File Nos.333-19699
811-05716
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ( )
Pre-Effective Amendment No. ( )
Post-Effective Amendment No. 1 (X)
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 ( )
Amendment No. 25 (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>
<S> <C> <C>
Item No. Location
PART A
Item 1. Cover Page. Cover Page
Item 2. Definitions. Index of Terms
Item 3. Synopsis or Highlights Profile
Item 4. Condensed Financial Information Not Applicable
Item 5. General Description of Registrant,
Depositor, and Portfolio Companies Preferred Life,
The Separate
Account, Investment
Options
Item 6. Deductions Expenses
Item 7. General Description of Variable
Annuity Contracts The Valuemark IV
Variable and Fixed
Annuity Contract
Item 8. Annuity Period Annuity Payments
(The Payout Phase)
Item 9. Death Benefit Death Benefit
Item 10. Purchases and Contract Value Purchase
Item 11. Redemptions. Access to Your
Money
Item 12. Taxes Taxes
Item 13. Legal Proceedings None
Item 14. Table of Contents of the Statement of
Additional Information Table of Contents of
the Statement of
Additional Information
PART B
Item 15. Cover Page Cover Page
Item 16. Table of Contents Table of Contents
Item 17. General Information and History Insurance 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
Profile of the
Valuemark IV
Variable Annuity
Contract
PREFERRED LIFE INSURANCE
COMPANY OF NEW YORK
May 1, 1998
THIS PROFILE IS A SUMMARY OF SOME OF THE MORE IMPORTANT POINTS THAT YOU SHOULD
CONSIDER AND KNOW BEFORE PURCHASING THE VALUEMARK IV VARIABLE ANNUITY CONTRACT
WITH A FIXED OPTION. THE CONTRACT IS MORE FULLY DESCRIBED IN THE PROSPECTUS
WHICH ACCOMPANIES THIS PROFILE. PLEASE READ THE PROSPECTUS CAREFULLY.
1. THE VALUEMARK IV
VARIABLE ANNUITY CONTRACT.
The variable annuity contract with a fixed option offered by Preferred Life
Insurance Company of New York (Preferred Life) is a contract between you, the
owner, and Preferred Life, an insurance company. The Contract provides a means
for investing on a tax-deferred basis in 25 portfolios of the Franklin Valuemark
Funds, a series fund, and a fixed option of Preferred Life. The Contract is
intended for retirement savings or other long-term investment purposes and
provides for a death benefit and guaranteed annuity income options.
The Contract has 26 investment options. There are 25 portfolios which are
managed by Franklin Advisers, Inc. and its Templeton and Franklin affiliates. A
list of the available portfolios is contained in Section 4. Depending upon
market conditions, you can make or lose money in the Contract based on the
portfolios' investment performance. The portfolios are designed to offer a
better return than the fixed option, however, this is not guaranteed.
The fixed option offers an interest rate that is guaranteed by Preferred Life.
The interest rate is set monthly and is guaranteed for 12 months. While your
money is in the fixed option, the interest your money will earn as well as your
principal is guaranteed by Preferred Life.
Preferred Life reserves the right to limit the number of portfolios which you
may invest in at any one time (now or in the future). Currently, you can put
your money in 10 investment options (which includes any of the 25 portfolios
listed in Section 4 and the Preferred Life fixed option).
Like all deferred annuity contracts, your Contract has two phases: the
accumulation phase and the payout phase. During the accumulation phase, your
earnings accumulate on a tax-deferred basis and are based on the investment
performance of the portfolio(s) you selected and/or the interest rate earned on
the money you have in the fixed option. During the accumulation phase, the
earnings are taxed as income only when you make a surrender. The payout phase
occurs when you begin receiving regular payments from your Contract. The amount
of the payments you may receive during the payout phase depends in part upon the
amount of money you are able to accumulate in your Contract during the
accumulation phase.
2. ANNUITY PAYMENTS
(THE PAYOUT PHASE).
You can receive monthly annuity payments from your Contract by selecting one of
the following annuity options (all of these options assume you are the owner and
the annuitant): (1) payments for your life; (2) payments for your life, but if
you die before payments have been made for the guaranteed period you selected,
payments will continue for the remainder of the guaranteed period (5,10, 15 or
20 years); (3) payments during the joint lifetime of you and the joint annuitant
- - when either of you die, payments will continue as long as the survivor lives;
(4) payments during the joint lifetime of you and the joint annuitant, but if
you or the joint annuitant die before payments have been made for the guaranteed
period you selected, payments will continue for the remainder of the guaranteed
period (5, 10, 15 or 20 years); and (5) payments during your life ending with
the last payment due prior to your death with a guarantee that at your death
Preferred Life will make a refund to your beneficiary. Once you begin receiving
regular payments, you cannot change your annuity option or surrender your
Contract.
During the payout phase, you may select from the portfolios available or the
fixed option for your investment choices. You may elect to receive annuity
payments as a variable payout, a fixed payout, or a combination of both. If you
choose to have any part of your payments based on portfolio performance (i.e.
variable payout), the dollar amount of your annuity payments may go up or down,
depending on the investment performance.
3. PURCHASE.
You can buy the Contract with $5,000 or more under most circumstances. You can
add $250 or more any time you like during the accumulation phase. Contact your
registered representative to help you fill out the proper forms. You and the
annuitant cannot be older than 85 years old at the time you buy the Contract.
This product is not appropriate for market timers.
4. INVESTMENT OPTIONS.
You may invest in the Preferred Life fixed option or the following portfolios of
Franklin Valuemark Funds:
PORTFOLIO SEEKING STABILITY
OF PRINCIPAL AND INCOME:
Money Market Fund
PORTFOLIOS SEEKING
CURRENT INCOME:
High Income Fund
Templeton Global Income Securities Fund
U.S. Government Securities Fund
Zero Coupon Funds - 2000, 2005 and 2010
PORTFOLIOS SEEKING
GROWTH AND INCOME:
Global Utilities Securities Fund
Growth and Income Fund
Income Securities Fund
Mutual Shares Securities Fund
Real Estate Securities Fund
Rising Dividends Fund
Templeton Global Asset Allocation Fund
Value Securities Fund
PORTFOLIOS SEEKING
CAPITAL GROWTH:
Capital Growth Fund
Global Health Care Securities Fund
Mutual Discovery Securities Fund
Natural Resources Securities Fund
Small Cap Fund
Templeton Developing Markets Equity Fund
Templeton Global Growth Fund
Templeton International Equity Fund
Templeton International Smaller Companies Fund
Templeton Pacific Growth Fund
The portfolios are fully described in the attached prospectus for Franklin
Valuemark Funds. You can make or lose money based on the portfolios'
performance. 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.)
5. EXPENSES.
The Contract has insurance features and investment features, and there are costs
related to each.
The annual insurance charges total 1.49% of the average daily value of your
Contract allocated to the portfolios during the accumulation phase (1.40% during
the payout phase). Each year Preferred Life also deducts a $30 contract
maintenance charge from your Contract. Preferred Life currently waives this
charge if the cumulative value of all your Valuemark IV Contracts (registered
with the same social security number) are at least $50,000. There are also
annual portfolio charges which vary depending upon the portfolios you select. In
1997, these expenses ranged from .40% to 1.42% of the average daily value of the
portfolios.
You can transfer between investment options up to 12 times a year without
charge. After 12 transfers, the charge is $25 or 2% of the amount transferred,
whichever is less. Market timing transfers may not be permitted.
If you make a surrender from the Contract, Preferred Life may assess a
contingent deferred sales charge (surrender charge). The amount of the charge
depends upon how long Preferred Life has had your payment. Each purchase payment
you add to your Contract has its own 7 year contingent deferred sales charge
period. The charge is:
<TABLE>
<CAPTION>
Contingent deferred
Years Since sales charge (as a percentage
Purchase Payment of purchase payments)
------------ ------------------
<S> <C>
0-1 6%
1-2 6%
2-3 6%
3-4 5%
4-5 4%
5-6 3%
6-7 2%
7+ 0%
</TABLE>
Under certain circumstances, after the first year, Preferred Life will permit
you to access your money in the Contract without deducting a contingent deferred
sales charge if you become disabled.
The State of New York does not currently impose a premium tax on purchase
payments for annuities.
We have provided the following chart to help you understand the expenses in your
Contract. The column "Total Annual Expenses" shows the total of the $30 contract
maintenance charge (which is represented as .10% below), the 1.49% insurance
charges and the total 1997 annual portfolio expenses for each portfolio (actual
portfolio expenses vary from year to year). The next two columns show you two
examples of the expenses, in dollars, you would pay under a Contract. The
examples assume that you invested $1,000 in a Contract which earns 5% annually
and that you surrender your Contract: (1) at the end of year 1, and (2) at the
end of year 10. For year 1, the Total Annual Expenses are assessed as well as
the contingent deferred sales charge. For year 10, the Total Annual Charges are
assessed but no contingent deferred sales charge is deducted. The premium tax is
assumed to be 0% in both examples. These are just examples. They do not
represent past or future expenses or returns.
<TABLE>
<CAPTION>
EXAMPLES:
Total Total
Annual Annual Total Expenses at end of:
Insurance Portfolio Annual
Portfolio Charges Expenses Expenses 1 Year 10 Years
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Capital Growth 1.59% .77% 2.36% $84 $270
Global Health Care Securities 1.59% .86% 2.45% $85 $279
Global Utilities Securities 1.59% .50% 2.09% $81 $242
Growth and Income 1.59% .49% 2.08% $81 $241
High Income 1.59% .53% 2.12% $82 $245
Income Securities 1.59% .50% 2.09% $81 $242
Money Market 1.59% .53% 2.12% $82 $245
Mutual Discovery Securities 1.59% 1.06% 2.65% $87 $299
Mutual Shares Securities 1.59% .80% 2.39% $84 $273
Natural Resources Securities 1.59% .69% 2.28% $83 $261
Real Estate Securities 1.59% .54% 2.13% $82 $246
Rising Dividends 1.59% .74% 2.33% $84 $266
Small Cap 1.59% .77% 2.36% $84 $270
Templeton Developing Markets Equity 1.59% 1.42% 3.01% $90 $333
Templeton Global Asset Allocation 1.59% .94% 2.53% $86 $287
Templeton Global Growth 1.59% .88% 2.47% $85 $281
Templeton Global Income Securities 1.59% .62% 2.21% $82 $254
Templeton International Equity 1.59% .89% 2.48% $85 $282
Templeton International Smaller Companies 1.59% 1.06% 2.65% $87 $299
Templeton Pacific Growth 1.59% 1.03% 2.62% $87 $296
U.S. Government Securities 1.59% .50% 2.09% $81 $242
Value Securities 1.59% .81 2.40% $84 $274
Zero Coupon 2000 1.59% .40% 1.99% $80 $231
Zero Coupon 2005 1.59% .40% 1.99% $80 $231
Zero Coupon 2010 1.59% .40% 1.99% $80 $231
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The expenses for the newly formed portfolios have been estimated. The expenses
for the Zero Coupon Funds reflect current fee waiver arrangements. For more
detailed information, see the Fee Table in the prospectus for the Contract.
6. TAXES.
Any earnings are not taxed until you take them out. In most cases, if you take
money out, earnings come out first and are taxed as income. If you are younger
than 591/2 when you take money out, you may be charged a 10% federal tax penalty
on the taxable amounts surrendered. Payments during the payout phase are
considered partly a return of your original investment. That part of each
payment is not taxable as income. If the Contract is tax-qualified, the entire
payment may be taxable.
7. ACCESS TO YOUR MONEY.
You may make a surrender at any time during the accumulation phase. Any partial
surrender must be for at least $500. You may request a surrender in writing or
by electing the Systematic Withdrawal Program or Minimum Distribution Program
which are briefly described in Section 10 of this Profile. After the first year,
you can make multiple surrenders up to a total of 15% of the value of your
Contract each year without charge from Preferred Life. Surrenders in excess of
that amount will be subject to a contingent deferred sales charge. If you do not
surrender the full 15% in any one Contract year, you may not carry over the
remaining percentage amount to another year. Surrenders in excess of the 15%
free withdrawal will be charged a contingent deferred sales charge which
declines from 6% to 0% depending upon the number of complete years we have had
your payment. After Preferred Life has had a payment for 7 years, there is no
charge for surrenders related to that payment. Each purchase payment you add to
your Contract has its own 7 year contingent deferred sales charge charge period.
Of course, you may also have to pay income tax and a tax penalty on any money
you take out of the Contract.
8. PERFORMANCE
OF THE PORTFOLIOS.
The value of the Contract will vary up or down depending upon the performance of
the portfolio(s) you choose.
The following chart shows total returns for the portfolios for the periods
shown. Performance is not shown for the Global Health Care Securities Fund and
the Value Securities Fund because they were first offered for sale on May 1,
1998. These numbers reflect the insurance charges, the contract maintenance
charge and the operating expenses of the portfolios. These numbers do not
reflect any contingent deferred sales charges, which if applied, would reduce
such performance. Past performance is not a guarantee of future results.
<TABLE>
<CAPTION>
Calendar Year
---------------------------------------------------------------------------------
Portfolio 1997 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Capital Growth 16.46% NA NA NA NA NA
Global Utilities Securities 24.79% 5.47% 29.32% -12.97% 8.80% 7.00%
Growth and Income 25.76% 12.39% 30.77% -3.57% 8.58% 5.03%
High Income 9.80% 12.10% 17.90% -3.80% 13.94% 14.43%
Income Securities 15.26% 9.52% 20.49% -7.75% 16.76% 11.45%
Money Market 3.59% 3.50% 4.09% 2.20% 0.93% 1.43%
Mutual Discovery Securities 17.50% NA NA NA NA NA
</TABLE>
<TABLE>
<CAPTION>
Calendar Year
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio 1997 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Mutual Shares Securities 15.89% NA NA NA NA NA
Natural Resources Securities -20.27% 2.35% 0.74% -3.54% 53.23% -11.56%
Real Estate Securities 18.81% 30.74% 15.69% 1.27% 17.16% 10.33%
Rising Dividends 30.96% 22.23% 27.73% -5.59% -4.98% NA
Small Cap 15.59% 27.05% NA NA NA NA
Templeton Developing Markets Equity -10.17% 19.68% 1.16% NA NA NA
Templeton Global Asset Allocation 9.96% 17.95% NA NA NA NA
Templeton Global Growth 11.72% 19.38% 10.96% NA NA NA
Templeton Global Income Securities 0.86% 7.91% 12.88% -6.49% 14.86% -1.96%
Templeton International Equity 9.94% 21.04% 8.86% -0.72% -26.58% NA
Templeton International
Smaller Companies -3.06% NA NA NA NA NA
Templeton Pacific Growth -37.00% 9.35% 6.28% -10.24% 45.59% NA
U.S. Government Securities 7.59% 1.97% 17.60% -6.06% 7.99% 5.97%
Zero Coupon 2000 5.42% 0.80% 18.79% -8.22% 14.34% 7.35%
Zero Coupon 2005 9.62% -2.09% 29.71% -11.01% 20.33% 9.07%
Zero Coupon 2010 14.75% -4.24% 40.59% -12.38% 23.48% 8.61%
</TABLE>
9. DEATH BENEFIT.
If you die during the accumulation phase, the person you have selected as your
beneficiary will receive a death benefit. This death benefit will be the greater
of: 1) the current value of your Contract, less any taxes, on the day all claim
proofs and payment election forms are received by Preferred Life at the
Valuemark Service Center; or 2) (if applicable) the guaranteed minimum death
benefit less any taxes. The guaranteed minimum death benefit, as of the day all
claim proofs and payment election forms are received by Preferred Life at the
Valuemark Service Center, is the greater of: A) payments you have made, less any
money you have taken out and charges paid on the money you have taken out; or B)
the highest value of the contract on each contract anniversary prior to the
owner's 76th birthday or date of death, increased by any payments made since
that anniversary, less any money taken out and charges paid on the money you
have taken out since that anniversary.
10. OTHER INFORMATION.
Free Look. If you cancel the Contract within 10 days after receiving it, we will
send your money back without assessing a contingent deferred sales charge. You
will receive whatever your Contract is worth on the day we receive your request.
This may be more or less than your original payment.
No Probate. In most cases, when you die, your beneficiary will receive the death
benefit without going through probate.
Purchasing Considerations. The Valuemark IV Variable Annuity Contract is
designed for people seeking long-term tax deferred accumulation of assets,
generally for retirement or other long-term purposes. The tax deferred feature
is most attractive to people in high federal and state tax brackets. You should
not buy this Contract if you are looking for a short-term investment or if you
cannot take the risk of getting back less money than you put in.
Additional Features.
The Contract offers additional features which you might be interested in. These
include:
Automatic Investment Plan - You can automatically add to your Contract on a
monthly or quarterly basis for as little as $100 by electronic transfer of
monies from your savings or checking account.
Dollar Cost Averaging Program - You can arrange to have a regular amount of
money automatically transferred from selected portfolios to other portfolios
each month, theoretically this can give you a lower average cost per unit over
time than a single one time purchase. However, there are no guarantees that this
will take place.
Flexible Rebalancing - Preferred Life will automatically readjust your Contract
value among the portfolios to maintain your specified allocation mix. This can
be done quarterly, semi-annually or annually.
Systematic Withdrawal Program - You can elect to receive monthly or quarterly
payments from Preferred Life while your Contract is in the accumulation phase.
Of course, you may have to pay tax penalties and income taxes on the money you
receive.
Minimum Distribution Program - You can arrange to have money sent to you each
month or quarter to meet certain required distribution requirements imposed by
the Internal Revenue Code generally after age 701/2.
These features may not be suitable for your particular situation.
11. INQUIRIES.
If you have any questions about your Contract or need more information, please
contact us at:
Valuemark Service Center
300 Berwyn Park
P.O. Box 3031
Berwyn, PA 19312-0031
(800) 624-0197
THE VALUEMARK IV VARIABLE ANNUITY CONTRACT
issued by
PREFERRED LIFE VARIABLE ACCOUNT C
and
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
This prospectus describes the Valuemark IV Variable Annuity Contract with a
Fixed Option offered by Preferred Life Insurance Company of New York (Preferred
Life).
The annuity has 26 investment options - the 25 Portfolios of Franklin Valuemark
Funds which are listed below and a Fixed Option of Preferred Life. You can
select up to 10 investment options (which includes any of the Portfolios listed
below and the Fixed Option).
PORTFOLIO SEEKING STABILITY
OF PRINCIPAL AND INCOME
Money Market Fund
PORTFOLIOS SEEKING CURRENT INCOME
High Income Fund
Templeton Global Income Securities Fund
U.S. Government Securities Fund
Zero Coupon Funds - 2000, 2005 and 2010
PORTFOLIOS SEEKING GROWTH AND INCOME
Global Utilities Securities Fund
Growth and Income Fund
Income Securities Fund
Mutual Shares Securities Fund
Real Estate Securities Fund
Rising Dividends Fund
Templeton Global Asset Allocation Fund
Value Securities Fund
PORTFOLIOS SEEKING CAPITAL GROWTH
Capital Growth Fund
Global Health Care Securities Fund
Mutual Discovery Securities Fund
Natural Resources Securities Fund
Small Cap Fund
Templeton Developing Markets Equity Fund
Templeton Global Growth Fund
Templeton International Equity Fund
Templeton International Smaller Companies Fund
Templeton Pacific Growth Fund
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.)
Please read this prospectus before investing and keep it for future reference.
It contains important information about the Valuemark IV Variable Annuity
Contract with a Fixed Option.
To learn more about the annuity offered by this prospectus, you can obtain a
copy of the Statement of Additional Information (SAI) dated May 1, 1998. The SAI
has been filed with the Securities and Exchange Commission (SEC) and is
incorporated by reference into this prospectus. The Table of Contents of the SAI
is on Page 19 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 us at (800) 342-3863 or write us at: 152 West
57th Street, 18th Floor, New York, New York 10019.
INVESTMENT IN A VARIABLE ANNUITY CONTRACT IS SUBJECT TO INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. 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.
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.
Dated: May 1, 1998
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
Page
INDEX OF TERMS ................................... 3
FEE TABLE ........................................ 4
1. THE VALUEMARK IV
VARIABLE ANNUITY CONTRACT ........................ 8
Contract Owner ............................... 8
Joint Owner .................................. 8
Annuitant .................................... 8
Beneficiary................................... 8
Assignment ................................... 8
2. ANNUITY PAYMENTS
(THE PAYOUTPHASE) ................................ 9
Annuity Options .............................. 9
3. PURCHASE ..................................... 9
Purchase Payments ............................ 9
Automatic Investment Plan .................... 10
Allocation of Purchase Payments .............. 10
Free Look .................................... 10
Accumulation Units ........................... 10
4. INVESTMENT OPTIONS ........................... 11
Transfers .................................... 12
Dollar Cost Averaging Program ................ 12
Flexible Rebalancing ......................... 13
Voting Privileges ............................ 13
Substitution ................................. 13
5. EXPENSES ..................................... 13
Insurance Charges ............................ 13
Mortality and Expense Risk Charge ............ 13
Administrative Charge ........................ 13
Contract Maintenance Charge .................. 13
Contingent Deferred Sales Charge ............. 14
Waiver of Contingent
Deferred Sales Charge ........................ 14
Reduction or Elimination of the
Contingent Deferred Sales Charge ............. 14
Transfer Fee ................................. 14
Income Taxes ................................. 15
Portfolio Expenses ........................... 15
6. TAXES ........................................ 15
Annuity Contracts in General ................. 15
Qualified and Non-Qualified Contracts ........ 15
Multiple Contracts ........................... 15
Surrenders - Non-Qualified Contracts ......... 15
Surrenders - Qualified Contracts ............. 16
Surrenders - Tax-Sheltered Annuities ......... 16
Diversification .............................. 16
7. ACCESS TO YOUR MONEY ......................... 16
Systematic Withdrawal Program ................ 16
Minimum Distribution Program ................. 16
Suspension of Payments or Transfers .......... 17
8. PERFORMANCE .................................. 17
9. DEATH BENEFIT ................................ 17
Upon Your Death .............................. 17
Death of Annuitant ........................... 18
10. OTHER INFORMATION ............................ 19
Preferred Life ............................... 19
The Separate Account ......................... 19
Distribution ................................. 19
Administration ............................... 19
Financial Statements ......................... 19
TABLE OF CONTENTS
OF THE STATEMENT OF
ADDITIONAL INFORMATION ........................... 19
INDEX OF TERMS
This prospectus is written in plain English to make it as understandable for you
as possible. However, there are some technical terms used which are capitalized
in this prospectus. The page that is indicated below is where you will find the
definition for the word or term.
Page
Accumulation Phase ............................... 8
Accumulation Unit ................................ 10
Annuitant ........................................ 8
Annuity Options .................................. 9
Annuity Payments ................................. 9
Annuity Unit ..................................... 10
Beneficiary ...................................... 8
Contract.......................................... 8
Contract Owner ................................... 8
Fixed Option...................................... 8
Income Date ...................................... 9
Joint Owner ...................................... 8
Non-Qualified .................................... 15
Payout Phase ..................................... 8
Portfolios ....................................... 11
Purchase Payment ................................. 9
Qualified ........................................ 15
Tax Deferral ..................................... 15
<PAGE>
FEE TABLE
CONTRACT OWNER TRANSACTION FEES
Contingent Deferred Sales Charge*
(as a percentage of purchase payments)
<TABLE>
<CAPTION>
Years Since
Purchase Payement Charge
------------ -----
<S> <C>
0-1 6%
1-2 6%
2-3 6%
3-4 5%
4-5 4%
5-6 3%
6-7 2%
7+ 0%
</TABLE>
Transfer Fee**.........................................First 12 transfers in
a Contract year are free. Thereafter, the fee is $25 (or 2% of the amount
transferred, if less). Dollar Cost Averaging transfers and Flexible Rebalancing
transfers are not counted.
Contract Maintenance Charge***.........................$30 per Contract per year
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Charge****.................... 1.34%
Administrative Charge.................................... .15%
--------
Total Separate Account Annual Expenses................... 1.49%
*Each year after the first Contract year, you may make multiple partial
surrenders of up to a total of 15% of the value of your Contract and no
contingent deferred sales charge will be assessed. See Section 7 - "Access to
Your Money" for additional options.
**The Contract provides that if more than twelve transfers have been made in a
Contract year, the Company reserves the right to deduct a transfer fee which
will not exceed $25 or 2% of the amount transferred. Market timing transfers may
not be permitted.
***During the Accumulation Phase, the charge is waived if the value of your
Contract is at least $50,000. If you own more than one Valuemark IV Contract
(registered with the same social security number), we will determine the total
value of all your Contracts. If the total value of all your Contracts is at
least $50,000, the charge is waived. Currently, the charge is also waived during
the Payout Phase if the value of your Contract at the Income Date is at least
$50,000.
****The Mortality and Expense Risk Charge is 1.25% during the Payout Phase.
<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 under
management. See the prospectus for Franklin Valuemark Funds for more information.
The "Management and Portfolio Administration Fees" below are the amounts that were paid to the Managers and Portfolio
Administrators 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.
Management and Portfolio
Administration Fees1
(after management fee waiver Other Total Annual
with respect to certain portfolios)Expenses Expenses
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital Growth Fund ................................................... .75% .02% .77%
Global Health Care Securities Fund2 ................................... .75% .11% .86%
Global Utilities Securities Fund ...................................... .47% .03% .50%
Growth and Income Fund ................................................ .47% .02% .49%
High Income Fund ...................................................... .50% .03% .53%
Income Securities Fund ................................................ .47% .03% .50%
Money Market Fund3 .................................................... .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 - 20004 .............................................. .37% .03% .40%
Zero Coupon Fund - 20054 .............................................. .37% .03% .40%
Zero Coupon Fund - 20104 .............................................. .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.
3Franklin Advisers, Inc. agreed 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 0.45% of the average daily net assets of the Portfolio.
4Although 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>
<PAGE>
<TABLE>
<CAPTION>
The purpose of this Fee Table is to help you understand the costs of investing in the Contract. The Fee Table reflects the 1997
expenses of the Separate Account as well as the Portfolios. The examples below should not be considered a representation of past
or future expenses. Actual expenses may be greater or less than those shown. The $30 contract maintenance charge is included in
the Examples as a prorated charge of $1. Since the average Contract size is greater than $1,000, the contract maintenance charge
is reduced accordingly. Premium taxes are not reflected in the Tables. For additional information, see Section 5 - "Expenses" and
the Franklin Valuemark Funds prospectus.
EXAMPLES
You would pay the following expenses on a $1,000 investment, assuming a 5% annual return on your money if you surrender your
Contract at the end of each time period:
1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Growth Fund ............................................................ $84 $125 $160 $270
Global Health Care Securities Fund* ............................................ $85 $127 $165 $279
Global Utilities Securities Fund ............................................... $81 $116 $146 $242
Growth and Income Fund ......................................................... $81 $116 $146 $241
High Income Fund ............................................................... $82 $117 $148 $245
Income Securities Fund ......................................................... $81 $116 $146 $242
Money Market Fund .............................................................. $82 $117 $148 $245
Mutual Discovery Secrities Fund ................................................ $87 $133 $175 $299
Mutual Shares Securities Fund .................................................. $84 $126 $162 $273
Natural Resources Securities Fund .............................................. $83 $122 $156 $261
Real Estate Securities Fund .................................................... $82 $118 $148 $246
Rising Dividends Fund .......................................................... $84 $124 $158 $266
Small Cap Fund ................................................................. $84 $125 $160 $270
Templeton Developing Markets Equity Fund ....................................... $90 $144 $192 $333
Templeton Global Asset Allocation Fund ......................................... $86 $130 $169 $287
Templeton Global Growth Fund ................................................... $85 $128 $166 $281
Templeton Global Income Securities Fund ........................................ $82 $120 $152 $254
Templeton International Equity Fund ............................................ $85 $128 $166 $282
Templeton International Smaller Companies Fund ................................. $87 $133 $175 $299
Templeton Pacific Growth Fund .................................................. $87 $132 $173 $296
U.S. Government Securities Fund ................................................ $81 $116 $146 $242
Value Securities Fund* ......................................................... $84 $126 $162 $274
Zero Coupon Fund-2000++......................................................... $80 $113 $141 $231
Zero Coupon Fund-2005++......................................................... $80 $113 $141 $231
Zero Coupon Fund-2010++......................................................... $80 $113 $141 $231
<FN>
*Estimated
++Calculated with waiver of fees
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
You would pay the following expenses on a $1,000 investment, assuming a 5% annual return on your money if your Contract is not
surrendered or is annuitized:
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Growth Fund ........................................................... $24 $74 $126 $270
Global Health Care Securities Fund* ........................................... $25 $76 $131 $279
Global Utilities Securities Fund .............................................. $21 $65 $112 $242
Growth and Income Fund ........................................................ $21 $65 $112 $241
High Income Fund .............................................................. $22 $66 $114 $245
Income Securities Fund ........................................................ $21 $65 $112 $242
Money Market Fund ............................................................. $22 $66 $114 $245
Mutual Discovery Securities Fund .............................................. $27 $82 $141 $299
Mutual Shares Securities Fund ................................................. $24 $75 $128 $273
Natural Resources Securities Fund ............................................. $23 $71 $122 $261
Real Estate Securities Fund ................................................... $22 $67 $114 $246
Rising Dividends Fund ......................................................... $24 $73 $124 $266
Small Cap Fund ................................................................ $24 $74 $126 $270
Templeton Developing Markets Equity Fund ...................................... $30 $93 $158 $333
Templeton Global Asset Allocation Fund ........................................ $26 $79 $135 $287
Templeton Global Growth Fund .................................................. $25 $77 $132 $281
Templeton Global Income Securities Fund ....................................... $22 $69 $118 $254
Templeton International Equity Fund ........................................... $25 $77 $132 $282
Templeton International Smaller Companies Fund ................................ $27 $82 $141 $299
Templeton Pacific Growth Fund ................................................. $27 $81 $139 $296
U.S. Government Securities Fund ............................................... $21 $65 $112 $242
Value Securities Fund* ........................................................ $24 $75 $128 $274
Zero Coupon Fund-2000++........................................................ $20 $62 $107 $231
Zero Coupon Fund-2005++........................................................ $20 $62 $107 $231
Zero Coupon Fund-2010++........................................................ $20 $62 $107 $231
<FN>
*Estimated
++Calculated with waiver of fees
</FN>
</TABLE>
As of the date of this prospectus, no Contracts had been sold. Therefore,
Preferred Life has not provided Accumulation Unit Values.
<PAGE>
1. THE VALUEMARK IV VARIABLE ANNUITY CONTRACT
This prospectus describes a variable annuity contract with a Fixed Option
offered by Preferred Life.
An annuity is a contract between you, the owner, and an insurance company (in
this case Preferred Life), where the insurance company promises to pay you (or
someone else you choose) an income, in the form of Annuity Payments, beginning
on a designated date that is at least two years in the future. Until you decide
to begin receiving Annuity Payments, your annuity is in the Accumulation Phase.
Once you begin receiving Annuity Payments, your Contract switches to the Payout
Phase. The Contract benefits from Tax Deferral.
Tax Deferral means that you are not taxed on earnings or appreciation on the
assets in your Contract until you take money out of your Contract.
The Contract is called a variable annuity because you can choose among 25
Portfolios and depending upon market conditions, you can make or lose money in
the Contract based on the Portfolios' investment performance. The Portfolios are
designed to offer a better return than the Fixed Option, however this is not
guaranteed. If you select the variable annuity portion of the Contract, the
amount of money you are able to accumulate in your Contract during the
Accumulation Phase depends in large part upon the investment performance of the
Portfolio(s) you select. The amount of the Annuity Payments you receive during
the Payout Phase from the variable annuity portion of the Contract also depends
in large part upon the investment performance of the Portfolios you select for
the Payout Phase.
The Contract also contains a Fixed Option (referred to in the Contract as the
"Fixed Account"). The Fixed Option offers an interest rate that is guaranteed by
Preferred Life for all deposits made within the twelve month period. This
interest rate is set monthly and is guaranteed for 12 months. Preferred Life
guarantees that the interest credited to the Fixed Option will not be less than
3% per year. If you select the Fixed Option, your money will be placed with the
other general assets of Preferred Life. If you select the Fixed Option, the
amount of money you are able to accumulate in your Contract during the
Accumulation Phase depends upon the total interest credited to your Contract.
We will not make any changes to your Contract without your permission except as
may be required by law.
CONTRACT OWNER
You as the Contract Owner, have all the rights under the Contract. The Contract
Owner is as designated at the time the contract is issued, unless changed. You
may change Contract Owners at any time. This may be a taxable event. You should
consult with your tax adviser before doing this.
JOINT OWNER
The Contract can be owned by Joint Owners. Upon the death of either Joint Owner,
the surviving Joint Owner will be the designated Beneficiary. Any other
Beneficiary designation at the time the Contract was issued or as may have been
later changed will be treated as a contingent Beneficiary unless otherwise
indicated.
ANNUITANT
An Annuitant is the natural person on whose life we base Annuity Payments. You
name an Annuitant. You may change the Annuitant at any time before the Income
Date unless the Contract is owned by a non-individual (for example, a
corporation).
BENEFICIARY
The Beneficiary is the person(s) or entity you name to receive any death
benefit. The Beneficiary is named at the time the Contract is issued unless
changed at a later date. Unless an irrevocable Beneficiary has been named, you
can change the Beneficiary or contingent Beneficiary.
ASSIGNMENT
You can assign the Contract at any time during your lifetime. Preferred Life
will not be bound by the assignment until it receives the written notice of the
assignment. Preferred Life will not be liable for any payment or other action we
take in accordance with the Contract before we receive notice of the assignment.
Any assignment made after the death benefit has become payable can only be done
with our consent. AN ASSIGNMENT MAY BE A TAXABLE EVENT.
If the Contract is issued pursuant to a Qualified plan, there may be limitations
on your ability to assign the Contract.
2. ANNUITY PAYMENTS
(THE PAYOUT PHASE)
You can receive regular monthly income payments under your Contract. You can
choose the month and year in which those payments begin. We call that date the
Income Date. Your Income Date must be the first day of a calendar month and must
be at least 2 full years after you buy the Contract. You can also choose among
income plans. We call those Annuity Options.
We ask you to choose your Income Date when you purchase the Contract. You can
change it at any time before the Income Date with 30 days notice to us. Annuity
Payments must begin by the first day of the first calendar month following the
Annuitant's 90th birthday. You (or someone you designate) will receive the
Annuity Payments. You will receive tax reporting on those payments.
If you do not choose an Annuity Option prior to the Income Date, we will assume
that you selected Option 2 which provides a life annuity with 5 years of
guaranteed payments.
You may elect to receive your Annuity Payments as a variable payout, a fixed
payout, or a combination of both. Under a fixed payout, all of the Annuity
Payments will be the same dollar amount (equal installments). If you choose a
variable payout, you can select from the available Portfolios. If you do not
tell us otherwise, your Annuity Payments will be based on the investment
allocations that were in place on the Income Date.
If you choose to have any portion of your Annuity Payments based on the
investment performance of the Portfolios, the dollar amount of your payment will
depend upon three things: 1) the value of your Contract in the Portfolio(s) on
the Income Date, 2) the 5% assumed investment rate used in the annuity table for
the Contract, and 3) the performance of the Portfolio(s) you selected. If the
actual performance exceeds the 5% assumed rate, your Annuity Payments will
increase. Similarly, if the actual rate is less than 5%, your Annuity Payments
will decrease.
ANNUITY OPTIONS
You can choose one of the following Annuity Options or any other Annuity Option
you want and that Preferred Life agrees to provide. After Annuity Payments
begin, you cannot change the Annuity Option.
OPTION 1. LIFE ANNUITY. Under this option, we will make monthly Annuity Payments
so long as the Annuitant is alive. After the Annuitant dies, we stop making
Annuity Payments.
OPTION 2. LIFE ANNUITY WITH 5, 10, 15 OR 20 YEAR PAYMENTS GUARANTEED. Under this
option, we will make monthly Annuity Payments so long as the Annuitant is alive.
However, if, when the Annuitant dies, we have made Annuity Payments for less
than the selected guaranteed period, we will continue to make Annuity Payments
to you for the rest of the guaranteed period. If you do not want to receive
Annuity Payments, you can ask us for a single lump sum.
OPTION 3. JOINT AND LAST SURVIVOR ANNUITY. Under this option, we will make
monthly Annuity Payments during the joint lifetime of the Annuitant and the
joint Annuitant. When the Annuitant dies, if the joint Annuitant is still alive,
we will continue to make Annuity Payments, so long as the joint Annuitant
continues to live. The amount of the Annuity Payments we will make to the
Contract Owner can be equal to 100%, 75% or 50% of the amount that was being
paid when both Annuitants were alive. The monthly Annuity Payments will end when
the last surviving Annuitant dies.
OPTION 4. JOINT AND LAST SURVIVOR ANNUITY WITH 5, 10, 15 OR 20 YEAR PAYMENTS
GUARANTEED. Under this option, we will make monthly Annuity Payments during the
joint lifetime of the Annuitant and the joint Annuitant. When the Annuitant
dies, if the joint Annuitant is still alive, we will continue to make Annuity
Payments, so long as the surviving Annuitant continues to live, at 100% of the
amount that would have been paid if they were both alive. If, when the last
death occurs, we have made Annuity Payments for less than the selected
guaranteed period, we will continue to make Annuity Payments to you or any
person you designate for rest of the guaranteed period. If you do not want to
receive Annuity Payments, you can ask us for a single lump sum.
OPTION 5. REFUND LIFE ANNUITY. Under this option, we will make monthly Annuity
Payments during the Annuitant's lifetime. The last Annuity Payment will be made
before the Annuitant dies and if the value of the Annuity Payments is less than
the value annuitized, then the Contract Owner will receive a refund as set forth
in the Contract.
3. PURCHASE
- --------------------------------------------------------------------------------
PURCHASE PAYMENTS
A Purchase Payment is the money you invest in the Contract. The minimum payment
Preferred Life will accept is $5,000 when the Contract is bought as a
Non-Qualified Contract. If you enroll in the automatic investment plan (which is
described below), your Purchase Payment can be $2,000. If you are buying the
Contract as part of an IRA (Individual Retirement Annuity), 401(k) or other
qualified plan, the minimum amount we will accept is $2,000. The maximum we will
accept without our prior approval is $1 million. You can make additional
Purchase Payments of $250 (or as low as $100 if you have selected the automatic
investment plan) or more to either type of Contract. Preferred Life may, at its
sole discretion, waive minimum payment requirements. At the time you buy the
Contract, you and the Annuitant cannot be older than 85 years old. This product
is not 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 which allows you to make
additional Purchase Payments to your Contract on a monthly or quarterly basis by
electronic transfer of funds from your savings or checking account. You may
participate in this program by completing the appropriate form. We must receive
your form by the first of the month in order for AIP to begin that same month.
Investments will take place on the 20th of the month, or the next business day.
The minimum investment that can be made by AIP is $100. You may stop AIP at any
time you want. We need to be notified by the first of the month in order to stop
or change AIP that month. If AIP is used for a Qualified Contract, you should
consult your tax adviser for advice regarding maximum contributions.
ALLOCATION OF PURCHASE PAYMENTS
When you purchase a Contract, we will allocate your Purchase Payment to the
Fixed Option and/or one or more of the Portfolios you have selected. We ask that
you allocate your money in either whole percentages or round dollars. You can
instruct us how to allocate additional Purchase Payments you make. If you do not
instruct us, we will allocate them in the same way as your previous instructions
to us. Preferred Life reserves the right to limit the number of Portfolios that
you may invest in at one time. Currently, you may invest in 10 investment
options at one time (which includes any of the 25 Portfolios of Franklin
Valuemark Funds listed in Section 4 and the Preferred Life Fixed Option). We may
change this in the future. However, we will always allow you to invest in at
least five Portfolios.
Once we receive your Purchase Payment, the necessary information and federal
funds (federal funds means monies credited to a bank's account with its regional
federal reserve bank), we will issue your Contract and allocate your first
Purchase Payment within 2 business days. If you do not give us all of the
information we need, we will contact you or your registered representative to
get it. If for some reason we are unable to complete this process within 5
business days, we will either send back your money or get your permission to
keep it until we get all of the necessary information. If you make additional
Purchase Payments, we will credit these amounts to your Contract within one
business day. Our business day closes when the New York Stock Exchange closes,
which is usually at 4:00 p.m. Eastern time.
FREE LOOK
If you change your mind about owning the Contract, you can cancel it within 10
days after receiving it. Return of the Contract by mail is effective on being
postmarked, properly addressed and postage prepaid. When you cancel the Contract
within this time period, Preferred Life will not assess a contingent deferred
sales charge. You will receive back whatever your Contract is worth on the day
we receive your request. If you have purchased the Contract as an IRA, we are
required to give you back your Purchase Payment if you decide to cancel your
Contract within 10 days after receiving it. If that is the case, we have the
right to allocate your initial Purchase Payment to the Money Market Fund for 15
days after we receive your first Purchase Payment. At the end of that period, we
will re-allocate your money as you selected. Currently, however, we will
directly allocate your money to the Portfolios and/or the Fixed Option as you
have selected.
ACCUMULATION UNITS
The value of the portion of your Contract allocated to the Portfolios will go up
or down depending upon the investment performance of the Portfolio(s) you
choose. The value of your Contract will also depend on the expenses of the
Contract. In order to keep track of the value of your Contract, we use a
measurement called an Accumulation Unit (which is like a share of a mutual
fund). During the Payout Phase of the Contract we call it an Annuity Unit.
Every business day we determine the value of an Accumulation Unit by multiplying
the Accumulation Unit value for the previous period by a factor for the current
period. The factor is determined by:
1. dividing the value of a Portfolio Accumulation Unit at the end of the current
period by the value of a Portfolio Accumulation Unit for the previous period;
and
2. multiplying it by one minus the daily amount of the insurance charges and any
charges for taxes.
The value of an Accumulation Unit may go up or down from day to day.
When you make a Purchase Payment, we credit your Contract with Accumulation
Units for any portion of your Purchase Payment allocated to a Portfolio. The
number of Accumulation Units credited is determined by dividing the amount of
the Purchase Payment allocated to a Portfolio by the value of the Accumulation
Unit.
We calculate the value of an Accumulation Unit after the New York Stock Exchange
closes each day and then credit your Contract.
EXAMPLE:
On Wednesday we receive an additional Purchase Payment of $3,000 from you. You
have told us you want this to go to the Growth and Income Fund. When the New
York Stock Exchange closes on that Wednesday, we determine that the value of an
Accumulation Unit based on an investment in the Growth and Income Fund is
$12.50. We then divide $3,000 by $12.50 and credit your Contract on Wednesday
night with 240 Accumulation Units.
4. INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
The Contract offers 25 Portfolios of Franklin Valuemark Funds and a Fixed Option
of Preferred Life. Additional Portfolios may be available in the future. 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.)
YOU SHOULD READ THE FRANKLIN VALUEMARK FUNDS PROSPECTUS (WHICH IS ATTACHED TO
THIS PROSPECTUS) CAREFULLY BEFORE INVESTING.
Franklin Valuemark Funds is the mutual fund underlying your Contract. Each
Portfolio has its own investment objective. 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 to help them manage the
Portfolios.
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 ............ 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>
Franklin Valuemark Funds serves as the underlying mutual fund for variable life
insurance policies offered by an affiliate of Preferred Life and other variable
annuity contracts offered by Preferred Life and its affiliates. Franklin
Valuemark Funds does not believe that offering its shares in this manner will be
disadvantageous to you.
TRANSFERS
You can transfer money among the 25 Portfolios and/or the Fixed Option.
Preferred Life currently allows you to make as many transfers as you want to
each year. Preferred Life may change this practice in the future. However, this
product is not designed for professional market timing organizations or other
persons using programmed, large frequent transfers. Such activity may be
disruptive to a Portfolio. We reserve the right to reject any specific Purchase
Payment allocation or transfer request from 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.
Your Contract provides that you can make 12 transfers every year without charge.
We measure a year from the anniversary of the day we issued your Contract. You
can make a transfer to or from the Fixed Option and to or from any Portfolio. If
you make more than 12 transfers in a year, there is a transfer fee deducted. The
fee is $25 per transfer or, if less, 2% of the amount transferred. The following
applies to any transfer:
1. The minimum amount which you can transfer is $1,000 or your entire value in
the Portfolio or Fixed Option. This requirement is waived if the transfer is in
connection with the Dollar Cost Averaging Program or Flexible Rebalancing (which
are described below).
2. We may not allow you to make transfers during the free look period.
3. Your request for a transfer must clearly state which Portfolio(s) or the
Fixed Option is involved in the transfer.
4. Your request for a transfer must clearly state how much the transfer is for.
5. You cannot make any transfers within 7 calendar days prior to the date your
first Annuity Payment is due.
6. During the Payout Phase, you may not make a transfer from a fixed Annuity
Option to a variable Annuity Option.
7. During the Payout Phase, you can make at least one transfer from a variable
Annuity Option to a Fixed Annuity Option.
Preferred Life has reserved the right to modify the transfer provisions subject
to the guarantees described above.
You can make transfers by telephone by properly completing the telephone
transfer forms provided by Preferred Life. We may allow you to authorize someone
else to make transfers by telephone on your behalf. If you own the Contract with
a Joint Owner, unless Preferred Life is instructed otherwise, Preferred Life
will accept instructions from either one of you. Preferred Life will use
reasonable procedures to confirm that instructions given us by telephone are
genuine. If we do not use such procedures, we may be liable for any losses due
to unauthorized or fraudulent instructions. Preferred Life tape records all
telephone instructions.
DOLLAR COST AVERAGING PROGRAM
The Dollar Cost Averaging Program allows you to systematically transfer a set
amount of money each month or quarter from any one Portfolio or the Fixed Option
to up to eight of the other Portfolios. By allocating amounts on a regularly
scheduled basis, as opposed to allocating the total amount at one particular
time, you may be less susceptible to the impact of market fluctuations. You may
only participate in this program during the Accumulation Phase.
There are two Dollar Cost Averaging options. The first option is the Dollar Cost
Averaging Fixed Option and it is available for new Contracts and additional
Purchase Payments to new and existing Contracts which will receive a special
fixed rate guaranteed for one year by Preferred Life. Dollar Cost Averaging will
take place over twelve months and requires a minimum investment of $6,000.
The second option is the Standard Dollar Cost Averaging Option which requires a
$3,000 minimum investment and participation for at least six months (or two
quarters).
All Dollar Cost Averaging transfers will be made on the 10th day of the month
unless that day is not a business day. If it is not, then the transfer will be
made the next business day. The Portfolio(s) you transfer from may not be the
Portfolio(s) you transfer to in this program. You may elect either program by
properly completing the Dollar Cost Averaging form provided by Preferred Life.
Your participation in the program will end when any of the following occurs: (1)
the number of desired transfers have been made; (2) you do not have enough money
in the Portfolio(s) or Fixed Option to make the transfer (if less money is
available, that amount will be dollar cost averaged and the program will end);
(3) you request to terminate the program (your request must be received by us by
the first of the month to terminate that month); or (4) the Contract is
terminated.
If you participate in the Dollar Cost Averaging Program, the transfers made
under the program are not taken into account in determining any transfer fee.
You may not participate in the Dollar Cost Averaging Program and Flexible
Rebalancing at the same time.
FLEXIBLE REBALANCING
Once your money has been invested, the performance of the Portfolios may cause
your chosen allocation to shift. Flexible Rebalancing is designed to help you
maintain your specified allocation mix among the different Portfolios. You can
direct us to readjust your Contract value on a quarterly, semi-annual or annual
basis to return to your original Portfolio allocations. Flexible Rebalancing
transfers will be made on the 20th day of the month unless that day is not a
business day. If it is not, then the transfer will be made on the previous day.
If you participate in Flexible Rebalancing, the transfers made under the program
are not taken into account in determining any transfer fee. The Fixed Option is
not permitted to be part of Flexible Rebalancing.
VOTING PRIVILEGES
Preferred Life is the legal owner of the Portfolio shares. However, when a
Portfolio solicits proxies in conjunction with a shareholder vote, Preferred
Life will obtain from you and other Contract Owners instructions as to how to
vote those shares. When we receive those instructions, we will vote all of the
shares we own in proportion to those instructions. This will also include any
shares that Preferred Life owns on its own behalf. Should Preferred Life
determine that it is no longer required to comply with the above, we will vote
the shares in our own right.
SUBSTITUTION
Preferred Life may substitute one of the Portfolios you have selected with
another Portfolio. We would not do this without the prior approval of the
Securities and Exchange Commission. We will give you notice of our intention to
do this.
5. EXPENSES
- --------------------------------------------------------------------------------
There are charges and other expenses associated with the Contract that will
reduce your investment return. These charges and expenses are:
INSURANCE CHARGES
Each day, Preferred Life makes a deduction for its insurance charges. Preferred
Life does this as part of its calculation of the value of the Accumulation Units
and the Annuity Units. The insurance charge has two parts: 1) the mortality and
expense risk charge and 2) the administrative charge.
Mortality and Expense Risk Charge. During the Accumulation Phase, this charge is
equal, on an annual basis, to 1.34% of the average daily value of the Contract
invested in a Portfolio, after the deduction of expenses. During the Payout
Phase, the charge is equal, on an annual basis, to 1.25% of the average daily
value of the Contract invested in a Portfolio, after the deduction of expenses.
This charge compensates us for all the insurance benefits provided by your
Contract (for example, the guarantee of annuity rates, the death benefits,
certain expenses related to the Contract, and for assuming the risk (expense
risk) that the current charges will be insufficient in the future to cover the
cost of administering the Contract). The amount of the mortality and expense
risk charge is less during the Payout Phase because Preferred Life does not pay
a death benefit separate from benefits under the Annuity Option if you die
during the Payout Phase.
Administrative Charge. This charge is equal, on an annual basis, to .15% of the
average daily value of the Contract invested in a Portfolio, after the deduction
of expenses. This charge, together with the contract maintenance charge (which
is explained below), is for all the expenses associated with the administration
of the Contract. Some of these expenses include: preparation of the Contract,
confirmations, annual reports and statements, maintenance of Contract records,
personnel costs, legal and accounting fees, filing fees, and computer and
systems costs.
CONTRACT MAINTENANCE CHARGE
Every year on the anniversary of the date when your Contract was issued,
Preferred Life deducts $30 from your Contract as a contract maintenance charge.
This charge is for administrative expenses (see above). This charge can not be
increased.
However, during the Accumulation Phase, if the value of your Contract is at
least $50,000 when the deduction for the charge is to be made, Preferred Life
will not deduct this charge. If you own more than one Valuemark IV Contract,
Preferred Life will determine the total value of all your Valuemark IV
Contracts. If the total value of all Contracts registered under the same social
security number is at least $50,000, Preferred Life will not assess the contract
maintenance charge. Currently, the charge is also waived during the Payout Phase
if the value of your Contract at the Income Date is at least $50,000. If the
Contract is owned by a non-natural person (e.g., a corporation), Preferred Life
will look to the Annuitant to determine if it will assess the charge.
If you make a complete surrender from your Contract, the contract maintenance
charge will also be deducted. During the Payout Phase, if the contract
maintenance charge is deducted, the charge will be collected monthly out of each
Annuity Payment.
CONTINGENT DEFERRED SALES CHARGE
Surrenders may be subject to a contingent deferred sales charge. During the
Accumulation Phase, you can make surrenders from your Contract. Preferred Life
keeps track of each Purchase Payment you make. The amount of the contingent
deferred sales charge depends upon how long Preferred Life has had your payment.
The charge is:
<TABLE>
<CAPTION>
Contingent
Years Since Deferred
Purchase Payment Sales Charge
------------ --------
<S> <C>
0-1 6%
1-2 6%
2-3 6%
3-4 5%
4-5 4%
5-6 3%
6-7 2%
7+ 0%
</TABLE>
However, after Preferred Life has had a Purchase Payment for 7 full years, there
is no charge when you surrender that Purchase Payment. For purposes of the
contingent deferred sales charge, Preferred Life treats withdrawals as coming
from the oldest Purchase Payments first. Preferred Life does not assess the
contingent deferred sales charge on any payments paid out as Annuity Payments or
as death benefits.
NOTE: For tax purposes, surrenders are considered to have come from the last
money you put into the Contract. Thus, for tax purposes, earnings are considered
to come out first.
FREE SURRENDER AMOUNT (referred to in sales literature as "15% Withdrawal
Privilege") - Each year after the first Contract year, you can make multiple
surrenders up to 15% of the value of your Contract and no contingent deferred
sales charge will be deducted from the 15% you take out. Surrenders in excess of
that free amount will be subject to the contingent deferred sales charge. If you
do not surrender the full 15% in any one Contract year, you may not carry over
the remaining percentage amount to another year.
You may also elect to participate in the Systematic Withdrawal Program or the
Minimum Distribution Program which allow you to make surrenders without the
deduction of the contingent deferred sales charge under certain circumstances.
You cannot use these Programs and the 15% free withdrawal amount in the same
Contract year. See Section 7 - "Access to Your Money" for a description of the
Systematic Withdrawal Program and the Minimum Distribution Program.
WAIVER OF CONTINGENT
DEFERRED SALES CHARGE
Under certain circumstances, after the first year, Preferred Life will permit
you to take your money out of the Contract without deducting the contingent
deferred sales charge if you or your Joint Owner become totally disabled for at
least 90 consecutive days.
REDUCTION OR ELIMINATION OF THE
CONTINGENT DEFERRED SALES CHARGE
Preferred Life will reduce or eliminate the amount of the contingent deferred
sales charge when the Contract is sold under circumstances which reduce its
sales expenses. Some examples are: if there is a large group of individuals that
will be purchasing the Contract or a prospective purchaser already had a
relationship with Preferred Life. Preferred Life may not deduct a contingent
deferred sales charge under a Contract issued to an officer, director or
employee of Preferred Life or any of its affiliates. Any circumstances resulting
in reduction or elimination of the contingent deferred sales charge requires
prior approval of Preferred Life.
TRANSFER FEE
You can make 12 free transfers every year. We measure a year from the day we
issue your Contract. If you make more than 12 transfers a year, we will deduct a
transfer fee of $25 or 2% of the amount that is transferred, whichever is less,
for each additional transfer. The transfer fee will be deducted from the
Portfolio or Fixed Option from which the transfer is made. If the entire amount
is transferred, the fee will be deducted from the amount transferred.
If the transfer is part of the Dollar Cost Averaging Program or Flexible
Rebalancing, it will not count in determining the transfer fee.
INCOME TAXES
Preferred Life reserves the right to deduct from the Contract for any income
taxes which it may incur because of the Contract. Currently, Preferred Life is
not making any such deductions.
PORTFOLIO EXPENSES
There are deductions from the assets of the various Portfolios for operating
expenses (including management fees) which are described in the attached
prospectus for Franklin Valuemark Funds.
6. TAXES
- --------------------------------------------------------------------------------
NOTE: PREFERRED LIFE HAS PREPARED THE FOLLOWING INFORMATION ON TAXES AS A
GENERAL DISCUSSION OF THE SUBJECT. IT IS NOT INTENDED AS TAX ADVICE. YOU SHOULD
CONSULT YOUR OWN TAX ADVISER ABOUT YOUR OWN CIRCUMSTANCES. PREFERRED LIFE HAS
INCLUDED ADDITIONAL INFORMATION REGARDING TAXES IN THE STATEMENT OF ADDITIONAL
INFORMATION.
ANNUITY CONTRACTS IN GENERAL
Annuity contracts are a means of setting aside money for future needs - usually
retirement. Congress recognized how important saving for retirement was and
provided special rules in the Internal Revenue Code (Code) for annuities.
Basically, these rules provide that you will not be taxed on any earnings on the
money held in your annuity Contract until you take the money out. This is
referred to as Tax Deferral. There are different rules regarding how you will be
taxed depending upon how you take the money out and the type of Contract -
Qualified or Non-Qualified (see following sections).
You, as the Contract Owner, will not be taxed on increases in the value of your
Contract until a distribution occurs - either as a surrender or as Annuity
Payments. When you make a surrender you are taxed on the amount of the surrender
that is earnings. For Annuity Payments, different rules apply. A portion of each
Annuity Payment you receive will be treated as a partial return of your Purchase
Payments and will not be taxed. The remaining portion of the Annuity Payment
will be treated as ordinary income. How the Annuity Payment is divided between
taxable and non-taxable portions depends upon the period over which the Annuity
Payments are expected to be made. Annuity payments received after you have
received all of your Purchase Payments are fully includible in income.
When a Non-Qualified Contract is owned by a non-natural person (e.g., a
corporation or certain other entities other than tax-qualified trusts), the
Contract will generally not be treated as an annuity for tax purposes. This
means that the Contract may not receive the benefits of Tax Deferral. Income may
be taxed as ordinary income every year.
QUALIFIED AND NON-QUALIFIED CONTRACTS
If you purchase the Contract under a Qualified plan, your Contract is referred
to as a Qualified Contract. Examples of Qualified plans are: Individual
Retirement Annuities (IRAs), Tax-Sheltered Annuities (sometimes referred to as
403(b) contracts), H.R. 10 Plans (sometimes referred to as Keogh Plans), and
pension and profit-sharing plans, which include 401(k) plans. If you do not
purchase the Contract under a Qualified plan, your Contract is referred to as a
Non-Qualified Contract.
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. You should consult a tax adviser prior to purchasing
more than one Non-Qualified annuity contract in any calendar year period.
SURRENDERS - NON-QUALIFIED CONTRACTS
If you make a surrender from your Contract, the Code treats such a surrender as
first coming from earnings and then from your Purchase Payments. In most cases,
such withdrawn earnings are includible in income.
The Code also provides that any amount received under an annuity contract which
is included in income may be subject to a tax penalty. The amount of the penalty
is equal to 10% of the amount that is includible in income. Some surrenders will
be exempt from the penalty. They include any amounts: (1) paid on or after the
taxpayer reaches age 591/2; (2) paid after you die; (3) paid if the taxpayer
becomes totally disabled (as that term is defined in the Code); (4) paid in a
series of substantially equal payments made annually (or more frequently) for
the life or life expectancy of the taxpayer; (5) paid under an immediate
annuity; or (6) which come from Purchase Payments made prior to August 14, 1982.
SURRENDERS - QUALIFIED CONTRACTS
The above information describing the taxation of Non-Qualified Contracts does
not apply to Qualified Contracts. There are special rules that govern Qualified
Contracts. A more complete discussion of surrenders from Qualified Contracts is
contained in the Statement of Additional Information.
SURRENDERS - TAX-SHELTERED ANNUITIES
The Code limits the surrender of Purchase Payments made by Contract Owners from
certain Tax-Sheltered Annuities. Surrenders can only be made when a Contract
Owner: (1) reaches age 591/2; (2) leaves his/her job; (3) dies; (4) becomes
disabled (as that term is defined in the Code); or (5) in the case of hardship.
However, in the case of hardship, the Contract Owner can only withdraw the
Purchase Payments and not any earnings.
DIVERSIFICATION
The Code provides that the underlying investments for a variable annuity must
satisfy certain diversification requirements in order to be treated as an
annuity contract. Preferred Life believes that the Portfolios are being managed
so as to comply with the requirements.
Neither the Code nor the Internal Revenue Service Regulations issued to date
provide guidance as to the circumstances under which you, because of the degree
of control you exercise over the underlying investments, and not Preferred Life
would be considered the owner of the shares of the Portfolios. If this occurs,
it will result in the loss of the favorable tax treatment for the Contract. It
is unknown to what extent under federal tax law Contract Owners are permitted to
select Portfolios, to make transfers among the Portfolios or the number and type
of Portfolios Contract Owners may select from. If any guidance is provided which
is considered a new position, then the guidance would generally be applied
prospectively. However, if such guidance is considered not to be a new position,
it may be applied retroactively. This would mean that you, as the owner of the
Contract, could be treated as the owner of the Portfolios.
Due to the uncertainty in this area, Preferred Life reserves the right to modify
the Contract in an attempt to maintain favorable tax treatment.
7. ACCESS TO YOUR MONEY
- --------------------------------------------------------------------------------
You can have access to the money in your Contract:
(1) by making a surrender (either a partial or a total surrender); (2) by
receiving Annuity Payments; or (3) when a death benefit is paid to your
Beneficiary. Surrenders can only be made during the Accumulation Phase.
When you make a complete surrender you will receive the value of the Contract on
the day you made the surrender less any applicable contingent deferred sales
charge, less any premium tax and less any contract maintenance charge. (See
Section 5 - "Expenses" for a discussion of the charges.)
Any partial surrender must be for at least $500 and, unless you instruct
Preferred Life otherwise, will be made pro-rata from all the Portfolios and the
Fixed Option you selected. Preferred Life requires that after you make a partial
surrender the value of your Contract must be at least $2,000.
INCOME TAXES, TAX PENALTIES AND CERTAIN RESTRICTIONS MAY APPLY TO ANY SURRENDER
YOU MAKE.
There are limits to the amount you can surrender from a Qualified plan referred
to as a 403(b) plan. For a more complete explanation see Section 6 - Taxes and
the discussion in the SAI.
SYSTEMATIC WITHDRAWAL PROGRAM
If the value of your Contract is at least $25,000, Preferred Life offers a plan
which provides automatic monthly or quarterly payments to you from your Contract
each year. The total systematic withdrawals which you can make each year without
Preferred Life deducting a contingent deferred sales charge is limited to 15% of
the value of your Contract determined on the business day before we receive your
request. You may surrender any amount you want under this program if your
payments are no longer subject to the contingent deferred sales charge. If you
make surrenders under this plan, you may not also use the 15% free surrender
amount that year. For a discussion of the contingent deferred sales charge and
the 15% free surrender amount, see Section 5 - "Expenses". All systematic
withdrawals will be made on the 9th day of the month unless that day is not a
business day. If it is not, then the surrender will be made the previous
business day.
INCOME TAXES AND TAX PENALTIES MAY APPLY TO SYSTEMATIC WITHDRAWALS.
MINIMUM DISTRIBUTION PROGRAM
If you own a Contract that is an Individual Retirement Annuity (IRA), you may
select the Minimum Distribution Program. Under this program, Preferred Life will
make payments to you from your Contract that are designed to meet the applicable
minimum distribution requirements imposed by the Code for IRAs. If the value of
your Contract is at least $25,000, Preferred Life will make payments to you on a
monthly or quarterly basis. The payments will not be subject to the contingent
deferred sales charge and will be instead of the 15% free surrender amount.
SUSPENSION OF PAYMENTS OR TRANSFERS
Preferred Life may be required to suspend or postpone payments for surrenders or
transfers 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 the Portfolio shares is
not reasonably practicable or Preferred Life cannot reasonably value the
Portfolio shares;
4. during any other period when the Securities and Exchange Commission, by
order, so permits for the protection of Contract Owners.
Preferred Life has reserved the right to defer payment for a surrender or
transfer from the Fixed Option for the period permitted by law but not for more
than six months.
8. PERFORMANCE
- --------------------------------------------------------------------------------
Preferred Life periodically advertises performance of the various Accumulation
Units. Preferred Life will calculate performance by determining the percentage
change in the value of an Accumulation Unit by dividing the increase (decrease)
for that unit by the value of the Accumulation Unit at the beginning of the
period. This performance number reflects the deduction of the insurance charges.
It does not reflect the deduction of any applicable contingent deferred sale
charge and contract maintenance charge. The deduction of any applicable contract
maintenance charges and contingent deferred sales charges would reduce the
percentage increase or make greater any percentage decrease. Any advertisement
will also include average annual total return figures which reflect the
deduction of the insurance charges, contract maintenance charge, contingent
deferred sales charges and the expenses of the Portfolios. Preferred Life may
also advertise cumulative total return information. Cumulative total return is
determined the same way except that the results are not annualized. Performance
information for the underlying Portfolios may also be advertised; see the
Franklin Valuemark Funds prospectus for more information.
Certain Portfolios have been in existence for some time and have investment
performance history. However, the Contracts are new. In order to demonstrate how
the actual investment experience of the Portfolios may affect your Accumulation
Unit values, Preferred Life has prepared performance information. The
performance is based on the historical performance of the Portfolios, modified
to reflect the charges and expenses of your Contract as if the Contract had been
in existence for the time periods shown. The information is based upon the
historical experience of the Portfolios and does not represent past performance
or predict future performance. Preferred Life may in the future also advertise
yield information. If it does, it will provide you with information regarding
how yield is calculated. More detailed information regarding how performance is
calculated is found in the SAI.
Any performance advertised will be based on historical data and does not
guarantee future results of the Accumulation Units.
9. DEATH BENEFIT
- -------------------------------------------------------------------------------
UPON YOUR DEATH
If you or your Joint Owner die during the Accumulation Phase, Preferred Life
will pay a death benefit to your Beneficiary (see below). No death benefit is
paid during the Payout Phase. The amount of the death benefit is:
I. CONTRACTS THAT RECEIVE AN ENHANCED DEATH BENEFIT ENDORSEMENT
Contracts that are owned individually, or jointly with another person, or as
agent for an individual person, will receive an enhanced death benefit
endorsement. For these Contracts the death benefit will be the greater of (1) or
(2) below:
(1) The current value of your Contract, less any taxes owed. This amount is
determined as of the day that all claim proofs and payment election forms are
received at the Valuemark Service Center.
(2) The guaranteed minimum death benefit (as explained below and in the enhanced
death benefit endorsement to your Contract), as of the day that all claim proofs
and payment election forms are received at the Valuemark Service Center.
A. During the first year of all such Contracts and if you are age 76 or
older at the time of purchase, the following guaranteed minimum death
benefit will apply: o payments you have made, o less any money you have
taken out, o less any applicable charges paid on money taken out,
B. After the first Contract year, for Contracts issued before your 76th
birthday, and until you reach age 76, the greater of (a) or (b) below will be
your guaranteed minimum death benefit:
a) Purchase Payments
o payments you have made,
o less any money you have taken out,
o less any applicable charges paid on money taken out,
b) Contract Value
o highest value of the Contract on each Contract anniversary,
o plus any payments made since that Contract anniversary,
o less any money you have taken out since that anniversary,
o less any applicable charges paid on money taken out since tha
anniversary,
C. After your 76th birthday, the following guaranteed minimum death
benefit will apply:
o your guaranteed minimum death benefit on the Contract anniversary
prior to your 76th birthday
o plus any payments you have made since then,
o less any money you have taken out since then,
o less any applicable charges paid on money taken out since then,
II. CONTRACTS THAT DO NOT RECEIVE AN ENHANCED DEATH BENEFIT ENDORSEMENT
For all Contracts that do not receive an enhanced death benefit endorsement, the
death benefit will be:
The current value of your Contract, less any taxes owed. This amount is
determined as of the day that all claim proofs and payment election forms are
received at the Valuemark Service Center.
III. ADDITIONAL PROVISIONS
If you have a Joint Owner, the age of the oldest Contract Owner will be used to
determine the guaranteed minimum death benefit. The guaranteed minimum death
benefit will be reduced by any amounts surrendered after the date of death. If
the Contract is owned by a non-natural person, then all references to you mean
the Annuitant. If you have a Joint Owner, and the Joint Owner dies, the
surviving Owner will be considered the Beneficiary.
A Beneficiary may request that the death benefit be paid in one of the following
ways: (1) payment of the entire death benefit within 5 years of the date of
death; or (2) payment of the death benefit under an Annuity Option. The death
benefit payable under an Annuity Option must be paid over the Beneficiary's
lifetime or for a period not extending beyond the Beneficiary's life expectancy.
Payment must begin within one year of the date of death. If the Beneficiary is
the spouse of the Contract Owner, he/she can choose to continue the Contract in
his/her own name at the then current value, or if greater, the death benefit
value. If a lump sum payment is elected and all the necessary requirements,
including any required tax consent from the state of New York (when required),
are met, the payment will be made within 7 days. Payment of the death benefit
may be delayed pending receipt of the tax consent (when required). If you (or
any Joint Owner) die during the Payout Phase and you are not the Annuitant, any
payments which are remaining under the Annuity Option selected will continue at
least as rapidly as they were being paid at your death. If you die during the
Payout Phase, the Beneficiary becomes the Contract Owner.
DEATH OF ANNUITANT
If the Annuitant, who is not a Contract Owner or Joint Owner, dies during the
Accumulation Phase, you can name a new Annuitant. If a new Annuitant is not
named within 30 days of the death of the Annuitant, you will become the
Annuitant. However, if the Contract Owner is a non-natural person (e.g., a
corporation), then the death of the Annuitant will be treated as the death of
the Contract Owner, and a new Annuitant may not be named.
If the Annuitant dies after Annuity Payments have begun, the remaining amounts
payable, if any, will be as provided for in the Annuity Option selected. The
remaining amounts payable will be paid to the Contract Owner at least as rapidly
as they were being paid at the Annuitant's death.
10. OTHER INFORMATION
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PREFERRED LIFE
Preferred Life Insurance Company of New York (Preferred Life), 152 West 57th
Street, 18th Floor, New York, NY 10019, was organized under the laws of the
state of New York. Preferred Life offers annuities and group life, group
accident and health insurance and variable annuity products. Preferred Life is
licensed to do business in six states and the District of Columbia. Preferred
Life is a wholly-owned subsidiary of Allianz Life Insurance Company of North
America, which is a wholly-owned subsidiary of Allianz Versicherungs
AG Holding.
THE SEPARATE ACCOUNT
Preferred Life established a separate account, Preferred Life Variable Account C
(Separate Account), to hold the assets that underlie the Contracts. The Board of
Directors of Preferred Life adopted a resolution to establish the Separate
Account under New York insurance law on February 26, 1988. Preferred Life has
registered the Separate Account with the Securities and Exchange Commission as a
unit investment trust under the Investment Company Act of 1940. The Separate
Account is divided into Contract sub-accounts. Each Contract sub-account invests
in a Portfolio.
The assets of the Separate Account are held in Preferred Life's name on behalf
of the Separate Account and legally belong to Preferred Life. However, those
assets that underlie the Contracts, are not chargeable with liabilities arising
out of any other business Preferred Life may conduct. All the income, gains and
losses (realized or unrealized) resulting from these assets are credited to or
charged against the contracts and not against any other contracts Preferred Life
may issue.
DISTRIBUTION
NALAC Financial Plans, LLC (NFP), 1750 Hennepin Avenue, Minneapolis, MN 55403,
acts as the distributor of the Contracts. NFP is an affiliate of Preferred Life.
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 marketing of the Contracts. The New York Insurance
Department permits asset based compensation. Preferred Life may adopt an asset
based compensation program in addition to, or in lieu of, the present
compensation program. Commissions may be recovered from broker-dealers if a full
or partial surrender occurs within 12 months of a Purchase Payment.
ADMINISTRATION
Preferred Life has hired Delaware Valley Financial Services, Inc., 300 Berwyn
Park, Berwyn, Pennsylvania, to perform administrative services regarding the
Contracts. The administrative services include issuance of the Contracts and
maintenance of Contract Owner's records.
FINANCIAL STATEMENTS
The financial statements of Preferred Life and the Separate Account have been
included in the Statement of Additional Information.
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
Insurance Company ................................ 2
Experts .......................................... 2
Legal Opinions ................................... 2
Distributor ...................................... 2
Reduction or Elimination of the
Contingent Deferred Sales Charge ................. 2
Calculation of Performance Data .................. 2
Federal Tax Status ............................... 5
Annuity Provisions ............................... 10
Mortality and Expense Guarantee .................. 10
Financial Statements ............................. 10
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 NEWYORK
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
INSURANCE 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
Insurance Company............................... 2
Experts......................................... 2
Legal Opinions.................................. 2
Distributor..................................... 2
Reduction or Elimination of the
Contingent Deferred Sales Charge............... 2
Calculation of Performance Data................. 2
Federal Tax Status.............................. 5
Annuity Provisions.............................. 10
Annuity Unit Value.............................. 10
Mortality and Expense Risk Guarantee............ 10
Financial Statements............................ 10
Insurance Company
Information regarding Preferred Life Insurance Company of New York ("Insurance
Company") is contained in the Prospectus.
The Insurance Company is rated A+ (Superior, Group Rating) by A.M. BEST, an
independent analyst of the insurance industry. The financial strength of an
insurance company may be relevant insofar as the ability of a company to make
fixed annuity payments from its general account.
Experts
- ------------------------------------------------------------------------------
The financial statements of Preferred Life Variable Account C and the financial
statements of the Insurance 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
- ------------------------------------------------------------------------------
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, an affiliate of the Insurance Company, acts as the
distributor. The offering is on a continuous basis.
Reduction or Elimination of the
Contingent Deferred Sales Charge
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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 Insurance 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 Insurance
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 will be eliminated when the Contracts are
issued to an officer, director or employee of the Insurance Company or any of
its affiliates. In no event will any reduction or elimination of the Contingent
Deferred Sales Charge be permitted where the reduction or elimination will be
unfairly discriminatory to any person.
Calculation of Performance Data
- --------------------------------------------------------------------------------
Total Return
From time to time, the Insurance Company may advertise the performance data for
the Portfolios 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 Portfolio over a stated period of time, usually a calendar year, which is
determined by dividing the increase (or decrease) in value for that unit by the
accumulation unit value at the beginning of the period.
Any such performance data will also include average annual total return figures
for one, five and ten year (or since inception) time periods indicated. Such
total return figures will reflect the deduction of a 1.34% Mortality and Expense
Risk Charge, a .15% Administrative Charge, the operating expenses of the
underlying Portfolio and any applicable Contract Maintenance Charge and
Contingent Deferred Sales Charges. 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 Contract Maintenance
Charges and any applicable Contingent Deferred Sales 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 payment made at the
beginning of the time periods used at the end of such time periods (or
fractional portion thereof).
The Insurance 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. The Insurance Company may also advertise cumulative and average total
return information over different periods of time. The Insurance Company may
also present performance information computed on a different basis.
Cumulative total return is calculated in a similar manner, except that the
results are not annualized. Each calculation assumes that no sales load is
deducted from the initial $1,000 payment at the time it is allocated to the
Portfolios and assumes that the income earned by the investment in the Portfolio
is reinvested.
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.
Yield
The Money Market Fund. The Insurance Company may advertise yield information for
the Money Market Fund. The Money Market Fund'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 Charge and the Contract Maintenance Charge and, in certain
instances, the value of the underlying Portfolio's investment securities. The
fact that the Portfolio's current yield will fluctuate and that the principal is
not guaranteed should be taken into consideration when using the Portfolio'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 Fund'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, the Administrative 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.)
The Insurance Company does not currently advertise any yield information for the
Money Market Fund.
Other Portfolios. The Insurance Company may also quote yield in sales
literature, advertisements, personalized hypothetical illustrations, and
Contract Owner communications for the other Portfolios. Each Portfolio (other
than the Money Market Fund) 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 Charge and the Contract
Maintenance Charge) by the accumulation unit value on the last day of the period
and annualizing the resulting figure, according to the following formula:
Yield = 2 [((a-b) + 1)6 - 1]
------
cd
where:
a = net investment income earned during the period by the Portfolio attributable
to shares owned by the Fund;
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 no sales load. The
Insurance Company does not currently advertise any yield information for any
Portfolio.
Performance Ranking
Total return may be compared to relevant indices, including U. S. domestic and
international indices and data from Lipper Analytical Services, Inc., Standard &
Poor's Indices, or VARDS.
From time to time, evaluation of performance by independent sources may also be
used.
Franklin Valuemark Funds - Existing Portfolios
The Portfolios of Franklin Valuemark Funds have been in existence for some time
and have investment performance history (except the Global Health Care
Securities and Value Securities Funds). In order to show how investment
performance of the Portfolios affects Accumulation Unit values, the following
performance information was developed.
The chart below shows Accumulation Unit performance which assumes that the
Accumulation Units were invested in each of the Portfolios for the same periods.
The performance figures in Column I represent performance figures for the
Accumulation Units which reflect the deduction of the mortality and expense risk
charge, administrative charge, and the operating expenses of the Portfolios.
Column II represents performance figures for the Accumulation Units which
reflect the mortality and expense risk charge, administrative charge, the
contract maintenance charge, the operating expenses of the Portfolios and
assumes that you make a surrender at the end of the period (therefore the
contingent deferred sales charge is reflected). Past performance does not
guarantee future results.
<TABLE>
<CAPTION>
Franklin Valuemark IV
Total Return for the periods ended December 31, 1997
Column I Column II
------------------------------ ------------------------------
Portfolio
Inception One Three Five Since One Three Five Since
Fund Date Year Years Years Inception Year Years Years Inception
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth 5/1/96 16.56% NA NA 17.62% 10.46% NA NA 14.74%
Global Utilities
Securities 1/24/89 24.89% 19.50% 10.12% 11.10% 18.79% 18.21% 9.56% 11.03%
Growth and Income 1/24/89 25.86% 22.82% 14.22% 10.47% 19.76% 21.60% 13.73% 10.39%
High Income 1/24/89 9.90% 13.32% 9.83% 8.73% 3.80% 11.89% 9.27% 8.65%
Income Securities 1/24/89 15.36% 15.10% 10.48% 10.73% 9.26% 13.72% 9.93% 10.65%
Money Market 1/24/89 3.69% 3.83% 2.96% 3.63% -2.41% 2.13% 2.24% 3.54%
Mutual Discovery
Securities 11/8/96 17.60% NA NA 17.01% 11.50% NA NA 12.47%
Mutual Shares
Securities 11/8/96 15.99% NA NA 17.09% 9.89% NA NA 12.56%
Natural Resources
Securities 1/24/89 -20.17% -6.22% 4.07% 1.54% -26.27% -8.30% 3.41% 1.46%
Real Estate Securities 1/24/89 18.91% 21.68% 16.45% 12.18% 12.81% 20.43% 16.00% 12.10%
Rising Dividends 1/27/92 31.06% 27.02% 13.00% 12.37% 24.96% 25.88% 12.48% 12.03%
Small Cap 11/1/95 15.69% NA NA 20.29% 9.59% NA NA 18.25%
Templeton Developing
Markets Equity 3/15/94 -10.07% 2.94% NA 0.79% -16.17% 1.21% NA -0.42%
Templeton Global
Asset Allocation 5/1/95 10.06% NA NA 12.67% 3.96% NA NA 10.98%
Templeton Global
Growth 3/15/94 11.82% 14.06% NA 11.50% 5.72% 12.64% NA 10.57%
Templeton Global
Income Securities 1/24/89 0.96% 7.20% 5.80% 5.99% -5.14% 5.61% 5.16% 5.91%
Templeton
International Equity 1/27/92 10.04% 13.25% 12.83% 10.02% 3.94% 11.82% 12.33% 9.66%
Templeton International
Smaller Companies 5/1/96 -2.96% NA NA 4.77% -9.06% NA NA 1.67%
Templeton Pacific
Growth 1/27/92 -36.90% -9.77% -0.77% -1.07% -43.00% -12.00% -1.57% -1.62%
U.S. Government
Securities 3/14/89 7.69% 8.96% 5.63% 6.77% 1.59% 7.42% 4.98% 6.69%
</TABLE>
<TABLE>
<CAPTION>
Column I Column II
------------------------------ ------------------------------
Inception One Three Five Since One Three Five Since
Fund Date Year Years Years Inception Year Years Years Inception
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Zero Coupon - 2000+ 3/14/89 5.52% 8.17% 5.88% 7.79% -0.58% 6.61% 5.25% 7.71%
Zero Coupon - 2005+ 3/14/89 9.72% 11.76% 8.42% 9.57% 3.62% 10.30% 7.83% 9.49%
Zero Coupon - 2010+ 3/14/89 14.85% 15.70% 10.92% 10.73% 8.75% 14.33% 10.38% 10.66%
<FN>
The Global Health Care Securities and the Value Securities Sub-Accounts
commenced operations on May 1, 1998.
+Calculated with waiver of fees.
</FN>
</TABLE>
Federal Tax Status
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Note: The following description is based upon the Insurance Company's
understanding of current federal income tax law applicable to annuities in
general. The Insurance 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 Insurance 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 herein may be applicable
in certain situations. Moreover, no attempt has been made to consider any
applicable state or other tax laws.
General
Section 72 of the Internal Revenue Code of 1986, as amended (the "Code") governs
taxation of annuities in general. A Contract Owner is not taxed on increases in
the value of a Contract until distribution occurs, either in the form of a lump
sum payment or as annuity payments under the Annuity Option elected. For a lump
sum payment received as a total surrender (total redemption) or death benefit,
the recipient is taxed on the portion of the payment that exceeds the cost basis
of the Contract. For Non-Qualified Contracts, this cost basis is generally the
purchase payments, while for Qualified Contracts there may be no cost basis. The
taxable portion of the lump sum payment is taxed at ordinary income tax rates.
For annuity payments, a portion of each payment in excess of an exclusion amount
is includable in taxable income. The exclusion amount for payments based on a
fixed annuity option is determined by multiplying the payment by the ratio that
the cost basis of the Contract (adjusted for any period certain or refund
feature) bears to the expected return under the Contract. The exclusion amount
for payments based on a variable annuity option is determined by dividing the
cost basis of the Contract (adjusted for any period certain or refund guarantee)
by the number of years over which the annuity is expected to be paid. Payments
received after the investment in the Contract has been recovered (i.e. when the
total of the excludable amounts equal the investment in the Contract) are fully
taxable. The taxable portion is taxed at ordinary income rates. For certain
types of Qualified Plans there may be no cost basis in the Contract within the
meaning of Section 72 of the Code. Contract Owners, Annuitants and Beneficiaries
under the Contracts should seek competent financial advice about the tax
consequences of any distributions.
The Insurance Company is taxed as a life insurance company under the Code. For
federal income tax purposes, the Separate Account is not a separate entity from
the Insurance Company, and its operations form a part of the Insurance 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 Insurance Company intends that all Portfolios of Franklin Valuemark Funds
underlying the Contracts will be managed by the managers for Franklin Valuemark
Funds 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 Separate Account will cause the Contract Owner to be
treated as the owner of the assets of the Separate 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 Separate 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 Separate Account.
Due to the uncertainty in this area, the Insurance 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 purchase payments
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 taxadviser
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 or
pledge 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 withdrawn will be treated as coming first from the
earnings and then, only after the income portion is exhausted, as coming from
the principal. Withdrawn earnings are includible in gross income. It further
provides that a ten percent (10%) penalty will apply to the income portion of
any distribution. However, the penalty is not imposed on amounts received: (a)
after the taxpayer reaches age 591/2; (b) after the death of the Contract Owner;
(c) if the taxpayer is totally disabled (for this purpose disability is as
defined in Section 72(m)(7) of the Code); (d) 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 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
Insurance 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 Insurance 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 Statement of Additional Information. 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 includable in the gross income of the employee until the
employee receives distributions from the Contract. The amount of contributions
to the tax-sheltered annuity is limited to certain maximums imposed by the Code.
Furthermore, the Code sets forth additional restrictions governing such items as
transferability, distributions, nondiscrimination and 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 period 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 includable in
the gross income of the employee until distributed from the Plan. The tax
consequences to participants may vary, depending upon the particular Plan
design. However, the Code places limitations and restrictions on all Plans,
including on such items as: amount of allowable contributions; form, manner and
timing of distributions; transferability of benefits; vesting and
nonforfeitability of interests; nondiscrimination in eligibility and
participation; and the tax treatment of distributions 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
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 59; (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, and 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 and transfers between certain Qualified
Plans. Contract Owners should consult their own tax counsel or other tax adviser
regarding any distributions.
Annuity Provisions
- --------------------------------------------------------------------------------
Fixed Annuity Payout
A fixed annuity is an annuity with payments which are guaranteed as to dollar
amount by the Insurance Company and do not vary with the investment experience
of a Portfolio. The Fixed Account value on the day immediately preceding the
Income Date will be used to determine the Fixed Annuity monthly payment. The
monthly Annuity Payment will be based upon the Contract Value at the time of
annuitization, the Annuity Option selected, the age of the annuitant and any
joint annuitant and the sex of the annuitant and joint annuitant where allowed.
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 Portfolio(s).
Annuity Unit Value
- --------------------------------------------------------------------------------
On the Income Date, a fixed number of Annuity Units will be purchased as
follows:
The first Annuity Payment is equal to the Adjusted Contract Value, divided first
by $1,000 and then multiplied by the appropriate Annuity Payment amount for each
$1,000 of value for the Annuity Option selected. In each Portfolio the fixed
number of Annuity Units is determined by dividing the amount of the initial
Annuity Payment determined for each Portfolio by the Annuity Unit value on the
Income Date. Thereafter, the number of Annuity Units in each Portfolio remains
unchanged unless the Contract Owner elects to transfer between Portfolios. All
calculations will appropriately reflect the Annuity Payment frequency selected.
On each subsequent Annuity Payment date, the total Annuity Payment is the sum of
the Annuity Payments for each Portfolio. The Annuity Payment in each Portfolio
is determined by multiplying the number of Annuity Units then allocated to such
Portfolio by the Annuity Unit value for that Portfolio.
On each subsequent Valuation Date, the value of an Annuity Unit is determined in
the following way:
First: The Net Investment Factor is determined as described in the Prospectus
under "Purchase - Accumulation Units."
Second: The value of an Annuity Unit for a Valuation Period is equal to:
a. the value of the Annuity Unit for the immediately preceding Valuation Period.
b. multiplied by the Net Investment Factor for the current Valuation Period;
c. divided by the Assumed Net Investment Factor (see below) for the Valuation
Period.
The Assumed Net Investment Factor is equal to one plus the Assumed Investment
Return which is used in determining the basis for the purchase of an Annuity,
adjusted to reflect the particular Valuation Period. The Assumed Investment
Return that the Insurance Company will use is 5%. However, the Insurance Company
may agree to use a different value.
Mortality and Expense Risk Guarantee
- --------------------------------------------------------------------------------
The Insurance Company guarantees that the dollar amount of each annuity payment
after the first annuity payment will not be affected by variations in mortality
and expense experience.
Financial Statements
- -------------------------------------------------------------------------------
The audited financial statements of the Insurance Company as of and for the year
ended December 31, 1997, included herein should be considered only as bearing
upon the ability of the Insurance Company to meet its obligations under the
Contracts. The audited financial statements of the Separate 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 Insurance Company are included
in Part B:
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 Separate Account are included
in Part B:
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*
4a. Waiver of Contingent Deferred Sales Charge Endorsement*
4b. Enhanced Death Benefit Endorsement*
5. Application for Individual Variable Annuity Contract*
6.(i) Copy of Articles of Incorporation of the Company*
(ii) Copy of the Bylaws of the Company***
7. Not Applicable
8. Form of Fund Participation Agreement*
9. Opinion and Consent of Counsel
10. Independent Auditors' Consent
11. Not Applicable
12. Not Applicable
13. Calculation of Performance Information
14. Company Organizational Chart*
27. Not Applicable
* Incorporated by reference to Registrant's N-4 filing (File Nos.
333-19699 and 811-05716) as electronically filed on January 13, 1997.
** Incorporated by reference to Registrant's Pre-Effective Amendment No. 1
to Form N-4 electronically filed on May 12, 1997.
*** Incorporated by reference to Registrant's Pre-Effective Amendment No. 2
to Form N-4 electronically filed on May 29, 1997.
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The following are the Officers and Directors of the Company:
<TABLE>
<CAPTION>
<S> <C>
Name and Principal Positions and Offices
Business Address with Depositor
- ------------------------------ ---------------------------------
Lowell C. Anderson Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Ronald L. Wobbeking Chairman, Chief Executive Officer
1750 Hennepin Avenue and Director
Minneapolis, MN 55403
Thomas G. Brown Director
One Liberty Plaza,
45th Floor
New York, NY 10006
Edward J. Bonach Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Shannon Hendricks Treasurer
1750 Hennepin Avenue
Minneapolis, MN 55403
Dennis Marion Director
500 Valley Road
Wayne, NJ 07470
Reinhard Obermueller Director
560 Lexington Avenue
New York, NY 10022
Robert S. James Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Eugene T. Wilkinson Director
14 Commerce Drive
Cranford, NJ 07016
Eugene Long Vice President of Operations
152 W. 57th Street and Director
18th Floor
New York, NY 10019
Thomas J. Lynch President, Chief
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
Timothy J. Tongson Appointed Actuary
1750 Hennepin Avenue
Minneapolis, MN 55403
Stephen R. Herbert Director
900 Third Avenue
New York, NY 10022
Jack F. Rockett Director
140 E. 95th Street, Suite 6A
New York, NY 10129
</TABLE>
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR
OR REGISTRANT
The Company organizational chart was filed as Exhibit 14 to Registrant's N-4
as filed on January 13, 1997 and is incorporated herein by reference.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of April 1, 1998 there were no 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.
PREFERRED LIFE VARIABLE ACCOUNT C
(Registrant)
By: PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
(Depositor)
By: /S/Michael T. Westermeyer
___________________________________________
Michael T. Westermeyer
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
By: /S/Michael T. Westermeyer
___________________________________________
Michael T. Westermeyer
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on
the dates indicated.
Signature and Title
<TABLE>
<CAPTION>
<S> <C> <C>
Lowell C. Anderson* Director 4-24-98
- ------------------------ -------
Lowell C. Anderson
Ronald L. Wobbeking* Chairman, Chief Executive 4-24-98
- ------------------------ Officer and Director -------
Ronald L. Wobbeking
Shannon Hendricks* Treasurer 4-24-98
- ------------------------ -------
Shannon Hendricks
Thomas G. Brown* Director 4-24-98
- ------------------------ -------
Thomas G. Brown
Edward J. Bonach* Director 4-24-98
- ------------------------ -------
Edward J. Bonach
Robert S. James* Director 4-24-98
- ------------------------ -------
Robert S. James
Thomas J. Lynch* President and Director 4-24-98
- ------------------------ -------
Thomas J. Lynch
Dennis Marion* Director 4-24-98
- ------------------------ -------
Dennis Marion
Eugene T. Wilkinson* Director 4-24-98
- ------------------------ -------
Eugene T. Wilkinson
Eugene Long* Director 4-24-98
- ------------------------ -------
Eugene Long
Reinhard W. Obermueller* Director 4-24-98
- ------------------------ -------
Reinhard W. Obermueller
Stephen R. Herbert* 4-24-98
- ------------------------ Director ------
Stephen R. Herbert
Jack F. Rockett* 4-24-98
- ------------------------ Director ------
Jack F. Rockett
</TABLE>
* By /S/Michael T. Westermeyer
______________________________________
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. 1
TO
FORM N-4
(FILE NOS. 333-19699 AND 811-05716)
PREFERRED LIFE VARIABLE ACCOUNT C
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
INDEX TO EXHIBITS
EXHIBIT PAGE
EX-99.B9 Opinion and Consent of Counsel
EX-99.B10 Independent Auditors' Consent
EX-99.B13 Calculation of Performance Information
Blazzard, Grodd & Hasenauer, P.C.
943 Post Road East
Westport, CT 06880
(203) 226-7866
April 24, 1998
Board of Directors
Preferred Life Insurance Company of New York
152 West 57th Street, 18th Floor
New York, NY 10019
RE: Opinion of Counsel
Preferred Life Variable Account C
Dear Sir/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 an 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 a copy thereof, as an exhibit to the
Registration Statement.
We consent to the reference to our Firm under the caption "Legal Opinions"
contained in the Statement of Additional Information which forms a part of the
Registration Statement.
Sincerely,
BLAZZARD, GRODD & HASENAUER, P.C.
By: /S/ LYNN KORMAN STONE
_____________________________
Lynn Korman Stone
KPMG Peat Marwick LLP
4200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
Independent Auditors' Consent
The Board of Directors of Preferred Life Insurance Company of New York
and the Contract Owners of Preferred Life Variable Account C:
We consent to the use of our report, dated January 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".
/s/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
April 24, 1998
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK IV
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 $11.24740541 88.909 88.909 $1,000.00
12-31-97 Contract Fee (1.00) 13.10996126 (0.076) 88.833 1,164.60
12-31-97 Value before Surr Chg 13.10996126 0.000 88.833 1,164.60
12-31-97 Surrender Charge (60.00) 13.10996126 (4.577) 84.256 1,104.60
Cumulative and Average Annual Total Returns
without/with charges 16.56% A 10.46% B
Global Utilities Securities
12-31-96 Purchase $1,000.00 $20.52658248 48.717 48.717 $1,000.00
12-31-97 Contract Fee (1.00) 25.63546176 (0.039) 48.678 1,247.89
12-31-97 Value before Surr C 25.63546176 0.000 48.678 1,247.89
12-31-97 Surrender Charge (60.00) 25.63546176 (2.341) 46.338 1,187.89
Cumulative and Average Annual Total Returns
without/with charge 24.89% A 18.79% B
Growth and Income
12-31-96 Purchase $1,000.00 $19.35081369 51.677 51.677 $1,000.00
12-31-97 Contract Fee (1.00) 24.35403985 (0.041) 51.636 1,257.55
12-31-97 Value before Surr Chg 24.35403985 0.000 51.636 1,257.55
12-31-97 Surrender Charge (60.00) 24.35403985 (2.464) 49.173 1,197.55
Cumulative and Average Annual Total Returns
without/with charges 25.86% A 19.76% B
High Income
12-31-96 Purchase $1,000.00 $19.23682686 51.984 51.984 $1,000.00
12-31-97 Contract Fee (1.00) 21.14081079 (0.047) 51.936 1,097.98
12-31-97 Value before Surr Chg 21.14081079 0.000 51.936 1,097.98
12-31-97 Surrender Charge (60.00) 21.14081079 (2.838) 49.098 1,037.98
Cumulative and Average Annual Total Returns
without/with charges 9.90% A 3.80% B
Income Securities
12-31-96 Purchase $1,000.00 $21.55369456 46.396 46.396 $1,000.00
12-31-97 Contract Fee (1.00) 24.86373833 (0.040) 46.356 1,152.57
12-31-97 Value before Surr Chg 24.86373833 0.000 46.356 1,152.57
12-31-97 Surrender Charge (60.00) 24.86373833 (2.413) 43.942 1,092.57
Cumulative and Average Annual Total Returns
without/with charges 15.36% A 9.26% B
Money Market
12-31-96 Purchase $1,000.00 $13.26609762 75.380 75.380 $1,000.00
12-31-97 Contract Fee (1.00) 13.75569800 (0.073) 75.307 1,035.91
12-31-97 Value before Surr Chg 13.75569800 0.000 75.307 1,035.91
12-31-97 Surrender Charge (60.00) 13.75569800 (4.362) 70.946 975.91
Cumulative and Average Annual Total Returns
without/with charges 3.69% A -2.41% B
Mutual Discovery Securities
12-31-96 Purchase $1,000.00 $10.17920124 98.240 98.240 $1,000.00
12-31-97 Contract Fee (1.00) 11.97090670 (0.084) 98.156 1,175.02
12-31-97 Value before Surr Chg 11.97090670 0.000 98.156 1,175.02
12-31-97 Surrender Charge (60.00) 11.97090670 (5.012) 93.144 1,115.02
Cumulative and Average Annual Total Returns
without/with charges 17.60% A 11.50% B
Mutual Shares Securities
12-31-96 Purchase $1,000.00 $10.32889538 96.816 96.816 $1,000.00
12-31-97 Contract Fee (1.00) 11.98070033 (0.083) 96.732 1,158.92
12-31-97 Value before Surr Chg 11.98070033 0.000 96.732 1,158.92
12-31-97 Surrender Charge (60.00) 11.98070033 (5.008) 91.724 1,098.92
Cumulative and Average Annual Total Returns
without/with charges 15.99% A 9.89% B
Natural Resources Securities
12-31-96 Purchase $1,000.00 $14.36439436 69.617 69.617 $1,000.00
12-31-97 Contract Fee (1.00) 11.46649607 (0.087) 69.529 797.26
12-31-97 Value before Surr Chg 11.46649607 0.000 69.529 797.26
12-31-97 Surrender Charge (60.00) 11.46649607 (5.233) 64.297 737.26
Cumulative and Average Annual Total Returns
without/with charges -20.17% A -26.27% B
Real Estate Securities
12-31-96 Purchase $1,000.00 $23.49916899 42.555 42.555 $1,000.00
12-31-97 Contract Fee (1.00) 27.94367614 (0.036) 42.519 1,188.13
12-31-97 Value before Surr Chg 27.94367614 0.000 42.519 1,188.13
12-31-97 Surrender Charge (60.00) 27.94367614 (2.147) 40.372 1,128.13
Cumulative and Average Annual Total Returns
without/with charges 18.91% A 12.81% B
Rising Dividends
12-31-96 Purchase $1,000.00 $15.23536682 65.637 65.637 $1,000.00
12-31-97 Contract Fee (1.00) 19.96761178 (0.050) 65.587 1,309.61
12-31-97 Value before Surr Chg 19.96761178 0.000 65.587 1,309.61
12-31-97 Surrender Charge (60.00) 19.96761178 (3.005) 62.582 1,249.61
Cumulative and Average Annual Total Returns
without/with charges 31.06% A 24.96% B
Small Cap
12-31-96 Purchase $1,000.00 $12.89918829 77.524 77.524 $1,000.00
12-31-97 Contract Fee (1.00) 14.92280844 (0.067) 77.457 1,155.88
12-31-97 Value before Surr Chg 14.92280844 0.000 77.457 1,155.88
12-31-97 Surrender Charge (60.00) 14.92280844 (4.021) 73.437 1,095.88
Cumulative and Average Annual Total Returns
without/with charges 15.69% A 9.59% B
Templeton Developing Markets Equity
12-31-96 Purchase $1,000.00 $11.45833113 87.273 87.273 $1,000.00
12-31-97 Contract Fee (1.00) 10.30480726 (0.097) 87.176 898.33
12-31-97 Value before Surr Chg 10.30480726 0.000 87.176 898.33
12-31-97 Surrender Charge (60.00) 10.30480726 (5.823) 81.353 838.33
Cumulative and Average Annual Total Returns
without/with charges -10.07% A -16.17% B
Templeton Global Asset Allocation
12-31-96 Purchase $1,000.00 $12.49492743 80.032 80.032 $1,000.00
12-31-97 Contract Fee (1.00) 13.75214238 (0.073) 79.960 1,099.62
12-31-97 Value before Surr Chg 13.75214238 0.000 79.960 1,099.62
12-31-97 Surrender Charge (60.00) 13.75214238 (4.363) 75.597 1,039.62
Cumulative and Average Annual Total Returns
without/with charges 10.06% A 3.96% B
Templeton Global Growth
12-31-96 Purchase $1,000.00 $13.52541005 73.935 73.935 $1,000.00
12-31-97 Contract Fee (1.00) 15.12444656 (0.066) 73.869 1,117.22
12-31-97 Value before Surr Chg 15.12444656 0.000 73.869 1,117.22
12-31-97 Surrender Charge (60.00) 15.12444656 (3.967) 69.902 1,057.22
Cumulative and Average Annual Total Returns
without/with charges 11.82% A 5.72% B
Templeton Global Income Securities
12-31-96 Purchase $1,000.00 $16.66103106 60.020 60.020 $1,000.00
12-31-97 Contract Fee (1.00) 16.82084400 (0.059) 59.961 1,008.59
12-31-97 Value before Surr Chg 16.82084400 0.000 59.961 1,008.59
12-31-97 Surrender Charge (60.00) 16.82084400 (3.567) 56.394 948.59
Cumulative and Average Annual Total Returns
without/with charges 0.96% A -5.14% B
Templeton International Equity
12-31-96 Purchase $1,000.00 $16.01035857 62.460 62.460 $1,000.00
12-31-97 Contract Fee (1.00) 17.61715343 (0.057) 62.403 1,099.36
12-31-97 Value before Surr Chg 17.61715343 0.000 62.403 1,099.36
12-31-97 Surrender Charge (60.00) 17.61715343 (3.406) 58.997 1,039.36
Cumulative and Average Annual Total Returns
without/with charges 10.04% A 3.94% B
Templeton International Smaller Companies
12-31-96 Purchase $1,000.00 $11.13849568 89.779 89.779 $1,000.00
12-31-97 Contract Fee (1.00) 10.80891898 (0.093) 89.686 969.41
12-31-97 Value before Surr Chg 10.80891898 0.000 89.686 969.41
12-31-97 Surrender Charge (60.00) 10.80891898 (5.551) 84.135 909.41
Cumulative and Average Annual Total Returns
without/with charges -2.96% A -9.06% B
Templeton Pacific Growth
12-31-96 Purchase $1,000.00 $14.86560901 67.269 67.269 $1,000.00
12-31-97 Contract Fee (1.00) 9.38089631 (0.107) 67.163 630.05
12-31-97 Value before Surr Chg 9.38089631 0.000 67.163 630.05
12-31-97 Surrender Charge (60.00) 9.38089631 (6.396) 60.767 570.05
Cumulative and Average Annual Total Returns
without/with charges -36.90% A -43.00% B
U.S. Government Securities
12-31-96 Purchase $1,000.00 $16.53304452 60.485 60.485 $1,000.00
12-31-97 Contract Fee (1.00) 17.80492179 (0.056) 60.429 1,075.93
12-31-97 Value before Surr Chg 17.80492179 0.000 60.429 1,075.93
12-31-97 Surrender Charge (60.00) 17.80492179 (3.370) 57.059 1,015.93
Cumulative and Average Annual Total Returns
without/with charges 7.69% A 1.59% B
Zero Coupon - 2000
12-31-96 Purchase $1,000.00 $18.34477774 54.511 54.511 $1,000.00
12-31-97 Contract Fee (1.00) 19.35767222 (0.052) 54.460 1,054.21
12-31-97 Value before Surr Chg 19.35767222 0.000 54.460 1,054.21
12-31-97 Surrender Charge (60.00) 19.35767222 (3.100) 51.360 994.21
Cumulative and Average Annual Total Returns
without/with charges 5.52% A -0.58% B
Zero Coupon - 2005
12-31-96 Purchase $1,00 $20.37523353 49.079 49.079 $1,000.00
12-31-97 Contract Fee (1.00) 22.35667212 (0.045) 49.034 1,096.25
12-31-97 Value before Surr Chg 22.35667212 0.000 49.034 1,096.25
12-31-97 Surrender Charge (60.00) 22.35667212 (2.684) 46.351 1,036.25
Cumulative and Average Annual Total Returns
without/with charges 9.72% A 3.62% B
Zero Coupon - 2010
12-31-96 Purchase 1,000.00 $21.37105221 46.792 46.792 $1,000.00
12-31-97 Contract Fee (1.00) 24.54360878 (0.041) 46.752 1,147.45
12-31-97 Value before Surr Chg 24.54360878 0.000 46.752 1,147.45
12-31-97 Surrender Charge (60.00) 24.54360878 (2.445) 44.307 1,087.45
Cumulative and Average Annual Total Returns
without/with charges 14.85% A 8.75% 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>
Global Utilities Securities
12-31-94 Purchase $1,000.00 $15.02348951 66.562 66.562 $1,000.00
12-31-95 Contract Fee (1.00) 19.44283491 (0.051) 66.511 1,293.16
12-31-96 Contract Fee (1.00) 20.52658248 (0.049) 66.462 1,364.24
12-31-97 Contract Fee (1.00) 25.63546176 (0.039) 66.423 1,702.79
12-31-97 Value before Surr Chg 25.63546176 0.000 66.423 1,702.79
12-31-97 Surrender Charge (51.00) 25.63546176 (1.989) 64.434 1,651.79
Cumulative Total Returns without/with chrgs. 70.64% A 65.18% C
Avg. Annual Total Returns without/with chrgs. 19.50% B 18.21% D
Growth and Income
12-31-94 Purchase $1,000.00 $13.14423327 76.079 76.079 $1,000.00
12-31-95 Contract Fee (1.00) 17.20200155 (0.058) 76.021 1,307.71
12-31-96 Contract Fee (1.00) 19.35081369 (0.052) 75.969 1,470.07
12-31-97 Contract Fee (1.00) 24.35403985 (0.041) 75.928 1,849.16
12-31-97 Value before Surr Chg 24.35403985 0.000 75.928 1,849.16
12-31-97 Surrender Charge (51.00) 24.35403985 (2.094) 73.834 1,798.16
Cumulative Total Returns without/with chrgs. 85.28% A 79.82% C
Avg. Annual Total Returns without/with chrgs. 22.82% B 21.60% D
High Income
12-31-94 Purchase $1,000.00 $14.52977464 68.824 68.824 $1,000.00
12-31-95 Contract Fee (1.00) 17.14451419 (0.058) 68.766 1,178.96
12-31-96 Contract Fee (1.00) 19.23682686 (0.052) 68.714 1,321.84
12-31-97 Contract Fee (1.00) 21.14081079 (0.047) 68.667 1,451.67
12-31-97 Value before Surr Chg 21.14081079 0.000 68.667 1,451.67
12-31-97 Surrender Charge (51.00) 21.14081079 (2.412) 66.254 1,400.67
Cumulative Total Returns without/with chrgs. 45.50% A 40.07% C
Avg. Annual Total Returns without/with chrgs. 13.32% B 11.89% D
Income Securities
12-31-94 Purchase $1,000.00 $16.30439562 61.333 61.333 $1,000.00
12-31-95 Contract Fee (1.00) 19.66228575 (0.051) 61.282 1,204.95
12-31-96 Contract Fee (1.00) 21.55369456 (0.046) 61.236 1,319.86
12-31-97 Contract Fee (1.00) 24.86373833 (0.040) 61.196 1,521.55
12-31-97 Value before Surr Chg 24.86373833 0.000 61.196 1,521.55
12-31-97 Surrender Charge (51.00) 24.86373833 (2.051) 59.144 1,470.55
Cumulative Total Returns without/with chrgs. 52.50% A 47.06% C
Avg. Annual Total Returns without/with chrgs. 15.10% B 13.72% D
Money Market
12-31-94 Purchase $1,000.00 $12.29002320 81.367 81.367 $1,000.00
12-31-95 Contract Fee (1.00) 12.80529257 (0.078) 81.289 1,040.93
12-31-96 Contract Fee (1.00) 13.26609762 (0.075) 81.213 1,077.38
12-31-97 Contract Fee (1.00) 13.75569800 (0.073) 81.141 1,116.15
12-31-97 Value before Surr Chg 13.75569800 0.000 81.141 1,116.15
12-31-97 Surrender Charge (51.00) 13.75569800 (3.708) 77.433 1,065.15
Cumulative Total Returns without/with chrgs. 11.93% A 6.51% C
Avg. Annual Total Returns without/with chrgs. 3.83% B 2.13% D
Natural Resources Securities
12-31-94 Purchase $1,000.00 $13.90432727 71.920 71.920 $1,000.00
12-31-95 Contract Fee (1.00) 14.02092182 (0.071) 71.849 1,007.39
12-31-96 Contract Fee (1.00) 14.36439436 (0.070) 71.779 1,031.06
12-31-97 Contract Fee (1.00) 11.46649607 (0.087) 71.692 822.05
12-31-97 Value before Surr Chg 11.46649607 0.000 71.692 822.05
12-31-97 Surrender Charge (51.00) 11.46649607 (4.448) 67.244 771.05
Cumulative Total Returns without/with chrgs. -17.53% A -22.89% C
Avg. Annual Total Returns without/with chrgs. -6.22% B -8.30% D
Real Estate Securities
12-31-94 Purchase $1,000.00 $15.51100005 64.470 64.470 $1,000.00
12-31-95 Contract Fee (1.00) 17.96041830 (0.056) 64.415 1,156.91
12-31-96 Contract Fee (1.00) 23.49916899 (0.043) 64.372 1,512.69
12-31-97 Contract Fee (1.00) 27.94367614 (0.036) 64.336 1,797.79
12-31-97 Value before Surr Chg 27.94367614 0.000 64.336 1,797.79
12-31-97 Surrender Charge (51.00) 27.94367614 (1.825) 62.511 1,746.79
Cumulative Total Returns without/with chrgs. 80.15% A 74.68% C
Avg. Annual Total Returns without/with chrgs. 21.68% B 20.43% D
Rising Dividends
12-31-94 Purchase $1,000.00 $9.74313966 102.636 102.636 $1,000.00
12-31-95 Contract Fee (1.00) 12.45442887 (0.080) 102.556 1,277.28
12-31-96 Contract Fee (1.00) 15.23536682 (0.066) 102.490 1,561.48
12-31-97 Contract Fee (1.00) 19.96761178 (0.050) 102.440 2,045.49
12-31-97 Value before Surr Chg 19.96761178 0.000 102.440 2,045.49
12-31-97 Surrender Charge (51.00) 19.96761178 (2.554) 99.886 1,994.49
Cumulative Total Returns without/with chrgs. 104.94% A 99.45% C
Avg. Annual Total Returns without/with chrgs. 27.02% B 25.88% D
Templeton Developing Markets Equity
12-31-94 Purchase $1,000.00 $9.44748810 105.848 105.848 $1,000.00
12-31-95 Contract Fee (1.00) 9.56626187 (0.105) 105.744 1,011.57
12-31-96 Contract Fee (1.00) 11.45833113 (0.087) 105.656 1,210.65
12-31-97 Contract Fee (1.00) 10.30480726 (0.097) 105.559 1,087.77
12-31-97 Value before Surr Chg 10.30480726 0.000 105.559 1,087.77
12-31-97 Surrender Charge (51.00) 10.30480726 (4.949) 100.610 1,036.77
Cumulative Total Returns without/with chrgs. 9.07% A 3.68% C
Avg. Annual Total Returns without/with chrgs. 2.94% B 1.21% D
Templeton Global Growth
12-31-94 Purchase $1,000.00 $10.19356357 98.101 98.101 $1,000.00
12-31-95 Contract Fee (1.00) 11.32067650 (0.088) 98.013 1,109.57
12-31-96 Contract Fee (1.00) 13.52541005 (0.074) 97.939 1,324.66
12-31-97 Contract Fee (1.00) 15.12444656 (0.066) 97.873 1,480.27
12-31-97 Value before Surr Chg 15.12444656 0.000 97.873 1,480.27
12-31-97 Surrender Charge (51.00) 15.12444656 (3.372) 94.501 1,429.27
Cumulative Total Returns without/with chrgs. 48.37% A 42.93% C
Avg. Annual Total Returns without/with chrgs. 14.06% B 12.64% D
Templeton Global Income Securities
12-31-94 Purchase $1,000.00 $13.65317533 73.243 73.243 $1,000.00
12-31-95 Contract Fee (1.00) 15.42592706 (0.065) 73.178 1,128.84
12-31-96 Contract Fee (1.00) 16.66103106 (0.060) 73.118 1,218.22
12-31-97 Contract Fee (1.00) 16.82084400 (0.059) 73.059 1,228.91
12-31-97 Value before Surr Chg 16.82084400 0.000 73.059 1,228.91
12-31-97 Surrender Charge (51.00) 16.82084400 (3.032) 70.027 1,177.91
Cumulative Total Returns without/with chrgs. 23.20% A 17.79% C
Avg. Annual Total Returns without/with chrgs. 7.20% B 5.61% D
Templeton International Equity
12-31-94 Purchase $1,000.00 $12.12945216 82.444 82.444 $1,000.00
12-31-95 Contract Fee (1.00) 13.21605786 (0.076) 82.368 1,088.58
12-31-96 Contract Fee (1.00) 16.01035857 (0.062) 82.306 1,317.75
12-31-97 Contract Fee (1.00) 17.61715343 (0.057) 82.249 1,448.99
12-31-97 Value before Surr Chg 17.61715343 0.000 82.249 1,448.99
12-31-97 Surrender Charge (51.00) 17.61715343 (2.895) 79.354 1,397.99
Cumulative Total Returns without/with chrgs. 45.24% A 39.80% C
Avg. Annual Total Returns without/with chrgs. 13.25% B 11.82% D
Templeton Pacific Growth
12-31-94 Purchase $1,000.00 $12.76818771 78.320 78.320 $1,000.00
12-31-95 Contract Fee (1.00) 13.58246157 (0.074) 78.246 1,062.77
12-31-96 Contract Fee (1.00) 14.86560901 (0.067) 78.179 1,162.17
12-31-97 Contract Fee (1.00) 9.38089631 (0.107) 78.072 732.39
12-31-97 Value before Surr Chg 9.38089631 0.000 78.072 732.39
12-31-97 Surrender Charge (51.00) 9.38089631 (5.437) 72.636 681.39
Cumulative Total Returns without/with chrgs. -26.53% A -31.86% C
Avg. Annual Total Returns without/with chrgs. -9.77% B -12.00% D
U.S. Government Securities
12-31-94 Purchase $1,000.00 $13.76239537 72.662 72.662 $1,000.00
12-31-95 Contract Fee (1.00) 16.19773372 (0.062) 72.600 1,175.96
12-31-96 Contract Fee (1.00) 16.53304452 (0.060) 72.540 1,199.30
12-31-97 Contract Fee (1.00) 17.80492179 (0.056) 72.483 1,290.56
12-31-97 Value before Surr Chg 17.80492179 0.000 72.483 1,290.56
12-31-97 Surrender Charge (51.00) 17.80492179 (2.864) 69.619 1,239.56
Cumulative Total Returns without/with chrgs. 29.37% A 23.96% C
Avg. Annual Total Returns without/with chrgs. 8.96% B 7.42% D
Zero Coupon - 2000
12-31-94 Purchase $1,000.00 $15.29260574 65.391 65.391 $1,000.00
12-31-95 Contract Fee (1.00) 18.18141100 (0.055) 65.336 1,187.90
12-31-96 Contract Fee (1.00) 18.34477774 (0.055) 65.282 1,197.58
12-31-97 Contract Fee (1.00) 19.35767222 (0.052) 65.230 1,262.70
12-31-97 Value before Surr Chg 19.35767222 0.000 65.230 1,262.70
12-31-97 Surrender Charge (51.00) 19.35767222 (2.635) 62.595 1,211.70
Cumulative Total Returns without/with chrgs. 26.58% A 21.17% C
Avg. Annual Total Returns without/with chrgs. 8.17% B 6.61% D
Zero Coupon - 2005
12-31-94 Purchase $1,000.00 $16.01393970 62.446 62.446 $1,000.00
12-31-95 Contract Fee (1.00) 20.78832859 (0.048) 62.397 1,297.14
12-31-96 Contract Fee (1.00) 20.37523353 (0.049) 62.348 1,270.36
12-31-97 Contract Fee (1.00) 22.35667212 (0.045) 62.304 1,392.90
12-31-97 Value before Surr Chg 22.35667212 0.000 62.304 1,392.90
12-31-97 Surrender Charge (51.00) 22.35667212 (2.281) 60.022 1,341.90
Cumulative Total Returns without/with chrgs. 39.61% A 34.19% C
Avg. Annual Total Returns without/with chrgs. 11.76% B 10.30% D
Zero Coupon - 2010
12-31-94 Purchase $1,000.00 $15.84633119 63.106 63.106 $1,000.00
12-31-95 Contract Fee (1.00) 22.29375904 (0.045) 63.061 1,405.87
12-31-96 Contract Fee (1.00) 21.37105221 (0.047) 63.014 1,346.68
12-31-97 Contract Fee (1.00) 24.54360878 (0.041) 62.974 1,545.60
12-31-97 Value before Surr Chg 24.54360878 0.000 62.974 1,545.60
12-31-97 Surrender Charge (51.00) 24.54360878 (2.078) 60.896 1,494.60
Cumulative Total Returns without/with chrgs. 54.89% A 49.46% C
Avg. Annual Total Returns without/with chrgs. 15.70% B 14.33% 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>
Global Utilities Securities
12-31-92 Purchase $1,000.00 $15.83244652 63.161 63.161 $1,000.00
12-31-93 Contract Fee (1.00) 17.24200577 (0.058) 63.103 1,088.03
12-31-94 Contract Fee (1.00) 15.02348951 (0.067) 63.037 947.03
12-31-95 Contract Fee (1.00) 19.44283491 (0.051) 62.985 1,224.62
12-31-96 Contract Fee (1.00) 20.52658248 (0.049) 62.937 1,291.88
12-31-97 Contract Fee (1.00) 25.63546176 (0.039) 62.898 1,612.41
12-31-97 Value before Surr Chg 25.63546176 0.000 62.898 1,612.41
12-31-97 Surrender Charge (34.00) 25.63546176 (1.326) 61.571 1,578.41
Cumulative Total Returns without/with chrgs. 61.92% A 57.84% C
Avg. Annual Total Returns without/with chrgs. 10.12% B 9.56% D
Growth and Income
12-31-92 Purchase $1,000.00 $12.52913900 79.814 79.814 $1,000.00
12-31-93 Contract Fee (1.00) 13.61630571 (0.073) 79.741 1,085.77
12-31-94 Contract Fee (1.00) 13.14423327 (0.076) 79.664 1,047.13
12-31-95 Contract Fee (1.00) 17.20200155 (0.058) 79.606 1,369.39
12-31-96 Contract Fee (1.00) 19.35081369 (0.052) 79.555 1,539.45
12-31-97 Contract Fee (1.00) 24.35403985 (0.041) 79.514 1,936.48
12-31-97 Value before Surr Chg 24.35403985 0.000 79.514 1,936.48
12-31-97 Surrender Charge (34.00) 24.35403985 (1.396) 78.117 1,902.48
Cumulative Total Returns without/with chrgs. 94.38% A 90.25% C
Avg. Annual Total Returns without/with chrgs. 14.22% B 13.73% D
High Income
12-31-92 Purchase $1,000.00 $13.23092335 75.581 75.581 $1,000.00
12-31-93 Contract Fee (1.00) 15.08792342 (0.066) 75.514 1,139.35
12-31-94 Contract Fee (1.00) 14.52977464 (0.069) 75.445 1,096.20
12-31-95 Contract Fee (1.00) 17.14451419 (0.058) 75.387 1,292.47
12-31-96 Contract Fee (1.00) 19.23682686 (0.052) 75.335 1,449.21
12-31-97 Contract Fee (1.00) 21.14081079 (0.047) 75.288 1,591.65
12-31-97 Value before Surr Chg 21.14081079 0.000 75.288 1,591.65
12-31-97 Surrender Charge (34.00) 21.14081079 (1.608) 73.680 1,557.65
Cumulative Total Returns without/with chrgs. 59.78% A 55.76% C
Avg. Annual Total Returns without/with chrgs. 9.83% B 9.27% D
Income Securities
12-31-92 Purchase $1,000.00 $15.10888772 66.186 66.186 $1,000.00
12-31-93 Contract Fee (1.00) 17.65574049 (0.057) 66.130 1,167.57
12-31-94 Contract Fee (1.00) 16.30439562 (0.061) 66.068 1,077.20
12-31-95 Contract Fee (1.00) 19.66228575 (0.051) 66.017 1,298.05
12-31-96 Contract Fee (1.00) 21.55369456 (0.046) 65.971 1,421.92
12-31-97 Contract Fee (1.00) 24.86373833 (0.040) 65.931 1,639.29
12-31-97 Value before Surr Chg 24.86373833 0.000 65.931 1,639.29
12-31-97 Surrender Charge (34.00) 24.86373833 (1.367) 64.563 1,605.29
Cumulative Total Returns without/with chrgs. 64.56% A 60.53% C
Avg. Annual Total Returns without/with chrgs. 10.48% B 9.93% D
Money Market
12-31-92 Purchase $1,000.00 $11.89167887 84.092 84.092 $1,000.00
12-31-93 Contract Fee (1.00) 12.01410752 (0.083) 84.009 1,009.30
12-31-94 Contract Fee (1.00) 12.29002320 (0.081) 83.928 1,031.47
12-31-95 Contract Fee (1.00) 12.80529257 (0.078) 83.850 1,073.72
12-31-96 Contract Fee (1.00) 13.26609762 (0.075) 83.774 1,111.36
12-31-97 Contract Fee (1.00) 13.75569800 (0.073) 83.702 1,151.37
12-31-97 Value before Surr Chg 13.75569800 0.000 83.702 1,151.37
12-31-97 Surrender Charge (34.00) 13.75569800 (2.472) 81.230 1,117.37
Cumulative Total Returns without/with chrgs. 15.67% A 11.74% C
Avg. Annual Total Returns without/with chrgs. 2.96% B 2.24% D
Natural Resources Securities
12-31-92 Purchase $1,000.00 $9.39103298 106.485 106.485 $1,000.00
12-31-93 Contract Fee (1.00) 14.39941891 (0.069) 106.415 1,532.32
12-31-94 Contract Fee (1.00) 13.90432727 (0.072) 106.343 1,478.63
12-31-95 Contract Fee (1.00) 14.02092182 (0.071) 106.272 1,490.03
12-31-96 Contract Fee (1.00) 14.36439436 (0.070) 106.202 1,525.53
12-31-97 Contract Fee (1.00) 11.46649607 (0.087) 106.115 1,216.77
12-31-97 Value before Surr Chg 11.46649607 0.000 106.115 1,216.77
12-31-97 Surrender Charge (34.00) 11.46649607 (2.965) 103.150 1,182.77
Cumulative Total Returns without/with chrgs. 22.10% A 18.28% C
Avg. Annual Total Returns without/with chrgs. 4.07% B 3.41% D
Real Estate Securities
12-31-92 Purchase $1,000.00 $13.04914908 76.633 76.633 $1,000.00
12-31-93 Contract Fee (1.00) 15.30083761 (0.065) 76.568 1,171.55
12-31-94 Contract Fee (1.00) 15.51100005 (0.064) 76.504 1,186.65
12-31-95 Contract Fee (1.00) 17.96041830 (0.056) 76.448 1,373.04
12-31-96 Contract Fee (1.00) 23.49916899 (0.043) 76.405 1,795.46
12-31-97 Contract Fee (1.00) 27.94367614 (0.036) 76.370 2,134.04
12-31-97 Value before Surr Chg 27.94367614 0.000 76.370 2,134.04
12-31-97 Surrender Charge (34.00) 27.94367614 (1.217) 75.153 2,100.04
Cumulative Total Returns without/with chrgs. 114.14% A 110.00% C
Avg. Annual Total Returns without/with chrgs. 16.45% B 16.00% D
Rising Dividends
12-31-92 Purchase $1,000.00 $10.83875667 92.262 92.262 $1,000.00
12-31-93 Contract Fee (1.00) 10.30939159 (0.097) 92.165 $950.16
12-31-94 Contract Fee (1.00) 9.74313966 (0.103) 92.062 $896.97
12-31-95 Contract Fee (1.00) 12.45442887 (0.080) 91.982 1,145.58
12-31-96 Contract Fee (1.00) 15.23536682 (0.066) 91.916 1,400.37
12-31-97 Contract Fee (1.00) 19.96761178 (0.050) 91.866 1,834.34
12-31-97 Value before Surr Chg 19.96761178 0.000 91.866 1,834.34
12-31-97 Surrender Charge (34.00) 19.96761178 (1.703) 90.163 1,800.34
Cumulative Total Returns without/with chrgs. 84.22% A 80.03% C
Avg. Annual Total Rtns. without/with chrgs. 13.00% B 12.48% D
Templeton Global Income Securities
12-31-92 Purchase $1,000.00 $12.68746730 78.818 78.818 $1,000.00
12-31-93 Contract Fee (1.00) 14.58489254 (0.069) 78.749 1,148.55
12-31-94 Contract Fee (1.00) 13.65317533 (0.073) 78.676 1,074.18
12-31-95 Contract Fee (1.00) 15.42592706 (0.065) 78.611 1,212.65
12-31-96 Contract Fee (1.00) 16.66103106 (0.060) 78.551 1,308.75
12-31-97 Contract Fee (1.00) 16.82084400 (0.059) 78.492 1,320.30
12-31-97 Value before Surr Chg 16.82084400 0.000 78.492 1,320.30
12-31-97 Surrender Charge (34.00) 16.82084400 (2.021) 76.471 1,286.30
Cumulative Total Returns without/with chrgs. 32.58% A 28.63% C
Avg. Annual Total Returns without/with chrgs. 5.80% B 5.16% D
Templeton International Equity
12-31-92 Purchase $1,000.00 $9.63445037 103.794 103.794 $1,000.00
12-31-93 Contract Fee (1.00) 12.20456639 (0.082) 103.712 1,265.76
12-31-94 Contract Fee (1.00) 12.12945216 (0.082) 103.630 1,256.97
12-31-95 Contract Fee (1.00) 13.21605786 (0.076) 103.554 1,368.58
12-31-96 Contract Fee (1.00) 16.01035857 (0.062) 103.492 1,656.94
12-31-97 Contract Fee (1.00) 17.61715343 (0.057) 103.435 1,822.23
12-31-97 Value before Surr Chg 17.61715343 0.000 103.435 1,822.23
12-31-97 Surrender Charge (34.00) 17.61715343 (1.930) 101.505 1,788.23
Cumulative Total Returns without/with chrgs. 82.86% A 78.82% C
Avg. Annual Total Rtns. without/with chrgs. 12.83% B 12.33% D
Templeton Pacific Growth
12-31-92 Purchase $1,000.00 $9.75290673 102.534 102.534 $1,000.00
12-31-93 Contract Fee (1.00) 14.20875721 (0.070) 102.463 1,455.87
12-31-94 Contract Fee (1.00) 12.76818771 (0.078) 102.385 1,307.27
12-31-95 Contract Fee (1.00) 13.58246157 (0.074) 102.311 1,389.64
12-31-96 Contract Fee (1.00) 14.86560901 (0.067) 102.244 1,519.92
12-31-97 Contract Fee (1.00) 9.38089631 (0.107) 102.137 958.14
12-31-97 Value before Surr Chg 9.38089631 0.000 102.137 958.14
12-31-97 Surrender Charge (34.00) 9.38089631 (3.624) 98.513 924.14
Cumulative Total Returns without/with chrgs. -3.81% A -7.59% C
Avg. Annual Total Rtns. without/with chrgs. -0.77% B -1.57% D
U.S. Government Securities
12-31-92 Purchase $1,000.00 $13.53931957 73.859 73.859 $1,000.00
12-31-93 Contract Fee (1.00) 14.63435517 (0.068) 73.791 1,079.88
12-31-94 Contract Fee (1.00) 13.76239537 (0.073) 73.718 1,014.54
12-31-95 Contract Fee (1.00) 16.19773372 (0.062) 73.656 1,193.06
12-31-96 Contract Fee (1.00) 16.53304452 (0.060) 73.596 1,216.76
12-31-97 Contract Fee (1.00) 17.80492179 (0.056) 73.540 1,309.37
12-31-97 Value before Surr Chg 17.80492179 0.000 73.540 1,309.37
12-31-97 Surrender Charge (34.00) 17.80492179 (1.910) 71.630 1,275.37
Cumulative Total Returns without/with chrgs. 31.51% A 27.54% C
Avg. Annual Total Returns without/with chrgs. 5.63% B 4.98% D
Zero Coupon - 2000
12-31-92 Purchase $1,000.00 $14.54452031 68.754 68.754 $1,000.00
12-31-93 Contract Fee (1.00) 16.64474050 (0.060) 68.694 1,143.40
12-31-94 Contract Fee (1.00) 15.29260574 (0.065) 68.629 1,049.52
12-31-95 Contract Fee (1.00) 18.18141100 (0.055) 68.574 1,246.77
12-31-96 Contract Fee (1.00) 18.34477774 (0.055) 68.519 1,256.97
12-31-97 Contract Fee (1.00) 19.35767222 (0.052) 68.468 1,325.38
12-31-97 Value before Surr Chg 19.35767222 0.000 68.468 1,325.38
12-31-97 Surrender Charge (34.00) 19.35767222 (1.756) 66.711 1,291.38
Cumulative Total Returns without/with chrgs. 33.09% A 29.14% C
Avg. Annual Total Returns without/with chrgs. 5.88% B 5.25% D
Zero Coupon - 2005
12-31-92 Purchase $1,000.00 $14.92512949 67.001 67.001 $1,000.00
12-31-93 Contract Fee (1.00) 17.97404729 (0.056) 66.945 1,203.28
12-31-94 Contract Fee (1.00) 16.01393970 (0.062) 66.883 1,071.06
12-31-95 Contract Fee (1.00) 20.78832859 (0.048) 66.835 1,389.39
12-31-96 Contract Fee (1.00) 20.37523353 (0.049) 66.786 1,360.78
12-31-97 Contract Fee (1.00) 22.35667212 (0.045) 66.741 1,492.11
12-31-97 Value before Surr Chg 22.35667212 0.000 66.741 1,492.11
12-31-97 Surrender Charge (34.00) 22.35667212 (1.521) 65.220 1,458.11
Cumulative Total Returns without/with chrgs. 49.79% A 45.81% C
Avg. Annual Total Returns without/with chrgs. 8.42% B 7.83% D
Zero Coupon - 2010
12-31-92 Purchase $1,000.00 $14.61898218 68.404 68.404 $1,000.00
12-31-93 Contract Fee (1.00) 18.06559695 (0.055) 68.349 1,234.76
12-31-94 Contract Fee (1.00) 15.84633119 (0.063) 68.286 1,082.08
12-31-95 Contract Fee (1.00) 22.29375904 (0.045) 68.241 1,521.35
12-31-96 Contract Fee (1.00) 21.37105221 (0.047) 68.194 1,457.38
12-31-97 Contract Fee (1.00) 24.54360878 (0.041) 68.153 1,672.73
12-31-97 Value before Surr Chg 24.54360878 0.000 68.153 1,672.73
12-31-97 Surrender Charge (34.00) 24.54360878 (1.385) 66.768 1,638.73
Cumulative Total Returns without/with chrgs. 67.89% A 63.87% C
Avg. Annual Total Returns without/with chrgs. 10.92% B 10.38% 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
5-1-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-1-97 Contract Fee (1.00) $11.17227997 (0.090) 99.910 $1,116.23
12-31-97 Contract Fee (1.00) 13.10996126 (0.076) 99.834 1,308.82
12-31-97 Value before Surr Chg 13.10996126 0.000 99.834 1,308.82
12-31-97 Surrender Charge (51.00) 13.10996126 (3.890) 95.944 1,257.82
Cumulative Total Returns without/with chgs. 31.10% A 25.78% C
Avg. Annual Total Returns without/with chgs. 17.62% B 14.74% D
Global Utilities Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 11.47363453 (0.087) 99.913 1,146.36
1-24-91 Contract Fee (1.00) 11.95102656 (0.084) 99.829 1,193.06
1-24-92 Contract Fee (1.00) 14.20139407 (0.070) 99.759 1,416.71
1-24-93 Contract Fee (1.00) 15.91822229 (0.063) 99.696 1,586.98
1-24-94 Contract Fee (1.00) 16.43119760 (0.061) 99.635 1,637.12
1-24-95 Contract Fee (1.00) 15.48692698 (0.065) 99.571 1,542.04
1-24-96 Contract Fee (1.00) 19.69346882 (0.051) 99.520 1,959.89
1-24-97 Contract Fee (1.00) 20.83359223 (0.048) 99.472 2,072.35
12-31-97 Value before Surr Chg 25.63546176 0.000 99.472 2,550.00
12-31-97 Contract Fee (1.00) 25.63546176 (0.039) 99.433 2,549.00
12-31-97 Surrender Charge 0.00 25.63546176 0.000 99.433 2,549.00
Cumulative Total Returns without/with chgs. 156.35% A 154.90% C
Avg. Annual Total Returns without/with chgs. 11.10% B 11.03% D
Growth and Income
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 9.59756692 (0.104) 99.896 958.76
1-24-91 Contract Fee (1.00) 10.03104257 (0.100) 99.796 1,001.06
1-24-92 Contract Fee (1.00) 12.16171947 (0.082) 99.714 1,212.69
1-24-93 Contract Fee (1.00) 12.57661487 (0.080) 99.634 1,253.06
1-24-94 Contract Fee (1.00) 14.09886247 (0.071) 99.563 1,403.73
1-24-95 Contract Fee (1.00) 13.27759299 (0.075) 99.488 1,320.96
1-24-96 Contract Fee (1.00) 17.25393143 (0.058) 99.430 1,715.56
1-24-97 Contract Fee (1.00) 19.79450666 (0.051) 99.380 1,967.17
12-31-97 Value before Surr Chg 24.35403985 0.000 99.380 2,420.30
12-31-97 Contract Fee (1.00) 24.35403985 (0.041) 99.339 2,419.30
12-31-97 Surrender Charge 0.00 24.35403985 0.000 99.339 2,419.30
Cumulative Total Returns without/with chgs. 143.54% A 141.93% C
Avg. Annual Total Returns without/with chgs. 10.47% B 10.39% D
High Income
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 9.98265449 (0.100) 99.900 997.27
1-24-91 Contract Fee (1.00) 8.98103976 (0.111) 99.788 896.20
1-24-92 Contract Fee (1.00) 11.85616038 (0.084) 99.704 1,182.11
1-24-93 Contract Fee (1.00) 13.39874388 (0.075) 99.630 1,334.91
1-24-94 Contract Fee (1.00) 15.29126669 (0.065) 99.564 1,522.46
1-24-95 Contract Fee (1.00) 14.64571855 (0.068) 99.496 1,457.19
1-24-96 Contract Fee (1.00) 17.40215300 (0.057) 99.438 1,730.44
1-24-97 Contract Fee (1.00) 19.32656477 (0.052) 99.387 1,920.80
12-31-97 Value before Surr Chg 21.14081079 0.000 99.387 2,101.11
12-31-97 Contract Fee (1.00) 21.14081079 (0.047) 99.339 2,100.11
12-31-97 Surrender Charge 0.00 21.14081079 0.000 99.339 2,100.11
Cumulative Total Returns without/with chgs. 111.41% A 110.01% C
Avg. Annual Total Returns without/with chgs. 8.73% B 8.65% D
Income Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.70345941 (0.093) 99.907 1,069.35
1-24-91 Contract Fee (1.00) 9.93454622 (0.101) 99.806 991.53
1-24-92 Contract Fee (1.00) 13.99562082 (0.071) 99.734 1,395.85
1-24-93 Contract Fee (1.00) 15.30544228 (0.065) 99.669 1,525.48
1-24-94 Contract Fee (1.00) 17.64961404 (0.057) 99.612 1,758.12
1-24-95 Contract Fee (1.00) 16.27638185 (0.061) 99.551 1,620.33
1-24-96 Contract Fee (1.00) 20.08267334 (0.050) 99.501 1,998.25
1-24-97 Contract Fee (1.00) 21.74528582 (0.046) 99.455 2,162.68
12-31-97 Value before Surr Chg 24.86373833 0.000 99.455 2,472.83
12-31-97 Contract Fee (1.00) 24.86373833 (0.040) 99.415 2,471.83
12-31-97 Surrender Charge 0.00 24.86373833 0.000 99.415 2,471.83
Cumulative Total Returns without/with chgs. 148.64% A 147.18% C
Avg. Annual Total Returns without/with chgs. 10.73% B 10.65% D
Money Market
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.67178511 (0.094) 99.906 1,066.18
1-24-91 Contract Fee (1.00) 11.31010498 (0.088) 99.818 1,128.95
1-24-92 Contract Fee (1.00) 11.72881708 (0.085) 99.733 1,169.75
1-24-93 Contract Fee (1.00) 11.90009827 (0.084) 99.649 1,185.83
1-24-94 Contract Fee (1.00) 12.02348344 (0.083) 99.565 1,197.12
1-24-95 Contract Fee (1.00) 12.32338409 (0.081) 99.484 1,225.98
1-24-96 Contract Fee (1.00) 12.84105599 (0.078) 99.406 1,276.48
1-24-97 Contract Fee (1.00) 13.29676207 (0.075) 99.331 1,320.78
12-31-97 Value before Surr Chg 13.75569800 0.000 99.331 1,366.37
12-31-97 Contract Fee (1.00) 13.75569800 (0.073) 99.258 1,365.37
12-31-97 Surrender Charge 0.00 13.75569800 0.000 99.258 1,365.37
Cumulative Total Returns without/with chgs. 37.56% A 36.54% C
Avg. Annual Total Returns without/with chgs. 3.63% B 3.54% D
Mutual Discovery Securities
11-8-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
11-8-97 Contract Fee (1.00) 11.82973739 (0.085) 99.915 1,181.97
12-31-97 Contract Fee (1.00) 11.97090670 (0.084) 99.832 1,195.08
12-31-97 Value before Surr Chg 11.97090670 0.000 99.832 1,195.08
12-31-97 Surrender Charge (51.00) 11.97090670 (4.260) 95.572 1,144.08
Cumulative Total Returns without/with chgs. 19.71% A 14.41% C
Avg. Annual Total Returns without/with chgs. 17.01% B 12.47% D
Mutual Shares Securities
11-8-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
11-8-97 Contract Fee (1.00) $11.75083052 (0.085) 99.915 1,174.08
12-31-97 Value before Surr Chg 11.98070033 0.000 99.915 1,197.05
12-31-97 Contract Fee (1.00) 11.98070033 (0.083) 99.831 1,196.05
12-31-97 Surrender Charge (51.00) 11.98070033 (4.257) 95.575 1,145.05
Cumulative Total Returns without/with chgs. 19.81% A 14.51% C
Avg. Annual Total Returns without/with chgs. 17.09% B 12.56% D
Natural Resources Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 12.88562226 (0.078) 99.922 1,287.56
1-24-91 Contract Fee (1.00) 9.76834317 (0.102) 99.820 975.08
1-24-92 Contract Fee (1.00) 10.91292825 (0.092) 99.728 1,088.33
1-24-93 Contract Fee (1.00) 9.12197464 (0.110) 99.619 908.72
1-24-94 Contract Fee (1.00) 14.41516281 (0.069) 99.549 1,435.02
1-24-95 Contract Fee (1.00) 12.96347704 (0.077) 99.472 1,289.51
1-24-96 Contract Fee (1.00) 15.88612084 (0.063) 99.409 1,579.23
1-24-97 Contract Fee (1.00) 13.72771013 (0.073) 99.336 1,363.66
12-31-97 Value before Surr Chg 11.46649607 0.000 99.336 1,139.04
12-31-97 Contract Fee (1.00) 11.46649607 (0.087) 99.249 1,138.04
12-31-97 Surrender Charge 0.00 11.46649607 0.000 99.249 1,138.04
Cumulative Total Returns without/with chgs. 14.66% A 13.80% C
Avg. Annual Total Returns without/with chgs. 1.54% B 1.46% D
Real Estate Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.13076509 (0.099) 99.901 1,012.08
1-24-91 Contract Fee (1.00) 9.36020172 (0.107) 99.794 934.10
1-24-92 Contract Fee (1.00) 12.25114822 (0.082) 99.713 1,221.60
1-24-93 Contract Fee (1.00) 13.49614031 (0.074) 99.639 1,344.74
1-24-94 Contract Fee (1.00) 15.30618064 (0.065) 99.573 1,524.09
1-24-95 Contract Fee (1.00) 14.92840438 (0.067) 99.506 1,485.47
1-24-96 Contract Fee (1.00) 18.04447622 (0.055) 99.451 1,794.54
1-24-97 Contract Fee (1.00) 23.78351943 (0.042) 99.409 2,364.29
12-31-97 Value before Surr Chg 27.94367614 0.000 99.409 2,777.85
12-31-97 Contract Fee (1.00) 27.94367614 (0.036) 99.373 2,776.85
12-31-97 Surrender Charge 0.00 27.94367614 0.000 99.373 2,776.85
Cumulative Total Returns without/with chgs. 179.44% A 177.69% C
Avg. Annual Total Returns without/with chgs. 12.18% B 12.10% D
Rising Dividends
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Contract Fee (1.00) 10.68876950 (0.094) 99.906 1,067.88
1-27-94 Contract Fee (1.00) 10.36623339 (0.096) 99.810 1,034.65
1-27-95 Contract Fee (1.00) 9.94675745 (0.101) 99.709 991.79
1-27-96 Contract Fee (1.00) 12.48933274 (0.080) 99.629 1,244.30
1-27-97 Contract Fee (1.00) 15.20870091 (0.066) 99.564 1,514.23
12-31-97 Value before Surr Chg 19.96761178 0.000 99.564 1,988.05
12-31-97 Contract Fee (1.00) 19.96761178 (0.050) 99.514 1,987.05
12-31-97 Surrender Charge (25.50) 19.96761178 (1.277) 98.236 1,961.55
Cumulative Total Returns without/with chgs. 99.68% A 96.15% C
Avg. Annual Total Returns without/with chgs. 12.37% B 12.03% D
Small Cap
11-1-95 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
11-1-96 Contract Fee (1.00) 12.14713625 (0.082) 99.918 1,213.71
11-1-97 Contract Fee (1.00) 15.53654825 (0.064) 99.853 1,551.38
12-31-97 Value before Surr Chg 14.92280844 0.000 99.853 1,490.09
12-31-97 Contract Fee (1.00) 14.92280844 (0.067) 99.786 1,489.09
12-31-97 Surrender Charge (51.00) 14.92280844 (3.418) 96.369 1,438.09
Cumulative Total Returns without/with chgs. 49.23% A 43.81% C
Avg. Annual Total Returns without/with chgs. 20.29% B 18.25% D
Templeton Developing Markets Equity
3-15-94 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-15-95 Contract Fee (1.00) 8.62058630 (0.116) 99.884 861.06
3-15-96 Contract Fee (1.00) 10.27729571 (0.097) 99.787 1,025.54
3-15-97 Contract Fee (1.00) 12.41978933 (0.081) 99.706 1,238.33
12-31-97 Value before Surr Chg 10.30480726 0.000 99.706 1,027.45
12-31-97 Contract Fee (1.00) 10.30480726 (0.097) 99.609 1,026.45
12-31-97 Surrender Charge (42.50) 10.30480726 (4.124) 95.485 983.95
Cumulative Total Returns without/with chgs. 3.05% A -1.60% C
Avg. Annual Total Returns without/with chgs. 0.79% B -0.42% D
Templeton Global Asset Allocation
5-1-95 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-1-96 Contract Fee (1.00) 11.24184599 (0.089) 99.911 1,123.18
5-1-97 Contract Fee (1.00) 12.74937771 (0.078) 99.833 1,272.80
12-31-97 Value before Surr Chg 13.75214238 0.000 99.833 1,372.91
12-31-97 Contract Fee (1.00) 13.75214238 (0.073) 99.760 1,371.91
12-31-97 Surrender Charge (51.00) 13.75214238 (3.709) 96.051 1,320.91
Cumulative Total Returns without/with chgs. 37.52% A 32.09% C
Avg. Annual Total Returns without/with chgs. 12.67% B 10.98% D
Templeton Global Growth
3-15-94 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-15-95 Contract Fee (1.00) 10.09452231 (0.099) 99.901 1,008.45
3-15-96 Contract Fee (1.00) 11.79417892 (0.085) 99.816 1,177.25
3-15-97 Contract Fee (1.00) 14.06170230 (0.071) 99.745 1,402.58
12-31-97 Value before Surr Chg 15.12444656 0.000 99.745 1,508.59
12-31-97 Contract Fee (1.00) 15.12444656 (0.066) 99.679 1,507.59
12-31-97 Surrender Charge (42.50) 15.12444656 (2.810) 96.869 1,465.09
Cumulative Total Returns without/with chgs. 51.24% A 46.51% C
Avg. Annual Total Returns without/with chgs. 11.50% B 10.57% D
Templeton Global Income Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.85157001 (0.092) 99.908 1,084.16
1-24-91 Contract Fee (1.00) 11.76337661 (0.085) 99.823 1,174.25
1-24-92 Contract Fee (1.00) 12.92541183 (0.077) 99.745 1,289.25
1-24-93 Contract Fee (1.00) 12.75002133 (0.078) 99.667 1,270.76
1-24-94 Contract Fee (1.00) 14.76765782 (0.068) 99.599 1,470.85
1-24-95 Contract Fee (1.00) 13.50498150 (0.074) 99.525 1,344.09
1-24-96 Contract Fee (1.00) 15.35232035 (0.065) 99.460 1,526.94
1-24-97 Contract Fee (1.00) 16.46140335 (0.061) 99.399 1,636.25
12-31-97 Value before Surr Chg 16.82084400 0.000 99.399 1,671.98
12-31-97 Contract Fee (1.00) 16.82084400 (0.059) 99.340 1,670.98
12-31-97 Surrender Charge 0.00 16.82084400 0.000 99.340 1,670.98
Cumulative Total Returns without/with chgs. 68.21% A 67.10% C
Avg. Annual Total Returns without/with chgs. 5.99% B 5.91% D
Templeton International Equity
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Contract Fee (1.00) 9.53509236 (0.105) 99.895 952.51
1-27-94 Contract Fee (1.00) 12.85431852 (0.078) 99.817 1,283.08
1-27-95 Contract Fee (1.00) 11.91221607 (0.084) 99.733 1,188.05
1-27-96 Contract Fee (1.00) 13.52801052 (0.074) 99.659 1,348.19
1-27-97 Contract Fee (1.00) 16.14799023 (0.062) 99.598 1,608.30
12-31-97 Value before Surr Chg 17.61715343 0.000 99.598 1,754.63
12-31-97 Contract Fee (1.00) 17.61715343 (0.057) 99.541 1,753.63
12-31-97 Surrender Charge (25.50) 17.61715343 (1.447) 98.093 1,728.13
Cumulative Total Returns without/with chgs. 76.17% A 72.81% C
Avg. Annual Total Returns without/with chgs. 10.02% B 9.66% D
Templeton International Smaller Companies
5-1-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-1-97 Contract Fee (1.00) $11.32006145 (0.088) 99.912 1,131.01
12-31-97 Value before Surr Chg 10.80891898 0.000 99.912 1,079.94
12-31-97 Contract Fee (1.00) 10.80891898 (0.093) 99.819 1,078.94
12-31-97 Surrender Charge (51.00) 10.80891898 (4.718) 95.101 1,027.94
Cumulative Total Returns without/with chgs. 8.09% A 2.79% C
Avg. Annual Total Returns without/with chgs. 4.77% B 1.67% D
Templeton Pacific Growth
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Contract Fee (1.00) 9.91965141 (0.101) 99.899 990.97
1-27-94 Contract Fee (1.00) 14.07652865 (0.071) 99.828 1,405.23
1-27-95 Contract Fee (1.00) 11.91556247 (0.084) 99.744 1,188.51
1-27-96 Contract Fee (1.00) 14.44474860 (0.069) 99.675 1,439.78
1-27-97 Contract Fee (1.00) 14.58766078 (0.069) 99.606 1,453.03
12-31-97 Value before Surr Chg 9.38089631 0.000 99.606 934.40
12-31-97 Contract Fee (1.00) 9.38089631 (0.107) 99.500 933.40
12-31-97 Surrender Charge (25.50) 9.38089631 (2.718) 96.782 907.90
Cumulative Total Returns without/with chgs. -6.19% A -9.21% C
Avg. Annual Total Returns without/with chgs. -1.07% B -1.62% D
U.S. Government Securities
3-14-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-14-90 Contract Fee (1.00) 10.29864074 (0.097) 99.903 1,028.86
3-14-91 Contract Fee (1.00) 11.44148140 (0.087) 99.815 1,142.04
3-14-92 Contract Fee (1.00) 12.36677937 (0.081) 99.735 1,233.40
3-14-93 Contract Fee (1.00) 14.05074266 (0.071) 99.663 1,400.35
3-14-94 Contract Fee (1.00) 14.20297756 (0.070) 99.593 1,414.52
3-14-95 Contract Fee (1.00) 14.59412892 (0.069) 99.525 1,452.47
3-14-96 Contract Fee (1.00) 15.82460547 (0.063) 99.461 1,573.94
3-14-97 Contract Fee (1.00) 16.60622197 (0.060) 99.401 1,650.68
12-31-97 Value before Surr Chg 17.80492179 0.000 99.401 1,769.83
12-31-97 Contract Fee (1.00) 17.80492179 (0.056) 99.345 1,768.83
12-31-97 Surrender Charge 0.00 17.80492179 0.000 99.345 1,768.83
Cumulative Total Returns without/with chgs. 78.05% A 76.88% C
Avg. Annual Total Returns without/with chgs. 6.77% B 6.69% D
Zero Coupon - 2000
3-14-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-14-90 Contract Fee (1.00) 10.37748201 (0.096) 99.904 1,036.75
3-14-91 Contract Fee (1.00) 11.49325260 (0.087) 99.817 1,147.22
3-14-92 Contract Fee (1.00) 12.63019476 (0.079) 99.737 1,259.70
3-14-93 Contract Fee (1.00) 15.48457708 (0.065) 99.673 1,543.39
3-14-94 Contract Fee (1.00) 15.97181577 (0.063) 99.610 1,590.96
3-14-95 Contract Fee (1.00) 16.16440029 (0.062) 99.548 1,609.14
3-14-96 Contract Fee (1.00) 17.74484226 (0.056) 99.492 1,765.47
3-14-97 Contract Fee (1.00) 18.31427141 (0.055) 99.437 1,821.12
12-31-97 Value before Surr Chg 19.35767222 0.000 99.437 1,924.88
12-31-97 Contract Fee (1.00) 19.35767222 (0.052) 99.386 1,923.88
12-31-97 Surrender Charge 0.00 19.35767222 0.000 99.386 1,923.88
Cumulative Total Returns without/with chgs. 93.58% A 92.39% C
Avg. Annual Total Returns without/with chgs. 7.79% B 7.71% D
Zero Coupon - 2005
3-14-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-14-90 Contract Fee (1.00) 10.38882453 (0.096) 99.904 1,037.88
3-14-91 Contract Fee (1.00) 11.53456820 (0.087) 99.817 1,151.35
3-14-92 Contract Fee (1.00) 12.62819047 (0.079) 99.738 1,259.51
3-14-93 Contract Fee (1.00) 16.36793990 (0.061) 99.677 1,631.50
3-14-94 Contract Fee (1.00) 16.86182251 (0.059) 99.617 1,679.73
3-14-95 Contract Fee (1.00) 17.12592868 (0.058) 99.559 1,705.04
3-14-96 Contract Fee (1.00) 19.37651757 (0.052) 99.507 1,928.11
3-14-97 Contract Fee (1.00) 20.04125698 (0.050) 99.458 1,993.25
12-31-97 Value before Surr Chg 22.35667212 0.000 99.458 2,223.54
12-31-97 Contract Fee (1.00) 22.35667212 (0.045) 99.413 2,222.54
12-31-97 Surrender Charge 0.00 22.35667212 0.000 99.413 2,222.54
Cumulative Total Returns without/with chgs. 123.57% A 122.25% C
Avg. Annual Total Returns without/with chgs. 9.57% B 9.49% D
Zero Coupon - 2010
3-14-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-14-90 Contract Fee (1.00) 10.25922011 (0.097) 99.903 1,024.92
3-14-91 Contract Fee (1.00) 11.34740047 (0.088) 99.814 1,132.63
3-14-92 Contract Fee (1.00) 12.25923536 (0.082) 99.733 1,222.65
3-14-93 Contract Fee (1.00) 16.12714811 (0.062) 99.671 1,607.41
3-14-94 Contract Fee (1.00) 16.82866376 (0.059) 99.611 1,676.33
3-14-95 Contract Fee (1.00) 17.03620553 (0.059) 99.553 1,696.00
3-14-96 Contract Fee (1.00) 19.87163939 (0.050) 99.502 1,977.28
3-14-97 Contract Fee (1.00) 20.61421426 (0.049) 99.454 2,050.16
12-31-97 Value before Surr Chg 24.54360878 0.000 99.454 2,440.96
12-31-97 Contract Fee (1.00) 24.54360878 (0.041) 99.413 2,439.96
12-31-97 Surrender Charge 0.00 24.54360878 0.000 99.413 2,439.96
Cumulative Total Returns without/with chgs. 145.44% A 144.00% C
Avg. Annual Total Returns without/with chgs. 10.73% B 10.66% 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>
