File Nos. 333-19173
811-05716
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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. 26 (X)
(Check appropriate box or boxes.)
PREFERRED LIFE VARIABLE ACCOUNT C
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(Exact Name of Registrant)
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
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(Name of Depositor)
152 West 57th Street, 18th Floor, New York, New York 10019
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(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 15, 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 Immediate Variable Annuity Contracts
CROSS REFERENCE SHEET
(Required by Rule 495)
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ITEM NO. LOCATION
PART A
Item 1. Cover Page.................................. Cover Page
Item 2. Definitions................................. Definitions
Item 3. Synopsis or Highlights...................... Highlights
Item 4. Condensed Financial Information............. Not Applicable
Item 5. General Description of Registrant,
Depositor, and Portfolio Companies.......... The Company; The
Variable Account;
Franklin Valuemark
Funds
Item 6. Deductions.................................. Charges and
Deductions
Item 7. General Description of Variable The Contracts
Annuity Contracts...........................
Item 8. Annuity Period.............................. Annuity Provisions
Item 9. Death Benefit............................... The Contracts;
Annuity Provisions
Item 10. Purchases and Contract Value................ Purchase Payments
and Contract Value
Item 11. Redemptions................................. Surrenders
Item 12. Taxes....................................... Federal Tax Status
Item 13. Legal Proceedings........................... Legal Proceedings
Item 14. Table of Contents of the Statement of
Additional Information Table of Contents
of the Statement of
Additional
Information
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ITEM NO. DEFINITION
PART B
Item 15. Cover Page................................... Cover Page
Item 16. Table of Contents............................ Table of Contents
Item 17. General Information and History.............. The Company
Item 18. Services..................................... Not Applicable
Item 19. Purchase of Securities Being Offered......... Not Applicable
Item 20. Underwriters................................. Distributor
Item 21. Calculation of Performance Data.............. Calculation of
Performance Data
Item 22. Annuity Payments............................. Annuity
Provisions
Item 23. Financial Statements......................... Financial
Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the appropriate
Item so numbered, in Part C to this Registration Statement.
<PAGE>
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
HOME OFFICE: VIP SERVICE CENTER:
152 West 57th Street, 18th Floor P.O. Box 30343
New York, NY 10019 Tampa, FL 33630-3343
(800) 542-5427 (800) 774-5001
INDIVIDUAL IMMEDIATE
VARIABLE ANNUITY CONTRACTS
issued by
PREFERRED LIFE VARIABLE ACCOUNT C
and
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
MAY 15, 1998
The Individual Immediate Variable Annuity Contracts (the "Contracts") described
in this Prospectus provide lifetime income to the Annuitant and Joint Annuitant,
if any, under the Annuity Option selected. The Annuitant is the Contract Owner.
The Contract Owner selects the Annuity Option and the frequency of payment
(e.g., monthly, quarterly, semi-annually, annually).
The Contracts are available for retirement plans which do not qualify for the
special federal tax advantages available under the Internal Revenue Code
("Non-Qualified Contracts"). They can also be purchased as a "Qualified
Contract" that is an Individual Retirement Annuity with contributions
rolled-over from tax-qualified plans such as 403(b) plans, 401 plans, or IRAs.
The Contracts are acquired by the payment of a single purchase payment ("Single
Purchase Payment"). The Single Purchase Payment for the Contracts will be
allocated to a segregated investment account of Preferred Life Insurance Company
of New York (the "Company") which account has been designated Preferred Life
Variable Account C (the "Variable Account") or to the Company's Fixed Payment
Annuity. Any portion of the Purchase Payment selected to be allocated to the
Fixed Payment Annuity will temporarily be allocated to the Money Market
Sub-Account on the Effective Date and will be allocated to the Fixed Payment
Annuity on the Annuity Calculation Date.
The Variable Account invests in shares of Franklin Valuemark Funds (the
"Trust"). The Trust is a series fund with twenty-five Portfolios, seventeen of
which are currently available in connection with the Contracts offered under
this Prospectus: the Capital Growth Fund, the Global Utilities Securities Fund,
the Growth and Income Fund, the Income Securities Fund, the Money Market Fund,
the Mutual Discovery Securities Fund, the Mutual Shares Securities Fund, the
Real Estate Securities Fund, the Rising Dividends Fund, the Small Cap Fund, the
Templeton Developing Markets Equity Fund, the Templeton Global Asset Allocation
Fund, the Templeton Global Growth Fund, the Templeton International Equity Fund,
the Templeton International Smaller Companies Fund, the Templeton Pacific Growth
Fund, and the Value Securities Fund. Prior to May 1, 1998, the Global Utilities
Securities Fund was known as the Utility Equity Fund. THE VALUE SECURITIES FUND
IS NOT AVAILABLE IN NEW YORK UNTIL APPROVED BY THE NEW YORK INSURANCE
DEPARTMENT. (CHECK WITH YOUR REGISTERED REPRESENTATIVE REGARDING AVAILABILITY.)
See "Highlights" and "Federal Tax Status" for a discussion of owner control of
the underlying investments in a variable annuity contract.
Under certain circumstances, Contract Owners may make liquidations after the
Income Date other than the Annuity Payments they will receive under the
Contract. See "Annuity Provisions - Contract Liquidations (Withdrawals)" for
more information regarding the ability to make liquidations under the Contract.
THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
ANY FINANCIAL INSTITUTION AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
INVESTMENT IN THE CONTRACT IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF THE
CONTRACT OWNER'S INVESTMENT TO FLUCTUATE, AND WHEN THE CONTRACTS ARE RETURNED
WITHIN THE FREE LOOK PERIOD, THE REFUND MAY BE HIGHER OR LOWER THAN THE PURCHASE
PAYMENT.
This Prospectus concisely sets forth the information a prospective investor
should know before investing. Additional information about the Contracts is
contained in the "Statement of Additional Information," (SAI) which is available
at no charge. The SAI has been filed with the Securities and Exchange Commission
and is incorporated herein by reference. The 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.
The Table of Contents of the Statement of Additional Information can be found on
the last page of this Prospectus. For a free copy of the SAI, call or write the
VIP Service Center address shown above.
INQUIRIES: Any inquiries can be made by telephone or in writing to the Company
at the VIP Service Center phone number or address listed above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
STATE, COUNTRY OR JURISDICTION IN WHICH THE OFFERING IS UNAUTHORIZED. NO SALES
REPRESENTATIVE, DEALER OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR
MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS.
THIS PROSPECTUS MUST BE ACCOMPANIED BY OR PRECEDED BY A CURRENT PROSPECTUS FOR
FRANKLIN VALUEMARK FUNDS.
This Prospectus and the SAI are dated May 15, 1998, and may be amended from time
to time.
This Prospectus should be kept for future reference.
TABLE OF CONTENTS PAGE
DEFINITIONS 3
HIGHLIGHTS 4
FEE TABLE 5
THE COMPANY 9
THE VARIABLE ACCOUNT 9
FRANKLIN VALUEMARK FUNDS 9
General 10
Substitution of Securities 10
Voting Privileges 10
CHARGES AND DEDUCTIONS 10
Deduction for Mortality and
Expense Risk Charge 10
Deduction for Administrative
Expense Charge 11
Deduction for Income Taxes 11
Deduction for Trust Expenses 11
ANNUITY PROVISIONS 11
Income Date 11
Annuity Options 11
Contract Liquidations (Withdrawals) 12
Determination of Variable
Annuity Payments 13
Determination of Fixed
Annuity Payments 14
THE CONTRACTS 14
Ownership 14
Assignment 14
Beneficiary 15
Change of Beneficiary 15
Death of Beneficiary 15
Annuitant 15
PROCEEDS PAYABLE AT DEATH 15
PURCHASE PAYMENTS
AND CONTRACT VALUE 15
Single Purchase Payment 15
Allocation of Single Purchase Payment 15
Contract Value 16
VIP Unit 16
Transfers 16
DISTRIBUTOR 17
Delay of Payments 17
ADMINISTRATION
OF THE CONTRACTS 17
PERFORMANCE DATA 17
Money Market Sub-Account 17
Other Contract Sub-Accounts 18
Performance Ranking 18
FEDERAL TAX STATUS 18
General 19
Diversification 19
Multiple Contracts 20
Tax Treatment of Distributions -
Non-Qualified Contracts 20
Qualified Plans 20
Tax Treatment of Distributions -
IRA Contracts 21
Tax Treatment of Assignments 22
Income Tax Withholding 22
FINANCIAL STATEMENTS 22
LEGAL PROCEEDINGS 22
APPENDIX -
ILLUSTRATION OF VALUES 22
TABLE OF CONTENTS
OF THE STATEMENT OF
ADDITIONAL INFORMATION 27
DEFINITIONS
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Age - Age to the nearest month unless otherwise specified.
Annuitant - The primary person upon whose continuation of life any annuity
payment involving life contingencies depends. The Contract Owner is the
Annuitant. See also, Joint Annuitant.
Annuity Calculation Date - The date on which the first annuity payment is
calculated which will be no more than 10 business days prior to the Income Date.
Annuity Option - An arrangement under which annuity payments are made under the
Contract.
Annuity Unit - An accounting unit of measure used to calculate annuity payments
after the Annuity Calculation Date.
Assumed Investment Return - The investment return upon which the annuity
payments in the Contract are based.
Company - Preferred Life Insurance Company of New York at its VIP Service Center
shown on the cover page of this Prospectus.
Contract Anniversary - An anniversary of the Effective Date of the Contract.
Contract Owner - The person who owns the Contract as named in the Company's
records. The Annuitant is the Contract Owner.
Contract Sub-Account (referred to in the Contract as "Sub-Account") - A segment
of the Variable Account. Each Contract Sub-Account is invested in shares of a
Portfolio of an Eligible Investment.
Contract Value - The dollar value as of any Valuation Date prior to the Annuity
Calculation Date of all amounts accumulated under the Contract.
Effective Date - The date on which the Net Purchase Payment is allocated to the
Variable Account.
Eligible Investment(s) - An investment entity which can be selected by the
Contract Owner to be the underlying investment of the Contract.
Fixed Payment Annuity (referred to in the Contract as the "Fixed Account") - The
Company's general investment account which contains all the assets of the
Company with the exception of the Variable Account and other segregated asset
accounts.
Income Date - The date on which annuity payments are to begin.
Joint Annuitant - A person other than the Annuitant on whose life annuity
payments may also be based.
Joint Owner - If there is more than one Contract Owner, each Contract Owner
shall be a Joint Owner of the Contract. Joint Owners have equal ownership rights
and must both authorize any exercising of those ownership rights unless
otherwise allowed by the Company. Each Joint Owner must be either an Annuitant
or Joint Annuitant.
Net Asset Value - The total value of the shares of the Eligible Investment or
Portfolio less the liabilities of the Eligible Investment or Portfolio held by
the Contract Sub-Account, as of the close of trading on a Valuation Date.
Non-Qualified Contracts - As used herein, Contracts issued under Non-Qualified
Plans which do not receive favorable tax treatment under Section 408 of the
Internal Revenue Code of 1986, as amended (the "Code").
Portfolio (referred to in the Contract as "Fund") - A segment of an Eligible
Investment which constitutes a separate and distinct class of interests under an
Eligible Investment.
Qualified Contracts - As used herein, Contracts issued under Qualified Plans
which receive favorable tax treatment under Section 408 of the Code.
Valuation Date - The Variable Account will be valued each day that the New York
Stock Exchange is open for trading, which is Monday through Friday, except for
normal business holidays.
Valuation Period - The period beginning at the close of business of the New York
Stock Exchange on each Valuation Date and ending at the close of business for
the next succeeding Valuation Date.
Variable Account - A separate investment account of the Company, designated as
Preferred Life Variable Account C, in which a portion of the Company's assets
has been allocated for the Contracts and certain other contracts.
VIP Unit - An accounting unit of measure used to calculate the Contract Value
prior to the Annuity Calculation Date.
HIGHLIGHTS
- --------------------------------------------------------------------------------
Purchase Payments for the Contracts will be allocated to a segregated investment
account of Preferred Life Insurance Company of New York (the "Company") which
has been designated Preferred Life Variable Account C (the "Variable Account")
or to the Company's Fixed Payment Annuity. Any portion of the Purchase Payment
to be allocated to the Fixed Payment Annuity will temporarily be allocated to
the Money Market Sub-Account on the Effective Date and then will be allocated to
the Fixed Payment Annuity on the Annuity Calculation Date.
The Variable Account invests in shares of Franklin Valuemark Funds (the
"Trust"). (See "Franklin Valuemark Funds.") THE VALUE SECURITIES FUND IS NOT
AVAILABLE IN NEW YORK UNTIL APPROVED BY THE NEW YORK INSURANCE DEPARTMENT.
(CHECK WITH YOUR REGISTERED REPRESENTATIVE REGARDING AVAILABILITY.) CONTRACT
OWNERS BEAR THE INVESTMENT RISK FOR ALL AMOUNTS ALLOCATED TO THE VARIABLE
ACCOUNT.
The Contract may be returned within 10 days after it is received (the "Free-Look
Period"). It can be mailed or delivered to either the Company or the agent who
sold it. Return of the Contract by mail is effective on being postmarked,
properly addressed and postage prepaid. The returned Contract will be treated as
if the Company had never issued it. The Company will promptly refund the net
amount allocated to the Variable Account modified for investment experience plus
any taxes deducted less any benefits paid. This may be more or less than the
Single Purchase Payment. Once the Free-Look Period expires, under certain
circumstances, Contract Owners may make liquidations after the Income Date other
than the Annuity Payments they will receive under the Contract. See "Annuity
Provisions Contract Liquidations (Withdrawals)" for more information regarding
the ability to make liquidations under the Contract. The Company has the right
to allocate the Single Purchase Payment to the Money Market Sub-Account until
the expiration of the Free-Look Period. If the Company does so allocate the
Single Purchase Payment, it will refund the Single Purchase Payment, less any
benefits paid. It is the Company's current practice to directly allocate the
Single Purchase Payment to the Contract Sub-Account(s) (see "Purchase Payments
and Contract Value - Allocation of Purchase Payment") designated by the Contract
Owner.
There is a Mortality and Expense Risk Charge which is equal, on an annual basis,
to 1.25% of the average daily net assets of the Variable Account. This charge
compensates the Company for assuming the mortality and expense risks under the
Contracts. (See "Charges and Deductions - Deduction for Mortality and Expense
Risk Charge.")
There is an Administrative Expense Charge which is equal, on an annual basis, to
0.15% of the average daily net assets of the Variable Account. This charge
compensates the Company for costs associated with the administration of the
Contracts and the Variable Account.
(See "Charges and Deductions - Deduction for Administrative Expense Charge.")
Under certain circumstances, there is a ten percent (10%) federal income tax
penalty that may be applied to the income portion of any distribution from the
Contracts. (See "Tax Status - Tax Treatment of Distributions - Non-Qualified
Contracts" and "Tax Status - Tax Treatment of Distributions - IRA Contracts.")
For a further discussion of the taxation of the Contracts, see "Federal Tax
Status."
The Treasury Department has indicated that guidelines may be forthcoming under
which a variable annuity contract will not be treated as an annuity contract for
tax purposes if the owner of the contract has excessive control over the
investments underlying the contract. The issuance of such guidelines may require
the Company to impose limitations on a Contract Owner's right to control the
investments. It is not known whether any such guidelines would have a
retroactive effect (see "Federal Tax Status - Diversification").
The Company offers deferred variable annuity contracts but does not permit
exchange of those contracts for the Contracts offered by this Prospectus.
Because of certain exemptive and exclusionary provisions, interests in the Fixed
Payment Annuity are not registered under the Securities Act of 1933 and the
Fixed Payment Annuity is not registered as an investment company under the
Investment Company Act of 1940, as amended. Accordingly, neither the Fixed
Payment Annuity nor any interests therein are subject to the provisions of these
Acts, and the Company has been advised that the staff of the Securities and
Exchange Commission has not reviewed the disclosures in the Prospectus relating
to the Fixed Payment Annuity. Disclosures regarding the Fixed Payment Annuity
may, however, be subject to certain generally applicable provisions of the
federal securities laws relating to the accuracy and completeness of statements
made in prospectuses.
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PREFERRED LIFE VARIABLE ACCOUNT C FEE TABLE
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CONTRACT OWNER TRANSACTION FEES
Commutation Fee*
(as a percentage of the Total Liquidation Value liquidated)
CONTRACT YEAR CHARGE
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1 5%
2 5%
3 4%
4 3%
5 2%
6 (& thereafter) 1%
<FN>
*After the first Contract Year, a Contract Owner may request one liquidation
from the Contract each Contract year if Annuity Options 2 or 4 have been
selected. If Annuity Option 6 has been selected, the Contract Owner may request
a liquidation once each Contract Year beginning in the first year. See also
"Annuity Provisions - Contract Liquidations (Withdrawals)".
</FN>
</TABLE>
VARIABLE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Charge.......... 1.25%
Administrative Expense Charge.............. .15%
-----
Total Variable Account Annual Expenses.... 1.40%
The effects of the charges shown above are reflected in the illustrations of
annuity income contained in the Appendix on Page 22. The illustrations are
intended to assist the purchaser in assessing the effects of these charges and
the effect of investment performance on the amount of variable annuity income.
<PAGE>
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<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 "Franklin Valuemark
Funds" in this Prospectus and "Management" in the Trust prospectus.
The "Management and Portfolio Administration Fees" below include investment advisory and
other management and administrative fees not included as "Other Expenses" that were paid
to the Managers and Portfolio Administrators by each Portfolio for the 1997 calendar
year except for newer Portfolios without a full year of operations as of December 31,
1997 (see explanatory footnotes below). The purpose of the Table is to assist the
Contract Owner in understanding the various costs and expenses of investing, directly or
indirectly, in the contract. Actual expenses may be higher or lower than those shown.
MANAGEMENT TOTAL
AND PORTFOLIO OTHER ANNUAL
ADMINISTRATION FEES1 EXPENSES EXPENSES
<S> <C> <C> <C>
Capital Growth Fund............................. .75% .02% .77%
Global Utilities Securities Fund 2.............. .47% .03% .50%
Growth and Income Fund.......................... .47% .02% .49%
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%
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 International Equity Fund............. .80% .09% .89%
Templeton International Smaller Companies Fund.. .85% .21% 1.06%
Templeton Pacific Growth Fund................... .92% .11% 1.03%
Value Securities Fund4.......................... .75% .06% .81%
<FN>
1The Portfolio Administration Fee is a direct expense for the Templeton Global Asset
Allocation Fund, the Templeton International Smaller Companies Fund, the Mutual
Discovery Securities Fund, the Mutual Shares Securities 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.
2Prior to May 1, 1998, the Global Utilities Securities Fund was known as the Utility
Equity Fund.
3Franklin Advisers, Inc. agreed in advance to waive a portion of its Management Fee and
to pay certain expenses of the Money Market Fund during 1997. It is currently continuing
this arrangement in 1998. This arrangement may be terminated at any time. With this
reduction, the Portfolio's actual Total Annual Expenses for 1997 were 0.45% of the
average daily net assets of the Portfolio.
4The Value Securities Fund is not available in New York until approved by the New York
Insurance Department. (Check with your registered representative regarding
availability.) The expenses shown above for this portfolio is therefore estimated for
1998.
</FN>
</TABLE>
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The following examples reflect expenses of the Variable Account as well as of the Trust.
The dollar figures should not be considered a representation of past or future expenses.
Actual expenses may be greater or less than those shown. The examples assume a $1,000
investment with annual payments based on a 15 year Specified Period Certain Annuity
under Annuity Option 6 and 5% Assumed Investment Return. For additional Information, see
"Charges and Deductions" and "Annuity Provisions" in this prospectus and "Management" in
the Trust Prospectus.
Premium taxes are not reflected in the tables. Premium taxes may apply.
EXAMPLES
If the contract is fully surrendered under Annuity Option 6 at the end of the applicable
time period and no prior surrenders have occurred, the Contract Owner would have
incurred the following expenses on a $1,000 investment, including any applicable
commutation fee, assuming a 5% annual return on assets compounded annually:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
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<S> <C> <C> <C> <C>
Capital Growth Fund............................. $67 $88 $99 $140
Global Utilities Securities Fund................ $64 $81 $89 $124
Growth and Income Fund.......................... $64 $81 $89 $124
Income Securities Fund.......................... $64 $81 $89 $124
Money Market Fund............................... $65 $82 $90 $126
Mutual Discovery Securities Fund................ $69 $95 $110 $156
Mutual Shares Securities Fund................... $67 $89 $100 $141
Real Estate Securities Fund..................... $65 $82 $91 $126
Rising Dividends Fund........................... $66 $87 $98 $138
Small Cap Fund.................................. $67 $88 $99 $140
Templeton Developing Markets Equity Fund........ $72 $103 $123 $176
Templeton Global Asset Allocation Fund.......... $68 $92 $105 $149
Templeton Global Growth Fund.................... $68 $90 $103 $146
Templeton International Equity Fund............. $68 $91 $104 $146
Templeton International Smaller Companies Fund.. $69 $95 $110 $156
Templeton Pacific Growth Fund................... $69 $94 $109 $154
Value Securities Fund*.......................... $67 $89 $101 $142
<FN>
*Estimated
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
If the contract is not surrendered under Annuity Option 6 at the end of the applicable
time period and no prior surrenders have occurred, the Contract Owner would have
incurred the following expenses on a $1,000 investment, assuming a 5% annual return on
assets compounded annually:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------------------
<S> <C> <C> <C> <C>
Capital Growth Fund $20 $56 $86 $136
Global Utilities Securities Fund $18 $49 $76 $121
Growth and Income Fund $17 $49 $75 $120
Income Securities Fund $18 $49 $76 $121
Money Market Fund $18 $50 $77 $122
Mutual Discovery Securities Fund $23 $63 $97 $153
Mutual Shares Securities Fund $20 $56 $87 $138
Real Estate Securities Fund $18 $50 $77 $123
Rising Dividends Fund $20 $55 $85 $135
Small Cap Fund $20 $56 $86 $136
Templeton Developing Markets Equity Fund $26 $72 $110 $173
Templeton Global Asset Allocation Fund $22 $60 $92 $146
Templeton Global Growth Fund $21 $58 $90 $143
Templeton International Equity Fund $21 $59 $90 $143
Templeton International Smaller Companies Fund $23 $63 $97 $153
Templeton Pacific Growth Fund $22 $62 $96 $151
Value Securities Fund* $20 $57 $87 $139
<FN>
*Estimated
</FN>
</TABLE>
<PAGE>
THE COMPANY
- --------------------------------------------------------------------------------
Preferred Life Insurance Company of New York (the "Company") is a stock life
insurance company organized under the laws of the State of New York. The Company
is a wholly-owned subsidiary of Allianz Life Insurance Company of North America
("Allianz Life"). Allianz Life is headquartered in Minneapolis, Minnesota. The
Company is authorized to do direct business in six states, including New York.
The Company offers group life, group accident and health insurance and variable
annuity products.
NALAC Financial Plans, LLC is an affiliate of the Company. It provides marketing
services for the Company and is the principal underwriter of the Contracts.
NALAC Financial Plans, LLC is reimbursed for expenses incurred in the
distribution of the Contracts.
Administration for the Contract is provided at the Company's VIP Service Center:
P.O. Box 30343, Tampa, FL 33630-3343, (800) 774-5001.
THE VARIABLE ACCOUNT
- --------------------------------------------------------------------------------
The Variable Account was established pursuant to a resolution of the Board of
Directors on February 26, 1988. The Variable Account is registered with the
Securities and Exchange Commission as a unit investment trust under the
Investment Company Act of 1940, as amended (the "1940 Act").
The assets of the Variable Account are the property of the Company. However, the
assets of the Variable Account equal to the reserves, and other contract
liabilities with respect to the Variable Account, are not chargeable with
liabilities arising out of any other business the Company may conduct. Income,
gains and losses, whether or not realized, are, in accordance with the
Contracts, credited to or charged against the Variable Account without regard to
other income, gains or losses of the Company. The Company's obligations arising
under the Contracts are general corporate obligations.
The Variable Account meets the definition of a "separate account" under the
federal securities laws.
The Variable Account is divided into Contract Sub-Accounts with the assets of
each Contract Sub-Account invested in one of the Portfolios of Franklin
Valuemark Funds.
FRANKLIN VALUEMARK FUNDS
- --------------------------------------------------------------------------------
Seventeen of the twenty-five Portfolios currently available constituting the
Franklin Valuemark Funds are available under the Contracts described in this
Prospectus. THE VALUE SECURITIES FUND IS NOT AVAILABLE IN NEW YORK UNTIL
APPROVED BY THE NEW YORK INSURANCE DEPARTMENT. (CHECK WITH YOUR REGISTERED
REPRESENTATIVE REGARDING AVAILABILITY.) Franklin Valuemark Funds (the "Trust")
is an open-end management investment company registered under the 1940 Act. The
investment objectives of each Portfolio and a discussion of potential risks are
found in the accompanying prospectus for the Trust, which is included with this
Prospectus.
PURCHASERS SHOULD READ THIS PROSPECTUS AND THE ACCOMPANYING PROSPECTUS FOR THE
TRUST CAREFULLY BEFORE INVESTING.
Investment managers for each Portfolio are listed in the table below and are as
follows: Franklin Advisers, Inc. (FA), Franklin Advisory Services, Inc. (FAS),
Franklin Mutual Advisers, Inc. (FMA), Templeton Asset Management Ltd. (TAM),
Templeton Global Advisors Limited (TGA), and Templeton Investment Counsel, Inc.
(TIC). Certain managers have retained one or more affiliated subadvisers.
The following is a list of the Portfolios available under the Contract:
INVESTMENT
AVAILABLE PORTFOLIOS MANAGERS
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PORTFOLIO SEEKING STABILITY
OF PRINCIPAL AND INCOME
Money Market Fund FA
PORTFOLIOS SEEKING
GROWTH AND INCOME
Global Utilities Securities Fund
(formerly, Utility Equity Fund) FA
Growth and Income Fund FA
Income Securities Fund FA
Mutual Shares Securities Fund FMA
Real Estate Securities Fund FA
Rising Dividends Fund FAS
Templeton Global Asset Allocation Fund TGA
Value Securities Fund FAS
PORTFOLIOS SEEKING
CAPITAL GROWTH
Capital Growth Fund FA
Mutual Discovery Securities Fund FMA
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
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GENERAL
There is no assurance that the investment objectives of any of the Portfolios
will be met. Contract Owners bear the complete investment risk.
Additional Portfolios and/or additional Eligible Investments may, from time to
time, be made available as investments to underlie the Contract. However, the
right to make such selections will be limited by the terms and conditions
imposed on such transactions by the Company. (See "Purchase Payments and
Contract Value Allocation of Purchase Payment.")
SUBSTITUTION OF SECURITIES
The Company may substitute one of the Portfolios Contract Owners have selected
with another Portfolio. The Company would not do this without the prior approval
of the Securities and Exchange Commission. The Company will give Contract Owners
notice of its intention to do this.
VOTING PRIVILEGES
In accordance with its view of present applicable law, the Company will vote the
shares of the Trust held in the Variable Account at special meetings of the
shareholders of the Trust in accordance with instructions received from persons
having the voting interest in the Variable Account. The Company will vote shares
for which it has not received instructions, as well as shares attributable to
it, in the same proportion as it votes shares for which it has received
instructions. The Trust does not hold regular meetings of shareholders.
The number of shares which a person has a right to vote will be determined as of
a date to be chosen by the Company not more than sixty (60) days prior to the
meeting of the Trust. Voting instructions will be solicited by written
communication at least fourteen (14) days prior to the meeting.
Trust shares are issued and redeemed only in connection with variable annuity
contracts and variable life insurance policies issued through separate accounts
of the Company and its affiliates. The Trust does not foresee any disadvantage
to Contract Owners arising out of the fact that the Trust may be made available
to separate accounts which are used in connection with both variable annuity and
variable life insurance products. Nevertheless, the Trust's Board of Trustees
intends to monitor events in order to identify any material irreconcilable
conflicts which may possibly arise and to determine what action, if any, should
be taken in response thereto. If such a conflict were to occur, one of the
separate accounts might withdraw its investment in the Trust. This might force
the Trust to sell portfolio securities at disadvantageous prices.
CHARGES AND DEDUCTIONS
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Various charges and deductions are made from the Single Purchase Payment and the
Variable Account. These charges and deductions are:
DEDUCTION FOR MORTALITY AND EXPENSE RISK CHARGE
The Company deducts on each Valuation Date a Mortality and Expense Risk Charge
which is equal, on an annual basis, to 1.25% of the average daily net assets of
the Variable Account. The mortality risks assumed by the Company arise from its
contractual obligation to make annuity payments for the life of the Annuitant in
accordance with annuity rates guaranteed in the Contracts. The expense risk
assumed by the Company is that all actual expenses involved in administering the
Contracts, including Contract maintenance costs, administrative costs, mailing
costs, data processing costs, legal fees, accounting fees, filing fees, and the
costs of other services may exceed the amount recovered from the Administrative
Expense Charge.
The Mortality and Expense Risk Charge is guaranteed by the Company and cannot be
increased.
The Mortality and Expense Risk Charge is assessed both before and after the
Income Date. The Company will continue to assess the Mortality and Expense Risk
Charge during payment of an Annuity Option that does not involve a life
contingency even though it no longer bears any mortality risk on such payment
obligation.
DEDUCTION FOR ADMINISTRATIVE EXPENSE CHARGE
The Company deducts on each Valuation Date an Administrative Expense Charge
which is equal, on an annual basis, to 0.15% of the average daily net assets of
the Variable Account. This charge is to reimburse the Company for the expenses
it incurs in the establishment and maintenance of the Contracts and the Variable
Account. These expenses include, but are not limited to: preparation of the
Contracts, confirmations, annual reports and statements, maintenance of Contract
records, maintenance of Variable Account records, administrative personnel
costs, mailing costs, data processing costs, legal fees, accounting fees, filing
fees, the costs of other services necessary for Contract servicing, and all
accounting, valuation, regulatory and reporting requirements.
DEDUCTION FOR INCOME TAXES
While the Company is not currently maintaining a provision for federal income
taxes, the Company has reserved the right to establish a provision for income
taxes if it determines, in its sole discretion, that it will incur a tax as a
result of the operation of the Variable Account. The Company will deduct for any
income taxes incurred by it as a result of the operation of the Variable Account
whether or not there was a provision for taxes and whether or not it was
sufficient.
DEDUCTION FOR TRUST EXPENSES
There are other deductions from the assets of Franklin Valuemark Funds for
operating expenses (including management fees) which are described in the
accompanying Trust Prospectus.
ANNUITY PROVISIONS
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INCOME DATE
The Income Date is the date on which annuity payments begin. The Contract Owner
selects an Income Date at the time of issue. The Income Date must be the first
or fifteenth day of a calendar month and not later than 60 days from the
Effective Date.
ANNUITY OPTIONS
The Contract provides for an Annuity under any of the Annuity Options described
below, provided the Annuitant or any Joint Annuitant is alive on the Income
Date. Except for Annuity Option 6, once selected the Option is irrevocable. The
amount of each payment depends upon the Annuity Option chosen and for Annuity
Options 1-5, the Annuitant's and any Joint Annuitant's Age on the Annuity
Calculation Date. Annuity payments from the Variable Account will vary with the
investment experience of the Contract Sub-Accounts and may be either higher or
lower than the first payment. Annuity payments from the Fixed Payment Annuity
will be equal payments unless otherwise specified by the Annuity Option
selected. Annuity payments may come from the Fixed and/or Variable Account under
all Annuity options (except annuity payments under Option 6 may only come from
the Variable Account).
The Annuity Options currently available are:
OPTION 1 - LIFE ANNUITY. Monthly annuity payments are paid during the life of
the Annuitant ceasing with the last annuity payment due prior to the Annuitant's
death.
OPTION 2 - LIFE ANNUITY WITH 60, 120, 180, OR 240 MONTHLY PAYMENTS GUARANTEED.
Monthly annuity payments are paid during the life of an Annuitant with a
guarantee that if, at the Annuitant's death, annuity payments have been made for
less than a 60, 120, 180 or 240 month period as elected, then annuity payments
will be continued thereafter to the Beneficiary for the remainder of the
guaranteed period. The Beneficiary may elect to have the present value
(determined as set forth in the Contract) of the guaranteed annuity payments
remaining commuted and paid in a lump sum, less the applicable commutation fee
of 5% of the proceeds in Contract Years 1 and 2 reducing by 1% per year until it
is 1% for Contract Year 6 and thereafter (subject to applicable state law and
regulation). Variable payments will be commuted at the Assumed Investment
Return. Fixed payments will be commuted using an indexed rate. The Company will
require the return of the Contract and proof of death prior to the payment of
any commuted values.
OPTION 3 - JOINT AND LAST SURVIVOR ANNUITY. Monthly annuity payments are paid
during the joint lifetime of the Annuitant and the Joint Annuitant. Upon the
death of the Annuitant, if the Joint Annuitant is then living, payments will be
paid thereafter during the remaining lifetime of the Joint Annuitant at a level
of 100%, 75% or 50% of the original level as elected. Monthly payments cease
with the final annuity payment due prior to the last surviving Annuitant's
death.
OPTION 4 - JOINT AND LAST SURVIVOR ANNUITY WITH 60, 120, 180 OR 240 MONTHLY
PAYMENTS GUARANTEED. Monthly annuity payments are paid during the joint lifetime
of the Annuitant and the Joint Annuitant. Monthly payments are paid thereafter
during the remaining lifetime of the Joint Annuitant at 100% of the original
level. If, after the death of both the Annuitant and the Joint Annuitant,
annuity payments have been made for less than a 60, 120, 180 or 240 month period
as elected, then annuity payments will be continued thereafter to the
Beneficiary for the remainder of the guaranteed period. The Beneficiary may
elect to have the present value (determined as set forth in the Contract) of the
guaranteed annuity payments remaining commuted and paid in a lump sum, less the
applicable commutation fee of 5% of the proceeds in Contract Years 1 and 2
reducing by 1% per year until it is 1% for Contract Year 6 and thereafter
(subject to applicable state law and regulation). Variable payments will be
commuted at the Assumed Investment Return. Fixed payments will be commuted using
an indexed rate. The Company will require the return of the Contract and proof
of death prior to the payment of any commuted values.
OPTION 5 - REFUND LIFE ANNUITY. Monthly annuity payments are paid during the
life of the Annuitant ceasing with the last annuity payment due prior to the
Annuitant's death with a guarantee that, at the Annuitant's death, the
Beneficiary will receive a single cash payment (refund) equal to the sum of (a)
and (b) (if positive), where (a) is the dollar value of the number of Annuity
Units equal to the total Annuity Units purchased in the Variable Account on the
Effective Date, minus the total number of Annuity Units which have been
transferred to the Fixed Payment Annuity or paid as annuity payments; and (b) is
the dollar value of the portion of the Net Purchase Payment allocated to the
Fixed Payment Annuity, plus the amounts transferred from the Variable Account to
the Fixed Payment Annuity, minus the sum of the annuity payments made from the
Fixed Payment Annuity. This calculation assumes that the allocation of Annuity
Units actually in force at the time of the Annuitant's death had been the
allocation of Annuity Units at issue and at all times thereafter.
OPTION 6 - SPECIFIED PERIOD CERTAIN ANNUITY. Monthly annuity payments are paid
for a specified period of time. The Specified Period Certain is elected by the
Contract Owner and must be specified as a whole number of years from 5 to 30. If
at the time of the last death of the Annuitant and any Joint Annuitant, the
annuity payments actually made have been for less than the Specified Period
Certain, then annuity payments will be continued thereafter to the Beneficiary
for the remainder of the Specified Period Certain. Option 6 is only available
when the entire annuity payment is allocated to the Variable Account. OPTION 6
IS NOT AVAILABLE UNTIL APPROVED BY THE NEW YORK INSURANCE DEPARTMENT.
After the first Contract Anniversary, an Option 6 payout can be exchanged for a
life contingent payout (Options 1-5) if the Total Liquidation Value is at least
$25,000 and in the case of a Non-Qualified Contract the Contract Owner has
attained age 591/2 and in the case of a Qualified Contract the exchange is made
after the later of the Contract Owner attaining age 591/2 or 5 years from the
date of the first annuity payment, and prior to the year in which the Contract
Owner reaches age 701/2. The annuity purchase rates used will be those that were
in effect as of the original Effective Date of the Option 6 Contract. A new
Contract will be exchanged for the existing Contract which must be returned to
the Company. The Contract Owner/Annuitant and Joint Annuitant, if any, must be
the same under both Contracts.
CONTRACT LIQUIDATIONS (WITHDRAWALS)
Annuity Options 2 and 4
If the Contract Owner has selected Annuity Option 2 or 4 and has a portion of
the annuity payments coming from the Variable Account, partial liquidations
(withdrawals) from the Contract may be made after the first Contract Year as
follows. During the lifetime of the Annuitant(s) and while the number of annuity
payments made is less than the guaranteed number of payments elected, the
Contract Owner may once each Contract Year request a liquidation representing a
partial liquidation of the Total Liquidation Value. (Total Liquidation Value is
referred to as "Total Withdrawal Value" in your Contract and endorsement.) The
Total Liquidation Value is equal to the present value of the remaining
guaranteed annuity payments from the Variable Account, to the end of the period
certain, commuted at the Assumed Investment Return less a commutation fee of 5%
of the amount liquidated in Contract Year 2 and reducing by 1% per year until it
is 1% for Contract Year 6 and thereafter. The commutation fee is a charge
collected by the Company equal to a percentage of the Total Liquidation Value
liquidated. Partial liquidations will be processed on the next Annuity
Calculation Date following the Contract Owner's written request. After a partial
liquidation, the subsequent monthly annuity payment during the guaranteed period
certain originating from the Variable Account will be reduced by the percentage
of the variable portion of the Total Liquidation Value liquidated, including the
commutation fee. After the guaranteed number of payments has been paid, the
number of Annuity Units used in calculating the monthly payments will be
restored to their original value as if no liquidations had taken place. The
total amount allowed to be liquidated as a cumulative percentage of the Total
Liquidation Value is guaranteed to be not less than 25%. Currently, you may
liquidate up to 75% of the Total Liquidation Value, which amount may be changed
by the Company. The minimum allowable partial liquidation is the lesser of
$2,500 or the remaining portion of the Total Liquidation Value available to be
liquidated. PARTIAL LIQUIDATIONS ARE NOT AVAILABLE UNTIL APPROVED BY THE NEW
YORK INSURANCE DEPARTMENT.
Annuity Option 6
If the Contract Owner has selected Annuity Option 6, liquidations (withdrawals)
from the Contract may be made as follows. Currently, Contract Owners are
permitted one liquidation per Contract Year up to the Total Liquidation Value in
the Contract. The Total Liquidation Value is equal to the present value of the
remaining annuity payments, to the end of the Specified Period Certain, commuted
at the Assumed Investment Return, less a commutation fee of 5% of the amount
liquidated in Contract Years 1 and 2 and reducing by 1% per year until it is 1%
for Contract Year 6 and thereafter. The Company reserves the right to restrict
the amount of a partial liquidation to a minimum of $2,500. The Company may
require a complete liquidation if the remaining Total Liquidation Value after a
requested partial liquidation would be less than $35,000. Partial liquidations
will be processed on the next Annuity Calculation Date following the Contract
Owner's written request. The Company will require the return of the Contract
prior to the payment of the entire commuted value. CURRENTLY, ANNUITY OPTION 6
IS NOT AVAILABLE UNTIL APPROVED BY THE NEW YORK INSURANCE DEPARTMENT.
See "Federal Tax Status - Tax Treatment of Distributions - Non-Qualified
Contracts" and "Federal Tax Status - Tax Treatment of Distributions - IRA
Contracts" for a discussion of the tax treatment of liquidations from the
Contracts.
DETERMINATION OF VARIABLE ANNUITY PAYMENTS
On the Annuity Calculation Date, a fixed number of Annuity Units will be
purchased, determined as follows:
The first annuity payment is equal to the Contract Value allocated to the
Variable Account divided first by $1,000 and then multiplied by the appropriate
annuity payment amount for each $1,000 of value for the Annuity Option selected.
In each Contract Sub-Account the fixed number of Annuity Units is determined by
dividing the amount of the initial annuity payment determined for each Contract
Sub-Account by the Annuity Unit value on the Annuity Calculation Date.
Thereafter, the number of Annuity Units in each Contract Sub-Account remains
unchanged unless the Contract Owner elects to transfer between Contract
Sub-Accounts. All calculations will appropriately reflect the annuity payment
frequency selected.
On each subsequent annuity payment date, the total annuity payment is the sum of
the annuity payments determined for each Contract Sub-Account. The annuity
payment in each Contract Sub-Account is determined by multiplying the number of
Annuity Units then allocated to such Contract Sub-Account by the Annuity Unit
value for that Contract Sub-Account. See the Statement of Additional Information
for a more detailed discussion on how Annuity Units are valued.
For each Contract Sub-Account, the value of an Annuity Unit was initially set
arbitrarily. On each subsequent Valuation Date the value of an Annuity Unit is
determined in the following way:
FIRST: The Net Investment Factor is determined by dividing (a) by (b) and adding
(c) to the result, where:
a. is the net increase or decrease in the Net Asset Value per share of the
Portfolio (or other Eligible Investment) plus the per share amount of any
dividend or capital gain distribution paid by the Portfolio (or Eligible
Investment) during the Valuation Period, plus or minus a per share charge
or credit for any taxes incurred by or reserved for in the Contract
Sub-Account as of the end of the current Valuation Period which the Company
determines to have resulted from maintenance of the Contract Sub-Account;
and
b. is the Net Asset Value per share of the Portfolio (or other Eligible
Investment) at the beginning of the Valuation Period, plus or minus a per
share charge or credit for any taxes incurred by or reserved for in the
Contract Sub-Account as of the end of the immediately preceding Valuation
Period which the Company determines to have resulted from maintenance of
the Contract Sub-Account; and
c. is the net result of 1.000 less the Valuation Period deduction for the
charges to the Contract Sub-Account.
The Net Investment Factor may be more or less than one.
SECOND: The value of an Annuity Unit for a Valuation Date is equal to:
a. the value of the Annuity Unit on the immediately preceding Valuation Date;
b. multiplied by the Net Investment Factor for the Valuation Period ending on
the current Valuation Date;
c. divided by the Assumed Net Investment Factor (see below) for the Valuation
Period.
The Assumed Net Investment Factor is equal to one plus the Assumed Investment
Return which is used in determining the basis for the purchase of an Annuity,
adjusted to reflect the particular Valuation Period. For example, with a 5%
Assumed Investment Return, the Assumed Net Investment Factor for a one-year
Valuation Period would be 1.05. For a one-day Valuation Period, the Assumed Net
Investment Factor would be 1.00013368062.
The Assumed Investment Return is the investment return upon which annuity
payments are based. Income will increase from one annuity Income Date to the
next if the annualized net rate of return during that time is greater than the
Assumed Investment Return and will decrease if the annualized net rate of return
is less than the Assumed Investment Return.
A Contract Owner may choose either a 5% or a 3% Assumed Investment Return. If
the Contract Owner does not choose one, the 5% Assumed Investment Return
automatically applies. Choosing the 5% Assumed Investment Return instead of the
3% Assumed Investment Return will result in a higher initial amount of income,
but income will increase more slowly during periods of good investment
performance of the Trust and decrease more rapidly during periods of poor
investment performance.
The variable annuity benefits provided for under the Contract are based upon:
(a) the 1983(a) Blended Unisex Mortality Table with 50% female content,
projected to the year 2000 with Projection Scale G; (b) the Assumed Investment
Return, and (c) any applicable taxes.
DETERMINATION OF FIXED ANNUITY PAYMENTS
On the Annuity Calculation Date, a stream of annuity payments is purchased. The
amount of the fixed annuity payment will be the value in the Contract allocated
to the Fixed Payment Annuity, divided by $1,000, then multiplied by the
appropriate factor for the Annuity Option selected.
THE CONTRACTS
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OWNERSHIP
The Annuitant is the Contract Owner. The Contract Owner exercises all the rights
of the Contract, subject to the rights of (1) any assignee under an assignment
filed with the Company's VIP Service Center, and (2) any irrevocably named
Beneficiary.
Upon the death of the Contract Owner, the Joint Annuitant, if not already a
Joint Owner, will become the Contract Owner. On or after the Income Date, if
there is no Joint Annuitant or upon the death of the Joint Annuitant, the
Beneficiary(ies) become the Owner(s) of their respective shares.
IF THE CONTRACT OWNER DIES BEFORE THE INCOME DATE AND THERE IS NO JOINT
ANNUITANT, THE CONTRACT WILL BE TREATED AS IF IT HAD NEVER BEEN ISSUED AND THE
COMPANY WILL RETURN THE SINGLE PURCHASE PAYMENT TO THE CONTRACT OWNER'S ESTATE.
ASSIGNMENT
The Contract Owner may assign the Contract. A copy of any assignment must be
filed with the Company's VIP Service Center. The Company is not responsible for
the validity of any assignment. If the Contract is assigned, the Contract
Owner's rights and those of any revocably-named person will be subject to the
assignment. An assignment will not affect any payments the Company may make or
actions it may take before such assignment has been recorded at its VIP Service
Center.
If the Contract is issued pursuant to a qualified plan, it may not be assigned,
pledged or otherwise transferred except as may be allowed under applicable law.
BENEFICIARY
One or more Beneficiaries and/or Contingent Beneficiaries are named by the
Contract Owner and are entitled to receive any death benefits to be paid.
CHANGE OF BENEFICIARY
The Contract Owner may change a Beneficiary or Contingent Beneficiary by filing
a written request with the Company at its VIP Service Center unless an
irrevocable Beneficiary designation was previously filed. After the change is
recorded, it will take effect as of the date the request was signed. If the
request reaches the VIP Service Center after the Contract Owner dies but before
any payment to a Beneficiary is made, the change will be valid. The Company will
not be liable for any payment made or action taken before it records the change.
DEATH OF BENEFICIARY
Unless the Contract Owner provided otherwise, any amount payable after his/her
death and that of any Joint Annuitant will be payable:
(1) in respective shares to such Beneficiaries as are then living;
(2) if no Beneficiary is then living, payment will be made in respective shares
to such Contingent Beneficiaries as are then living;
(3) if no Beneficiary or Contingent Beneficiary is then living, payment will be
made to the Contract Owner's estate.
ANNUITANT
The Annuitant is the primary person upon whose continuation of life any annuity
payment involving life contingencies depends. The Contract Owner is the
Annuitant. A Joint Annuitant is a person other than the Annuitant on whose life
annuity payments may also be based. The Annuitant, and any Joint Annuitant, must
be a natural person.
PROCEEDS PAYABLE AT DEATH
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IF THE CONTRACT OWNER DIES BEFORE THE INCOME DATE AND THERE IS NO JOINT
ANNUITANT, THE CONTRACT WILL BE TREATED AS IF IT HAD NEVER BEEN ISSUED AND THE
COMPANY WILL RETURN THE SINGLE PURCHASE PAYMENT TO THE CONTRACT OWNER'S ESTATE.
If the Contract Owner has chosen either Option 3, Option 4 or Option 6 with a
Joint Annuitant and either the Contract Owner or the Joint Annuitant dies before
the Income Date, the Annuity Option will be changed to Option 2 with 120 monthly
payments guaranteed. If the life expectancy of the survivor is less than 120
months, the period of guaranteed payments will be 60 months.
If the Contract Owner or Joint Annuitant die on or after the Income Date, the
death benefit, if any, will be payable under the selected Annuity Option. The
Company will require proof of death. Payment of the death benefit may be delayed
pending receipt of any applicable tax consents and/or forms from a state.
PURCHASE PAYMENTS AND CONTRACT VALUE
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SINGLE PURCHASE PAYMENT
The Single Purchase Payment is paid to the Company at its VIP Service Center.
The minimum purchase payment the Company will accept is $35,000. Contract Owners
can acquire more than one Contract and the Single Purchase Payment for each need
not be $35,000 if the average purchase payment for each Contract is $35,000 or
more. Neither the Variable Account nor the Trust is designed for professional
market timing organizations, other entities, or persons using programmed, large,
or frequent transfers.
ALLOCATION OF SINGLE PURCHASE PAYMENT
The Single Purchase Payment is allocated to one or more of the Contract
Sub-Accounts of the Variable Account on the Effective Date. Any portion of the
Net Purchase Payment selected to be allocated to the Fixed Payment Annuity will
temporarily be allocated to the Money Market Sub-Account on the Effective Date
and will be allocated to the Fixed Payment Annuity on the Annuity Calculation
Date. The requested allocation to each Contract Sub-Account is made in
percentages of the Single Purchase Payment. Whole percentages must be used and
each must be at least 10%. The Company has the right to allocate the Single
Purchase Payment to the Money Market Sub-Account until the expiration of the
Free-Look Period. Thereafter, the allocations will be made to one or more of the
Contract Sub-Accounts as selected by the Contract Owner. The Company reserves
the right to limit the number of Contract Sub-Accounts that a Contract Owner may
invest in at any one time. Currently, the Contract Owner may select up to ten
Contract Sub-Accounts.
When all forms required to issue the Contract are received and in good order,
the Company will apply the Single Purchase Payment to the Variable Account and
credit the Contract with VIP Units within two business days of receipt.
In addition to the underwriting requirements of the Company, good order means
that the Company has received federal funds (monies credited to a bank's account
with its regional Federal Reserve Bank). The Company requires proof,
satisfactory to it, of the Age of the Annuitant and any Joint Annuitant. The
Company will not issue a Contract if either the Annuitant or the Joint Annuitant
are over Age 90. If the required forms for the Contract are not in good order,
the Company will attempt to get them in good order or the Company will return
the form(s) and the purchase payment within five business days. The Company will
not retain the Single Purchase Payment for more than five business days while
processing incomplete forms unless it has been so authorized by the purchaser.
CONTRACT VALUE
The Purchase Payment is allocated among the various Contract Sub-Accounts within
the Variable Account. For each Contract Sub-Account, the Purchase Payment is
converted into VIP Units. The Contract Value on or before the Annuity
Calculation Date is the sum of the values for the Contract within each Contract
Sub-Account. The value within each Contract Sub-Account is determined by
multiplying the number of VIP Units attributable to the Contract in the Contract
Sub-Account by the VIP Unit value for the Contract Sub-Account. On the Annuity
Calculation Date, the Contract Value is converted to annuity payments. After the
Annuity Calculation Date, there is no Contract Value.
VIP UNIT
When the Purchase Payment is allocated to the Variable Account, the amount
allocated to each Contract Sub-Account is converted to VIP Units. The number of
VIP Units credited to each Contract Sub-Account is determined by dividing the
portion of the Purchase Payment that is allocated to the Contract Sub-Account by
the value of the VIP Unit for the Contract Sub-Account as of the Effective Date.
The VIP Unit value for each Contract Sub-Account was arbitrarily set initially.
The VIP Unit value for any later Valuation Period on or before the Annuity
Calculation Date is determined by subtracting (b) from (a) and dividing the
result by (c) where:
a. is the net result of
1) the assets of the Contract Sub-Account attributable to VIP Units
(i.e., the aggregate value of the underlying Eligible Investments held
at the end of such Valuation Period); plus or minus
2) the cumulative charge or credit for taxes reserved which is determined
by the Company to have resulted from the operation of the Contract
Sub-Account;
b. is the cumulative unpaid charge for the Mortality and Expense Risk Charge and
for the Administrative Expense Charge (See "Charges and Deductions"); and
c. is the number of VIP Units outstanding at the end of such Valuation Period.
The VIP Unit value may increase or decrease from Valuation Period to Valuation
Period.
TRANSFERS
The Contract Owner may transfer all or part of the Contract Owner's interest in
a Contract Sub-Account to another Contract Sub-Account without the imposition of
any fee or charge. No transfers may take place from the Fixed Payment Annuity to
the Variable Account.
Neither the Variable Account nor the Trust is designed for professional market
timing organizations, other entities, or persons using programmed, large, or
frequent transfers. A pattern of exchanges that coincides with a "market timing"
strategy may be disruptive to a Portfolio and may be refused. Accounts under
common ownership or control may be aggregated for purposes of transfer limits.
In coordination with the Trust, the Company reserves the right to restrict the
transfer privilege or reject any specific purchase payment allocation request
for any person, if, in the Portfolio manager's judgment, a Portfolio would be
unable to invest effectively in accordance with its investment objectives and
policies, or would otherwise potentially be adversely affected.
All transfers are subject to the following:
a. no partial transfer will be made if it would result in any selected
Contract Sub-Account or the Fixed Payment Annuity providing less than 10%
of the benefits under the Contract.
b. transfers will be effected during the Valuation Period next following
receipt by the Company of a written transfer request (or by telephone, if
authorized) containing all required information. No transfers may occur
until the end of the Free-Look Period. (See "Highlights.")
c. any transfer direction must clearly specify the new allocation
percentage(s) and the Contract Sub-Accounts and/or the Fixed Payment
Annuity which are to be re-allocated.
d. at least one allocation to the Fixed Payment Annuity is permitted. Both the
initial allocation to the Fixed Payment Annuity and each transfer to the
Fixed Payment Annuity will be treated as an allocation.
e. the Company reserves the right to limit the number of transfers among
Contract Sub-Accounts to not fewer than 12 transfers per calendar year. The
Company also reserves the right at any time and without prior notice to any
party to modify the transfer provisions described above, subject to
applicable state law and regulation.
A Contract Owner may elect to make transfers by telephone. To elect this option
the Contract Owner must do so in writing to the Company. If there are Joint
Owners, unless the Company is informed to the contrary, instructions will be
accepted from either one of the Joint Owners. The Company will use reasonable
procedures to confirm that instructions communicated by telephone are genuine.
If it does not, the Company may be liable for any losses due to unauthorized or
fraudulent instructions. The Company tape records all telephone instructions.
DISTRIBUTOR
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NALAC Financial Plans, LLC ("NFP"), 1750 Hennepin Avenue, Minneapolis, Minnesota
55403, acts as the distributor of the Contracts. NFP is an affiliate of the
Company. The Contracts are offered on a continuous basis. NFP has subcontracted
with Franklin Advisers, Inc. ("Advisers") for it and/or certain of its
affiliates to provide certain marketing support services and NFP compensates
these entities for their services. Commissions and expense reimbursements will
be paid to broker-dealers who sell the Contracts. Broker-dealers will be paid
commissions at the time of purchase up to 4% of the Single Purchase Payment.
DELAY OF PAYMENTS
The Company reserves the right to suspend or postpone payments for any period
when:
1. the New York Stock Exchange is closed (other than customary weekend and
holiday closings);
2. trading on the New York Stock Exchange is restricted;
3. an emergency exists as a result of which disposal of securities held in the
Variable Account is not reasonably practicable or it is not reasonably
practicable to determine the value of the Variable Account's net assets; or
4. during any other period when the Securities and Exchange Commission, by
order, so permits for the protection of Contract Owners. The applicable
rules and regulations of the Securities and Exchange Commission will govern
as to whether the conditions described in 2 and 3 exist.
The Company reserves the right to postpone liquidations from the Fixed Payment
Annuity for a period up to six months.
ADMINISTRATION OF THE CONTRACTS
- --------------------------------------------------------------------------------
While the Company has primary responsibility for all administration of the
Contracts, it has retained the services of Templeton Funds Annuity Company
("TFAC" or "VIP Service Center") pursuant to an Administration Agreement. Such
administrative services include issuance of the Contracts and maintenance of
Contract Owners' records. The Company pays all fees and charges of TFAC. TFAC is
an indirect wholly-owned subsidiary of Franklin Resources, Inc. which is also
the ultimate parent of all managers to the Trust. TFAC will enter into a
reinsurance agreement with the Company with respect to certain risks under the
Contracts.
PERFORMANCE DATA
- --------------------------------------------------------------------------------
MONEY MARKET SUB-ACCOUNT
From time to time, the Company may advertise the "yield" and "effective yield"
of the Money Market Sub-Account. Both yield figures will be based on historical
earnings and are not intended to indicate future performance. The "yield" of the
Money Market Sub-Account refers to the income generated by Contract Values in
the Money Market Sub-Account over a seven-day period (which period will be
stated in the advertisement). This income is then "annualized." That is, the
amount of income generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
Contract Values in the Money Market Sub-Account. The "effective yield" is
calculated similarly but, when annualized, the income earned by Contract Values
in the Money Market Sub-Account is assumed to be reinvested. The "effective
yield" will be slightly higher than the "yield" because of the compounding
effect of this assumed reinvestment. The computation of the yield calculation
includes a deduction for the Mortality and Expense Risk Charge and
Administrative Expense Charge.
OTHER CONTRACT SUB-ACCOUNTS
From time to time, the Company may publish the current yields and total returns
of the other Contract Sub-Accounts in sales literature, advertisements and
communications to Contract Owners. The current yield for each Contract
Sub-Account will be calculated by dividing the annualization of the interest
income earned by the underlying Portfolio during a recent 30-day period by the
maximum VIP Unit value at the end of such period. Total return information will
include the Contract Sub-Account's average annual total return over the most
recent four calendar quarters, and, for Contract Sub-Accounts in existence for
five years or more, for five years and since the Contract Sub-Account's
inception. The average annual total return is based upon the value of the VIP
Units acquired through a hypothetical $1,000 investment of the VIP Unit value at
the beginning of the specified period and the value of the VIP Unit at the end
of such period, assuming reinvestment of all distributions and the deduction of
the Mortality and Expense Risk Charge and the Administrative Expense Charge.
Each Contract Sub-Account may also advertise cumulative and total return
information over different periods of time. The performance of the Contract
Sub-Accounts reflects results achieved prior to the date the Contracts first
invested in the Contract Sub-Accounts. Performance information for the
Portfolios may also be advertised; see the Trust prospectus for more
information.
The Company may, in addition, advertise or present yield or total return
performance information computed on a different basis. Contract Owners should
note that the investment results of each Contract Sub-Account will fluctuate
over time, and any presentation of a Contract Sub-Account's current yield or
total return for any prior period should not be considered as a representation
of what an investment may earn or what a Contract Owner's yield or total return
may be in any future period. Hypothetical performance illustrations for a
hypothetical contract may be prepared for sales literature or advertisements.
See "Calculation of Performance Data" in the SAI.
PERFORMANCE RANKING
The performance of each or all of the Contract Sub-Accounts of the Variable
Account may be compared in its advertising and sales literature to the
performance of other variable annuity issuers in general or to the performance
of particular types of variable annuities investing in mutual funds, or series
of mutual funds with investment objectives similar to each of the Contract
Sub-Accounts of the Variable Account or indices. Lipper Analytical Services,
Inc. ("Lipper") and the Variable Annuity Research and Data Service ("VARDS") are
independent services which monitor and rank the performance of variable annuity
issuers in each of the major categories of investment objectives on an
industry-wide basis.
Lipper's rankings include variable life issuers as well as variable annuity
issuers. VARDS rankings compare only variable annuity issuers. The performance
analyses prepared by Lipper and VARDS rank such issuers on the basis of total
return, assuming reinvestment of distributions, but do not take sales charges,
redemption fees or certain expense deductions at the separate account level into
consideration. In addition, VARDS prepares risk adjusted rankings, which
consider the effects of market risk on total return performance. This type of
ranking may address the question as to which portfolios provide the highest
total return with the least amount of risk. Other ranking services may be used
as sources of performance comparison, such as CDA/Weisenberger and Morningstar.
FEDERAL TAX STATUS
- --------------------------------------------------------------------------------
NOTE: The following description is based upon the Company's understanding of
current federal income tax law applicable to annuities in general. The Company
cannot predict the probability that any changes in such laws will be made.
Purchasers are cautioned to seek competent tax advice regarding the possibility
of such changes. The Company does not guarantee the tax status of the Contracts.
Purchasers bear the complete risk that the Contracts may not be treated as
"annuity contracts" under federal income tax laws. It should be further
understood that the following discussion is not exhaustive and that special
rules not described in this Prospectus may be applicable in certain situations.
Moreover, no attempt has been made to consider any applicable State or other tax
laws.
GENERAL
Section 72 of the Internal Revenue Code of 1986, as amended (the "Code") governs
taxation of annuities in general. A Contract Owner is not taxed on increases in
the value of a Contract until distribution occurs, either in the form of a lump
sum payment or as annuity payments under the Annuity Option elected.
For annuity payments, the portion of a payment includable in income equals the
excess of the payment over the exclusion amount. The exclusion amount for
payments based on a variable annuity option is determined by dividing the
investment in the Contract (adjusted for any period certain or refund guarantee)
by the number of years over which the annuity is expected to be paid (determined
by Treasury Regulations). The exclusion amount for payments based on a fixed
annuity option is determined by multiplying the payment by the ratio that the
cost basis of the Contract (adjusted for any period certain or refund guarantee)
bears to the expected return under the Contract. Payments received after the
investment in the Contract has been recovered (i.e. the total of the excludable
amounts equal the investment in the Contract) are fully taxable. The taxable
portion of an annuity payment is taxed at ordinary income rates. For certain
types of Qualified Plans there may be no cost basis in the Contract within the
meaning of Section 72 of the Code. Contract Owners, Annuitants and Beneficiaries
under the Contracts should seek competent financial advice about the tax
consequences of any distributions.
The Company is taxed as a life insurance company under the Code. For federal
income tax purposes, the Variable Account is not a separate entity from the
Company, and its operations form a part of the Company.
DIVERSIFICATION
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not adequately
diversified in accordance with regulations prescribed by the United States
Treasury Department ("Treasury Department"). Disqualification of the Contract as
an annuity contract would result in the imposition of federal income tax to the
Contract Owner with respect to earnings allocable to the Contract prior to the
receipt of payments under the Contract. The Code contains a safe harbor
provision which provides that annuity contracts such as the Contracts meet the
diversification requirements if, as of the end of each quarter, the underlying
assets meet the diversification standards for a regulated investment company and
no more than fifty-five percent (55%) of the total assets consist of cash, cash
items, U.S. government securities and securities of other regulated investment
companies.
On March 2, 1989, the Treasury Department issued regulations (Treas. Reg.
1.817-5) which established diversification requirements for the investment
portfolios underlying variable contracts such as the Contracts. The regulations
amplify the diversification requirements for variable contracts set forth in the
Code and provide an alternative to the safe harbor provision described above.
Under the regulations, an investment portfolio will be deemed adequately
diversified if: (1) no more than 55% of the value of the total assets of the
portfolio is represented by any one investment; (2) no more than 70% of the
value of the total assets of the portfolio is represented by any two
investments; (3) no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and (4) no more than 90% of
the value of the total assets of the portfolio is represented by any four
investments.
The Code provides that for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable contracts
by Section 817(h) of the Code have been met, "each United States government
agency or instrumentality shall be treated as a separate issuer."
The Company intends that all Portfolios of the Trust underlying the Contracts
will be managed by the managers for the Trust in such a manner as to comply with
these diversification requirements.
The Treasury Department has indicated that the diversification Regulations do
not provide guidance regarding the circumstances in which Contract Owner control
of the investments of the Variable Account will cause the Contract Owner to be
treated as the owner of the assets of the Variable Account, thereby resulting in
the loss of favorable tax treatment for the Contract. At this time it cannot be
determined whether additional guidance will be provided and what standards may
be contained in such guidance.
The amount of Contract Owner control which may be exercised under the Contract
is different in some respects from the situations addressed in published rulings
issued by the Internal Revenue Service in which it was held that the policy
owner was not the owner of the assets of the separate account. It is unknown
whether these differences, such as the Contract Owner's ability to transfer
among investment choices or the number and type of investment choices available,
would cause the Contract Owner to be considered as the owner of the assets of
the Variable Account resulting in the imposition of federal income tax to the
Contract Owner with respect to earnings allocable to the Contract prior to
receipt of payments under the Contract.
In the event any forthcoming guidance or ruling is considered to set forth a new
position, such guidance or ruling will generally be applied only prospectively.
However, if such ruling or guidance was not considered to set forth a new
position, it may be applied retroactively resulting in the Contract Owner being
retroactively determined to be the owner of the assets of the Variable Account.
Due to the uncertainty in this area, the Company reserves the right to modify
the Contract in an attempt to maintain favorable tax treatment.
MULTIPLE CONTRACTS
Section 72(e)(11) of the Code provides that multiple non-qualified annuity
contracts which are issued within a calendar year period to the same contract
owner by one company or its affiliates are treated as one annuity contract for
purposes of determining the tax consequences of any distribution. Such treatment
may result in adverse tax consequences, including more rapid taxation of the
distributed amounts from such combination of contracts. The legislative history
of Section 72(e)(11) indicates that it was not intended to apply to immediate
annuities. However, the legislative history also states that no inference is
intended as to whether the Treasury Department, under its authority to prescribe
rules to enforce the tax laws, may treat the combination purchase of a deferred
annuity contract with an immediate annuity contract as a single contract for
purposes of determining the tax consequences of any distribution.
TAX TREATMENT OF DISTRIBUTIONS -
NON-QUALIFIED CONTRACTS
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the Contract Value exceeds the aggregate purchase
payments made, any amount withdrawn will be treated as coming first from the
earnings and then, only after the income portion is exhausted, as coming from
the principal. Withdrawn earnings are includable in gross income. It further
provides that a ten percent (10%) penalty will apply to the income portion of
any distribution. However, the penalty is not imposed on amounts received: (a)
after the taxpayer reaches age 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 and his Beneficiary; (e) as an annuity payment under
an immediate annuity; or (f) which are allocable to purchase payments made prior
to August 14, 1982.
The above information does not apply to Qualified Contracts. However, separate
tax withdrawal penalties and restrictions may apply to such Qualified Contracts.
(See "Tax Treatment of Distributions -IRA Contracts.")
The availability of total or partial withdrawals from an immediate annuity is
not expressly provided for in the Code or Treasury Regulations. The only tax
guidance currently available for such issue is a Private Letter Ruling holding
that the right to make withdrawals does not prevent a contract from qualifying
as an immediate annuity. However, the Private Letter Ruling does not address the
issue of whether the making of a withdrawal would adversely affect the favorable
tax treatment of annuity payments made before or after such partial withdrawal
because of the requirement that all immediate annuity payments must be
"substantially equal". The loss of favorable tax treatment would mean that the
income portion of each annuity payment received prior to the taxpayer's
attaining age 591/2 would be subject to a 10% penalty tax unless another
exception to the penalty tax applies. While the Company currently believes that
such withdrawals will not adversely affect the favorable tax treatment of
annuity payments received before or after a withdrawal and the Company intends
to perform its tax reporting functions accordingly, there can be no assurance
that the Internal Revenue Service will not take a contrary position. Contract
Owners should obtain competent tax advice prior to making a partial or total
withdrawal.
QUALIFIED PLANS
The Contracts offered by this Prospectus may also be used with a plan qualified
under Section 408(b) of the Code ("IRA Contracts"). Contract Owners, Annuitants
and Beneficiaries are cautioned that benefits under an IRA Contract may be
subject to the terms and conditions of the plan regardless of the terms and
conditions of the Contracts issued pursuant to the plan. The following
discussion of IRA Contracts is not exhaustive and is for general informational
purposes only. The tax rules regarding IRA Contracts are very complex and will
have differing applications depending on individual facts and circumstances.
Each purchaser should obtain competent tax advice prior to purchasing IRA
Contracts.
IRA Contracts include special provisions restricting Contract provisions that
may otherwise be available as described in this Prospectus. Generally, IRA
Contracts are not transferable except upon surrender or annuitization. Various
penalty and excise taxes may apply to contributions or distributions made in
violation of applicable limitations. Furthermore, certain withdrawal penalties
and restrictions may apply to distributions from IRA Contracts. (See "Tax
Treatment of Distributions - IRA Contracts".)
On July 6, 1983, the Supreme Court decided in Arizona Governing Committee v.
Norris that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. IRA Contracts will utilize annuity tables which do
not differentiate on the basis of sex because of the use of the IRA Contracts in
a Simplified Employee Pension. Such annuity tables will also be available for
use in connection with certain non-qualified deferred compensation plans.
Under applicable limitations, certain amounts may be contributed to an IRA
Contract which will be deductible from the individual's gross income. These IRAs
are subject to limitations on eligibility, contributions, transferability and
distributions. (See "Tax Treatment of Distributions - IRA Contracts".) Under
certain conditions, distributions from other IRAs and other qualified plans may
be rolled over or transferred on a tax-deferred basis into an IRA Contract.
Sales of Contracts for use as IRA Contracts are subject to special requirements
imposed by the Code, including the requirement that certain informational
disclosure be given to persons desiring to establish an IRA. Purchasers of
Contracts to be qualified as Individual Retirement Annuities should obtain
competent tax advice as to the tax treatment and suitability of such an
investment.
TAX TREATMENT OF DISTRIBUTIONS - IRA CONTRACTS
In the case of a withdrawal under an IRA Contract, a ratable portion of the
amount received is taxable, generally based on the ratio of the individual's
cost basis to the individual's total accrued benefit under the retirement plan.
Special tax rules may be available for certain distributions from a Qualified
Contract.
Section 72(t) of the Code imposes a 10% penalty tax on the taxable portion of
any distribution from qualified retirement plans, including IRA Contracts. To
the extent amounts are not includible in gross income because they have been
rolled over to an IRA or to another eligible qualified plan, no tax penalty will
be imposed. The tax penalty will not apply to the following distributions: (a)
if distribution is made on or after the date on which the Annuitant reaches age
59 1/2; (b) distributions following the death or disability of the Annuitant
(for this purpose disability is as defined in Section 72(m)(7) of the Code); (c)
distributions that are part of a series of substantially equal periodic payments
made not less frequently than annually for the life (or life expectancy) of the
Annuitant or the joint lives (or joint life expectancies) of the Annuitant and
his or her designated Beneficiary; (d) distributions made to the Annuitant to
the extent such distributions do not exceed the amount allowable as a deduction
under Code Section 213 to the Annuitant for amounts paid during the taxable year
for medical care; and (e) distributions from an IRA Contract for the purchase of
medical insurance (as described in Section 213 (d)(1)(D) of the Code) for the
Annuitant and his or her spouse and dependents if the Annuitant has received
unemployment compensation for at least 12 weeks (this exception will no longer
apply after the Annuitant has been re-employed for at least 60 days.); (f)
distributions from an Individual Retirement Annuity made to the Annuitant 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 Annuitant for the taxable
year; and (g) distributions from an Individual Retirement Annuity made to the
Annuitant which are qualified first-time home buyer distributions (as defined in
Section 72(t)(8) of the Code). With respect to (c) above, if the series of
substantially equal periodic payments is modified before the later of the
Annuitant attaining age 59 1/2 or 5 years from the date of the first annuity
payment, then the tax for the year of the modification is increased by an amount
equal to the tax which would have been imposed (the 10% penalty tax) but for the
exception, plus interest for the tax years in which the exception was used. A
partial withdrawal may result in the modification of the series of annuity
payments made after such withdrawal and therefore could result in the imposition
of the 10% penalty tax and interest for the period as described above. Competent
tax advice should be obtained prior to making any withdrawals from an IRA
Contract. Any amounts distributed will only be paid to the Annuitant, Joint
Annuitant or Beneficiary. The Company will not transfer or pay such amounts to
another IRA or tax qualified plan.
Generally, distributions from an IRA Contract must commence no later than April
1 of the calendar year, following the year in which the employee attains age
701/2. Generally, required distributions must be over a period not exceeding the
life or life expectancy of the individual or the joint lives or life
expectancies of the individual and his or her designated beneficiary. If the
required minimum distributions are not made, a 50% penalty tax is imposed as to
the amount not distributed.
TAX TREATMENT OF ASSIGNMENTS
An assignment or pledge of a Contract may be a taxable event. Contract Owners
should therefore consult competent tax advisers should they wish to assign their
Contracts.
INCOME TAX WITHHOLDING
All distributions or the portion thereof which is includible in the gross income
of the Contract Owner are subject to federal income tax withholding. Generally,
amounts are withheld from periodic payments at the same rate as wages and at the
rate of 10% from non-periodic payments. However, the Contract Owner, in most
cases, may elect not to have taxes withheld or to have withholding done at a
different rate.
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Audited financial statements of the Company and audited financial statements of
the Variable Account as of and for the year ended December 31, 1997 are included
in the SAI.
LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
There are no legal proceedings to which the Variable Account or the Distributor
is a party or to which the assets of the Variable Account are subject. The
Company is not involved in any litigation that is of material importance in
relation to its total assets or that relates to the Variable Account.
APPENDIX
- --------------------------------------------------------------------------------
ILLUSTRATION OF VALUES
The following tables have been prepared to show how investment performance
affects variable annuity income over time. The variable annuity income amounts
reflect three different assumptions for a constant investment return before all
expenses: 0%, 6% and 12%. These are hypothetical rates of return and, of course,
the Company does not guarantee that the Contract will earn these returns for any
one year or any sustained period of time. The tables are for illustrative
purposes only and do not represent past or future investment returns.
The variable annuity income may be more or less than the income shown if the
actual returns of the Eligible Investments are different than those illustrated.
Since it is very likely that investment returns will fluctuate over time, the
amount of variable annuity income will also fluctuate. The total amount of
annuity income ultimately received will depend on cumulative investment returns
and how long the Annuitant lives and the option chosen.
Another factor which determines the amount of variable annuity income is the
Assumed Investment Return. Income will increase from one annuity Income Date to
the next if the annualized Net Rate of Return during that time is greater than
the Assumed Investment Return, and will decrease if the annualized Net Rate of
Return is less than the Assumed Investment Return.
Two illustrations follow. The first is based on a 3% Assumed Investment Return,
and the second is based on a 5% Assumed Investment Return. The income amounts
shown reflect the deduction of all fees and expenses. Actual Trust fees and
expenses will vary from year to year and from Portfolio to Portfolio and may
thus be higher or lower than the assumed rate. The illustrations assume that
each Portfolio of the Trust will incur expenses at an annual rate of 0.77% of
the average daily net assets of the Portfolio. This is the average in 1997,
weighted by Portfolio net assets as of 12/31/97. The Mortality and Expense Risk
Charge and Administrative Expense Charge are calculated, in the aggregate, at an
annual rate of 1.40% of the average daily net assets of the Variable Account.
After taking these expenses and charges into consideration, the illustrated
gross investment returns of 0%, 6% and 12% are approximately equal to net rates
of -2.15%, 3.72% and 9.60%, respectively.
<PAGE>
<TABLE>
<CAPTION>
VALUEMARK INCOME PLUS ILLUSTRATION
ANNUITANT: John Doe ANNUITY PURCHASE AMOUNT: $100,000
DATE OF BIRTH: 1/1/29 EFFECTIVE DATE: 12/1/98
ANNUITY INCOME OPTION: Single Life Annuity FIRST ANNUITY INCOME DATE: 1/1/99
PREMIUM TAX: 0% FREQUENCY OF ANNUITY INCOME: Monthly
ASSUMED INVESTMENT RETURN: 3%
The amount of monthly variable annuity income shown in the table below and the graph that follows
assumes a constant annual investment return. The amount of variable annuity income that is
actually received will depend on the investment performance of the underlying Portfolio(s)
selected. The variable annuity income can go up or down and no minimum dollar amount of variable
annuity income is guaranteed. The amounts shown are based on a 3% Assumed Investment Return.
Income will remain constant at $625 per month when the annualized net rate of return after
expenses is 3%.
MONTHLY ANNUITY PAYMENTS
Annual rate of return before expenses: 0% 6% 12%
Annuity Income Date Age Annual rate of return after expenses: -2.15% 3.72% 9.60%
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
January 1, 1999 70 $622 625 $628
January 1, 2000 71 591 629 668
January 1, 2001 72 561 634 711
January 1, 2002 73 533 638 757
January 1, 2003 74 507 643 805
January 1, 2008 79 392 666 1,098
January 1, 2013 84 303 689 1,498
January 1, 2018 89 235 714 2,043
January 1, 2023 94 182 740 2,786
</TABLE>
<PAGE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY AND
SHOULD NOT BE DEEMED TO REPRESENT PAST OR FUTURE INVESTMENT PERFORMANCE. ACTUAL
RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER
OF FACTORS.
<TABLE>
<CAPTION>
The following table summarizes Annuity Income with an Assumed Investment Return
of 3%. This table is presented graphically in the printed prospectus.
Monthly Payment Amount
------------------------------------------------------------
-2.15% 3.72% 9.60%
Annual Rate Annual Rate Annual Rate
of Return of Return of Return
Year After Expenses After Expenses After Expenses
- ---------------------------------------------------------------------
<S> <C> <C> <C>
1 $ 622 $ 625 $ 628
2 591 629 668
3 561 634 711
4 533 638 757
5 507 643 805
6 481 647 857
7 457 652 912
8 434 656 970
9 413 661 1,032
10 392 666 1,098
11 372 670 1,168
12 354 675 1,243
13 336 680 1,323
14 319 685 1,408
15 303 689 1,498
16 288 694 1,594
17 274 699 1,696
18 260 704 1,804
19 247 709 1,920
20 235 714 2,043
21 223 719 2,174
22 212 724 2,313
23 201 729 2,461
24 191 734 2,619
25 182 740 2,786
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VALUEMARK INCOME PLUS ILLUSTRATION
ANNUITANT: John Doe ANNUITY PURCHASE AMOUNT: $100,000
DATE OF BIRTH: 1/1/29 EFFECTIVE DATE: 12/1/98
ANNUITY INCOME OPTION: Single Life Annuity FIRST ANNUITY INCOME DATE: 1/1/99
PREMIUM TAX: 0% FREQUENCY OF ANNUITY INCOME: Monthly
ASSUMED INVESTMENT RETURN: 5%
The amount of monthly variable annuity income shown in the table below and the graph that follows
assumes a constant annual investment return. The amount of variable annuity income that is
actually received will depend on the investment performance of the underlying Portfolio(s)
selected. The variable annuity income can go up or down and no minimum dollar amount of variable
annuity income is guaranteed. The amounts shown are based on a 5% Assumed Investment Return.
Income will remain constant at $742 per month when the annual rate of return after expenses is
5%.
MONTHLY ANNUITY PAYMENTS
Annual rate of return before expenses: 0% 6% 12%
Annuity Income Date Age Annual rate of return after expenses: -2.15% 3.72% 9.60%
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
January 1, 1999 70 $738 $741 $745
January 1, 2000 71 687 732 778
January 1, 2001 72 641 723 812
January 1, 2002 73 597 715 847
January 1, 2003 74 556 706 884
January 1, 2008 79 391 664 1,096
January 1, 2013 84 275 625 1,357
January 1, 2018 89 193 588 1,682
January 1, 2023 94 136 553 2,083
</TABLE>
<PAGE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY AND
SHOULD NOT BE DEEMED TO REPRESENT PAST OR FUTURE INVESTMENT PERFORMANCE. ACTUAL
RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER
OF FACTORS.
<TABLE>
<CAPTION>
The following table summarizes Annuity Income with an Assumed Investment Return
of 5%. This table is presented graphically in the printed prospectus.
Monthly Payment Amount
------------------------------------------------------------
-2.15% 3.72% 9.60%
Annual Rate Annual Rate Annual Rate
of Return of Return of Return
Year After Expenses After Expenses After Expenses
- ---------------------------------------------------------------------
<S> <C> <C> <C>
1 $ 738 $ 741 $ 745
2 687 732 778
3 641 723 812
4 597 715 847
5 556 706 884
6 519 697 923
7 483 689 963
8 450 681 1,006
9 420 672 1,050
10 391 664 1,096
11 365 656 1,144
12 340 648 1,194
13 317 640 1,246
14 295 632 1,300
15 275 625 1,357
16 256 617 1,417
17 239 610 1,479
18 223 602 1,543
19 207 595 1,611
20 193 588 1,682
21 180 581 1,755
22 168 574 1,832
23 156 567 1,912
24 146 560 1,996
25 136 553 2,083
</TABLE>
<PAGE>
TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
- -------------------------------------------
ITEM PAGE
Company 2
Experts 2
Legal Opinions 2
Distributor 2
Calculation of Performance Data 2
Total Return 2
Yield 2
Performance Ranking 3
Performance Information 3
Annuity Income 5
Annuity Provisions 5
Variable Annuity Payout 5
Fixed Annuity Payout 5
Financial Statements 5
PART B
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL IMMEDIATE
VARIABLE ANNUITY CONTRACTS
Issued By
PREFERRED LIFE VARIABLE ACCOUNT C
And
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
MAY 15, 1998
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS FOR THE INDIVIDUAL IMMEDIATE VARIABLE
ANNUITY CONTRACTS WHICH ARE REFERRED TO HEREIN.
THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT A PROSPECTIVE INVESTOR
OUGHT TO KNOW BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS, CALL OR WRITE THE
COMPANY AT: 152 West 57th Street, 18th Floor, New York, NY 10019.(800)542-5427.
THIS STATEMENT OF ADDITIONAL INFORMATION AND THE PROSPECTUS ARE DATED MAY 15,
1998 AND AS MAY BE AMENDED FROM TIME TO TIME.
TABLE OF CONTENTS
- ------------------------------------------------------
CONTENTS PAGE
Company 2
Experts 2
Legal Opinions 2
Distributor 2
Calculation of Performance Data 2
Total Return 2
Yield 2
Performance Ranking 3
Performance Information 3
Annuity Income 5
Annuity Provisions 5
Variable Annuity Payout 5
Fixed Annuity Payout 5
Financial Statements 5
<PAGE>
COMPANY
- --------------------------------------------------------------------------------
Information regarding Preferred Life Insurance Company of New York (the
"Company") and its ownership is contained in the Prospectus. The Company is
rated A+ (Superior, Group Rating) by A.M. BEST, an independent analyst of the
insurance industry. The financial strength of an insurance company may be
relevant insofar as the ability of a company to make fixed annuity payments from
its general account.
EXPERTS
- --------------------------------------------------------------------------------
The financial statements of Preferred Life Variable Account C and the financial
statements of the Company as of and for the year ended December 31, 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
- --------------------------------------------------------------------------------
NALAC Financial Plans, LLC, an affiliate of the Company, acts as the
distributor. The offering is on a continuous basis.
CALCULATION OF PERFORMANCE DATA
- --------------------------------------------------------------------------------
TOTAL RETURN
From time to time, the Company may advertise the performance data for the
Contract Sub-Accounts in sales literature, advertisements and personalized
hypothetical illustrations and Contract Owner communications. Such data will
show the percentage change in the value of a VIP Unit based on the performance
of a Contract Sub-Account over a stated period of time, usually a calendar year,
which is determined by dividing the increase (or decrease) in value for that
unit by the VIP Unit Value at the beginning of the period.
Any such performance data will include total return figures for the one, five
and ten year (or since inception) time periods indicated. Such total return
figures will reflect the deduction of a 1.25% Mortality and Expense Risk Charge,
a 0.15% Administrative Expense Charge and the operating expenses of the
underlying Portfolios.
The hypothetical value of a Contract purchased for the time periods described in
the advertisement will be determined by using the actual VIP Unit Values for an
initial $1,000 purchase payment. The average annual total return is then
determined by computing the fixed interest rate that a $1,000 purchase payment
would have to earn annually, compounded annually, to grow to the hypothetical
value at the end of the time periods described. The formula used in these
calculations is:
P(1+T)n = ERV
where:
P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years;
ERV = ending redeemable value of a hypothetical $1,000 purchase payment made at
the beginning of the period at the end of the period.
The Company may also advertise cumulative and total return information over
different periods of time. Cumulative total return is calculated in a similar
manner as described above except that the results are not annualized.
YIELD
The Money Market Sub-Account. The Company may advertise yield information for
the Money Market Sub-Account. The Money Market Sub-Account's current yield may
vary each day, depending upon, among other things, the average maturity of the
underlying Portfolio's investment securities and changes in interest rates,
operating expenses, the deduction of the Mortality and Expense Risk Charge, the
Administrative Expense Charge and, in certain instances, the value of the
underlying Portfolio's investment securities. The fact that the Contract
Sub-Account's current yield will fluctuate and that the principal is not
guaranteed should be taken into consideration when using the Contract
Sub-Account's current yield as a basis for comparison with savings accounts or
other fixed-yield investments. The yield at any particular time is not
indicative of what the yield may be at any other time.
The Money Market Sub-Account's current yield is computed on a base period return
of a hypothetical Contract having a beginning balance of one VIP Unit for a
particular period of time (generally seven days). The return is determined by
dividing the net change (exclusive of any capital changes) in such VIP Unit by
its beginning value, and then multiplying it by 365/7 to get the annualized
current yield. The calculation of net change reflects the value of additional
shares purchased with the dividends paid by the Portfolio, and the deduction of
the Mortality and Expense Risk Charge and the Administrative Expense Charge.
The effective yield reflects the effects of compounding and represents an
annualization of the current return with all dividends reinvested. (Effective
yield = [(Base Period Return + 1)365/7]-1.)
For the seven-day period ending on 12/31/97, the Money Market Sub-Account had a
current yield of 3.88% and an effective yield of 3.95%.
Other Contract Sub-Accounts. The Company may also quote yield in sales
literature, advertisements, personalized hypothetical illustrations and Contract
Owner communications for the other Contract Sub-Accounts. Each Contract
Sub-Account (other than the Money Market Sub-Account) will publish standardized
total return information with any quotation of current yield.
The yield computation is determined by dividing the net investment income per
VIP Unit earned during the period (minus the deduction for the Mortality and
Expense Risk Charge and Administrative Expense Charge) by the VIP Unit Value on
the last day of the period and annualizing the resulting figure, according to
the following formula:
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 Contract Sub-Account;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of VIP Units outstanding during the period;
d = the maximum offering price per VIP Unit on the last day of the period.
The above formula will be used in calculating quotations of yield, based on
specified 30-day periods (or one month) identified in the sales literature,
advertisement or communication. The Company does not currently advertise yield
information for any Contract Sub-Account (other than the Money Market
Sub-Account).
PERFORMANCE RANKING
Total return information for the Contract Sub-Accounts and the Portfolios may be
compared to relevant indices, including U.S. domestic and international taxable
bond indices and data from Lipper Analytical Services, Inc., Standard & Poor's
Indices, or VARDS.
From time to time, evaluation of performance by independent sources may also be
used.
PERFORMANCE INFORMATION
Total returns reflect all aspects of a Contract Sub-Account's return, including
the automatic reinvestment by Preferred Life Variable Account C of all
distributions and any change in a Contract Sub-Account's value over the period.
The Portfolios of Franklin Valuemark Funds have been in existence for some time
(except the Value Securities Fund) and have investment performance history. In
order to show how investment performance of the Portfolios affects VIP Unit
values, the following performance information was developed. Performance of the
Contract Sub-Accounts reflects results achieved prior to the date the Contracts
first invested in the Contract Sub-Accounts and the Portfolios.
The returns reflect the deduction of the Mortality and Expense Risk Charge,
Administrative Expense Charge and the operating expenses of each Portfolio. Past
performance does not guarantee future results.
<PAGE>
<TABLE>
<CAPTION>
STANDARDIZED TOTAL RETURN
Average Annual Total Return for the periods ended December 31, 1997
INCEPTION ONE FIVE SINCE
CONTRACT SUB-ACCOUNT DATE YEAR YEARS INCEPTION
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Growth 5/1/96 16.66% NA 17.73%
Global Utilities Securities1 1/24/89 25.00% 10.20% 11.19%
Growth and Income 1/24/89 25.97% 14.32% 10.57%
Income Securities 1/24/89 15.46% 10.58% 10.83%
Money Market 1/24/89 3.78% 3.05% 3.72%
Mutual Discovery Securities 11/8/96 17.71% NA 17.11%
Mutual Shares Securities 11/8/96 16.10% NA 17.20%
Real Estate Securities 1/24/89 19.02% 16.56% 12.28%
Rising Dividends 1/27/92 31.18% 13.10% 12.47%
Small Cap 11/1/95 15.79% NA 20.40%
Templeton Developing Markets Equity 3/15/94 -9.99% NA .88%
Templeton Global Asset Allocation 5/1/95 10.16% NA 12.77%
Templeton Global Growth 3/15/94 11.92% NA 11.60%
Templeton International Equity 1/27/92 10.14% 12.93% 10.12%
Templeton International Smaller Companies 5/1/96 -2.87% NA 4.87%
Templeton Pacific Growth 1/27/92 -36.84% -.69% -.98%
<FN>
1Prior to May 1, 1998, the Global Utilities Securities Sub-Account was known as the Utility Equity Sub-Account.
</FN>
</TABLE>
<TABLE>
<CAPTION>
NON-STANDARDIZED TOTAL RETURN
Total Return for the periods ended December 31, 1997
ANNUAL TOTAL RETURN CUMULATIVE TOTAL RETURN
----------------------------------------------------------------------
INCEPTION ONE THREE FIVE SINCE THREE FIVE SINCE
CONTRACT SUB-ACCOUNT DATE YEAR YEARS YEARS INCEPTION YEARS YEARS INCEPTION
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth 5/1/96 16.66% NA NA 17.73% NA NA 31.30%
Global Utilities Securities1 1/24/89 25.00% 19.57% 10.20% 11.19% 70.94% 62.50% 158.18%
Growth and Income 1/24/89 25.97% 22.93% 14.32% 10.57% 85.78% 95.26% 145.51%
Income Securities 1/24/89 15.46% 15.21% 10.58% 10.83% 52.91% 65.31% 150.65%
Money Market 1/24/89 3.78% 3.92% 3.05% 3.72% 12.23% 16.20% 38.65%
Mutual Discovery Securities 11/8/96 17.71% NA NA 17.11% NA NA 19.83%
Mutual Shares Securities 11/8/96 16.10% NA NA 17.20% NA NA 19.93%
Real Estate Securities 1/24/89 19.02% 21.79% 16.56% 12.28% 80.64% 115.11% 181.69%
Rising Dividends 1/27/92 31.18% 27.14% 13.10% 12.47% 105.50% 85.06% 100.74%
Small Cap 11/1/95 15.79% NA NA 20.40% NA NA 49.52%
Templeton Developing
Markets Equity 3/15/94 -9.99% 3.03% NA .88% 9.37% NA 3.4%
Templeton Global
Asset Allocation 5/1/95 10.16% NA NA 12.77% NA NA 37.86%
Templeton Global Growth 3/15/94 11.92% 14.16% NA 11.60% 48.77% NA 51.76%
Templeton
International Equity 1/27/92 10.14% 13.35% 12.93% 10.12% 45.64% 83.68% 77.11%
Templeton International
Smaller Companies 5/1/96 -2.87% NA NA 4.87% NA NA 8.25%
Templeton Pacific Growth 1/27/92 -36.84% -9.68% -.69% -.98% -26.33% -3.38% -5.69%
<FN>
1Prior to May 1, 1998, the Global Utilities Securities Sub-Account was known as the Utility Equity Sub-Account.
</FN>
</TABLE>
<PAGE>
The Company may also present performance information computed on a different
basis.
Contract Owners should note that investment results will fluctuate over time,
and any presentation of total return for any period should not be considered as
a representation of what an investment may earn or what a Contract Owner's total
return may be in any future period.
ANNUITY INCOME
Periodic annuity income amounts may be illustrated using the historical
performance of the Contract Sub-Accounts, the Standard & Poor's 500 Composite
Stock Price Index or other recognized investment benchmark portfolios. All
illustrations will reflect the 1.25% annual Mortality and Expense Risk Charge
and the 0.15% Administrative Expense Charge and actual or assumed Portfolio
expenses.
ANNUITY PROVISIONS
- --------------------------------------------------------------------------------
VARIABLE ANNUITY PAYOUT
A variable annuity is an annuity with payments which: (1) are not predetermined
as to dollar amount; and (2) will vary in amount with the net investment results
of the applicable Contract Sub-Account(s) of the Variable Account. Annuity
payments also depend upon the Age of the Annuitant and any Joint Annuitant and
the Assumed Net Investment Factor utilized. On the Annuity Calculation Date, the
Contract Value in each Contract Sub-Account will be applied to the applicable
Annuity Tables. The Annuity Table used will depend upon the Annuity Option
chosen. Unisex Annuity Tables are utilized by the Company. The dollar amount of
annuity payments after the first is determined as follows:
1. The dollar amount of the first annuity payment is divided by the value of
an Annuity Unit as of the Annuity Calculation Date. This establishes the
number of Annuity Units for each monthly payment. The number of Annuity
Units remains fixed during the annuity payment period.
2. For each Contract Sub-Account, the fixed number of Annuity Units is
multiplied by the Annuity Unit value on each subsequent annuity payment
date. This result is the dollar amount of the payment for each Contract
Sub-Account.
3. The total dollar amount of each Variable Annuity variable payout is the sum
of all Contract Sub-Account Variable Annuity payments.
FIXED ANNUITY PAYOUT
Annuity payments from the Fixed Payment Annuity will be equal payments unless
otherwise specified by the Annuity Option selected.
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The audited financial statements of the Company as of and for the year ended
December 31, 1997 included herein should be considered only as bearing upon the
ability of the Company to meet its obligations under the Contracts. The audited
financial statements of the Variable Account as of and for the year ended
December 31, 1997 are also included herein.
VIPNY SAI 05/98
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Independent Auditors' Report
The Board of Directors of Preferred Life Insurance Company of New York and
Contract Owners of Preferred Life Variable Account C:
We have audited the accompanying statements of assets and liabilities of the
sub-accounts of Preferred Life Variable Account C as of December 31, 1997, the
related statements of operations for the year then ended and the statements of
changes in net assets for each of the years in the two-years then ended. These
financial statements are the responsibility of the Variable Account's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Investment securities
held in custody for the benefit of the Variable Account were confirmed to us by
the Franklin Valuemark Funds. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets and liabilities of the sub-accounts of
Preferred Life Variable Account C at December 31, 1997, the results of their
operations for the year then ended and the changes in their net assets for each
of the years in the two-years then ended, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 30, 1998
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements
Statements of Assets and Liabilities
December 31, 1997
(In thousands except per unit data)
Mutual
Capital Growth and High Income Money Discovery
Growth Income Income Securities Market Securities
Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Capital Growth Fund, 609 shares, cost $7,415 $8,170 - - - - -
Growth and Income Fund, 5,787 shares, cost $90,320 - 121,582 - - - -
High Income Fund, 3,110 shares, cost $41,808 - - 44,969 - - -
Income Securities Fund, 5,446 shares, cost $83,608 - - - 100,035 - -
Money Market Fund, 29,886 shares, cost $29,886 - - - - 29,886 -
Mutual Discovery Securities Fund, 910 shares,
cost $10,299 - - - - - 11,073
- ---------------------------------------------------------------------------------------------------------------------------
Total assets 8,170 121,582 44,969 100,035 29,886 11,073
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities:
Accrued mortality and expense risk charges 3 11 5 9 4 3
Accrued administrative charges - 1 1 1 1 -
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 3 12 6 10 5 3
- ---------------------------------------------------------------------------------------------------------------------------
Net assets $8,167 121,570 44,963 100,025 29,881 11,070
- ---------------------------------------------------------------------------------------------------------------------------
Contract owners' equity (notes 4 and 5) $8,167 121,570 44,963 100,025 29,881 11,070
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
December 31, 1997
(In thousands except per unit data)
Mutual Natural Templeton
Shares Resources Real Estate Rising Small Developing
Securities Securities Securities Dividends Cap Markets
Fund Fund Fund Fund Fund Equity Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Mutual Shares Securities Fund, 1,795 shares,
cost $20,138 $21,862 - - - - -
Natural Resources Securities Fund, 465 shares,
cost $6,752 - 5,302 - - - -
Real Estate Securities Fund, 1,037 shares, cost $18,495 - - 26,537 - - -
Rising Dividends Fund, 3,559 shares, cost $43,289 - - - 70,049 - -
Small Cap Fund, 932 shares, cost $12,990 - - - - 14,026 -
Templeton Developing Markets Equity Fund, 1,166 shares,
cost $12,958 - - - - - 11,995
- ---------------------------------------------------------------------------------------------------------------------------
Total assets 21,862 5,302 26,537 70,049 14,026 11,995
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities:
Accrued mortality and expense risk charges 4 3 4 7 4 3
Accrued administrative charges - - 1 1 - -
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 4 3 5 8 4 3
- ---------------------------------------------------------------------------------------------------------------------------
Net assets $21,858 5,299 26,532 70,041 14,022 11,992
- ---------------------------------------------------------------------------------------------------------------------------
Contract owners' equity (notes 4 and 5) $21,858 5,299 26,532 70,041 14,022 11,992
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
December 31, 1997
(In thousands except per unit data)
Templeton
Templeton Templeton Templeton Templeton International Templeton
Global Asset Global Global Income International Smaller Pacific
Allocation Growth Securities Equity Companies Growth
Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Templeton Global Asset Allocation Fund,
427 shares, cost $5,157 $5,853 - - - - -
Templeton Global Growth Fund,
2,566 shares, cost $31,653 - 39,370 - - - -
Templeton Global Income Securities Fund,
1,402 shares, cost $18,016 - - 18,181 - - -
Templeton International Equity Fund,
4,465 shares, cost $60,514 - - - 71,973 - -
Templeton International Smaller Companies Fund,
170 shares, cost $1,938 - - - - 1,877 -
Templeton Pacific Growth Fund,
1,271 shares, cost $17,818 - - - - - 11,796
- ---------------------------------------------------------------------------------------------------------------------------
Total assets 5,853 39,370 18,181 71,973 1,877 11,796
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities:
Accrued mortality and expense risk charges 3 5 4 7 2 3
Accrued administrative charges - 1 - 1 - -
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 3 6 4 8 2 3
- ---------------------------------------------------------------------------------------------------------------------------
Net assets $5,850 39,364 18,177 71,965 1,875 11,793
- --------------------------------------------------------------------------------------------------------------------------
Contract owners' equity (notes 4 and 5) $5,850 39,364 18,177 71,965 1,875 11,793
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
December 31, 1997
(In thousands except per unit data)
U.S. Government Utility Zero Zero Zero Total
Securities Equity Coupon Coupon Coupon All
Fund Fund Fund - 2000 Fund - 2005 Fund - 2010 Funds
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
U.S. Government Securities Fund,
6,246 shares, cost $83,483 $86,946 - - - -
Utility Equity Fund,
4,698 shares, cost $77,174 - 95,507 - - -
Zero Coupon Fund - 2000
1,401 shares, cost $20,285 - - 21,208 - -
Zero Coupon Fund - 2005
456 shares, cost $6,921 - - - 7,775 -
Zero Coupon Fund - 2010
405 shares, cost $6,215 - - - - 7,223
- ---------------------------------------------------------------------------------------------------------------------------
Total assets 86,946 95,507 21,208 7,775 7,223 833,195
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities:
Accrued mortality and expense risk charges 8 9 4 2 3 110
Accrued administrative charges 1 1 - 1 - 11
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 9 10 4 3 3 121
- ---------------------------------------------------------------------------------------------------------------------------
Net assets $86,937 95,497 21,204 7,772 7,220 833,074
- ---------------------------------------------------------------------------------------------------------------------------
Contract owners' equity (notes 4 and 5) $86,937 95,497 21,204 7,772 7,220 833,074
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Operations
For the year ended December 31, 1997
(In thousands)
Mutual
Capital Growth and High Income Money Discovery
Growth Income Income Securities Market Securities
Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ 7 3,629 3,340 7,199 1,674 2
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges 63 1,396 524 1,235 410 71
Administrative charges 8 167 63 148 49 9
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 71 1,563 587 1,383 459 80
- ---------------------------------------------------------------------------------------------------------------------------
Investment income (loss), net (64) 2,066 2,753 5,816 1,215 (78)
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions on mutual funds - 3,519 110 1,546 - -
Realized gains (losses) on sales of investments, net 92 3,835 1,131 2,091 - 15
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on investments, net 92 7,354 1,241 3,637 - 15
Net change in unrealized appreciation
(depreciation) on investments 670 15,947 (99) 4,604 - 771
- ---------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments, net 762 23,301 1,142 8,241 - 786
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations $698 25,367 3,895 14,057 1,215 708
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Operations (cont.)
For the year ended December 31, 1997
(In thousands)
Mutual Natural Templeton
Shares Resources Real Estate Rising Small Developing
Securities Securities Securities Dividends Cap Markets
Fund Fund Fund Fund Fund Equity Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ 4 102 661 884 20 167
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges 138 83 294 772 119 181
Administrative charges 17 10 35 93 14 22
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 155 93 329 865 133 203
- ---------------------------------------------------------------------------------------------------------------------------
Investment income (loss), net (151) 9 332 19 (113) (36)
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions on mutual funds - - 316 1,510 232 265
Realized gains (losses) on sales of investments, net 15 (353) 1,074 2,406 262 147
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on investments, net 15 (353) 1,390 3,916 494 412
Net change in unrealized appreciation
(depreciation) on investments 1,716 (1,172) 2,407 12,343 821 (2,170)
- ---------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments, net 1,731 (1,525) 3,797 16,259 1,315 (1,758)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations $1,580 (1,516) 4,129 16,278 1,202 (1,794)
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Operations (cont.)
For the year ended December 31, 1997
(In thousands)
Templeton
Templeton Templeton Templeton Templeton International Templeton
Global Asset Global Global Income International Smaller Pacific
Allocation Growth Securities Equity Companies Growth
Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ 96 570 1,440 2,045 9 438
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges 64 455 252 953 20 256
Administrative charges 8 55 30 114 2 31
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 72 510 282 1,067 22 287
- ---------------------------------------------------------------------------------------------------------------------------
Investment income (loss), net 24 60 1,158 978 (13) 151
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions on mutual funds 28 19 - 3,136 - -
Realized gains (losses) on sales of investments, net 104 494 111 2,899 38 (474)
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on investments, net 132 684 111 6,035 38 (474)
Net change in unrealized appreciation
(depreciation) on investments 293 2,887 (1,107) 211 (109) (7,415)
- ---------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments, net 425 3,571 (996) 6,246 (71) (7,889)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations $449 3,631 162 7,224 (84) (7,738)
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Operations (cont.)
For the year ended December 31, 1997
(In thousands)
U.S. Government Utility Zero Zero Zero Total
Securities Equity Coupon Coupon Coupon All
Fund Fund Fund - 2000 Fund - 2005 Fund - 2010 Funds
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $5,093 4,714 1,569 476 406 34,545
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges 1,160 1,180 288 98 86 10,098
Administrative charges 139 142 35 12 10 1,213
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 1,299 1,322 323 110 96 11,311
- ---------------------------------------------------------------------------------------------------------------------------
Investment income (loss), net 3,794 3,392 1,246 366 310 23,234
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions on mutual
funds - 6,522 35 2 3 17,414
Realized gains (losses) on sales of investments,
net 352 2,677 227 198 196 17,537
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on investments, net 352 9,199 262 200 199 34,951
Net change in unrealized appreciation
(depreciation) on investments 2,712 7,826 (281) 131 407 41,393
- ---------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments, net 3,064 17,025 (19) 331 606 76,344
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from
operations $6,858 20,417 1,227 697 916 99,578
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Changes in Net Assets
For the years ended December 31, 1997 and 1996
(In thousands)
Adjustable U.S.
Government Fund Capital Growth Fund Growth and Income Fund High Income Fund
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $- 852 (64) (8) 2,066 813 2,753 2,395
Realized gains (losses) on
investments, net - (733) 92 20 7,354 9,008 1,241 1,332
Net change in unrealized appreciation
(depreciation) on investments - 356 670 84 15,947 960 (99) 754
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations - 475 698 96 25,367 10,781 3,895 4,481
---------------------------------------------------------------------------------------------------------------------------
Contract transactions (note 4):
Purchase payments - 1,552 3,011 788 10,533 15,819 6,687 5,922
Transfers between funds - (15,809) 2,196 1,776 4,602 6,402 (631) 1,603
Surrenders and terminations - (1,613) (237) (128 (17,705) (9,128) (6,845) (5,831)
Rescissions - (53) (33) (3) (126) (264) (120) (53)
Other transactions (note 2) - 25 3 - 78 (29) 56 (9)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from contract
transactions - (15,898) 4,940 2,433 (2,618) 12,800 (853) 1,632
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets - (15,423) 5,638 2,529 22,749 23,581 3,042 6,113
Net assets at beginning of year - 15,423 2,529 - 98,821 75,240 41,921 35,808
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $- - 8,167 2,529 121,570 98,821 44,963 41,921
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1997 and 1996
(In thousands)
Mutual Discovery Mutual Shares
Income Securities Fund Money Market Fund Securities Fund Securities Fund
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 5,816 3,485 1,215 1,165 (78) - (151) -
Realized gains (losses)
on investments, net 3,637 1,687 - - 15 - 15 -
Net change in unrealized
appreciation (depreciation)
on investments 4,604 3,616 - - 771 3 1,716 8
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets from operations 14,057 8,788 1,215 1,165 708 3 1,580 8
- ---------------------------------------------------------------------------------------------------------------------------
Contract transactions (note 4):
Purchase payments 7,073 10,882 14,086 14,336 4,882 18 11,012 50
Transfers between funds (2,645) (1,355) (6,695) (3,631) 5,667 257 9,916 384
Surrenders and terminations (16,530) (10,309) (11,292) (7,844) (427) - (992) -
Rescissions (78) (259) (53) (83) (29) - (95) -
Other transactions (note 2) 39 (1) 112 (6) (9) - (5) -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions (12,141) (1,042) (3,842) 2,772 10,084 275 19,836 434
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 1,916 7,746 (2,627) 3,937 10,792 278 21,416 442
Net assets at beginning of year 98,109 90,363 32,508 28,571 278 - 442 -
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $100,025 98,109 29,881 32,508 11,070 278 21,858 442
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1997 and 1996
(In thousands)
Natural Resources
Securities Fund Real Estate Securities Fund Rising Dividends Fund Small Cap Fund
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 9 (13) 332 422 19 278 (113) (21)
Realized gains (losses)
on investments, net (353) 506 1,390 475 3,916 932 494 95
Net change in unrealized
appreciation (depreciation)
on investments (1,172) (480) 2,407 3,748 12,343 8,111 821 215
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets from operations (1,516) 13 4,129 4,645 16,278 9,321 1,202 289
- ---------------------------------------------------------------------------------------------------------------------------
Contract transactions (note 4):
Purchase payments 496 1,159 2,849 1,633 7,130 5,191 3,879 1,263
Transfers between funds (698) 669 1,804 1,434 4,129 2,038 4,438 3,907
Surrenders and terminations (1,164) (915) (2,578) (1,728) (9,509) (4,321) (814) (74)
Rescissions (10) (13) (10) (21) (36) (78) (48) (15)
Other transactions (note 2) 2 (2) 3 28 115 13 (4) (1)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from
contract transactions (1,374) 898 2,068 1,346 1,829 2,843 7,451 5,080
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (2,890) 911 6,197 5,991 18,107 12,164 8,653 5,369
Net assets at beginning of year 8,189 7,278 20,335 14,344 51,934 39,770 5,369 -
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $5,299 8,189 26,532 20,335 70,041 51,934 14,022 5,369
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1997 and 1996
(In thousands)
Templeton Developing Templeton Global Templeton Global Templeton Global
Markets Equity Fund Asset Allocation Fund Growth Fund Income Securities Fund
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ (36) (52) 24 (29) 60 42 1,158 1,378
Realized gains (losses)
on investments, net 412 297 132 18 684 495 111 107
Net change in unrealized
appreciation (depreciation)
on investments (2,170) 1,405 293 398 2,887 3,541 (1,107) 271
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets from operations (1,794) 1,650 449 387 3,631 4,078 162 1,756
- ---------------------------------------------------------------------------------------------------------------------------
Contract transactions (note 4):
Purchase payments 2,943 2,224 1,533 1,950 7,275 6,947 1,089 1,712
Transfers between funds 192 1,512 632 1,240 2,733 3,817 (2,668) (928)
Surrenders and terminations (1,291) (633) (504) (162) (3,295) (1,698) (3,152) (2,722)
Rescissions (25) (32) (18) (35) (128) (114) (3) (1)
Other transactions (note 2) (3) (6) (1) - 45 13 30 50
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions 1,816 3,065 1,642 2,993 6,630 8,965 (4,704) (1,889)
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 22 4,715 2,091 3,380 10,261 13,043 (4,542) (133)
Net assets at beginning of year 11,970 7,255 3,759 379 29,103 16,060 22,719 22,852
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $11,992 11,970 5,850 3,759 39,364 29,103 18,177 22,719
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1997 and 1996
(In thousands)
Templeton International Investment Grade Templeton International Templeton Pacific
Equity Fund Intermediate Bond Fund Smaller Companies Fund Growth Fund
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 978 734 - 638 (13) (3) 151 413
Realized gains (losses)
on investments, net 6,035 2,946 - 360 38 2 (474) 1,371
Net change in unrealized
appreciation (depreciation)
on investments 211 8,342 - (737) (109) 48 (7,415) 605
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets from operations 7,224 12,022 - 261 (84) 47 (7,738) 2,389
---------------------------------------------------------------------------------------------------------------------------
Contract transactions (note 4):
Purchase payments 5,493 6,974 - 939 964 229 502 2,063
Transfers between funds (443) 3,648 - (15,408) 577 446 (4,197) 439
Surrenders and terminations (10,782) (6,296) - (1,630) (304) - (2,904) (3,400)
Rescissions (50) (18) - (14) - - (14) (20)
Other transactions (note 2) 161 14 - 40 - - (4) (17)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions (5,621) 4,322 - (16,073) 1,237 675 (6,617) (935)
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 1,603 16,344 - (15,812) 1,153 722 (14,355) 1,454
Net assets at beginning of year 70,362 54,018 - 15,812 722 - 26,148 24,694
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $71,965 70,362 - - 1,875 722 11,793 26,148
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1997 and 1996
(In thousands)
U.S. Government
Securities Fund Utility Equity Fund Zero Coupon Fund - 2000 Zero Coupon Fund - 2005
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 3,794 4,323 3,392 3,967 1,246 1,049 366 340
Realized gains (losses) on
investments, net 352 (40) 9,199 1,652 262 169 200 133
Net change in unrealized
appreciation (depreciation)
on investments 2,712 (2,399) 7,826 (4) (281) (990) 131 (672)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets from operations 6,858 1,884 20,417 5,615 1,227 228 697 (199)
- ---------------------------------------------------------------------------------------------------------------------------
Contract transactions (note 4):
Purchase payments 5,076 7,463 1,846 5,199 839 2,220 767 1,208
Transfers between funds (6,248) 19,458 (9,521) (9,257) (1,349) (1,036) (735) (671)
Surrenders and terminations (18,871) (11,371) (20,611) (14,003) (4,616) (2,141) (1,730) (1,026)
Rescissions (49) (165) (4) (61) - (85) - (64)
Other transactions (note 2) (14) (19) 145 (1) 18 (10) (4) (2)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from
contract transactions (20,106) 15,366 (28,145) (18,133) (5,108) (1,052) (1,702) (555)
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (13,248) 17,250 (7,728) (12,518) (3,881) (824) (1,005) (754)
Net assets at beginning of year 100,185 82,935 103,225 115,743 25,085 25,909 8,777 9,531
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $86,937 100,185 95,497 103,225 21,204 25,085 7,772 8,777
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1997 and 1996
(In thousands)
Zero Coupon Fund - 2010 Total All Funds
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 310 291 23,234 22,459
Realized gains (losses) on investments, net 199 294 34,951 21,126
Net change in unrealized appreciation
(depreciation) on investments 407 (957) 41,393 26,226
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations 916 (372) 99,578 69,811
- ---------------------------------------------------------------------------------------------------------------------------
Contract transactions (note 4):
Purchase payments 794 1,097 100,759 98,838
Transfers between funds (1,056) (935) - -
Surrenders and terminations (922) (595) (137,075) (87,568)
Rescissions - (27) (929) (1,478)
Other transactions (note 2) (4) (5) 759 65
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract transactions (1,188) (465) (36,486) 9,857
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (272) (837) 63,092 79,668
Net assets at beginning of year 7,492 8,329 769,982 690,314
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $7,220 7,492 833,074 769,982
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Notes to Financial Statements
December 31, 1997
1. ORGANIZATION
Preferred Life Variable Account C (Variable Account) is a segregated investment
account of Preferred Life Insurance Company of New York (Preferred Life) and is
registered with the Securities and Exchange Commission as a unit investment
trust pursuant to the provisions of the Investment Company Act of 1940 (as
amended). The Variable Account was established by Preferred Life on February 26,
1988 and commenced operations September 6, 1991. Accordingly, it is an
accounting entity wherein all segregated account transactions are reflected.
The Variable Account's assets are the property of Preferred Life and are held
for the benefit of the owners and other persons entitled to payments under
variable annuity contracts issued through the Variable Account and underwritten
by Preferred Life. The assets of the Variable Account, equal to the reserves and
other liabilities of the Variable Account, are not chargeable with liabilities
that arise from any other business which Preferred Life may conduct.
The Variable Account's sub-accounts may invest, at net asset values, in one or
more of the funds of the Franklin Valuemark Funds (FVF), managed by Franklin
Advisers, Inc. and its Templeton and Franklin affiliates, in accordance with the
selection made by the contract owner.
Certain officers and trustees of the FVF are also officers and/or directors of
Franklin Advisers, Inc. and/or Preferred Life.
2. SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Investments
Investments of the Variable Account are valued daily at market value using net
asset values provided by Franklin Advisers, Inc.
Realized investment gains include gains on the sale of the fund shares as
determined by the average cost method. Dividend distributions received from the
FVF are reinvested in additional shares of the FVF and are recorded as income to
the Variable Account on the ex-dividend date.
The Small Cap Fund, Capital Growth Fund and Templeton International Smaller
Companies Fund were added as available investment options on June 10, 1996. The
Mutual Discovery Securities Fund and Mutual Shares Securities Fund were added as
available investment options on December 2, 1996. The Investment Grade
Intermediate Bond Fund and Adjustable U.S. Government Fund were closed on
October 25, 1996 when shares of the U.S. Government Securities Fund were
substituted for all shares of both funds.
On May 1, 1996, the Global Income Fund name was changed to Templeton Global
Income Securities Fund. The Precious Metals Fund name was changed to Natural
Resources Securities Fund on May 1, 1997.
Expenses
Asset Based Expenses
A mortality and expense risk charge is deducted from the Variable Account on a
daily basis equal, on an annual basis, to 1.25% of the daily net assets of the
Variable Account.
An administrative charge is deducted from the Variable Account on a daily basis
equal, on an annual basis, to 0.15% of the daily net assets of the Variable
Account.
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES (cont.)
Contract Based Expenses
A contract maintenance charge is paid by the contract owner annually from each
contract by liquidating contract units at the end of the contract year and at
the time of full surrender. The amount of the charge is $30 each year. Contract
maintenance charges deducted during the years ended December 31, 1997 and 1996
were $478,510 and $468,180, respectively. These contract charges are reflected
in the Statements of Changes in Net Assets as Other transactions.
A contingent deferred sales charge is deducted from the contract value at the
time of a surrender. This charge applies only to a surrender of purchase
payments received within five years of the date of surrender. For this purpose,
purchase payments are allocated on a first-in, first-out basis. The amount of
the contingent deferred sales charge is calculated by: (a) allocating purchase
payments to the amount surrendered; and (b) multiplying each allocated purchase
payment that has been held under the contract for the period shown below by the
charge shown below:
Years Since Payment Charge
--------------------- -------
0-1 5%
1-2 5%
2-3 4%
3-4 3%
4-5 1.5%
5 + 0%
and (c) adding the products of each multiplication in (b) above.
A contract owner may, not more frequently than once annually on a cumulative
basis, make a surrender each contract year of fifteen percent (15%) of purchase
payments paid less any prior surrenders without incurring a contingent deferred
sales charge. For a partial surrender, the contingent deferred sales charge will
be deducted from the remaining contract value, if sufficient; otherwise it will
be deducted from the amount surrendered. Total contingent deferred sales charges
paid by the contract owners for the years ended December 31, 1997 and 1996 were
$983,164 and $1,012,666, respectively.
Currently, twelve transfers are permitted each contract year. Thereafter, the
fee is $25 per transfer, or 2% of the amount transferred, if less. Currently,
transfers associated with the dollar cost averaging program are not counted.
Total transfer charges for the years ended December 31, 1997 and 1996 were
$4,226 and $11,086, respectively.
Premium taxes or other taxes payable to a state or other governmental entity
will be charged against the contract values. Preferred Life may, at its sole
discretion, pay taxes when due and deduct that amount from the contract value at
a later date. Payment at an earlier date does not waive any right Preferred Life
may have to deduct such amounts at a later date.
On certain contracts, a systematic withdrawal plan is available which allows an
owner to withdraw up to 9% of purchase payments less prior surrenders annually,
paid quarterly, without incurring a contingent deferred sales charge. The
exercise of the systematic withdrawal plan in any contract year replaces the 15%
penalty free privilege for that year.
A rescission is defined as a contract that is returned to the company and
canceled within the free-look period, generally within 10 days.
<PAGE>
3. FEDERAL INCOME TAXES
Operations of the Variable Account form a part of, and are taxed with,
operations of Preferred Life, which is taxed as a life insurance company under
the Internal Revenue Code.
Preferred Life does not expect to incur any federal income taxes in the
operation of the Variable Account. If, in the future, Preferred Life determines
that the Variable Account may incur federal income taxes, it may then assess a
charge against the Variable Account for such taxes.
4. CONTRACT TRANSACTIONS - UNIT ACTIVITY (In thousands)
Transactions in units for each fund for the years ended December 31, 1997 and
1996 were as follows:
<TABLE>
<CAPTION>
Adjustable Growth Investment Mutual Mutual
U.S Capital and High Income Grade Money Discovery Shares
Government Growth Income Income Securities Intermediate Market Securities Securities
Fund Fund Fund Fund Fund Bond Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation units outstanding
at December 31, 1995 1,291 - 4,346 2,075 4,567 1,022 2,218 - -
Contract transactions:
Purchase payments 128 71 882 329 537 61 1,093 2 5
Transfers between funds (1,284) 165 360 84 (69) (980) (274) 25 38
Surrenders and terminations (133) (11) (501) (321) (503) (105) (597) - -
Rescissions (4) - (15) (3) (13) (1) (6) - -
Other transactions 2 - (2) - - 3 (1) - -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
accumulation units resulting
from contract transactions (1,291) 225 724 89 (48) (1,022) 215 27 43
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding
at December 31, 1996 - 225 5,070 2,164 4,519 - 2,433 27 43
===========================================================================================================================
Contract transactions:
Purchase payments - 241 483 330 309 - 1,035 428 981
Transfers between funds - 178 210 (44) (119) - (487) 511 893
Surrenders and terminations - (19) (809) (337) (717) - (830) (38) (86)
Rescissions - (3) (6) (6) (3) - (4) (3) (8)
Other transactions - - 4 3 2 - 8 (1) -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
accumulation units resulting
from contract transactions - 397 (118) (54) (528) - (278) 897 1,780
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding
at December 31, 1997 - 622 4,952 2,110 3,991 - 2,155 924 1,823
===========================================================================================================================
</TABLE>
<PAGE>
4. CONTRACT TRANSACTIONS - UNIT ACTIVITY (In thousands) (cont.)
<TABLE>
<CAPTION>
Natural Templeton Templeton Templeton Templeton Templeton
Resources Real Estate Rising Small Developing Global Asset Global Global Income International
Securities Securities Dividends Cap Markets Allocation Growth Securities Equity
Fund Fund Fund Fund Equity Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation units outstanding
at December 31, 1995 516 794 3,182 - 757 36 1,417 1,472 4,073
Contract transactions:
Purchase payments 73 83 388 103 206 172 564 109 479
Transfers between funds 37 68 147 320 140 109 310 (58) 251
Surrenders and terminations (59) (87) (318 (6) (58) (14) (136) (172) (428)
Rescissions (1) (1) (6) (1) (3) (3) (10) - (1)
Other transactions - 2 1 - - - 1 3 1
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
accumulation units resulting
from contract transactions 50 65 212 416 285 264 729 (118) 302
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding
at December 31, 1996 566 859 3,394 416 1,042 300 2,146 1,354 4,375
============================================================================================================================
Contract transactions:
Purchase payments 37 114 399 275 231 114 489 65 313
Transfers between funds (58) 72 225 310 (9) 48 184 (160) (23)
Surrenders and terminations (86) (103) (533) (59) (102) (37) (219) (189) (608)
Rescissions (1) - (2) (4) (2) (1) (9) - (3)
Other transactions - - 6 - - - 3 2 9
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
accumulation units resulting
from contract transactions (108) 83 95 522 118 124 448 (282) (312)
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding
at December 31, 1997 458 942 3,489 938 1,160 424 2,594 1,072 4,063
===========================================================================================================================
</TABLE>
<PAGE>
4. CONTRACT TRANSACTIONS - UNIT ACTIVITY (In thousands) (cont.)
<TABLE>
<CAPTION>
Templeton
International Templeton U.S. Zero Zero Zero
Smaller Pacific Government Utility Coupon Coupon Coupon Total
Companies Growth Securities Equity Fund - Fund - Fund - All
Fund Fund Fund Fund 2000 2005 2010 Funds
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation units outstanding
at December 31, 1995 - 1,811 5,089 5,916 1,416 456 372 42,826
Contract transactions:
Purchase payments 22 140 462 265 123 61 54 6,412
Transfers between funds 43 32 1,177 (471) (56) (34) (47) 33
Surrenders and terminations - (230) (700) (708) (119) (52) (29) (5,287)
Rescissions - (1) (10) (3) (5) (3) (1) (91)
Other transactions - (1) (1) (1) (1) - (1) 5
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
accumulation units resulting
from contract transactions 65 (60) 928 (918) (58) (28) (24) 1,072
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding
at December 31, 1996 65 1,751 6,017 4,998 1,358 428 348 43,898
===========================================================================================================================
Contract transactions:
Purchase payments 84 37 297 86 44 36 34 6,462
Transfers between funds 50 (324) (370) (449) (72) (37) (49) 480
Surrenders and terminations (26) (212) (1,096) (943) (244) (82) (41) (7,416)
Rescissions - (1) (3) - - - - (59)
Other transactions - - (1) 7 1 - - 43
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
accumulation units resulting
from contract transactions 108 (500) (1,173) (1,299) (271) (83) (56) (490)
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding
at December 31, 1997 173 1,251 4,844 3,699 1,087 345 292 43,408
===========================================================================================================================
</TABLE>
<PAGE>
5. UNIT VALUES
<TABLE>
<CAPTION>
A summary of accumulation unit values and accumulation units outstanding for
variable annuity contracts and the expense ratios, including expenses of the
underlying funds, for each year of the five-year period ended December 31, 1997
follows:
Accumulation Ratio of
Units Expenses
Outstanding Accumulation Net Assets to Average
(in thousands) Unit Value (in thousands) Net Assets*
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Adjustable U.S. Government Fund
December 31,
19961 912 $12.389 $11,298 1.99+%
1995 1,290 11.951 15,423 1.99
1994 1,767 11.077 19,571 1.97
1993 1,971 11.254 22,179 1.98
Capital Growth Fund
December 31,
1997 622 13.130 8,167 2.17
19962 225 11.254 2,529 2.17+
Growth and Income Fund
December 31,
1997 4,952 24.551 121,570 1.89
1996 5,070 19.490 98,821 1.90
1995 4,347 17.310 75,240 1.92
1994 3,452 13.215 45,616 1.94
1993 2,402 13.677 32,857 1.98
High Income Fund
December 31,
1997 2,110 21.312 44,963 1.93
1996 2,164 19.375 41,921 1.94
1995 2,076 17.252 35,808 1.96
1994 1,710 14.608 24,984 2.00
1993 1,135 15.155 17,207 2.04
Income Securities Fund
December 31,
1997 3,991 25.065 100,025 1.90
1996 4,519 21.708 98,109 1.90
1995 4,567 19.785 90,364 1.91
1994 4,416 16.392 72,389 1.94
1993 2,634 17.734 46,707 1.96
Investment Grade Intermediate Bond Fund
December 31,
19961 891 15.740 14,032 2.00+
1995 1,023 15.463 15,812 2.01
1994 1,085 14.257 15,470 2.03
1993 893 14.389 12,850 2.06
</TABLE>
<PAGE>
5. UNIT VALUES (cont.)
<TABLE>
<CAPTION>
Accumulation Ratio of
Units Expenses
Outstanding Accumulation Net Assets to Average
(in thousands) Unit Value (in thousands) Net Assets*
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market Fund
December 31,
1997 2,155 $13.865 $29,881 1.85%
1996 2,433 13.359 32,508 1.83
1995 2,218 12.883 28,571 1.80
1994 2,487 12.354 30,730 1.86
1993 627 12.066 7,566 2.06
Mutual Discovery Securities Fund
December 31,
1997 924 11.983 11,070 2.46
19963 27 10.180 278 2.77+
Mutual Shares Securities Fund
December 31,
1997 1,823 11.993 21,858 2.20
19963 43 10.330 442 2.40+
Natural Resources Securities Fund
December 31,
1997 458 11.559 5,299 2.09
1996 566 14.467 8,189 2.05
1995 516 14.109 7,278 2.06
1994 647 13.979 9,050 2.08
1993 391 14.464 5,656 2.08
Real Estate Securities Fund
December 31,
1997 942 28.169 26,532 1.94
1996 859 23.668 20,335 1.97
1995 794 18.073 14,344 1.99
1994 900 15.594 14,035 2.02
1993 437 15.369 6,712 2.07
Rising Dividends Fund
December 31,
1997 3,489 20.074 70,041 2.14
1996 3,394 15.303 51,934 2.16
1995 3,182 12.498 39,770 2.18
1994 2,936 9.769 28,685 2.20
1993 2,772 10.327 28,623 2.19
Small Cap Fund
December 31,
1997 938 14.952 14,022 2.17
19962 416 12.913 5,369 2.17+
</TABLE>
<PAGE>
5. UNIT VALUES (cont.)
<TABLE>
<CAPTION>
Accumulation Ratio of
Units Expenses
Outstanding Accumulation Net Assets to Average
(in thousands) Unit Value (in thousands) Net Assets*
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Templeton Developing Markets Equity Fund
December 31,
1997 1,160 $10.340 $11,992 2.82%
1996 1,042 11.487 11,970 2.89
1995 757 9.582 7,254 2.81
19944 591 9.454 5,589 2.93+
Templeton Global Asset Allocation Fund
December 31,
1997 424 13.786 5,850 2.34
1996 300 12.514 3,759 2.26
19955 36 10.591 379 2.30+
Templeton Global Growth Fund
December 31,
1997 2,594 15.176 39,364 2.28
1996 2,146 13.560 29,103 2.33
1995 1,416 11.339 16,061 2.37
19944 922 10.201 9,400 2.54+
Templeton Global Income Securities Fund
December 31,
1997 1,072 16.957 18,177 2.02
1996 1,354 16.781 22,719 2.01
1995 1,472 15.522 22,851 2.04
1994 1,667 13.726 22,888 2.11
1993 1,045 14.650 15,302 2.13
Templeton International Equity Fund
December 31,
1997 4,063 17.711 71,965 2.29
1996 4,375 16.081 70,362 2.29
1995 4,073 13.263 54,018 2.32
1994 4,079 12.161 49,607 2.39
1993 1,346 12.226 16,451 2.52
Templeton International Smaller Companies Fund
December 31,
1997 173 10.825 1,875 2.46
19962 65 11.145 722 2.18+
Templeton Pacific Growth Fund
December 31,
1997 1,251 9.431 11,793 2.43
1996 1,751 14.932 26,148 2.39
1995 1,812 13.630 24,693 2.41
1994 2,112 12.802 27,037 2.47
1993 915 14.233 13,023 2.54
</TABLE>
<PAGE>
5. UNIT VALUES (cont.)
<TABLE>
<CAPTION>
Accumulation Ratio of
Units Expenses
Outstanding Accumulation Net Assets to Average
(in thousands) Unit Value (in thousands) Net Assets*
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government Securities Fund
December 31,
1997 4,844 $17.947 $86,937 1.90%
1996 6,017 16.650 100,185 1.91
1995 5,089 16.298 82,935 1.92
1994 5,331 13.835 73,747 1.93
1993 6,108 14.698 89,774 1.94
Utility Equity Fund
December 31,
1997 3,699 25.818 95,497 1.90
1996 4,998 20.654 103,225 1.90
1995 5,916 19.555 115,743 1.90
1994 6,317 15.104 95,415 1.92
1993 7,479 17.319 129,527 1.91
Zero Coupon Fund - 2000
December 31,
1997 1,087 19.512 21,204 1.80
1996 1,358 18.475 25,085 1.80
1995 1,416 18.294 25,910 1.80
1994 1,158 15.373 17,797 1.80
1993 795 16.717 13,297 1.77
Zero Coupon Fund - 2005
December 31,
1997 345 22.532 7,772 1.80
1996 428 20.517 8,777 1.80
1995 456 20.914 9,531 1.80
1994 403 16.096 6,483 1.80
1993 341 18.050 6,159 1.77
Zero Coupon Fund - 2010
December 31,
1997 292 24.740 7,220 1.80
1996 348 21.522 7,492 1.80
1995 371 22.431 8,329 1.80
1994 252 15.930 4,008 1.80
1993 193 18.144 3,502 1.65
<FN>
*For the year ended December 31, including the effect of the expenses of the underlying funds.
+Annualized.
1 Period from January 1, 1996 to October 25, 1996 (fund closure).
2 Period from June 10, 1996 (fund commencement) to December 31, 1996.
3 Period from December 2, 1996 (fund commencement) to December 31, 1996.
4 Period from April 25, 1994 (fund commencement) to December 31, 1994.
5 Period from August 4, 1995 (fund commencement) to December 31, 1995.
</FN>
</TABLE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Financial Statements
December 31, 1997 and 1996
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Independent Auditors' Report
The Board of Directors
Preferred Life Insurance Company of New York:
We have audited the accompanying balance sheets of Preferred Life Insurance
Company of New York as of December 31, 1997 and 1996, and the related statements
of income, stockholder's equity and cash flows for each of the years in the
three-year period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Preferred Life Insurance
Company of New York as of December 31, 1997 and 1996, and the results of its
operations, changes in stockholder's equity and cash flows for each of the years
in the three-year period ended December 31, 1997, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 4, 1998
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Financial Statements
Balance Sheets
December 31, 1997 and 1996
(In thousands except share data)
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments:
Fixed maturities, at market $ 30,106 20,412
Certificates of deposit and short-term securities 698 2,389
- ---------------------------------------------------------------------------------------------------------------------------
Total Investments 30,804 22,801
Cash 5,321 4,976
Receivables 5,006 4,046
Reinsurance receivable:
Recoverable on future benefit reserves 166 162
Recoverable on unpaid claims 10,537 9,674
Receivable on paid claims 2,500 1,393
Deferred acquisition costs 37,447 38,245
Other Assets 1,162 835
- ---------------------------------------------------------------------------------------------------------------------------
Assets, exclusive of separate account assets 92,943 82,132
Separate account assets 833,083 769,981
- ---------------------------------------------------------------------------------------------------------------------------
Total Assets $926,026 852,113
===========================================================================================================================
Liabilities and Stockholder's Equity
Liabilities:
Future benefit reserves:
Life $ 1,362 1,219
Annuity 634 325
Policy and contract claims 24,944 25,119
Unearned premiums 1,590 1,887
Other policyholder funds 1,230 679
Reinsurance payable 2,116 2,133
Deferred income taxes 10,173 8,740
Accrued expenses and other liabilities 3,113 2,462
Commissions due and accrued 930 822
Payable to parent 3,180 1,102
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities, exclusive of separate account liabilities 49,272 44,488
Separate account liabilities 833,083 769,981
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 882,355 814,469
Stockholders Equity:
Common stock, $10 par value; 200,000 shares authorized, issued and outstanding 2,000 2,000
Additional paid-in capital 15,500 15,500
Net unrealized gain (loss) on investments, net of deferred federal income taxes 716 (34)
Retained earnings 25,455 20,178
- ---------------------------------------------------------------------------------------------------------------------------
Total stockholder's equity 43,671 37,644
Commitments and contingencies (notes 6 and 11)
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity $926,026 852,113
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Financial Statements (continued)
Statements of Income
Years ended December 31, 1997, 1996 and 1995
(In thousands)
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Life insurance premiums $ 8,866 9,174 10,291
Annuity considerations 12,791 11,725 10,679
Accident and health premiums 22,114 22,105 22,406
- ---------------------------------------------------------------------------------------------------------------------------
Total premiums and considerations 43,771 43,004 43,376
Premiums ceded 12,939 11,574 13,462
- ---------------------------------------------------------------------------------------------------------------------------
Net premiums and considerations 30,832 31,430 29,914
Investment income, net 1,626 1,220 605
Realized investment losses, net (1) (62) (13)
Other income 93 0 0
- ---------------------------------------------------------------------------------------------------------------------------
Total revenue 32,550 32,588 30,506
- ---------------------------------------------------------------------------------------------------------------------------
Benefits and expenses:
Life insurance benefits 5,074 5,971 8,202
Annuity benefits 323 202 (100)
Accident and health insurance benefits 14,709 13,406 14,743
- ---------------------------------------------------------------------------------------------------------------------------
Total benefits 20,106 19,579 22,845
Benefit recoveries 9,200 6,614 9,116
- ---------------------------------------------------------------------------------------------------------------------------
Net benefits 10,906 12,965 13,729
Commissions and other agent compensation 8,295 8,596 7,278
General and administrative expenses 4,018 3,576 3,132
Taxes, licenses and fees 654 688 479
Change in deferred acquisition costs, net 798 341 (1,009)
- ---------------------------------------------------------------------------------------------------------------------------
Total benefits and expenses 24,671 26,166 23,609
- ---------------------------------------------------------------------------------------------------------------------------
Income from operations before income taxes 7,879 6,422 6,897
- ---------------------------------------------------------------------------------------------------------------------------
Income tax expense (benefit):
Current 1,573 435 (109)
Deferred 1,029 2,396 1,612
- ---------------------------------------------------------------------------------------------------------------------------
Total income tax expense 2,602 2,831 1,503
Net income $ 5,277 3,591 5,394
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Financial Statements (continued)
Statements of Stockholder's Equity
Years ended December 31, 1997, 1996 and 1995
(In thousands)
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common stock:
Balance at beginning and end of year $ 2,000 2,000 2,000
- ---------------------------------------------------------------------------------------------------------------------------
Additional paid-in capital:
Balance at beginning and end of year 15,500 15,500 15,500
- ---------------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses) on investments:
Balance at beginning of year (34) 274 (268)
Net unrealized gain (loss) during the year, net of deferred federal income taxes 750 (308) 542
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of year 716 (34) 274
- ---------------------------------------------------------------------------------------------------------------------------
Retained earnings:
Balance at beginning of year 20,178 16,587 11,193
Net income 5,277 3,591 5,394
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of year 25,455 20,178 16,587
Total Stockholder's equity $43,671 37,644 34,361
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Financial Statements (continued)
Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
(In thousands)
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net Income $5,277 3,591 5,394
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Realized losses on investments, net 1 62 13
Deferred federal income tax expense 1,029 2,396 1,612
Change in:
Receivables and other assets (3,261) 3,526 62
Deferred acquisition costs 798 341 (1,009)
Future benefit reserves 452 944 (182)
Policy and contract claims (175) (1,048) (1,145)
Unearned premiums (297) (443) 45
Other policyholder funds 551 (12) (194)
Reinsurance payable (17) 881 (806)
Accrued expenses and other liabilities 649 (1,523) (158)
Commissions due and accrued 108 (2) (56)
Due to parent 2,080 439 97
Depreciation and amortization (110) (46) (185)
- ---------------------------------------------------------------------------------------------------------------------------
Total adjustments 1,808 5,515 (1,906)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 7,085 9,106 3,488
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows provided by (used in) investing activities:
Purchase of fixed maturities, at market (8,680) (8,525) (15,328)
Sale of fixed maturities, at market 81 2,654 4,522
Other investments, net 1,859 (1,492) 2,589
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (6,740) (7,363) (8,217)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 345 1,743 (4,729)
Cash at beginning of year 4,976 3,233 7,962
- ---------------------------------------------------------------------------------------------------------------------------
Cash at end of year $5,321 4,976 3,233
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements
(in thousands)
(1) Summary of Significant Accounting Policies
Preferred Life Insurance Company of New York (the Company) is a wholly owned
subsidiary of Allianz Life Insurance Company of North America (Allianz Life)
which, in turn, is a wholly-owned subsidiary of Allianz of America, Inc. (AZOA),
a majority-owned subsidiary of Allianz A.G. Holding, a Federal Republic of
Germany company.
The Company is a life insurance company licensed to sell group life and accident
and health policies and individual variable annuity contracts in six states and
the District of Columbia. Based on 1997 premiums and considerations, 21%, 41%
and 38% of the Company's business is life, annuity and accident and health,
respectively. The Company's primary distribution channels are through strategic
alliances with third party marketing organizations. The Company has a
significant relationship with a mutual fund company and its broker/dealer
network for marketing its variable annuity products.
Following is a summary of the significant accounting policies reflected in the
accompanying financial statements.
Basis of Presentation
The financial statements have been prepared in accordance with generally
accepted accounting principles (GAAP) which vary in certain respects from
accounting rules prescribed or permitted by state insurance regulatory
authorities. Certain amounts as previously reported have been reclassified to be
consistent with the current year's presentation.
The preparation of financial statements in conformity with GAAP requires
management to make certain estimates and assumptions that affect reported assets
and liabilities including reporting or disclosure of contingent assets and
liabilities as of the balance sheet date and the reported amounts of revenues
and expenses during the reporting period. Actual results could vary
significantly from management's estimates.
Recognition of Traditional Life, Group Life and Group Accident and Health
Revenue
Traditional life products include products with guaranteed premiums and benefits
and consist solely of policies converted from group life business.
Premiums on traditional life and group life products are recognized as income
when due. Group accident and health premiums are recognized as earned on a pro
rata basis over the risk coverage periods. Benefits and expenses are matched
with earned premiums so that profits are recognized over the premium paying
periods of the contracts. This matching is accomplished by establishing
provisions for future policy benefits and policy and contract claims, and
deferring and amortizing related policy acquisition costs.
Recognition of Variable Annuity Revenue
Variable annuity contracts do not have significant mortality or morbidity risks
and are accounted for in a manner consistent with interest bearing financial
instruments. Accordingly, premium receipts are reported as deposits to the
contractholder's account, while revenues consist of amounts assessed against
contractholders including surrender charges and earned administrative service
fees. Benefits consist of claims and benefits incurred in excess of the
contractholder's balance.
Deferred Acquisition Costs
Acquisition costs, consisting of commissions and other costs, which vary with
and are primarily related to production of new business, are deferred. For
variable annuity contracts, acquisition costs are amortized in relation to the
present value of expected gross profits from investment margins and expense
charges. Acquisition costs for group life and group accident and health products
are deferred and amortized over the lives of the policies in the same manner as
premiums are earned. Deferred acquisition costs amortized during 1997, 1996 and
1995 were $10,147, $6,541 and $4,517, respectively.
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements (cont.)
(in thousands)
(1) Summary of Significant Accounting Policies (cont.)
Future Benefit Reserves
Future benefits on life insurance products are computed by net level premium
methods and the commissioners reserve valuation method based upon estimated
future investment yield and mortality, commensurate with the Company's
experience.
Future benefit reserves for variable annuity products are carried at accumulated
contract values. Any additional reserves for any death benefits which may exceed
the accumulated contract values are carried at an amount greater than or equal
to a one year term cost.
Policy and Contract Claims
Policy and contract claims represent an estimate of claims and claim adjustment
expenses that have been reported but not yet paid and incurred but not yet
reported as of December 31.
Investments
Realized gains and losses are computed based on the specific identification
method.
Short term investments, which include certificate of deposits, are carried at
amortized cost which approximates market.
As of December 31, 1997 and 1996, investments with a carrying value of $1,645
and $1,596, respectively, were pledged to the New York Superintendent of
Insurance as required by statutory regulation.
The fair values of invested assets are deemed by management to approximate their
estimated market values. Changes in market conditions subsequent to December 31
may cause estimates of fair values to differ from the amounts presented herein.
Reinsurance
Insurance liabilities are reported before the effects of reinsurance. Amounts
paid or deemed to have been paid for claims covered by reinsurance contracts are
recorded as reinsurance receivables. Estimated reinsurance receivables are
recognized in a manner consistent with the liabilities related to the underlying
reinsured contracts.
Separate Accounts
Separate accounts represent funds for which investment income and investment
gains and losses accrue directly to the contractholders. Each account has
specific investment objectives and the assets are carried at market value. The
assets of each account are legally segregated and are not subject to claims
which arise out of any other business of the Company.
Fair values of separate account assets were determined using the market value of
the underlying investments held in segregated fund accounts. Fair values of
separate account liabilities were determined using the cash surrender values of
the contractholders' accounts.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the period that
includes the enactment date.
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements (cont.)
(in thousands)
(1) Summary of Significant Accounting Policies (cont.)
Receivables
Receivable balances approximate estimated fair values. This is based on
pertinent information available to management as of year end including the
financial condition and credit worthiness of the parties underlying the
receivables. Changes in market conditions subsequent to year end may cause
estimates of fair values to differ from the amounts presented herein.
Accounting Changes
In 1996, the Company adopted Statement of Financial Accounting Standards (SFAS)
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of. No adjustments were made to the financial statements
upon adoption of this pronouncement.
In 1997 the Company adopted SFAS No. 129, Disclosure of Information about
Capital Structure, which establishes standards for disclosing information about
an entity's capital structure. No additional disclosures were required.
Accounting Pronouncements to be Adopted
In June, 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
130 Reporting Comprehensive Income, which establishes standards for reporting
and displaying comprehensive income and its components in general purpose
financial statements, and SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, which requires certain business enterprises
to report specified information about their operating segments in a complete set
of financial statements to shareholders. SFAS No. 130 and SFAS No. 131 will be
adopted in 1998.
<TABLE>
<CAPTION>
(2) Investments
Investments at December 31, 1997 consist of:
Amount
Amortized cost Estimated shown on
or cost fair value balance sheet
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities
U.S. government $28,189 29,256 29,256
Mortgage backed securities 815 850 850
- ---------------------------------------------------------------------------------------------------------------------------
Total fixed maturities 29,004 30,106 30,106
===========================================================================================================================
Other investments:
Short-term securities 698 xx 698
- ---------------------------------------------------------------------------------------------------------------------------
Total other investments 698 xx 698
- ---------------------------------------------------------------------------------------------------------------------------
Total investments $29,702 xx 30,804
===========================================================================================================================
</TABLE>
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements (cont.)
(in thousands)
(2) Investments (cont.)
<TABLE>
<CAPTION>
At December 31, 1997 and 1996, the amortized cost, gross unrealized gains, gross
unrealized losses and estimated fair values of fixed maturities are as follows:
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
U.S. government $28,189 1,070 3 29,256
Mortgage backed securities 815 35 0 850
- ---------------------------------------------------------------------------------------------------------------------------
Total fixed maturities $29,004 1,105 3 30,106
===========================================================================================================================
1996
U.S. government $19,571 66 131 19,506
Mortgage backed securities 894 12 0 906
- ---------------------------------------------------------------------------------------------------------------------------
Total fixed maturities $20,465 78 131 20,412
===========================================================================================================================
</TABLE>
The changes in gross unrealized gains (losses) from fixed maturities were
$1,155, $(475) and $835 for the years ended December 31, 1997, 1996 and 1995,
respectively.
The amortized cost and estimated fair value of fixed maturities at December 31,
1997, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
cost fair value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Due after one year through five years: $ 6,057 6,069
Due after five years through ten years 13,451 13,922
Due after ten years 8,681 9,265
Mortgage backed securities 815 850
- ---------------------------------------------------------------------------------------------------------------------------
Totals $29,004 30,106
===========================================================================================================================
</TABLE>
Proceeds from sales of investments in available-for-sale securities during 1997,
1996 and 1995 were $82, $2,654 and $4,522, respectively. Gross gains of $0, $0
and $64 and gross losses of $0, $62 and $77 were realized on sales of
available-for-sale securities in 1997, 1996 and 1995, respectively. The related
tax benefit was $0, $22 and $4 in 1997, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
Major categories of net investment income for the respective years ended
December 31 are:
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest:
Fixed maturities, at market $1,494 1,132 410
Short-term investments 168 98 0
Other 11 1 201
- ---------------------------------------------------------------------------------------------------------------------------
Total investment income 1,673 1,231 611
Investment expenses 47 11 6
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income $1,626 1,220 605
===========================================================================================================================
</TABLE>
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements (cont.)
(in thousands)
<TABLE>
<CAPTION>
(3) Summary Table of Fair Value Disclosures
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets Fixed maturities, at market:
U.S. Government $ 29,256 $ 29,256 $ 19,506 $ 19,506
Mortgage backed securities 850 850 906 906
Certificates of deposit and other short term securities 698 698 2,389 2,389
Receivables 5,006 5,006 4,046 4,046
Separate accounts assets 833,083 833,083 769,981 769,981
Financial liabilities
Separate account liabilities 833,083 821,457 769,981 756,349
===========================================================================================================================
</TABLE>
See Note (1) "Summary of Significant Accounting Policies" for description of the
methods and significant assumptions used to estimate fair values.
(4) Receivables
Receivables at December 31 consist of the following:
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Premiums due $4,565 3,318
Reinsurance commission receivable 38 450
Other 403 278
- ---------------------------------------------------------------------------------------------------------------------------
Total receivables $5,006 4,046
===========================================================================================================================
</TABLE>
(5) Accident and Health Claims Reserves
Accident and health claims reserves are based on long-range projections subject
to uncertainty. Uncertainty regarding reserves of a given accident year is
gradually reduced as new information emerges each succeeding year, allowing more
reliable re-evaluations of such reserves. While management believes that
reserves as of December 31, are adequate, uncertainties in the reserving process
could cause such reserves to develop favorably or unfavorably in the near term
as new or additional information emerges. Any adjustments to reserves are
reflected in the operating results of the periods in which they are made.
Movements in reserves which are small relative to the amount of such reserves
could significantly impact future reported earnings of the Company.
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements (cont.)
(in thousands)
(5) Accident and Health Claims Reserves (cont.)
Activity in the accident and health claims reserves, exclusive of hospital
indemnity and AIDS reserves of $662, $293 and $287 in 1997, 1996 and 1995,
respectively, is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, net of reinsurance recoverables
of $7,476, $9,249 and $10,049 $11,335 11,000 10,149
Incurred related to:
Current year 11,439 11,372 10,502
Prior years (3,199) (3,079) (2,245)
- ---------------------------------------------------------------------------------------------------------------------------
Total incurred 8,240 8,293 8,257
- ---------------------------------------------------------------------------------------------------------------------------
Paid related to:
Current year 1,686 1,458 1,097
Prior years 5,899 6,500 6,309
- ---------------------------------------------------------------------------------------------------------------------------
Total paid 7,585 7,958 7,406
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, net of reinsurance recoverables
of $7,643, $7,476 and $9,249 $11,990 11,335 11,000
===========================================================================================================================
</TABLE>
Due to lower than anticipated losses related to prior years, the provision for
prior year claims and claim adjustment expenses decreased.
(6) Reinsurance
In the normal course of business, the Company seeks to limit its exposure to
loss on any single insured and to recover a portion of benefits paid by ceding
risks under excess coverage and coinsurance contracts. The Company retains a
maximum of $50 coverage per individual life.
Reinsurance contracts do not relieve the Company from its obligations to
policyholders. Failure of reinsurers to honor their obligations could result in
losses to the Company; consequently, allowances are established for amounts
deemed uncollectible. The Company evaluates the financial condition of its
reinsurers and monitors concentrations of credit risk to minimize its exposure
to significant losses from reinsurer insolvencies.
Included in reinsurance receivables at December 31, 1997 and 1996 are
recoverables on paid and unpaid claims from Allianz Life of $2,791 and $1,554,
respectively. A contingent liability exists to the extent that Allianz Life or
the Company's unaffiliated reinsurers are unable to meet their contractual
obligations under reinsurance contracts. Management is of the opinion that no
liability will accrue to the Company with respect to this contingency.
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements (cont.)
(in thousands)
(6) Reinsurance (cont.)
Life insurance, annuities and accident and health business assumed from and
ceded to other companies is as follows:
<TABLE>
<CAPTION>
Percentage
Assumed Ceded of amount
Gross from other to other Net assumed
Year ended amount companies companies amount to net
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
December 31, 1997:
Life insurance in force $1,591,244 0 484,546 1,106,698 0.0%
- ---------------------------------------------------------------------------------------------------------------------------
Premiums:
Life insurance 8,866 0 2,450 6,416 0.0%
Annuities 12,791 0 0 12,791 0.0%
Accident and health insurance 14,823 7,291 10,489 11,625 62.7%
- ---------------------------------------------------------------------------------------------------------------------------
Total Premiums 36,480 7,291 12,939 30,832 23.6%
===========================================================================================================================
December 31, 1996:
Life insurance in force $1,700,286 0 647,863 1,052,423 0.0%
- ---------------------------------------------------------------------------------------------------------------------------
Premiums:
Life insurance 9,174 0 2,304 6,870 0.0%
Annuities 11,725 0 0 11,725 0.0%
Accident and health insurance 15,482 6,623 9,270 12,835 51.6%
- ---------------------------------------------------------------------------------------------------------------------------
Total Premiums 36,381 6,623 11,574 31,430 21.1%
===========================================================================================================================
December 31, 1995:
Life insurance in force $1,826,979 0 715,945 1,111,034 0.0%
- ---------------------------------------------------------------------------------------------------------------------------
Premiums:
Life insurance 10,291 0 2,642 7,649 0.0%
Annuities 10,679 0 0 10,679 0.0%
Accident and health insurance 15,717 6,689 10,820 11,586 57.7%
- ---------------------------------------------------------------------------------------------------------------------------
Total Premiums 36,687 6,689 13,462 29,914 22.4%
===========================================================================================================================
</TABLE>
Of the amounts assumed from and ceded to other companies, life and accident and
health insurance assumed from and ceded to Allianz Life is as follows:
<TABLE>
<CAPTION>
Assumed Ceded
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Life insurance in force $ 0 0 0 2,032 2,432 2,930
- ---------------------------------------------------------------------------------------------------------------------------
Premiums:
Life insurance $ 0 0 0 44 36 55
Accident and health insurance 1,566 2,547 2,959 841 766 921
- ---------------------------------------------------------------------------------------------------------------------------
Total Premiums $1,566 2,547 2,959 885 802 976
===========================================================================================================================
</TABLE>
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements (cont.)
(in thousands)
(7) Income Taxes
Income Tax Expense
Total income tax expenses (benefits) for the years ended December 31 are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense attributable to operations:
Current tax expense (benefit) $1,573 435 (109)
Deferred tax expense 1,029 2,396 1,612
- ---------------------------------------------------------------------------------------------------------------------------
Total income tax expense attributable to operations $2,602 2,831 1,503
Income tax effect on equity:
Attributable to unrealized gains and losses for the year 404 (166) 292
- ---------------------------------------------------------------------------------------------------------------------------
Total income tax effect on equity $3,006 2,665 1,795
===========================================================================================================================
</TABLE>
Components of Income Tax Expense
Income tax expense computed at the statutory rate of 35% varies from tax expense
reported in the Statements of Income for the respective years ended December 31
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense computed at the statutory rate $2,758 2,248 2,414
Other (156) 583 (911)
- ---------------------------------------------------------------------------------------------------------------------------
Income tax expense as reported $2,602 2,831 1,503
===========================================================================================================================
</TABLE>
Components of Deferred Tax Assets and Liabilities on the Balance Sheet
Tax effects of temporary differences giving rise to the significant components
of the net deferred tax liabilities at December 31, 1997 and 1996 are as
follows:
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Future benefit reserves $ 2,675 3,427
Unrealized losses on investments 0 19
- ---------------------------------------------------------------------------------------------------------------------------
Total deferred tax assets 2,675 3,446
- ---------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities: 10,382 10,757
Deferred acquisition costs 385 0
Unrealized gains on investments 2,081 1,429
- ---------------------------------------------------------------------------------------------------------------------------
Other
Total deferred tax liabilities 12,848 12,186
- ---------------------------------------------------------------------------------------------------------------------------
Net deferred tax liability $10,173 8,740
===========================================================================================================================
</TABLE>
Although realization is not assured, the Company believes it is not necessary to
establish a valuation allowance for the deferred tax asset as it is more likely
than not the deferred tax asset will be realized principally through future
reversals of existing taxable temporary differences and future taxable income.
The amount of the deferred tax asset considered realizable, however, could be
reduced in the near term if estimates of future reversals of existing taxable
temporary differences and future taxable income are reduced.
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements (cont.)
(in thousands)
(7) Income Taxes (cont.)
The Company files a consolidated federal income tax return with AZOA and all of
its wholly owned subsidiaries. The consolidated tax allocation agreement
stipulates that each company participating in the return will bear its share of
the tax liability pursuant to United States Treasury Department regulations. The
Company accrues income taxes payable to Allianz Life under AZOA intercompany tax
allocation agreements. The Company's liability for current taxes was $2,077 and
$504 as of December 31, 1997 and 1996, respectively, and is included in payable
to parent in the liability section of the accompanying balance sheet.
(8) Related Party Transactions
Allianz Life performs certain administrative services for the Company. The
Company reimbursed Allianz Life $1,463, $1,246 and $1,115 in 1997, 1996 and
1995, respectively, for related administrative expenses incurred. The Company's
liability to Allianz Life for incurred but unpaid service fees as of December
31, 1997 and 1996 was $569 and $598, respectively, and is included in payable to
parent in the liability section of the accompanying balance sheet.
AZOA's investment division manages the Company's investment portfolio. The
Company paid AZOA $15, $11 and $5 in 1997, 1996 and 1995, respectively, for
investment advisory fees. The Company had no incurred but unpaid fees to AZOA as
of December 31, 1997 and 1996.
(9) Employee Benefit Plans
The Company participates in the Allianz Primary Retirement Plan (Primary
Retirement Plan), a defined contribution plan. The Company makes contributions
to a money purchase pension plan on behalf of eligible participants. All
employees are eligible to participate in the Primary Retirement Plan after two
years of service. The contributions are based on a percentage of the
participant's salary with the participants being 100% vested upon eligibility.
It is the Company's policy to fund the plan costs as accrued. Total pension
contributions were $37, $29 and $16 in 1997, 1996 and 1995, respectively.
The Company participates in the Allianz Asset Accumulation Plan (Allianz Plan),
a defined contribution plan sponsored by AZOA. Under the Allianz Plan
provisions, the Company will match from 50% to 100% of eligible employees'
contributions up to a maximum of 6% of a participant's compensation. The total
Company match for 1997, 1996 and 1995 Plan participants was 90%, 100% and 100%
respectively. All employees are eligible to participate after one year of
service and are fully vested in the Company's matching contribution after three
years of service. The Allianz Plan will accept participants' pretax or after-tax
contributions up to 15% of the participant's compensation. It is the Company's
policy to fund the Allianz Plan costs as accrued. The Company accrued $59, $41
and $5 in 1997, 1996 and 1995, respectively, toward planned contributions.
(10) Statutory Financial Data and Dividend Restrictions
Statutory accounting is directed toward insurer solvency and protection of
policyholders. Accordingly, certain items recorded in financial statements
prepared under GAAP are excluded or vary in determining statutory policyholders'
surplus and gain from operations. Currently, these items include, among others,
deferred acquisition costs, furniture and fixtures, accident and health premiums
receivable which are more than 90 days past due, deferred taxes and undeclared
dividends to policyholders. Additionally, future life and annuity policy benefit
reserves calculated for statutory accounting do not include provisions for
withdrawals.
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements (cont.)
(in thousands)
(10) Statutory Financial Data and Dividend Restrictions (cont.)
The differences between stockholder's equity and net income reported in
accordance with statutory accounting practices and the accompanying financial
statements for the years ended December 31 are as follows:
<TABLE>
<CAPTION>
Stockholder's equity Net income
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statutory basis $25,940 21,886 4,292 2,358 2,821
Adjustments:
Change in reserve basis (10,494) (13,696) 2,424 4,070 3,281
Deferred acquisition costs 37,447 38,245 (798) (341) 1,009
Deferred taxes (10,173) (8,740) (1,029) (2,396) (1,612)
Nonadmitted assets 171 154 0 0 0
Interest maintenance reserve (88) (68) (19) (99) (105)
Asset Valuation Reserve 2 7 0 0 0
Liability for unauthorized reinsurers 225 0 0 0 0
Unrealized gains (losses) on investments 1,102 (53) 0 0 0
Other (461) (91) 407 (1) 0
- ---------------------------------------------------------------------------------------------------------------------------
As reported in the accompanying financial statements $43,671 37,644 5,277 3,591 5,394
===========================================================================================================================
</TABLE>
The Company is required to meet minimum capital and surplus requirements. At
December 31, 1997 and 1996, the Company was in compliance with these
requirements. In accordance with New York Statutes, the Company may not pay a
stockholder dividend without prior approval by the Superintendent of Insurance.
The Company paid no dividends in 1997, 1996 and 1995.
Regulatory Risk Based Capital
An insurance enterprise's state of domicile imposes minimum risk-based capital
requirements that were developed by the National Association of Insurance
Commissioners (NAIC). The formulas for determining the amount of risk-based
capital specify various weighting factors that are applied to financial balances
or various levels of activity based on the perceived degree of risk. Regulatory
compliance is determined by a ratio of an enterprise's regulatory total adjusted
capital to its authorized control level risk-based capital, as defined by the
NAIC. Enterprises below specific triggerpoints or ratios are classified within
certain levels, each of which requires specified corrective action. The levels
and ratios are as follows:
Ratio of total adjusted capital to
authorized control level risk-based
Regulatory Event Capital (less than or equal to)
- -----------------------------------------------------------------------------
Company action level 2 (or 2.5 with negative trends)
Regulatory action level 1.5
Authorized control level 1
Mandatory control level 0.7
The Company met the minimum risk-based capital requirements as of December 31,
1997 and 1996.
Permitted Statutory Accounting Practices
The Company is required to file annual statements with insurance regulatory
authorities which are prepared on an accounting basis prescribed or permitted by
such authorities. Currently prescribed statutory accounting practices include
state laws, regulations, and general administrative rules, as well as a variety
of publications of the NAIC. Permitted statutory accounting practices encompass
all accounting practices that are not prescribed; such practices differ from
state to state, may differ from company to company within a state, and may
change in the future. The NAIC currently has a project underway to codify
statutory accounting practices, the result of which is expected to constitute
the only source of "prescribed" statutory accounting practices. Accordingly,
that project will likely change the definition of what comprises prescribed
versus permitted statutory accounting practices, and may result in changes to
existing accounting policies that insurance enterprises use to prepare their
statutory financial statements. The Company does not currently use permitted
statutory accounting practices which have a significant impact on its statutory
financial statements.
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements (cont.)
(in thousands)
(11) Commitments and Contingencies
The Company is subject to claims and lawsuits that arise in the ordinary course
of business. In the opinion of management, the ultimate resolution of such
litigation will not have a material adverse effect on the financial position of
the Company.
The Company is contingently liable for possible future assessments under
regulatory requirements pertaining to insolvencies and impairments of
unaffiliated insurance companies. Provision has been made for assessments
currently received and assessments anticipated for known insolvencies.
The Company and Allianz Life is expending significant resources to assure that
its computer systems are reprogrammed in time to effectively deal with
transactions in the year 2000 and beyond. Costs associated with this effort are
not expected to be material and are expensed as incurred. This "Year 2000
Computer Problem" creates risk for the Company from unforeseen problems in its
own computer systems and from third parties with whom the Company deals on
financial transactions worldwide. Such failures of the Company and/or third
parties' computer systems could have a material impact on the Company's ability
to conduct its business, and especially to process and account for the transfer
of funds electronically.
(12) Supplementary Insurance Information
The following table summarizes certain financial information by line of business
for 1997, 1996 and 1995:
<TABLE>
<CAPTION>
As of December 31 For the year ended December 31
- ---------------------------------------------------------------------------------------------------------------------------
Future Other Premium Benefits, Net change
Deferred benefits, policy revenue claims in
policy losses, claims and and other Net losses, and policy Other
acquisition claims and Unearned benefits contract investment settlement acquisition operating
costs loss expense premiums payable considerations income expenses costs (a) expenses
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997
Life insurance $ 222 1,362 983 4,177 6,416 406 2,587 68 2,075
Annuities 37,105 634 0 471 12,791 0 323 750 8,023
Accident and
health insurance 120 0 607 20,296 11,625 1,220 7,996 (20) 2,869
- ---------------------------------------------------------------------------------------------------------------------------
$37,447 1,996 1,590 24,944 30,832 1,626 10,906 798 12,967
- ---------------------------------------------------------------------------------------------------------------------------
1996
Life insurance $ 290 1,219 908 5,151 6,870 268 4,371 (27) 2,297
Annuities 37,855 325 0 864 11,725 0 202 265 7,069
Accident and
health insurance 100 0 979 19,104 12,835 952 8,392 103 3,494
- ---------------------------------------------------------------------------------------------------------------------------
$38,245 1,544 1,887 25,119 31,430 1,220 12,965 341 12,860
- ---------------------------------------------------------------------------------------------------------------------------
1995
Life insurance $ 263 594 844 5,615 7,649 104 5,428 (6) 2,374
Annuities 38,120 6 0 16 10,679 0 (100) (1,008) 6,180
Accident and
health insurance 203 0 1,486 20,536 11,586 501 8,401 5 2,335
- ---------------------------------------------------------------------------------------------------------------------------
$38,586 600 2,330 26,167 29,914 605 13,729 (1,009) 10,889
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
(a) See note 1 for aggregate gross amortization.
(b) Premiums written are not applicable for life insurance companies.
</FN>
</TABLE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
a. Financial Statements
The following financial statements of the Company are included in Part B
hereof.
1. Independent Auditors' Report.
2. Balance Sheets as of December 31, 1997 and 1996.
3. Statements of Income for the years ended December 31, 1997, 1996
and 1995.
4. Statements of Stockholder's Equity for the years ended December 31,
1997, 1996 and 1995.
5. Statements of Cash Flow for the years ended December 31, 1997, 1996
and 1995.
6. Notes to Financial Statements - December 31, 1997, 1996 and 1995.
The following financial statements of the Variable Account are included in
Part B hereof.
1. Independent Auditors' Report.
2. Statements of Assets and Liabilities as of December 31, 1997.
3. Statements of Operations for the year ended December 31, 1997.
4. Statements of Changes in Net Assets for the years ended December 31,
1997 and 1996.
5. Notes to Financial Statements - December 31, 1997.
b. Exhibits
1. Resolution of Board of Directors of the Company authorizing the
establishment of the Variable Account*
2. Not Applicable
3. Principal Underwriter Agreement**
4. Individual Immediate Variable Annuity Contract*
4a. Joint Owners Endorsement*
4b. Period Certain and Partial Liquidation Endorsement*
5. Application for Individual Immediate Variable Annuity Contract*
6. (i) Copy of Articles of Incorporation of the Company*
(ii) Copy of the Bylaws of the Company***
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 initial Form N-4 filed
electronically on January 2, 1997.
**Incorporated by reference to Registrant's Pre-Effective Amendment No. 1 to
Form N-4 filed electronically on May 14, 1997.
***Incorporated by reference to Registrant's Pre-Effective Amendment No. 2 to
Form N-4 filed electronically on June 2, 1997.
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The following are the Officers and Directors of the Company:
<TABLE>
<CAPTION>
<S> <C>
Name and Principal Positions and Offices
Business Address with Depositor
- ------------------------------ ----------------------------------
Lowell C. Anderson Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Ronald L. Wobbeking Chairman, Chief Executive
1750 Hennepin Avenue and Director
Minneapolis, MN 55403
Thomas G. Brown Director
One Liberty Plaza,
45th Floor
New York, NY 10006
Edward J. Bonach Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Michael T. Westermeyer Secretary and Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Shannon Hendricks Treasurer
1750 Hennepin Avenue
Minneapolis, MN 55403
Dennis Marion Director
500 Valley Road
Wayne, NJ 07470
Reinhard Obermueller Director
560 Lexington Avenue
New York, NY 10022
Robert S. James Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Eugene T. Wilkinson Director
14 Commerce Drive
Cranford, NJ 07016
Eugene Long Vice President of Operations
152 W. 57th Street and Director
18th Floor
New York, NY 10019
Thomas J. Lynch President, Chief Marketing Officer
1750 Hennepin Avenue and Director
Minneapolis, MN 55403
Carol B. Shaw Second Vice President
152 W. 57th Street, 18th Floor
New York, NY 10019
Timothy J. Tongson Appointed Actuary
1750 Hennepin Avenue
Minneapolis, MN 55403
Stephen R. Herbert Director
900 Third Avenue
New York, NY 10022
Jack F. Rockett Director
140 E. 95th Street, Ste. 6A
New York, NY 10129
</TABLE>
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR
OR REGISTRANT
The Company organizational chart is incorporated by reference to
Registrant's initial Form N-4 (File No. 333-19173).
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>
<S> <C>
Name & Principal Positions and Offices
Business Address with Underwriter
- ---------------------- ----------------------
Alan A. Grove Director
1750 Hennepin Avenue
Minneapolis, MN 55403
James P. Kelso Director
1750 Hennepin Ave.
Minneapolis, MN 55403
Thomas B. Clifford President and Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Michael T. Westermeyer Secretary and Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Michael J. Yates Treasurer
1750 Hennepin Avenue
Minneapolis, MN 55403
Edward J. Bonach Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Catherine L. Mielke Compliance Officer
1750 Hennepin Avenue
Minneapolis, MN 55403
</TABLE>
c. Not Applicable
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Thomas Clifford, whose address is 1750 Hennepin Avenue, Minneapolis, Minnesota,
maintains physical possession of the accounts, books or documents of the
Variable Account required to be maintained by Section 31(a) of the Investment
Company Act of 1940, as amended, and the rules promulgated thereunder.
ITEM 31. MANAGEMENT SERVICES
Not Applicable
ITEM 32. UNDERTAKINGS
a. Registrant hereby undertakes to file a post-effective amendment to this
registration statement as frequently as is necessary to ensure that the audited
financial statements in the registration statement are never more than sixteen
(16) months old for so long as payment under the variable annuity contracts may
be accepted.
b. Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
postcard or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement of Additional
Information.
c. Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form promptly upon written or oral request.
d. Preferred Life Insurance Company of New York ("Company") hereby
represents that the fees and charges deducted under the Contract described in
the Prospectus, in the aggregate, are reasonable in relation to the services
rendered, the expenses to be incurred and the risks assumed by the Company.
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, as amended, the Registrant certifies that it 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
--------------------------------
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
By: /s/ 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 04/24/98
Lowell C. Anderson
Ronald L. Wobbeking* Chairman, Chief Executive 04/24/98
Ronald L. Wobbeking Officer and Director
Shannon D. Hendricks* Treasurer 04/24/98
Shannon D. Hendricks
Michael T. Westermeyer* Secretary and Director 04/24/98
Michael T. Westermeyer
Thomas G. Brown* Director 04/24/98
Thomas G. Brown
Edward J. Bonach* Director 04/24/98
Edward J. Bonach
Robert S. James* Director 04/24/98
Robert S. James
Thomas J. Lynch* Director 04/24/98
Thomas J. Lynch
Dennis J. Marion* Director 04/24/98
Dennis J. Marion
Eugene T. Wilkinson* Director 04/24/98
Eugene T. Wilkinson
Eugene K. Long* Director 04/24/98
Eugene K. Long
Reinhard W. Obermueller* Director 04/24/98
Reinhard W. Obermueller
Stephen R. Herbert* Director 04/24/98
Stephen R. Herbert
Jack F. Rockett* Director 04/24/98
Jack F. Rockett
</TABLE>
By /S/ MICHAEL T. WESTERMEYER
--------------------------
Attorney-in-Fact
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Thomas G. Brown, a Director
of Preferred Life Insurance Company of New York (Preferred Life), a corporation
duly organized under the laws of the State of New York, do hereby appoint Ronald
L. Wobbeking and Michael T. Westermeyer, each individually as my attorney and
agent, for me, and in my name as Director of Preferred Life on behalf of
Preferred Life, with full power to execute, deliver and file with the Securities
and Exchange Commission all documents required for registration of a security
under the Securities Act of 1933, as amended, and the Investment Company Act of
1940, as amended, and to do and perform each and every act that said attorney
may deem necessary or advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 31st day of July 1997.
WITNESS:
Joan T Favre /s/ Thomas G. Brown
___________________________ _____________________________
Thomas G. Brown
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Eugene T. Long, a Director
of Preferred Life Insurance Company of New York (Preferred Life), a corporation
duly organized under the laws of the State of New York, do hereby appoint Ronald
L. Wobbeking and Michael T. Westermeyer, each individually as my attorney and
agent, for me, and in my name as Director of Preferred Life on behalf of
Preferred Life, with full power to execute, deliver and file with the Securities
and Exchange Commission all documents required for registration of a security
under the Securities Act of 1933, as amended, and the Investment Company Act of
1940, as amended, and to do and perform each and every act that said attorney
may deem necessary or advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 10th day of July 1997.
WITNESS:
Carol Shaw /s/ Eugene K. Long
___________________________ _____________________________
Eugene K. Long
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Eugene T. Wilkinson, a Director
of Preferred Life Insurance Company of New York (Preferred Life), a corporation
duly organized under the laws of the State of New York, do hereby appoint Ronald
L. Wobbeking and Michael T. Westermeyer, each individually as my attorney and
agent, for me, and in my name as Director of Preferred Life on behalf of
Preferred Life, with full power to execute, deliver and file with the Securities
and Exchange Commission all documents required for registration of a security
under the Securities Act of 1933, as amended, and the Investment Company Act of
1940, as amended, and to do and perform each and every act that said attorney
may deem necessary or advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 24th day of June 1997.
WITNESS:
Judy L. Stillman /s/ Eugene T. Wilkinson
___________________________ _____________________________
Eugene T. Wilkinson
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Jack F. Rockett, a Director
of Preferred Life Insurance Company of New York (Preferred Life), a corporation
duly organized under the laws of the State of New York, do hereby appoint Ronald
L. Wobbeking and Michael T. Westermeyer, each individually as my attorney and
agent, for me, and in my name as Director of Preferred Life on behalf of
Preferred Life, with full power to execute, deliver and file with the Securities
and Exchange Commission all documents required for registration of a security
under the Securities Act of 1933, as amended, and the Investment Company Act of
1940, as amended, and to do and perform each and every act that said attorney
may deem necessary or advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 2nd day of July 1997.
WITNESS:
Joanne P. Rockett /s/ Jack F. Rockett
___________________________ _____________________________
Jack F. Rockett
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Dennis J. Marion, a Director
of Preferred Life Insurance Company of New York (Preferred Life), a corporation
duly organized under the laws of the State of New York, do hereby appoint Ronald
L. Wobbeking and Michael T. Westermeyer, each individually as my attorney and
agent, for me, and in my name as Director of Preferred Life on behalf of
Preferred Life, with full power to execute, deliver and file with the Securities
and Exchange Commission all documents required for registration of a security
under the Securities Act of 1933, as amended, and the Investment Company Act of
1940, as amended, and to do and perform each and every act that said attorney
may deem necessary or advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 23rd day of June 1997.
WITNESS:
Kimberly J. Greenley /s/ Dennis J. Marion
___________________________ _____________________________
Dennis J. Marion
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Reinhard W. Obermueller, a Director
of Preferred Life Insurance Company of New York (Preferred Life), a corporation
duly organized under the laws of the State of New York, do hereby appoint Ronald
L. Wobbeking and Michael T. Westermeyer, each individually as my attorney and
agent, for me, and in my name as Director of Preferred Life on behalf of
Preferred Life, with full power to execute, deliver and file with the Securities
and Exchange Commission all documents required for registration of a security
under the Securities Act of 1933, as amended, and the Investment Company Act of
1940, as amended, and to do and perform each and every act that said attorney
may deem necessary or advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 26th day of June 1997.
WITNESS:
Melissa ODonnell /s/ Reinhard W. Obermueller
___________________________ _____________________________
Reinhard W. Obermueller
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Stephen R. Herbert, a Director
of Preferred Life Insurance Company of New York (Preferred Life), a corporation
duly organized under the laws of the State of New York, do hereby appoint Ronald
L. Wobbeking and Michael T. Westermeyer, each individually as my attorney and
agent, for me, and in my name as Director of Preferred Life on behalf of
Preferred Life, with full power to execute, deliver and file with the Securities
and Exchange Commission all documents required for registration of a security
under the Securities Act of 1933, as amended, and the Investment Company Act of
1940, as amended, and to do and perform each and every act that said attorney
may deem necessary or advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 27th day of June 1997.
WITNESS:
Suzanne F. Herbert /s/ Stephen R. Herbert
___________________________ _____________________________
Stephen R. Herbert
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Edward J. Bonach, a Director
of Preferred Life Insurance Company of New York (Preferred Life), a corporation
duly organized under the laws of the State of New York, do hereby appoint Ronald
L. Wobbeking and Michael T. Westermeyer, each individually as my attorney and
agent, for me, and in my name as Director of Preferred Life on behalf of
Preferred Life, with full power to execute, deliver and file with the Securities
and Exchange Commission all documents required for registration of a security
under the Securities Act of 1933, as amended, and the Investment Company Act of
1940, as amended, and to do and perform each and every act that said attorney
may deem necessary or advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 25th day of June 1997.
WITNESS:
Margo Jeske /s/ Edward J. Bonach
___________________________ _____________________________
Edward J. Bonach
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Thomas J. Lynch , a Director
of Preferred Life Insurance Company of New York (Preferred Life), a corporation
duly organized under the laws of the State of New York, do hereby appoint Ronald
L. Wobbeking and Michael T. Westermeyer, each individually as my attorney and
agent, for me, and in my name as Director of Preferred Life on behalf of
Preferred Life, with full power to execute, deliver and file with the Securities
and Exchange Commission all documents required for registration of a security
under the Securities Act of 1933, as amended, and the Investment Company Act of
1940, as amended, and to do and perform each and every act that said attorney
may deem necessary or advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 20th day of June 1997.
WITNESS:
Melissa ODonnell /s/ Thomas J. Lynch
___________________________ _____________________________
Thomas J. Lynch
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Robert S. James, a Director of
Preferred Life Insurance Company of New York (Preferred Life), a corporation
duly organized under the laws of the State of New York, do hereby appoint Ronald
L. Wobbeking and Michael T. Westermeyer, each individually as my attorney and
agent, for me, and in my name as Director of Preferred Life on behalf of
Preferred Life, with full power to execute, deliver and file with the Securities
and Exchange Commission all documents required for registration of a security
under the Securities Act of 1933, as amended, and the Investment Company Act of
1940, as amended, and to do and perform each and every act that said attorney
may deem necessary or advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 20th day of June 1997.
WITNESS:
Sheila D. Faust /s/ Robert S. James
___________________________ _____________________________
Robert S. James
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Lowell C. Anderson, a Director
of Preferred Life Insurance Company of New York (Preferred Life), a corporation
duly organized under the laws of the State of New York, do hereby appoint Ronald
L. Wobbeking and Michael T. Westermeyer, each individually as my attorney and
agent, for me, and in my name as Director of Preferred Life on behalf of
Preferred Life, with full power to execute, deliver and file with the Securities
and Exchange Commission all documents required for registration of a security
under the Securities Act of 1933, as amended, and the Investment Company Act of
1940, as amended, and to do and perform each and every act that said attorney
may deem necessary or advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 18th day of June 1997.
WITNESS:
Alan A. Grove /s/Lowell C. Anderson
___________________________ _____________________________
Lowell C. Anderson
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Shannon Hendricks, Treasurer of
Preferred Life Insurance Company of New York (Preferred Life), a corporation
duly organized under the laws of the State of New York, do hereby appoint Ronald
L. Wobbeking and Michael T. Westermeyer, as my attorney and agent, for me, and
in my name as Treasurer of Preferred Life on behalf of Preferred Life, with full
power to execute, deliver and file with the Securities and Exchange Commission
all documents required for registration of a security under the Securities Act
of 1933, as amended, and the Investment Company Act of 1940, as amended, and to
do and perform each and every act that said attorney may deem necessary or
advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 16th day of April 1998.
WITNESS:
/s/ Shannon D. Hendricks
___________________________ _____________________________
Shannon Hendricks
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Ronald L. Wobbeking, a Director of
Preferred Life Insurance Company of New York (Preferred Life), a corporation
duly organized under the laws of the State of New York, do hereby appoint
Michael T. Westermeyer, as my attorney and agent, for me, and in my name as
Director of Preferred Life on behalf of Preferred Life, with full power to
execute, deliver and file with the Securities and Exchange Commission all
documents required for registration of a security under the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as amended, and to do
and perform each and every act that said attorney may deem necessary or
advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 14th day of April 1998.
WITNESS:
Michael T. Westermeyer /s/ Ronald L. Wobbeking
___________________________ _____________________________
Ronald L. Wobbeking
EXHIBITS
TO
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM N-4 (FILE NO. 333-19173)
PREFERRED LIFE VARIABLE ACCOUNT C
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
INDEX TO EXHIBITS
EXHIBIT PAGE
EX-99.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 W 57th Street, 18th Floor
New York, NY 10019
Re: Opinion and Consent of Counsel
Preferred Life Variable Account C
Dear Sir or Madam:
You have requested our Opinion of Counsel in connection with the filing with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended, of a Registration Statement on Form N-4 for the Individual Immediate
Variable Annuity Contracts to be issued by Preferred Life Insurance Company of
New York and its separate account, Preferred Life Variable Account C.
We are of the following opinions:
1. Preferred Life Variable Account C is a unit investment trust as that term is
defined in Section 4(2) of the Investment Company Act of 1940 (the "Act"),
and is currently registered with the Securities and Exchange Commission,
pursuant to Section 8(a) of the Act.
2. Upon the acceptance of purchase payments made by a Contract Owner pursuant
to a Contract issued in accordance with the Prospectus contained in the
Registration Statement and upon compliance with applicable law, such a
Contract Owner will have a legally-issued, fully-paid, non-assessable
contractual interest under such Contract.
You may use this opinion letter, or copy hereof, as an exhibit to the
Registration Statement.
We consent to the reference to our Firm under the caption "Legal Opinions"
contained in the Statement of Additional Information which forms a part of the
Registration Statement.
Sincerely,
BLAZZARD, GRODD, & HASENAUER, P.C.
By: /s/ LYNN KORMAN STONE
- ----------------------------------
Lynn Korman Stone
KPMG Peat Marwick LLP
4200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
Independent Auditors' Consent
The Board of Directors of Allianz Life Insurance Company of North America and
Contract Owners of Allianz Life Variable Account B:
We consent to the use of our report, dated January 30, 1998, on the financial
statements of Allianz Life Variable Account B and our report dated February 4,
1998, on the consolidated financial statements of Allianz Life Insurance Company
of North America and subsidiaries included herein and to the reference to our
Firm under the heading "EXPERTS".
KPMG Peat Marwick LLP
Minneapolis, Minnesota
April 24, 1998
<TABLE>
<CAPTION>
FRANKLIN TEMPLETON VALUEMARK INCOME PLUS
PREFERRED LIFE VARIABLE ACCOUNT C
CUMULATIVE AND AVERAGE ANNUAL TOTAL RETURN CALCULATIONS
ORIGINAL PURCHASE AS OF DECEMBER 31, 1997
VALUATION DATE AS OF DECEMBER 31, 1996
Dollar Units This Accum Accum
Date Transaction Amount Unit Value Trans Units Value
---- ----------- ------ ---------- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
CAPITAL GROWTH
12-31-96 Purchase $1,000.00 $11.25417490 88.856 88.856 $1,000.00
12-31-97 Current Value 13.12966406 0.000 88.856 1,166.65
Cumulative and Average Annual Total Returns 16.66% A
GLOBAL UTILITIES SECURITIES
12-31-96 Purchase $1,000.00 $20.65439774 48.416 48.416 $1,000.00
12-31-97 Current Value 25.81831690 0.000 48.416 1,250.02
Cumulative and Average Annual Total Returns 25.00% A
GROWTH AND INCOME
12-31-96 Purchase $1,000.00 $19.48959860 51.309 51.309 $1,000.00
12-31-97 Current Value 24.55079561 0.000 51.309 1,259.69
Cumulative and Average Annual Total Returns 25.97% A
INCOME SECURITIES
12-31-96 Purchase $1,000.00 $21.70827863 46.065 46.065 $1,000.00
12-31-97 Current Value 25.06461193 0.000 46.065 1,154.61
Cumulative and Average Annual Total Returns 15.46% A
MONEY MARKET
12-31-96 Purchase $1,000.00 $13.35923111 74.855 74.855 $1,000.00
12-31-97 Current Value 13.86472844 0.000 74.855 1,037.84
Cumulative and Average Annual Total Returns 3.78% A
MUTUAL DISCOVERY SECURITIES
12-31-96 Purchase $1,000.00 $10.18045638 8.227 98.227 $1,000.00
12-31-97 Current Value 11.98316359 0.000 98.227 1,177.08
Cumulative and Average Annual Total Returns 17.71% A
MUTUAL SHARES SECURITIES
12-31-96 Purchase $1,000.00 $10.33016898 96.804 96.804 $1,000.00
12-31-97 Current Value 11.99296726 0.000 96.804 1,160.97
Cumulative and Average Annual Total Returns 16.10% A
REAL ESTATE SECURITIES
12-31-96 Purchase $1,000.00 $23.66770609 42.252 42.252 $1,000.00
12-31-97 Current Value 28.16943249 0.000 42.252 1,190.21
Cumulative and Average Annual Total Returns 19.02% A
RISING DIVIDENDS
12-31-96 Purchase $1,000.00 $15.30299222 65.347 65.347 $1,000.00
12-31-97 Current Value 20.07430239 0.000 65.347 1,311.79
Cumulative and Average Annual Total Returns 31.18% A
SMALL CAP
12-31-96 Purchase $1,000.00 $12.91274591 77.443 77.443 $1,000.00
12-31-97 Current Value 14.95194471 0.000 77.443 1,157.92
Cumulative and Average Annual Total Returns 15.79% A
TEMPLETON DEVELOPING MARKETS EQUITY
12-31-96 Purchase $1,000.00 $11.48724479 87.053 87.053 $1,000.00
12-31-97 Current Value 10.34011278 0.000 87.053 900.14
Cumulative and Average Annual Total Returns (9.99%) A
TEMPLETON GLOBAL ASSET ALLOCATION
12-31-96 Purchase $1,000.00 $12.51416879 79.909 79.909 $1,000.00
12-31-97 Current Value 13.78572229 0.000 79.909 1,101.61
Cumulative and Average Annual Total Returns 10.16% A
TEMPLETON GLOBAL GROWTH
12-31-96 Purchase $1,000.00 $13.55953972 73.749 73.749 $1,000.00
12-31-97 Current Value 15.17626475 0.000 73.749 1,119.23
Cumulative and Average Annual Total Returns 11.92% A
TEMPLETON INTERNATIONAL EQUITY
12-31-96 Purchase $1,000.00 $16.08142393 62.184 62.184 $1,000.00
12-31-97 Current Value 17.71128511 0.000 62.184 1,101.35
Cumulative and Average Annual Total Returns 10.14% A
TEMPLETON INTERNATIONAL SMALLER COMPANIES
12-31-96 Purchase $1,000.00 $11.14519961 89.725 89.725 $1,000.00
12-31-97 Current Value 10.82516357 0.000 89.725 971.28
Cumulative and Average Annual Total Returns (2.87%) A
TEMPLETON PACIFIC GROWTH
12-31-96 Purchase $1,000.00 $14.93159316 66.972 66.972 $1,000.00
12-31-97 Current Value 9.43102016 0.000 66.972 631.62
Cumulative and Average Annual Total Returns (36.84%) A
<FN>
A = (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 $15.10395032 66.208 66.208 $1,000.00
12-31-95 Current Value 19.56451758 0.000 66.208 1,295.32
12-31-96 Current Value 20.65439774 0.000 66.208 1,367.48
12-31-97 Current Value 25.81831690 0.000 66.208 1,709.38
Cumulative Total Return 70.94% A
Average Annual Total Return 19.57% B
GROWTH AND INCOME
12-31-94 Purchase $1,000.00 $13.21462941 75.674 75.674 $1,000.00
12-31-95 Current Value 17.30965999 0.000 75.674 1,309.89
12-31-96 Current Value 19.48959860 0.000 75.674 1,474.85
12-31-97 Current Value 24.55079561 0.000 75.674 1,857.85
Cumulative Total Return 85.78% A
Average Annual Total Return 22.93% B
INCOME SECURITIES
12-31-94 Purchase $1,000.00 $16.39171653 61.006 61.006 $1,000.00
12-31-95 Current Value 19.78534185 0.000 61.006 1,207.03
12-31-96 Current Value 21.70827863 0.000 61.006 1,324.34
12-31-97 Current Value 25.06461193 0.000 61.006 1,529.10
Cumulative Total Return 52.91% A
Average Annual Total Return 15.21% B
MONEY MARKET
12-31-94 Purchase $1,000.00 $12.35398427 80.946 80.946 $1,000.00
12-31-95 Current Value 12.88349436 0.000 80.946 1,042.86
12-31-96 Current Value 13.35923111 0.000 80.946 1,081.37
12-31-97 Current Value 13.86472844 0.000 80.946 1,122.29
Cumulative Total Return 12.23% A
Average Annual Total Return 3.92% B
REAL ESTATE SECURITIES
12-31-94 Purchase $1,000.00 $15.59407180 64.127 64.127 $1,000.00
12-31-95 Current Value 18.07282328 0.000 64.127 1,158.95
12-31-96 Current Value 23.66770609 0.000 64.127 1,517.74
12-31-97 Current Value 28.16943249 0.000 64.127 1,806.42
Cumulative Total Return 80.64% A
Average Annual Total Return 21.79% B
RISING DIVIDENDS
12-31-94 Purchase $1,000.00 $9.76873744 102.367 102.367 $1,000.00
12-31-95 Current Value 12.49836348 0.000 102.367 1,279.42
12-31-96 Current Value 15.30299222 0.000 102.367 1,566.53
12-31-97 Current Value 20.07430239 0.000 102.367 2,054.95
Cumulative Total Return 105.50% A
Average Annual Total Return 27.14% B
TEMPLETON DEVELOPING MARKETS EQUITY
12-31-94 Purchase $1,000.00 $9.45424664 105.773 105.773 $1,000.00
12-31-95 Current Value 13.26267921 0.000 105.773 1,013.48
12-31-96 Current Value 16.08142393 0.000 105.773 1,215.04
12-31-97 Current Value 17.71128511 0.000 105.773 1,093.70
Cumulative Total Return 9.37% A
Average Annual Total Return 3.03% B
TEMPLETON GLOBAL GROWTH
12-31-94 Purchase $1,000.00 $10.20085584 98.031 98.031 $1,000.00
12-31-95 Current Value 11.33894840 0.000 98.031 1,111.57
12-31-96 Current Value 13.55953972 0.000 98.031 1,329.26
12-31-97 Current Value 15.17626475 0.000 98.031 1,487.74
Cumulative Total Return 48.77% A
Average Annual Total Return 14.16% B
TEMPLETON INTERNATIONAL EQUITY
12-31-94 Purchase $1,000.00 $12.16131942 82.228 82.228 $1,000.00
12-31-95 Current Value 13.26267921 0.000 82.228 1,090.56
12-31-96 Current Value 16.08142393 0.000 82.228 1,322.34
12-31-97 Current Value 17.71128511 0.000 82.228 1,456.36
Cumulative Total Return 45.64% A
Average Annual Total Return 13.35% B
TEMPLETON PACIFIC GROWTH
12-31-94 Purchase $1,000.00 $12.80173310 78.114 78.114 $1,000.00
12-31-95 Current Value 13.63037545 0.000 78.114 1,064.73
12-31-96 Current Value 14.93159316 0.000 78.114 1,166.37
12-31-97 Current Value 9.43102016 0.000 78.114 736.70
Cumulative Total Return -26.33% A
Average Annual Total Return -9.68% B
<FN>
A = (Accumulated Value as of December 31, 1997 - Accum. Value at Purch.)/Accum.
Value at Purch. B = [(A+1)^(1/3 Years)]-1 </FN> </TABLE>
<TABLE>
<CAPTION>
ORIGINAL PURCHASE AS OF DECEMBER 31, 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 $15.88865152 62.938 62.938 $1,000.00
12-31-93 Current Value 17.31879581 0.000 62.938 1,090.01
12-31-94 Current Value 15.10395032 0.000 62.938 950.61
12-31-95 Current Value 19.56451758 0.000 62.938 1,231.35
12-31-96 Current Value 20.65439774 0.000 62.938 1,299.95
12-31-97 Current Value 25.81831690 0.000 62.938 1,624.95
Cumulative Total Return 62.50% A
Average Annual Total Return 10.20% B
GROWTH AND INCOME
12-31-92 Purchase $1,000.00 $12.57361730 79.532 79.532 $1,000.00
12-31-93 Current Value 13.67694811 0.000 79.532 1,087.75
12-31-94 Current Value 13.21462941 0.000 79.532 1,050.98
12-31-95 Current Value 17.30965999 0.000 79.532 1,376.67
12-31-96 Current Value 19.48959860 0.000 79.532 1,550.04
12-31-97 Current Value 24.55079561 0.000 79.532 1,952.56
Cumulative Total Return 95.26% A
Average Annual Total Return 14.32% B
INCOME SECURITIES
12-31-92 Purchase $1,000.00 $15.16252410 65.952 65.952 $1,000.00
12-31-93 Current Value 17.73437317 0.000 65.952 1,169.62
12-31-94 Current Value 16.39171653 0.000 65.952 1,081.07
12-31-95 Current Value 19.78534185 0.000 65.952 1,304.88
12-31-96 Current Value 21.70827863 0.000 65.952 1,431.71
12-31-97 Current Value 25.06461193 0.000 65.952 1,653.06
Cumulative Total Return 65.31% A
Average Annual Total Return 10.58% B
MONEY MARKET
12-31-92 Purchase $1,000.00 $11.93209752 83.808 83.808 $1,000.00
12-31-93 Current Value 12.06579747 0.000 83.808 1,011.21
12-31-94 Current Value 12.35398427 0.000 83.808 1,035.36
12-31-95 Current Value 12.88349436 0.000 83.808 1,079.73
12-31-96 Current Value 13.35923111 0.000 83.808 1,119.60
12-31-97 Current Value 13.86472844 0.000 83.808 1,161.97
Cumulative Total Return 16.20% A
Average Annual Total Return 3.05% B
REAL ESTATE SECURITIES
12-31-92 Purchase $1,000.00 $13.09547341 76.362 76.362 $1,000.00
12-31-93 Current Value 15.36898235 0.000 76.362 1,173.61
12-31-94 Current Value 15.59407180 0.000 76.362 1,190.80
12-31-95 Current Value 18.07282328 0.000 76.362 1,380.08
12-31-96 Current Value 23.66770609 0.000 76.362 1,807.32
12-31-97 Current Value 28.16943249 0.000 76.362 2,151.08
Cumulative Total Return 115.11% A
Average Annual Total Return 16.56% B
RISING DIVIDENDS
12-31-92 Purchase $1,000.00 $10.84771473 92.185 92.185 $1,000.00
12-31-93 Current Value 15.36898235 0.000 92.185 952.05
12-31-94 Current Value 15.59407180 0.000 92.185 900.53
12-31-95 Current Value 18.07282328 0.000 92.185 1,152.17
12-31-96 Current Value 23.66770609 0.000 92.185 1,410.71
12-31-97 Current Value 28.16943249 0.000 92.185 1,850.56
Cumulative Total Return 85.06% A
Average Annual Total Return 13.10% B
TEMPLETON INTERNATIONAL EQUITY
12-31-92 Purchas $1,000.00 $9.64241309 103.708 103.708 $1,000.00
12-31-93 Current Value 12.22565227 0.000 103.708 1,267.90
12-31-94 Current Value 12.16131942 0.000 103.708 1,261.23
12-31-95 Current Value 13.26267921 0.000 103.708 1,375.45
12-31-96 Current Value 16.08142393 0.000 103.708 1,667.78
12-31-97 Current Value 17.71128511 0.000 103.708 1,836.81
Cumulative Total Return 83.68% A
Average Annual Total Return 12.93% B
TEMPLETON PACIFIC GROWTH
12-31-92 Purchase $1,000.00 $9.76096735 102.449 102.449 $1,000.00
12-31-93 Current Value 14.23330574 0.000 102.449 1,458.19
12-31-94 Current Value 12.80173310 0.000 102.449 1,311.52
12-31-95 Current Value 13.63037545 0.000 102.449 1,396.42
12-31-96 Current Value 14.93159316 0.000 102.449 1,529.72
12-31-97 Current Value 9.43102016 0.000 102.449 966.20
Cumulative Total Return -3.38% A
Average Annual Total Return -0.69% B
<FN>
A = (Accumulated Value as of December 31, 1997 - Accum. Value at Purch.)/Accum.
Value at Purch. B = [(A+1)^(1/5 Years)]-1 </FN> </TABLE>
<TABLE>
<CAPTION>
ORIGINAL PURCHASE AS OF SUB-ACCOUNT INCEPTION
VALUATION DATE AS OF DECEMBER 31, 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
12-31-97 Current Value 13.12966406 0.000 100.000 1,312.97
Cumulative Total Return 31.30% A
Average Annual Total Return 17.73% B
GLOBAL UTILITIES SECURITIES
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Current Value 11.48396786 0.000 100.000 1,148.40
1-24-91 Current Value 11.97256112 0.000 100.000 1,197.26
1-24-92 Current Value 14.23979461 0.000 100.000 1,423.98
1-24-93 Current Value 15.97559846 0.000 100.000 1,597.56
1-24-94 Current Value 16.50535338 0.000 100.000 1,650.54
1-24-95 Current Value 15.57082971 0.000 100.000 1,557.08
1-24-96 Current Value 19.81799066 0.000 100.000 1,981.80
12-31-97 Current Value 25.81831690 0.000 100.000 2,581.83
Cumulative Total Return 158.18% A
Average Annual Total Return 11.19% B
GROWTH AND INCOME
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Current Value 9.60621064 0.000 100.000 960.62
1-24-91 Current Value 10.04911751 0.000 100.000 1,004.91
1-24-92 Current Value 12.19460473 0.000 100.000 1,219.46
1-24-93 Current Value 12.62194644 0.000 100.000 1,262.19
1-24-94 Current Value 14.16249217 0.000 100.000 1,416.25
1-24-95 Current Value 13.34952632 0.000 100.000 1,334.95
1-24-96 Current Value 17.36302808 0.000 100.000 1,736.30
12-31-97 Current Value 24.55079561 0.000 100.000 2,455.08
Cumulative Total Return 145.51% A
Average Annual Total Return 10.57% B
INCOME SECURITIES
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Current Value 10.71309911 0.000 100.000 1,071.31
1-24-91 Current Value 9.95244729 0.000 100.000 995.24
1-24-92 Current Value 14.03346495 0.000 100.000 1,403.35
1-24-93 Current Value 15.36060973 0.000 100.000 1,536.06
1-24-94 Current Value 17.72926867 0.000 100.000 1,772.93
1-24-95 Current Value 16.36456157 0.000 100.000 1,636.46
1-24-96 Current Value 20.20965612 0.000 100.000 2,020.97
12-31-97 Current Value 25.06461193 0.000 100.000 2,506.46
Cumulative Total Return 150.65% A
Average Annual Total Return 10.83% B
MONEY MARKET
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Current Value 10.67978818 0.000 100.000 1,067.98
1-24-91 Current Value 11.32877884 0.000 100.000 1,132.88
1-24-92 Current Value 11.75876120 0.000 100.000 1,175.88
1-24-93 Current Value 11.94119334 0.000 100.000 1,194.12
1-24-94 Current Value 12.07592840 0.000 100.000 1,207.59
1-24-95 Current Value 12.38828249 0.000 100.000 1,238.83
1-24-96 Current Value 12.92030455 0.000 100.000 1,292.03
12-31-97 Current Value 13.86472844 0.000 100.000 1,386.47
Cumulative Total Return 38.65% A
Average Annual Total Return 3.72% B
MUTUAL DISCOVERY SECURITIES
11-8-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-97 Current Value 11.98316359 0.000 100.000 1,198.32
Cumulative Total Return 19.83% A
Average Annual Total Return 17.11% B
MUTUAL SHARES SECURITIES
11-8-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-97 Current Value 11.99296726 0.000 100.000 1,199.30
Cumulative Total Return 19.93% A
Average Annual Total Return 17.20% B
REAL ESTATE SECURITIES
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Current Value 10.13988901 0.000 100.000 1,013.99
1-24-91 Current Value 9.37706788 0.000 100.000 937.71
1-24-92 Current Value 12.28427530 0.000 100.000 1,228.43
1-24-93 Current Value 13.54478625 0.000 100.000 1,354.48
1-24-94 Current Value 15.37525910 0.000 100.000 1,537.53
1-24-95 Current Value 15.00928122 0.000 100.000 1,500.93
1-24-96 Current Value 18.15857148 0.000 100.000 1,815.86
12-31-97 Current Value 28.16943249 0.000 100.000 2,816.94
Cumulative Total Return 181.69% A
Average Annual Total Return 12.28% B
RISING DIVIDENDS
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Current Value 10.69831588 0.000 100.000 1,069.83
1-27-94 Current Value 10.38483458 0.000 100.000 1,038.48
1-27-95 Current Value 9.97357882 0.000 100.000 997.36
1-27-96 Current Value 12.53425589 0.000 100.000 1,253.43
12-31-97 Current Value 20.07430239 0.000 100.000 2,007.43
Cumulative Total Return 100.74% A
Average Annual Total Return 12.47% B
SMALL CAP
11-1-95 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
11-1-96 Current Value 12.15810442 0.000 100.000 1,215.81
12-31-97 Current Value 14.95194471 0.000 100.000 1,495.19
Cumulative Total Return 49.52% A
Average Annual Total Return 20.40% B
TEMPLETON DEVELOPING MARKETS EQUITY
3-15-94 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-15-95 Current Value 8.62834892 0.000 100.000 862.83
3-15-96 Current Value 10.29583833 0.000 100.000 1,029.58
12-31-97 Current Value 10.34011278 0.000 100.000 1,034.01
Cumulative Total Return 3.40% A
Average Annual Total Return .88% B
TEMPLETON GLOBAL ASSET ALLOCATION
5-1-95 Purchase $1,000.00 $10.00000000 100.000 100.000 1,000.00
5-1-96 Current Value 11.25238520 0.000 100.000 1,125.24
12-31-97 Current Value 13.78572229 0.000 100.000 1,378.57
Cumulative Total Return 37.86% A
Average Annual Total Return 12.77% B
TEMPLETON GLOBAL GROWTH
3-15-94 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-15-95 Current Value 10.10361218 0.000 100.000 1,010.36
3-15-96 Current Value 11.81545835 0.000 100.000 1,181.55
12-31-97 Current Value 15.17626475 0.000 100.000 1,517.63
Cumulative Total Return 51.76% A
Average Annual Total Return 11.60% B
TEMPLETON INTERNATIONAL EQUITY
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Current Value 9.54360836 0.000 100.000 954.36
1-27-94 Current Value 12.87738433 0.000 100.000 1,287.74
1-27-95 Current Value 11.94433728 0.000 100.000 1,194.43
1-27-96 Current Value 13.57666972 0.000 100.000 1,357.67
12-31-97 Current Value 17.71128511 0.000 100.000 1,771.13
Cumulative Total Return 77.11% A
Average Annual Total Return 10.12% B
TEMPLETON INTERNATIONAL SMALLER COMPANIES
5-1-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-97 Current Value 10.82516357 0.000 100.000 1,082.52
Cumulative Total Return 8.25% A
Average Annual Total Return 4.87% B
TEMPLETON PACIFIC GROWTH
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Current Value 9.92851087 0.000 100.000 992.85
1-27-94 Current Value 14.10178760 0.000 100.000 1,410.18
1-27-95 Current Value 11.94769270 0.000 100.000 1,194.77
1-27-96 Current Value 14.49670523 0.000 100.000 1,449.67
12-31-97 Current Value 9.43102016 0.000 100.000 943.10
Cumulative Total Return -5.69% A
Average Annual Total Return -0.98% B
<FN>
A = (Accumulated Value as of December 31, 1997 - Accum. Value at Purch.)/Accum.
Value at Purch. B = [(A+1)^(1/Years since Inception)]-1
</FN>
</TABLE>
