File Nos. 333-19173
811-05716
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ( )
Pre-Effective Amendment No. ( )
Post-Effective Amendment No. 3 (X)
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 ( )
Amendment No. 34 (X)
(Check appropriate box or boxes.)
PREFERRED LIFE VARIABLE ACCOUNT C
-------------------------------------
(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
------------------------------------------------------- --------
(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:
_X_ immediately upon filing pursuant to paragraph (b) of Rule 485
___ on May 1, 1999 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................................. Index of Terms
Item 3. Synopsis or Highlights...................... Profile
Item 4. Condensed Financial Information............. Appendix
Item 5. General Description of Registrant,
Depositor, and Portfolio Companies.......... Preferred Life; The
Separate Account;
Investment Options
Item 6. Deductions.................................. Expenses
Item 7. General Description of Variable
Annuity Contracts........................... The Franklin Templeton
Valuemark Income Plus
Immediate Variable
Annuity Contract
Item 8. Annuity Period.............................. Annuity Payments (The
Payout Phase)
Item 9. Death Benefit............................... Death Benefit
Item 10. Purchases and Contract Value................ Purchase
Item 11. Redemptions................................. Access To Your Money
Item 12. Taxes....................................... Taxes
Item 13. Legal Proceedings........................... Not Applicable
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.
PART A
PROFILE OF THE FRANKLIN TEMPLETON VALUEMARK
INCOME PLUS IMMEDIATE VARIABLE ANNUITY CONTRACT
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
May 17, 1999
This profile is a summary of some of the more important points that you should
consider and know before purchasing the Franklin Templeton Valuemark Income Plus
immediate variable annuity contract. The contract is more fully described in the
prospectus, which accompanies this profile. Please read the prospectus
carefully.
1. THE FRANKLIN TEMPLETON VALUEMARK INCOME PLUS
IMMEDIATE VARIABLE ANNUITY CONTRACT
- --------------------------------------------------------------------------------
The Franklin Templeton Valuemark Income Plus immediate variable annuity contract
with variable and fixed payment options (Contract) is a contract between you,
the owner, and Preferred Life Insurance Company of New York (Preferred Life), an
insurance company. In this profile and the prospectus, "we," "us" and "our"
refers to Preferred Life. In return for your one time payment, the Contract
provides for income to you and another person (if elected) under a payment plan
you select.
The variable payment options offer a choice of 18 Class 1 portfolios of Franklin
Valuemark Funds, which are listed in Section 4. Depending on market conditions
and the portfolios you choose, payments may go up or down. No minimum payment is
guaranteed under a variable payment option. The variable payment option is
designed to offer a better return than the fixed payment option. However, this
is not guaranteed.
The fixed payment option offers fixed annuity payments that are guaranteed by
Preferred Life. Any portion of your purchase payment allocated to the fixed
payment option will be temporarily allocated to the Money Market Fund on the day
we allocate your purchase payment. It will then be allocated to the fixed
payment option when you begin receiving annuity payments from your Contract (if
you choose a fixed payout).
You can allocate your money in up to ten variable options or 9 variable options
and the fixed payment option (total of 10). We may limit the number of variable
options which you may invest in at any one time. The requested allocation to
each variable option and the fixed payment option must be made in whole
percentages and each must be at least 10%.
2. ANNUITY PAYMENTS
- --------------------------------------------------------------------------------
Under this Contract, you are the owner and the annuitant. You may name a joint
annuitant, if you choose. You select an income date when you buy the Contract.
The income date must not be later than 60 days after we allocate your purchase
payment.
You can receive annuity payments from your Contract by selecting one of the
following annuity options:
(1) payments for your life;
(2) payments for your life, but if you die before payments have been made
for the guaranteed period you selected, payments will continue to the
beneficiary for the remainder of the guaranteed period (5, 10, 15, 20
years);
(3) payments during the joint lifetime of you and the joint annuitant-when
either of you die, payments will continue as long as the survivor
lives;
(4) payments during the joint lifetime of you and the joint annuitant, but
if you and the joint annuitant die before payments have been made for
the guaranteed period you selected, payments will continue to the
Beneficiary for the remainder of the guaranteed period (5, 10, 15 or 20
years);
(5) payments for your life and ending with the last payment due prior to
your death with a guarantee that at your death, the beneficiary will
receive a single cash payment as set forth in the Contract; and
(6) payments for a specified period of time (5 - 30 years) with payments
continuing to the beneficiary for the remainder of the period certain
if you and any joint annuitant die before the end of the specified
period.(Option 6 is not available until approved by the New York
Insurance Department.)
Under certain circumstances, if you selected annuity option 6, you can exchange
it for a life contingent payout (options 1-5). Annuity payments can be based on
the available portfolios (variable payout) and/or the fixed payment option
(fixed payout) under all annuity options except annuity payments under Option 6.
Annuity payments under Option 6 may only come from the portfolios (variable
payout). If you choose to have any part of your payments based on the
performance of the portfolios (i.e., variable payout), the dollar amount of your
annuity payments may go up or down, depending on the investment performance of
the portfolio(s) you choose.
3. PURCHASE
- --------------------------------------------------------------------------------
You can buy the Contract with $35,000 or more under most circumstances. You
cannot add to your Contract at a later date (i.e., it is a single purchase
payment contract). Your investment representative can help you complete the
appropriate forms.
4. INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
You may invest in the Preferred Life fixed payment option and/or the following
Class 1 portfolios of Franklin Valuemark Funds listed below. The High Income
Fund is not available until approved by the New York Insurance Department.
(Check with your registered representative regarding availability.) Franklin
Valuemark Funds are managed by Franklin Advisers, Inc. and its Templeton and
Franklin affiliates.
PORTFOLIO SEEKING CAPITAL
PRESERVATION AND INCOME:
Money Market Fund
PORTFOLIO SEEKING INCOME:
High Income Fund
PORTFOLIOS SEEKING GROWTH AND INCOME:
Global Utilities Securities Fund
Growth and Income Fund
Income Securities Fund
Mutual Shares Securities Fund
Real Estate Securities Fund
Rising Dividends Fund
Templeton Global Asset Allocation Fund
Value Securities Fund
PORTFOLIOS SEEKING CAPITAL GROWTH:
Capital Growth Fund
Mutual Discovery Securities Fund
Small Cap Fund
Templeton Developing Markets Equity Fund
Templeton Global Growth Fund
Templeton International Equity Fund
Templeton International Smaller Companies Fund
Templeton Pacific Growth Fund
The portfolios are fully described in the attached prospectus for Franklin
Valuemark Funds. Your income will fluctuate up or down based on the portfolios'
performance. No minimum payment amount is guaranteed.
5. EXPENSES
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The Contract has insurance features and investment features, and there are costs
related to each.
- - The annual insurance charges consist of the Mortality and Expense Risk
Charge and the Administrative Expense Charge. Together these charges total
1.40% of the average daily value of your Contract allocated to the variable
options.
- - If you choose Annuity Options 2 or 4 and make a liquidation, a commutation
fee of 5% in Contract year 2, reducing by 1% each year until it is 1% for
Contract year 6 and thereafter will apply. If you choose Annuity Option 6
and make a liquidation, a commutation fee of 5% in Contract years 1 and 2,
reducing by 1% each year until it is 1% for Contract year 6 and thereafter
will apply.
- - There are also annual portfolio operating expenses, which vary depending
upon the portfolios you select. In 1998, these expenses ranged from .49% to
1.41% of the average daily value of the Class 1 portfolios.
We have provided the following chart to help you understand the expenses in your
Contract.
- - The column "Total Annual Expenses" shows the 1.40% insurance charges and
the total annual portfolio expenses for 1998 for each portfolio.
- - The next two columns show you two examples of the expenses, in dollars,
you would pay under a Contract. The examples assume that you invested
$1,000 in a Contract which earns 5% annually and that you liquidate all
your money: (1) at the end of year 1, and (2) at the end of year 10. The
examples assume that you selected Annuity Option 6 and chose a 15 year
specified period certain annuity option and a 5% assumed investment return.
For year 1, the Total Annual Expenses are assessed as well as the
commutation fee. For year 10, the example shows the total of all the annual
expenses for the 10 years, but there is no commutation fee.
- - The examples are purely hypothetical. They should not be considered a
representation of past or future expenses. Actual expenses may be more or
less than those shown.
<PAGE>
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TOTAL ANNUAL TOTAL ANNUAL TOTAL EXAMPLES:
INSURANCE CLASS 1 PORTFOLIO ANNUAL EXPENSES AT END OF
VARIABLE OPTION CHARGES EXPENSES EXPENSES 1 YEAR 10 YEARS
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Capital Growth 1.40% .77% 2.17% $67 $140
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Global Utilities Securities 1.40% .50% 1.90% $64 $124
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Growth and Income 1.40% .49% 1.89% $64 $124
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High Income 1.40% .53% 1.93% $65 $126
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Income Securities 1.40% .49% 1.89% $64 $124
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Money Market 1.40% .53% 1.93% $65 $126
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Mutual Discovery Securities 1.40% 1.00% 2.40% $69 $153
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Mutual Shares Securities 1.40% .77% 2.17% $67 $140
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Real Estate Securities 1.40% .54% 1.94% $65 $126
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Rising Dividends 1.40% .72% 2.12% $66 $137
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Small Cap 1.40% .77% 2.17% $67 $140
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Templeton Developing Markets Equity 1.40% 1.41% 2.81% $72 $175
- -------------------------------------------------------------------------------------------------
Templeton Global Asset Allocation 1.40% .84% 2.24% $67 $144
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Templeton Global Growth 1.40% .88% 2.28% $68 $146
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Templeton International Equity 1.40% .88% 2.28% $68 $146
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Templeton International Smaller
Companies 1.40% 1.10% 2.50% $70 $158
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Templeton Pacific Growth 1.40% 1.10% 2.50% $70 $158
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Value Securities 1.40% .83% 2.23% $67 $143
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</TABLE>
For more detailed information, see the Fee Table in the prospectus for the
Contract.
<PAGE>
6. TAXES
- --------------------------------------------------------------------------------
For federal tax purposes, annuity payments will be treated as partly a return of
your original investment. That part of each payment is not taxable as income. If
the Contract is tax-qualified, the entire payment may be taxable. If you make a
partial liquidation, the earnings come out first and are taxed as income. If you
are younger than 59 1/2 when you make a liquidation, you may be charged a 10%
federal tax penalty on the taxable amount you withdraw. You should consult your
tax counsel or other tax adviser regarding any liquidations.
7. ACCESS TO YOUR MONEY
- --------------------------------------------------------------------------------
Generally, you may not make liquidations from your Contract. However, under
certain circumstances, you may make one liquidation (withdrawal) each Contract
year after the income date if you selected Annuity Options 2, 4 or 6. The amount
that you may liquidate is set forth in your Contract and is described in the
prospectus for the Contract. There may be a fee assessed when you make a
liquidation (commutation fee). Also, there may be adverse tax consequences,
leading to lower annuity payments than those that would have been paid without
the partial liquidation (during the period certain). You may not make any
liquidations before your income date. Partial liquidations are not available
until approved by the New York Insurance Department.
<PAGE>
8. PERFORMANCE
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If you choose to receive variable payments, your payments will vary up or down.
The increase or decrease will depend on whether the variable options you choose
perform better or worse than the "benchmark" assumed investment return (3% or 5%
per year) you choose.
The following chart shows total returns for the periods shown. Performance is
not shown for the Value Securities Fund because it did not have a full year of
operation as of December 31, 1998. These numbers reflect the insurance charges
and the operating expenses of the portfolios, but are not adjusted for the
assumed investment return. Past performance does not guarantee or predict future
results.
CALENDAR YEAR
-----------------------------------------------------------------------------
VARIABLE OPTION 1998 1997 1996 1995 1994 1993 1992 1991 1990
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth 18.62% 16.66% 12.54% NA NA NA NA NA NA
- -------------------------------------------------------------------------------------------------
Global Utilities
Securities 9.64% 25.00% 5.57% 29.53% -12.79% 9.00% 7.20% 22.87% 0.44%
- -------------------------------------------------------------------------------------------------
Growth and Income 6.83% 25.97% 12.59% 30.99% -3.38% 8.77% 5.22% 21.09% -3.70%
- -------------------------------------------------------------------------------------------------
High Income -0.48% 10.00% 12.31% 18.10% -3.61% 14.14% 14.63% 28.33% -9.94%
- -------------------------------------------------------------------------------------------------
Income Securities 0.23% 15.46% 9.72% 20.70% -7.57% 16.96% 11.65% 37.98% -8.73%
- -------------------------------------------------------------------------------------------------
Money Market 3.76% 3.78% 3.69% 4.29% 2.39% 1.12% 1.62% 4.02% 6.12%
- -------------------------------------------------------------------------------------------------
Mutual Discovery
Securities -6.32% 17.71% 1.80% NA NA NA NA NA NA
- -------------------------------------------------------------------------------------------------
Mutual Shares
Securities -1.30% 16.10% 3.30% NA NA NA NA NA NA
- -------------------------------------------------------------------------------------------------
Real Estate
Securities -17.97% 19.02% 30.96% 15.90% 1.46% 17.36% 10.53% 31.65% -13.20%
- -------------------------------------------------------------------------------------------------
Rising Dividends 5.44% 31.18% 22.44% 27.94% -5.41% -4.80% 8.48% NA NA
- -------------------------------------------------------------------------------------------------
Small Cap -2.36% 15.79% 27.26% 1.46% NA NA NA NA NA
- -------------------------------------------------------------------------------------------------
Templeton Developing
Markets Equity -22.70% -9.99% 19.89% 1.35% -5.46% NA NA NA NA
- -------------------------------------------------------------------------------------------------
Templeton Global
Asset Allocation -1.43% 10.16% 18.16% 5.91% NA NA NA NA NA
- -------------------------------------------------------------------------------------------------
Templeton Global
Growth 7.46% 11.92% 19.58% 11.16% 2.01% NA NA NA NA
- -------------------------------------------------------------------------------------------------
Templeton
International
Equity 4.09% 10.14% 21.25% 9.06% -0.53% 26.79% -3.58% NA NA
- -------------------------------------------------------------------------------------------------
Templeton International
Smaller Companies -13.49% -2.87% 11.45% NA NA NA NA NA NA
- -------------------------------------------------------------------------------------------------
Templeton Pacific
Growth -14.34% -36.84% 9.55% 6.47% -10.06% 45.82% -2.39% NA NA
- -------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
9. DEATH BENEFIT
- --------------------------------------------------------------------------------
If you die before the income date and there is no joint annuitant, the Contract
will be treated as if it had never been issued. We will return your purchase
payment to your estate. If you have chosen either annuity option 3, 4 or 6 with
a joint annuitant and either you or the joint annuitant dies before the income
date, the annuity option will be changed to option 2 (with 10 years of payments
guaranteed or 5 years of payments guaranteed if the survivor's life expectancy
is less than 10 years).
10. OTHER INFORMATION
- --------------------------------------------------------------------------------
FREE LOOK. If you cancel the Contract within 10 days after receiving it, you
will receive back the value of your Contract on the day we receive your request,
less any annuity payments paid (this may be more or less than your original
payment). If you have purchased the Contract as an IRA, we are required to
return your purchase payment if you decide to cancel your Contract within 10
days after receiving it.
PURCHASING CONSIDERATIONS. The Franklin Templeton Valuemark Income Plus
immediate variable annuity contract is designed for investors seeking a medium
to long-term periodic payment plan. Many options provide for payments guaranteed
for as long as you live. We do not recommend buying this Contract if you cannot
accept the risk of getting back less money than you put in. Since certain
payment options do not permit you to liquidate (withdraw) money, and all options
limit payments to your heirs, we generally recommend you set other money aside
for non-routine expenses and bequests.
11. INQUIRIES
- --------------------------------------------------------------------------------
If you have any questions about your Contract or need more information, please
contact us at:
VIP Service Center
P.O. Box 30343
Tampa, Florida 33630-3343
(800) 774-5001
<PAGE>
THE FRANKLIN TEMPLETON VALUEMARK INCOME PLUS
IMMEDIATE VARIABLE ANNUITY CONTRACT
issued by
PREFERRED LIFE VARIABLE ACCOUNT C
and
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
This prospectus describes the Franklin Templeton Valuemark Income Plus Immediate
Variable Annuity Contract with a Fixed Payment Option. The Contract is offered
by Preferred Life Insurance Company of New York (Preferred Life).
The annuity has 19 investment choices - the 18 Variable Options which each
invest in one Class 1 Portfolio of Franklin Valuemark Funds and a Fixed Payment
Option of Preferred Life. You can select up to 10 investment choices (which
includes any of the Variable Options and the Fixed Payment Option).
FRANKLIN VALUEMARK FUNDS:
PORTFOLIO SEEKING CAPITAL
PRESERVATION AND INCOME
Money Market Fund
PORTFOLIO SEEKING INCOME
High Income Fund
PORTFOLIOS SEEKING GROWTH AND INCOME
Global Utilities Securities Fund
Growth and Income Fund
Income Securities Fund
Mutual Shares Securities Fund
Real Estate Securities Fund
Rising Dividends Fund
Templeton Global Asset Allocation Fund
Value Securities Fund
PORTFOLIOS SEEKING CAPITAL GROWTH
Capital Growth Fund
Mutual Discovery Securities Fund
Small Cap Fund
Templeton Developing Markets Equity Fund
Templeton Global Growth Fund
Templeton International Equity Fund
Templeton International Smaller Companies Fund
Templeton Pacific Growth Fund
Please read this prospectus before investing and keep it for future reference.
It contains important information about the Franklin Templeton Valuemark Income
Plus Immediate Variable Annuity Contract with a Fixed Payment Option.
To learn more about the annuity offered by this prospectus, you can receive a
copy of the Statement of Additional Information (SAI) dated May 17, 1999. The
SAI has been filed with the Securities and Exchange Commission (SEC) and is
legally a part of this prospectus. The Table of Contents of the SAI is on Page
___ of this prospectus. The SEC maintains a Web site (http://www.sec.gov) that
contains the SAI, material incorporated by reference and other information about
companies that file electronically with the SEC. For a free copy of the SAI,
call or write us at the VIP Service Center at the address and telephone number
listed in the Profile.
THE FRANKLIN TEMPLETON VALUEMARK INCOME PLUS IMMEDIATE VARIABLE ANNUITY
CONTRACTS:
- - ARE NOT BANK DEPOSITS
- - ARE NOT FEDERALLY INSURED
- - ARE NOT ENDORSED BY ANY BANK OR GOVERNMENT AGENCY
- - ARE NOT GUARANTEED AND MAY BE SUBJECT TO LOSS OF PRINCIPAL
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES NOR HAS IT DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This prospectus is not an offering of the securities in any state, country, or
jurisdiction in which we are not authorized to sell the Contracts. You should
rely only on the information contained in this prospectus or that we have
referred you to. We have not authorized anyone to provide you with information
that is different.
Dated: May 17, 1999
<PAGE>
TABLE OF CONTENTS
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Page
INDEX OF TERMS ...................................
FEE TABLE ........................................
1. THE FRANKLIN TEMPLETON
VALUEMARK INCOME PLUS
IMMEDIATE VARIABLE
ANNUITY CONTRACT .............................
Ownership ....................................
Contract Owner/Annuitant .................
Joint Owner/Joint Annuitant...............
Beneficiary ..............................
Assignment ..................................
2. ANNUITY PAYMENTS
(THE PAYOUT PHASE) ...........................
Income Date ..................................
Annuity Payments .............................
Assumed Investment Return ....................
Annuity Options ..............................
3. PURCHASE .....................................
Purchase Payment .............................
Allocation of Purchase Payment ...............
Free Look ....................................
VIP Units ....................................
4. INVESTMENT OPTIONS ...........................
Transfers ....................................
Telephone Transfers ......................
Voting Privileges ............................
Substitution .................................
5. EXPENSES .....................................
Insurance Charges ............................
Mortality and Expense Risk Charge ...........
Administrative Charge .......................
Commutation Fee ..............................
Premium Taxes ................................
Income Taxes .................................
Portfolio Expenses ...........................
6. TAXES ........................................
Annuity Contracts in General .................
Qualified and Non-Qualified Contracts ........
Liquidations - Non-Qualified Contracts .......
Liquidations - Qualified Contracts ...........
Diversification ..............................
7. ACCESS TO YOUR MONEY .........................
Suspension of Payments or Transfers ..........
8. PERFORMANCE ..................................
9. DEATH BENEFIT ................................
10. OTHER INFORMATION ............................
Preferred Life ...............................
Year 2000 ....................................
The Separate Account .........................
Distribution .................................
Administration ...............................
Financial Statements .........................
TABLE OF CONTENTS OF THE STATEMENT OF
ADDITIONAL INFORMATION ......................
APPENDIX A - Condensed Financial Information..
APPENDIX B - Illustration of Annuity Income...
<PAGE>
INDEX OF TERMS
- --------------------------------------------------------------------------------
This prospectus is written in plain English to make it as understandable as
possible. However, there are some technical terms used, which are capitalized in
the prospectus. The page that is indicated below is where you will find the
definition for the word or term in this prospectus.
Annuitant ....................... 18 Joint Annuitant ................. 18
Annuity Calculation Date ........ 22 Joint Owner ..................... 18
Annuity Options ................. 20 Non-Qualified ................... 27
Annuity Payments ................ 19 Payout Phase .................... 19
Annuity Unit .................... 22 Portfolios ...................... 23
Assumed Investment Return (AIR) . 20 Purchase Payment ................ 21
Beneficiary ..................... 19 Qualified ....................... 27
Contract ........................ 18 Tax Deferral .................... 26
Contract Owner .................. 18 Total Liquidation Value ......... 29
Fixed Payment Option ............ 18 Variable Option ................. 18
Income Date ..................... 19 VIP Unit ........................ 22
<PAGE>
FEE TABLE
- --------------------------------------------------------------------------------
The purpose of this Fee Table is to help you understand the costs of investing
in the Contract. It reflects expenses of the separate account as well as the
Class 1 Portfolios.
We have provided "Illustrations of Annuity Income" in Appendix B to show you the
effects of the charges, expenses and investment performance on annuity income.
CONTRACT OWNER TRANSACTION FEES
COMMUTATION FEE*
(as a percentage of the amount taken out (liquidated))
CONTRACT YEAR CHARGE
-------------- ------
1 5%
2 5%
3 4%
4 3%
5 2%
6 (& thereafter) 1%
* After the first Contract year, you may make one liquidation from your Contract
each year if you have selected Annuity Options 2 or 4. If you have selected
Annuity Option 6, you may make a liquidation once each year beginning in the
first year.
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Charge .................... 1.25%
Administrative Expense Charge............................ .15%
-----
Total Separate Account Annual Expenses................... 1.40%
<PAGE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK FUNDS' ANNUAL EXPENSES: CLASS 1 SHARES
(as a percentage of Franklin Valuemark Funds' average net assets)
The Management and Portfolio Administration Fees and Total Annual Expenses for
each Portfolio are based on a percentage of that Portfolio's average net assets
for the most recent fiscal year. See the prospectus for Franklin Valuemark Funds
for more information.
MANAGEMENT TOTAL
AND PORTFOLIO OTHER ANNUAL
ADMINISTRATION FEES1 EXPENSES EXPENSES
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital Growth Fund ...................... .75% .02% .77%
- ------------------------------------------------------------------------------------
Global Utilities Securities Fund.......... .47% .03% .50%
- ------------------------------------------------------------------------------------
Growth and Income Fund ................... .47% .02% .49%
- ------------------------------------------------------------------------------------
High Income Fund ......................... .50% .03% .53%
- ------------------------------------------------------------------------------------
Income Securities Fund ................... .47% .02% .49%
- ------------------------------------------------------------------------------------
Money Market Fund ........................ .51% .02% .53%
- ------------------------------------------------------------------------------------
Mutual Discovery Securities Fund ......... .95% .05% 1.00%
- ------------------------------------------------------------------------------------
Mutual Shares Securities Fund ............ .74% .03% .77%
- ------------------------------------------------------------------------------------
Real Estate Securities Fund .............. .52% .02% .54%
- ------------------------------------------------------------------------------------
Rising Dividends Fund .................... .70% .02% .72%
- ------------------------------------------------------------------------------------
Small Cap Fund ........................... .75% .02% .77%
- ------------------------------------------------------------------------------------
Templeton Developing Markets Equity Fund . 1.25% .16% 1.41%
- ------------------------------------------------------------------------------------
Templeton Global Asset Allocation Fund ... .80% .04% .84%
- ------------------------------------------------------------------------------------
Templeton Global Growth Fund ............. .83% .05% .88%
- ------------------------------------------------------------------------------------
Templeton International Equity Fund ...... .80% .08% .88%
- ------------------------------------------------------------------------------------
Templeton International Smaller Companies Fund.. 1.00% .10% 1.10%
- ------------------------------------------------------------------------------------
Templeton Pacific Growth Fund ............ .99% .11% 1.10%
- ------------------------------------------------------------------------------------
Value Securities Fund2.................... .75% .08% .83%
- ------------------------------------------------------------------------------------
<FN>
1 The Portfolio Administration Fee is a direct expense for the Mutual
Discovery Securities Fund, the Mutual Shares Securities Fund, the Templeton
Global Asset Allocation Fund, the Templeton International Smaller Companies
Fund and the Value Securities Fund. Other Portfolios pay for similar
services indirectly through the Management Fee. See the Franklin Valuemark
Funds prospectus for further information regarding these fees.
2 The Value Securities Fund commenced operations May 1, 1998. The expenses
shown for this Portfolio are therefore estimated for 1999.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXAMPLES
- - The examples below should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those shown.
- - The examples assume you invested $1,000 with annual payments based on a 15
year period certain payout under Annuity Option 6 with a 5% Assumed
Investment Return.
- - For additional information, see Section 5 - "Expenses" and the Franklin
Valuemark Funds prospectus.
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on your money (compounded annually) if you surrender your Contract
under Annuity Option 6 at the end of each time period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------
<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
High Income Fund $65 $82 $90 $126
Income Securities Fund $64 $81 $89 $124
Money Market Fund $65 $82 $90 $126
Mutual Discovery Securities Fund $69 $93 $108 $153
Mutual Shares Securities Fund $67 $88 $99 $140
Real Estate Securities Fund $65 $82 $91 $126
Rising Dividends Fund $66 $87 $97 $137
Small Cap Fund $67 $88 $99 $140
Templeton Developing Markets Equity Fund $72 $103 $123 $175
Templeton Global Asset Allocation Fund $67 $89 $102 $144
Templeton Global Growth Fund $68 $90 $103 $146
Templeton International Equity Fund $68 $90 $103 $146
Templeton International Smaller Companies Fund $70 $96 $111 $158
Templeton Pacific Growth Fund $70 $96 $111 $158
Value Securities Fund* $67 $89 $101 $143
<FN>
*Estimated
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on your money (compounded annually) if your Contract is not
surrendered:
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
High Income Fund $18 $50 $77 $122
Income Securities Fund $17 $49 $75 $120
Money Market Fund $18 $50 $77 $122
Mutual Discovery Securities Fund $22 $61 $94 $149
Mutual Shares Securities Fund $20 $56 $86 $136
Real Estate Securities Fund $18 $50 $77 $123
Rising Dividends Fund $20 $54 $84 $133
Small Cap Fund $20 $56 $86 $136
Templeton Developing Markets Equity Fund $26 $72 $110 $172
Templeton Global Asset Allocation Fund $21 $57 $88 $140
Templeton Global Growth Fund $21 $58 $90 $143
Templeton International Equity Fund $21 $58 $90 $143
Templeton International Smaller Companies Fund $23 $64 $98 $155
Templeton Pacific Growth Fund $23 $64 $98 $155
Value Securities Fund* $20 $57 $88 $140
<FN>
*Estimated
</FN>
</TABLE>
See Appendix A for VIP Unit Values - Condensed Financial Information.
<PAGE>
1. THE FRANKLIN TEMPLETON VALUEMARK INCOME PLUS
IMMEDIATE VARIABLE ANNUITY CONTRACT
- --------------------------------------------------------------------------------
This prospectus describes an immediate variable annuity contract with a Fixed
Payment Option (Contract) offered by Preferred Life.
An annuity is a contract between you, the owner, and an insurance company (in
this case Preferred Life), where the insurance company promises to pay you (or
someone else you choose) an income, in the form of Annuity Payments. The Annuity
Payments must begin on a designated date that is no later than 60 days after we
allocate your Purchase Payment. This is called the Income Date.
The Contract benefits from Tax Deferral. Tax Deferral means that you are not
taxed on any earnings or appreciation on the assets in your Contract until you
take money out of your Contract.
The Contract is called a variable annuity because you can choose among 18
Variable Options, and depending upon market conditions, your payments can go up
or down based on the Portfolios' investment performance. The Portfolios are
designed to offer a better return than the Fixed Payment Option. However, this
is not guaranteed. If you select the variable annuity portion of the Contract,
your payments may go up or down based on the investment performance of the
Portfolio(s) you select.
The Contract also contains a Fixed Payment Option (referred to in the Contract
as the "Fixed Account"). The Fixed Payment Option offers an interest rate that
is guaranteed by Preferred Life. If you select the Fixed Payment Option, your
money will be placed with the other general assets of Preferred Life. Any
portion of your Purchase Payment allocated to the Fixed Payment Option will be
temporarily allocated to the Money Market Fund on the day we allocate your
Purchase Payment. It will then be allocated to the Fixed Payment Option when you
begin receiving Annuity Payments from your Contract.
We will not make any changes to your Contract without your permission except as
may be required by law. We may, however, add endorsements to your Contract from
time to time.
OWNERSHIP
CONTRACT OWNER/ANNUITANT
You are the Contract Owner and the Annuitant. You, as the Contract Owner, have
all the rights under the Contract. The Contract Owner is as designated at the
time the Contract is issued.
An Annuitant is the natural person on whose life we base Annuity Payments.
JOINT OWNER/JOINT ANNUITANT
If there is more than one Contract Owner, each Contract Owner is a Joint Owner
of the Contract. Joint Owners have equal ownership rights. You both must
authorize those ownership rights unless otherwise allowed by Preferred Life. You
can name a Joint Annuitant. Each Joint Owner must be either an Annuitant or
Joint Annuitant.
IF YOU DIE BEFORE THE INCOME DATE AND THERE IS NO JOINT ANNUITANT, WE WILL TREAT
THE CONTRACT AS IF WE NEVER ISSUED IT AND WILL RETURN THE PURCHASE PAYMENT TO
YOUR ESTATE.
If you die while the Contract is in force, 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 when the Joint Annuitant dies, the
Beneficiary(ies) will be the Owner(s) of their respective shares.
BENEFICIARY
The Beneficiary is the person(s) or entity you name to receive any death
benefit. You can also name a contingent Beneficiary. The contingent Beneficiary
will receive any death benefit if the Beneficiary is not alive when you and any
Joint Annuitant die. The Beneficiary is named at the time the Contract is issued
unless changed at a later date. Unless an irrevocable Beneficiary has been
named, you can change the Beneficiary or contingent Beneficiary.
ASSIGNMENT
You can transfer ownership of (assign) the Contract at any time during your
lifetime. We will not be liable for any payment we make, or other action we
take, in accordance with the Contract before we receive written notice of the
assignment. AN ASSIGNMENT MAY BE A TAXABLE EVENT.
If the Contract is issued under a Qualified plan, you may be unable to assign
the Contract.
2. ANNUITY PAYMENTS
(THE PAYOUT PHASE)
INCOME DATE
You can receive regular income payments under your Contract as long as you and
any Joint Annuitant are alive on the Income Date. We call the date that you
receive your first Annuity Payment the Income Date. We ask you to choose your
Income Date when you purchase the Contract. Your Income Date must be the first
or fifteenth day of a calendar month and must not be later than 60 days from the
day we allocate your Purchase Payment.
ANNUITY PAYMENTS
Under Annuity Options 1-5, you may elect to receive your Annuity Payments as a
variable payout, a fixed payout, or a combination of both. Under Annuity Option
6, Annuity Payments will come from the Portfolios only (variable payout). If you
choose a Fixed Payment Option, all of the Annuity Payments will be the same
dollar amount (equal installments). If you choose a variable payout, you can
select from the available Variable Options.
If you choose to receive variable payments, we determine the amount of your
first variable payment based on:
1) your Contract value on the Annuity Calculation Date (no more than 10 days
before the first payment);
2) your age and the age of any Joint Annuitant on the Annuity Calculation
Date (except in Option 6);
3) the Assumed Investment Return (AIR), a benchmark you select, and
4) the Annuity Option you select.
We credit your Contract with a fixed number of Annuity Units for each Variable
Option you select. We do this by allocating the first payment amount among the
Variable Options according to your instructions, and dividing the amount
allocated to each Variable Option by the Annuity Unit Value on the Annuity
Calculation Date. The number of Annuity Units in your Contract remains the same
unless you make a liquidation or transfer.
After the first payment, your payments will change based on the change in value
of the Annuity Units credited to your Contract. The amount of each change will
depend on how the Annuity Units in your Contract perform as compared to your AIR
benchmark.
You can choose the frequency of Annuity Payments (for example, monthly,
quarterly, semi-annually or annually).
The SAI contains a discussion of how we calculate Annuity Unit values.
ASSUMED INVESTMENT RETURN
We base your Annuity Payments on the Assumed Investment Return. You can choose
either a 5% or 3% AIR. If you do not choose one, the 5% AIR will automatically
apply. If the actual performance exceeds the AIR you chose, your Annuity
Payments will increase. Similarly, if the actual rate is less than the AIR you
chose, your Annuity Payments will decrease. If you choose a higher AIR, the
initial amount of income will be higher, but income will increase more slowly
during periods of good investment performance and decrease faster during periods
of poor investment performance.
ANNUITY OPTIONS
You can choose among income plans. We call those Annuity Options. Except for
Annuity Option 6, once you select an Annuity Option you may not change it.
You can choose one of the following Annuity Options. You can also choose any
other Annuity Option you want as long as Preferred Life agrees to provide it.
OPTION 1. LIFE ANNUITY. Under this option, we will make periodic Annuity
Payments so long as the Annuitant is alive. After the Annuitant dies, we will
stop making Annuity Payments.
OPTION 2. LIFE ANNUITY WITH 5, 10, 15 OR 20 YEAR PAYMENTS GUARANTEED. Under this
option, we will make periodic Annuity Payments so long as the Annuitant is
alive. However, if the Annuitant dies before the end of the selected guaranteed
period, we will continue to make Annuity Payments to the Beneficiary for the
rest of the guaranteed period. If the Beneficiary does not want to receive
Annuity Payments after the Annuitant's death, he or she can ask us for a single
lump sum. The amount of the lump sum payment is described in your Contract.
OPTION 3. JOINT AND LAST SURVIVOR ANNUITY. Under this option, we will make
periodic Annuity Payments during the joint lifetime of you and the Joint
Annuitant. When you die, if the Joint Annuitant is still alive, we will continue
to make Annuity Payments during the Joint Annuitant's life. The amount of the
Annuity Payments we will make can be equal to 100%, 75% or 50% of the amount
that was being paid when both you and the Joint Annuitant were alive. You choose
this percentage when you apply for the Contract. The Annuity Payments will end
when the last surviving Annuitant dies.
OPTION 4. JOINT AND LAST SURVIVOR ANNUITY WITH 5, 10, 15 OR 20 YEAR PAYMENTS
GUARANTEED. Under this option, we will make periodic Annuity Payments during the
joint lifetime of you and the Joint Annuitant. When you die, if the Joint
Annuitant is still alive, we will continue to make Annuity Payments during the
life of the surviving Annuitant. The payments will be 100% of the amount that
was being paid when you were both alive. If, when the last death occurs, we have
made Annuity Payments for less than the selected guaranteed period, we will
continue to make Annuity Payments to the Beneficiary for the rest of the
guaranteed period. If the Beneficiary does not want to receive Annuity Payments,
he or she can ask us for a single lump sum. The amount of the lump sum payment
is described in your Contract.
OPTION 5. REFUND LIFE ANNUITY. Under this option, we will make periodic Annuity
Payments during your lifetime. The last Annuity Payment will be made before you
die. If the value of the Annuity Payments made is less than the value applied to
the Annuity Option, then the Beneficiary will receive a refund as set forth in
the Contract.
OPTION 6. SPECIFIED PERIOD CERTAIN ANNUITY. Under this option, we will make
periodic Annuity Payments for a specified period that you choose. The period can
be from 5 to 30 years (you must use whole numbers of years). If at the time both
you and any Joint Annuitant die, we have made Annuity Payments for less than the
selected specified period, we will continue to make Annuity Payments to the
Beneficiary for the rest of the specified period. This option can only be
elected as a variable payout. OPTION 6 IS NOT AVAILABLE UNTIL APPROVED BY THE
NEW YORK INSURANCE DEPARTMENT.
After the first Contract anniversary, you can exchange an Annuity Option 6
payout for a payout under Annuity Options 1-5. You can do this if the Total
Liquidation Value of your Contract is at least $25,000. Furthermore, if you own
a Non-Qualified Contract you must be 59 1/2 or older. If you own a Qualified
Contract you may make the exchange after the later of your reaching age 59 1/2
or 5 years from the date of the first Annuity Payment and prior to the year in
which you reach age 70 1/2. A new Contract will be issued to you for your
existing Contract. You must return your existing Contract to us. The Contract
Owner/Annuitant and Joint Annuitant (if any) must be the same under both
Contracts.
3. PURCHASE
- --------------------------------------------------------------------------------
PURCHASE PAYMENT
The Purchase Payment is the money you put into in the Contract. The minimum
payment Preferred Life will accept is $35,000. The Contract is a single payment
Contract. This means that you cannot add to your Contract after you buy it. If
you buy more than one Contract, the Purchase Payment for each Contract does not
need to be $35,000 if the average payment for each Contract is $35,000 or more.
We will not issue a Contract if either the Annuitant or the Joint Annuitant is
over age 90.
This product is not designed for market timers.
ALLOCATION OF PURCHASE PAYMENT
When you purchase a Contract, we will allocate your Purchase Payment to one or
more of the Variable Options you have selected. If you want any portion of the
Purchase Payment to be allocated to the Fixed Payment Option, we will
temporarily allocate it to the Money Market Fund. It will be moved to the Fixed
Payment Option on the day that we calculate your first Annuity Payment (Annuity
Calculation Date). The Annuity Calculation Date will be no more than 10 business
days before the Income Date. We ask that you allocate your money in whole
percentages.
Each allocation must be at least 10%.
Currently, you may invest in 10 investment choices (which include the Variable
Options and the Fixed Payment Option). We may, in the future, limit the number
of Variable Options that you may invest in at one time.
Once we receive your Purchase Payment and the necessary information, we will
issue your Contract and allocate your Purchase Payment within 2 business days.
If you do not give us all of the information we need, we will contact you or
your registered representative to get it. If for some reason we are unable to
complete this process within 5 business days, we will either send back your
money or get your permission to keep it until we get all of the necessary
information. Our business day closes when the New York Stock Exchange closes,
which is usually at 4:00 p.m. Eastern Time.
FREE LOOK
If you change your mind about owning the Contract, you can cancel it within 10
days after receiving it. You will receive back the value of your Contract on the
day we receive your request, less any Annuity Payments paid. If you have
purchased the Contract as an IRA, we are required to give you back your Purchase
Payment if you decide to cancel your Contract within 10 days after receiving it.
If that is the case, we reserve the right to allocate your Purchase Payment to
the Money Market Fund for 15 days after we receive it. At the end of that
period, we will re-allocate your money as you selected. Currently, however, we
will directly allocate your money to the Variable Option(s) you have selected.
VIP UNITS
The value of the portion of your Contract allocated to the Variable Options will
go up or down based upon the investment performance of the Variable Option(s)
you choose. The value of your Contract will also depend on the expenses of the
Contract. In order to keep track of the value of your Contract prior to the
Annuity Calculation Date, we use a measurement called a VIP Unit (which is like
a share of a mutual fund). On and after the Annuity Calculation Date, we call it
an Annuity Unit.
Every business day we determine the value of a VIP Unit for each Variable Option
by:
1. determining the total amount of money invested in the particular Variable
Option;
2. subtracting from that amount any insurance charges and any other charges such
as taxes we have deducted; and
3. dividing this amount by the number of outstanding VIP Units.
The value of a VIP Unit may go up or down from day to day.
When you make the Purchase Payment, we credit your Contract with VIP Units. The
number of VIP Units we credit your Contract with is determined by dividing the
amount of the Purchase Payment allocated to a Variable Option by the value of
the corresponding VIP Unit.
We calculate the value of each VIP Unit after the New York Stock Exchange closes
each day and then credit your Contract.
EXAMPLE:
On Monday we receive your Purchase Payment of $35,000. You have told us you want
this to go to the Growth and Income Fund. When the New York Stock Exchange
closes on that Tuesday, we determine that the value of a VIP Unit based on an
investment in the Growth and Income Fund is $12.50. We then divide $35,000 by
$12.50 and credit your Contract on Tuesday night with 2800 VIP Units.
4. INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
The Contract offers Variable Options, which invest in Class 1 shares of 18
Portfolios of Franklin Valuemark Funds. The Contract also offers a Fixed Payment
Option of Preferred Life. Additional Portfolios may be available in the future.
You should read the Franklin Valuemark Funds prospectus (which is attached to
this prospectus) carefully before investing.
Franklin Valuemark Funds (Trust) is the mutual fund underlying your Contract.
Each Portfolio has its own investment objective. The Trust issues two classes of
shares which are described in the attached Trust prospectus. Only Class 1 shares
are available with your Contract. Investment managers for each Portfolio are
listed in the table below and are as follows: Franklin Advisers, Inc.(FA),
Franklin Advisory Services, LLC. (FAS), Franklin Mutual Advisers, LLC. (FMA),
Templeton Asset Management Ltd. (TAM), Templeton Global Advisors Limited (TGA),
and Templeton Investment Counsel, Inc. (TIC). Certain managers have retained one
or more affiliated subadvisers to help them manage the Portfolios.
The following is a list of the Portfolios available under the Contract:
INVESTMENT
AVAILABLE PORTFOLIOS MANAGERS
- ------------------------------------------------------------
PORTFOLIO SEEKING CAPITAL PRESERVATION AND INCOME
Money Market Fund ........................... FA
PORTFOLIOS SEEKING INCOME
High Income Fund............................. FA
PORTFOLIOS SEEKING GROWTH AND INCOME
Global Utilities Securities Fund............. FA
Growth and Income Fund ...................... FA
Income Securities Fund ...................... FA
Mutual Shares Securities Fund ............... FMA
Real Estate Securities Fund ................. FA
Rising Dividends Fund ....................... FAS
Templeton Global Asset Allocation Fund ...... TGA
Value Securities Fund ....................... FAS
PORTFOLIOS SEEKING CAPITAL GROWTH
Capital Growth Fund ......................... FA
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
Franklin Valuemark Funds serves as the underlying mutual fund for variable life
insurance policies offered by Preferred Life and other variable annuity
contracts offered by Preferred Life and its affiliates. Franklin Valuemark Funds
does not believe that offering its shares in this manner will be disadvantageous
to you.
TRANSFERS
You can transfer money among the 18 Variable Options. You cannot make transfers
from the Fixed Payment Option to the Variable Options.
We currently allow you to make as many transfers as you want each year. We may
limit this in the future. However, you will always be allowed at least 12
transfers each year. This product is not designed for professional market timing
organizations or other persons using programmed, large, or frequent transfers.
Such activity may be disruptive to a Portfolio. We may reject any specific
Purchase Payment allocation or transfer request from any person, if in the
Portfolio managers' judgment, a Portfolio would be unable to invest effectively
in accordance with its investment objectives and policies, or if the Portfolio
would be potentially adversely affected.
The following applies to any transfer:
1. You cannot make transfers during the free look period.
2. Your request for a transfer must clearly state which Variable Options or the
Fixed Payment Option is involved in the transfer.
3. Your request for a transfer must clearly state how much the transfer is for.
4. You cannot make a transfer if it would cause any Variable Option or the Fixed
Payment Option to provide less than 10% of the benefits under your Contract.
5. You can make at least one allocation to the Fixed Payment Option. Both your
initial allocation to the Fixed Payment Option and each transfer to the Fixed
Payment Option will be treated as an allocation.
TELEPHONE TRANSFERS
You can make transfers by telephone. If you own the Contract with a Joint Owner,
we will accept instructions from either one of you unless you instruct us
otherwise. We will use reasonable procedures to confirm that instructions given
to us by telephone are genuine. If we do not use such procedures, we may be
liable for any losses due to unauthorized or fraudulent instructions. We tape
record all telephone instructions.
VOTING PRIVILEGES
We are the legal owner of the Trust's Class 1 Portfolio shares. However, when a
Portfolio solicits proxies in conjunction with a shareholder vote, which affects
your investment, we will obtain from you and other affected Contract Owners
instructions as to how to vote those shares. When we receive those instructions,
we will vote all of the shares we own in proportion to those instructions. This
will also include any shares that we own on our own behalf. If we determine that
we are no longer required to comply with the above, we will vote the shares in
our own right.
SUBSTITUTION
Preferred Life may substitute one of the Variable Options you have selected with
another Variable Option. We will not do this without the prior approval of the
Securities and Exchange Commission. We will give you notice of our intention to
do this.
5. EXPENSES
There are charges and other expenses associated with the Contract that will
reduce your investment return. These charges and expenses are:
INSURANCE CHARGES
Each day, we make a deduction for insurance charges. We do this as part of our
calculation of the value of the VIP Units and the Annuity Units. The insurance
charge has two parts: 1) the mortality and expense risk charge, and 2) the
administrative charge.
- - MORTALITY AND EXPENSE RISK CHARGE. During the Accumulation Phase, this
charge is equal, on an annual basis, to 1.25% of the average daily value of
the Contract invested in a Variable Option, after the deduction of
expenses. This charge compensates us for all the insurance benefits
provided by your Contract (for example, our contractual obligation to make
Annuity Payments, certain expenses related to the Contract, and for
assuming the risk (expense risk) that the current charges will be
insufficient in the future to cover the cost of administering the
Contract).
- - ADMINISTRATIVE EXPENSE CHARGE. This charge is equal, on an annual basis,
to .15% of the average daily value of the Contract invested in a Variable
Option after the deduction of expenses. This charge is for all the expenses
associated with the administration of the Contract. Some of these expenses
include: preparation of the Contract, confirmations, annual statements,
maintenance of Contract records, personnel costs, legal and accounting
fees, filing fees, and computer and systems costs.
COMMUTATION FEE
Under certain circumstances, you can liquidate (withdraw) all or part of a
Variable Option of the Contract. When you make a liquidation, the amount you
receive will be reduced by the commutation fee. The commutation fee is a
percentage of the amount withdrawn. The commutation fee is equal to:
CONTRACT YEAR CHARGE
------------- ------
1 5%
2 5%
3 4%
4 3%
5 2%
6 (& thereafter) 1%
After the first Contract year, you may make one liquidation from your Contract
each year if you have selected Annuity Options 2 or 4. If you have selected
Annuity Option 6, you may make a liquidation once each year beginning in the
first year.
INCOME TAXES
Preferred Life reserves the right to deduct from the Contract for any income
taxes which it may incur because of the Contract. Currently, it is not making
any such deductions.
PORTFOLIO EXPENSES
There are deductions from the assets of the various Portfolios for operating
expenses (including management fees), which are described above in the Fee Table
and in the attached prospectus for Franklin Valuemark Funds.
6. TAXES
- --------------------------------------------------------------------------------
NOTE: Preferred Life has prepared the following information on taxes as a
general discussion of the subject. It is not intended as tax advice to any
individual. You should consult your own tax adviser about your own
circumstances. Preferred Life has included an additional discussion regarding
taxes in the Statement of Additional Information.
ANNUITY CONTRACTS IN GENERAL
Annuity contracts are a means of setting aside money for future needs and for
providing a series of periodic payments for life or a fixed number of years.
Congress recognized how important saving for retirement was and provided special
rules in the Internal Revenue Code (Code) for annuities.
Simply stated these rules provide that you will not be taxed on the earnings on
the money held in your annuity contract until you take the money out. This is
referred to as Tax Deferral. There are different rules as to how you will be
taxed depending on how you take the money out and the type of Contract
- --Qualified or Non-Qualified (see following sections).
You, as the Owner, will not be taxed on increases in the value of your Contract
until a distribution occurs -either as a surrender or as Annuity Payments. When
you make a surrender you are taxed on the amount of the surrender that is
earnings. For Annuity Payments, different rules apply. A portion of each Annuity
Payment is treated as a partial return of your Purchase Payment and will not be
taxed. The remaining portion of the Annuity Payment will be treated as ordinary
income. How the Annuity Payment is divided between taxable and non-taxable
portions depends upon the period over which the Annuity Payments are expected to
be made. Annuity Payments received after you have received all of your Purchase
Payment are fully includible in income.
QUALIFIED AND NON-QUALIFIED CONTRACTS
If you purchase the Contract as an individual and not as an individual
retirement annuity, your Contract is referred to as a Non-Qualified Contract.
If you purchase the Contract as an individual retirement annuity, your Contract
is referred to as a Qualified Contract.
LIQUIDATIONS -- NON-QUALIFIED CONTRACTS
If the value of your Contract exceeds your Purchase Payment, any withdrawals
will be included in taxable income to the extent of earnings in your Contract.
The Code also provides that any amount received under an annuity contract, which
is included in income, may be subject to a penalty. The amount of the penalty is
equal to 10% of the amount that is includible in income. Some distributions will
be exempt from the penalty. They include any amounts:
(1) paid on or after you reach age 59 1/2;
(2) paid after you die;
(3) paid if you become totally disabled (as that term is defined in the Code);
(4) paid in a series of substantially equal payments made annually (or more
frequently) under a lifetime annuity;
(5) paid as annuity payments under an immediate annuity; or
(6) which come from purchase payments made prior to August 14, 1982.
The Code does not specifically address withdrawals (liquidations) from immediate
annuity contracts. A Private Letter Ruling issued by the Internal Revenue
Service concludes that the ability to make withdrawals does not prevent a
contract from qualifying as an immediate annuity. However, the Ruling does not
address the issue of whether a withdrawal would affect the favorable tax
treatment of the annuity payments made before and after the withdrawal under 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 your attaining age 59 1/2 would be subject to
a 10% penalty tax unless another exception to the penalty tax applies. While
Preferred Life currently believes that such withdrawals will not adversely
affect the favorable tax treatment of annuity payments received before or after
a withdrawal and Preferred Life intends to perform its tax reporting functions
accordingly, there can be no assurance that the Internal Revenue Service will
not take a contrary position. You should obtain competent tax advice prior to
making a partial or total liquidation (withdrawal).
LIQUIDATIONS - QUALIFIED CONTRACTS
If you make a withdrawal under an IRA Contract, a portion of the amount is
taxable, generally based on the ratio of your cost basis to the total accrued
benefit under the contract. Often in the case of IRA's, there is no cost basis
which results in the full amount of the withdrawal being included in taxable
income. The Code imposes a 10% penalty tax on the taxable portion of any
distributions from qualified retirement plans, including IRA Contracts. The
penalty tax will not apply to the following distributions:
(a) distributions made on or after the date you reach of age 59 1/2;
(b) distributions following your death or disability (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 at least yearly for your life (or life expectancy) or the
joint lives (or joint life expectancies) of you and your designated
Beneficiary;
(d) distributions made to you to the extent such distributions do not exceed the
amount allowable as a deduction under Code Section 213 for amounts paid
during the taxable year for medical care;
(e) distributions for the purchase of medical insurance (as described in Section
213(d)(1)(D) of the Code) for you and your spouse and dependents if you
have received unemployment compensation for at least 12 weeks (this
exception will no longer apply after you have been re-employed for at least
60 days);
(f) distributions made to you to the extent such distributions do not exceed
your qualified higher education expenses (as defined in Section 72(t)(7)
of the Code) for the taxable year; and
(g) distributions 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 your 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 the penalty tax that would have been imposed
without the exception, plus interest for the tax years in which the exception
was used. A partial liquidation may result in the modification of the series of
annuity payments made after such liquidation and therefore could result in the
imposition of the 10% penalty tax and interest for the period as described
above. You should obtain competent tax advice before you make any liquidations
from an IRA Contract. Any amounts distributed will only be paid to you, your
Annuitant or your Beneficiary. Preferred Life will not transfer or pay such
amounts to another IRA or tax qualified plan.
DIVERSIFICATION
The Code provides that the underlying investments for a variable annuity must
satisfy certain diversification requirements in order to be treated as an
annuity contract. Preferred Life believes that the Portfolios of Franklin
Valuemark Funds are being managed so as to comply with the requirements.
Neither the Code nor the Internal Revenue Service Regulations issued to date
provide guidance as to the circumstances under which you, because of the degree
of control you exercise over the underlying investments, and not Preferred Life
would be considered the owner of the shares of the Portfolios. If you are
considered the owner of the shares, it will result in the loss of the favorable
tax treatment for the Contract. It is unknown to what extent Contract Owners are
permitted to select Portfolios, to make transfers among the Portfolios or the
number and type of Portfolios Contract Owners may select from without being
considered the owner of the shares. If any guidance is provided which is
considered a new position, then the guidance would generally be applied
prospectively. However, if such guidance is considered not to be a new position,
it may be applied retroactively. This would mean that you, as the Owner of the
Contract, could be treated as the owner of the Portfolios.
Due to the uncertainty in this area, Preferred Life reserves the right to modify
the Contract in an attempt to maintain favorable tax treatment.
7. ACCESS TO YOUR MONEY
- ------------------------------------------------------------------------------
If you have chosen Annuity Options 2, 4 or 6 you may make liquidations
(withdrawals) from your Contract under the certain circumstances described
below.
Annuity Options 2 and 4: If you have selected Annuity Option 2 or 4 and a
portion of your payments come from the Variable Options, you may make partial
liquidations (withdrawals) from your Contract. You can only make liquidations
after the first Contract year. During the lifetime of the Annuitant(s) and while
the number of Annuity Payments made is less than the guaranteed number of
payments elected under the Annuity Option, you can request a liquidation once
each year. You can liquidate a portion 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 (allocated to the Variable Options) to
the end of the period certain commuted at the AIR, less a commutation fee. The
total amount you can liquidate is guaranteed to not be less than 25% of the
Total Liquidation Value. Currently, you may liquidate up to 75% of the Total
Liquidation Value. Preferred Life may change this amount in the future. The
minimum amount you can liquidate 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.
After a partial liquidation, the subsequent monthly Annuity Payment during the
guaranteed period certain will be reduced by the percentage of the Total
Liquidation Value liquidated, including the commutation fee.
Annuity Option 6: If you have selected Annuity Option 6, you can currently make
one liquidation each year. You may liquidate the Total Liquidation Value of your
Contract. The Total Liquidation Value is equal to the present value of the
remaining Annuity Payments to the end of the period certain commuted at the AIR
less a commutation fee. Preferred Life may restrict the amount of a partial
liquidation to a minimum of $2,500. We may require a complete liquidation of
your Contract if the remaining Total Liquidation Value after you request a
partial liquidation would be less than $35,000. Preferred Life will require you
to return your Contract before we pay the entire commuted value. Currently,
Annuity Option 6 is not available until approved by the New York Insurance
Department.
We will process partial liquidations on the next Annuity Calculation Date after
your written request for a liquidation.
Income taxes and tax penalties may apply to any liquidation you make.
SUSPENSION OF PAYMENTS OR TRANSFERS
We may be required to suspend or postpone payments for liquidations or transfers
for any period when:
1. the New York Stock Exchange is closed (other than customary weekend and
holiday closings);
2. trading on the New York Stock Exchange is restricted;
3. an emergency exists as a result of which disposal of the Portfolio shares
are not reasonably practicable or we cannot reasonably value the Portfolio
shares;
4. during any other period when the Securities and Exchange Commission, by
order, so permits for the protection of Contract Owners.
8. PERFORMANCE
- --------------------------------------------------------------------------------
We periodically advertise performance. We will calculate performance by
determining the percentage change in the value of a VIP Unit by dividing the
increase (decrease) for that unit by the value of the VIP Unit at the beginning
of the period. This performance number reflects the deduction of the insurance
charges and the expenses of the Portfolios. We may also advertise cumulative
total return information. Cumulative total return is determined the same way
except that the results are not annualized. Performance information for the
underlying Portfolios may also be advertised - see the Franklin Valuemark Funds
prospectus for more information. The inception dates of the Portfolios pre-date
the inception dates of the corresponding Variable Options. For periods starting
prior to the date the Variable Option invested in the Portfolio, the performance
is based on the historical performance of the corresponding Portfolio.
We may in the future also advertise yield information. If we do, we will provide
you with information regarding how yield is calculated. More detailed
information regarding how performance is calculated is found in the SAI.
We base any performance advertised on historical data. This performance does not
guarantee future results of the Portfolios.
9. DEATH BENEFIT
- --------------------------------------------------------------------------------
IF YOU DIE BEFORE THE INCOME DATE AND THERE IS NO JOINT ANNUITANT, WE WILL TREAT
YOUR CONTRACT AS IF WE HAD NEVER ISSUED IT. WE WILL RETURN THE PURCHASE PAYMENT
TO YOUR ESTATE.
If you have chosen either Annuity Option 3, 4 or 6 with a Joint Annuitant and
either you or the Joint Annuitant dies before the Income Date, the Annuity
Option will be changed to Option 2 with 10 years of payments guaranteed. If the
survivor's life expectancy is less than 10 years, the period of guaranteed
payments will be 5 years instead.
If you or the Joint Annuitant dies on or after the Income Date, the death
benefit, if any, will be paid under the Annuity Option selected. We will require
proof of death. We may delay paying the death benefit until we receive any tax
consents and/or forms from the state.
DEATH OF BENEFICIARY
Unless you tell us otherwise, any amount payable after your death and that of
any Joint Annuitant will be payable:
(1) in respective shares to the surviving Beneficiaries;
(2) if no Beneficiary is living, payment will be made in respective shares to
any surviving contingent Beneficiaries;
(3) if there is no surviving Beneficiary or contingent Beneficiary, payment will
be made to your estate.
10. OTHER INFORMATION
- --------------------------------------------------------------------------------
PREFERRED LIFE
Preferred Life Insurance Company of New York (Preferred Life) is a stock life
insurance company organized under the laws of the State of New York. Preferred
Life is authorized to do business in six states, including New York. The company
is a wholly-owned subsidiary of Allianz Life Insurance Company of North America
(Allianz Life). Allianz Life, 1750 Hennepin Avenue, Minneapolis, Minnesota
55403, was organized under the laws of the state of Minnesota in 1896. Allianz
Life offers fixed and variable life insurance and annuities and group life,
accident and health insurance. Allianz Life is a wholly-owned subsidiary of
Allianz Versicherungs-AG Holding.
YEAR 2000
Preferred Life has initiated programs to ensure that all of the computer systems
utilized to provide services and administer policies will function properly in
the year 2000. An assessment of the total expected costs specifically related to
the year 2000 conversion has been completed. The total amounts to be expended
over the next two years are not expected to have a significant effect on
Preferred Life's financial position or results of operations. Preferred Life
believes it has taken steps that are reasonably designed to address the
potential failure of computer systems used by its service providers and to
ensure its year 2000 program is completed on a timely basis. There can be no
assurance, however, that the steps taken by Preferred Life will be adequate to
avoid any adverse impact.
THE SEPARATE ACCOUNT
Preferred Life established a separate account named Preferred Life Variable
Account C (Separate Account). The Separate Account holds the assets that
underlie the Contracts (except assets allocated to the Fixed Payment Option).
Preferred Life has registered the Separate Account with the Securities and
Exchange Commission as a unit investment trust under the Investment Company Act
of 1940. The Separate Account is divided into Variable Options (also known as
sub-accounts). Each Variable Option invests in one class of shares of a
Portfolio.
The assets of the Separate Account are held in Preferred Life's name on behalf
of the Separate Account and legally belong to Preferred Life. However, those
assets that underlie the variable Contracts are not chargeable with liabilities
arising out of any other business Preferred Life may conduct. All the income,
gains and losses (realized or unrealized) resulting from these assets are
credited to or charged against the Contracts and not against any other contracts
Preferred Life may issue.
DISTRIBUTION
NALAC Financial Plans, LLC (NFP), 1750 Hennepin Avenue, Minneapolis, MN 55403,
acts as the distributor of the Contracts. NFP is a wholly-owned subsidiary of
Allianz Life and an affiliate of Preferred Life. NFP has subcontracted with
Franklin Advisers, Inc. ("Advisers") for it and/or certain of its affiliates to
provide certain marketing support services. NFP compensates these entities for
their services.
Commissions will be paid to broker-dealers who sell the Contracts.
Broker-dealers will be paid commissions at the time of purchase up to 4.0% of
the Purchase Payment.
ADMINISTRATION
We have hired Templeton Funds Annuity Company (in California, doing business as
"Templeton Funds Life & Annuity Insurance Company") (VIP Service Center) to
perform certain administrative services regarding the Contracts. The
administrative services include issuance of the Contracts and maintenance of
Contract Owner's records. Templeton Funds Annuity Company has entered into a
reinsurance agreement with us regarding certain risks under the Contracts.
FINANCIAL STATEMENTS
The consolidated financial statements of Preferred Life and the Separate Account
have been included in the Statement of Additional Information.
TABLE OF CONTENTS
OF THE STATEMENT OF
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
Insurance Company................................. 2
Experts .......................................... 2
Legal Opinions ................................... 2
Distributor ...................................... 2
Calculation of Performance Data .................. 2
Federal Tax Status ............................... 5
Annuity Provisions................................ 8
Financial Statements ............................. 9
<PAGE>
<TABLE>
<CAPTION>
APPENDIX A
- --------------------------------------------------------------------------------
CONDENSED FINANCIAL INFORMATION
The consolidated financial statements of Preferred Life Insurance Company of New
York and the financial statements of Preferred Life Variable Account B may be
found in the Statement of Additional Information (SAI).
The table below gives per VIP Unit information about the financial history of
each Sub-Account from the inception of each to December 31, 1998.
This information should be read in conjunction with the financial statements and
related notes to the Separate Account included in the SAI.
(Number of units in Thousands)
GLOBAL MUTUAL
CAPITAL UTILITIES GROWTH & HIGH INCOME MONEY DISCOVERY
SUB-ACCOUNTS: GROWTH SECURITIES INCOME INCOME SECURITIESMARKET SECURITIES
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DEC. 31, 1998
Unit value at beginning of period.. $13.130 $25.818 $24.551 $21.312 $25.065 $13.865 $11.983
Unit value at end of period ....... $15.574 $28.308 $26.226 $21.208 $25.122 $14.386 $11.226
Number of units outstanding
at end of period ................. 8,454 30,851 40,480 14,987 39,420 22,032 9,718
YEAR ENDED DEC. 31, 1997
Unit value at beginning of period.. $11.254 $20.654 $19.490 $19.375 $21.708 $13.359 $10.180
Unit value at end of period ....... $13.130 $25.818 $24.551 $21.312 $25.065 $13.865 $11.983
Number of units outstanding
at end of period ................. 5,673 39,623 46,962 18,871 49,812 20,982 9,940
YEAR ENDED DEC. 31, 1996
Unit value at beginning of period.. $10.000* $19.565 $17.310 $17.252 $19.785 $12.883$10.000*
Unit value at end of period ....... $11.254 $20.654 $19.490 $19.375 $21.708 $13.359 $10.180
Number of units outstanding
at end of period ................. 3,722 53,086 50,027 20,736 57,504 28,060 1,471
YEAR ENDED DEC. 31, 1995
Unit value at beginning of period.. NA $15.104 $13.215 $14.608 $16.392 $12.354 NA
Unit value at end of period ....... NA $19.565 $17.310 $17.252 $19.785 $12.883 NA
Number of units outstanding
at end of period ................. NA 66,669 46,893 18,756 59,309 31,040 NA
YEAR ENDED DEC. 31, 1994
Unit value at beginning of period.. NA $17.319 $13.677 $15.155 $17.734 $12.066 NA
Unit value at end of period ....... NA $15.104 $13.215 $14.608 $16.392 $12.354 NA
Number of units outstanding
at end of period ................. NA 70,082 35,695 15,679 56,569 39,437 NA
YEAR ENDED DEC. 31, 1993
Unit value at beginning of period.. NA $15.889 $12.574 $13.278 $15.163 $11.932 NA
Unit value at end of period ....... NA $17.319 $13.677 $15.155 $17.734 $12.066 NA
Number of units outstanding
at end of period ................. NA 84,217 24,719 11,787 38,967 10,247 NA
YEAR ENDED DEC. 31, 1992
Unit value at beginning of period.. NA $14.821 $11.949 $11.583 $13.580 $11.742 NA
Unit value at end of period ....... NA $15.889 $12.574 $13.278 $15.163 $11.932 NA
Number of units outstanding
at end of period ................. NA 39,387 17,144 4,780 11,397 6,951 NA
PERIOD FROM INCEPTION*
TO DEC. 31, 1991
Unit value at beginning of period.. NA $12.062 $ 9.803 $9.026 $9.842 $11.288 NA
Unit value at end of period ....... NA $14.821 $11.949 $11.583 $13.580 $11.742 NA
Number of units outstanding
at end of period ................. NA 16,188 9,671 1,923 4,472 5,682 NA
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(Number of units in Thousands)
TEMPLETON TEMPLETON
MUTUAL DEVELOPING GLOBAL TEMPLETON
SHARES REAL ESTATE RISING SMALL MARKETS ASSET GLOBAL
SUB-ACCOUNTS: SECURITIES SECURITIES DIVIDENDS CAP EQUITY ALLOCATION GROWTH
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DEC. 31, 1998
Unit value at beginning of period.. $11.993 $28.169 $20.074 $14.952 $10.340 $13.786 $15.176
Unit value at end of period ....... $11.837 $23.107 $21.165 $14.600 $ 7.993 $13.589 $16.309
Number of units outstanding
at end of period 18,133 9,639 27,683 14,856 15,989 4,056 34,226
YEAR ENDED DEC. 31, 1997
Unit value at beginning of period . $10.330 $23.668 $15.303 $12.913 $11.487 $12.514 $13.560
Unit value at end of period ....... $11.993 $28.169 $20.074 $14.952 $10.340 $13.786 $15.176
Number of units outstanding
at end of period ................. 18,744 13,445 33,250 16,924 23,007 5,229 41,432
YEAR ENDED DEC. 31, 1996
Unit value at beginning of period . $10.000* $18.073 $12.498 $10.146 $ 9.582 $10.591 $11.339
Unit value at end of period ....... $10.330 $23.668 $15.303 $12.913 $11.487 $12.514 $13.560
Number of units outstanding
at end of period ................. 2,613 12,757 35,569 12,784 22,423 4,104 40,327
YEAR ENDED DEC. 31, 1995
Unit value at beginning of period . NA $15.594 $ 9.769 $10.000*$ 9.454 $10.000* $10.201
Unit value at end of period ....... NA $18.073 $12.498 $10.146 $ 9.582 $10.591 $11.339
Number of units outstanding
at end of period ................. NA 10,998 33,789 1,302 15,618 1,338 28,309
YEAR ENDED DEC. 31, 1994
Unit value at beginning of period . NA $15.369 $10.327 NA $10.000* NA $10.000*
Unit value at end of period ....... NA $15.594 $9.769 NA $ 9.454 NA $10.201
Number of units outstanding
at end of period ................. NA 11,645 28,778 NA 9,774 NA 14,637
YEAR ENDED DEC. 31, 1993
Unit value at beginning of period . NA $13.095 $10.848 NA NA NA NA
Unit value at end of period ....... NA $15.369 $10.327 NA NA NA NA
Number of units outstanding
at end of period ................. NA 5,589 26,256 NA NA NA NA
YEAR ENDED DEC. 31, 1992
Unit value at beginning of period .. NA $11.848 $10.000* NA NA NA NA
Unit value at end of period ........ NA $13.095 $10.848 NA NA NA NA
Number of units outstanding
at end of period .................. NA 1,052 8,388 NA NA NA NA
PERIOD FROM INCEPTION*
TO DEC. 31, 1991
Unit value at beginning of period .. NA $ 9.000 NA NA NA NA NA
Unit value at end of period ........ NA $11.848 NA NA NA NA NA
Number of units outstanding
at end of period .................. NA 394 NA NA NA NA NA
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(Number of units in Thousands)
TEMPLETON
TEMPLETON INTERNATIONAL TEMPLETON
INTERNATIONAL SMALLER PACIFIC VALUE
SUB-ACCOUNTS: EQUITY COS GROWTH SECURITIES
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
YEAR ENDED DEC. 31, 1998
Unit value at beginning of period.. $17.711 $10.825 $ 9.431 $10.000*
Unit value at end of period ....... $18.437 $ 9.364 $ 8.078 $7.717
Number of units outstanding
at end of period 44,256 1,533 10,669 719
YEAR ENDED DEC. 31, 1997
Unit value at beginning of period . $16.081 $11.145 $14.932 NA
Unit value at end of period ....... $17.711 $10.825 $ 9.431 NA
Number of units outstanding
at end of period ................. 58,179 1,998 15,833 NA
YEAR ENDED DEC. 31, 1996
Unit value at beginning of period . $13.263 $10.000* $13.630 NA
Unit value at end of period ....... $16.081 $11.145 $14.932 NA
Number of units outstanding
at end of period ................. 64,375 1,388 22,061 NA
YEAR ENDED DEC. 31, 1995
Unit value at beginning of period . $12.161 NA $12.802 NA
Unit value at end of period ....... $13.263 NA $13.630 NA
Number of units outstanding
at end of period ................. 59,883 NA 22,483 NA
YEAR ENDED DEC. 31, 1994
Unit value at beginning of period . $12.226 NA $14.233 NA
Unit value at end of period ....... $12.161 NA $12.802 NA
Number of units outstanding
at end of period ................. 60,464 NA 27,231 NA
YEAR ENDED DEC. 31, 1993
Unit value at beginning of period .. $ 9.642 NA $ 9.761 NA
Unit value at end of period ........ $12.226 NA $14.233 NA
Number of units outstanding
at end of period .................. 24,026 NA 14,240 NA
YEAR ENDED DEC. 31, 1992
Unit value at beginning of period .. $10.000* NA $10.000* NA
Unit value at end of period ........ $ 9.642 NA $ 9.761 NA
Number of units outstanding
at end of period .................. 1,329 NA 534 NA
PERIOD FROM INCEPTION*
TO DEC. 31, 1991
Unit value at beginning of period .. NA NA NA NA
Unit value at end of period ........ NA NA NA NA
Number of units outstanding
at end of period .................. NA NA NA NA
<FN>
*Unit Value at inception was $10.00.
The VIP Unit Value at inception was $10.00 for each Sub-Account. Inception was
9/6/91 for the Global Utilities Securities, Growth and Income, High Income,
Income Securities, Money Market, and Real Estate Securities Sub-Accounts;
3/10/92 for the Rising Dividends, Templeton International Equity, and Templeton
Pacific Growth Sub-Accounts; 4/25/94 for the Templeton Developing Markets
Equity, and Templeton Global Growth Sub-Accounts; 8/4/95 for the Templeton
Global Asset Allocation Sub-Account; 6/10/96 for the Capital Growth, Small Cap,
and Templeton International Smaller Companies Sub-Accounts; 12/2/96 for the
Mutual Discovery Securities, and Mutual Shares Securities Sub-Accounts; and
8/17/98 for the Value Securities Sub-Account.
</FN>
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX B
ILLUSTRATION OF ANNUITY INCOME
We have prepared the following tables to show you 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. Preferred Life
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.
They do not represent past or future investment returns.
Your variable annuity income may be more or less than the income shown if the
actual returns of the Portfolios you select are different than those shown
below. Since it is very likely that investment returns will fluctuate over time,
the amount of variable annuity income you will receive will also fluctuate. The
total amount of annuity income you actually receive will depend on the
cumulative investment returns of the Portfolios you choose, how long you live
and the Annuity Option you choose.
Another factor which will affect the amount of variable annuity income you will
receive is the Assumed Investment Return (AIR). Income will increase from one
Income Date to the next if the annualized net rate of return during that time is
greater than the AIR you choose. It will decrease if the annualized net rate of
return is less than the AIR.
There are two illustrations. The first is based on a 3% AIR, and the second is
based on a 5% AIR.
The income amounts shown reflect the deduction of all fees and expenses. Actual
Portfolio fees and expenses will vary from year to year and from Portfolio to
Portfolio. Actual expenses may be higher or lower than the rate used in the
illustrations. The illustrations assume that each Portfolio will incur expenses
at an average annual rate of 0.79% of the average daily net assets of the
Portfolio. The insurance charges are calculated at an annual rate of 1.40% of
the average daily net assets of the Separate 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 (which means
after expenses have been deducted) of -2.16%, 3.71% and 9.58%, respectively.
<PAGE>
<TABLE>
<CAPTION>
VALUEMARK INCOME PLUS ILLUSTRATION
ANNUITANT: John Doe ANNUITY PURCHASE AMOUNT: $100,000
DATE OF BIRTH: 1/1/1930 EFFECTIVE DATE: 12/1/1999
ANNUITY INCOME OPTION: Single Life Annuity FIRST ANNUITY INCOME DATE: 1/1/2000
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 you actually receive will depend on the investment
performance of the Portfolio(s) you choose. The variable annuity income can go
up or down. No minimum dollar amount of variable annuity income is guaranteed.
The amounts shown are based on a 3% AIR. Income will remain constant at $625 per
month when the net rate of return after expenses is 3% (annually).
MONTHLY ANNUITY PAYMENTS
Annual rate of return before expenses: 0% 6% 12%
Annuity Income Date Age Annual rate of return after expenses: -2.16% 3.71% 9.58%
- ------------------- --- -------------------------------------- ------ ----- -----
<S> <C> <C> <C> <C>
January 1, 2000 70 $622 $625 $ 628
January 1, 2001 71 591 629 668
January 1, 2002 72 561 634 711
January 1, 2003 73 533 638 756
January 1, 2004 74 506 642 805
January 1, 2009 79 391 665 1,097
January 1, 2014 84 303 688 1,494
January 1, 2019 89 234 712 2,037
January 1, 2024 94 181 737 2,776
</TABLE>
<PAGE>
The investment rates of return shown are hypothetical only. You should not
consider them 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
------------------------------------------------------------
-2.16% 3.71% 9.58%
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
4 533 638 756
5 506 642 805
6 481 647 856
7 457 651 911
8 434 656 969
9 412 660 1,031
10 391 665 1,097
11 372 669 1,167
12 353 674 1,241
13 336 679 1,320
14 319 683 1,405
15 303 688 1,494
16 288 693 1,590
17 273 697 1,691
18 259 702 1,799
19 246 707 1,914
20 234 712 2,037
21 222 717 2,167
22 211 722 2,305
23 201 727 2,452
24 191 732 2,609
25 181 737 2,776
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VALUEMARK INCOME PLUS ILLUSTRATION
ANNUITANT: John Doe ANNUITY PURCHASE AMOUNT: $100,000
DATE OF BIRTH: 1/1/1930 EFFECTIVE DATE: 12/1/1999
ANNUITY INCOME OPTION: Single Life Annuity FIRST ANNUITY INCOME DATE: 1/1/2000
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 you actually receive will depend on the investment
performance of the Portfolio(s) you choose. The variable annuity income can go
up or down. No minimum dollar amount of variable annuity income is guaranteed.
The amounts shown are based on a 5% AIR. Income will remain constant at $742 per
month when the net rate of return after expenses is 5% (annually).
MONTHLY ANNUITY PAYMENTS
Annual rate of return before expenses: 0% 6% 12%
Annuity Income Date Age Annual rate of return after expenses: -2.16% 3.71% 9.58%
- ------------------- --- -------------------------------------- ------ ----- -----
<S> <C> <C> <C> <C>
January 1, 2000 70 $738 $741 $ 745
January 1, 2001 71 687 732 778
January 1, 2002 72 640 723 811
January 1, 2003 73 597 714 847
January 1, 2004 74 556 706 884
January 1, 2009 79 391 663 1,094
January 1, 2014 84 274 623 1,354
January 1, 2019 89 193 586 1,676
January 1, 2024 94 135 551 2,075
</TABLE>
<PAGE>
The investment rates of return shown are hypothetical only. You should not
consider them 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
------------------------------------------------------------
-2.16% 3.71% 9.58%
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
3 640 723 811
4 597 714 847
5 556 706 884
6 518 697 922
7 483 688 962
8 450 680 1,004
9 419 671 1,048
10 391 663 1,094
11 364 655 1,142
12 339 647 1,191
13 316 639 1,243
14 294 631 1,298
15 274 623 1,354
16 256 616 1,413
17 238 608 1,475
18 222 601 1,539
19 207 593 1,606
20 193 586 1,676
21 180 579 1,749
22 167 572 1,826
23 156 565 1,905
24 145 558 1,988
25 135 551 2,075
</TABLE>
<PAGE>
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 17, 1999
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 17,
1999 AND AS MAY BE AMENDED FROM TIME TO TIME.
TABLE OF CONTENTS
- -------------------------------------------------------
CONTENTS PAGE
Company
Experts
Legal Opinions
Distributor
Calculation of Performance Data
Federal Tax Status
Annuity Provisions
Financial Statements
<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, 1998,
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
Variable Options (also known as Sub-Accounts) in sales literature,
advertisements and personalized hypothetical illustrations and Contract Owner
communications. Such data will show the percentage change in the value of a VIP
Unit based on the performance of a Sub-Account over a stated period of time,
usually a calendar year, which is determined by dividing the increase (or
decrease) in value for that unit by the VIP Unit Value at the beginning of the
period.
Any such performance data will include total return figures for the one, five
and ten year (or since inception) time periods indicated. Such total return
figures will reflect the deduction of a 1.25% Mortality and Expense Risk Charge,
a 0.15% Administrative Expense Charge and the operating expenses of the
underlying 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 Sub-Account's
current yield will fluctuate and that the principal is not guaranteed should be
taken into consideration when using the Sub-Account's current yield as a basis
for comparison with savings accounts or other fixed-yield investments. The yield
at any particular time is not indicative of what the yield may be at any other
time.
The Money Market Sub-Account's current yield is computed on a base period return
of a hypothetical Contract having a beginning balance of one VIP Unit for a
particular period of time (generally seven days). The return is determined by
dividing the net change (exclusive of any capital changes) in such VIP Unit by
its beginning value, and then multiplying it by 365/7 to get the annualized
current yield. The calculation of net change reflects the value of additional
shares purchased with the dividends paid by the 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 12/31/98, the Money Market Sub-Account had a
current yield of 3.38% and an effective yield of 3.44%.
Other Sub-Accounts. The Company may also quote yield in sales literature,
advertisements, personalized hypothetical illustrations and Contract Owner
communications for the other Sub-Accounts. Each Sub-Account (other than the
Money Market Sub-Account) will publish standardized total return information
with any quotation of current yield.
The yield computation is determined by dividing the net investment income per
VIP Unit earned during the period (minus the deduction for the Mortality and
Expense Risk Charge and Administrative Expense Charge) by the VIP Unit Value on
the last day of the period and annualizing the resulting figure, according to
the following formula:
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 Sub-Account;
b = expenses accrued for the period (net of reimbursements, if applicable);
c = the average daily number of VIP Units outstanding during the period;
d = the maximum offering price per VIP Unit on the last day of the period.
The above formula will be used in calculating quotations of yield, based on
specified 30-day periods (or one month) identified in the sales literature,
advertisement or communication. The Company does not currently advertise yield
information for any Sub-Account (other than the Money Market Sub-Account).
PERFORMANCE RANKING
Total return information for the Sub-Accounts and the 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 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
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. The inception dates of the Portfolios pre-date the
inception dates of the corresponding Sub-Accounts of the Separate Account. For
periods starting prior to the date the Sub-Accounts invested in the Portfolio,
the performance is based on the historical performance of the corresponding
Portfolio.
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 (reflects all charges and deductions)
Average Annual Total Return for the periods ended December 31, 1998
PORTFOLIO
INCEPTION ONE FIVE SINCE
SUB-ACCOUNT DATE YEAR YEARS INCEPTION
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Growth 5/1/96 18.62% NA 18.06%
Global Utilities Securities 1/24/89 9.64% 10.33% 11.04%
Growth and Income 1/24/89 6.83% 13.91% 10.19%
High Income 1/24/89 -0.48% 6.95% 7.86%
Income Securities 1/24/89 0.23% 7.21% 9.71%
Money Market1 1/24/89 3.76% 3.68% 3.73%
Mutual Discovery Securities 11/8/96 -6.32% NA 5.54%
Mutual Shares Securities 11/8/96 -1.30% NA 8.18%
Real Estate Securities 1/24/89 -17.97% 8.50% 8.79%
Rising Dividends 1/27/92 5.44% 15.43% 11.42%
Small Cap 11/1/95 -2.36% NA 12.69%
Templeton Developing Markets Equity 3/15/94 -22.70% NA -4.56%
Templeton Global Asset Allocation 5/1/95 -1.43% NA 8.71%
Templeton Global Growth 3/15/94 7.46% NA 10.73%
Templeton International Equity 1/27/92 4.09% 8.56% 9.23%
Templeton International Smaller Companies 5/1/96 5.59% NA -2.43%
Templeton Pacific Growth 1/27/92 -14.34% -10.71% -3.03%
Value Securities 5/1/98 NA NA 12.70%
<FN>
1. Calculated with waiver of fees
</FN>
</TABLE>
<TABLE>
<CAPTION>
NON-STANDARDIZED TOTAL RETURN (reflects mortality and expense risk charge, administrative expense charge
and Portfolio operating expenses)
Total Return for the periods ended December 31, 1998
ANNUAL TOTAL RETURN CUMULATIVE TOTAL RETURN
PORTFOLIO -------------------------------------- -----------------------------
INCEPTION ONE THREE FIVE SINCE THREE FIVE SINCE
SUB-ACCOUNT DATE YEAR YEARS YEARS INCEPTION YEARS YEARS INCEPTION
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth 5/1/96 18.62% NA NA 18.06% NA NA 55.74%
Global Utilities Securities 1/24/89 9.64% 13.10% 10.33% 11.04% 44.69% 63.45% 183.08%
Growth and Income 1/24/89 6.83% 14.86% 13.91% 10.19% 51.51% 91.76% 162.26%
High Income 1/24/89 -0.48% 7.13% 6.95% 7.86% 22.93% 39.94% 112.08%
Income Securities 1/24/89 0.23% 8.29% 7.21% 9.71% 26.97% 41.66% 151.22%
Money Market1 1/24/89 3.76% 3.74% 3.58% 3.73% 11.66% 19.23% 43.86%
Mutual Discovery Securities 11/8/96 -6.32% NA NA 5.54% NA NA 12.26%
Mutual Shares Securities 11/8/96 -1.30% NA NA 8.18% NA NA 18.37%
Real Estate Securities 1/24/89 -17.97% 8.54% 8.50% 8.79% 27.85% 50.35% 131.07%
Rising Dividends 1/27/92 5.44% 19.20% 15.43% 11.42% 69.35% 104.95% 111.65%
Small Cap 11/1/95 -2.36% 12.90% NA 12.69% 43.89% NA 46.00%
Templeton Developing
Markets Equity 3/15/94 -22.70% -5.87% NA -4.56% -16.58% NA -20.07%
Templeton Global
Asset Allocation 5/1/95 -1.43% 8.66% NA 8.71% 28.30% NA 35.89%
Templeton Global Growth 3/15/94 7.46% 12.88% NA 10.73% 43.83% NA 63.09%
Templeton
International Equity 1/27/92 4.09% 11.60% 8.56% 9.23% 39.01% 50.80% 84.37%
Templeton International
Smaller Companies 5/1/96 5.59% NA NA -2.43% NA NA -6.36%
Templeton Pacific Growth 1/27/92 -14.34% -16.00% -10.71% -3.03% -40.73% -43.24% -19.22%
Value Securities 5/1/98 NA NA NA 12.70% NA NA 7.26%
<FN>
1. Calculated with waiver of fees
</FN>
</TABLE>
The Company may also present performance information computed on a different
basis.
Contract Owners should note that investment results will fluctuate over time,
and any presentation of total return for any period should not be considered as
a representation of what an investment may earn or what a Contract Owner's total
return may be in any future period.
ANNUITY INCOME
Periodic annuity income amounts may be illustrated using the historical
performance of the Sub-Accounts, the Standard & Poor's 500 Composite Stock Price
Index or other recognized investment benchmark portfolios. All illustrations
will reflect the 1.25% annual Mortality and Expense Risk Charge and the 0.15%
Administrative Expense Charge and actual or assumed Portfolio expenses.
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 herein may be applicable in certain situations. Moreover, no
attempt has been made to consider any applicable state or other tax laws.
GENERAL
Section 72 of the Internal Revenue Code of 1986, as amended (the "Code") governs
taxation of annuities in general. A Contract Owner is not taxed on increases in
the value of a Contract until distribution occurs, either in the form of a lump
sum payment or as annuity payments under the Annuity Option elected.
For 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 Separate 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 investment 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 Separate Account will cause the Contract Owner to be
treated as the owner of the assets of the Separate Account, thereby resulting in
the loss of favorable tax treatment for the Contract. At this time it cannot be
determined whether additional guidance will be provided and what standards may
be contained in such guidance.
The amount of Contract Owner control which may be exercised under the Contract
is different in some respects from the situations addressed in published rulings
issued by the Internal Revenue Service in which it was held that the policy
owner was not the owner of the assets of the separate account. It is unknown
whether these differences, such as the Contract Owner's ability to transfer
among investment choices or the number and type of investment choices available,
would cause the Contract Owner to be considered as the owner of the assets of
the Separate Account resulting in the imposition of federal income tax to the
Contract Owner with respect to earnings allocable to the Contract prior to
receipt of payments under the Contract.
In the event any forthcoming guidance or ruling is considered to set forth a new
position, such guidance or ruling will generally be applied only prospectively.
However, if such ruling or guidance was not considered to set forth a new
position, it may be applied retroactively resulting in the Contract Owner being
retroactively determined to be the owner of the assets of the Separate Account.
Due to the uncertainty in this area, the 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. For purposes of this
rule, contracts received in a Section 1035 exchange will be considered issued in
the year of the exchange. The legislative history of Section 72(e)(11) indicates
that it was not intended to apply to immediate annuities. However, the
legislative history also states that no inference is intended as to whether the
Treasury Department, under its authority to prescribe rules to enforce the tax
laws, may treat the combination purchase of a deferred annuity contract with an
immediate annuity contract as a single contract for purposes of determining the
tax consequences of any distribution.
TAX TREATMENT OF DISTRIBUTIONS -
NON-QUALIFIED CONTRACTS
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the Contract Value exceeds the aggregate purchase
payments made, any amount withdrawn will be treated as coming first from the
earnings and then, only after the income portion is exhausted, as coming from
the principal. Withdrawn earnings are includable in gross income. It further
provides that a ten percent (10%) penalty will apply to the income portion of
any distribution. However, the penalty is not imposed on amounts received: (a)
after the taxpayer reaches age 59 1/2; (b) after the death of the Contract
Owner; (c) if the taxpayer is totally disabled (for this purpose disability is
as defined in Section 72(m)(7) of the Code); (d) in a series of substantially
equal periodic payments made not less frequently than annually for the life (or
life expectancy) of the taxpayer and his Beneficiary; (e) as an annuity payment
under an immediate annuity; or (f) which are allocable to purchase payments made
prior to August 14, 1982.
The above information does not apply to Qualified Contracts. However, separate
tax withdrawal penalties and restrictions may apply to such Qualified Contracts.
(See "Tax Treatment of Distributions -IRA Contracts.")
The availability of total or partial withdrawals from an immediate annuity is
not expressly provided for in the Code or Treasury Regulations. The only tax
guidance currently available for such issue is a Private Letter Ruling holding
that the right to make withdrawals does not prevent a contract from qualifying
as an immediate annuity. However, the Private Letter Ruling does not address the
issue of whether the making of a withdrawal would adversely affect the favorable
tax treatment of annuity payments made before or after such partial withdrawal
because of the requirement that all immediate annuity payments must be
"substantially equal." The loss of favorable tax treatment would mean that the
income portion of each annuity payment received prior to the taxpayer's
attaining age 59 1/2 would be subject to a 10% penalty tax unless another
exception to the penalty tax applies. While the Company currently believes that
such withdrawals will not adversely affect the favorable tax treatment of
annuity payments received before or after a withdrawal and the Company intends
to perform its tax reporting functions accordingly, there can be no assurance
that the Internal Revenue Service will not take a contrary position. Contract
Owners should obtain competent tax advice prior to making a partial or total
withdrawal.
QUALIFIED PLANS
The Contracts offered by the 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; (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 later of: (a) the year in which the
employee attains age 70 1/2 or (b) the calendar year in which the employee
retires. The date set forth in (b) does not apply to an Individual Retirement
Annuity. 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.
ANNUITY PROVISIONS
- --------------------------------------------------------------------------------
VARIABLE ANNUITY PAYOUT
A variable annuity is an annuity with payments which: (1) are not predetermined
as to dollar amount; and (2) will vary in amount with the net investment results
of the applicable Sub-Account(s) of the Separate Account. Annuity payments also
depend upon the Age of the Annuitant and any Joint Annuitant and the Assumed Net
Investment Factor utilized. On the Annuity Calculation Date, the Contract Value
in each Sub-Account will be applied to the applicable Annuity Tables. The
Annuity Table used will depend upon the Annuity Option chosen. Unisex Annuity
Tables are utilized by the Company. The dollar amount of annuity payments after
the first is determined as follows:
1. The dollar amount of the first annuity payment is divided by the value of
an Annuity Unit as of the Annuity Calculation Date. This establishes the
number of Annuity Units for each monthly payment. The number of Annuity
Units remains fixed during the annuity payment period.
2. For each Sub-Account, the fixed number of Annuity Units is multiplied by
the Annuity Unit value on each subsequent annuity payment date. This result
is the dollar amount of the payment for each Sub-Account.
3. The total dollar amount of each Variable Annuity variable payout is the sum
of all Sub-Account Variable Annuity payments.
FIXED ANNUITY PAYOUT
Annuity payments from the Fixed 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, 1998 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 Separate Account as of and for the year ended
December 31, 1998 are also included herein.
VIPNY SAI 05/99
PREFERRED LIFE VARIABLE ACCOUNT C
OF
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements
December 31, 1998
<PAGE>
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, 1998, 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, 1998, 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 29, 1999
<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, 1998
(In thousands)
Global Global
Capital Health Utilities Growth and High Income Money
Growth Care Securities Securities Income Income Securities Market
Fund Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Capital Growth Fund, 1,001 shares, cost $13,477 $16,095 - - - - - -
Global Health Care Securities Fund, 34 shares,
cost $334 - 369 - - - - -
Global Utilities Securities Fund, 3,940 shares,
cost $65,886 - - 80,540 - - - -
Growth and Income Fund, 5,546 shares, cost $89,867 - - - 112,922 - - -
High Income Fund, 2,886 shares, cost $38,946 - - - - 38,329 - -
Income Securities Fund, 4,865 shares, cost $75,590 - - - - - 82,322 -
Money Market Fund, 31,357 shares, cost $31,357 - - - - - - 31,357
- ---------------------------------------------------------------------------------------------------------------------------
Total assets 16,095 369 80,540 112,922 38,329 82,322 31,357
Liabilities:
Accrued mortality and expense risk charges -
Valuemark II 2 1 5 6 4 5 3
Accrued mortality and expense risk charges -
Valuemark IV 1 - - 1 1 1 -
Accrued administrative charges - Valuemark II - - 1 1 - - -
Accrued administrative charges - Valuemark IV - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 3 1 6 8 5 6 3
Net assets $16,092 368 80,534 112,914 38,324 82,316 31,354
- ---------------------------------------------------------------------------------------------------------------------------
Contract owners' equity:
Contracts in accumulation period - Valuemark II 15,825 275 80,480 112,466 37,806 81,970 31,188
Contracts in accumulation period - Valuemark IV 267 93 54 448 518 346 166
- ---------------------------------------------------------------------------------------------------------------------------
Total contract owners' equity $16,092 368 80,534 112,914 38,324 82,316 31,354
- ---------------------------------------------------------------------------------------------------------------------------
<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, 1998
(In thousands)
Mutual Mutual Natural Templeton
Discovery Shares Resources Real Estate Rising Small Developing
Securities Securities Securities Securities Dividends Cap Markets
Fund Fund Fund Fund Fund Fund Equity Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Mutual Discovery Securities Fund, 1,137 shares,
cost $13,382 $12,836 - - - - - -
Mutual Shares Securities Fund, 2,278 shares,
cost $26,446 - 27,241 - - - - -
Natural Resources Securities Fund, 429 shares,
cost $5,793 - - 3,596 - - - -
Real Estate Securities Fund, 822 shares, cost $15,127- - - 16,377 - - -
Rising Dividends Fund, 3,731 shares, cost $50,084 - - - - 67,575 - -
Small Cap Fund, 1,086 shares, cost $15,229 - - - - - 14,905 -
Templeton Developing Markets Equity Fund, 873 shares,
cost $9,097 - - - - - - 6,031
- ---------------------------------------------------------------------------------------------------------------------------
Total assets 12,836 27,241 3,596 16,377 67,575 14,905 6,031
Liabilities:
Accrued mortality and expense risk charges -
Valuemark II 3 3 3 2 5 3 2
Accrued mortality and expense risk charges -
Valuemark IV - 1 - - 1 - -
Accrued administrative charges - Valuemark II 1 1 1 - - - 1
Accrued administrative charges - Valuemark IV - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 4 5 4 2 6 3 3
Net assets $12,832 27,236 3,592 16,375 67,569 14,902 6,028
- ---------------------------------------------------------------------------------------------------------------------------
Contract owners' equity:
Contracts in accumulation period - Valuemark II 12,646 26,789 3,536 16,340 67,223 14,771 5,983
Contracts in accumulation period - Valuemark IV 186 447 56 35 346 131 45
- ---------------------------------------------------------------------------------------------------------------------------
Total contract owners' equity $12,832 27,236 3,592 16,375 67,569 14,902 6,028
- ---------------------------------------------------------------------------------------------------------------------------
<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, 1998
(In thousands)
Templeton
Templeton Templeton Templeton Templeton International Templeton U.S.
Global Asset Global Global Income International Smaller Pacific Government
Allocation Growth Securities Equity Companies Growth Securities
Fund Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Templeton Global Asset Allocation Fund, 342 shares,
cost $4,212 $4,336 - - - - - -
Templeton Global Growth Fund, 2,484 shares,
cost $31,808 - 36,691 - - - - -
Templeton Global Income Securities Fund, 1,099 shares,
cost $14,080 - - 14,143 - - - -
Templeton International Equity Fund, 3,500 shares,
cost $48,667 - - - 54,325 - - -
Templeton International Smaller Companies Fund,
120 shares, cost $1,352 - - - - 1,102 - -
Templeton Pacific Growth Fund, 890 shares,
cost $11,717 - - - - - 6,682 -
U.S. Government Securities Fund, 5,222 shares,
cost $69,881 - - - - - - 72,532
- ---------------------------------------------------------------------------------------------------------------------------
Total assets 4,336 36,691 14,143 54,325 1,102 6,682 72,532
Liabilities:
Accrued mortality and expense risk charges -
Valuemark II 2 4 4 4 2 3 5
Accrued mortality and expense risk charges -
Valuemark IV - - - - - - 1
Accrued administrative charges - Valuemark II 1 1 - 1 1 - 1
Accrued administrative charges - Valuemark IV - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 3 5 4 5 3 3 7
Net assets $4,333 36,686 14,139 54,320 1,099 6,679 72,525
- ---------------------------------------------------------------------------------------------------------------------------
Contract owners' equity:
Contracts in accumulation period - Valuemark II 4,317 36,512 14,094 54,177 1,065 6,633 71,990
Contracts in accumulation period - Valuemark IV 16 174 45 143 34 46 535
- ---------------------------------------------------------------------------------------------------------------------------
Total contract owners' equity $4,333 36,686 14,139 54,320 1,099 6,679 72,525
- ---------------------------------------------------------------------------------------------------------------------------
<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, 1998
(In thousands)
Value Zero Zero Zero Total
Securities Coupon Coupon Coupon All
Fund Fund - 2000 Fund - 2005 Fund - 2010 Funds
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Value Securities Fund,
40 shares, cost $296 $310 - - -
Zero Coupon Fund - 2000
1,013 shares, cost $14,656 - 14,995 - -
Zero Coupon Fund - 2005
496 shares, cost $7,791 - - 8,792 -
Zero Coupon Fund - 2010
403 shares, cost $6,654 - - - 7,684
- ---------------------------------------------------------------------------------------------------------------------------
Total assets 310 14,995 8,792 7,684 732,087
Liabilities:
Accrued mortality and expense risk charges - Valuemark II - 3 3 3 80
Accrued mortality and expense risk charges - Valuemark IV - - - - 7
Accrued administrative charges - Valuemark II - - - - 11
Accrued administrative charges - Valuemark IV - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities - 3 3 3 98
Net assets $310 14,992 8,789 7,681 731,989
- ---------------------------------------------------------------------------------------------------------------------------
Contract owners' equity:
Contracts in accumulation period - Valuemark II 143 14,941 8,739 7,588 727,497
Contracts in accumulation period - Valuemark IV 167 51 50 93 4,492
- ---------------------------------------------------------------------------------------------------------------------------
Total contract owners' equity $310 14,992 8,789 7,681 731,989
- ---------------------------------------------------------------------------------------------------------------------------
<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, 1998
(In thousands)
Global Global
Capital Health Utilities Growth and High Income Money
Growth Care Securities Securities Income Income Securities Market
Fund Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ 44 - 3,509 3,838 3,948 7,201 1,556
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges - Valuemark II 150 - 1,091 1,490 546 1,156 383
Mortality and expense risk charges - Valuemark IV 1 - - 1 1 1 -
Administrative charges - Valuemark II 18 - 131 179 65 139 46
Administrative charges - Valuemark IV - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 169 - 1,222 1,670 612 1,296 429
Investment income (loss), net (125) - 2,287 2,168 3,336 5,905 1,127
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions on mutual - - 5,116 9,029 234 1,701 -
funds
Realized gains (losses) on sales of investments, 287 1 3,967 4,620 80 2,113 -
net
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on investments, net 287 1 9,083 13,649 314 3,814 -
Net change in unrealized appreciation
(depreciation) on investments 1,864 35 (3,678) (8,207) (3,777) (9,694) -
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments, net 2,151 36 5,405 5,442 (3,463) (5,880) -
Net increase (decrease) in net assets from $2,026 36 7,692 7,610 (127) 25 1,127
operations
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
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, 1998
(In thousands)
Mutual Mutual Natural Templeton
Discovery Shares Resources Real Estate Rising Small Developing
Securities Securities Securities Securities Dividends Cap Markets
Fund Fund Fund Fund Fund Fund Equity Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ 193 308 67 915 775 10 274
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges - Valuemark II 175 348 56 273 881 187 101
Mortality and expense risk charges - Valuemark IV - 1 - - 1 - -
Administrative charges - Valuemark II 21 42 7 33 106 22 12
Administrative charges - Valuemark IV - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 196 391 63 306 988 209 113
Investment income (loss), net (3) (83) 4 609 (213) (199) 161
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions on mutual funds 180 269 - 567 9,498 1,273 890
Realized gains (losses) on sales of investments, net(116) 34 (613) 1,217 3,267 (338) (1,330)
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on investments, net 64 303 (613) 1,784 12,765 935 (440)
Net change in unrealized appreciation (depreciation)
on investments (1,320) (929) (747) (6,791) (9,268) (1,359) (2,104)
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments, net (1,256) (626) (1,360) (5,007) 3,497 (424) (2,544)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from ($1,259) (709) (1,356) (4,398) 3,284 (623) (2,383)
operations
- ---------------------------------------------------------------------------------------------------------------------------
<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, 1998
(In thousands)
Templeton
Templeton Templeton Templeton Templeton International Templeton U.S.
Global Asset Global Global Income International Smaller Pacific Government
Allocation Growth Securities Equity Companies Growth Securities
Fund Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $187 1,026 1,178 2,014 35 364 5,565
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges - Valuemark II 65 491 199 814 18 98 985
Mortality and expense risk charges - Valuemark IV - - - - - - 1
Administrative charges - Valuemark II 8 59 24 98 2 12 118
Administrative charges - Valuemark IV - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 73 550 223 912 20 110 1,104
Investment income (loss), net 114 476 955 1,102 15 254 4,461
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions on mutual 222 3,737 - 4,045 41 111 -
funds
Realized gains (losses) on sales of investments, 148 1,018 (2) 3,522 (74) (3,196) 895
net
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on investments, net 370 4,755 (2) 7,567 (33) (3,085) 895
Net change in unrealized appreciation (depreciation)
on investments (572) (2,835) (103) (5,800) (190) 987 (812)
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments, net (202) 1,920 (105) 1,767 (223) (2,098) 83
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from ($88) 2,396 850 2,869 (208) (1,844) 4,544
operations
- ---------------------------------------------------------------------------------------------------------------------------
<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, 1998
(In thousands)
Value Zero Zero Zero Total
Securities Coupon Coupon Coupon All
Fund Fund - 2000 Fund - 2005 Fund - 2010 Funds
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares - 1,368 509 432 35,316
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges - Valuemark II - 221 106 94 9,928
Mortality and expense risk charges - Valuemark IV - - - - 7
Administrative charges - Valuemark II - 27 13 11 1,193
Administrative charges - Valuemark IV - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses - 248 119 105 11,128
Investment income (loss), net - 1,120 390 327 24,188
Realized gains (losses) and unrealized appreciation
(depreciation) on investments:
Realized capital gain distributions on mutual funds - 219 118 60 37,310
Realized gains (losses) on sales of investments, net 2 283 197 475 16,457
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on investments, net 2 502 315 535 53,767
Net change in unrealized appreciation (depreciation) on investments 14 (584) 146 23
(55,701)
Total realized gains (losses) and unrealized appreciation
(depreciation) on investments, net 16 (82) 461 558 (1,934)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations $16 1,038 851 885 22,254
- ---------------------------------------------------------------------------------------------------------------------------
<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, 1998 and
1997 (In thousands)
Global Health Global Utilities
Capital Growth Fund Care Securities Fund Securities Fund Growth and Income Fund
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net ($125) (64) - - 2,287 3,392 2,168 2,066
Realized gains (losses) on
investments, net 287 92 1 - 9,083 9,199 13,649 7,354
Net change in unrealized
appreciation (depreciation)
on investments 1,864 670 35 - (3,678) 7,826 (8,207) 15,947
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations 2,026 698 36 - 7,692 20,417 7,610 25,367
Contract transactions -
Valuemark II (note 4):
Purchase payments 2,983 3,011 1 - 1,613 1,846 7,159 10,533
Transfers between funds 4,392 2,196 250 - (1,689) (9,521) 2,872 4,602
Surrenders and terminations (1,877) (237) - - (22,589) (20,611) (26,820) (17,705)
Rescissions (17) (33) - - (109) (4) (167) (126)
Other transactions (note 2) 180 3 - - 64 145 253 78
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from contract
transactions - Valuemark II 5,661 4,940 251 - (22,710) (28,145) (16,703) (2,618)
Contract transactions -
Valuemark IV (note 4):
Purchase payments 206 - 77 - 44 - 347 -
Transfers between funds 32 - 4 - 11 - 92 -
Surrenders and terminations - - - - - - (1) -
Rescissions - - - - - - (1) -
Other transactions (note 2) - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from contract
transactions - Valuemark IV 238 - 81 - 55 - 437 -
Increase (decrease) in net assets 7,925 5,638 368 - (14,963) (7,728) (8,656) 22,749
Net assets at beginning of year 8,167 2,529 - - 95,497 103,225 121,570 98,821
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $16,092 8,167 368 - 80,534 95,497 112,914 121,570
- ---------------------------------------------------------------------------------------------------------------------------
<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, 1998 and 1997
(In thousands)
Mutual Discovery
High Income Fund Income Securities Fund Money Market Fund Securities Fund
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 3,336 2,753 5,905 5,816 1,127 1,215 (3) (78)
Realized gains (losses) on
investments, net 314 1,241 3,814 3,637 - - 64 15
Net change in unrealized appreciation
(depreciation) on investments (3,777) (99) (9,694) 4,604 - - (1,320) 771
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations (127) 3,895 25 14,057 1,127 1,215 (1,259) 708
Contract transactions -
Valuemark II (note 4):
Purchase payments 5,061 6,687 5,484 7,073 9,399 14,086 3,318 4,882
Transfers between funds (862) (631) (3,061) (2,645) 6,983 (6,695) 1,746 5,667
Surrenders and terminations (11,159) (6,845) (20,428) (16,530) (15,831) (11,292) (2,175) (427)
Rescissions (67) (120) (109) (78) (392) (53) (57) (29)
Other transactions (note 2) 13 56 29 39 22 112 18 (9)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark II (7,014) (853) (18,085) (12,141) 181 (3,842) 2,850 10,084
Contract transactions -
Valuemark IV (note 4):
Purchase payments 412 - 257 - 269 - 153 -
Transfers between funds 91 - 94 - (104) - 18 -
Surrenders and terminations (1) - - - - - - -
Rescissions - - - - - - - -
Other transactions (note 2) - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark IV 502 - 351 - 165 - 171 -
Increase (decrease) in net assets (6,639) 3,042 (17,709) 1,916 1,473 (2,627) 1,762 10,792
Net assets at beginning of year 44,963 41,921 100,025 98,109 29,881 32,508 11,070 278
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $ 38,324 44,963 82,316 100,025 31,354 29,881 12,832 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 Changes in Net Assets (cont.)
For the years ended December 31, 1998 and 1997
(In thousands)
Mutual Shares Natural Resources
Securities Fund Securities Fund Real Estate Securities Fund Rising Dividends Fund
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net ($83) (151) 4 9 609 332 (213) 19
Realized gains (losses) on
investments, net 303 15 (613) (353) 1,784 1,390 12,765 3,916
Net change in unrealized
appreciation (depreciation)
on investments (929) 1,716 (747) (1,172) (6,791) 2,407 (9,268) 12,343
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations (709) 1,580 (1,356) (1,516) (4,398) 4,129 3,284 16,278
Contract transactions -
Valuemark II (note 4):
Purchase payments 6,717 11,012 685 496 1,188 2,849 7,196 7,130
Transfers between funds 4,383 9,916 (306) (698) (1,790) 1,804 2,318 4,129
Surrenders and terminations (5,431) (992) (787) (1,164) (5,162) (2,578) (15,723) (9,509)
Rescissions (84) (95) - (10) (20) (10) (104) (36)
Other transactions (note 2) 84 (5) 1 2 (10) 3 230 115
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark II 5,669 19,836 (407) (1,374) (5,794) 2,068 (6,083) 1,829
Contract transactions -
Valuemark IV (note 4):
Purchase payments 311 - 56 - 30 - 269 -
Transfers between funds 107 - - - 5 - 58 -
Surrenders and terminations - - - - - - - -
Rescissions - - - - - - - -
Other transactions (note 2) - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark IV 418 - 56 - 35 - 327 -
Increase (decrease) in net assets 5,378 21,416 (1,707) (2,890) (10,157) 6,197 (2,472) 18,107
Net assets at beginning of year 21,858 442 5,299 8,189 26,532 20,335 70,041 51,934
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $27,236 21,858 3,592 5,299 16,375 26,532 67,569 70,041
- ---------------------------------------------------------------------------------------------------------------------------
<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, 1998 and 1997
(In thousands)
Templeton Developing Templeton Global Templeton
Small Cap Fund Markets Equity Fund Asset Allocation Fund Global Growth Fund
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net ($199) (113) 161 (36) 114 24 476 60
Realized gains (losses) on
investments, net 935 494 (440) 412 370 132 4,755 684
Net change in unrealized
appreciation (depreciation)
on investments (1,359) 821 (2,104) (2,170) (572) 293 (2,835) 2,887
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations (623) 1,202 (2,383) (1,794) (88) 449 2,396 3,631
Contract transactions -
Valuemark II (note 4):
Purchase payments 2,596 3,879 560 2,943 667 1,533 3,461 7,275
Transfers between funds 1,577 4,438 (2,638) 192 (1,307) 632 (2,518) 2,733
Surrenders and terminations (2,847) (814) (1,536) (1,291) (791) (504) (6,107) (3,295)
Rescissions (25) (48) (5) (25) (13) (18) (56) (128)
Other transactions (note 2) 91 (4) (3) (3) - (1) (20)
45
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark II 1,392 7,451 (3,622) 1,816 (1,444) 1,642 (5,240) 6,630
Contract transactions -
Valuemark IV (note 4):
Purchase payments 106 - 41 - 13 - 81 -
Transfers between funds 6 - - - 2 - 85 -
Surrenders and terminations (1) - - - - - - -
Rescissions - - - - - - - -
Other transactions (note 2) - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark IV 111 - 41 - 15 - 166 -
Increase (decrease) in net assets 880 8,653 (5,964) 22 (1,517) 2,091 (2,678) 10,261
Net assets at beginning of year 14,022 5,369 11,992 11,970 5,850 3,759 39,364 29,103
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $14,902 14,022 6,028 11,992 4,333 5,850 36,686 39,364
- ---------------------------------------------------------------------------------------------------------------------------
<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, 1998 and 1997
(In thousands)
Templeton Global Templeton Templeton International Templeton
Income Securities Fund International Equity Fund Smaller Companies Fund Pacific Growth Fund
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 955 1,158 1,102 978 15 (13) 254 151
Realized gains (losses) on
investments, net (2) 111 7,567 6,035 (33) 38 (3,085) (474)
Net change in unrealized appreciation
(depreciation) on investments (103) (1,107) (5,800) 211 (190) (109) 987 (7,415)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations 850 162 2,869 7,224 (208) (84) (1,844) (7,738)
Contract transactions -
Valuemark II (note 4):
Purchase payments 547 1,089 1,430 5,493 103 964 182 502
Transfers between funds (1,413) (2,668) (7,532) (443) (348) 577 (1,806) (4,197)
Surrenders and terminations (4,077) (3,152) (14,571) (10,782) (357) (304) (1,677) (2,904)
Rescissions (15) (3) (58) (50) - - (5) (14)
Other transactions (note 2) 25 30 82 161 1 - (5) (4)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark II (4,933) (4,704) (20,649) (5,621) (601) 1,237 (3,311) (6,617)
Contract transactions -
Valuemark IV (note 4):
Purchase payments 41 - 127 - 31 - 44 -
Transfers between funds 4 - 8 - 2 - (3) -
Surrenders and terminations - - - - - - - -
Rescissions - - - - - - - -
Other transactions (note 2) - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark IV 45 - 135 - 33 - 41 -
Increase (decrease) in net assets (4,038) (4,542) (17,645) 1,603 (776) 1,153 (5,114) (14,355)
Net assets at beginning of year 18,177 22,719 71,965 70,362 1,875 722 11,793 26,148
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $14,139 18,177 54,320 71,965 1,099 1,875 6,679 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 Changes in Net Assets (cont.)
For the years ended December 31, 1998 and 1997
(In thousands)
U.S. Government Value
Securities Fund Securities Fund Zero Coupon Fund - 2000 Zero Coupon Fund - 2005
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 4,461 3,794 - - 1,120 1,246 390 366
Realized gains (losses) on
investments, net 895 352 2 - 502 262 315 200
Net change in unrealized appreciation
(depreciation) on investments (812) 2,712 14 - (584) (281) 146 131
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations 4,544 6,858 16 - 1,038 1,227 851 697
Contract transactions -
Valuemark II (note 4):
Purchase payments 3,571 5,076 21 - 345 839 1,287 767
Transfers between funds (301) (6,248) 115 - (941) (1,349) 727 (735)
Surrenders and terminations (22,669) (18,871) - - (6,689) (4,616) (1,750) (1,730)
Rescissions (118) (49) - - (10) - (180) -
Other transactions (note 2) 31 (14) - - (7) 18 31 (4)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark II (19,486) (20,106) 136 - (7,302) (5,108) 115 (1,702)
Contract transactions -
Valuemark IV (note 4):
Purchase payments 492 - 124 - 27 - 47 -
Transfers between funds 41 - 34 - 25 - 4 -
Surrenders and terminations - - - - - - - -
Rescissions (3) - - - - - - -
Other transactions (note 2) - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark IV 530 - 158 - 52 - 51 -
Increase (decrease) in net assets(14,412) (13,248) 310 - (6,212) (3,881) 1,017 (1,005)
Net assets at beginning of year 86,937 100,185 - - 21,204 25,085 7,772 8,777
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $ 72,525 86,937 310 - 14,992 21,204 8,789 7,772
- ---------------------------------------------------------------------------------------------------------------------------
<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, 1998 and 1997
(In thousands)
Zero Coupon Fund - 2010 Total All Funds
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 327 310 24,188 23,234
Realized gains (losses) on investments, net 535 199 53,767 34,951
Net change in unrealized appreciation (depreciation) on investments 23 407 (55,701) 41,393
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations 885 916 22,254 99,578
Contract transactions - Valuemark II (note 4):
Purchase payments 873 794 66,447 100,759
Transfers between funds 381 (1,056) (768) -
Surrenders and terminations (1,759) (922) (192,812) (137,075)
Rescissions (7) - (1,618) (929)
Other transactions (note 2) (4) (4) 1,106 759
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from contract
transactions - Valuemark II (516) (1,188) (127,645) (36,486)
Contract transactions - Valuemark IV (note 4):
Purchase payments 92 - 3,697 -
Transfers between funds - - 616 -
Surrenders and terminations - - (3) -
Rescissions - - (4) -
Other transactions (note 2) - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from contract
transactions - Valuemark IV 92 - 4,306 -
Increase (decrease) in net assets 461 (272) (101,085) 63,092
Net assets at beginning of year 7,220 7,492 833,074 769,982
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $ 7,681 7,220 731,989 833,074
- ---------------------------------------------------------------------------------------------------------------------------
<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, 1998
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 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.
Two Fixed Account investment options are available to deferred annuity contract
owners. A Flexible Fixed Option is available to all deferred annuity contract
owners and a Dollar Cost Averaging Option is available to Valuemark IV deferred
annuity contract owners. These accounts are comprised of equity and fixed income
investments which are part of the general obligations of Preferred Life. The
liabilities of the Fixed Accounts are part of the general obligations of
Preferred Life and are not included in the Variable Account. The guaranteed
minimum rate of return on the Fixed Accounts is 3%.
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES (cont.)
Investments (cont.)
The Global Health Care Securities Fund and Value Securities Fund were added as
available investment options on August 17, 1998. On May 1, 1998, the Utility
Equity Fund name was changed to Global Utilities 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. The charge is equal, on an annual basis, to 1.25% of the daily net
assets of Valuemark II and 1.34% of the daily net assets of Valuemark IV.
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 all products
which comprise the Variable Account
Contract Based Expenses
A contract maintenance charge is paid by the contract owner annually from each
contract by liquidating contract units at the end of the contract year and at
the time of full surrender. The amount of the charge is $30 each year. Contract
maintenance charges deducted during the years ended December 31, 1998 and 1997
were $487,077and $478,510, 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 Valuemark II
contracts and within seven years of the date of surrender for Valuemark IV
contracts. 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 Contingent Deferred Sales Charge
- --------------------------------------------------------------------------------
Payment Valuemark II Valuemark IV
- --------------------------------------------------------------------------------
0-1 5% 6%
1-2 5% 6%
2-3 4% 6%
3-4 3% 5%
4-5 1.5% 4%
5-6 0% 3%
6-7 0% 2%
7+ 0% 0%
and (c) adding the products of each multiplication in (b) above.
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES (cont.)
Contract Based Expenses (cont.)
A Valuemark II deferred annuity 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. A Valuemark IV deferred
annuity contract owner may make multiple surrenders, each year after the first
contract year, up to fifteen percent (15%) of the contract value 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, 1998 and 1997 were $941,938 and $983,164, 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, 1998 and 1997 were
$1,945 and $4,226, respectively. Transfer charges are reflected in the Statement
of Changes in Net Assets as other transactions. Net transfers to the Fixed
Accounts were $152,026 for the year ended December 31, 1998.
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 Valuemark II deferred annuity contracts, a systematic withdrawal plan is
available which allows an owner to withdraw up to nine percent (9%) of purchase
payments less prior surrenders annually, paid monthly or quarterly, without
incurring a contingent deferred sales charge. The systematic withdrawal plan
available to Valuemark IV deferred annuity contract owners allows up to fifteen
percent (15%) of the contract value withdrawn annually, paid monthly or
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 for all deferred annuity contracts.
A rescission is defined as a contract that is returned to the company and
canceled within the free-look period, generally within 10 days.
3. 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.
<PAGE>
4. CONTRACT TRANSACTIONS - ACCUMULATION UNIT ACTIVITY (In thousands)
Transactions in units for each fund for the years ended December 31, 1998 and
1997 were as follows: <TABLE> <CAPTION>
Global Global Mutual Mutual
Capital Health Care Utilities Growth and High Income Money Discovery Shares
Growth Securities Securities Income Income Securities Market Securities Securities
Fund Fund Fund Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Valuemark II
Accumulation units outstanding
at December 31, 1996 225 - 4,998 5,070 2,164 4,519 2,433 27 43
Contract transactions:
Purchase payments 241 - 86 483 330 309 1,035 428 981
Transfers between funds 178 - (449) 210 (44) (119) (487) 511 893
Surrenders and terminations (19) - (943) (809) (337) (717) (830) (38) (86)
Rescissions (3) - - (6) (6) (3) (4) (3) (8)
Other transactions - - 7 4 3 2 8 (1) -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
accumulation units resulting
from contract transactions 397 - (1,299) (118) (54) (528) (278) 897 1,780
Accumulation units outstanding
at December 31, 1997 622 - 3,699 4,952 2,110 3,991 2,155 924 1,823
- ---------------------------------------------------------------------------------------------------------------------------
Contract transactions:
Purchase payments 215 - 61 281 233 219 657 261 541
Transfers between funds 303 26 (64) 110 (37) (125) 505 128 349
Surrenders and terminations (135) - (851) (1,058) (521) (819) (1,123) (184) (450)
Rescissions (1) - (4) (6) (3) (4) (28) (4) (6)
Other transactions 12 - 2 10 1 1 2 2 7
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract
transactions 394 26 (856) (663) (327) (728) 13 203 441
Accumulation units outstanding
at December 31, 1998 1,016 26 2,843 4,289 1,783 3,263 2,168 1,127 2,264
- ---------------------------------------------------------------------------------------------------------------------------
Valuemark IV
Accumulation units outstanding
at December 31, 1997 - - - - - - - - -
Contract transactions:
Purchase payments 15 8 2 14 21 11 19 15 29
Transfers between funds 2 - - 3 4 3 (7) 2 9
Surrenders and terminations - - - - - - - - -
Rescissions - - - - - - - - -
Other transactions - - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract
transactions 17 8 2 17 25 14 12 17 38
Accumulation units outstanding
at December 31, 1998 17 8 2 17 25 14 12 17 38
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
4. CONTRACT TRANSACTIONS - ACCUMULATION UNIT ACTIVITY (In thousands) (cont.)
<TABLE>
<CAPTION>
Natural Real Templeton Templeton Templeton Templeton Templeton
Resources Estate Rising Small Developing Global Asset Global Global Income International
Securities Securities Dividends Cap Markets Equity Allocation Growth Securities Equity
Fund Fund Fund Fund Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Valuemark II
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
- ---------------------------------------------------------------------------------------------------------------------------
Contract transactions:
Purchase payments 66 44 345 171 59 47 213 32 76
Transfers between funds (33) (73) 103 96 (295) (94) (177) (82) (429)
Surrenders and terminations (76) (204) (767) (198) (174) (58) (387) (235)
(773)
Rescissions - (1) (5) (2) (1) (1) (3) (1) (3)
Other transactions - - 11 7 - - (1) 1 4
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
accumulation units resulting
from contract transactions (43) (234) (313) 74 (411) (106) (355) (285)
(1,125)
Accumulation units outstanding
at December 31, 1998 415 708 3,176 1,012 749 318 2,239 787 2,938
- ---------------------------------------------------------------------------------------------------------------------------
Valuemark IV
Accumulation units outstanding
at December 31, 1997 - - - - - - - - -
Contract transactions:
Purchase payments 7 1 14 9 5 1 5 2 8
Transfers between funds - - 3 - - - 5 - -
Surrenders and terminations - - - - - - - - -
Rescissions - - - - - - - - -
Other transactions - - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
accumulation units resulting
from contract transactions 7 1 17 9 5 1 10 2 8
Accumulation units outstanding
at December 31, 1998 7 1 17 9 5 1 10 2 8
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
4. CONTRACT TRANSACTIONS - ACCUMULATION UNIT ACTIVITY (In thousands) (cont.)
<TABLE>
<CAPTION>
Templeton
International Templeton U.S. Zero Zero Zero
Smaller Pacific Government Value Coupon Coupon Coupon Total
Companies Growth Securities Securities Fund - Fund - Fund - All
Fund Fund Fund Fund 2000 2005 2010 Funds
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Valuemark II
Accumulation units outstanding at December 31, 65 1,751 6,017 - 1,358 428 348 43,898
1996
Contract transactions:
Purchase payments 84 37 297 - 44 36 34 6,462
Transfers between funds 50 (324) (370) - (72) (37) (49) 480
Surrenders and terminations (26) (212) (1,096) - (244) (82) (41) (7,416)
Rescissions - (1) (3) - - - - (59)
Other transactions - - (1) - 1 - - 43
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation units
resulting from contract transactions 108 (500) (1,173) - (271) (83) (56) (490)
Accumulation units outstanding at December 31, 173 1,251 4,844 - 1,087 345 292 43,408
1997
- ---------------------------------------------------------------------------------------------------------------------------
Contract transactions:
Purchase payments 9 21 194 3 17 55 34 3,854
Transfers between funds (35) (232) (20) 16 (47) 30 13 (64)
Surrenders and terminations (33) (217) (1,227) - (334) (74) (67) (9,965)
Rescissions - (1) (6) - - (8) - (88)
Other transactions - (1) 2 - - 1 - 61
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation units
resulting from contract transactions (59) (430) (1,057) 19 (364) 4 (20) (6,202)
Accumulation units outstanding at December 31, 114 821 3,787 19 723 349 272 37,206
1998
- ---------------------------------------------------------------------------------------------------------------------------
Valuemark IV
Accumulation units outstanding at December 31, - - - - - - - -
1997
Contract transactions:
Purchase payments 3 6 26 17 1 2 3 244
Transfers between funds - - 2 5 1 - - 32
Surrenders and terminations - - - - - - - -
Rescissions - - - - - - - -
Other transactions - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation units
resulting from contract transactions 3 6 28 22 2 2 3 276
Accumulation units outstanding at December 31, 1998 3 6 28 22 2 2 3 276
</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 of the five years in the period ended December 31,
1998 follows.
Valuemark II Valuemark IV
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation Ratio of Expenses Accumulation Ratio of Expenses
Units Outstanding Accumulation Net Assets to Average Units Outstanding Accumulation Net Assets to Average
(in thousands) Unit Value (in thousands) Net Assets* (in thousands) Unit Value (in thousands) Net Assets*
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth Fund
December 31,
1998 1,016 $15.574 $15,825 2.17% 17 $15.537 $267 2.26%
1997 622 13.130 8,167 2.17 - - - -
19961 225 11.254 2,529 2.17+ - - - -
Global Health Care Securities Fund
December 31,
19982 26 10.610 275 2.24+ 8 10.604 93 2.33+
Global Utilities Securities Fund
December 31,
1998 2,843 28.308 80,480 1.90 2 28.082 54 1.99
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 35,415 1.92 - - - -
Growth and Income Fund
December 31,
1998 4,289 26.226 112,466 1.89 17 25.993 448 1.98
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 - - - -
High Income Fund
December 31,
1998 1,783 21.208 37,806 1.93 25 21.020 518 2.02
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 - - - -
Income Securities Fund
December 31,
1998 3,263 25.122 81,970 1.89 14 24.898 346 1.98
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 - - - -
</TABLE>
<PAGE>
5. UNIT VALUES (cont.)
<TABLE>
<CAPTION>
Valuemark II Valuemark IV
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation Ratio of Expenses Accumulation Ratio of Expenses
Units Outstanding Accumulation Net Assets to Average Units Outstanding Accumulation Net Assets to Average
(in thousands) Unit Value (in thousands) Net Assets* (in thousands) Unit Value (in thousands) Net Assets*
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market Fund
December 31,
1998 2,168 $14.386 $31,188 1.85% 12 $14.260 $166 1.94%
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 - - - -
Mutual Discovery Securities Fund
December 31,
1998 1,127 11.226 12,646 2.40 17 11.205 186 2.49
1997 924 11.983 11,070 2.46 - - - -
19963 27 10.180 278 2.77+ - - - -
Mutual Shares Securities Fund
December 31,
1998 2,264 11.837 26,789 2.17 38 11.814 447 2.26
1997 1,823 11.993 21,858 2.20 - - - -
19963 43 10.330 442 2.40+ - - - -
Natural Resources Securities Fund
December 31,
1998 415 8.505 3,536 2.04 7 8.430 56 2.13
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 - - - -
Real Estate Securities Fund
December 31,
1998 708 23.107 16,340 1.94 1 22.901 35 2.03
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 - - - -
Rising Dividends Fund
December 31,
1998 3,176 21.165 67,223 2.12 17 21.034 346 2.21
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 - - - -
Small Cap Fund
December 31,
1998 1,012 14.600 14,771 2.17 9 14.558 131 2.26
1997 938 14.952 14,022 2.17 - - - -
19961 416 12.913 5,369 2.17+ - - - -
</TABLE>
<PAGE>
5. UNIT VALUES (cont.)
<TABLE>
<CAPTION>
Valuemark II Valuemark IV
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation Ratio of Expenses Accumulation Ratio of Expenses
Units Outstanding Accumulation Net Assets to Average Units Outstanding Accumulation Net Assets to Average
(in thousands) Unit Value (in thousands) Net Assets* (in thousands) Unit Value (in thousands) Net Assets*
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Templeton Developing Markets Equity Fund
December 31,
1998 749 $ 7.993 $ 5,983 2.81% 5 $ 7.958 $ 45 2.90%
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,
1998 318 13.589 4,317 2.24 1 13.543 16 2.33
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,
1998 2,239 16.309 36,512 2.28 10 16.238 174 2.37
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,
1998 787 17.905 14,094 2.03 2 17.746 45 2.12
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 - - - -
Templeton International Equity Fund
December 31,
1998 2,938 18.437 54,177 2.28 8 18.322 143 2.37
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 - - - -
Templeton International Smaller Companies Fund
December 31,
1998 114 9.364 1,065 2.50 3 9.342 34 2.59
1997 173 10.825 1,875 2.46 - - - -
19961 65 11.145 722 2.18+ - - - -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
5. UNIT VALUES (cont.)
Valuemark II Valuemark IV
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation Ratio of Expenses Accumulation Ratio of Expenses
Units Outstanding Accumulation Net Assets to Average Units Outstanding Accumulation Net Assets to Average
(in thousands) Unit Value (in thousands) Net Assets* (in thousands) Unit Value (in thousands) Net Assets*
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Templeton Pacific Growth Fund
December 31,
1998 821 $ 8.078 $ 6,633 2.50% 6 $ 8.028 $ 46 2.59%
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 - - - -
U.S. Government Securities Fund
December 31,
1998 3,787 19.014 71,990 1.90 28 18.847 535 1.99
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 - - - -
Value Securities Fund
December 31,
19982 19 7.717 143 2.52+ 22 7.713 167 2.61+
Zero Coupon Fund - 2000
December 31,
1998 723 20.684 14,941 1.80 2 20.502 51 1.89
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 - - - -
Zero Coupon Fund - 2005
December 31,
1998 349 25.003 8,739 1.80 2 24.786 50 1.89
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 - - - -
Zero Coupon Fund - 2010
December 31,
1998 272 27.920 7,588 1.80 3 27.674 93 1.89
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 - - - -
<FN>
*For the year ended December 31, including the effect of the expenses of the underlying funds.
+Annualized.
1Period from June 10, 1996 (fund commencement) to December 31, 1996.
2Period from August 17, 1998 (fund commencement) to December 31, 1998.
3Period from December 2, 1996 (fund commencement) to December 31, 1996.
4Period from April 25, 1994 (fund commencement) to December 31, 1994.
5Period from August 4, 1995 (fund commencement) to December 31, 1995.
</FN>
</TABLE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Financial Statements
December 31, 1998 and 1997
<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, 1998 and 1997, and the related statements
of income, comprehensive income, stockholder's equity and cash flows for each of
the years in the three-year period ended December 31, 1998. 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, 1998 and 1997, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
KPMGPeat Marwick LLF
Minneapolis, Minnesota
February 5, 1999
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Financial Statements
Balance Sheets
December 31, 1998 and 1997
(In thousands except share data)
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments:
Fixed maturities, at market $ 38,784 30,106
Equity securities, at market 1,752 0
Certificates of deposit and short-term securities 10,069 698
- ---------------------------------------------------------------------------------------------------------------------------
Total investments 50,605 30,804
Cash 6,135 5,321
Receivables 3,595 5,006
Reinsurance receivable:
Recoverable on future benefit reserves 156 166
Recoverable on unpaid claims 9,545 10,537
Receivable on paid claims 1,935 2,500
Deferred acquisition costs 33,387 37,447
Other assets 4,805 6,976
- ---------------------------------------------------------------------------------------------------------------------------
Assets, exclusive of separate account assets 110,163 98,757
Separate account assets 732,046 833,083
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $842,209 931,840
Liabilities and Stockholder's Equity
Liabilities:
Future benefit reserves:
Life $ 1,827 1,362
Annuity 7,716 634
Policy and contract claims 27,278 30,758
Unearned premiums 913 1,590
Other policyholder funds 3,551 1,230
Reinsurance payable 1,497 2,116
Deferred income taxes 9,977 10,173
Accrued expenses and other liabilities 3,894 3,111
Commissions due and accrued 622 930
Payable to parent 3,403 3,182
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities, exclusive of separate account liabilities 60,678 55,086
Separate account liabilities 732,046 833,083
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 792,724 888,169
Stockholder's equity:
Common stock, $10 par value; 200,000 shares authorized, issued and outstanding 2,000 2,000
Additional paid-in capital 15,500 15,500
Retained earnings 31,052 25,455
Accumulated other comprehensive income 933 716
- ---------------------------------------------------------------------------------------------------------------------------
Total stockholder's equity 49,485 43,671
Commitments and contingencies (notes 6, 11 and 12)
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity $842,209 931,840
<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, 1998, 1997 and 1996
(In thousands)
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Life insurance premiums $ 7,115 8,866 9,174
Annuity considerations 12,643 12,791 11,725
Accident and health premiums 21,148 22,114 22,105
- ---------------------------------------------------------------------------------------------------------------------------
Total premiums and considerations 40,906 43,771 43,004
Premiums ceded 11,427 12,939 11,574
- ---------------------------------------------------------------------------------------------------------------------------
Net premiums and considerations 29,479 30,832 31,430
Investment income, net 2,021 1,626 1,220
Realized investment gains (losses) 1,003 (1) (62)
Other income 62 93 0
- ---------------------------------------------------------------------------------------------------------------------------
Total revenue 32,565 32,550 32,588
Benefits and expenses:
Life insurance benefits 3,508 5,074 5,971
Annuity benefits 351 323 202
Accident and health insurance benefits 10,579 14,709 13,406
- ---------------------------------------------------------------------------------------------------------------------------
Total benefits 14,438 20,106 19,579
Benefit recoveries 5,770 9,200 6,614
- ---------------------------------------------------------------------------------------------------------------------------
Net benefits 8,668 10,906 12,965
Commissions and other agent compensation 7,091 8,295 8,596
General and administrative expenses 4,148 4,018 3,576
Taxes, licenses and fees 187 654 688
Change in deferred acquisition costs, net 4,060 798 341
- ---------------------------------------------------------------------------------------------------------------------------
Total benefits and expenses 24,154 24,671 26,166
Income from operations before income taxes 8,411 7,879 6,422
Income tax expense (benefit):
Current 3,126 1,573 435
Deferred (312) 1,029 2,396
- ---------------------------------------------------------------------------------------------------------------------------
Total income tax expense 2,814 2,602 2,831
Net income $ 5,597 5,277 3,591
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Financial Statements (continued)
Statements of Comprehensive
Income Years ended December 31, 1998, 1997 and 1996
(In thousands)
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $5,597 5,277 3,591
- ---------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss):
Unrealized gains (losses) on fixed maturities and equity securities:
Unrealized holding gains (losses) arising during the period net of tax of $468 in 1998,
$403 in 1997, and $(188) in 1996 869 749 (348)
Reclassification adjustment for realized (gains) losses included in net income, net of tax
of $351 in 1998, $0 in 1997, and $(22) in 1996 (652) 1 40
- ---------------------------------------------------------------------------------------------------------------------------
Total other comprehensive income (loss) 217 750 (308)
Total comprehensive income $5,814 6,027 3,283
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Financial Statements (continued)
Statements of Stockholder's Equity
Years ended December 31, 1998, 1997 and 1996
(In thousands)
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<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
- ---------------------------------------------------------------------------------------------------------------------------
Retained earnings:
Balance at beginning of year 25,455 20,178 16,587
Net income 5,597 5,277 3,591
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of year 31,052 25,455 20,178
Accumulated other comprehensive income (loss):
Balance at beginning of year 716 (34) 274
Net unrealized gain (loss) during the year, net of deferred federal income taxes 217 750
(308)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of year 933 716 (34)
Total stockholder's equity $49,485 43,671 37,644
Statements of Cash Flows
Years ended December 31, 1998, 1997 and 1996
(In thousands)
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows provided by (used in) operating activities:
Net income $ 5,597 5,277 3,591
- ---------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Realized (gains) losses on investments (1,003) 1 62
Deferred federal income tax expense (312) 1,029 2,396
Interest credited to policyholder account balances 42 0 0
Change in:
Receivables and other assets 5,149 (4,283) 2,831
Deferred acquisition costs 4,060 798 341
Future benefit reserves 829 452 944
Policy and contract claims (3,480) 847 (353)
Unearned premiums (677) (297) (443)
Other policyholder funds 2,321 551 (12)
Reinsurance payable (619) (17) 881
Accrued expenses and other liabilities 783 649 (1,523)
Commissions due and accrued (308) 108 (2)
Due to parent 221 2,080 439
Depreciation and amortization (275) (110) (46)
- ---------------------------------------------------------------------------------------------------------------------------
Total adjustments 6,731 1,808 5,515
Net cash provided by operating activities 12,328 7,085 9,106
Cash flows provided by (used in) investing activities:
Purchase of fixed maturities (28,065) (8,680) (8,525)
Purchase of equity securities (2,105) 0 0
Sale of fixed maturities 20,414 81 2,654
Sale of equity securities 553 0 0
Other investments, net (8,987) 1,859 (1,492)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (18,190) (6,740) (7,363)
Cash flows provided by financing activities:
Policyholders' deposits to account balances 6,676 0 0
- ---------------------------------------------------------------------------------------------------------------------------
Net increase in cash 814 345 1,743
Cash at beginning of year 5,321 4,976 3,233
- ---------------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 6,135 5,321 4,976
</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 1998 revenue and consideration volume, 19%,
43% 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 The Franklin Templeton Group 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.
Traditional Life, Group Life and Group Accident and Health Insurance
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.
Variable Annuity Business
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 1998, 1997 and
1996 were $8,763, $10,147, and $6,541, respectively.
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements (continued)
(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 that 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
The Company has classified all of its fixed maturity and equity portfolio as
"available-for-sale" and, accordingly, the securities are carried at fair value.
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, 1998 and 1997, investments with a carrying value of $1,711
and $1,645, 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 (continued)
(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 1998, the Company adopted SFAS No. 130, Reporting Comprehensive Income. A
Statement of Comprehensive Income is now included in these financial statements.
Accounting Pronouncements to be Adopted
In December 1997, the AICPA issued Statement of Position (SOP) 97-3, Accounting
by Insurance and Other Enterprises for Insurance-Related Assessments. The SOP
provides guidance for determining when to recognize a liability for guaranty
fund assessments, how to measure the liability and for determining when an asset
may be recognized for premium tax offset recoveries. The SOP is effective for
years beginning after December 15, 1998. The Company will adopt SOP 97-3 on
January 1, 1999. Adoption of this SOP is not expected to have a significant
impact on the financial statements.
Reclassifications
Certain 1997 balances have been reclassified to conform to the 1998
presentation.
(2) Investments
Investments at December 31, 1998 consist of:
<TABLE>
Amount
Amortized cost Estimated shown on
or cost fair value balance sheet
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities:
U.S. government $30,595 31,739 31,739
Foreign government 499 496 496
Corporate securities 5,227 5,263 5,263
Mortgage backed securities 957 972 972
Public utilities 304 314 314
- ---------------------------------------------------------------------------------------------------------------------------
Total fixed maturities $37,582 38,784 38,784
Equity securities:
Common stocks:
Banks, trusts and insurance companies 101 85 85
Industrial and miscellaneous 1,417 1,667 1,667
- ---------------------------------------------------------------------------------------------------------------------------
Total equity securities $ 1,518 1,752 1,752
Other investments:
Short-term securities 10,069 XXXXXXX 10,069
- ---------------------------------------------------------------------------------------------------------------------------
Total investments $49,169 XXXXXXX 50,605
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements (continued)
(in thousands)
(2) Investments (cont.)
At December 31, 1998 and 1997, the amortized cost, gross unrealized gains, gross
unrealized losses and estimated fair values of securities are as follows:
<TABLE>
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998:
U.S. government $30,595 1,378 234 31,739
Foreign government 499 0 3 496
Corporate securities 5,227 39 3 5,263
Mortgage backed securities 957 15 0 972
Public utilities 304 10 0 314
- ---------------------------------------------------------------------------------------------------------------------------
Total fixed maturities 37,582 1,442 240 38,784
Equity securities 1,518 337 103 1,752
- ---------------------------------------------------------------------------------------------------------------------------
Total $39,100 1,779 343 40,536
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
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The changes in unrealized gains on fixed maturities were $100, $1,155, and
$(475) for the years ended December 31, 1998, 1997 and 1996, respectively.
The change in unrealized gains from equity securities was $234 for the year
ended December 31, 1998.
The amortized cost and estimated fair value of fixed maturities at December 31,
1998, 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>
Amortized Estimated
cost fair value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Due after one year through five years: $16,796 16,731
Due after five years through ten years 11,132 11,444
Due after ten years 8,697 9,637
Mortgage backed securities 957 972
- ---------------------------------------------------------------------------------------------------------------------------
Totals $37,582 38,784
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales of investments in available-for-sale securities during 1998,
1997 and 1996 were $20,967, $81, and $2,654, respectively. Gross gains of
$1,080, $0, and $0 and gross losses of $77, $0, and $62 were realized on sales
of available-for-sale securities in 1998, 1997 and 1996, respectively.
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements (continued)
(in thousands)
(2) Investments (cont.)
<TABLE>
Major categories of net investment income for the respective years ended
December 31 are:
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest:
Fixed maturities $1,592 1,494 1,132
Short-term investments 393 168 98
Dividends:
Equity securities 12 0 0
Other 52 11 1
- ---------------------------------------------------------------------------------------------------------------------------
Total investment income 2,049 1,673 1,231
Investment expenses 28 47 11
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income $2,021 1,626 1,220
</TABLE>
(3) Summary Table of Fair Value Disclosures
<TABLE>
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets
Fixed maturities, at market
U.S. government $31,739 $31,739 $29,256 $29,256
Foreign government 496 496 0 0
Corporate securities 5,263 5,263 0 0
Mortgage backed securities 972 972 850 850
Public utilities 314 314 0 0
Equity securities 1,752 1,752 0 0
Certificates of deposit and other short term securities 10,069 10,069 698 698
Receivables 3,595 3,595 5,006 5,006
Separate accounts assets 732,046 732,046 833,083 833,083
Financial liabilities
Separate account liabilities 732,046 723,593 833,083 821,457
- ---------------------------------------------------------------------------------------------------------------------------
</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>
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Premiums due $2,747 4,565
Reinsurance commission receivable 115 38
Other 733 403
- ---------------------------------------------------------------------------------------------------------------------------
Total receivables $3,595 5,006
</TABLE>
(5) Accident and Health Claims Reserves
Accident and health claims reserves are based on estimates which are 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 that are small relative to the amount of such reserves
could significantly impact future reported earnings of the Company.
Activity in the accident and health claims reserves, exclusive of hospital
indemnity and AIDS reserves of $838, $662, and $293 in 1998, 1997 and 1996,
respectively, is summarized as follows:
<TABLE>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, net of reinsurance recoverables of $7,643, $7,476 and $9,249 $17,804 $16,126 $15,096
Incurred related to:
Current year 11,203 11,440 11,372
Prior years (4,946) (3,199) (3,079)
- ---------------------------------------------------------------------------------------------------------------------------
Total incurred 6,257 8,241 8,293
Paid related to:
Current year 3,697 1,686 1,458
Prior years 4,714 4,877 5,805
- ---------------------------------------------------------------------------------------------------------------------------
Total paid 8,411 6,563 7,263
Balance at December 31, net of reinsurance recoverables of $6,540, $7,643 and $7,476 $15,650 $17,804 $16,126
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Due to lower than anticipated losses related to prior years, the provision for
prior year claims and claim adjustment expenses decreased. In 1998, the Company
experienced positive development in its HMO reinsurance business which further
decreased the provision for prior year claims.
(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. 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, 1998 and 1997 are
recoverables on paid claims, unpaid claims and future benefit reserves from
Allianz Life of $3,043 and $2,850, 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 (continued)
(in thousands)
(6) Reinsurance (cont.)
Life insurance, annuities and accident and health business assumed from and
ceded to other companies is as follows:
<TABLE>
Percentage
Assumed Ceded of amount
Direct from other to other Net assumed
Year ended amount companies companies amount to net
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
December 31, 1998:
Life insurance in force $ 856,149 0 277,168 578,981 0.0%
- ---------------------------------------------------------------------------------------------------------------------------
Premiums:
Life insurance 7,115 0 1,568 5,547 0.0%
Annuities 12,643 0 0 12,643 0.0%
Accident and health insurance 15,813 5,335 9,859 11,289 47.3%
- ---------------------------------------------------------------------------------------------------------------------------
Total Premiums 35,571 5,335 11,427 29,479 18.1%
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%
- ---------------------------------------------------------------------------------------------------------------------------
Of the amounts assumed from and ceded to other companies, life and accident and
health insurance assumed from and ceded to Allianz Life is as follows:
Assumed Ceded
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Life insurance in force $ 0 0 0 1,992 2,032 2,432
- ---------------------------------------------------------------------------------------------------------------------------
Premiums:
Life insurance $ 0 0 0 10 44 36
Accident and health insurance 1,575 1,566 2,547 635 841 766
- ---------------------------------------------------------------------------------------------------------------------------
Total premiums $1,575 1,566 2,547 645 885 802
</TABLE>
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements (continued)
(in thousands)
(7) Income Taxes
Income Tax Expense
Total income tax expenses (benefits) for the years ended December 31 are as
follows:
<TABLE>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense attributable to operations:
Current tax expense $3,126 1,573 435
Deferred tax (benefit) expense (312) 1,029 2,396
- ---------------------------------------------------------------------------------------------------------------------------
Total income tax expense attributable to operations $2,814 2,602 2,831
Income tax effect on equity:
Attributable to unrealized gains and losses for the year 116 404 (166)
- ---------------------------------------------------------------------------------------------------------------------------
Total income tax effect on equity $2,930 3,006 2,665
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:
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Income tax expense computed at the statutory rate $2,943 2,758 2,248
Other (129) (156) 583
- ---------------------------------------------------------------------------------------------------------------------------
Income tax expense as reported $2,814 2,602 2,831
- ---------------------------------------------------------------------------------------------------------------------------
</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, 1998 and 1997 are as
follows:
<TABLE>
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Future benefit reserves $ 1,821 2,675
- ---------------------------------------------------------------------------------------------------------------------------
Total deferred tax assets 1,821 2,675
Deferred tax liabilities:
Deferred acquisition costs 9,003 10,382
Unrealized gains on investments 502 385
Other 2,293 2,081
- ---------------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 11,798 12,848
Net deferred tax liability $ 9,977 10,173
- ---------------------------------------------------------------------------------------------------------------------------
</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 (continued)
(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 $969 and
$2,077 as of December 31, 1998 and 1997, 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 $1,729, $1,463, and $1,246 in 1998, 1997 and
1996, respectively, for related administrative expenses incurred. The Company's
liability to Allianz Life for incurred but unpaid service fees as of December
31, 1998 and 1997 was $356 and $569, 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 $18, $15, and $11 in 1998, 1997 and 1996, respectively, for
investment advisory fees. The Company had no incurred but unpaid fees to AZOA as
of December 31, 1998 and 1997.
(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 $30, $37, and $29 in 1998, 1997 and 1996, 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 1998, 1997 and 1996 Plan participants was 75%, 90%, 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 $18, $59,
and $41 in 1998, 1997 and 1996, 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 (continued)
(in thousands)
<TABLE>
(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:
Stockholder's equity Net Income
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statutory basis $32,866 25,940 6,891 4,292 2,358
Adjustments:
Change in reserve basis (9,216) (10,494) 2,147 2,424 4,070
Deferred acquisition costs 33,387 37,447 (4,060) (798) (341)
Deferred taxes (9,977) (10,173) 312 (1,029) (2,396)
Nonadmitted assets 75 171 0 0 0
Interest maintenance reserve 569 (88) 657 (19) (99)
Asset valuation reserve 283 2 0 0 0
Liability for unauthorized reinsurers 239 225 0 0 0
Unrealized gains on investments 1,202 1,102 0 0 0
Other 57 (461) (350) 407 (1)
- ---------------------------------------------------------------------------------------------------------------------------
As reported in the accompanying financial statements $49,485 43,671 5,597 5,277 3,591
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company is required to meet minimum capital and surplus requirements. At
December 31, 1998 and 1997, 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 1998, 1997 and 1996.
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:
<TABLE>
Ratio of total adjusted capital to
authorized control level risk-based
Regulatory Event Capital (less than or equal to)
- --------------------------------------------------------------------------------
<S> <C> <C>
Company action level 2 (or 2.5 with negative trends)
Regulatory action level 1.5
Authorized control level 1
Mandatory control level 0.7
</TABLE>
The Company's adjusted capital is in excess of the Company action level as of
December 31, 1998 and 1997.
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements (continued)
(in thousands)
(10) Statutory Financial Data and Dividend Restrictions (cont.)
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 Company does not currently use permitted statutory
accounting practices that have a significant impact on its statutory financial
statements. Furthermore, the NAIC has completed a project to codify statutory
accounting practices, the result of which will constitute the only source of
"prescribed" statutory accounting practices. Accordingly, that project, which is
currently in the process of state adoption, will change the definition of what
comprises prescribed versus permitted statutory accounting practices, and may
result in changes to existing accounting policies insurance enterprises use to
prepare their statutory financial statements.
(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.
(12) Year 2000
The Company 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. Additional costs associated with this effort are not
expected to be material and will be 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. 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.
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements (continued)
(in thousands)
<TABLE>
(13) Supplementary Insurance Information
The following table summarizes certain financial information by line of business
for 1998, 1997 and 1996:
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
- ---------------------------------------------------------------------------------------------------------------------------
1998:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Life insurance $ 57 1,827 246 3,424 5,547 303 2,160 165 1,518
Annuities 33,206 7,716 0 827 12,643 243 351 3,899 6,047
Accident and
health insurance 124 0 667 23,027 11,289 1,475 6,157 (4) 3,861
- ---------------------------------------------------------------------------------------------------------------------------
$33,387 9,543 913 27,278 29,479 2,021 8,668 4,060 11,426
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 26,109 11,625 1,220 7,996 (20) 2,869
- ---------------------------------------------------------------------------------------------------------------------------
$37,447 1,996 1,590 30,757 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 23,895 12,835 952 8,392 103 3,494
- ---------------------------------------------------------------------------------------------------------------------------
$38,245 1,544 1,887 29,910 31,430 1,220 12,965 341 12,860
</TABLE>
(a) See note 1 for aggregate gross amortization.
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
a. Financial Statements
The following financial statements of the Company are included in Part B
hereof.
1. Independent Auditors' Report.
2. Balance Sheets as of December 31, 1998 and 1997.
3. Statements of Income for the years ended December 31, 1998, 1997
and 1996.
4. Statements of Stockholder's Equity for the years ended December 31,
1998, 1997 and 1996.
5. Statements of Cash Flow for the years ended December 31, 1998, 1997
and 1996.
6. Notes to Financial Statements - December 31, 1998, 1997 and 1996.
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, 1998.
3. Statements of Operations for the year ended December 31, 1998.
4. Statements of Changes in Net Assets for the years ended December 31,
1998 and 1997.
5. Notes to Financial Statements - December 31, 1998.
b. Exhibits
1. Resolution of Board of Directors of the Company authorizing the
establishment of the Variable Account (1)
2. Not Applicable
3. Principal Underwriter Agreement (2)
4. Individual Immediate Variable Annuity Contract (1)
4a. Joint Owners Endorsement (1)
4b. Period Certain and Partial Liquidation Endorsement (1)
5. Application for Individual Immediate Variable Annuity Contract (1)
6. (i) Copy of Articles of Incorporation of the Company (1)
(ii) Copy of the Bylaws of the Company (3)
7. Not Applicable
8. Form of Fund Participation Agreement (1)
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 (1)
27. Not Applicable
(1) Incorporated by reference to Registrant's initial Form N-4 filed
electronically on January 2, 1997.
(2) Incorporated by reference to Registrant's Pre-Effective Amendment No. 1
to Form N-4 filed electronically on May 14, 1997.
(3) 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 Officer
1750 Hennepin Avenue and Director
Minneapolis, MN 55403
Thomas G. Brown Director
One Liberty Plaza,
45th Floor
New York, NY 10006
Edward J. Bonach Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Thomas D. Barta Vice President-Controller, Institutional
1750 Hennepin Avenue Division
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-Operations and Director
152 W. 57th Street
18th Floor
New York, NY 10019
Thomas J. Lynch President and Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Kenneth P. Schrapp Second Vice President and 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 5, 1999 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 (managers) and directors (Board of
Governors) of NALAC Financial Plans, LLC:
<TABLE>
<CAPTION>
Name & Principal Positions and Offices
Business Address with Underwriter
- ---------------------- ----------------------
<S> <C>
James P. Kelso Governor
1750 Hennepin Ave.
Minneapolis, MN 55403
Thomas B. Clifford Chief Manager and Governor
1750 Hennepin Avenue
Minneapolis, MN 55403
Michael T. Westermeyer Secretary and Governor
1750 Hennepin Avenue
Minneapolis, MN 55403
Michael J. Yates Treasurer
1750 Hennepin Avenue
Minneapolis, MN 55403
Edward J. Bonach Governor
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 26th day of April, 1999.
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 04/26/99
Lowell C. Anderson
Ronald L. Wobbeking* Chairman, Chief Executive 04/26/99
Ronald L. Wobbeking Officer and Director
Tom Barta* Treasurer 04/26/99
Tom Barta
Thomas G. Brown* Director 04/26/99
Thomas G. Brown
Edward J. Bonach* Director 04/26/99
Edward J. Bonach
Robert S. James* Director 04/26/99
Robert S. James
Thomas J. Lynch* Director 04/26/99
Thomas J. Lynch
Dennis J. Marion* Director 04/26/99
Dennis J. Marion
Eugene T. Wilkinson* Director 04/26/99
Eugene T. Wilkinson
Eugene K. Long* Director 04/26/99
Eugene K. Long
Reinhard W. Obermueller* Director 04/26/99
Reinhard W. Obermueller
Stephen R. Herbert* Director 04/26/99
Stephen R. Herbert
Jack F. Rockett* Director 04/26/99
Jack F. Rockett
</TABLE>
By /S/ MICHAEL T. WESTERMEYER
--------------------------
Attorney-in-Fact
Secretary and Director
EXHIBITS
TO
POST-EFFECTIVE AMENDMENT NO. 3
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
May 12, 1999
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 Preferred Life Insurance Company of New York and
Contract Owners of Preferred Life Variable Account C:
We consent to the use of our report, dated January 29, 1999, on the financial
statements of Preferred Life Variable Account C and our report dated February 5,
1999, on the financial statements of Preferred Life Insurance Company of New
York included herein and to the reference to our Firm under the heading
"EXPERTS".
KPMG Peat Marwick LLP
Minneapolis, Minnesota
April 23, 1999
<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, 1998
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
---- ----------- ------ ---------- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
Capital Growth
12-31-97 Purchase $1,000.00 $13.12966406 76.163 76.163 $1,000.00
12-31-98 Contract Fee (1.00) 15.57416691 (0.064) 76.099 1,185.18
12-31-98 Value before Surr 15.57416691 0.000 76.099 1,185.18
Chg
12-31-98 Surrender Charge (42.50) 15.57416691 (2.729) 73.370 1,142.68
Cumulative and Average Annual Total Returns
without/with charges 18.62% A 14.27% B
Growth and Income
12-31-97 Purchase $1,000.00 $24.55079561 40.732 40.732 $1,000.00
12-31-98 Contract Fee (1.00) 26.22646854 (0.038) 40.694 1,067.25
12-31-98 Value before Surr 26.22646854 0.000 40.694 1,067.25
Chg
12-31-98 Surrender Charge (42.50) 26.22646854 (1.621) 39.073 1,024.75
Cumulative and Average Annual Total Returns
without/with charges 6.83% A 2.48% B
High Income
12-31-97 Purchase $1,000.00 $21.31160694 46.923 46.923 $1,000.00
12-31-98 Contract Fee (1.00) 21.20849040 (0.047) 46.876 994.16
12-31-98 Value before Surr 21.20849040 0.000 46.876 994.16
Chg
12-31-98 Surrender Charge (42.50) 21.20849040 (2.004) 44.872 951.66
Cumulative and Average Annual Total Returns
without/with charges -0.48% A -4.83% B
Income Securities
12-31-97 Purchase $1,000.00 $25.06461193 39.897 39.897 $1,000.00
12-31-98 Contract Fee (1.00) 25.12170867 (0.040) 39.857 1,001.28
12-31-98 Value before Surr 25.12170867 0.000 39.857 1,001.28
Chg
12-31-98 Surrender Charge (42.50) 25.12170867 (1.692) 38.165 958.78
Cumulative and Average Annual Total Returns
without/with charges 0.23% A -4.12% B
Money Market
12-31-97 Purchase $1,000.00 $13.86472844 72.125 72.125 $1,000.00
12-31-98 Contract Fee (1.00) 14.38555424 (0.070) 72.056 1,036.56
12-31-98 Value before Surr 14.38555424 0.000 72.056 1,036.56
Chg
12-31-98 Surrender Charge (42.50) 14.38555424 (2.954) 69.102 994.06
Cumulative and Average Annual Total Returns
without/with charges 3.76% A -0.59% B
Mutual Discovery Securities
12-31-97 Purchase $1,000.00 $11.98316359 83.450 83.450 $1,000.00
12-31-98 Contract Fee (1.00) 11.22622113 (0.089) 83.361 935.83
12-31-98 Value before Surr 11.22622113 0.000 83.361 935.83
Chg
12-31-98 Surrender Charge (42.50) 11.22622113 (3.786) 79.576 893.33
Cumulative and Average Annual Total Returns
without/with charges -6.32% -10.67%
Mutual Shares Securities
12-31-97 Purchase $1,000.00 $11.99296726 83.382 83.382 $1,000.00
12-31-98 Contract Fee (1.00) 11.83677406 (0.084) 83.298 985.98
12-31-98 Value before Surr 11.83677406 0.000 83.298 985.98
Chg
12-31-98 Surrender Charge (42.50) 11.83677406 (3.591) 79.707 943.48
Cumulative and Average Annual Total Returns
without/with charges -1.30% -5.65%
Natural Resource Securities
12-31-97 Purchase $1,000.00 $11.55913365 86.512 86.512 $1,000.00
12-31-98 Contract Fee (1.00) 8.50546484 (0.118) 86.394 734.82
12-31-98 Value before Surr 8.50546484 0.000 86.394 734.82
Chg
12-31-98 Surrender Charge (42.50) 8.50546484 (4.997) 81.397 692.32
Cumulative and Average Annual Total Returns
without/with charges -26.42% A -30.77% B
Real Estate Securities
12-31-97 Purchase $1,000.00 $28.16943249 35.499 35.499 $1,000.00
12-31-98 Contract Fee (1.00) 23.10677956 (0.043) 35.456 819.28
12-31-98 Value before Surr 23.10677956 0.000 35.456 819.28
Chg
12-31-98 Surrender Charge (42.50) 23.10677956 (1.839) 33.617 776.78
Cumulative and Average Annual Total Returns
without/with charges -17.97% A -22.32% B
Rising Dividends
12-31-97 Purchase $1,000.00 $20.07430239 49.815 49.815 $1,000.00
12-31-98 Contract Fee (1.00) 21.16548977 (0.047) 49.768 1,053.36
12-31-98 Value before Surr 21.16548977 0.000 49.768 1,053.36
Chg
12-31-98 Surrender Charge (42.50) 21.16548977 (2.008) 47.760 1,010.86
Cumulative and Average Annual Total Returns
without/with charges 5.44% A 1.09% B
Small Cap
12-31-97 Purchase $1,000.00 $14.95194471 66.881 66.881 $1,000.00
12-31-98 Contract Fee (1.00) 14.59958077 (0.068) 66.812 975.43
12-31-98 Value before Surr 14.59958077 0.000 66.812 975.43
Chg
12-31-98 Surrender Charge (42.50) 14.59958077 (2.911) 63.901 932.93
Cumulative and Average Annual Total Returns
without/with charges -2.36% -6.71%
Templeton Developing Markets Equity
12-31-97 Purchase $1,000.00 $10.34011278 96.711 96.711 $1,000.00
12-31-98 Contract Fee (1.00) 7.99263591 (0.125) 96.586 771.97
12-31-98 Value before Surr 7.99263591 0.000 96.586 771.97
Chg
12-31-98 Surrender Charge (42.50) 7.99263591 (5.317) 91.268 729.47
Cumulative and Average Annual Total Returns
without/with charges -22.70% A -27.05% B
Templeton Global Asset Allocation
12-31-97 Purchase $1,000.00 $13.78572229 72.539 72.539 $1,000.00
12-31-98 Contract Fee (1.00) 13.58859831 (0.074) 72.465 984.70
12-31-98 Value before Surr 13.58859831 0.000 72.465 984.70
Chg
12-31-98 Surrender Charge (42.50) 13.58859831 (3.128) 69.338 942.20
Cumulative and Average Annual Total Returns
without/with charges -1.43% A -5.78% B
Templeton Global Growth
12-31-97 Purchase $1,000.00 $15.17626475 65.892 65.892 $1,000.00
12-31-98 Contract Fee (1.00) 16.30853286 (0.061) 65.831 1,073.61
12-31-98 Value before Surr 16.30853286 0.000 65.831 1,073.61
Chg
12-31-98 Surrender Charge (42.50) 16.30853286 (2.606) 63.225 1,031.11
Cumulative and Average Annual Total Returns
without/with charges 7.46% A 3.11% B
Templeton International Equity
12-31-97 Purchase $1,000.00 $17.71128511 56.461 56.461 $1,000.00
12-31-98 Contract Fee (1.00) 18.43652906 (0.054) 56.407 1,039.95
12-31-98 Value before Surr 18.43652906 0.000 56.407 1,039.95
Chg
12-31-98 Surrender Charge (42.50) 18.43652906 (2.305) 54.102 997.45
Cumulative and Average Annual Total Returns
without/with charges 4.09% A -0.26% B
Templeton International Smaller Companies
12-31-97 Purchase $1,000.00 $10.82516357 92.377 92.377 $1,000.00
12-31-98 Contract Fee (1.00) 9.36443942 (0.107) 92.271 864.06
12-31-98 Value before Surr 9.36443942 0.000 92.271 864.06
Chg
12-31-98 Surrender Charge (42.50) 9.36443942 (4.538) 87.732 821.56
Cumulative and Average Annual Total Returns
without/with charges -13.49% A -17.84% B
Templeton Pacific Growth
12-31-97 Purchase $1,000.00 $9.43102016 106.033 106.033 $1,000.00
12-31-98 Contract Fee (1.00) 8.07846316 (0.124) 105.909 855.58
12-31-98 Value before Surr 8.07846316 0.000 105.909 855.58
Chg
12-31-98 Surrender Charge (42.50) 8.07846316 (5.261) 100.648 813.08
Cumulative and Average Annual Total Returns
without/with charges -14.34% A -18.69% B
Global Utilities Securities
12-31-97 Purchase $1,000.00 $25.81831690 38.732 38.732 $1,000.00
12-31-98 Contract Fee (1.00) 28.30779835 (0.035) 38.697 1,095.42
12-31-98 Value before Surr 28.30779835 0.000 38.697 1,095.42
Chg
12-31-98 Surrender Charge (42.50) 28.30779835 (1.501) 37.196 1,052.92
Cumulative and Average Annual Total Returns
without/with charges 9.64% A 5.29% B
<FN>
A = (Unit Value as of December 31, 1998 - Unit Value at Purchase)/Unit Value at
Purchase B = (Accumulated Value as of December 31, 1998 - Accum. Value at
Purch.)/Accum. Value at Purch.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FRANKLIN TEMPLETON VALUEMARK INCOME PLUS
PREFERRED LIFE VARIABLE ACCOUNT C
CUMULATIVE AND AVERAGE ANNUAL TOTAL RETURN CALCULATIONS
Original Purchase as of December 31, 1995
Valuation Date as of December 31, 1998
Dollar Units Accum. Accum.
This
Date Transaction Amount Unit Value Trans. Units Value
<S> <C> <C> <C> <C> <C> <C>
Growth and Income
12-31-95 Purchase $1,000.00 $17.30965999 57.771 57.771 $1,000.00
12-31-96 Contract Fee (1.00) 19.48959860 (0.051) 57.720 1,124.94
12-31-97 Contract Fee (1.00) 24.55079561 (0.041) 57.679 1,416.07
12-31-98 Contract Fee (1.00) 26.22646854 (0.038) 57.641 1,511.72
12-31-98 Value before Surr Chg 26.22646854 0.000 57.641 1,511.72
12-31-98 Surrender Charge (22.00) 26.22646854 (0.839) 56.802 1,489.72
Cumulative Total Returns without/with chrgs. 51.51% A 48.97% C
Avg. Annual Total Returns without/with chrgs. 14.86% B 14.21% D
High Income
12-31-95 Purchase $1,000.00 $17.25181285 57.965 57.965 $1,000.00
12-31-96 Contract Fee (1.00) 19.37479425 (0.052) 57.913 1,122.06
12-31-97 Contract Fee (1.00) 21.31160694 (0.047) 57.866 1,233.23
12-31-98 Contract Fee (1.00) 21.20849040 (0.047) 57.819 1,226.26
12-31-98 Value before Surr Chg 21.20849040 0.000 57.819 1,226.26
12-31-98 Surrender Charge (22.00) 21.20849040 (1.037) 56.782 1,204.26
Cumulative Total Returns without/with chrgs. 22.93% A 20.43% C
Avg. Annual Total Returns without/with chrgs. 7.13% B 6.39% D
Income Securities
12-31-95 Purchase $1,000.00 $19.78534185 50.542 50.542 $1,000.00
12-31-96 Contract Fee (1.00) 21.70827863 (0.046) 50.496 1,096.19
12-31-97 Contract Fee (1.00) 25.06461193 (0.040) 50.457 1,264.67
12-31-98 Contract Fee (1.00) 25.12170867 (0.040) 50.417 1,266.55
12-31-98 Value before Surr Chg 25.12170867 0.000 50.417 1,266.55
12-31-98 Surrender Charge (22.00) 25.12170867 (0.876) 49.541 1,244.55
Cumulative Total Returns without/with chrgs. 26.97% A 24.46% C
Avg. Annual Total Returns without/with chrgs. 8.29% B 7.57% D
Money Market
12-31-95 Purchase $1,000.00 $12.88349436 77.619 77.619 $1,000.00
12-31-96 Contract Fee (1.00) 13.35923111 (0.075) 77.544 1,035.93
12-31-97 Contract Fee (1.00) 13.86472844 (0.072) 77.472 1,074.12
12-31-98 Contract Fee (1.00) 14.38555424 (0.070) 77.402 1,113.47
12-31-98 Value before Surr Chg 14.38555424 0.000 77.402 1,113.47
12-31-98 Surrender Charge (22.00) 14.38555424 (1.529) 75.873 1,091.47
Cumulative Total Returns without/with chrgs. 11.66% A 9.15% C
Avg. Annual Total Returns without/with chrgs. 3.74% B 2.96% D
Real Estate Securities
12-31-95 Purchase $1,000.00 $18.07282328 55.332 55.332 $1,000.00
12-31-96 Contract Fee (1.00) 23.66770609 (0.042) 55.289 1,308.57
12-31-97 Contract Fee (1.00) 28.16943249 (0.035) 55.254 1,556.47
12-31-98 Contract Fee (1.00) 23.10677956 (0.043) 55.211 1,275.74
12-31-98 Value before Surr Chg 23.10677956 0.000 55.211 1,275.74
12-31-98 Surrender Charge (22.00) 23.10677956 (0.952) 54.259 1,253.74
Cumulative Total Returns without/with chrgs. 27.85% A 25.37% C
Avg. Annual Total Returns without/with chrgs. 8.54% B 7.83% D
Rising Dividends
12-31-95 Purchase $1,000.00 $12.49836348 80.010 80.010 $1,000.00
12-31-96 Contract Fee (1.00) 15.30299222 (0.065) 79.945 1,223.40
12-31-97 Contract Fee (1.00) 20.07430239 (0.050) 79.895 1,603.84
12-31-98 Contract Fee (1.00) 21.16548977 (0.047) 79.848 1,690.02
12-31-98 Value before Surr Chg 21.16548977 0.000 79.848 1,690.02
12-31-98 Surrender Charge (22.00) 21.16548977 (1.039) 78.809 1,668.02
Cumulative Total Returns without/with chrgs. 69.35% A 66.80% C
Avg. Annual Total Returns without/with chrgs. 19.20% B 18.60% D
Small Cap
12-31-95 Purchase $1,000.00 $10.14638787 98.557 98.557 $1,000.00
12-31-96 Contract Fee (1.00) 12.91274591 (0.077) 98.480 1,271.64
12-31-97 Contract Fee (1.00) 14.95194471 (0.067) 98.413 1,471.46
12-31-98 Contract Fee (1.00) 14.59958077 (0.068) 98.344 1,435.79
12-31-98 Value before Surr Chg 14.59958077 0.000 98.344 1,435.79
12-31-98 Surrender Charge (22.00) 14.59958077 (1.507) 96.838 1,413.79
Cumulative Total Returns without/with charges 43.89% A 41.38% C
Average Annual Total Returns without/with 12.90% B 12.23% D
charges
Templeton Developing Markets Equity
12-31-95 Purchase $1,000.00 $9.58170209 104.366 104.366 $1,000.00
12-31-96 Contract Fee (1.00) 11.48724479 (0.087) 104.279 1,197.87
12-31-97 Contract Fee (1.00) 10.34011278 (0.097) 104.182 1,077.25
12-31-98 Contract Fee (1.00) 7.99263591 (0.125) 104.057 831.69
12-31-98 Value before Surr Chg 7.99263591 0.000 104.057 831.69
12-31-98 Surrender Charge (22.00) 7.99263591 (2.753) 101.304 809.69
Cumulative Total Returns without/with chrgs. -16.58% A -19.03% C
Avg. Annual Total Returns without/with chrgs. -5.87% B -6.80% D
Templeton Global Asset Allocation
12-31-95 Purchase $1,000.00 $10.59122588 94.418 94.418 $1,000.00
12-31-96 Contract Fee (1.00) 12.51416879 (0.080) 94.338 1,180.56
12-31-97 Contract Fee (1.00) 13.78572229 (0.073) 94.265 1,299.52
12-31-98 Contract Fee (1.00) 13.58859831 (0.074) 94.192 1,279.93
12-31-98 Value before Surr Chg 13.58859831 0.000 94.192 1,279.93
12-31-98 Surrender Charge (22.00) 13.58859831 (1.619) 92.573 1,257.93
Cumulative Total Returns without/with chrgs. 28.30% A 25.79% C
Avg. Annual Total Returns without/with chrgs. 8.66% B 7.95% D
Templeton Global Growth
12-31-95 Purchase $1,000.00 $11.33894840 88.192 88.192 $1,000.00
12-31-96 Contract Fee (1.00) 13.55953972 (0.074) 88.118 1,194.84
12-31-97 Contract Fee (1.00) 15.17626475 (0.066) 88.052 1,336.30
12-31-98 Contract Fee (1.00) 16.30853286 (0.061) 87.991 1,435.00
12-31-98 Value before Surr Chg 16.30853286 0.000 87.991 1,435.00
12-31-98 Surrender Charge (22.00) 16.30853286 (1.349) 86.642 1,413.00
Cumulative Total Returns without/with chrgs. 43.83% A 41.30% C
Avg. Annual Total Returns without/with chrgs. 12.88% B 12.21% D
Templeton International Equity
12-31-95 Purchase $1,000.00 $13.26267921 75.400 75.400 $1,000.00
12-31-96 Contract Fee (1.00) 16.08142393 (0.062) 75.337 1,211.53
12-31-97 Contract Fee (1.00) 17.71128511 (0.056) 75.281 1,333.32
12-31-98 Contract Fee (1.00) 18.43652906 (0.054) 75.227 1,386.92
12-31-98 Value before Surr Chg 18.43652906 0.000 75.227 1,386.92
12-31-98 Surrender Charge (22.00) 18.43652906 (1.193) 74.033 1,364.92
Cumulative Total Returns without/with chrgs. 39.01% A 36.49% C
Avg. Annual Total Returns without/with chrgs. 11.60% B 10.93% D
Templeton Pacific Growth
12-31-95 Purchase $1,000.00 $13.63037545 73.366 73.366 $1,000.00
12-31-96 Contract Fee (1.00) 14.93159316 (0.067) 73.299 1,094.46
12-31-97 Contract Fee (1.00) 9.43102016 (0.106) 73.193 690.28
12-31-98 Contract Fee (1.00) 8.07846316 (0.124) 73.069 590.28
12-31-98 Value before Surr Chg 8.07846316 0.000 73.069 590.28
12-31-98 Surrender Charge (22.00) 8.07846316 (2.723) 70.345 568.28
Cumulative Total Returns without/with chrgs. -40.73% A -43.17% C
Avg. Annual Total Returns without/with chrgs. -16.00% B -17.17% D
Global Utilities Securities
12-31-95 Purchase $1,000.00 $19.56451758 51.113 51.113 $1,000.00
12-31-96 Contract Fee (1.00) 20.65439774 (0.048) 51.065 1,054.71
12-31-97 Contract Fee (1.00) 25.81831690 (0.039) 51.026 1,317.40
12-31-98 Contract Fee (1.00) 28.30779835 (0.035) 50.990 1,443.43
12-31-98 Value before Surr Chg 28.30779835 0.000 50.990 1,443.43
12-31-98 Surrender Charge (22.00) 28.30779835 (0.777) 50.213 1,421.43
Cumulative Total Returns without/with chrgs. 44.69% A 42.14% C
Avg. Annual Total Returns without/with chrgs. 13.10% B 12.44% D
<FN>
A = (Unit Value as of December 31, 1998 - Unit Value at Purchase)/Unit Value at
Purchase
B = [(A+1)^(1/3 Years)]-1
C = (Accumulated Value as of December 31, 1998 - Accum. Value at Purch.)/Accum.
Value at Purch. D = [(C+1)^(1/3 Years)]-1
</FN>
</TABLE>
<PAGE>
<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, 1993
Valuation Date as of December 31, 1998
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
---- ----------- ------ ---------- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
Growth and Income
12-31-93 Purchase $1,000.00 $13.67694811 73.116 73.116 $1,000.00
12-31-94 Contract Fee (1.00) 13.21462941 (0.076) 73.040 965.20
12-31-95 Contract Fee (1.00) 17.30965999 (0.058) 72.982 1,263.30
12-31-96 Contract Fee (1.00) 19.48959860 (0.051) 72.931 1,421.40
12-31-97 Contract Fee (1.00) 24.55079561 (0.041) 72.890 1,789.51
12-31-98 Contract Fee (1.00) 26.22646854 (0.038) 72.852 1,910.65
12-31-98 Value before Surr Chg 26.22646854 0.000 72.852 1,910.65
12-31-98 Surrender Charge (3.75) 26.22646854 (0.143) 72.709 1,906.90
Cumulative Total Returns without/with chrgs. 91.76% A 90.69% C
Avg. Annual Total Returns without/with chrgs. 13.91% B 13.78% D
High Income
12-31-93 Purchase $1,000.00 $15.15511991 65.984 65.984 $1,000.00
12-31-94 Contract Fee (1.00) 14.60759128 (0.068) 65.916 962.87
12-31-95 Contract Fee (1.00) 17.25181285 (0.058) 65.858 1,136.17
12-31-96 Contract Fee (1.00) 19.37479425 (0.052) 65.806 1,274.98
12-31-97 Contract Fee (1.00) 21.31160694 (0.047) 65.759 1,401.44
12-31-98 Contract Fee (1.00) 21.20849040 (0.047) 65.712 1,393.66
12-31-98 Value before Surr Chg 21.20849040 0.000 65.712 1,393.66
12-31-98 Surrender Charge (3.75) 21.20849040 (0.177) 65.535 1,389.91
Cumulative Total Returns without/with chrgs. 39.94% A 38.99% C
Avg. Annual Total Returns without/with chrgs. 6.95% B 6.81% D
Income Securities
12-31-93 Purchase $1,000.00 $17.73437317 56.388 56.388 $1,000.00
12-31-94 Contract Fee (1.00) 16.39171653 (0.061) 56.327 923.29
12-31-95 Contract Fee (1.00) 19.78534185 (0.051) 56.276 1,113.44
12-31-96 Contract Fee (1.00) 21.70827863 (0.046) 56.230 1,220.66
12-31-97 Contract Fee (1.00) 25.06461193 (0.040) 56.190 1,408.38
12-31-98 Contract Fee (1.00) 25.12170867 (0.040) 56.150 1,410.59
12-31-98 Value before Surr Chg 25.12170867 0.000 56.150 1,410.59
12-31-98 Surrender Charge (3.75) 25.12170867 (0.149) 56.001 1,406.84
Cumulative Total Returns without/with chrgs. 41.66% A 40.68% C
Avg. Annual Total Returns without/with chrgs. 7.21% B 7.07% D
Money Market
12-31-93 Purchase $1,000.00 $12.06579747 82.879 82.879 $1,000.00
12-31-94 Contract Fee (1.00) 12.35398427 (0.081) 82.798 1,022.88
12-31-95 Contract Fee (1.00) 12.88349436 (0.078) 82.720 1,065.73
12-31-96 Contract Fee (1.00) 13.35923111 (0.075) 82.645 1,104.08
12-31-97 Contract Fee (1.00) 13.86472844 (0.072) 82.573 1,144.86
12-31-98 Contract Fee (1.00) 14.38555424 (0.070) 82.504 1,186.86
12-31-98 Value before Surr Chg 14.38555424 0.000 82.504 1,186.86
12-31-98 Surrender Charge (3.75) 14.38555424 (0.261) 82.243 1,183.11
Cumulative Total Returns without/with chrgs. 19.23% A 18.31% C
Avg. Annual Total Returns without/with chrgs. 3.58% B 3.42% D
Real Estate Securities
12-31-93 Purchase $1,000.00 $15.36898235 65.066 65.066 $1,000.00
12-31-94 Contract Fee (1.00) 15.59407180 (0.064) 65.002 1,013.65
12-31-95 Contract Fee (1.00) 18.07282328 (0.055) 64.947 1,173.77
12-31-96 Contract Fee (1.00) 23.66770609 (0.042) 64.904 1,536.14
12-31-97 Contract Fee (1.00) 28.16943249 (0.035) 64.869 1,827.32
12-31-98 Contract Fee (1.00) 23.10677956 (0.043) 64.826 1,497.91
12-31-98 Value before Surr Chg 23.10677956 0.000 64.826 1,497.91
12-31-98 Surrender Charge (3.75) 23.10677956 (0.162) 64.663 1,494.16
Cumulative Total Returns without/with chrgs. 50.35% A 49.42% C
Avg. Annual Total Returns without/with chrgs. 8.50% B 8.36% D
Rising Dividends
12-31-93 Purchase $1,000.00 $10.32720317 96.832 96.832 $1,000.00
12-31-94 Contract Fee (1.00) 9.76873744 (0.102) 96.729 $944.92
12-31-95 Contract Fee (1.00) 12.49836348 (0.080) 96.649 $1,207.96
12-31-96 Contract Fee (1.00) 15.30299222 (0.065) 96.584 1,478.02
12-31-97 Contract Fee (1.00) 20.07430239 (0.050) 96.534 1,937.85
12-31-98 Contract Fee (1.00) 21.16548977 (0.047) 96.487 2,042.19
12-31-98 Value before Surr Chg 21.16548977 0.000 96.487 2,042.19
12-31-98 Surrender Charge (3.75) 21.16548977 (0.177) 96.310 2,038.44
Cumulative Total Returns without/with chrgs. 104.95% A 103.84% C
Avg. Annual Total Rtns. without/with chrgs. 15.43% B 15.31% D
Templeton International Equity
12-31-93 Purchase $1,000.00 $12.22565227 81.795 81.795 $1,000.00
12-31-94 Contract Fee (1.00) 12.16131942 (0.082) 81.713 993.74
12-31-95 Contract Fee (1.00) 13.26267921 (0.075) 81.638 1,082.73
12-31-96 Contract Fee (1.00) 16.08142393 (0.062) 81.575 1,311.85
12-31-97 Contract Fee (1.00) 17.71128511 (0.056) 81.519 1,443.81
12-31-98 Contract Fee (1.00) 18.43652906 (0.054) 81.465 1,501.93
12-31-98 Value before Surr Chg 18.43652906 0.000 81.465 1,501.93
12-31-98 Surrender Charge (3.75) 18.43652906 (0.203) 81.261 1,498.18
Cumulative Total Returns without/with chrgs. 50.80% A 49.82% C
Avg. Annual Total Rtns. without/with chrgs. 8.56% B 8.42% D
Templeton Pacific Growth
12-31-93 Purchase $1,000.00 $14.23330574 70.258 70.258 $1,000.00
12-31-94 Contract Fee (1.00) 12.80173310 (0.078) 70.180 898.42
12-31-95 Contract Fee (1.00) 13.63037545 (0.073) 70.106 955.57
12-31-96 Contract Fee (1.00) 14.93159316 (0.067) 70.039 1,045.80
12-31-97 Contract Fee (1.00) 9.43102016 (0.106) 69.933 659.54
12-31-98 Contract Fee (1.00) 8.07846316 (0.124) 69.809 563.95
12-31-98 Value before Surr Chg 8.07846316 0.000 69.809 563.95
12-31-98 Surrender Charge (3.75) 8.07846316 (0.464) 69.345 560.20
Cumulative Total Returns without/with chrgs. -43.24% A -43.98% C
Avg. Annual Total Rtns. without/with chrgs. -10.71% B -10.94% D
Global Utilities Securities
12-31-93 Purchase $1,000.00 $17.31879581 57.741 57.741 $1,000.00
12-31-94 Contract Fee (1.00) 15.10395032 (0.066) 57.675 871.11
12-31-95 Contract Fee (1.00) 19.56451758 (0.051) 57.623 1,127.37
12-31-96 Contract Fee (1.00) 20.65439774 (0.048) 57.575 1,189.18
12-31-97 Contract Fee (1.00) 25.81831690 (0.039) 57.536 1,485.49
12-31-98 Contract Fee (1.00) 28.30779835 (0.035) 57.501 1,627.73
12-31-98 Value before Surr Chg 28.30779835 0.000 57.501 1,627.73
12-31-98 Surrender Charge (3.75) 28.30779835 (0.132) 57.368 1,623.98
Cumulative Total Returns without/with chrgs. 63.45% A 62.40% C
Avg. Annual Total Returns without/with chrgs. 10.33% B 10.18% D
<FN>
A = (Unit Value as of December 31, 1998 - Unit Value at Purchase)/Unit Value at
Purchase B = [(A+1)^(1/5 Years)]-1 C = (Accumulated Value as of December 31,
1998 - Accum. Value at Purch.)/Accum. Value at Purch. D = [(C+1)^(1/5 Years)]-1
</FN> </TABLE> <PAGE> <TABLE> <CAPTION>
FRANKLIN TEMPLETON VALUEMARK INCOME PLUS
PREFERRED LIFE VARIABLE ACCOUNT C
CUMULATIVE AND AVERAGE ANNUAL TOTAL RETURN CALCULATIONS
Original Purchase as of Sub-Account Inception
Valuation Date as of December 31, 1998
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
---- ----------- ------ ---------- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
Capital Growth
5-1-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-1-97 Contract Fee (1.00) $11.18234032 (0.089) 99.911 1,117.23
5-1-98 Contract Fee (1.00) $14.64647972 (0.068) 99.842 1,462.34
12-31-98 Contract Fee (1.00) $15.57416691 (0.064) 99.778 1,553.96
12-31-98 Value before Surr $15.57416691 0.000 99.778 1,553.96
Chg
12-31-98 Surrender Charge (22.00) $15.57416691 (1.413) 98.365 1,531.96
Cumulative Total Returns without/with chgs. 55.74% A 53.20% C
Avg. Annual Total Returns without/with chgs. 18.06% B 17.33% D
Growth and Income
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 9.60621064 (0.104) 99.896 959.62
1-24-91 Contract Fee (1.00) 10.04911751 (0.100) 99.796 1,002.87
1-24-92 Contract Fee (1.00) 12.19460473 (0.082) 99.714 1,215.98
1-24-93 Contract Fee (1.00) 12.62194644 (0.079) 99.635 1,257.59
1-24-94 Contract Fee (1.00) 14.16249217 (0.071) 99.565 1,410.08
1-24-95 Contract Fee (1.00) 13.34952632 (0.075) 99.490 1,328.14
1-24-96 Contract Fee (1.00) 17.36302808 (0.058) 99.432 1,726.44
1-24-97 Contract Fee (1.00) 19.93765368 (0.050) 99.382 1,981.44
1-24-98 Contract Fee (1.00) 24.03879635 (0.042) 99.340 2,388.02
12-31-98 Value before Surr 26.22646854 0.000 99.340 2,605.35
Chg
12-31-98 Contract Fee (1.00) 26.22646854 (0.038) 99.302 2,604.35
12-31-98 Surrender Charge 0.00 26.22646854 0.000 99.302 2,604.35
Cumulative Total Returns without/with chgs. 162.26% A 160.43% C
Avg. Annual Total Returns without/with chgs. 10.19% B 10.11% D
High Income
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 9.99164502 (0.100) 99.900 998.16
1-24-91 Contract Fee (1.00) 8.99722270 (0.111) 99.789 897.82
1-24-92 Contract Fee (1.00) 11.88821941 (0.084) 99.705 1,185.31
1-24-93 Contract Fee (1.00) 13.44703876 (0.074) 99.630 1,339.73
1-24-94 Contract Fee (1.00) 15.36027784 (0.065) 99.565 1,529.35
1-24-95 Contract Fee (1.00) 14.72506391 (0.068) 99.497 1,465.10
1-24-96 Contract Fee (1.00) 17.51218685 (0.057) 99.440 1,741.41
1-24-97 Contract Fee (1.00) 19.46632780 (0.051) 99.389 1,934.73
1-24-98 Contract Fee (1.00) 21.49896803 (0.047) 99.342 2,135.76
12-31-98 Value before Surr 21.20849040 0.000 99.342 2,106.90
Chg
12-31-98 Contract Fee (1.00) 21.20849040 (0.047) 99.295 2,105.90
12-31-98 Surrender Charge 0.00 21.20849040 0.000 99.295 2,105.90
Cumulative Total Returns without/with chgs. 112.08% A 110.59% C
Avg. Annual Total Returns without/with chgs. 7.86% B 7.78% D
Income Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.71309911 (0.093) 99.907 1,070.31
1-24-91 Contract Fee (1.00) 9.95244729 (0.100) 99.806 993.32
1-24-92 Contract Fee (1.00) 14.03346495 (0.071) 99.735 1,399.63
1-24-93 Contract Fee (1.00) 15.36060973 (0.065) 99.670 1,530.99
1-24-94 Contract Fee (1.00) 17.72926867 (0.056) 99.613 1,766.07
1-24-95 Contract Fee (1.00) 16.36456157 (0.061) 99.552 1,629.13
1-24-96 Contract Fee (1.00) 20.20965612 (0.049) 99.503 2,010.92
1-24-97 Contract Fee (1.00) 21.90254020 (0.046) 99.457 2,178.36
1-24-98 Contract Fee (1.00) 24.74259869 (0.040) 99.417 2,459.83
12-31-98 Value before Surr 25.12170867 0.000 99.417 2,497.52
Chg
12-31-98 Contract Fee (1.00) 25.12170867 (0.040) 99.377 2,496.52
12-31-98 Surrender Charge 0.00 25.12170867 0.000 99.377 2,496.52
Cumulative Total Returns without/with chgs. 151.22% A 149.65% C
Avg. Annual Total Returns without/with chgs. 9.71% B 9.64% D
Money Market
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.67978818 (0.094) 99.906 1,066.98
1-24-91 Contract Fee (1.00) 11.32877884 (0.088) 99.818 1,130.82
1-24-92 Contract Fee (1.00) 11.75876120 (0.085) 99.733 1,172.74
1-24-93 Contract Fee (1.00) 11.94119334 (0.084) 99.649 1,189.93
1-24-94 Contract Fee (1.00) 12.07592840 (0.083) 99.566 1,202.36
1-24-95 Contract Fee (1.00) 12.38828249 (0.081) 99.486 1,232.46
1-24-96 Contract Fee (1.00) 12.92030455 (0.077) 99.408 1,284.39
1-24-97 Contract Fee (1.00) 13.39088993 (0.075) 99.334 1,330.17
1-24-98 Contract Fee (1.00) 13.89829761 (0.072) 99.262 1,379.57
12-31-98 Value before Surr 14.38555424 0.000 99.262 1,427.94
Chg
12-31-98 Contract Fee (1.00) 14.38555424 (0.070) 99.192 1,426.94
12-31-98 Surrender Charge 0.00 14.38555424 0.000 99.192 1,426.94
Cumulative Total Returns without/with chgs. 43.86% A 42.69% C
Avg. Annual Total Returns without/with chgs. 3.73% B 3.64% D
Mutual Discovery Securities
11-8-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
11-8-97 Contract Fee (1.00) 11.84027297 (0.084) 99.916 1,183.03
11-8-98 Contract Fee (1.00) 10.96095902 (0.091) 99.824 1,094.17
12-31-98 Contract Fee (1.00) 11.22622113 (0.089) 99.735 1,119.65
12-31-98 Value before Surr 11.22622113 0.000 99.735 1,119.65
Chg
12-31-98 Surrender Charge (22.00) 11.22622113 (1.960) 97.776 1,097.65
Cumulative Total Returns without/with chgs. 12.26% A 9.76% C
Avg. Annual Total Returns without/with chgs. 5.54% B 4.44% D
Mutual Shares Securities
11-8-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
11-8-97 Contract Fee (1.00) 11.76129584 (0.085) 99.915 1,175.13
11-8-98 Contract Fee (1.00) 11.59398963 (0.086) 99.829 1,157.41
12-31-98 Contract Fee (1.00) 11.83677406 (0.084) 99.744 1,180.65
12-31-98 Value before Surr 11.83677406 0.000 99.744 1,180.65
Chg
12-31-98 Surrender Charge (22.00) 11.83677406 (1.859) 97.886 1,158.65
Cumulative Total Returns without/with chgs. 18.37% A 15.87% C
Avg. Annual Total Returns without/with chgs. 8.18% B 7.11% D
Real Estate Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.13988901 (0.099) 99.901 1,012.99
1-24-91 Contract Fee (1.00) 9.37706788 (0.107) 99.795 935.78
1-24-92 Contract Fee (1.00) 12.28427530 (0.081) 99.713 1,224.91
1-24-93 Contract Fee (1.00) 13.54478625 (0.074) 99.640 1,349.60
1-24-94 Contract Fee (1.00) 15.37525910 (0.065) 99.574 1,530.98
1-24-95 Contract Fee (1.00) 15.00928122 (0.067) 99.508 1,493.54
1-24-96 Contract Fee (1.00) 18.15857148 (0.055) 99.453 1,805.92
1-24-97 Contract Fee (1.00) 23.95551361 (0.042) 99.411 2,381.44
1-24-98 Contract Fee (1.00) 28.04564576 (0.036) 99.375 2,787.05
12-31-98 Value before Surr Chg 23.10677956 0.000 99.375 2,296.24
12-31-98 Contract Fee (1.00) 23.10677956 (0.043) 99.332 2,295.24
12-31-98 Surrender Charge 0.00 23.10677956 0.000 99.332 2,295.24
Cumulative Total Returns without/with chgs. 131.07% A 129.52% C
Avg. Annual Total Returns without/with chgs. 8.79% B 8.72% D
Rising Dividends
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Contract Fee (1.00) 10.69831588 (0.093) 99.907 1,068.83
1-27-94 Contract Fee (1.00) 10.38483458 (0.096) 99.810 1,036.51
1-27-95 Contract Fee (1.00) 9.97357882 (0.100) 99.710 994.47
1-27-96 Contract Fee (1.00) 12.53425589 (0.080) 99.630 1,248.79
1-27-97 Contract Fee (1.00) 15.27722507 (0.065) 99.565 1,521.07
1-27-98 Contract Fee (1.00) 19.83953724 (0.050) 99.514 1,974.32
12-31-98 Value before Surr 21.16548977 0.000 99.514 2,106.27
Chg
12-31-98 Contract Fee (1.00) 21.16548977 (0.047) 99.467 2,105.27
12-31-98 Surrender Charge 0.00 21.16548977 0.000 99.467 2,105.27
Cumulative Total Returns without/with chgs. 111.65% A 110.53% C
Avg. Annual Total Returns without/with chgs. 11.42% B 11.34% D
Small Cap
11-1-95 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
11-1-96 Contract Fee (1.00) 12.15810442 (0.082) 99.918 1,214.81
11-1-97 Contract Fee (1.00) 15.56454139 (0.064) 99.854 1,554.17
11-1-98 Contract Fee (1.00) 12.53305565 (0.080) 99.774 1,250.47
12-31-98 Value before Surr 14.59958077 0.000 99.774 1,456.65
Chg
12-31-98 Contract Fee (1.00) 14.59958077 (0.068) 99.705 1,455.65
12-31-98 Surrender Charge (12.00) 14.59958077 (0.822) 98.883 1,443.65
Cumulative Total Returns without/with chgs. 46.00% A 44.37% C
Avg. Annual Total Returns without/with chgs. 12.69% B 12.29% D
Templeton Developing Markets Equity
3-15-94 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-15-95 Contract Fee (1.00) 8.62834892 (0.116) 99.884 861.83
3-15-96 Contract Fee (1.00) 10.29583833 (0.097) 99.787 1,027.39
3-15-97 Contract Fee (1.00) 12.45337068 (0.080) 99.707 1,241.68
3-15-98 Contract Fee (1.00) 10.55209904 (0.095) 99.612 1,051.11
12-31-98 Value before Surr 7.99263591 0.000 99.612 796.16
Chg
12-31-98 Contract Fee (1.00) 7.99263591 (0.125) 99.487 795.16
12-31-98 Surrender Charge (3.75) 7.99263591 (0.469) 99.018 791.41
Cumulative Total Returns without/with chgs. -20.07% A -20.86% C
Avg. Annual Total Returns without/with chgs. -4.56% B -4.76% D
Templeton Global Asset Allocation
5-1-95 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-1-96 Contract Fee (1.00) 11.25238520 (0.089) 99.911 1,124.24
5-1-97 Contract Fee (1.00) 12.77282148 (0.078) 99.833 1,275.15
5-1-98 Contract Fee (1.00) 14.99206191 (0.067) 99.766 1,495.70
12-31-98 Value before Surr 13.58859831 0.000 99.766 1,355.68
Chg
12-31-98 Contract Fee (1.00) 13.58859831 (0.074) 99.693 1,354.68
12-31-98 Surrender Charge (12.00) 13.58859831 (0.883) 98.809 1,342.68
Cumulative Total Returns without/with chgs. 35.89% A 34.27% C
Avg. Annual Total Returns without/with chgs. 8.71% B 8.36% D
Templeton Global Growth
3-15-94 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-15-95 Contract Fee (1.00) 10.10361218 (0.099) 99.901 1,009.36
3-15-96 Contract Fee (1.00) 11.81545835 (0.085) 99.816 1,179.38
3-15-97 Contract Fee (1.00) 14.09972316 (0.071) 99.745 1,406.38
3-15-98 Contract Fee (1.00) 16.74256384 (0.060) 99.686 1,668.99
12-31-98 Value before Surr 16.30853286 0.000 99.686 1,625.73
Chg
12-31-98 Contract Fee (1.00) 16.30853286 (0.061) 99.624 1,624.73
12-31-98 Surrender Charge (3.75) 16.30853286 (0.230) 99.394 1,620.98
Cumulative Total Returns without/with chgs. 63.09% A 62.10% C
Avg. Annual Total Returns without/with chgs. 10.73% B 10.59% D
Templeton International Equity
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Contract Fee (1.00) 9.54360836 (0.105) 99.895 953.36
1-27-94 Contract Fee (1.00) 12.87738433 (0.078) 99.818 1,285.39
1-27-95 Contract Fee (1.00) 11.94433728 (0.084) 99.734 1,191.25
1-27-96 Contract Fee (1.00) 13.57666972 (0.074) 99.660 1,353.05
1-27-97 Contract Fee (1.00) 16.22074645 (0.062) 99.599 1,615.56
1-27-98 Contract Fee (1.00) 17.53929087 (0.057) 99.542 1,745.89
12-31-98 Value before Surr 18.43652906 0.000 99.542 1,835.20
Chg
12-31-98 Contract Fee (1.00) 18.43652906 (0.054) 99.487 1,834.20
12-31-98 Surrender Charge 0.00 18.43652906 0.000 99.487 1,834.20
Cumulative Total Returns without/with chgs. 84.37% A 83.42% C
Avg. Annual Total Returns without/with chgs. 9.23% B 9.15% D
Templeton International Smaller Companies
5-1-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-1-97 Contract Fee (1.00) $11.33025487 (0.088) 99.912 1,132.03
5-1-98 Contract Fee (1.00) $12.05591756 (0.083) 99.829 1,203.53
12-31-98 Value before Surr $9.36443942 0.000 99.829 934.84
Chg
12-31-98 Contract Fee (1.00) $9.36443942 (0.107) 99.722 933.84
12-31-98 Surrender Charge (22.00) $9.36443942 (2.349) 97.373 911.84
Cumulative Total Returns without/with chgs. -6.36% A -8.82% C
Avg. Annual Total Returns without/with chgs. -2.43% B -3.40% D
Templeton Pacific Growth
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Contract Fee (1.00) 9.92851087 (0.101) 99.899 991.85
1-27-94 Contract Fee (1.00) 14.10178760 (0.071) 99.828 1,407.76
1-27-95 Contract Fee (1.00) 11.94769270 (0.084) 99.745 1,191.72
1-27-96 Contract Fee (1.00) 14.49670523 (0.069) 99.676 1,444.97
1-27-97 Contract Fee (1.00) 14.65338680 (0.068) 99.607 1,459.59
1-27-98 Contract Fee (1.00) 8.46694943 (0.118) 99.489 842.37
12-31-98 Value before Surr 8.07846316 0.000 99.489 803.72
Chg
12-31-98 Contract Fee (1.00) 8.07846316 (0.124) 99.366 802.72
12-31-98 Surrender Charge 0.00 8.07846316 0.000 99.366 802.72
Cumulative Total Returns without/with chgs. -19.22% A -19.73% C
Avg. Annual Total Returns without/with chgs. -3.03% B -3.12% D
Global Utilities Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 11.48396786 (0.087) 99.913 1,147.40
1-24-91 Contract Fee (1.00) 11.97256112 (0.084) 99.829 1,195.21
1-24-92 Contract Fee (1.00) 14.23979461 (0.070) 99.759 1,420.55
1-24-93 Contract Fee (1.00) 15.97559846 (0.063) 99.697 1,592.71
1-24-94 Contract Fee (1.00) 16.50535338 (0.061) 99.636 1,644.53
1-24-95 Contract Fee (1.00) 15.57082971 (0.064) 99.572 1,550.42
1-24-96 Contract Fee (1.00) 19.81799066 (0.050) 99.521 1,972.31
1-24-97 Contract Fee (1.00) 20.96455989 (0.048) 99.474 2,085.42
1-24-98 Contract Fee (1.00) 25.18650535 (0.040) 99.434 2,504.39
12-31-98 Value before Surr 28.30779835 0.000 99.434 2,814.75
Chg
12-31-98 Contract Fee (1.00) 28.30779835 (0.035) 99.399 2,813.75
12-31-98 Surrender Charge 0.00 28.30779835 0.000 99.399 2,813.75
Cumulative Total Returns without/with chgs. 183.08% A 181.38% C
Avg. Annual Total Returns without/with chgs. 11.04% B 10.97% D
Value Securities
5-1-98 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-98 Value before Surr 7.71743151 0.000 100.000 771.74
Chg
12-31-98 Contract Fee (1.00) 7.71743151 (0.130) 99.870 770.74
12-31-98 Surrender Charge (42.50) 7.71743151 (5.507) 94.363 728.24
Cumulative Total Returns without/with chgs. -22.83% A -27.18% C
Avg. Annual Total Returns without/with chgs. -32.13% B -37.77% D
<FN>
A =
B = [(A+1)^(1/Years since Inception)]-1
C = (Accumulated Value as of December 31, 1998 - Accum. Value at Purch.)/Accum.
Value at Purch. D = [(C+1)^(1/Years since Inception)]-1 </FN> </TABLE>
