years 8,681 9,265
Mortgage backed securities 815 850
- ---------------------------------------------------------------------------------------------------------------------------
Totals $29,004 30,106
===========================================================================================================================
</TABLE>
Proceeds from sales of investments in available-for-sale securities during 1997,
1996 and 1995 were $82, $2,654 and $4,522, respectively. Gross gains of $0, $0
and $64 and gross losses of $0, $62 and $77 were realized on sales of
available-for-sale securities in 1997, 1996 and 1995, respectively. The related
tax benefit was $0, $22 and $4 in 1997, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
Major categories of net investment income for the respective years ended
December 31 are:
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest:
Fixed maturities, at market $1,494 1,132 410
Short-term investments 168 98 0
Other 11 1 201
- ---------------------------------------------------------------------------------------------------------------------------
Total investment income 1,673 1,231 611
Investment expenses 47 11 6
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income $1,626 1,220 605
===========================================================================================================================
</TABLE>
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements (cont.)
(in thousands)
<TABLE>
<CAPTION>
(3) Summary Table of Fair Value Disclosures
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets Fixed maturities, at market:
U.S. Government $ 29,256 $ 29,256 $ 19,506 $ 19,506
Mortgage backed securities 850 850 906 906
Certificates of deposit and other short term securities 698 698 2,389 2,389
Receivables 5,006 5,006 4,046 4,046
Separate accounts assets 833,083 833,083 769,981 769,981
Financial liabilities
Separate account liabilities 833,083 821,457 769,981 756,349
===========================================================================================================================
</TABLE>
See Note (1) "Summary of Significant Accounting Policies" for description of the
methods and significant assumptions used to estimate fair values.
(4) Receivables
Receivables at December 31 consist of the following:
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Premiums due $4,565 3,318
Reinsurance commission receivable 38 450
Other 403 278
- ---------------------------------------------------------------------------------------------------------------------------
Total receivables $5,006 4,046
===========================================================================================================================
</TABLE>
(5) Accident and Health Claims Reserves
Accident and health claims reserves are based on long-range projections subject
to uncertainty. Uncertainty regarding reserves of a given accident year is
gradually reduced as new information emerges each succeeding year, allowing more
reliable re-evaluations of such reserves. While management believes that
reserves as of December 31, 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.
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements (cont.)
(in thousands)
(5) Accident and Health Claims Reserves (cont.)
Activity in the accident and health claims reserves, exclusive of hospital
indemnity and AIDS reserves of $662, $293 and $287 in 1997, 1996 and 1995,
respectively, is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, net of reinsurance recoverables
of $7,476, $9,249 and $10,049 $11,335 11,000 10,149
Incurred related to:
Current year 11,439 11,372 10,502
Prior years (3,199) (3,079) (2,245)
- ---------------------------------------------------------------------------------------------------------------------------
Total incurred 8,240 8,293 8,257
- ---------------------------------------------------------------------------------------------------------------------------
Paid related to:
Current year 1,686 1,458 1,097
Prior years 5,899 6,500 6,309
- ---------------------------------------------------------------------------------------------------------------------------
Total paid 7,585 7,958 7,406
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, net of reinsurance recoverables
of $7,643, $7,476 and $9,249 $11,990 11,335 11,000
===========================================================================================================================
</TABLE>
Due to lower than anticipated losses related to prior years, the provision for
prior year 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, 1997 and 1996 are
recoverables on paid and unpaid claims from Allianz Life of $2,791 and $1,554,
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 (cont.)
(in thousands)
(6) Reinsurance (cont.)
Life insurance, annuities and accident and health business assumed from and
ceded to other companies is as follows:
<TABLE>
<CAPTION>
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, 1997:
Life insurance in force $1,591,244 0 484,546 1,106,698 0.0%
- ---------------------------------------------------------------------------------------------------------------------------
Premiums:
Life insurance 8,866 0 2,450 6,416 0.0%
Annuities 12,791 0 0 12,791 0.0%
Accident and health insurance 14,823 7,291 10,489 11,625 62.7%
- ---------------------------------------------------------------------------------------------------------------------------
Total Premiums 36,480 7,291 12,939 30,832 23.6%
===========================================================================================================================
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%
===========================================================================================================================
</TABLE>
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:
<TABLE>
<CAPTION>
Assumed Ceded
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Life insurance in force $ 0 0 0 2,032 2,432 2,930
- ---------------------------------------------------------------------------------------------------------------------------
Premiums:
Life insurance $ 0 0 0 44 36 55
Accident and health insurance 1,566 2,547 2,959 841 766 921
- ---------------------------------------------------------------------------------------------------------------------------
Total Premiums $1,566 2,547 2,959 885 802 976
===========================================================================================================================
</TABLE>
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements (cont.)
(in thousands)
(7) Income Taxes
Income Tax Expense
Total income tax expenses (benefits) for the years ended December 31 are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense attributable to operations:
Current tax expense (benefit) $1,573 435 (109)
Deferred tax expense 1,029 2,396 1,612
- ---------------------------------------------------------------------------------------------------------------------------
Total income tax expense attributable to operations $2,602 2,831 1,503
Income tax effect on equity:
Attributable to unrealized gains and losses for the year 404 (166) 292
- ---------------------------------------------------------------------------------------------------------------------------
Total income tax effect on equity $3,006 2,665 1,795
===========================================================================================================================
</TABLE>
Components of Income Tax Expense
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:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense computed at the statutory rate $2,758 2,248 2,414
Other (156) 583 (911)
- ---------------------------------------------------------------------------------------------------------------------------
Income tax expense as reported $2,602 2,831 1,503
===========================================================================================================================
</TABLE>
Components of Deferred Tax Assets and Liabilities on the Balance Sheet
Tax effects of temporary differences giving rise to the significant components
of the net deferred tax liabilities at December 31, 1997 and 1996 are as
follows:
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Future benefit reserves $ 2,675 3,427
Unrealized losses on investments 0 19
- ---------------------------------------------------------------------------------------------------------------------------
Total deferred tax assets 2,675 3,446
- ---------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities: 10,382 10,757
Deferred acquisition costs 385 0
Unrealized gains on investments 2,081 1,429
- ---------------------------------------------------------------------------------------------------------------------------
Other
Total deferred tax liabilities 12,848 12,186
- ---------------------------------------------------------------------------------------------------------------------------
Net deferred tax liability $10,173 8,740
===========================================================================================================================
</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.
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements (cont.)
(in thousands)
(7) Income Taxes (cont.)
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 $2,077 and
$504 as of December 31, 1997 and 1996, respectively, and is included in payable
to parent in the liability section of the accompanying balance sheet.
(8) Related Party Transactions
Allianz Life performs certain administrative services for the Company. The
Company reimbursed Allianz Life $1,463, $1,246 and $1,115 in 1997, 1996 and
1995, respectively, for related administrative expenses incurred. The Company's
liability to Allianz Life for incurred but unpaid service fees as of December
31, 1997 and 1996 was $569 and $598, 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 $15, $11 and $5 in 1997, 1996 and 1995, respectively, for
investment advisory fees. The Company had no incurred but unpaid fees to AZOA as
of December 31, 1997 and 1996.
(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 $37, $29 and $16 in 1997, 1996 and 1995, 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 1997, 1996 and 1995 Plan participants was 90%, 100% and 100%
respectively. 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 $59, $41
and $5 in 1997, 1996 and 1995, 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. Currently, 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.
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements (cont.)
(in thousands)
(10) Statutory Financial Data and Dividend Restrictions (cont.)
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:
<TABLE>
<CAPTION>
Stockholder's equity Net income
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statutory basis $25,940 21,886 4,292 2,358 2,821
Adjustments:
Change in reserve basis (10,494) (13,696) 2,424 4,070 3,281
Deferred acquisition costs 37,447 38,245 (798) (341) 1,009
Deferred taxes (10,173) (8,740) (1,029) (2,396) (1,612)
Nonadmitted assets 171 154 0 0 0
Interest maintenance reserve (88) (68) (19) (99) (105)
Asset Valuation Reserve 2 7 0 0 0
Liability for unauthorized reinsurers 225 0 0 0 0
Unrealized gains (losses) on investments 1,102 (53) 0 0 0
Other (461) (91) 407 (1) 0
- ---------------------------------------------------------------------------------------------------------------------------
As reported in the accompanying financial statements $43,671 37,644 5,277 3,591 5,394
===========================================================================================================================
</TABLE>
The Company is required to meet minimum capital and surplus requirements. At
December 31, 1997 and 1996, 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 1997, 1996 and 1995.
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,
1997 and 1996.
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.
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements (cont.)
(in thousands)
(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.
The Company and Allianz Life is expending significant resources to assure that
its computer systems are reprogrammed in time to effectively deal with
transactions in the year 2000 and beyond. Costs associated with this effort are
not expected to be material and are expensed as incurred. This "Year 2000
Computer Problem" creates risk for the Company from unforeseen problems in its
own computer systems and from third parties with whom the Company deals on
financial transactions worldwide. Such failures of the Company and/or third
parties' computer systems could have a material impact on the Company's ability
to conduct its business, and especially to process and account for the transfer
of funds electronically.
(12) Supplementary Insurance Information
The following table summarizes certain financial information by line of business
for 1997, 1996 and 1995:
<TABLE>
<CAPTION>
As of December 31 For the year ended December 31
- ---------------------------------------------------------------------------------------------------------------------------
Future Other Premium Benefits, Net change
Deferred benefits, policy revenue claims in
policy losses, claims and and other Net losses, and policy Other
acquisition claims and Unearned benefits contract investment settlement acquisition operating
costs loss expense premiums payable considerations income expenses costs (a) expenses
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997
Life insurance $ 222 1,362 983 4,177 6,416 406 2,587 68 2,075
Annuities 37,105 634 0 471 12,791 0 323 750 8,023
Accident and
health insurance 120 0 607 20,296 11,625 1,220 7,996 (20) 2,869
- ---------------------------------------------------------------------------------------------------------------------------
$37,447 1,996 1,590 24,944 30,832 1,626 10,906 798 12,967
- ---------------------------------------------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------------------------
<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, 1997 and 1996.
3. Statements of Income for the years ended December 31, 1997, 1996
and 1995.
4. Statements of Stockholder's Equity for the years ended
December 31, 1997, 1996 and 1995.
5. Statements of Cash Flow for the years ended December 31, 1997,
1996 and 1995.
6. Notes to Financial Statements - December 31, 1997, 1996 and 1995.
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, 1997.
3. Statements of Operations for the year ended December 31, 1997.
4. Statements of Changes in Net Assets for the years ended
December 31, 1997 and 1996.
5. Notes to Financial Statements - December 31, 1997.
b. Exhibits
1. Resolution of Board of Directors of the Company authorizing the
establishment of the Variable Account*
2. Not Applicable
3. Principal Underwriter Agreement
4. Individual Variable Annuity Contract**
5. Application for Individual Variable Annuity Contract**
6. (i) Copy of Articles of Incorporation of the Company*
(ii) Copy of the Bylaws of the Company
7. Not Applicable
8. Form of Fund Participation Agreement**
9. Opinion and Consent of Counsel
10. Independent Auditors' Consent
11. Not Applicable
12. Not Applicable
13. Calculation of Performance Information
14. Company Organizational Chart
27. Not Applicable
* Incorporated by reference to Post-Effective Amendment No. 9 to
Registrant's Form N-4 as filed electronically on October 27, 1995.
** Incorporated by reference to Post-Effective Amendment No. 10 to
Registrants Form N-4 as filed electronically on April 18, 1996.
Item 25. Directors and Officers of the Depositor
The following are the Officers and Directors of the Company:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices
Business Address with Depositor
- ----------------- ------------------------------
<S> <C>
Lowell C. Anderson Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Ronald L. Wobbeking Chairman, Chief Executive Officer and Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Thomas G. Brown Director
One Liberty Plaza,
45th Floor
New York, NY 10006
Edward J. Bonach Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Shannon Hendricks Treasurer
1750 Hennepin Avenue
Minneapolis, MN 55403
Dennis Marion Director
500 Valley Road
Wayne, NJ 07470
Timothy J. Tongson Appointed Actuary
1750 Hennepin Avenue
Minneapolis, MN 55403
Robert S. James Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Eugene T. Wilkinson Director
14 Commerce Drive
Cranford, NJ 07016
Eugene Long Vice President of Operations
152 W. 57th Street and Director
18th Floor
New York, NY 10019
Thomas J. Lynch President, Chief
1750 Hennepin Avenue Marketing Officer
Minneapolis, MN 55403 and Director
Carol B. Shaw Second Vice President
152 W. 57th Street, 18th Floor
New York, NY 10019
Reinhard W. Obermueller Director
560 Lexington Ave
New York, NY 10022
Stephen R. Herbert Director
900 Third Avenue
New York, NY 10022
Jack F. Rockett Director
140 East 95th Street, Ste 6A
New York, NY 10129
</TABLE>
Item 26. Persons Controlled by or Under Common Control with the Depositor
or Registrant
The Company organizational chart is attached as Exhibit 14.
Item 27. Number of Contract Owners
As of February 19, 1998, there were 5,868 qualified Contract Owners and 10,878
non-qualified Contract Owners.
Item 28. Indemnification
The Bylaws of the Company provide that:
Each person (and the heirs, executors, and administrators of such person) made
or threatened to be made a party to any action, civil or criminal, by reason of
being or having been a Director, officer, or employee of the corporation (or by
reason of serving any other organization at the request of the corporation)
shall be indemnified to the extent permitted by the laws of the State of New
York, and in the manner prescribed therein.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted for directors and officers or controlling persons of the
Company pursuant to the foregoing, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
Item 29. Principal Underwriters
a. NALAC Financial Plans, LLC is the principal underwriter for the
Contracts. It also is the principal underwriter for:
Allianz Life Variable Account A
Allianz Life Variable Account B
b. The following are the officers and directors of NALAC Financial
Plans, LLC:
<TABLE>
<CAPTION>
Name & Principal Positions and Offices
Business Address with Underwriter
- ---------------- ---------------------
<S> <C>
Alan A. Grove Director
1750 Hennepin Avenue
Minneapolis, MN 55403
James P. Kelso Director
1750 Hennepin Ave.
Minneapolis, MN 55403
Thomas B. Clifford President and Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Michael T. Westermeyer Secretary and Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Michael J. Yates Treasurer
1750 Hennepin Avenue
Minneapolis, MN 55403
Edward J. Bonach Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Catherine L. Mielke Compliance Officer
1750 Hennepin Avenue
Minneapolis, MN 55403
</TABLE>
c. Not Applicable
Item 30. Location of Accounts and Records
Thomas Clifford, whose address is 1750 Hennepin Avenue, Minneapolis, Minnesota,
maintains physical possession of the accounts, books or documents of the
Variable Account required to be maintained by Section 31(a) of the Investment
Company Act of 1940, as amended, and the rules promulgated thereunder.
Item 31. Management Services
Not Applicable
Item 32. Undertakings
a. Registrant hereby undertakes to file a post-effective amendment to this
registration statement as frequently as is necessary to ensure that the audited
financial statements in the registration statement are never more than sixteen
(16) months old for so long as payment under the variable annuity contracts may
be accepted.
b. Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
postcard or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement of Additional
Information.
c. Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form promptly upon written or oral request.
d. Preferred Life Insurance Company of New York ("Company") hereby
represents that the fees and charges deducted under the Contract described in
the Prospectus, in the aggregate, are reasonable in relation to the services
rendered, the expenses to be incurred and the risks assumed by the Company.
REPRESENTATIONS
The Company hereby represents that it is relying upon a No-Action Letter issued
to the American Council of Life Insurance, dated November 28, 1988 (Commission
ref. IP-6-88), and that the following provisions have been complied with:
1. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration statement, including the
prospectus, used in connection with the offer of the contract;
2. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in connection with
the offer of the contract;
3. Instruct sales representatives who solicit participants to purchase
the contract specifically to bring the redemption restrictions imposed by
Section 403(b)(11) to the attention of the potential participants;
4. Obtain from each plan participant who purchases a Section 403(b) annuity
contract, prior to or at the time of such purchase, a signed statement
acknowledging the participant's understanding of (1) the restrictions on
redemption imposed by Section 403(b)(11), and (2) other investment alternatives
available under the employer's Section 403(b) arrangement to which the
participant may elect to transfer his contract value.
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, as amended, the Registrant certifies that it meets the requirements of
Securities Act Rule 485(b) for effectiveness of this registration statement and
has caused this registration statement to be signed on its behalf in the City of
Minneapolis and State of Minnesota, on this 24th day of April, 1998.
<TABLE>
<CAPTION>
<S> <C>
PREFERRED LIFE VARIABLE
ACCOUNT C
(Registrant)
By: PREFERRED LIFE INSURANCE
COMPANY OF NEW YORK
(Depositor)
By: /s/ Michael T. Westermeyer
-------------------------
PREFERRED LIFE INSURANCE
COMPANY OF NEW YORK
By: /s/ Michael T. Westermeyer
-------------------------
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
Signature and Title
<TABLE>
<CAPTION>
<S> <C> <C>
Lowell C. Anderson* Director
Lowell C. Anderson 4-24-98
Ronald L. Wobbeking* Chairman, Chief Executive
Ronald L. Wobbeking Officer and Director 4-24-98
Shannon Hendricks* Treasurer
Shannon Hendricks 4-24-98
Thomas G. Brown* Director
Thomas G. Brown 4-24-98
Edward J. Bonach* Director
Edward J. Bonach 4-24-98
Robert S. James* Director
Robert S. James 4-24-98
Thomas J. Lynch* President and Director
Thomas J. Lynch 4-24-98
Dennis Marion* Director
Dennis Marion 4-24-98
Eugene T. Wilkinson* Director
Eugene T. Wilkinson 4-24-98
Eugene Long* Director
Eugene Long 4-24-98
Reinhard W. Obermueller*Director
Reinhard W. Obermueller 4-24-98
Stephen R. Herbert* Director
Stephen R. Herbert 4-24-98
Jack F. Rockett* Director
Jack F. Rockett 4-24-98
</TABLE>
* By /S/ Michael T. Westermeyer
--------------------------
Attorney-in-Fact
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Thomas G. Brown, a Director
of Preferred Life Insurance Company of New York (Preferred Life), a corporation
duly organized under the laws of the State of New York, do hereby appoint Ronald
L. Wobbeking and Michael T. Westermeyer, each individually as my attorney and
agent, for me, and in my name as Director of Preferred Life on behalf of
Preferred Life, with full power to execute, deliver and file with the Securities
and Exchange Commission all documents required for registration of a security
under the Securities Act of 1933, as amended, and the Investment Company Act of
1940, as amended, and to do and perform each and every act that said attorney
may deem necessary or advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 31st day of July 1997.
WITNESS:
Joan T Favre /s/ Thomas G. Brown
___________________________ _____________________________
Thomas G. Brown
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Eugene T. Long, a Director
of Preferred Life Insurance Company of New York (Preferred Life), a corporation
duly organized under the laws of the State of New York, do hereby appoint Ronald
L. Wobbeking and Michael T. Westermeyer, each individually as my attorney and
agent, for me, and in my name as Director of Preferred Life on behalf of
Preferred Life, with full power to execute, deliver and file with the Securities
and Exchange Commission all documents required for registration of a security
under the Securities Act of 1933, as amended, and the Investment Company Act of
1940, as amended, and to do and perform each and every act that said attorney
may deem necessary or advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 10th day of July 1997.
WITNESS:
Carol Shaw /s/ Eugene K. Long
___________________________ _____________________________
Eugene K. Long
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Eugene T. Wilkinson, a Director
of Preferred Life Insurance Company of New York (Preferred Life), a corporation
duly organized under the laws of the State of New York, do hereby appoint Ronald
L. Wobbeking and Michael T. Westermeyer, each individually as my attorney and
agent, for me, and in my name as Director of Preferred Life on behalf of
Preferred Life, with full power to execute, deliver and file with the Securities
and Exchange Commission all documents required for registration of a security
under the Securities Act of 1933, as amended, and the Investment Company Act of
1940, as amended, and to do and perform each and every act that said attorney
may deem necessary or advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 24th day of June 1997.
WITNESS:
Judy L. Stillman /s/ Eugene T. Wilkinson
___________________________ _____________________________
Eugene T. Wilkinson
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Jack F. Rockett, a Director
of Preferred Life Insurance Company of New York (Preferred Life), a corporation
duly organized under the laws of the State of New York, do hereby appoint Ronald
L. Wobbeking and Michael T. Westermeyer, each individually as my attorney and
agent, for me, and in my name as Director of Preferred Life on behalf of
Preferred Life, with full power to execute, deliver and file with the Securities
and Exchange Commission all documents required for registration of a security
under the Securities Act of 1933, as amended, and the Investment Company Act of
1940, as amended, and to do and perform each and every act that said attorney
may deem necessary or advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 2nd day of July 1997.
WITNESS:
Joanne P. Rockett /s/ Jack F. Rockett
___________________________ _____________________________
Jack F. Rockett
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Dennis J. Marion, a Director
of Preferred Life Insurance Company of New York (Preferred Life), a corporation
duly organized under the laws of the State of New York, do hereby appoint Ronald
L. Wobbeking and Michael T. Westermeyer, each individually as my attorney and
agent, for me, and in my name as Director of Preferred Life on behalf of
Preferred Life, with full power to execute, deliver and file with the Securities
and Exchange Commission all documents required for registration of a security
under the Securities Act of 1933, as amended, and the Investment Company Act of
1940, as amended, and to do and perform each and every act that said attorney
may deem necessary or advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 23rd day of June 1997.
WITNESS:
Kimberly J. Greenley /s/ Dennis J. Marion
___________________________ _____________________________
Dennis J. Marion
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Reinhard W. Obermueller, a Director
of Preferred Life Insurance Company of New York (Preferred Life), a corporation
duly organized under the laws of the State of New York, do hereby appoint Ronald
L. Wobbeking and Michael T. Westermeyer, each individually as my attorney and
agent, for me, and in my name as Director of Preferred Life on behalf of
Preferred Life, with full power to execute, deliver and file with the Securities
and Exchange Commission all documents required for registration of a security
under the Securities Act of 1933, as amended, and the Investment Company Act of
1940, as amended, and to do and perform each and every act that said attorney
may deem necessary or advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 26th day of June 1997.
WITNESS:
Melissa ODonnell /s/ Reinhard W. Obermueller
___________________________ _____________________________
Reinhard W. Obermueller
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Stephen R. Herbert, a Director
of Preferred Life Insurance Company of New York (Preferred Life), a corporation
duly organized under the laws of the State of New York, do hereby appoint Ronald
L. Wobbeking and Michael T. Westermeyer, each individually as my attorney and
agent, for me, and in my name as Director of Preferred Life on behalf of
Preferred Life, with full power to execute, deliver and file with the Securities
and Exchange Commission all documents required for registration of a security
under the Securities Act of 1933, as amended, and the Investment Company Act of
1940, as amended, and to do and perform each and every act that said attorney
may deem necessary or advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 27th day of June 1997.
WITNESS:
Suzanne F. Herbert /s/ Stephen R. Herbert
___________________________ _____________________________
Stephen R. Herbert
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Edward J. Bonach, a Director
of Preferred Life Insurance Company of New York (Preferred Life), a corporation
duly organized under the laws of the State of New York, do hereby appoint Ronald
L. Wobbeking and Michael T. Westermeyer, each individually as my attorney and
agent, for me, and in my name as Director of Preferred Life on behalf of
Preferred Life, with full power to execute, deliver and file with the Securities
and Exchange Commission all documents required for registration of a security
under the Securities Act of 1933, as amended, and the Investment Company Act of
1940, as amended, and to do and perform each and every act that said attorney
may deem necessary or advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 25th day of June 1997.
WITNESS:
Margo Jeske /s/ Edward J. Bonach
___________________________ _____________________________
Edward J. Bonach
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Thomas J. Lynch , a Director
of Preferred Life Insurance Company of New York (Preferred Life), a corporation
duly organized under the laws of the State of New York, do hereby appoint Ronald
L. Wobbeking and Michael T. Westermeyer, each individually as my attorney and
agent, for me, and in my name as Director of Preferred Life on behalf of
Preferred Life, with full power to execute, deliver and file with the Securities
and Exchange Commission all documents required for registration of a security
under the Securities Act of 1933, as amended, and the Investment Company Act of
1940, as amended, and to do and perform each and every act that said attorney
may deem necessary or advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 20th day of June 1997.
WITNESS:
Melissa ODonnell /s/ Thomas J. Lynch
___________________________ _____________________________
Thomas J. Lynch
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Robert S. James, a Director
of Preferred Life Insurance Company of New York (Preferred Life), a corporation
duly organized under the laws of the State of New York, do hereby appoint Ronald
L. Wobbeking and Michael T. Westermeyer, each individually as my attorney and
agent, for me, and in my name as Director of Preferred Life on behalf of
Preferred Life, with full power to execute, deliver and file with the Securities
and Exchange Commission all documents required for registration of a security
under the Securities Act of 1933, as amended, and the Investment Company Act of
1940, as amended, and to do and perform each and every act that said attorney
may deem necessary or advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 20th day of June 1997.
WITNESS:
Sheila D. Faust /s/ Robert S. James
___________________________ _____________________________
Robert S. James
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Lowell C. Anderson, a Director
of Preferred Life Insurance Company of New York (Preferred Life), a corporation
duly organized under the laws of the State of New York, do hereby appoint Ronald
L. Wobbeking and Michael T. Westermeyer, each individually as my attorney and
agent, for me, and in my name as Director of Preferred Life on behalf of
Preferred Life, with full power to execute, deliver and file with the Securities
and Exchange Commission all documents required for registration of a security
under the Securities Act of 1933, as amended, and the Investment Company Act of
1940, as amended, and to do and perform each and every act that said attorney
may deem necessary or advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 18th day of June 1997.
WITNESS:
Alan A. Grove /s/Lowell C. Anderson
___________________________ _____________________________
Lowell C. Anderson
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Shannon Hendricks, Treasurer of
Preferred Life Insurance Company of New York (Preferred Life), a corporation
duly organized under the laws of the State of New York, do hereby appoint Ronald
L. Wobbeking and Michael T. Westermeyer, as my attorney and agent, for me, and
in my name as Treasurer of Preferred Life on behalf of Preferred Life, with full
power to execute, deliver and file with the Securities and Exchange Commission
all documents required for registration of a security under the Securities Act
of 1933, as amended, and the Investment Company Act of 1940, as amended, and to
do and perform each and every act that said attorney may deem necessary or
advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 16th day of April 1998.
WITNESS:
/s/ Shannon D. Hendricks
___________________________ _____________________________
Shannon Hendricks
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Ronald L. Wobbeking, a Director of
Preferred Life Insurance Company of New York (Preferred Life), a corporation
duly organized under the laws of the State of New York, do hereby appoint
Michael T. Westermeyer, as my attorney and agent, for me, and in my name as
Director of Preferred Life on behalf of Preferred Life, with full power to
execute, deliver and file with the Securities and Exchange Commission all
documents required for registration of a security under the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as amended, and to do
and perform each and every act that said attorney may deem necessary or
advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 14th day of April 1998.
WITNESS:
Michael T. Westermeyer /s/ Ronald L. Wobbeking
___________________________ _____________________________
Ronald L. Wobbeking
EXHIBITS
TO
POST-EFFECTIVE AMENDMENT NO. 14
TO
FORM N-4
PREFERRED LIFE VARIABLE ACCOUNT C
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
INDEX TO EXHIBITS
Exhibit Page
EX-99.B3 Principal Underwriter Agreement
EX-99.B6(ii) Copy of Bylaws of the Company
EX-99.B9 Opinion and Consent of Counsel
EX-99.B10 Independent Auditors' Consent
EX-99.B13 Calculation of Performance Information
EX-99.B14 Company Organizational Chart
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
RESTATED BYLAWS
OF
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
(as amended on October 2, 1996)
---------------------------
ARTICLE I
SHAREHOLDERS' MEETINGS
SECTION 1. Annual Meeting. The annual meeting of shareholders for the
election of the directors and for transaction of such other business as may
properly come before such meeting shall be held on the first Tuesday in April in
each year or if such day is a holiday, on the next succeeding business day. The
Board of Directors may select another date for the annual meeting in its
discretion.
SECTION 2. Special Meetings. Except as otherwise provided by statute,
special meetings of the shareholders may be called for any purpose or purposes
at any time by the Chief Executive Officer (CEO) or the Board of Directors, and
shall be called by the CEO, President or Secretary upon written request of
shareholders owning ten percent (10%) or more of the stock of the Company issued
and outstanding and entitled to vote at such meetings. At a special meeting, no
business will be transacted and no corporate action shall be taken other than
that stated in the notice of the meeting except with the unanimous consent,
either in person or by proxy, of all of the shareholders entitled to vote with
respect to such business.
SECTION 3. Time and Place of Meetings. All meetings of the shareholders
shall be held at the principal office of the Company, or at such other place or
places within or without the State of New York and at such time as shall from
time to time be designated in the notice of the meeting.
SECTION 4. Notice of Meetings. Written notice of all meetings of
shareholders, annual or special, shall be given to each shareholder entitled to
vote thereat, by mail or personal delivery, at least ten days and not more than
fifty days before such meeting, stating the date, time and place of such
meeting, and unless it is the annual meeting, indicating that it is being issued
by or at the direction of the person or persons calling the meeting. Notice of a
special meeting shall also state the purpose or purposes for which the meeting
is called. If mailed, such notice shall be directed to such shareholder at his
address as it appears on the books of the Company or to such other address as
may be requested by such shareholder in writing.
SECTION 5. Waiver of Notice. Notice of meetings of shareholders need
not be given to any shareholder who submits a written waiver of notice, whether
before or after the meeting. The attendance of any shareholder at a meeting in
person or by proxy, without protesting prior to the conclusion of the meeting
the lack of notice of such meeting, shall constitute a waiver of notice by such
shareholder.
SECTION 6. Quorum. At every meeting of the shareholders, the holders of
a majority of the outstanding stock entitled to vote at any meeting represented
in person or by proxy, shall constitute a quorum for all purposes. In the
absence of a quorum, the shareholders entitled to vote thereat, represented in
person or by proxy, may adjourn the meeting to a day certain and the meeting may
be held as adjourned without further notice if there is a quorum present at the
commencement of such adjourned meeting. At any such adjourned meeting, only such
business as might have been transacted at the meeting originally called may be
transacted and such meeting may continue to conclusion notwithstanding the
withdrawal of enough shareholders to leave less than a quorum.
SECTION 7. Voting. At all meetings of shareholders each share of stock
held by a shareholder entitled to vote on any matter, represented in person or
by proxy, shall be entitled to one vote. Proxies shall be in writing and shall
be signed by the shareholder; provided, however, that if the shareholder is a
corporation, its proxy shall either have its corporate seal affixed or shall be
accompanied by evidence satisfactory to the Company that the proxy has been
signed on behalf of such corporate shareholder by a duly authorized officer
thereof. Inspectors shall be appointed by the presiding person at any
shareholders' meeting at which inspectors are required. At all meetings of
shareholders, a quorum being present, all matters except as otherwise provided
by law or the Company Charter or these Bylaws, shall be authorized by a majority
of the votes cast by the shareholders present in person or by proxy and entitled
to vote thereon. No proxy shall be valid after the expiration of eleven months
from the date of its execution.
SECTION 8. Written Consent. Any action required or permitted to be
taken at any meeting of shareholders may be taken without a meeting by the
written consent thereto of the shareholders, setting forth such action and
signed by the holders of all the outstanding shares entitled to vote thereon.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. Number, Authority and Qualifications. The business and
property of the Company shall be conducted and managed by a Board of Directors
consisting of not less than thirteen nor more than twenty-three directors. The
number of directors shall be determined by vote of the shareholders at the
annual meeting of shareholders or at a special meeting, or by resolution of the
Board of Directors and, until amended, the number of directors shall be
thirteen. The number of directors may be increased or decreased, within the
limits prescribed in this section, by vote of the shareholders at the annual
meeting or shareholders or at a special meeting, or by resolution of the Board
of Directors, but no decrease in the number of directors so made shall shorten
the term of any incumbent director.
At all times a majority of the directors shall be citizens and
residents of the United States and not less than three directors shall be
residents of the State of New York.
At least one-third (1/3) of the members of the Board shall be persons
who are not officers or employees of the Company or of any entity controlling,
controlled by or under common control with the Company and who are not
beneficial owners of a controlling interest in the voting stock of any such
company or any such entity ("Independent Directors"). Directors must be at least
18 years of age but need not be shareholders.
SECTION 2. Election and Removal. The Board of Directors shall be
elected at the annual meeting of shareholders by a plurality of the votes cast
thereat to serve until the next annual meeting and until their successors shall
be elected. Any or all of the directors may be removed, with or without case, by
vote of a majority of the shares issued and outstanding and entitled to vote
thereon. A special meeting of shareholders for the purpose of removing any other
director shall be called upon a vote of at least one-third (1/3) of the members
of the Board of Directors. Immediately following any vote by which a director is
removed, the office of the removed director is to be deemed to be vacant. No
director shall be elected pursuant to this section unless a copy of the notice
of election shall have been filed in the office of the Superintendent of
Insurance of the State of New York at least ten days before the day of such
election.
SECTION 3. Vacancies. Whenever a vacancy shall occur in the office of a
director, such vacancy may be filled for the unexpired term by a majority vote
of the remaining directors. Where the number of directors is increased,
additional directors may be elected by the shareholders entitled to vote thereon
at the annual meeting, or by the Board of Directors. No director elected
pursuant to this section shall take office or exercise the duties thereof until
ten days after written notice of his election shall have been filed with the
office of the Superintendent of Insurance of the State of New York.
SECTION 4. Regular Meetings. Regular meetings of the Board of Directors
shall be held immediately following the annual meeting of the shareholders and
on such other dates as the Board may designate.
SECTION 5. Special Meetings. Special meetings of the Board of Directors
may be called by the Secretary or an Assistant Secretary on the request of the
CEO or the President or any Vice President or upon the request of any two
directors.
SECTION 6. Notice of Meetings. Written notice of the date, time and
place of special meeting shall be given by mail to each member at least five
days before such meeting. Such notice may also be given by telegram or personal
delivery at least two days before such meeting. No notice need be given of
regular meetings. A notice need not specify the purpose or purposes of any
meeting.
SECTION 7. Waiver of Notice. Any director or member of the Executive
Committee, Finance Committee or any other Committee, may at any time waive any
notice required to be given under these Bylaws if such waiver is given in
writing or by telegram either before, at or after the meeting to which it
relates. Presence at a meeting shall also constitute a waiver of notice thereof
unless the person attending such meeting objects to the failure to give such
notice, prior to the end of such meeting.
SECTION 8. Place of Meetings. Meetings of the Board of Directors shall
be held at the principal office of the Company or at such other place within or
without the State of New York as may be designated in the notice thereof.
SECTION 9. Business Transacted at Meetings. Any business may be
transacted and any corporate action taken at any regular or special meeting of
the Board of Directors whether stated in the notice of such meeting or not,
except as otherwise expressly required by law.
SECTION 10. Quorum. A quorum shall consist of a majority of the
directors then in office. At least one (1) Independent Director must be included
in any quorum for the transaction of business at any meeting of the Board
of Directors.
SECTION 11. Action by the Board. Subject to the provisions of Article
XII, Sections 6 and 7 hereof, any reference to corporate action to be taken by
the Board of Directors shall mean such action at a meeting of the Board. Except
as otherwise provided by law or by the Charter of the Company, the vote of a
majority of the directors present at the time of the vote, if a quorum is
present at such time, shall be the act of the Board.
SECTION 12. Compensation. The compensation of directors shall be
regulated and determined from time to time, by resolution of the Board of
Directors; provided that nothing herein contained shall be construed to preclude
any director from serving the Company in any other capacity and receiving
compensation or commissions therefor, and provided further that no full time
officer of the Company shall receive any compensation in addition to his regular
salary for serving as a director of the Company.
ARTICLE III
EXECUTIVE COMMITTEE
SECTION 1. Membership. The Board of Directors may appoint from among
its members an Executive Committee consisting of five or more directors. Members
of the Executive Committee shall be appointed by a majority of the full Board of
Directors at the annual meeting of the Board of Directors or at a special
meeting, to serve until the next succeeding annual meeting of the Board of
Directors and until their successors have been appointed. At least one-third
(1/3) of the members of the Executive Committee shall be Independent Directors.
The Executive Committee shall elect from among its members a Chairman. The
members of the Executive Committee shall serve at the pleasure of the Board.
SECTION 2. Powers of the Executive Committee. The Executive Committee
during the intervals between meetings of the Board of Directors shall have and
may exercise, except as otherwise provided by statute, all powers of the Board
with respect to the conduct and management of the business and property of the
Company and shall have the power to authorize the seal of the Company to be
affixed to all papers which may require it.
SECTION 3. Meetings. Meetings of the Executive Committee may be called
by order of the Chairman of the Committee or of any two members of the
Committee. The Committee shall prepare regular minutes of the transactions at
its meetings and for that purpose may appoint a secretary to record the
proceedings thereat. The Committee shall cause such minutes to be maintained in
the books kept for that purpose. All actions of the Committee shall be reported
to the Board of Directors at its next meeting succeeding the date of such
action.
SECTION 4. Place of Meetings. Meetings of the Executive Committee shall
be held at the principal office of the Company, or at such other place, within
or without the State of New York, as may be designated in the notice thereof.
SECTION 5. Notice of Meetings. Notice of all meetings shall be given by
mailing to each member at least three days before such meeting, a written or
printed notice of the time and place thereof. Such notice may also be given by
telegram or personal delivery at least one day before such meeting.
SECTION 6. Quorum. A quorum shall consist of a majority of the total
number of members of the Committee then in office, but not less than three (3)
members. At least one (1) Independent Director must be included in any quorum
for the transaction of business at any meeting of the Executive Committee.
ARTICLE IV
FINANCE COMMITTEE
SECTION 1. Membership. The Board of Directors may appoint from among
its members a Finance Committee consisting of five or more directors. Members of
the Finance Committee shall be appointed by a majority of the full Board of
Directors at the annual meeting of the Board of Directors, or at a special
meeting, to serve until the next succeeding annual meeting of the Board of
Directors and until their successors have been appointed. At least one-third
(1/3) of the Members of the Finance Committee shall be Independent Directors.
The Finance Committee shall elect from among its members as Chairman. The
members of the Finance Committee shall serve at the pleasure of the Board.
SECTION 2. Powers of the Finance Committee. The Finance Committee shall
possess and may exercise all the powers of the Board of Directors with respect
to the investments of the funds of the Company.
SECTION 3. Meetings. Meetings of the Finance Committee may be called by
order of the Chairman of the Committee or by any two members of the Committee.
The Committee shall prepare regular minutes of the transactions at its meetings
and for that purpose may appoint a secretary to record the proceedings thereat.
The Committee shall cause such minutes to be maintained in books kept for that
purpose. All actions of the Committee shall be reported to the Board of
Directors at its next meeting succeeding the date of such action.
SECTION 4. Place of Meetings. Meetings of the Finance Committee shall
be held at the principal office of the Company, or at such other place, within
or without the State of New York, as may be designated in the notice thereof.
SECTION 5. Notice of Meetings. Notice of all meetings shall be given by
mailing to each member at least three days before such meeting, a written or
printed notice of the time and place thereof. Such notice may also be given by
telegram or personal delivery at least one day before such meeting.
SECTION 6. Quorum. A quorum shall consist of a majority of the total
number of members of the Committee then in office, but not less than three (3)
members. At least one (1) Independent Director must be included in any quorum
for the transaction of business at any meeting of the Finance Committee.
ARTICLE V
AUDIT AND EVALUATION COMMITTEE
SECTION 1. Membership. The Board of Directors may appoint from among
its members an Audit and Evaluation Committee consisting of five or more
directors who shall be appointed by a majority of the full Board of Directors at
the annual meeting of the Board of Directors, or at a special meeting, to serve
until the next succeeding annual meeting of the Board of Directors and until
their successors have been appointed. All members of the Audit and Evaluation
Committee shall be Independent Directors. The Audit and Evaluation Committee
shall elect from among its members as Chairman. The members of the Committee
shall serve at the pleasure of the Board.
SECTION 2. Powers of the Audit and Evaluation Committee. The Audit and
Evaluation Committee shall possess and may exercise all the powers of the Board
of Directors with respect to the following functions:
(a) recommending the selection of independent certified public
accounts;
(b) reviewing the Company's financial condition, the scope and results
of the independent audit and any internal audit;
(c) nominating candidates for director for election by shareholders or
policyholders;
(d) evaluating the performance of officers deemed to be principal
officers of the Company; and
(e) recommending to the Board of Directors the selection and
compensation of such principal officers.
SECTION 3. Meetings. Meetings of the Audit and Evaluation Committee may
be called by order of the Chairman of the Committee or by any two members of the
Committee. The Committee shall prepare regular minutes of the transactions at
its meetings and for that purpose may appoint a secretary to record the
proceedings thereat. The Committee shall cause such minutes to be maintained in
books kept for that purpose. All actions of the Committee shall be reported to
the Board of Directors at its next meeting succeeding the date of such action.
SECTION 4. Place of Meetings. Meetings of the Audit and Evaluation
Committee shall be held at the principal office of the Company, or at such other
place, within or without the State of New York, as may be designated in the
notice thereof.
SECTION 5. Notice of Meetings. Notice of all meetings shall be given by
mailing to each member at least three days before such meeting, a written or
printed notice of the time and place thereof. Such notice may also be given by
telegram or personal delivery at least one day before such meeting.
SECTION 6. Quorum. A quorum shall consist of a majority of the total
number of members of the Committee then in office, but not less than three (3)
members.
ARTICLE VI
COMMITTEES - GENERAL
SECTION 1. Board Committees. The Board of Directors may from time to
time by resolution passed by a majority of the whole Board, designate one or
more committees, in addition to the Executive, Finance and Audit and Evaluation
Committees, each committee to consist of five or more of the directors of the
Company, for such purposes as the Board may from time to time determine. Any
such committee to have extent provided by resolution of the Board shall have all
the authority of the Board and shall have such functions and duties as the Board
shall prescribe.
SECTION 2. Quorum. A quorum for any such other Committee shall consist
of a majority of the total number of members of the Committee then in office,
but not less than three and at least one member constituting such quorum shall
be an Independent Director.
A majority of all the members of any such other committee may determine
its action and fix the time and place of its meetings, unless the Board of
Directors shall otherwise provide. The Board of Directors shall have power to
change the members of any committee at any time, to fill vacancies and to
discharge any such committee, either with or without cause, at any time, except
that at least one-third (1/3) of the members of any committee shall be
Independent Directors and at least one Independent Director must be included in
any quorum for the transaction of business at any meeting of any committee.
SECTION 3. Alternates and Substitutes. The Board of Directors may by
resolution passed by a majority of the whole Board designate one or more
directors as alternate members of any Committee who may replace any absent
member or members at any meeting of such committee.
SECTION 4. Compensation. Except as otherwise provided in these Bylaws,
each member of the Executive Committee, Finance Committee, Audit and Evaluation
Committee and any other Committee designated by the Board, shall be entitled to
receive from the Company for each meeting of any such Committee which he shall
attend such fee, if any, as shall be fixed by the Board of Directors, together
with reimbursement, to the extent authorized by resolution of the Board, for the
reasonable expenses incurred by him in connection with the performance of his
duties.
ARTICLE VII
OFFICERS
SECTION 1. Duties in General. All officers of the Company, in addition
to the duties prescribed by these Bylaws, shall perform such duties in the
conduct and management of the business and property of the Company as may be
determined by the Board of Directors. In the case of more than one person
holding an office of the same title, any of them may perform the duties of the
office except insofar as the Board of Directors, or the President may otherwise
direct. Any two or more offices may be held by the same person except the
offices of President and Secretary.
SECTION 2. Number and Designation. The officers of the Company shall be
a President, a Secretary, a Treasurer, and such other officers including a
Chairman of the Board, one or more Vice-Presidents, Assistant Treasurers, or
Assistant Secretaries as the Board of Directors may from time to time deem
advisable.
SECTION 3. Election and Term of Office. All officers shall be elected
annually by the Board of Directors at the annual meeting of the Board, or at a
special meeting, and shall hold office at the pleasure of the Board. The Board
of Directors shall also have the power at any time and from time to time to
elect or appoint any additional officers not then elected, and any such officer
so elected or appointed shall serve at the pleasure of the Board. A vacancy in
any office resulting from death, resignation, removal, disqualification or from
any other cause, shall be filled by the Board of Directors.
SECTION 4. CEO and Chairman of the Board. The CEO shall be the Chairman
of the Board and shall have the authority to execute all contracts and
instruments in the name of and on behalf of the Company and shall preside, when
present, at meetings of shareholders and of the Board of Directors.
The CEO shall have general and active supervision and direction over
the business affairs of the Corporation, subject to the control of the Board of
Directors whose policies he shall execute.
He shall see that all orders and resolutions of the Board of Directors
are carried into effect. Except when inconsistent with the Corporation's
Charter, these Bylaws, or with the orders and resolutions of the Board of
Directors, he shall have the power to employ, fix the duties, and discharge such
employees as he may deem necessary and proper. The CEO shall make such reports
to the Board of Directors as it may require. The CEO shall have such other
powers and perform such other duties as may be assigned to him by the Board of
Directors.
SECTION 5. President. In absence of the Chairman of the Board and CEO,
the President shall preside at all meetings of the shareholders and of the Board
of Directors. The President shall have such powers and perform such duties as
may be assigned to him from time to time by the Board of Directors and the CEO.
SECTION 6. Vice-Presidents. The Vice-Presidents shall have such powers
and perform such duties as may be assigned to them from time to time by the
Board of Directors, the CEO or the President. The Board of Directors, or the CEO
may from time to time determine the order of priority as between two or more
Vice-Presidents.
SECTION 7. Secretary. The Secretary shall have custody and control of
the minutes of the meetings of the stockholders and of the Board of Directors,
and the minutes of the meetings of all committees appointed by the Board; shall
issue notices of meeting; shall have custody of the Company's seal and corporate
books and records; shall have charge of the issuance, transfer and cancellation
of stock certificates; shall have authority to attest and affix the corporate
seal to any instruments executed on behalf of the Company; and shall perform
such other duties as are incident to his office and as may be required by the
Board of Directors or the CEO. Any Assistant Secretary may perform the duties of
the Secretary in his absence and such of the duties of the Secretary as may be
delegated or assigned to him by the Secretary or by the CEO or by the Board of
Directors.
SECTION 8. Treasurer. The Treasurer shall be charged with the
supervision of the keeping of the funds and books of account of the Corporation
and with their safekeeping shall carry out such duties as are incident to his
office and shall further perform such other duties as may be required by the
Board of Directors or the CEO. Any Assistant Treasurer may perform the duties of
the Treasurer in his absence, and such of the duties of the Treasurer as may be
delegated or assigned to him by that officer or by the Board of Directors of the
CEO.
SECTION 9. Other Officers. Other officers who may from time to time be
elected by the Board of Directors shall have such powers and perform such duties
as may be assigned to them by the Board of Directors or the CEO or President.
SECTION 10. Removal. Any officer may be removed either with or without
cause at any time by a vote of a majority of the entire Board of Directors.
SECTION 11. Compensation. Subject to the provisions of Article II,
Section 12, the compensation of the officers shall be fixed by the Board of
Directors.
ARTICLE VIII
SHARE CERTIFICATES
SECTION 1. Form of Certificates. The shares of the Corporation shall be
represented by certificates, in such form as the Board of Directors may from
time to time prescribe, signed by the CEO, President or a Vice-President and the
Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer,
and sealed with the seal of the Corporation. Such seal may be a facsimile,
engraved or printed. Where any such certificate is signed by a transfer agent or
transfer clerk and by a registrar, the signatures of any such CEO, President,
Vice-President, Secretary, Assistant Secretary, Treasurer, or Assistant
Treasurer upon such certificates may be facsimiles, engraved or printed. In case
of any such officer who has signed or whose facsimile signature has been placed
upon such certificate shall have cased to be such before certificate is issued,
it may be issued by the Corporation with the same effect as if such officer had
not ceased to be such at the date of its issue.
Every certificate representing shares issued by the Corporation shall
plainly state upon the facts thereof the number, kind and class of shares which
it represents.
SECTION 2. Transfers. Transfers of shares shall be made only upon the
books of the Corporation by the registered holders in person or by power of
attorney duly executed and acknowledged and filed with the Secretary of the
Corporation, or with a duly appointed Transfer Agent acting for and on behalf of
the Secretary, and upon the surrender of the certificate or certificates for
such shares duly endorsed or accompanied by a duly executed stock power.
SECTION 3. Lost or Destroyed Certificates. If any certificate of shares
shall be lost or destroyed, the holder thereof shall forthwith notify the
Corporation of the facts and the Board of Directors or the Executive Committee
may then authorize a new certificate to be issued to him. The Board of Directors
or the Executive Committee may in its discretion require, as a condition
precedent, deposit of a bond in such amount and in such form and with surety or
sureties as the Board or the said Committee may direct.
SECTION 4. Record Date. For the purpose of determining the shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or to express consent to or dissent from any proposal
without a meeting, or for the purpose of determining shareholders entitled to
receive payment of any dividend or the allotment of any rights or for the
purpose of any other action affecting the interests of shareholders, the Board
of Directors may fix, in advance, a record date. Such date shall not be more
than fifty nor less than ten days before the date of any such meeting, nor more
than fifty days prior to any other action. In each such case, except as
otherwise provided by law, only such persons as shall be shareholders of record
on the date so fixed shall be entitled to notice of, and to vote at, such
meeting and any adjournment thereof, or to express such consent or dissent, or
to receive payment of such dividend, or such allotment of rights, or otherwise
to be recognized as shareholders for the related purpose, notwithstanding any
registration of transfer of shares on the books of the Company after any such
record date so fixed.
SECTION 5. Transfer Agent and Registrar. The Board of Directors may
appoint one or more transfer clerks or one or more transfer agents and one or
more registrars, and may require all certificates for shares to bear the
signature or signatures of any of them.
ARTICLE IX
DIVIDENDS
Dividends may be declared from the legally available surplus of the
Company at such times and in such amounts as the Board of Directors may
determine.
ARTICLE X
INDEMNIFICATION OF OFFICERS AND DIRECTORS
SECTION 1. To the extent permitted by law:
(a) The Corporation shall indemnify any person made a party to an
action or proceeding by or in the right of the Corporation to procure a judgment
in its favor, by reason of the fact that he, his testator or intestate, is or
was a director or officer or employee of the Corporation, against the reasonable
expenses, including attorneys' fees, actually and necessarily incurred by him in
connection with the defense of such action or proceeding, or in connection with
an appeal therein, except in relation to matters as to which such person is
adjudged to have breached his duty to the Corporation; and
(b) The Corporation shall indemnify any person made, or threatened to
be made a party to an action or proceeding other than one by or in the right of
the Corporation to procure a judgment in its favor, whether civil or criminal,
including an action by or in the right of any other corporation of any type or
kind domestic or foreign, which any director or officer or employee of the
Corporation served in any capacity at the request of the Corporation, by reason
of the fact that he, his testator or intestate, was a director or officer or
employee of the Corporation, or served such other corporation in any capacity,
against judgments, fines, amounts paid in settlement and reasonable expenses,
including attorneys' fees, actually and necessarily incurred as a result of such
action or proceeding, or any appeal therein, if such person acted in good faith,
for a purpose which he reasonably believed to be in the best interests of the
Corporation and, in criminal actions or proceedings, in addition had no
reasonable cause to believe that his conduct was unlawful.
ARTICLE XI
CONFLICT OF INTERESTS
No director or officer of this Corporation shall receive, in addition
to his fixed salary or compensation, any money or valuable thing, either
directly or indirectly, or through any substantial interest in any other
corporation or business unit, for negotiating, procuring, recommending or aiding
in any purchase or sale of property, or loan, made by the Corporation or any
affiliate or subsidiary thereof; nor shall he be pecuniarily interested, either
as principal, co-principal, agent of beneficiary, either directly or indirectly,
or through any substantial interest in any other corporation or business unit,
in any such purchase, sale or loan.
ARTICLE XII
MISCELLANEOUS PROVISIONS
SECTION 1. Deposits of Funds. Bills, notes, checks, negotiable
instruments or any other evidence of indebtedness payable to and received by the
Company may be endorsed for deposit to the credit of the Company by such
officers or agents of the Company as the Board of Directors may determine and,
when authorized by the Board of Directors may be endorsed for deposit to the
credit of agents of the Company in such manner as the Board of Directors may
direct.
SECTION 2. Withdrawal of Funds. All disbursements of the funds of the
Company shall be made by check, draft or other order signed by such officers or
agents of the Company as the Board of Directors may from time to time authorize
to sign the same.
SECTION 3. Voting Stock of Other Corporations. The President or any
other officer designated by the Board of Directors of the Company may execute in
the name of the Company and affix the corporate seal to any proxy or power of
attorney authorizing the proxy or proxies or attorney or attorneys named therein
to vote the stock of any corporation held by this Company on any matter on which
such stock may be voted. If any stock owned by this Company is held in any name
other than the name of this Company, instructions as to the manner in which such
stock is to be voted on behalf of this Company may be given to the holder of
record by the President or any other officer designated by the Board of
Directors.
SECTION 4. Notices. Any notice under these Bylaws may be given by mail
by depositing the same in a post office or postal letter box or postal mail
chute in a sealed post-paid wrapper addressed to the person entitled thereto at
his address as the same appears upon the books or records of the Company or at
such other address as may be designated by such person in a written instrument
filed with the Secretary of the Company prior to the sending of such notice,
except that notices which may be given by telegram or personal delivery may be
telegraphed or delivered, as the case may be, to such person at such address;
and such notice shall be deemed to be given at the time such notice is mailed,
telegraphed, or delivered personally. The term "telegram" is used in these
Bylaws shall include the giving of a notice by telex.
SECTION 5. Seal. The corporate seal shall have inscribed thereon the
name of the Company, the year of its organization and the words "Corporate Seal
New York". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or otherwise reproduced.
SECTION 6. Action Without a Meeting. Where time is of the essence but
not in lieu of any regular or special scheduled meeting of the Board of
Directors or any committee thereof, any action required or permitted to be taken
by the Board of Directors or any committee thereof, may be taken without a
meeting if all members of the Board, or of such committee, consent in writing to
the adoption of a resolution authorizing the action. The resolution and the
written consents thereto by the members of the Board or committee shall be filed
with the minutes of the proceedings of the Board or committee.
SECTION 7. Participation in Meeting by Telephone. Any one or more
members of the Board of Directors or any committee thereof may participate in a
meeting of the Board or of such committee by means of a conference telephone or
similar communications equipment allowing all persons participating in the
meeting to hear each other at the same time. Participation by such means shall
constitute presence in person at such meeting.
ARTICLE XIII
AMENDMENTS
SECTION 1. Power to Amend. These Bylaws may be adopted, amended or
repealed by the shareholders, at an annual or special meeting. Bylaws may also
be adopted, amended or repealed by the Board but any Bylaw adopted by the Board
may be amended or repealed by the shareholders as hereinabove provided.
SECTION 2. Notice to Shareholders. If any Bylaw regulating an impending
election of directors is adopted, amended or repealed by the Board of Directors,
there shall be set forth in the notice of the next meeting of shareholders for
the election of directors the Bylaws so adopted, amended or repealed, together
with a concise statement of the changes made.
CERTIFICATE
The undersigned hereby certifies that the foregoing is a true and
complete restatement of the Bylaws of PREFERRED LIFE INSURANCE COMPANY OF NEW
YORK with all amendments to the date of this certificate.
Dated: Minneapolis, Minnesota
October 2, 1996
/s/Alan A. Grove
--------------------------
Alan A. Grove, Secretary
Blazzard, Grodd & Hasenauer, P.C.
943 Post Road East
Westport, CT 06880
(203) 226-7866
April 24, 1998
Board of Directors
Preferred Life Insurance Company of New York
152 W 57th Street, 18th Floor
New York, NY 10019
Re: Opinion and Consent of Counsel
Preferred Life Variable Account C
Dear Sir or Madam:
You have requested our Opinion of Counsel in connection with the filing with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended, of a Registration Statement on Form N-4 for the Individual Deferred
Variable Annuity Contracts to be issued by Preferred Life Insurance Company of
New York and its separate account, Preferred Life Variable Account C.
We are of the following opinions:
1. Preferred Life Variable Account C is a unit investment trust as that term is
defined in Section 4(2) of the Investment Company Act of 1940 (the "Act"),
and is currently registered with the Securities and Exchange Commission,
pursuant to Section 8(a) of the Act.
2. Upon the acceptance of purchase payments made by a Contract Owner pursuant
to a Contract issued in accordance with the Prospectus contained in the
Registration Statement and upon compliance with applicable law, such a
Contract Owner will have a legally-issued, fully-paid, non-assessable
contractual interest under such Contract.
You may use this opinion letter, or copy hereof, as an exhibit to the
Registration Statement.
We consent to the reference to our Firm under the caption "Legal Opinions"
contained in the Statement of Additional Information which forms a part of the
Registration Statement.
Sincerely,
BLAZZARD, GRODD, & HASENAUER, P.C.
By: /s/ LYNN KORMAN STONE
- ----------------------------------
Lynn Korman Stone
KPMG Peat Marwick LLP
4200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
Independent Auditors' Consent
The Board of Directors of Preferred Life Insurance Company of New York
and Contract Owners of Preferred Life Variable Account C:
We consent to the use of our report, dated January 30, 1998, on the financial
statements of Preferred Life Variable Account C and our report dated February 4,
1998, on the financial statements of Preferred Life Insurance Company of New
York included herein and to the reference to our Firm under the heading
"EXPERTS".
KPMG Peat Marwick LLP
Minneapolis, Minnesota
April 24, 1998
<TABLE>
<CAPTION>
PREFERRED LIFE VALUEMARK II
PREFERRED LIFE VARIABLE ACCOUNT C
CUMULATIVE AND AVERAGE ANNUAL TOTAL RETURN CALCULATIONS
ORIGINAL PURCHASE AS OF DECEMBER 31, 1996
VALUATION DATE AS OF DECEMBER 31, 1997
Dollar Units This Accum. Accum.
DATE TRANSACTION AMOUNT UNIT VALUE TRANS. UNITS VALUE
---- ----------- ------ ---------- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
CAPITAL GROWTH
12-31-96 Purchase $1,000.00 $11.25417490 88.856 88.856 $1,000.00
12-31-97 Contract Fee (1.00) 13.12966406 (0.076) 88.780 1,165.65
12-31-97 Value before Surr Chg 13.12966406 0.000 88.780 1,165.65
12-31-97 Surrender Charge (42.50) 13.12966406 (3.237) 85.543 1,123.15
Cumulative and Average Annual Total Returns
without/with charges 16.66% A 12.31% B
GROWTH AND INCOME
12-31-96 Purchase $1,000.00 $19.48959860 51.309 51.309 $1,000.00
12-31-97 Contract Fee (1.00) 24.55079561 (0.041) 51.269 1,258.69
12-31-97 Value before Surr Chg 24.55079561 0.000 51.269 1,258.69
12-31-97 Surrender Charge (42.50) 24.55079561 (1.731) 49.538 1,216.19
Cumulative and Average Annual Total Returns
without/with charges 25.97% A 21.62% B
HIGH INCOME
12-31-96 Purchase $1,000.00 $19.37479425 51.613 51.613 $1,000.00
12-31-97 Contract Fee (1.00) 21.31160694 (0.047) 51.567 1,098.97
12-31-97 Value before Surr Chg 21.31160694 0.000 51.567 1,098.97
12-31-97 Surrender Charge (42.50) 21.31160694 (1.994) 49.572 1,056.47
Cumulative and Average Annual Total Returns
without/with charges 10.00% A 5.65% B
INCOME SECURITIES
12-31-96 Purchase $1,000.00 $21.70827863 46.065 46.065 $1,000.00
12-31-97 Contract Fee (1.00) 25.06461193 (0.040) 46.025 1,153.61
12-31-97 Value before Surr Chg 25.06461193 0.000 46.025 1,153.61
12-31-97 Surrender Charge (42.50) 25.06461193 (1.696) 44.330 1,111.11
Cumulative and Average Annual Total Returns
without/with charges 15.46% A 11.11% B
MONEY MARKET
12-31-96 Purchase $1,000.00 $13.35923111 74.855 74.855 $1,000.00
12-31-97 Contract Fee (1.00) 13.86472844 (0.072) 74.782 1,036.84
12-31-97 Value before Surr Chg 13.86472844 0.000 74.782 1,036.84
12-31-97 Surrender Charge (42.50) 13.86472844 (3.065) 71.717 994.34
Cumulative and Average Annual Total Returns
without/with charges 3.78% A -0.57% B
MUTUAL DISCOVERY SECURITIES
12-31-96 Purchase $1,000.00 $10.18045638 98.227 98.227 $1,000.00
12-31-97 Contract Fee (1.00) 11.98316359 (0.083) 98.144 1,176.08
12-31-97 Value before Surr Chg 11.98316359 0.000 98.144 1,176.08
12-31-97 Surrender Charge (42.50) 11.98316359 (3.547) 94.597 1,133.58
Cumulative and Average Annual Total Returns
without/with charges 17.71% 13.36%
MUTUAL SHARES SECURITIES
12-31-96 Purchase $1,000.00 $10.33016898 96.804 96.804 $1,000.00
12-31-97 Contract Fee (1.00) 11.99296726 (0.083) 96.720 1,159.97
12-31-97 Value before Surr Chg 11.99296726 0.000 96.720 1,159.97
12-31-97 Surrender Charge (42.50) 11.99296726 (3.544) 93.177 1,117.47
Cumulative and Average Annual Total Returns
without/with charges 16.10% 11.75%
NATURAL RESOURCES SECURITIES
12-31-96 Purchase $1,000.00 $14.46741645 69.121 69.121 $1,000.00
12-31-97 Contract Fee (1.00) 11.55913365 (0.087) 69.034 797.98
12-31-97 Value before Surr Chg 11.55913365 0.000 69.034 797.98
12-31-97 Surrender Charge (42.50) 11.55913365 (3.677) 65.358 755.48
Cumulative and Average Annual Total Returns
without/with charges -20.10% A -24.45% B
REAL ESTATE SECURITIES
12-31-96 Purchase $1,000.00 $23.66770609 42.252 42.252 $1,000.00
12-31-97 Contract Fee (1.00) 28.16943249 (0.035) 42.216 1,189.21
12-31-97 Value before Surr Chg 28.16943249 0.000 42.216 1,189.21
12-31-97 Surrender Charge (42.50) 28.16943249 (1.509) 40.707 1,146.71
Cumulative and Average Annual Total Returns
without/with charges 19.02% A 14.67% B
RISING DIVIDENDS
12-31-96 Purchase $1,000.00 $15.30299222 65.347 65.347 $1,000.00
12-31-97 Contract Fee (1.00) 20.07430239 (0.050) 65.297 1,310.79
12-31-97 Value before Surr Chg 20.07430239 0.000 65.297 1,310.79
12-31-97 Surrender Charge (42.50) 20.07430239 (2.117) 63.180 1,268.29
Cumulative and Average Annual Total Returns
without/with charges 31.18% A 26.83% B
SMALL CAP
12-31-96 Purchase $1,000.00 $12.91274591 77.443 77.443 $1,000.00
12-31-97 Contract Fee (1.00) 14.95194471 (0.067) 77.376 1,156.92
12-31-97 Value before Surr Chg 14.95194471 0.000 77.376 1,156.92
12-31-97 Surrender Charge (42.50) 14.95194471 (2.842) 74.534 1,114.42
Cumulative and Average Annual Total Returns
without/with charges 15.79% 11.44%
TEMPLETON DEVELOPING MARKETS EQUITY
12-31-96 Purchase $1,000.00 $11.48724479 87.053 87.053 $1,000.00
12-31-97 Contract Fee (1.00) 10.34011278 (0.097) 86.956 899.14
12-31-97 Value before Surr Chg 10.34011278 0.000 86.956 899.14
12-31-97 Surrender Charge (42.50) 10.34011278 (4.110) 82.846 856.64
Cumulative and Average Annual Total Returns
without/with charges -9.99% A -14.34% B
TEMPLETON GLOBAL ASSET ALLOCATION
12-31-96 Purchase $1,000.00 $12.51416879 79.909 79.909 $1,000.00
12-31-97 Contract Fee (1.00) 13.78572229 (0.073) 79.837 1,100.61
12-31-97 Value before Surr Chg 13.78572229 0.000 79.837 1,100.61
12-31-97 Surrender Charge (42.50) 13.78572229 (3.083) 76.754 1,058.11
Cumulative and Average Annual Total Returns
without/with charges 10.16% A 5.81% B
TEMPLETON GLOBAL GROWTH
12-31-96 Purchase $1,000.00 $13.55953972 73.749 73.749 $1,000.00
12-31-97 Contract Fee (1.00) 15.17626475 (0.066) 73.683 1,118.23
12-31-97 Value before Surr Chg 15.17626475 0.000 73.683 1,118.23
12-31-97 Surrender Charge (42.50) 15.17626475 (2.800) 70.882 1,075.73
Cumulative and Average Annual Total Returns
without/with charges 11.92% A 7.57% B
TEMPLETON GLOBAL INCOME SECURITIES
12-31-96 Purchase $1,000.00 $16.78052472 59.593 59.593 $1,000.00
12-31-97 Contract Fee (1.00) 16.95673923 (0.059) 59.534 1,009.50
12-31-97 Value before Surr Chg 16.95673923 0.000 59.534 1,009.50
12-31-97 Surrender Charge (42.50) 16.95673923 (2.506) 57.028 967.00
Cumulative and Average Annual Total Returns
without/with charges 1.05% A -3.30% B
TEMPLETON INTERNATIONAL EQUITY
12-31-96 Purchase $1,000.00 $16.08142393 62.184 62.184 $1,000.00
12-31-97 Contract Fee (1.00) 17.71128511 (0.056) 62.127 1,100.35
12-31-97 Value before Surr Chg 17.71128511 0.000 62.127 1,100.35
12-31-97 Surrender Charge (42.50) 17.71128511 (2.400) 59.727 1,057.85
Cumulative and Average Annual Total Returns
without/with charges 10.14% A 5.79% B
TEMPLETON INTERNATIONAL SMALLER COMPANIES
12-31-96 Purchase $1,000.00 $11.14519961 89.725 89.725 $1,000.00
12-31-97 Contract Fee (1.00) 10.82516357 (0.092) 89.632 970.28
12-31-97 Value before Surr Chg 10.82516357 0.000 89.632 970.28
12-31-97 Surrender Charge (42.50) 10.82516357 (3.926) 85.706 927.78
Cumulative and Average Annual Total Returns
without/with charges -2.87% A -7.22% B
TEMPLETON PACIFIC GROWTH
12-31-96 Purchase $1,000.00 $14.93159316 66.972 66.972 $1,000.00
12-31-97 Contract Fee (1.00) 9.43102016 (0.106) 66.866 630.62
12-31-97 Value before Surr Chg 9.43102016 0.000 66.866 630.62
12-31-97 Surrender Charge (42.50) 9.43102016 (4.506) 62.360 588.12
Cumulative and Average Annual Total Returns
without/with charges -36.84% A -41.19% B
U.S. GOVERNMENT SECURITIES
12-31-96 Purchase $1,000.00 $16.65018339 60.059 60.059 $1,000.00
12-31-97 Contract Fee (1.00) 17.94721856 (0.056) 60.004 1,076.90
12-31-97 Value before Surr Chg 17.94721856 0.000 60.004 1,076.90
12-31-97 Surrender Charge (42.50) 17.94721856 (2.368) 57.636 1,034.40
Cumulative and Average Annual Total Returns
without/with charges 7.79% A 3.44% B
GLOBAL UTILITIES SECURITIES
12-31-96 Purchase $1,000.00 $20.65439774 48.416 48.416 $1,000.00
12-31-97 Contract Fee (1.00) 25.81831690 (0.039) 48.377 1,249.02
12-31-97 Value before Surr Chg 25.81831690 0.000 48.377 1,249.02
12-31-97 Surrender Charge (42.50) 25.81831690 (1.646) 46.731 1,206.52
Cumulative and Average Annual Total Returns
without/with charges 25.00% A 20.65% B
ZERO COUPON - 2000
12-31-96 Purchase $1,000.00 $18.47475298 54.128 54.128 $1,000.00
12-31-97 Contract Fee (1.00) 19.51237855 (0.051) 54.077 1,055.16
12-31-97 Value before Surr Chg 19.51237855 0.000 54.077 1,055.16
12-31-97 Surrender Charge (42.50) 19.51237855 (2.178) 51.899 1,012.66
Cumulative and Average Annual Total Returns
without/with charges 5.62% A 1.27% B
ZERO COUPON - 2005
12-31-96 Purchase $1,000.00 $20.51665706 48.741 48.741 $1,000.00
12-31-97 Contract Fee (1.00) 22.53212008 (0.044) 48.697 1,097.24
12-31-97 Value before Surr Chg 22.53212008 0.000 48.697 1,097.24
12-31-97 Surrender Charge (42.50) 22.53212008 (1.886) 46.810 1,054.74
Cumulative and Average Annual Total Returns
without/with charges 9.82% A 5.47% B
ZERO COUPON - 2010
12-31-96 Purchase $1,000.00 $21.52246902 46.463 46.463 $1,000.00
12-31-97 Contract Fee (1.00) 24.73976107 (0.040) 46.423 1,148.49
12-31-97 Value before Surr Chg 24.73976107 0.000 46.423 1,148.49
12-31-97 Surrender Charge (42.50) 24.73976107 (1.718) 44.705 1,105.99
Cumulative and Average Annual Total Returns
without/with charges 14.95% A 10.60% B
<FN>
A = (Unit Value as of December 31, 1997 - Unit Value at Purchase)/Unit Value at Purchase
B = (Accumulated Value as of December 31, 1997 - Accum. Value at Purch.)/Accum. Value at Purch.
</FN>
</TABLE>
<TABLE>
<CAPTION>
ORIGINAL PURCHASE AS OF DECEMBER 31, 1994
VALUATION DATE AS OF DECEMBER 31, 1997
Dollar Units This Accum. Accum.
DATE TRANSACTION AMOUNT UNIT VALUE TRANS. UNITS VALUE
---- ----------- ------ ---------- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
GROWTH AND INCOME
12-31-94 Purchase $1,000.00 $13.21462941 75.674 75.674 $1,000.00
12-31-95 Contract Fee (1.00) 17.30965999 (0.058) 75.616 1,308.89
12-31-96 Contract Fee (1.00) 19.48959860 (0.051) 75.565 1,472.72
12-31-97 Contract Fee (1.00) 24.55079561 (0.041) 75.524 1,854.17
12-31-97 Value before Surr Chg 24.55079561 0.000 75.524 1,854.17
12-31-97 Surrender Charge (22.00) 24.55079561 (0.896) 74.628 1,832.17
Cumulative Total Returns without/with chrgs. 85.78% A 83.22% C
Avg. Annual Total Returns without/with chrgs. 22.93% B 22.36% D
HIGH INCOME
12-31-94 Purchase $1,000.00 $14.60759128 68.458 68.458 $1,000.00
12-31-95 Contract Fee (1.00) 17.25181285 (0.058) 68.400 1,180.02
12-31-96 Contract Fee (1.00) 19.37479425 (0.052) 68.348 1,324.23
12-31-97 Contract Fee (1.00) 21.31160694 (0.047) 68.301 1,455.61
12-31-97 Value before Surr Chg 21.31160694 0.000 68.301 1,455.61
12-31-97 Surrender Charge (22.00) 21.31160694 (1.032) 67.269 1,433.61
Cumulative Total Returns without/with chrgs. 45.89% A 43.36% C
Avg. Annual Total Returns without/with chrgs. 13.42% B 12.76% D
INCOME SECURITIES
12-31-94 Purchase $1,000.00 $16.39171653 61.006 61.006 $1,000.00
12-31-95 Contract Fee (1.00) 19.78534185 (0.051) 60.956 1,206.03
12-31-96 Contract Fee (1.00) 21.70827863 (0.046) 60.910 1,322.25
12-31-97 Contract Fee (1.00) 25.06461193 (0.040) 60.870 1,525.68
12-31-97 Value before Surr Chg 25.06461193 0.000 60.870 1,525.68
12-31-97 Surrender Charge (22.00) 25.06461193 (0.878) 59.992 1,503.68
Cumulative Total Returns without/with chrgs. 52.91% A 50.37% C
Avg. Annual Total Returns without/with chrgs. 15.21% B 14.56% D
MONEY MARKET
12-31-94 Purchase $1,000.00 $12.35398427 80.946 80.946 $1,000.00
12-31-95 Contract Fee (1.00) 12.88349436 (0.078) 80.868 1,041.86
12-31-96 Contract Fee (1.00) 13.35923111 (0.075) 80.793 1,079.33
12-31-97 Contract Fee (1.00) 13.86472844 (0.072) 80.721 1,119.17
12-31-97 Value before Surr Chg 13.86472844 0.000 80.721 1,119.17
12-31-97 Surrender Charge (22.00) 13.86472844 (1.587) 79.134 1,097.17
Cumulative Total Returns without/with chrgs. 12.23% A 9.72% C
Avg. Annual Total Returns without/with chrgs. 3.92% B 3.14% D
NATURAL RESOURCES SECURITIES
12-31-94 Purchase $1,000.00 $13.97879422 71.537 71.537 $1,000.00
12-31-95 Contract Fee (1.00) 14.10867153 (0.071) 71.466 1,008.29
12-31-96 Contract Fee (1.00) 14.46741645 (0.069) 71.397 1,032.93
12-31-97 Contract Fee (1.00) 11.55913365 (0.087) 71.310 824.29
12-31-97 Value before Surr Chg 11.55913365 0.000 71.310 824.29
12-31-97 Surrender Charge (22.00) 11.55913365 (1.903) 69.407 802.29
Cumulative Total Returns without/with chrgs. -17.31% A -19.77% C
Avg. Annual Total Returns without/with chrgs. -6.14% B -7.08% D
REAL ESTATE SECURITIES
12-31-94 Purchase $1,000.00 $15.59407180 64.127 64.127 $1,000.00
12-31-95 Contract Fee (1.00) 18.07282328 (0.055) 64.072 1,157.95
12-31-96 Contract Fee (1.00) 23.66770609 (0.042) 64.029 1,515.43
12-31-97 Contract Fee (1.00) 28.16943249 (0.035) 63.994 1,802.67
12-31-97 Value before Surr Chg 28.16943249 0.000 63.994 1,802.67
12-31-97 Surrender Charge (22.00) 28.16943249 (0.781) 63.213 1,780.67
Cumulative Total Returns without/with chrgs. 80.64% A 78.07% C
Avg. Annual Total Returns without/with chrgs. 21.79% B 21.21% D
RISING DIVIDENDS
12-31-94 Purchase $1,000.00 $9.76873744 102.367 102.367 $1,000.00
12-31-95 Contract Fee (1.00) 12.49836348 (0.080) 102.287 1,278.42
12-31-96 Contract Fee (1.00) 15.30299222 (0.065) 102.222 1,564.30
12-31-97 Contract Fee (1.00) 20.07430239 (0.050) 102.172 2,051.04
12-31-97 Value before Surr Chg 20.07430239 0.000 102.172 2,051.04
12-31-97 Surrender Charge (22.00) 20.07430239 (1.096) 101.076 2,029.04
Cumulative Total Returns without/with chrgs. 105.50% A 102.90% C
Avg. Annual Total Returns without/with chrgs. 27.14% B 26.60% D
TEMPLETON DEVELOPING MARKETS EQUITY
12-31-94 Purchase $1,000.00 $9.45424664 105.773 105.773 $1,000.00
12-31-95 Contract Fee (1.00) 9.58170209 (0.104) 105.668 1,012.48
12-31-96 Contract Fee (1.00) 11.48724479 (0.087) 105.581 1,212.84
12-31-97 Contract Fee (1.00) 10.34011278 (0.097) 105.484 1,090.72
12-31-97 Value before Surr Chg 10.34011278 0.000 105.484 1,090.72
12-31-97 Surrender Charge (22.00) 10.34011278 (2.128) 103.357 1,068.72
Cumulative Total Returns without/with chrgs. 9.37% A 6.87% C
Avg. Annual Total Returns without/with chrgs. 3.03% B 2.24% D
TEMPLETON GLOBAL GROWTH
12-31-94 Purchase $1,000.00 $10.20085584 98.031 98.031 $1,000.00
12-31-95 Contract Fee (1.00) 11.33894840 (0.088) 97.943 1,110.57
12-31-96 Contract Fee (1.00) 13.55953972 (0.074) 97.869 1,327.06
12-31-97 Contract Fee (1.00) 15.17626475 (0.066) 97.803 1,484.29
12-31-97 Value before Surr Chg 15.17626475 0.000 97.803 1,484.29
12-31-97 Surrender Charge (22.00) 15.17626475 (1.450) 96.354 1,462.29
Cumulative Total Returns without/with chrgs. 48.77% A 46.23% C
Avg. Annual Total Returns without/with chrgs. 14.16% B 13.50% D
TEMPLETON GLOBAL INCOME SECURITIES
12-31-94 Purchase $1,000.00 $13.72629720 72.853 72.853 $1,000.00
12-31-95 Contract Fee (1.00) 15.52246997 (0.064) 72.788 1,129.86
12-31-96 Contract Fee (1.00) 16.78052472 (0.060) 72.729 1,220.43
12-31-97 Contract Fee (1.00) 16.95673923 (0.059) 72.670 1,232.24
12-31-97 Value before Surr Chg 16.95673923 0.000 72.670 1,232.24
12-31-97 Surrender Charge (22.00) 16.95673923 (1.297) 71.372 1,210.24
Cumulative Total Returns without/with chrgs. 23.53% A 21.02% C
Avg. Annual Total Returns without/with chrgs. 7.30% B 6.57% D
TEMPLETON INTERNATIONAL EQUITY
12-31-94 Purchase $1,000.00 $12.16131942 82.228 82.228 $1,000.00
12-31-95 Contract Fee (1.00) 13.26267921 (0.075) 82.153 1,089.56
12-31-96 Contract Fee (1.00) 16.08142393 (0.062) 82.090 1,320.13
12-31-97 Contract Fee (1.00) 17.71128511 (0.056) 82.034 1,452.93
12-31-97 Value before Surr Chg 17.71128511 0.000 82.034 1,452.93
12-31-97 Surrender Charge (22.00) 17.71128511 (1.242) 80.792 1,430.93
Cumulative Total Returns without/with chrgs. 45.64% A 43.09% C
Avg. Annual Total Returns without/with chrgs. 13.35% B 12.69% D
TEMPLETON PACIFIC GROWTH
12-31-94 Purchase $1,000.00 $12.80173310 78.114 78.114 $1,000.00
12-31-95 Contract Fee (1.00) 13.63037545 (0.073) 78.041 1,063.73
12-31-96 Contract Fee (1.00) 14.93159316 (0.067) 77.974 1,164.28
12-31-97 Contract Fee (1.00) 9.43102016 (0.106) 77.868 734.38
12-31-97 Value before Surr Chg 9.43102016 0.000 77.868 734.38
12-31-97 Surrender Charge (22.00) 9.43102016 (2.333) 75.535 712.38
Cumulative Total Returns without/with chrgs. -26.33% A -28.76% C
Avg. Annual Total Returns without/with chrgs. -9.68% B -10.69% D
U.S. GOVERNMENT SECURITIES
12-31-94 Purchase $1,000.00 $13.83490825 72.281 72.281 $1,000.00
12-31-95 Contract Fee (1.00) 16.29770051 (0.061) 72.220 1,177.01
12-31-96 Contract Fee (1.00) 16.65018339 (0.060) 72.160 1,201.47
12-31-97 Contract Fee (1.00) 17.94721856 (0.056) 72.104 1,294.06
12-31-97 Value before Surr Chg 17.94721856 0.000 72.104 1,294.06
12-31-97 Surrender Charge (22.00) 17.94721856 (1.226) 70.878 1,272.06
Cumulative Total Returns without/with chrgs. 29.72% A 27.21% C
Avg. Annual Total Returns without/with chrgs. 9.06% B 8.35% D
GLOBAL UTILITIES SECURITIES
12-31-94 Purchase $1,000.00 $15.10395032 66.208 66.208 $1,000.00
12-31-95 Contract Fee (1.00) 19.56451758 (0.051) 66.157 1,294.32
12-31-96 Contract Fee (1.00) 20.65439774 (0.048) 66.108 1,365.43
12-31-97 Contract Fee (1.00) 25.81831690 (0.039) 66.070 1,705.81
12-31-97 Value before Surr Chg 25.81831690 0.000 66.070 1,705.81
12-31-97 Surrender Charge (22.00) 25.81831690 (0.852) 65.217 1,683.81
Cumulative Total Returns without/with chrgs. 70.94% A 68.38% C
Avg. Annual Total Returns without/with chrgs. 19.57% B 18.97% D
ZERO COUPON - 2000
12-31-94 Purchase $1,000.00 $15.37318118 65.048 65.048 $1,000.00
12-31-95 Contract Fee (1.00) 18.29362036 (0.055) 64.994 1,188.97
12-31-96 Contract Fee (1.00) 18.47475298 (0.054) 64.940 1,199.74
12-31-97 Contract Fee (1.00) 19.51237855 (0.051) 64.888 1,266.13
12-31-97 Value before Surr Chg 19.51237855 0.000 64.888 1,266.13
12-31-97 Surrender Charge (22.00) 19.51237855 (1.127) 63.761 1,244.13
Cumulative Total Returns without/with chrgs. 26.92% A 24.41% C
Avg. Annual Total Returns without/with chrgs. 8.27% B 7.55% D
ZERO COUPON - 2005
12-31-94 Purchase $1,000.00 $16.09601101 62.127 62.127 $1,000.00
12-31-95 Contract Fee (1.00) 20.91363234 (0.048) 62.079 1,298.31
12-31-96 Contract Fee (1.00) 20.51665706 (0.049) 62.031 1,272.66
12-31-97 Contract Fee (1.00) 22.53212008 (0.044) 61.986 1,396.68
12-31-97 Value before Surr Chg 22.53212008 0.000 61.986 1,396.68
12-31-97 Surrender Charge (22.00) 22.53212008 (0.976) 61.010 1,374.68
Cumulative Total Returns without/with chrgs. 39.99% A 37.47% C
Avg. Annual Total Returns without/with chrgs. 11.87% B 11.19% D
ZERO COUPON - 2010
12-31-94 Purchase $1,000.00 $15.92982416 62.775 62.775 $1,000.00
12-31-95 Contract Fee (1.00) 22.43134838 (0.045) 62.731 1,407.14
12-31-96 Contract Fee (1.00) 21.52246902 (0.046) 62.684 1,349.12
12-31-97 Contract Fee (1.00) 24.73976107 (0.040) 62.644 1,549.79
12-31-97 Value before Surr Chg 24.73976107 0.000 62.644 1,549.79
12-31-97 Surrender Charge (22.00) 24.73976107 (0.889) 61.755 1,527.79
Cumulative Total Returns without/with chrgs. 55.30% A 52.78% C
Avg. Annual Total Returns without/with chrgs. 15.81% B 15.17% D
<FN>
A = (Unit Value as of December 31, 1997 - Unit Value at Purchase)/Unit Value at Purchase
B = [(A+1)^(1/3 Years)]-1
C = (Accumulated Value as of December 31, 1997 - Accum. Value at Purch.)/Accum. Value at Purch.
D = [(C+1)^(1/3 Years)]-1
</FN>
</TABLE>
<TABLE>
<CAPTION>
ORIGINAL PURCHASE AS OF DECEMBER 31, 1992
VALUATION DATE AS OF DECEMBER 31, 1997
Dollar Units This Accum. Accum.
DATE TRANSACTION AMOUNT UNIT VALUE TRANS. UNITS VALUE
---- ----------- ------ ---------- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
GROWTH AND INCOME
12-31-92 Purchase $1,000.00 $12.57361730 79.532 79.532 $1,000.00
12-31-93 Contract Fee (1.00) 13.67694811 (0.073) 79.458 1,086.75
12-31-94 Contract Fee (1.00) 13.21462941 (0.076) 79.383 1,049.01
12-31-95 Contract Fee (1.00) 17.30965999 (0.058) 79.325 1,373.09
12-31-96 Contract Fee (1.00) 19.48959860 (0.051) 79.274 1,545.01
12-31-97 Contract Fee (1.00) 24.55079561 (0.041) 79.233 1,945.23
12-31-97 Value before Surr Chg 24.55079561 0.000 79.233 1,945.23
12-31-97 Surrender Charge (3.75) 24.55079561 (0.153) 79.080 1,941.48
Cumulative Total Returns without/with chrgs. 95.26% A 94.15% C
Avg. Annual Total Returns without/with chrgs. 14.32% B 14.19% D
HIGH INCOME
12-31-92 Purchase $1,000.00 $13.27789297 75.313 75.313 $1,000.00
12-31-93 Contract Fee (1.00) 15.15511991 (0.066) 75.247 1,140.38
12-31-94 Contract Fee (1.00) 14.60759128 (0.068) 75.179 1,098.18
12-31-95 Contract Fee (1.00) 17.25181285 (0.058) 75.121 1,295.97
12-31-96 Contract Fee (1.00) 19.37479425 (0.052) 75.069 1,454.45
12-31-97 Contract Fee (1.00) 21.31160694 (0.047) 75.022 1,598.84
12-31-97 Value before Surr Chg 21.31160694 0.000 75.022 1,598.84
12-31-97 Surrender Charge (3.75) 21.31160694 (0.176) 74.846 1,595.09
Cumulative Total Returns without/with chrgs. 60.50% A 59.51% C
Avg. Annual Total Returns without/with chrgs. 9.93% B 9.79% D
INCOME SECURITIES
12-31-92 Purchase $1,000.00 $15.16252410 65.952 65.952 $1,000.00
12-31-93 Contract Fee (1.00) 17.73437317 (0.056) 65.896 1,168.62
12-31-94 Contract Fee (1.00) 16.39171653 (0.061) 65.835 1,079.14
12-31-95 Contract Fee (1.00) 19.78534185 (0.051) 65.784 1,301.56
12-31-96 Contract Fee (1.00) 21.70827863 (0.046) 65.738 1,427.06
12-31-97 Contract Fee (1.00) 25.06461193 (0.040) 65.698 1,646.70
12-31-97 Value before Surr Chg 25.06461193 0.000 65.698 1,646.70
12-31-97 Surrender Charge (3.75) 25.06461193 (0.150) 65.549 1,642.95
Cumulative Total Returns without/with chrgs. 65.31% A 64.29% C
Avg. Annual Total Returns without/with chrgs. 10.58% B 10.44% D
MONEY MARKET
12-31-92 Purchase $1,000.00 $11.93209752 83.808 83.808 $1,000.00
12-31-93 Contract Fee (1.00) 12.06579747 (0.083) 83.725 1,010.21
12-31-94 Contract Fee (1.00) 12.35398427 (0.081) 83.644 1,033.33
12-31-95 Contract Fee (1.00) 12.88349436 (0.078) 83.566 1,076.62
12-31-96 Contract Fee (1.00) 13.35923111 (0.075) 83.491 1,115.38
12-31-97 Contract Fee (1.00) 13.86472844 (0.072) 83.419 1,156.58
12-31-97 Value before Surr Chg 13.86472844 0.000 83.419 1,156.58
12-31-97 Surrender Charge (3.75) 13.86472844 (0.270) 83.149 1,152.83
Cumulative Total Returns without/with chrgs. 16.20% A 15.28% C
Avg. Annual Total Returns without/with chrgs. 3.05% B 2.89% D
NATURAL RESOURCES SECURITIES
12-31-92 Purchase $1,000.00 $9.42437104 106.108 106.108 $1,000.00
12-31-93 Contract Fee (1.00) 14.46354903 (0.069) 106.039 1,533.70
12-31-94 Contract Fee (1.00) 13.97879422 (0.072) 105.967 1,481.29
12-31-95 Contract Fee (1.00) 14.10867153 (0.071) 105.896 1,494.06
12-31-96 Contract Fee (1.00) 14.46741645 (0.069) 105.827 1,531.05
12-31-97 Contract Fee (1.00) 11.55913365 (0.087) 105.741 1,222.27
12-31-97 Value before Surr Chg 11.55913365 0.000 105.741 1,222.27
12-31-97 Surrender Charge (3.75) 11.55913365 (0.324) 105.416 1,218.52
Cumulative Total Returns without/with chrgs. 22.65% A 21.85% C
Avg. Annual Total Returns without/with chrgs. 4.17% B 4.03% D
REAL ESTATE SECURITIES
12-31-92 Purchase $1,000.00 $13.09547341 76.362 76.362 $1,000.00
12-31-93 Contract Fee (1.00) 15.36898235 (0.065) 76.297 1,172.61
12-31-94 Contract Fee (1.00) 15.59407180 (0.064) 76.233 1,188.78
12-31-95 Contract Fee (1.00) 18.07282328 (0.055) 76.178 1,376.75
12-31-96 Contract Fee (1.00) 23.66770609 (0.042) 76.135 1,801.95
12-31-97 Contract Fee (1.00) 28.16943249 (0.035) 76.100 2,143.69
12-31-97 Value before Surr Chg 28.16943249 0.000 76.100 2,143.69
12-31-97 Surrender Charge (3.75) 28.16943249 (0.133) 75.967 2,139.94
Cumulative Total Returns without/with chrgs. 115.11% A 113.99% C
Avg. Annual Total Returns without/with chrgs. 16.56% B 16.43% D
RISING DIVIDENDS
12-31-92 Purchase $1,000.00 $10.84771473 92.185 92.185 $1,000.00
12-31-93 Contract Fee (1.00) 10.32720317 (0.097) 92.088 $951.02
12-31-94 Contract Fee (1.00) 9.76873744 (0.102) 91.986 $898.59
12-31-95 Contract Fee (1.00) 12.49836348 (0.080) 91.906 1,148.68
12-31-96 Contract Fee (1.00) 15.30299222 (0.065) 91.841 1,405.44
12-31-97 Contract Fee (1.00) 20.07430239 (0.050) 91.791 1,842.64
12-31-97 Value before Surr Chg 20.07430239 0.000 91.791 1,842.64
12-31-97 Surrender Charge (3.75) 20.07430239 (0.187) 91.604 1,838.89
Cumulative Total Returns without/with chrgs. 85.06% A 83.89% C
Avg. Annual Total Rtns. without/with chrgs. 13.10% B 12.96% D
TEMPLETON GLOBAL INCOME SECURITIES
12-31-92 Purchase $1,000.00 $12.73250766 78.539 78.539 $1,000.00
12-31-93 Contract Fee (1.00) 14.64984870 (0.068) 78.471 1,149.59
12-31-94 Contract Fee (1.00) 13.72629720 (0.073) 78.398 1,076.11
12-31-95 Contract Fee (1.00) 15.52246997 (0.064) 78.334 1,215.93
12-31-96 Contract Fee (1.00) 16.78052472 (0.060) 78.274 1,313.48
12-31-97 Contract Fee (1.00) 16.95673923 (0.059) 78.215 1,326.27
12-31-97 Value before Surr Chg 16.95673923 0.000 78.215 1,326.27
12-31-97 Surrender Charge (3.75) 16.95673923 (0.221) 77.994 1,322.52
Cumulative Total Returns without/with chrgs. 33.18% A 32.25% C
Avg. Annual Total Returns without/with chrgs. 5.90% B 5.75% D
TEMPLETON INTERNATIONAL EQUITY
12-31-92 Purchase $1,000.00 $9.64241309 103.708 103.708 $1,000.00
12-31-93 Contract Fee (1.00) 12.22565227 (0.082) 103.627 1,266.90
12-31-94 Contract Fee (1.00) 12.16131942 (0.082) 103.544 1,259.24
12-31-95 Contract Fee (1.00) 13.26267921 (0.075) 103.469 1,372.28
12-31-96 Contract Fee (1.00) 16.08142393 (0.062) 103.407 1,662.93
12-31-97 Contract Fee (1.00) 17.71128511 (0.056) 103.350 1,830.47
12-31-97 Value before Surr Chg 17.71128511 0.000 103.350 1,830.47
12-31-97 Surrender Charge (3.75) 17.71128511 (0.212) 103.139 1,826.72
Cumulative Total Returns without/with chrgs. 83.68% A 82.67% C
Avg. Annual Total Rtns. without/with chrgs. 12.93% B 12.81% D
TEMPLETON PACIFIC GROWTH
12-31-92 Purchase $1,000.00 $9.76096735 102.449 102.449 $1,000.00
12-31-93 Contract Fee (1.00) 14.23330574 (0.070) 102.379 1,457.19
12-31-94 Contract Fee (1.00) 12.80173310 (0.078) 102.300 1,309.62
12-31-95 Contract Fee (1.00) 13.63037545 (0.073) 102.227 1,393.39
12-31-96 Contract Fee (1.00) 14.93159316 (0.067) 102.160 1,525.41
12-31-97 Contract Fee (1.00) 9.43102016 (0.106) 102.054 962.47
12-31-97 Value before Surr Chg 9.43102016 0.000 102.054 962.47
12-31-97 Surrender Charge (3.75) 9.43102016 (0.398) 101.656 958.72
Cumulative Total Returns without/with chrgs. -3.38% A -4.13% C
Avg. Annual Total Rtns. without/with chrgs. -0.69% B -0.84% D
U.S. GOVERNMENT SECURITIES
12-31-92 Purchase $1,000.00 $13.58621153 73.604 73.604 $1,000.00
12-31-93 Contract Fee (1.00) 14.69826319 (0.068) 73.536 1,080.85
12-31-94 Contract Fee (1.00) 13.83490825 (0.072) 73.464 1,016.36
12-31-95 Contract Fee (1.00) 16.29770051 (0.061) 73.402 1,196.29
12-31-96 Contract Fee (1.00) 16.65018339 (0.060) 73.342 1,221.16
12-31-97 Contract Fee (1.00) 17.94721856 (0.056) 73.287 1,315.29
12-31-97 Value before Surr Chg 17.94721856 0.000 73.287 1,315.29
12-31-97 Surrender Charge (3.75) 17.94721856 (0.209) 73.078 1,311.54
Cumulative Total Returns without/with chrgs. 32.10% A 31.15% C
Avg. Annual Total Returns without/with chrgs. 5.73% B 5.57% D
GLOBAL UTILITIES SECURITIES
12-31-92 Purchase $1,000.00 $15.88865152 62.938 62.938 $1,000.00
12-31-93 Contract Fee (1.00) 17.31879581 (0.058) 62.880 1,089.01
12-31-94 Contract Fee (1.00) 15.10395032 (0.066) 62.814 948.74
12-31-95 Contract Fee (1.00) 19.56451758 (0.051) 62.763 1,227.93
12-31-96 Contract Fee (1.00) 20.65439774 (0.048) 62.715 1,295.33
12-31-97 Contract Fee (1.00) 25.81831690 (0.039) 62.676 1,618.18
12-31-97 Value before Surr Chg 25.81831690 0.000 62.676 1,618.18
12-31-97 Surrender Charge (3.75) 25.81831690 (0.145) 62.531 1,614.43
Cumulative Total Returns without/with chrgs. 62.50% A 61.44% C
Avg. Annual Total Returns without/with chrgs. 10.20% B 10.05% D
ZERO COUPON - 2000
12-31-92 Purchase $1,000.00 $14.59489368 68.517 68.517 $1,000.00
12-31-93 Contract Fee (1.00) 16.71742785 (0.060) 68.457 1,144.43
12-31-94 Contract Fee (1.00) 15.37318118 (0.065) 68.392 1,051.41
12-31-95 Contract Fee (1.00) 18.29362036 (0.055) 68.338 1,250.14
12-31-96 Contract Fee (1.00) 18.47475298 (0.054) 68.283 1,261.52
12-31-97 Contract Fee (1.00) 19.51237855 (0.051) 68.232 1,331.37
12-31-97 Value before Surr Chg 19.51237855 0.000 68.232 1,331.37
12-31-97 Surrender Charge (3.75) 19.51237855 (0.192) 68.040 1,327.62
Cumulative Total Returns without/with chrgs. 33.69% A 32.76% C
Avg. Annual Total Returns without/with chrgs. 5.98% B 5.83% D
ZERO COUPON - 2005
12-31-92 Purchase $1,000.00 $14.97467685 66.779 66.779 $1,000.00
12-31-93 Contract Fee (1.00) 18.04995514 (0.055) 66.724 1,204.37
12-31-94 Contract Fee (1.00) 16.09601101 (0.062) 66.662 1,072.99
12-31-95 Contract Fee (1.00) 20.91363234 (0.048) 66.614 1,393.14
12-31-96 Contract Fee (1.00) 20.51665706 (0.049) 66.565 1,365.70
12-31-97 Contract Fee (1.00) 22.53212008 (0.044) 66.521 1,498.86
12-31-97 Value before Surr Chg 22.53212008 0.000 66.521 1,498.86
12-31-97 Surrender Charge (3.75) 22.53212008 (0.166) 66.355 1,495.11
Cumulative Total Returns without/with chrgs. 50.47% A 49.51% C
Avg. Annual Total Returns without/with chrgs. 8.51% B 8.38% D
ZERO COUPON - 2010
12-31-92 Purchase $1,000.00 $14.66961344 68.168 68.168 $1,000.00
12-31-93 Contract Fee (1.00) 18.14448916 (0.055) 68.113 1,235.88
12-31-94 Contract Fee (1.00) 15.92982416 (0.063) 68.050 1,084.03
12-31-95 Contract Fee (1.00) 22.43134838 (0.045) 68.006 1,525.46
12-31-96 Contract Fee (1.00) 21.52246902 (0.046) 67.959 1,462.65
12-31-97 Contract Fee (1.00) 24.73976107 (0.040) 67.919 1,680.29
12-31-97 Value before Surr Chg 24.73976107 0.000 67.919 1,680.29
12-31-97 Surrender Charge (3.75) 24.73976107 (0.152) 67.767 1,676.54
Cumulative Total Returns without/with chrgs. 68.65% A 67.65% C
Avg. Annual Total Returns without/with chrgs. 11.02% B 10.89% D
<FN>
A = (Unit Value as of December 31, 1997 - Unit Value at Purchase)/Unit Value at Purchase
B = [(A+1)^(1/5 Years)]-1
C = (Accumulated Value as of December 31, 1997 - Accum. Value at Purch.)/Accum. Value at Purch.
D = [(C+1)^(1/5 Years)]-1
</FN>
</TABLE>
<TABLE>
<CAPTION>
ORIGINAL PURCHASE AS OF SUB-ACCOUNT INCEPTION
VALUATION DATE AS OF DECEMBER 31, 1997
Dollar Units This Accum. Accum.
DATE TRANSACTION AMOUNT UNIT VALUE TRANS. UNITS VALUE
---- ----------- ------ ---------- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
CAPITAL GROWTH
6-10-96 Purchase $1,000.00 $10.21431608 97.902 97.902 $1,000.00
6-10-97 Contract Fee (1.00) $12.12024399 (0.083) 97.819 1,185.59
12-31-97 Contract Fee (1.00) 13.12966406 (0.076) 97.743 1,283.33
12-31-97 Value before Surr Chg 13.12966406 0.000 97.743 1,283.33
12-31-97 Surrender Charge (35.00) 13.12966406 (2.666) 95.077 1,248.33
Cumulative Total Returns without/with chgs. 28.54% A 24.83% C
Avg. Annual Total Returns without/with chgs. 17.48% B 15.29% D
GROWTH AND INCOME
9-6-91 Purchase $1,000.00 $11.06100045 90.408 90.408 $1,000.00
9-6-92 Contract Fee (1.00) 11.72211872 (0.085) 90.322 1,058.77
9-6-93 Contract Fee (1.00) 13.08151583 (0.076) 90.246 1,180.55
9-6-94 Contract Fee (1.00) 13.64877251 (0.073) 90.173 1,230.75
9-6-95 Contract Fee (1.00) 15.69159535 (0.064) 90.109 1,413.95
9-6-96 Contract Fee (1.00) 17.74713845 (0.056) 90.053 1,598.18
9-6-97 Contract Fee (1.00) 23.02966197 (0.043) 90.009 2,072.88
12-31-97 Value before Surr Chg 24.55079561 0.000 90.009 2,209.80
12-31-97 Contract Fee (1.00) 24.55079561 (0.041) 89.968 2,208.80
12-31-97 Surrender Charge 0.00 24.55079561 0.000 89.968 2,208.80
Cumulative Total Returns without/with chgs. 121.96% A 120.88% C
Avg. Annual Total Returns without/with chgs. 13.44% B 13.35% D
HIGH INCOME
9-6-91 Purchase $1,000.00 $11.04294172 90.556 90.556 $1,000.00
9-6-92 Contract Fee (1.00) 13.02082293 (0.077) 90.479 1,178.11
9-6-93 Contract Fee (1.00) 14.43598307 (0.069) 90.410 1,305.15
9-6-94 Contract Fee (1.00) 14.57603729 (0.069) 90.341 1,316.81
9-6-95 Contract Fee (1.00) 16.73123123 (0.060) 90.281 1,510.51
9-6-96 Contract Fee (1.00) 18.25174132 (0.055) 90.226 1,646.79
9-6-97 Contract Fee (1.00) 20.72645284 (0.048) 90.178 1,869.07
12-31-97 Value before Surr Chg 21.31160694 0.000 90.178 1,921.84
12-31-97 Contract Fee (1.00) 21.31160694 (0.047) 90.131 1,920.84
12-31-97 Surrender Charge 0.00 21.31160694 0.000 90.131 1,920.84
Cumulative Total Returns without/with chgs. 92.99% A 92.08% C
Avg. Annual Total Returns without/with chgs. 10.96% B 10.87% D
INCOME SECURITIES
9-6-91 Purchase $1,000.00 $12.81115768 78.057 78.057 $1,000.00
9-6-92 Contract Fee (1.00) 15.22014979 (0.066) 77.991 1,187.04
9-6-93 Contract Fee (1.00) 17.20662330 (0.058) 77.933 1,340.97
9-6-94 Contract Fee (1.00) 16.92439680 (0.059) 77.874 1,317.97
9-6-95 Contract Fee (1.00) 18.68961882 (0.054) 77.821 1,454.44
9-6-96 Contract Fee (1.00) 20.33536339 (0.049) 77.771 1,581.51
9-6-97 Contract Fee (1.00) 23.51896220 (0.043) 77.729 1,828.10
12-31-97 Value before Surr Chg 25.06461193 0.000 77.729 1,948.24
12-31-97 Contract Fee (1.00) 25.06461193 (0.040) 77.689 1,947.24
12-31-97 Surrender Charge 0.00 25.06461193 0.000 77.689 1,947.24
Cumulative Total Returns without/with chgs. 95.65% A 94.72% C
Avg. Annual Total Returns without/with chgs. 11.20% B 11.11% D
MONEY MARKET
9-6-91 Purchase $1,000.00 $11.62328752 86.034 86.034 $1,000.00
9-6-92 Contract Fee (1.00) 11.88668450 (0.084) 85.950 1,021.66
9-6-93 Contract Fee (1.00) 12.02049281 (0.083) 85.867 1,032.16
9-6-94 Contract Fee (1.00) 12.22313720 (0.082) 85.785 1,048.56
9-6-95 Contract Fee (1.00) 12.72016095 (0.079) 85.706 1,090.20
9-6-96 Contract Fee (1.00) 13.20667243 (0.076) 85.631 1,130.90
9-6-97 Contract Fee (1.00) 13.69708704 (0.073) 85.558 1,171.89
12-31-97 Value before Surr Chg 13.86472844 0.000 85.558 1,186.23
12-31-97 Contract Fee (1.00) 13.86472844 (0.072) 85.486 1,185.23
12-31-97 Surrender Charge 0.00 13.86472844 0.000 85.486 1,185.23
Cumulative Total Returns without/with chgs. 19.28% A 18.52% C
Avg. Annual Total Returns without/with chgs. 2.83% B 2.72% D
MUTUAL DISCOVERY SECURITIES
12-2-96 Purchase $1,000.00 $10.12184347 98.796 98.796 $1,000.00
12-2-97 Contract Fee (1.00) 11.93735609 (0.084) 98.712 1,178.37
12-31-97 Contract Fee (1.00) 11.98316359 (0.083) 98.629 1,181.89
12-31-97 Value before Surr Chg 11.98316359 0.000 98.629 1,181.89
12-31-97 Surrender Charge (35.00) 11.98316359 (2.921) 95.708 1,146.89
Cumulative Total Returns without/with chgs. 18.39% A 14.69% C
Avg. Annual Total Returns without/with chgs. 16.93% B 13.54% D
MUTUAL SHARES SECURITIES
12-2-96 Purchase $1,000.00 $10.11185152 98.894 98.894 $1,000.00
12-2-97 Contract Fee (1.00) 11.84859686 (0.084) 98.809 1,170.75
12-31-97 Contract Fee (1.00) 11.99296726 (0.083) 98.726 1,184.02
12-31-97 Value before Surr Chg 11.99296726 0.000 98.726 1,184.02
12-31-97 Surrender Charge (35.00) 11.99296726 (2.918) 95.808 1,149.02
Cumulative Total Returns without/with chgs. 18.60% A 14.90% C
Avg. Annual Total Returns without/with chgs. 17.12% B 13.73% D
NATURAL RESOURCES SECURITIES
9-6-91 Purchase $1,000.00 $10.43283659 95.851 95.851 $1,000.00
9-6-92 Contract Fee (1.00) 10.57971370 (0.095) 95.757 1,013.08
9-6-93 Contract Fee (1.00) 12.35930507 (0.081) 95.676 1,182.49
9-6-94 Contract Fee (1.00) 14.72817303 (0.068) 95.608 1,408.13
9-6-95 Contract Fee (1.00) 14.43217167 (0.069) 95.539 1,378.83
9-6-96 Contract Fee (1.00) 15.42683089 (0.065) 95.474 1,472.86
9-6-97 Contract Fee (1.00) 13.57514610 (0.074) 95.400 1,295.07
12-31-97 Value before Surr Chg 11.55913365 0.000 95.400 1,102.74
12-31-97 Contract Fee (1.00) 11.55913365 (0.087) 95.314 1,101.74
12-31-97 Surrender Charge 0.00 11.55913365 0.000 95.314 1,101.74
Cumulative Total Returns without/with chgs. 10.80% A 10.17% C
Avg. Annual Total Returns without/with chgs. 1.63% B 1.54% D
REAL ESTATE SECURITIES
9-6-91 Purchase $1,000.00 $10.78746364 92.700 92.700 $1,000.00
9-6-92 Contract Fee (1.00) 12.12635190 (0.082) 92.618 1,123.12
9-6-93 Contract Fee (1.00) 15.56248115 (0.064) 92.553 1,440.36
9-6-94 Contract Fee (1.00) 15.61185818 (0.064) 92.489 1,443.93
9-6-95 Contract Fee (1.00) 16.97318612 (0.059) 92.431 1,568.84
9-6-96 Contract Fee (1.00) 19.93343784 (0.050) 92.380 1,841.46
9-6-97 Contract Fee (1.00) 26.18497932 (0.038) 92.342 2,417.98
12-31-97 Value before Surr Chg 28.16943249 0.000 92.342 2,601.23
12-31-97 Contract Fee (1.00) 28.16943249 (0.035) 92.307 2,600.23
12-31-97 Surrender Charge 0.00 28.16943249 0.000 92.307 2,600.23
Cumulative Total Returns without/with chgs. 161.13% A 160.02% C
Avg. Annual Total Returns without/with chgs. 16.39% B 16.31% D
RISING DIVIDENDS
3-10-92 Purchase $1,000.00 $9.99233143 100.077 100.077 $1,000.00
3-10-93 Contract Fee (1.00) 10.77962863 (0.093) 99.984 1,077.79
3-10-94 Contract Fee (1.00) 10.06603924 (0.099) 99.885 1,005.44
3-10-95 Contract Fee (1.00) 10.31908288 (0.097) 99.788 1,029.72
3-10-96 Contract Fee (1.00) 12.84883820 (0.078) 99.710 1,281.16
3-10-97 Contract Fee (1.00) 16.45183282 (0.061) 99.649 1,639.41
12-31-97 Value before Surr Chg 20.07430239 0.000 99.649 2,000.39
12-31-97 Contract Fee (1.00) 20.07430239 (0.050) 99.599 1,999.39
12-31-97 Surrender Charge 0.00 20.07430239 0.000 99.599 1,999.39
Cumulative Total Returns without/with chgs. 100.90% A 99.94% C
Avg. Annual Total Returns without/with chgs. 12.75% B 12.66% D
SMALL CAP
6-10-96 Purchase $1,000.00 $12.51721035 79.890 79.890 $1,000.00
6-10-97 Contract Fee (1.00) 13.42629958 (0.074) 79.816 1,071.63
12-31-97 Value before Surr Chg 14.95194471 0.000 79.816 1,193.40
12-31-97 Contract Fee (1.00) 14.95194471 (0.067) 79.749 1,192.40
12-31-97 Surrender Charge (35.00) 14.95194471 (2.341) 77.408 1,157.40
Cumulative Total Returns without/with chgs. 19.45% A 15.74% C
Avg. Annual Total Returns without/with chgs. 12.08% B 9.83% D
TEMPLETON DEVELOPING MARKETS EQUITY
4-25-94 Purchase $1,000.00 $9.99427001 100.057 100.057 $1,000.00
4-25-95 Contract Fee (1.00) 9.56980111 (0.104) 99.953 956.53
4-25-96 Contract Fee (1.00) 10.84533301 (0.092) 99.861 1,083.02
4-25-97 Contract Fee (1.00) 12.52213365 (0.080) 99.781 1,249.47
12-31-97 Value before Surr Chg 10.34011278 0.000 99.781 1,031.74
12-31-97 Contract Fee (1.00) 10.34011278 (0.097) 99.684 1,030.74
12-31-97 Surrender Charge (12.00) 10.34011278 (1.161) 98.524 1,018.74
Cumulative Total Returns without/with chgs. 3.46% A 1.87% C
Avg. Annual Total Returns without/with chgs. 0.93% B 0.50% D
TEMPLETON GLOBAL ASSET ALLOCATION
8-4-95 Purchase $1,000.00 $10.32195885 96.881 96.881 $1,000.00
8-4-96 Contract Fee (1.00) 11.32717526 (0.088) 96.793 1,096.39
8-4-97 Contract Fee (1.00) 14.19821840 (0.070) 96.722 1,373.28
12-31-97 Value before Surr Chg 13.78572229 0.000 96.722 1,333.38
12-31-97 Contract Fee (1.00) 13.78572229 (0.073) 96.650 1,332.38
12-31-97 Surrender Charge (22.00) 13.78572229 (1.596) 95.054 1,310.38
Cumulative Total Returns without/with chgs. 33.56% A 31.04% C
Avg. Annual Total Returns without/with chgs. 12.75% B 11.86% D
TEMPLETON GLOBAL GROWTH
4-25-94 Purchase $1,000.00 $9.98428572 100.157 100.157 $1,000.00
4-25-95 Contract Fee (1.00) 10.45597133 (0.096) 100.062 1,046.24
4-25-96 Contract Fee (1.00) 12.30604043 (0.081) 99.980 1,230.36
4-25-97 Contract Fee (1.00) 13.75420379 (0.073) 99.908 1,374.15
12-31-97 Value before Surr Chg 15.17626475 0.000 99.908 1,516.23
12-31-97 Contract Fee (1.00) 15.17626475 (0.066) 99.842 1,515.23
12-31-97 Surrender Charge (12.00) 15.17626475 (0.791) 99.051 1,503.23
Cumulative Total Returns without/with chgs. 52.00% A 50.32% C
Avg. Annual Total Returns without/with chgs. 12.02% B 11.69% D
TEMPLETON GLOBAL INCOME SECURITIES
9-6-91 Purchase $1,000.00 $12.29596065 81.328 81.328 $1,000.00
9-6-92 Contract Fee (1.00) 13.40846444 (0.075) 81.253 1,089.48
9-6-93 Contract Fee (1.00) 14.17507844 (0.071) 81.182 1,150.77
9-6-94 Contract Fee (1.00) 13.73042891 (0.073) 81.110 1,113.67
9-6-95 Contract Fee (1.00) 14.66386795 (0.068) 81.041 1,188.38
9-6-96 Contract Fee (1.00) 15.84056920 (0.063) 80.978 1,282.74
9-6-97 Contract Fee (1.00) 16.79662212 (0.060) 80.919 1,359.16
12-31-97 Value before Surr Chg 16.95673923 0.000 80.919 1,372.12
12-31-97 Contract Fee (1.00) 16.95673923 (0.059) 80.860 1,371.12
12-31-97 Surrender Charge 0.00 16.95673923 0.000 80.860 1,371.12
Cumulative Total Returns without/with chgs. 37.90% A 37.11% C
Avg. Annual Total Returns without/with chgs. 5.21% B 5.12% D
TEMPLETON INTERNATIONAL EQUITY
3-10-92 Purchase $1,000.00 $9.99233143 100.077 100.077 $1,000.00
3-10-93 Contract Fee (1.00) 9.70560713 (0.103) 99.974 970.31
3-10-94 Contract Fee (1.00) 12.81763662 (0.078) 99.896 1,280.43
3-10-95 Contract Fee (1.00) 11.75059639 (0.085) 99.811 1,172.83
3-10-96 Contract Fee (1.00) 13.94209546 (0.072) 99.739 1,390.57
3-10-97 Contract Fee (1.00) 16.85903083 (0.059) 99.680 1,680.50
12-31-97 Value before Surr Chg 17.71128511 0.000 99.680 1,765.45
12-31-97 Contract Fee (1.00) 17.71128511 (0.056) 99.623 1,764.45
12-31-97 Surrender Charge 0.00 17.71128511 0.000 99.623 1,764.45
Cumulative Total Returns without/with chgs. 77.25% A 76.45% C
Avg. Annual Total Returns without/with chgs. 10.35% B 10.26% D
TEMPLETON INTERNATIONAL SMALLER COMPANIES
6-10-96 Purchase $1,000.00 $10.17437740 98.286 98.286 $1,000.00
6-10-97 Contract Fee (1.00) $11.58856798 (0.086) 98.200 1,138.00
12-31-97 Value before Surr Chg $10.82516357 0.000 98.200 1,063.03
12-31-97 Contract Fee (1.00) $10.82516357 (0.092) 98.107 1,062.03
12-31-97 Surrender Charge (35.00) $10.82516357 (3.233) 94.874 1,027.03
Cumulative Total Returns without/with chgs. 6.40% A 2.70% C
Avg. Annual Total Returns without/with chgs. 4.06% B 1.73% D
TEMPLETON PACIFIC GROWTH
3-10-92 Purchase $1,000.00 $9.99233143 100.077 100.077 $1,000.00
3-10-93 Contract Fee (1.00) 10.27710481 (0.097) 99.979 1,027.50
3-10-94 Contract Fee (1.00) 13.68071454 (0.073) 99.906 1,366.79
3-10-95 Contract Fee (1.00) 12.21775190 (0.082) 99.824 1,219.63
3-10-96 Contract Fee (1.00) 14.60041465 (0.068) 99.756 1,456.48
3-10-97 Contract Fee (1.00) 14.62979889 (0.068) 99.688 1,458.41
12-31-97 Value before Surr Chg 9.43102016 0.000 99.688 940.16
12-31-97 Contract Fee (1.00) 9.43102016 (0.106) 99.582 939.16
12-31-97 Surrender Charge 0.00 9.43102016 0.000 99.582 939.16
Cumulative Total Returns without/with chgs. -5.62% A -6.08% C
Avg. Annual Total Returns without/with chgs. -0.99% B -1.07% D
U.S. GOVERNMENT SECURITIES
9-6-91 Purchase $1,000.00 $12.03610875 83.083 83.083 $1,000.00
9-6-92 Contract Fee (1.00) 13.57568854 (0.074) 83.010 1,126.91
9-6-93 Contract Fee (1.00) 14.79732981 (0.068) 82.942 1,227.32
9-6-94 Contract Fee (1.00) 14.01767493 (0.071) 82.871 1,161.66
9-6-95 Contract Fee (1.00) 15.66758872 (0.064) 82.807 1,297.38
9-6-96 Contract Fee (1.00) 15.95463735 (0.063) 82.744 1,320.15
9-6-97 Contract Fee (1.00) 17.36743717 (0.058) 82.687 1,436.06
12-31-97 Value before Surr Chg 17.94721856 0.000 82.687 1,484.00
12-31-97 Contract Fee (1.00) 17.94721856 (0.056) 82.631 1,483.00
12-31-97 Surrender Charge 0.00 17.94721856 0.000 82.631 1,483.00
Cumulative Total Returns without/with chgs. 49.11% A 48.30% C
Avg. Annual Total Returns without/with chgs. 6.52% B 6.43% D
GLOBAL UTILITIES SECURITIES
9-6-91 Purchase $1,000.00 $13.23446838 75.560 75.560 $1,000.00
9-6-92 Contract Fee (1.00) 15.54708249 (0.064) 75.496 1,173.74
9-6-93 Contract Fee (1.00) 18.24052412 (0.055) 75.441 1,376.09
9-6-94 Contract Fee (1.00) 14.88666629 (0.067) 75.374 1,122.07
9-6-95 Contract Fee (1.00) 17.09242929 (0.059) 75.315 1,287.32
9-6-96 Contract Fee (1.00) 19.37709761 (0.052) 75.264 1,458.39
9-6-97 Contract Fee (1.00) 22.15845159 (0.045) 75.219 1,666.73
12-31-97 Value before Surr Chg 25.81831690 0.000 75.219 1,942.02
12-31-97 Contract Fee (1.00) 25.81831690 (0.039) 75.180 1,941.02
12-31-97 Surrender Charge 0.00 25.81831690 0.000 75.180 1,941.02
Cumulative Total Returns without/with chgs. 95.08% A 94.10% C
Avg. Annual Total Returns without/with chgs. 11.15% B 11.06% D
ZERO COUPON - 2000
9-6-91 Purchase $1,000.00 $12.27379294 81.474 81.474 $1,000.00
9-6-92 Contract Fee (1.00) 14.67166556 (0.068) 81.406 1,194.37
9-6-93 Contract Fee (1.00) 17.02232449 (0.059) 81.348 1,384.72
9-6-94 Contract Fee (1.00) 15.72443108 (0.064) 81.284 1,278.14
9-6-95 Contract Fee (1.00) 17.50941512 (0.057) 81.227 1,422.23
9-6-96 Contract Fee (1.00) 17.78748821 (0.056) 81.171 1,443.82
9-6-97 Contract Fee (1.00) 19.04346853 (0.053) 81.118 1,544.77
12-31-97 Value before Surr Chg 19.51237855 0.000 81.118 1,582.81
12-31-97 Contract Fee (1.00) 19.51237855 (0.051) 81.067 1,581.81
12-31-97 Surrender Charge 0.00 19.51237855 0.000 81.067 1,581.81
Cumulative Total Returns without/with chgs. 58.98% A 58.18% C
Avg. Annual Total Returns without/with chgs. 7.61% B 7.52% D
ZERO COUPON - 2005
9-6-91 Purchase $1,000.00 $12.36920966 80.846 80.846 $1,000.00
9-6-92 Contract Fee (1.00) 14.86589685 (0.067) 80.779 1,200.85
9-6-93 Contract Fee (1.00) 18.60614446 (0.054) 80.725 1,501.98
9-6-94 Contract Fee (1.00) 16.31991142 (0.061) 80.664 1,316.42
9-6-95 Contract Fee (1.00) 19.28908605 (0.052) 80.612 1,554.93
9-6-96 Contract Fee (1.00) 19.19645917 (0.052) 80.560 1,546.46
9-6-97 Contract Fee (1.00) 21.25289261 (0.047) 80.513 1,711.13
12-31-97 Value before Surr Chg 22.53212008 0.000 80.513 1,814.12
12-31-97 Contract Fee (1.00) 22.53212008 (0.044) 80.468 1,813.12
12-31-97 Surrender Charge 0.00 22.53212008 0.000 80.468 1,813.12
Cumulative Total Returns without/with chgs. 82.16% A 81.31% C
Avg. Annual Total Returns without/with chgs. 9.95% B 9.87% D
ZERO COUPON - 2010
9-6-91 Purchase $1,000.00 $12.01310325 83.242 83.242 $1,000.00
9-6-92 Contract Fee (1.00) 14.40501183 (0.069) 83.173 1,198.11
9-6-93 Contract Fee (1.00) 19.05285238 (0.052) 83.121 1,583.68
9-6-94 Contract Fee (1.00) 15.87698587 (0.063) 83.058 1,318.70
9-6-95 Contract Fee (1.00) 19.89453029 (0.050) 83.007 1,651.39
9-6-96 Contract Fee (1.00) 19.46854542 (0.051) 82.956 1,615.03
9-6-97 Contract Fee (1.00) 22.45374263 (0.045) 82.911 1,861.67
12-31-97 Value before Surr Chg 24.73976107 0.000 82.911 2,051.21
12-31-97 Contract Fee (1.00) 24.73976107 (0.040) 82.871 2,050.21
12-31-97 Surrender Charge 0.00 24.73976107 0.000 82.871 2,050.21
Cumulative Total Returns without/with chgs. 105.94% A 105.02% C
Avg. Annual Total Returns without/with chgs. 12.10% B 12.02% D
<FN>
A = (Unit Value as of December 31, 1997 - Unit Value at Purchase)/Unit Value at Purchase
B = [(A+1)^(1/Years since Inception)]-1
C = (Accumulated Value as of December 31, 1997 - Accum. Value at Purch.)/Accum. Value at Purch.
D = [(C+1)^(1/Years since Inception)]-1
</FN>
</TABLE>
Organizational Chart
Allianz Aktiengesellschaft Holding (abbreviated as Allianz AG Holding), of
Munich, Germany, is the controlling owner of Allianz of America, Inc.
Allianz of America, Inc. is sole owner of Allianz Life Insurance Company of
North America.
Allianz Life is controlling owner of NALAC Financial Plans, LLC.
Allianz Life Insurance Company of North America is sole owner of Preferred Life
Insurance Company of New York.
