File Nos. 33-26646
811-5716
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ( )
Pre-Effective Amendment No. ( )
Post-Effective Amendment No. 17 (X)
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 ( )
Amendment No. 37 (X)
(Check appropriate box or boxes.)
PREFERRED LIFE VARIABLE ACCOUNT C
---------------------------------
(Exact Name of Registrant)
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
--------------------------------------------
(Name of Depositor)
152 West 57th Street, 18th Floor, New York, New York 10019
---------------------------------------------------- ---------
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (212) 586-7733
Name and Address of Agent for Service
- -------------------------------------
Eugene Long
Preferred Life Insurance Company of New York
152 West 57th Street, 18th Floor
New York, New York 10019
Copies to:
Judith A. Hasenauer
Blazzard, Grodd & Hasenauer, P.C.
P.O. Box 5108
Westport, CT 06881
(203) 226-7866
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b) of Rule 485
___ on (date) pursuant to paragraph (b) of Rule 485
_X_ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
___ on (date) pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following:
___ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Registered:
Individual Deferred Variable Annuity Contracts
CROSS REFERENCE SHEET
(Required by Rule 495)
<TABLE>
<CAPTION>
Item No. Location
<S> <C> <C>
PART A
Item 1. Cover Page............................. Cover Page
Item 2. Definitions............................ Index of Terms
Item 3. Synopsis or Highlights................. Summary
Item 4. Condensed Financial Information........ Appendix
Condensed Financia
Information
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 Individual Flexible
Payment 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
</TABLE>
<TABLE>
<CAPTION>
Item No. Location
<S> <C> <C>
PART B
Item 15. Cover Page.............................. Cover Page
Item 16. Table of Contents....................... Table of Contents
Item 17. General Information and History......... The Company
Item 18. Services................................ Not Applicable
Item 19. Purchase of Securities Being Offered.... Not Applicable
Item 20. Underwriters............................ Distributor
Item 21. Calculation of Performance Data......... Calculation of
Performance Data
Item 22. Annuity Payments........................ Annuity Provisions
Item 23. Financial Statements.................... Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the appropriate
Item so numbered, in Part C to this Registration Statement.
<PAGE>
PART A
THE FRANKLIN(R) VALUEMARK(R) II VARIABLE ANNUITY CONTRACT
issued by
PREFERRED LIFE VARIABLE ACCOUNT C
and
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
- -------------------------------------------------------------------------------
This prospectus describes the Franklin Valuemark II Variable Annuity Contract,
with a Fixed Account (Contract) offered by Preferred Life Insurance Company of
New York (Preferred Life). All references to "we," "us" and "our" refer to
Preferred Life.
The annuity offers the Variable Options listed below and the Fixed Account of
Preferred Life. Each Variable Option invests in a Portfolio of the corresponding
fund company listed below. You can select up to 10 investment choices for
additional Purchase Payments you make (which includes any of the Variable
Options and the Fixed Account).
VARIABLE OPTIONS:
AIM VARIABLE INSURANCE FUNDS, INC.:
Portfolio Seeking Capital Growth
AIM V.I. Growth Fund
THE ALGER AMERICAN FUND:
Portfolios Seeking Capital Growth
Alger American Growth Portfolio
Alger American Leveraged AllCap Portfolio
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST:
Portfolio Seeking Capital Preservation And Income
Franklin Money Market Fund
Portfolios Seeking Income
Franklin High Income Fund
Franklin U.S. Government Securities Fund
Franklin Zero Coupon Funds - 2000, 2005 and 2010
Templeton Global Income Securities Fund
Portfolios Seeking Growth And Income
Franklin Global Utilities Securities Fund*
Franklin Growth and Income Fund
Franklin Income Securities Fund
Franklin Mutual Shares Securities Fund
Franklin Real Estate Securities Fund
Franklin Rising Dividends Fund
Franklin Value Securities Fund
Templeton Global Asset Allocation Fund
Portfolios Seeking Capital Growth
Franklin Capital Growth Fund
Franklin Global Health Care Securities Fund
Franklin Mutual Discovery Securities Fund
Franklin Natural Resources Securities Fund
Franklin S&P 500 Index Fund
Franklin 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
USALLIANZ VARIABLE INSURANCE PRODUCTS TRUST:
Portfolio Seeking Capital Growth
USAllianz VIP Growth Fund
Portfolios Seeking Growth and Income
USAllianz VIP Diversified Assets Fund
USAllianz VIP Intermediate Fixed Income Fund
*Effective November 15, 1999, Franklin Global Utilities Securities Fund's name
will be changed to Franklin Global Communications Securities Fund.
Please read this prospectus before investing and keep it for future reference.
It contains important information about the Franklin Valuemark II Variable
Annuity Contract with a Fixed Account.
To learn more about the Contract offered by this prospectus, you can obtain a
copy of the Statement of Additional Information (SAI) dated October 25, 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 us at (800) 542-5427 or write us at: 152 West 57th Street, New York, NY
10019.
THE FRANKLIN VALUEMARK II VARIABLE ANNUITY CONTRACTS:
O ARE NOT BANK DEPOSITS
O ARE NOT FEDERALLY INSURED
O ARE NOT ENDORSED BY ANY BANK OR GOVERNMENT AGENCY
O ARE NOT GUARANTEED AND MAY BE SUBJECT TO LOSS OF PRINCIPAL
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR 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: October 25, 1999
<PAGE>
TABLE OF CONTENTS
Index of Terms 3
Summary 4
Fee Table 7
The Franklin Valuemark II
Variable Annuity Contract 11
Contract Owner 11
Contingent Owner 11
Annuitant 11
Beneficiary 11
Assignment 12
Annuity Payments (The Payout Phase) 12
Annuity Options 12
Purchase 13
Purchase Payments 13
Automatic Investment Plan 13
Allocation of Purchase Payments 13
Accumulation Units 13
Investment Options 14
Transfers 14
Telephone Transfers 15
Dollar Cost Averaging Program 15
Flexible Rebalancing 15
Voting Privileges 16
Substitution 16
Expenses 16
Insurance Charges 16
Mortality and Expense Risk Charge 16
Administrative Expense Charge 16
Contract Maintenance Charge 16
Contingent Deferred Sales Charge 16
Reduction or Elimination of the
Contingent Deferred Sales Charge 17
Transfer Fee 17
Income Taxes 17
Portfolio Expenses 17
Taxes 17
Annuity Contracts in General 18
Qualified and Non-Qualified Contracts 18
Multiple Contracts 18
Withdrawals - Non-Qualified Contracts 18
Withdrawals - Qualified Contracts 18
Withdrawals - Tax-Sheltered Annuities 18
Diversification 19
Access to Your Money 19
Systematic Withdrawal Program 19
Minimum Distribution Program 19
Suspension of Payments or Transfers 20
Performance 20
Death Benefit 20
Death of Contract Owner 20
Death of Annuitant 21
Other Information 21
Preferred Life 21
Year 2000 21
The Separate Account 22
Distribution 22
Administration 22
Financial Statements 22
Table of Contents of the
Statement of Additional
Information 22
Appendix 23
<PAGE>
INDEX OF TERMS
This prospectus is written in plain English. 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
Accumulation Phase 11
Accumulation Unit 13
Annuitant 11
Annuity Options 12
Annuity Payments 12
Annuity Unit 13
Beneficiary 11
Contract 11
Contract Owner 11
Contingent Owner 11
Fixed Account 11
Income Date 12
Non-Qualified 18
Payout Phase 12
Portfolios 14
Purchase Payment 13
Qualified 18
Tax Deferral 18
Variable Option 11
<PAGE>
SUMMARY
- --------------------------------------------------------------------------------
The sections in this summary correspond to sections in this prospectus which
discuss the topics in more detail.
The Variable Annuity Contract: The annuity contract offered by Preferred Life
provides a means for investing on a tax-deferred basis in Variable Options and
the Preferred Life Fixed Account for retirement savings or other long-term
investment purposes. The Contract provides a guaranteed death benefit.
Annuity Payments: If you want to receive regular income from your annuity, you
can choose an Annuity Option. You can choose whether to have payments come from
our general account or from the available Variable Options. If you choose to
have any part of your payments come from the Variable Options, the dollar amount
of your payments may go up or down based on the performance of the Portfolios.
Purchase: The Contract is no longer offered for sale. However, you can add $250
($100 if you select the automatic investment plan) or more for additional
Purchase Payments any time you like during the Accumulation Phase.
Investment Options: You can put your money in the Variable Options and/or you
can invest in the Preferred Life Fixed Account. The investment returns on the
Portfolios are not guaranteed. You can make or lose money. You can make
transfers between investment choices.
Expenses: The Contract has insurance features and investment features, and there
are costs related to each.
Each year, Preferred Life deducts a $30 contract maintenance charge from your
Contract. Preferred Life currently waives this charge if the value of your
Contract is at least $100,000.
Preferred Life deducts a mortality and expense risk charge which is equal, on an
annual basis, to 1.25% total of the average daily value of the Contract invested
in a Variable Option. Preferred Life also deducts an administrative charge which
is equal, on an annual basis, to .15% of the average daily value of the Contract
invested in a Variable Option.
If you take money out of the Contract, Preferred Life may assess a contingent
deferred sales charge against each Purchase Payment withdrawn. The contingent
deferred sales charge starts at 5% in the first year and declines to 0% after 5
years.
You can make 12 free transfers each year. After that, Preferred Life deducts $25
or 2% of the amount transferred, whichever is less, for each additional
transfer.
There are also daily investment charges which range, on an annual basis, from
.49% to 1.41% of the average daily value of the Portfolio, depending upon the
Portfolio.
Taxes: Your earnings are not taxed until you take them out. If you take money
out during the Accumulation Phase, earnings come out first and are taxed as
income. If you are younger than 59 1/2 when you take money out, you may be
charged a 10% federal tax penalty.
Access to Your Money: You can take money out of your Contract during the
Accumulation Phase. Withdrawals during the Accumulation Phase may be subject to
a contingent deferred sales charge. You may also have to pay income tax and a
tax penalty on any money you take out.
Death Benefit: If you die before moving to the Payout Phase, the person you have
chosen as a Beneficiary will receive a death benefit.
<PAGE>
FEE TABLE
The purpose of this Fee Table is to help you understand the costs of investing,
directly or indirectly, in the Contract. It reflects expenses of the Separate
Account as well as the Portfolios.
CONTRACT OWNER TRANSACTION FEES
Contingent Deferred Sales Charge*
(as a percentage of Purchase Payments)
YEARS SINCE
PURCHASE PAYMENT CHARGE
-------------------------
0-1 5%
1-2 5%
2-3 4%
3-4 3%
4-5 1.5%
5+ 0%
Transfer Fee** First 12 transfers in a
Contract year during the
Accumulation Phase are free.
Thereafter, the fee is $25
(or 2% of the amount
transferred, if less). Dollar
Cost Averaging transfers and
Flexible Rebalancing
transfers are not counted.
CONTRACT MAINTENANCE CHARGE*** $30 per Contract per year
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Charge 1.25%
Administrative Expense Charge .15%
-----
Total Separate Account Annual Expenses 1.40%
*Once each Contract year, you may make a partial withdrawal of up to 15% of the
Purchase Payments you have made (less prior withdrawals) and Preferred Life will
not assess a contingent deferred sales charge. If you do not make a withdrawal
in a Contract year, you may take that 15% in future years. See "Access to Your
Money" for additional options.
**The Contract provides that if more than three
transfers have been made in a Contract year, Preferred Life may deduct a
transfer fee. Currently, Preferred Life permits you to make 12 free transfers
each year during the Accumulation Phase. All transfers during the Payout Phase
are subject to a transfer fee. Market timing transfers may not be permitted.
***During the Accumulation Phase, the charge is waived if the value of your
Contract or the Purchase Payments you have made (less withdrawals) is at least
$100,000. Currently, the charge is also waived during the Payout Phase if the
value of your Contract at the Income Date is at least $100,000.
<PAGE>
<TABLE>
<CAPTION>
FUND ANNUAL EXPENSES
(as a percentage of the funds' average net assets)
See the accompanying fund prospectuses for more information.
MANAGEMENT TOTAL
AND PORTFOLIO 12B-1 ANNUAL
ADMINISTRATION FEES1 FEES OTHER EXPENSES EXPENSES
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM V.I. Growth Fund .64% -- .08% .72%
Alger American Growth Portfolio .75% -- .04% .79%
Alger American Leveraged AllCap Portfolio .85% -- .11% 2 .96%
Franklin Capital Growth Fund .75% -- .02% .77%
Franklin Global Health Care Securities Fund 3 .75% -- .09% .84%
Franklin Global Utilities Securities Fund 4 .47% -- .03% .50%
Franklin Growth and Income Fund .47% -- .02% .49%
Franklin High Income Fund .50% -- .03% .53%
Franklin Income Securities Fund .47% -- .02% .49%
Franklin Money Market Fund .51% -- .02% .53%
Franklin Mutual Discovery Securities Fund .95% -- .05% 1.00%
Franklin Mutual Shares Securities Fund .74% -- .03% .77%
Franklin Natural Resources Securities Fund .62% -- .02% .64%
Franklin Real Estate Securities Fund .52% -- .02% .54%
Franklin Rising Dividends Fund .70% -- .02% .72%
Franklin S&P 500 Index Fund 5 ___% -- ___% ___%
Franklin Small Cap Fund .75% -- .02% .77%
Franklin U.S. Government Securities Fund .48% -- .02% .50%
Franklin Value Securities Fund 3 .75% -- .08% .83%
Franklin Zero Coupon Fund - 2000 .63% -- .03% .66%
Franklin Zero Coupon Fund - 2005 .63% -- .03% .66%
Franklin Zero Coupon Fund - 2010 .62% -- .04% .66%
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 Global Income Securities Fund .57% -- .06% .63%
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%
USAllianz VIP Diversified Assets Fund 5 ___% ___% ___% ___%
USAllianz VIP Growth Fund 5 ___% ___% ___% ___%
USAllianz VIP Intermediate Fixed Income Fund 5 ___% ___% ___% ___%
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
1. The Portfolio Administration Fee is a direct expense for the Franklin Global Health Care Securities Fund, the Franklin Mutual
Discovery Securities Fund, the Franklin Mutual Shares Securities Fund, the Franklin Value Securities Fund, the Templeton Global
Asset Allocation Fund, and the Templeton International Smaller Companies Fund. Other Portfolios pay for similar services
indirectly through the Management Fee. See the accompanying fund prospectuses for further information regarding these fees.
2. Other Expenses for the Alger American Leveraged AllCap Portfolio include 0.03% of interest expense.
3. The Franklin Global Health Care Securities Fund and the Franklin Value Securities Fund commenced operations May 1, 1998. The
expenses shown above for these Portfolios are therefore estimated for 1999.
4. Effective November 15, 1999, Franklin Global Utilities Securities Fund's name will
be changed to Franklin Global Communications Securities Fund.
5. The Franklin S&P 500 Index Fund, the USAllianz VIP Diversified Assets Fund, the USAllianz VIP Growth Fund, and the USAllianz
VIP Intermediated Fixed Income Fund commenced operations October 25, 1999. The expenses shown for these Portfolios are therefore
estimated for 1999.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXAMPLES
o The examples on the following pages should not be considered a representation
of past or future expenses. Actual expenses may be greater or less than those
shown.
o The $30 contract maintenance charge is included in the examples as a prorated
charge of $1. Since the average Contract size is greater than $1,000, the
contract maintenance charge is reduced accordingly.
o For additional information, see "Expenses" and the accompanying fund
prospectuses.
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on your money if you surrender your Contract at the end of each
time period:
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM V.I. Growth Fund $__ $__ $___ $___
Alger American Growth Portfolio $__ $__ $___ $___
Alger American Leveraged AllCap Portfolio $__ $__ $___ $___
Franklin Capital Growth Fund $66 $93 $125 $260
Franklin Global Health Care Securities Fund* $66 $95 $129 $267
Franklin Global Utilities Securities Fund $63 $85 $111 $232
Franklin Growth and Income Fund $63 $84 $111 $231
Franklin High Income Fund $63 $86 $113 $235
Franklin Income Securities Fund $63 $84 $111 $231
Franklin Money Market Fund $63 $86 $113 $235
Franklin Mutual Discovery Securities Fund $68 $100 $137 $284
Franklin Mutual Shares Securities Fund $66 $93 $125 $260
Franklin Natural Resources Securities Fund $64 $89 $119 $247
Franklin Real Estate Securities Fund $63 $86 $113 $236
Franklin Rising Dividends Fund $65 $91 $123 $255
Franklin S&P 500 Index Fund* $__ $__ $___ $___
Franklin Small Cap Fund $66 $93 $125 $260
Franklin U.S Government Securities Fund $63 $85 $111 $232
Franklin Value Securities Fund* $66 $95 $128 $266
Franklin Zero Coupon Fund -2000 $64 $90 $120 $249
Franklin Zero Coupon Fund -2005 $64 $90 $120 $249
Franklin Zero Coupon Fund -2010 $64 $90 $120 $249
Templeton Developing Markets Equity Fund $72 $112 $157 $324
Templeton Global Asset Allocation Fund $66 $95 $129 $267
Templeton Global Growth Fund $67 $96 $131 $272
Templeton Global Income Securities Fund $64 $89 $118 $246
Templeton International Equity Fund $67 $96 $131 $272
Templeton International Smaller Companies Fund $69 $103 $142 $294
Templeton Pacific Growth Fund $69 $103 $142 $294
USAllianz VIP Diversified Assets Fund* $__ $___ $___ $___
USAllianz VIP Growth Fund* $__ $___ $___ $___
USAllianz VIP Intermediate Fixed Income Fund* $__ $___ $___ $___
- -----------------------------------------------------------------------------------------------------------------------------------
<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 if you do not surrender your Contract or if you
apply the Contract value to an Annuity Option:
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM V.I. Growth Fund $__ $__ $___ $___
Alger American Growth Portfolio $__ $__ $___ $___
Alger American Leveraged AllCap Portfolio $__ $__ $___ $___
Franklin Capital Growth Fund $23 $71 $121 $260
Franklin Global Health Care Securities Fund* $24 $73 $125 $267
Franklin Global Utilities Securities Fund $20 $63 $108 $232
Franklin Growth and Income Fund $20 $62 $107 $231
Franklin High Income Fund $21 $64 $109 $235
Franklin Income Securities Fund $20 $62 $107 $231
Franklin Money Market Fund $21 $64 $109 $235
Franklin Mutual Discovery Securities Fund $25 $78 $133 $284
Franklin Mutual Shares Securities Fund $23 $71 $121 $260
Franklin Natural Resources Securities Fund $22 $67 $115 $247
Franklin Real Estate Securities Fund $21 $64 $110 $236
Franklin Rising Dividends Fund $23 $69 $119 $255
Franklin S&P 500 Index Fund* $__ $__ $___ $___
Franklin Small Cap Fund $23 $71 $121 $260
Franklin U.S. Government Securities Fund $20 $63 $108 $232
Franklin Value Securities Fund* $24 $73 $124 $266
Franklin Zero Coupon Fund -2000 $22 $68 $116 $249
Franklin Zero Coupon Fund -2005 $22 $68 $116 $249
Franklin Zero Coupon Fund - 2010 $22 $68 $116 $249
Templeton Developing Markets Equity Fund $29 $90 $153 $324
Templeton Global Asset Allocation Fund $24 $73 $125 $267
Templeton Global Growth Fund $24 $74 $127 $272
Templeton Global Income Securities Fund $22 $67 $114 $246
Templeton International Equity Fund $24 $74 $127 $272
Templeton International Smaller Companies Fund $26 $81 $138 $294
Templeton Pacific Growth Fund $26 $81 $138 $294
USAllianz VIP Diversified Assets Fund* $__ $__ $___ $___
USAllianz VIP Growth Fund* $__ $__ $___ $___
USAllianz VIP Intermediate Fixed Income Fund* $__ $__ $___ $___
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
*Estimated
</FN>
</TABLE>
See the Appendix for Accumulation Unit values (Condensed Financial Information).
<PAGE>
THE FRANKLIN VALUEMARK II
VARIABLE ANNUITY CONTRACT
This prospectus describes the Franklin Valuemark II flexible payment variable
deferred annuity contract, with a Fixed Account, issued by Preferred Life. The
Contract is no longer offered for sale. However, you may make additional
Purchase Payments to your Contract.
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 at least 5 years after we issue
your Contract. Until you decide to begin receiving Annuity Payments, your
annuity is in the Accumulation Phase. Once you begin receiving Annuity Payments,
your Contract switches to the Payout Phase.
The Contract benefits from Tax Deferral. Tax Deferral means that you are not
taxed on any earnings or appreciation on the assets in your Contract until you
take money out of your Contract.
Your investment choices include Variable Options and the Fixed Account of
Preferred Life. The Contract is called a variable annuity because you can choose
among the Variable Options and, depending upon market conditions, you can make
or lose money in the Contract based on the investment performance of the
Portfolios. The Portfolios are designed to offer a better return than the Fixed
Account. However, this is not guaranteed. If you select the variable annuity
portion of your Contract, the amount of money you are able to accumulate in your
Contract during the Accumulation Phase depends in large part upon the investment
performance of the Portfolio(s) you select. The amount of the Annuity Payments
you receive during the Payout Phase from the variable annuity portion of the
Contract also depends in large part upon the investment performance of the
Portfolios you select for the Payout Phase.
The Contract also contains a Fixed Account. The Fixed Account offers an interest
rate that is guaranteed by Preferred Life for all deposits made within a twelve
month period. Your initial interest rate is set on the date when your money is
invested in the Fixed Account and remains effective for one year. Initial
interest rates are declared monthly. Preferred Life guarantees that the interest
credited to the Fixed Account will not be less than 3% per year. If you select
the Fixed Account, your money will be placed with the other general assets of
Preferred Life. Preferred Life may change the terms of the Fixed Account in the
future - please contact Preferred Life for the most current terms. If you select
the Fixed Account, the amount of money you are able to accumulate in your
Contract during the Accumulation Phase depends upon the total interest credited
to your Contract.
We will not make any changes to your Contract without your permission except as
may be required by law.
CONTRACT OWNER
You, as the Contract Owner, have all the rights under the Contract. The Contract
Owner is as designated at the time the Contract is issued, unless changed. You
may change Contract Owners or Contingent Owners at any time. A request for
change must be:
o in writing,
o received by Preferred Life at its Valuemark Service Center.
After Preferred Life records the change, it will become effective as of the date
the written request is signed. A new designation of Contract Owner will not
apply to any payment made or action taken by Preferred Life before the time the
change was received. This may be a taxable event. You should consult with your
tax adviser before doing this.
CONTINGENT OWNER
You can name a Contingent Owner. Any Contingent Owner must be your spouse.
If a Contingent Owner is named, upon the death of the Contract Owner before the
Income Date, the Contingent Owner, if any, becomes the designated Beneficiary
and we will treat any other Beneficiary named as a contingent Beneficiary unless
you indicate otherwise.
ANNUITANT
The Annuitant is the natural person on whose life we base Annuity Payments. You
name an Annuitant. Joint Annuitants are allowed during the Payout Phase. You may
change the Annuitant at any time before the Income Date unless the Contract is
owned by a non-individual (for example, a corporation). The Annuitant has no
rights or privileges prior to the Income Date.
BENEFICIARY
The Beneficiary is the person(s) or entity you name to receive any death
benefit. The Beneficiary is named at the time the Contract is issued unless
changed at a later date. Unless an irrevocable Beneficiary has been named, you
can change the Beneficiary or contingent Beneficiary. Upon the death of the
Contract Owner, the Contingent Owner will be the designated Beneficiary and any
other Beneficiary named will be treated as a contingent Beneficiary, unless you
indicate otherwise.
ASSIGNMENT
You can transfer ownership of (assign) the Contract at any time during your
lifetime. Preferred Life will not be bound by the assignment until it receives
the written notice of the assignment. Preferred Life will not be liable for any
payment or other action we take in accordance with the Contract before we
receive notice of the assignment. Any assignment made after the death benefit
has become payable can only be done with our consent. AN ASSIGNMENT MAY BE A
TAXABLE EVENT.
If the Contract is issued pursuant to a Qualified plan, you may be unable to
assign the Contract.
ANNUITY PAYMENTS
(THE PAYOUT PHASE)
- --------------------------------------------------------------------------------
You can receive regular monthly income payments under your Contract. You can
choose the month and year in which those payments begin. We call that date the
Income Date. Your Income Date must be the first day of a calendar month and must
be at least five years after you buy the Contract. The Income Date cannot be
later than the month following the Annuitant's 85th birthday or 10 years from
the day we issue your Contract, if later. You can also choose among income
plans. We call those Annuity Options.
We ask you to choose your Income Date when you purchase the Contract. You can
change it at any time before the Income Date with 30 days notice to us. The
Annuitant will receive the Annuity Payments. You will receive tax reporting on
those payments.
Depending on the Annuity Option you select, you may elect to receive your
Annuity Payments as a variable payout or a fixed payout. Annuity Payments under
Annuity Options 1 and 2 are available as fixed payouts only. Annuity Payments
under Annuity Options 3, 4 and 5 are available as variable payouts only. Under a
fixed payout, all of the Annuity Payments will be the same dollar amount (equal
installments). If you choose a variable payout, you can select from the
available Variable Options. If you do not tell us otherwise, your Annuity
Payments will be based on the investment allocations that were in place on the
Income Date.
If you choose to have any portion of your Annuity Payments based on the
investment performance of the Variable Option(s), the dollar amount of your
payments will depend upon:
1) the value of your Contract in the Variable Option(s) on the Income Date;
2) the 5% assumed investment rate used in the annuity table for the Contract
(other assumed investment rates may be available);
3) the performance of the Variable Option(s) you selected; and
4) the Annuity Option you select.
If the actual performance of the Variable Option(s) you selected exceeds the 5%
assumed investment rate, your Annuity Payments will increase. Similarly, if the
actual performance is less than 5%, your Annuity Payments will decrease.
ANNUITY OPTIONS
Instead of having the proceeds paid in one sum, you can choose one of the
following Annuity Options or any other Annuity Option you want and that
Preferred Life agrees to provide. After Annuity Payments begin, you cannot
change the Annuity Option. The Annuity Option must be selected at least 30 days
prior to the Income Date.
OPTION 1. LIFE ANNUITY WITH GUARANTEE FOR MINIMUM PERIOD. Under this fixed
annuity option, we will make equal monthly Annuity Payments during the lifetime
of the Annuitant but at least for the minimum period. If, when the Annuitant
dies, we have made Annuity Payments for less than the selected guaranteed
period, we will pay the discounted value of the remaining guaranteed payments in
a single lump sum.
OPTION 2. LIFE ANNUITY WITH CASH REFUND. Under this fixed annuity option, we
will make equal monthly Annuity Payments during the Annuitant's lifetime. The
last Annuity Payment will be made before the Annuitant dies and if the value of
the Annuity Payments we have made is less than the value applied to the Annuity
Option, then you will receive a cash refund as set forth in your Contract.
OPTION 3. LIFE ANNUITY. Under this variable annuity option, we will make monthly
Annuity Payments so long as the Annuitant is alive. After the Annuitant dies, we
stop making Annuity Payments.
OPTION 4. LIFE ANNUITY WITH 10 YEAR GUARANTEE. Under this variable annuity
option, we will make monthly Annuity Payments during the Annuitant's lifetime.
However, if the Annuitant dies before the end of the 10 year guaranteed period,
we will continue to make Annuity Payments for the rest of the 10 year guaranteed
period.
OPTION 5. JOINT AND LAST SURVIVOR ANNUITY. Under this variable annuity option,
we will make monthly Annuity Payments during the joint lifetime of the Annuitant
and the joint Annuitant. When the Annuitant dies, if the joint Annuitant is
still alive, we will continue to make Annuity Payments, so long as the joint
Annuitant continues to live. The monthly Annuity Payments will end when the last
surviving Annuitant dies.
PURCHASE
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PURCHASE PAYMENTS
A Purchase Payment is the money you invest in the Contract. You can make
additional Purchase Payments of $250 or more (or as low as $100 if you have
selected the Automatic Investment Plan). Preferred Life may, at its sole
discretion, waive the minimum payment requirements. We will not waive the
minimum amounts for Qualified Contracts. We reserve the right to decline any
Purchase Payments where we determine that the ages of and/or relationships
between the Contract Owner, Annuitant and/or Beneficiary make it inappropriate
to issue the Contract.
This product is not designed for professional market timing organizations, other
entities, or persons using programmed, large or frequent transfers.
AUTOMATIC INVESTMENT PLAN
The Automatic Investment Plan (AIP) is a program which allows you to make
additional Purchase Payments to your Contract on a monthly or quarterly basis by
electronic transfer of monies from your savings or checking account. You may
participate in this program by completing the appropriate form. We must receive
your form by the first of the month in order for AIP to begin that same month.
Investments will take place on the 20th of the month, or the next business day.
The minimum investment that can be made by AIP is $100. You may stop AIP at any
time you want. We need to be notified by the first of the month in order to stop
or change AIP that month. If AIP is used for a Qualified Contract, you should
consult your tax adviser for advice regarding maximum contributions.
ALLOCATION OF PURCHASE PAYMENTS
We ask that you allocate your money in either whole percentages or round
dollars. Transfers do not change the allocation instructions for payments. You
can instruct us how to allocate additional Purchase Payments you make. If you do
not instruct us, we will allocate them in the same way as your previous
instructions to us. You may change the allocation of future payments without
fee, penalty or other charge upon written notice or telephone instructions to
the Valuemark Service Center. A change will be effective for payments received
on or after we receive your notice or instructions. Preferred Life reserves the
right to limit the number of Variable Options that you may invest in at one
time. Currently, you may invest in up to 10 investment choices (which includes
any of the Variable Options and the Preferred Life Fixed Account). We may change
this in the future.
If you make additional Purchase Payments, we will credit these amounts to your
Contract within one business day. Our business day closes when the New York
Stock Exchange closes, which is usually at 4:00 p.m. Eastern time.
ACCUMULATION 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, we use a
measurement called an Accumulation Unit (which is like a share of a mutual
fund).
During the Payout Phase of the Contract we call it an Annuity Unit.
Every business day we determine the value of an Accumulation Unit for each
Variable Option by multiplying the Accumulation Unit value for the previous
period by a factor for the current period. The factor is determined by:
1. dividing the value of a Portfolio at the end of the current period by the
value of a Portfolio for the previous period, and;
2. multiplying it by one minus the daily amount of the insurance charges and any
charges for taxes.
The value of an Accumulation Unit may go up or down from day to day.
When you make a Purchase Payment, we credit your Contract with Accumulation
Units for any portion of your Purchase Payment allocated to a Variable Option.
The number of Accumulation 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 Accumulation Unit.
We calculate the value of each Accumulation Unit after the New York Stock
Exchange closes each day and then credit your Contract.
EXAMPLE:
On Wednesday we receive an additional Purchase Payment of $3,000 from you. You
have told us you want this to go to the Franklin Growth and Income Fund. When
the New York Stock Exchange closes on that Wednesday, we determine that the
value of an Accumulation Unit based on an investment in the Franklin Growth and
Income Fund is $12.50. We then divide $3,000 by $12.50 and credit your Contract
on Wednesday night with 240 Accumulation Units.
INVESTMENT OPTIONS
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The Contract offers Variable Options which invest in Portfolios of AIM Variable
Insurance Funds, Inc., The Alger American Fund, Franklin Templeton Variable
Insurance Products Trust, and USAllianz Variable Insurance Products Trust. The
Contract also offers a Fixed Account of Preferred Life. Additional Portfolios
may be available in the future.
You should read the accompanying fund prospectuses (which are attached to this
prospectus) carefully before investing.
AIM Variable Insurance Funds, Inc., The Alger American Fund, Franklin Templeton
Variable Insurance Products Trust, and USAllianz Variable Insurance Products
Trust are the mutual funds underlying your Contract. Each Portfolio has its own
investment objective.
The Franklin Templeton Variable Insurance Products Trust (formerly, Franklin
Valuemark Funds) issues two classes of shares which are described in the
attached prospectus for Franklin Templeton Variable Insurance Products Trust.
Only Class 1 shares are available with your Contract.
Investment advisers for each Portfolio are listed in the table below and are as
follows: AIM Advisors, Inc., Allianz of America, Inc., Fred Alger Management,
Inc., Franklin Advisers, Inc., Franklin Advisory Services, Inc., Franklin Mutual
Advisers, Inc., Templeton Asset Management Ltd., Templeton Global Advisors
Limited, and Templeton Investment Counsel, Inc. Certain advisers have retained
one or more subadvisers to help them manage the Portfolios.
The investment objectives and policies of certain Portfolios are similar to the
investment objectives and policies of other mutual funds that certain of the
investment advisers manage. Although the objectives and policies may be similar,
the investment results of the Portfolios may be higher or lower than the results
of such other mutual funds. The investment advisers cannot guarantee, and make
no representation, that the investment results of similar funds will be
comparable even though the funds have the same investment advisers.
The following is a list of the Portfolios available under the Contract:
<TABLE>
<CAPTION>
AVAILABLE PORTFOLIOS INVESTMENT ADVISERS
- --------------------------------------------------------------------------------------------------
<S> <C>
AIM VARIABLE INSURANCE FUNDS, INC.:
Portfolio Seeking Capital Growth
AIM V.I. Growth Fund AIM Advisors, Inc.
THE ALGER AMERICAN FUND:
Portfolios Seeking Capital Growth
Alger American Growth Portfolio Fred Alger Management, Inc.
Alger American Leveraged AllCap Portfolio Fred Alger Management, Inc.
FRANKLIN TEMPLETON VARIABLE
INSURANCE PRODUCTS TRUST:
Portfolio Seeking Capital Preservation And Income
Franklin Money Market Fund Franklin Advisers, Inc.
Portfolios Seeking Income
Franklin High Income Fund Franklin Advisers, Inc.
Franklin U.S. Government Securities Fund Franklin Advisers, Inc.
Franklin Zero Coupon Funds - 2000, 2005, 2010 Franklin Advisers, Inc.
Templeton Global Income Securities Fund Franklin Advisers, Inc.
Portfolios Seeking Growth And Income
Franklin Global Utilities Securities Fund* Franklin Advisers, Inc.
Franklin Growth and Income Fund Franklin Advisers, Inc.
Franklin Income Securities Fund Franklin Advisers, Inc.
Franklin Mutual Shares Securities Fund Franklin Mutual Advisers, Inc.
Franklin Real Estate Securities Fund Franklin Advisers, Inc.
Franklin Rising Dividends Fund Franklin Advisory Services, Inc.
Franklin Value Securities Fund Franklin Advisory Services, Inc.
Templeton Global Asset Allocation Fund Templeton Global Advisors Limited
Portfolios Seeking Capital Growth
Franklin Capital Growth Fund Franklin Advisers, Inc.
Franklin Global Health Care Securities Fund Franklin Advisers, Inc.
Franklin Mutual Discovery Securities Fund Franklin Mutual Advisers, Inc.
Franklin Natural Resources Securities Fund Franklin Advisers, Inc.
Franklin S&P 500 Index Fund Franklin Advisers, Inc.
Franklin Small Cap Fund Franklin Advisers, Inc.
Templeton Developing Markets Equity Fund Templeton Asset Management Ltd.
Templeton Global Growth Fund Templeton Global Advisors Limited
Templeton International Equity Fund Franklin Advisers, Inc.
Templeton International Smaller Companies Fund Templeton Investment Counsel, Inc.
Templeton Pacific Growth Fund Franklin Advisers, Inc.
USALLIANZ VARIABLE
INSURANCE PRODUCTS TRUST:
Portfolio Seeking Capital Growth
USAllianz VIP Growth Fund Allianz of America, Inc.
Portfolios Seeking Growth and Income
USAllianz VIP Diversified Assets Fund Allianz of America, Inc.
USAllianz VIP Intermediate Fixed Income Fund Allianz of America, Inc.
<FN>
*Effective November 15, 1999, Franklin Global Utilities Securities Fund's name will be changed to
Franklin Global Communications Securities Fund.
</FN>
</TABLE>
Shares of the funds may be offered in connection with certain variable annuity
contracts and variable life insurance policies of various insurance companies,
which may or may not be affiliated with Allianz Life. Certain funds may also be
sold directly to qualified plans. The funds believe that offering their shares
in this manner will not be disadvantageous to you.
Allianz Life may enter into certain arrangement under which it is reimbursed by
the funds' advisers, distributors and/or affiliates for the administrative
services, which it provides to the portfolios.
TRANSFERS
You can transfer money among the Variable Options and/or the Fixed Account.
Preferred Life currently allows you to make as many transfers as you want to
each year. However, 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.
Your Contract provides that you can make 3 transfers every year without charge.
However, currently Preferred Life permits you to make 12 transfers every year
without charge during the Accumulation Phase. We measure a year from the
anniversary of the day we issued your Contract. Preferred Life charges for all
transfers you make after the Income Date. You can make a transfer to or from the
Fixed account and to or from the any Variable Option. After the Income Date, if
you selected a variable payout, you can make transfers.
The following applies to any transfer:
1. The minimum amount which you can transfer is the lesser of: $1,000, or your
entire value in the Variable Option or the Fixed Account.
2. You cannot make a partial transfer if the value remaining in the Variable
Option or the Fixed Account would be less than $1,000.
3. Your request for a transfer must clearly state which Variable Option(s) or
the Fixed Account is involved in the transfer.
4. Your request for a transfer must clearly state how much the transfer is for.
5. You cannot make any transfers within 7 calendar days prior to the date your
first Annuity Payment is due.
6. During the Payout Phase, you may not make a transfer from a fixed Annuity
Option to a variable Annuity Option.
7. During the Payout Phase, you can make at least one transfer from a variable
Annuity Option to a fixed Annuity Option.
Telephone Transfers
You can make transfers by telephone. We may allow you to authorize someone else
to make transfers by telephone on your behalf. Preferred Life 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. Preferred Life tape records all
telephone instructions.
DOLLAR COST AVERAGING PROGRAM
The Dollar Cost Averaging Program allows you to systematically transfer a set
amount of money each month or quarter from any one Variable Option or the Fixed
Account to up to eight of the other Variable Options. The Variable Option(s) you
transfer from may not be the Variable Option(s) you transfer to in this program.
By allocating amounts on a regularly scheduled basis, as opposed to allocating
the total amount at one particular time, you may be less susceptible to the
impact of market fluctuations. You may only participate in this program during
the Accumulation Phase.
There are two Dollar Cost Averaging options. The first option is the Dollar Cost
Averaging Fixed Option. It is available for additional Purchase Payments to
existing Contracts. You will receive a special fixed rate guaranteed for one
year by Preferred Life. Dollar cost averaging will take place over twelve months
from the DCA fixed account into the target Variable Option of your choice.
The required minimum investment is $6,000.
The second option is the Standard Dollar Cost Averaging Option. It requires a
$3,000 minimum investment and participation for at least six months (or two
quarters).
All Dollar Cost Averaging transfers will be made on the 10th day of the month
unless that day is not a business day. If it is not, then the transfer will be
made the next business day. You may elect either program by properly completing
the Dollar Cost Averaging form provided by Preferred Life.
Your participation in the program will end when any of the following occurs:
(1) the number of desired transfers have been made;
(2) you do not have enough money in the Variable Option(s) or the Fixed Account
to make the transfer (if less money is available, that amount will be dollar
cost averaged and the program will end);
(3) you request to terminate the program (your request must be received by us by
the first of the month to terminate that month); or
(4) the Contract is terminated.
If you participate in the Dollar Cost Averaging Program, the transfers made
under the program are not taken into account in determining any transfer fee.
You may not participate in the Dollar Cost Averaging Program and Flexible
Rebalancing at the same time.
FLEXIBLE REBALANCING
Once your money has been invested, the performance of the Variable Options may
cause your chosen allocation to shift. Flexible Rebalancing is designed to help
you maintain your specified allocation mix among the different Variable Options.
You can direct us to readjust your Contract value on a quarterly, semi-annual or
annual basis to return to your original Variable Option allocations. Flexible
Rebalancing transfers are done on calendar quarters only and will be made on the
20th day of the month unless that day is not a business day. If it is not, then
the transfer will be made on the previous day. We must receive a request to
participate in the program by the 8th of the month for Flexible Rebalancing to
begin that month. If you participate in Flexible Rebalancing, the transfers made
under the program are not taken into account in determining any transfer fee.
The Fixed Account is not permitted to be part of Flexible Rebalancing.
VOTING PRIVILEGES
Preferred Life is the legal owner of the Portfolio shares. However, when a
Portfolio solicits proxies in conjunction with a shareholder vote which affects
your investment, Preferred Life 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 Preferred Life owns on its
own behalf. Should Preferred Life determine that it is no longer required to
comply with the above, we will vote the shares in our own right.
SUBSTITUTION
Preferred Life may substitute one of the Variable Options you have selected with
another Variable Option. We would not do this without the prior approval of the
Securities and Exchange Commission. We will give you notice of our intention to
do this.
EXPENSES
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There are charges and other expenses associated with the Contract that will
reduce your investment return. These charges and expenses are:
INSURANCE CHARGES
Each day, Preferred Life makes a deduction for its insurance charges. Preferred
Life does this as part of its calculation of the value of the Accumulation Units
and the Annuity Units. The insurance charge has two parts:
1) the mortality and expense risk charge, and
2) the administrative expense charge.
Mortality and Expense Risk Charge. 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, the death benefits, certain expenses
related to the Contract, and for assuming the risk (expense risk) that the
current charges will be insufficient in the future to cover the cost of
administering the Contract).
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, together with the contract maintenance
charge (which is explained below), is for all the expenses associated with the
administration of the Contract. Some of these expenses include: preparation of
the Contract, confirmations, annual statements, maintenance of Contract records,
personnel costs, legal and accounting fees, filing fees, and computer and
systems costs.
CONTRACT MAINTENANCE CHARGE
Every year, at each Contract anniversary, Preferred Life deducts $30 from your
Contract as a contract maintenance charge. The fee is assessed on the last day
of each Contract year. This charge is for administrative expenses (see above).
This charge can not be increased.
However, during the Accumulation Phase, if the value of your Contract or
Purchase Payments (less withdrawals) is at least $100,000 when the deduction for
the charge is to be made, Preferred Life will not deduct this charge. Currently,
Preferred Life also waives the charge during the Payout Phase if the value of
your Contract at the Income Date is at least $100,000.
If you make a complete withdrawal from your Contract on other than a Contract
anniversary, the contract maintenance charge will also be deducted. During the
Payout Phase, if the contract maintenance charge is deducted, the charge will be
collected monthly out of each Annuity Payment.
CONTINGENT DEFERRED SALES CHARGE
If you make a withdrawal, it may be subject to a contingent deferred sales
charge. During the Accumulation Phase, you can make withdrawals from your
Contract. Preferred Life keeps track of each Purchase Payment you make. The
amount of the contingent deferred sales charge depends upon the length of time
since you made your Purchase Payment. This charge reimburses Preferred Life for
expenses associated with the promotion, sale and distribution of the Contracts.
For a partial withdrawal, we will deduct the charge from the amount remaining in
the Contract, if sufficient. Otherwise, we will deduct it from the amount you
withdraw. We will deduct the charge pro rata from the Variable Options and/or
the Fixed Account unless you instruct us otherwise. The charge is:
YEARS SINCE CONTINGENT DEFERRED
PURCHASE PAYMENT SALES CHARGE
---------------- -------------------
0-1 5%
1-2 5%
2-3 4%
3-4 3%
4-5 1.5%
5+ 0%
However, after Preferred Life has had a Purchase Payment for 5 full years, there
is no charge when you withdraw that Purchase Payment. For purposes of the
contingent deferred sales charge, Preferred Life treats withdrawals as coming
from the oldest Purchase Payments first.
NOTE: For tax purposes, withdrawals are considered to have come from the last
money you put into the Contract. Thus, for tax purposes, earnings are considered
to come out first.
Free Withdrawal Amount. Once each Contract year, you can make a withdrawal up to
15% of Purchase Payments you have made (less any prior withdrawals) and no
contingent deferred sales charge will be deducted from the 15% you take out. If
you make a withdrawal of more than the free withdrawal amount, it will be
subject to the contingent deferred sales charge. If you do not withdraw the full
15% in any one Contract year, you may not carry over the remaining percentage
amount to another year. You may carry over to the next year the full 15% if you
do not make any withdrawal in a Contract year. Preferred Life does not assess
the contingent deferred sales charge from Purchase Payments which have been held
under the Contract for more than 5 years or paid out as Annuity Payment.
You may also elect to participate in the Systematic Withdrawal Program or the
Minimum Distribution Program. These programs allow you to make withdrawals
without the deduction of the contingent deferred sales charge under certain
circumstances. See "Access to Your Money" for a description of the Systematic
Withdrawal Program and the Minimum Distribution Program.
Reduction or Elimination of the
Contingent Deferred Sales Charge
Preferred Life will reduce or eliminate the amount of the contingent deferred
sales charge when the Contract is sold under circumstances which reduce its
sales expenses. Some examples are: if there is a large group of individuals that
will be purchasing the Contract or a prospective purchaser already had a
relationship with Preferred Life. Preferred Life may choose to not deduct a
contingent deferred sales charge under a Contract issued to an officer, director
or employee of Preferred Life or any of its affiliates. Also, Preferred Life may
choose to reduce or not deduct a contingent deferred sales charge when a
Contract is sold by an agent of Preferred Life to any members of his or her
immediate family and the commission is waived. We require our prior approval for
any reduction or elimination of the contingent deferred sales charge.
TRANSFER FEE
Prior to the Income Date, you can make 12 free transfers every year. We measure
a year from the day we issue your Contract. If you make more than 12 transfers a
year, we will deduct a transfer fee of $25 or 2% of the amount that is
transferred, whichever is less, for each additional transfer. If the transfer is
part of the Dollar Cost Averaging Program or Flexible Rebalancing, it will not
count in determining the transfer fee.
Preferred Life charges a fee for all transfers you make after the Income Date.
INCOME TAXES
Preferred Life reserves the right to deduct from the Contract for any income
taxes which it may incur because of the Contract. Currently, Preferred Life is
not making any such deductions.
PORTFOLIO EXPENSES
There are deductions from the assets of the various Portfolios for operating
expenses (including management fees), which are described in the Fee Table in
this prospectus and the accompanying fund prospectuses.
TAXES
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NOTE: Preferred Life has prepared the following information on taxes as a
general discussion of the subject. It is not intended as tax advice. You should
consult your own tax adviser about your own circumstances. Preferred Life has
included additional information regarding taxes in the Statement of Additional
Information.
ANNUITY CONTRACTS IN GENERAL
Annuity contracts are a means of setting aside money for future needs - usually
retirement. Congress recognized how important saving for retirement was and
provided special rules in the Internal Revenue Code (Code) for annuities.
Basically, these rules provide that you will not be taxed on any earnings on the
money held in your annuity Contract until you take the money out. This is
referred to as Tax Deferral. There are different rules regarding how you will be
taxed depending upon how you take the money out and the type of Contract -
Qualified or Non-Qualified (see following sections).
You, as the Contract Owner, will not be taxed on increases in the value of your
Contract until a distribution occurs - either as a withdrawal or as Annuity
Payments. When you make a withdrawal you are taxed on the amount of the
withdrawal that is earnings. For Annuity Payments, different rules apply. A
portion of each Annuity Payment you receive will be treated as a partial return
of your Purchase Payments and will not be taxed. The remaining portion of the
Annuity Payment will be treated as ordinary income. How the Annuity Payment is
divided between taxable and non-taxable portions depends upon the period over
which the Annuity Payments are expected to be made. Annuity Payments received
after you have received all of your Purchase Payments are fully includible in
income.
When a Non-Qualified Contract is owned by a non-natural person (e.g., a
corporation or certain other entities other than a trust holding the Contract as
an agent for a natural person), the Contract will generally not be treated as an
annuity for tax purposes. This means that the Contract may not receive the
benefits of Tax Deferral. Income may be taxed as ordinary income every year.
QUALIFIED AND NON-QUALIFIED CONTRACTS
If you purchase the Contract under a Qualified plan, your Contract is referred
to as a Qualified Contract. Examples of Qualified plans are: Individual
Retirement Annuities (IRAs), Tax-Sheltered Annuities (sometimes referred to as
403(b) contracts), and pension and profit-sharing plans, which include 401(k)
plans and H.R. 10 plans. If you do not purchase the Contract under a Qualified
plan, your Contract is referred to as a Non-Qualified Contract.
MULTIPLE CONTRACTS
The Code provides that multiple Non-Qualified annuity contracts which are issued
within a calendar year period to the same Contract Owner by one company or its
affiliates are treated as one annuity contract for purposes of determining the
tax consequences of any distribution. Such treatment may result in adverse tax
consequences, including more rapid taxation of the distributed amounts from such
combination of contracts. For purposes of this rule, contracts received in a
Section 1035 exchange will be considered issued in the year of the exchange. You
should consult a tax adviser prior to purchasing more than one Non-Qualified
annuity contract in any calendar year period.
WITHDRAWALS - NON-QUALIFIED CONTRACTS
If you make a withdrawal from your Contract, the Code treats such a withdrawal
as first coming from earnings and then from your Purchase Payments. In most
cases, such withdrawn earnings are includible in income.
The Code also provides that any amount received under an annuity contract which
is included in income may be subject to a tax penalty. The amount of the penalty
is equal to 10% of the amount that is includible in income. Some withdrawals
will be exempt from the penalty. They include any amounts:
(1) paid on or after the taxpayer reaches age 59 1/2;
(2) paid after you die;
(3) paid if the taxpayer becomes totally disabled (as that term is defined in
the Code);
(4) paid in a series of substantially equal payments made annually (or more
frequently) for life or a period not exceeding life expectancy;
(5) paid under an immediate annuity; or
(6) which come from purchase payments made prior to August 14, 1982.
WITHDRAWALS - QUALIFIED CONTRACTS
The above information describing the taxation of Non-Qualified Contracts does
not apply to Qualified Contracts. There are special rules that govern Qualified
Contracts. A more complete discussion of withdrawals from Qualified Contracts is
contained in the Statement of Additional Information.
WITHDRAWALS - TAX-SHELTERED ANNUITIES
The Code limits the withdrawal of Purchase Payments made by Contract Owners from
certain Tax-Sheltered Annuities. Withdrawals can only be made when a Contract
Owner:
(1) reaches age 591/2;
(2) leaves his/her job;
(3) dies;
(4) becomes disabled (as that term is defined in the Code); or
(5) in the case of hardship.
However, in the case of hardship, you can only withdraw the Purchase Payments
and not any earnings.
DIVERSIFICATION
The Code provides that the underlying investments for a variable annuity must
satisfy certain diversification requirements in order to be treated as an
annuity contract. Preferred Life believes that the Portfolios are being managed
so as to comply with the requirements.
Neither the Code nor the Internal Revenue Service Regulations issued to date
provide guidance as to the circumstances under which you, because of the degree
of control you exercise over the underlying investments, and not Preferred Life,
would be considered the owner of the shares of the Portfolios. If 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 under federal tax
law Contract Owners are permitted to select Portfolios, to make transfers among
the Portfolios or the number and type of Portfolios Contract Owners may select
from 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.
ACCESS TO YOUR MONEY
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You can have access to the money in your Contract:
(1) by making a withdrawal (either a partial or a total withdrawal);
(2) by receiving Annuity Payments; or
(3) when a death benefit is paid to your Beneficiary.
Withdrawals can only be made during the Accumulation Phase.
When you make a complete withdrawal you will receive the value of the Contract
on the day you made the withdrawal, less any applicable contingent deferred
sales charge and less any contract maintenance charge. (See "Expenses" for a
discussion of the charges.)
Unless you instruct Preferred Life otherwise, a partial withdrawal will be made
pro-rata from all the Variable Options you selected.
We will pay the amount of any withdrawal from the Variable Options within seven
(7) days of when we receive your request in good order unless the Suspension of
Payments or Transfers provision is in effect (see below).
Income taxes, tax penalties and certain restrictions may apply to any withdrawal
you make.
There are limits to the amount you can withdraw from a Qualified plan referred
to as a 403(b) plan. For a more complete explanation see "Taxes" and the
discussion in the SAI.
SYSTEMATIC WITHDRAWAL PROGRAM
If the value of your Contract is at least $25,000, Preferred Life offers a
program which provides automatic monthly or quarterly payments to you each year.
The total systematic withdrawals which you can make each year without Preferred
Life deducting a contingent deferred sales charge is limited to 9% of the value
of your Contract. However, we may increase the 9% limit to allow you to make
systematic withdrawals to meet the applicable minimum distribution requirements
for Qualified Contracts. If you make withdrawals under this program, you may not
also use the 15% free withdrawal amount that year. All systematic withdrawals
will be made on the 9th day of the month unless it is not a business day. If it
is not, then the withdrawal will be made on the previous business day. For a
discussion of the contingent deferred sales charge and the 15% free withdrawal
amount, see "Expenses." Preferred Life reserves the right to modify the
eligibility rules of this program at any time without notice.
Income taxes, tax penalties and certain restrictions may apply to systematic
withdrawals.
MINIMUM DISTRIBUTION PROGRAM
If you own a Contract that is an Individual Retirement Annuity (IRA), you may
select the Minimum Distribution Program. Under this program, Preferred Life will
make payments to you from your Contract that are designed to meet the applicable
minimum distribution requirements imposed by the Code for IRAs. If the value of
your Contract is at least $25,000, Preferred Life will make payments to you on a
monthly or quarterly basis. The payments will not be subject to the contingent
deferred sales charge and will be instead of the 15% free withdrawal amount.
SUSPENSION OF PAYMENTS OR TRANSFERS
Preferred Life may be required to suspend or postpone payments for withdrawals
or transfers for any period when:
1. the New York Stock Exchange is closed (other than customary weekend and
holiday closings);
2. trading on the New York Stock Exchange is restricted;
3. an emergency exists as a result of which disposal of the Portfolio shares is
not reasonably practicable or Preferred Life cannot reasonably value the
Portfolio shares;
4. during any other period when the Securities and Exchange Commission, by
order, so permits for the protection of Contract Owners.
Preferred Life has reserved the right to defer payment for a withdrawal or
transfer from the Fixed Account for the period permitted by law but not for more
than six months.
PERFORMANCE
- --------------------------------------------------------------------------------
Preferred Life periodically advertises performance of the Variable Options.
Preferred Life will calculate performance by determining the percentage change
in the value of an Accumulation Unit by dividing the increase (decrease) for
that unit by the value of the Accumulation Unit at the beginning of the period.
This performance number reflects the deduction of the insurance charges and the
Portfolio expenses. It may not reflect the deduction of any applicable
contingent deferred sales charge and contract maintenance charge. The deduction
of any applicable contract maintenance charge and contingent deferred sales
charges would reduce the percentage increase or make greater any percentage
decrease. Any advertisement will also include average annual total return
figures which reflect the deduction of the insurance charges, contract
maintenance charge, contingent deferred sales charges and the expenses of the
Portfolios. Preferred Life may also advertise cumulative total return
information. Cumulative total return is determined the same way except that the
results are not annualized. Performance information for the underlying
Portfolios may also be advertised; see the accompanying fund prospectuses for
more information.
The inception dates of the Portfolios may pre-date the inception dates of the
corresponding Variable Options. For periods starting prior to the date the
Variable Option first invested in the Portfolio, the performance is based on the
historical performance of the corresponding Portfolio.
Preferred Life may in the future also advertise yield information. If it does,
it will provide you with information regarding how yield is calculated. More
detailed information regarding how performance is calculated is found in the
SAI.
Any performance advertised will be based on historical data. It does not
guarantee future results of the Portfolios.
DEATH BENEFIT
- --------------------------------------------------------------------------------
DEATH OF CONTRACT OWNER
If you die during the Accumulation Phase, Preferred Life will pay a death
benefit to your Beneficiary (see below). No death benefit is paid if you die
during the Payout Phase. We will determine the value of the death benefit as of
the end of the business day we receive both due proof of death and a payment
election at our Valuemark Service Center.
The guaranteed death benefit is:
o on the day we issue your Contract, the guaranteed death benefit is equal to
the Purchase Payments you have made.
o after the date we issue your Contract, the guaranteed death benefit will be
the sum of all Purchase Payments you have made, less any withdrawals.
The guaranteed death benefit will never be less than the value of your Contract
as of the most recent five year Contract anniversary before the earlier of:
o the date of your death, or
o the date of your 81st birthday, plus subsequent Purchase Payments you have
made less withdrawals.
The Beneficiary may, at any time before the end of a sixty (60) day period after
Preferred Life receives proof of death, elect the death benefit to be paid under
one of the following options:
A. Lump sum payment of the death benefit. The value of the death benefit is
equal to the greater of the guaranteed death benefit or the surrender value as
of the end of the business day we receive both due proof of death and a payment
election.
B. The payment of the entire death benefit within 5 years of the date of the
Contract Owner's death. We determine the value of the death benefit under Option
B by comparing the guaranteed death benefit to the Contract value as of the end
of the business day we receive both due proof of death and a payment election.
If the Contract value is greater, it will be the death benefit. We will reduce
any distribution of such death benefit by the sum of any contract maintenance
charges and contingent deferred sales charges. If the guaranteed death benefit
is greater, it will be the death benefit. After the death benefit is calculated,
it will be subject to market risk. We will not accept any additional Purchase
Payments after the Contract Owner dies.
C. Payment over the lifetime of the designated Beneficiary or over a period not
extending beyond the life expectancy of the designated Beneficiary with
distribution beginning within one year of the date of death of the Contract
Owner (see "Annuity Payments (The Payout Phase) - Annuity Options"). We
determine the value of the death benefit under Option C by comparing the
guaranteed death benefit to the Contract value as of the end of the business day
we receive both due proof of death and a payment election. If the Contract value
is greater, we will treat it as the death benefit. If the guaranteed death
benefit is greater, it will be the death benefit.
D. If the Beneficiary is your spouse, he/she can elect to continue the Contract
in his/her own name. We determine the value of the death benefit under Option D
by comparing the guaranteed death benefit to the Contract value as of the end of
the business day we receive both due proof of death and a payment election. If
the Contract value is greater, it will remain the Contract value. If the
guaranteed death benefit is greater, it will become the new Contract value. Any
distribution to the new Contract Owner will be reduced by the sum of any
applicable contract maintenance charges and contingent deferred sales charges.
If the Beneficiary does not elect a payment option, we will make a single sum
settlement at the end of the sixty (60) day period following the date we receive
proof of death. Some states, including New York, require the submission of tax
forms in connection with death benefit proceeds under certain circumstances. We
may delay paying a death benefit pending receipt of any applicable tax consents
and/or forms.
In those Contracts where a Contingent Owner is named, in the event of your death
before the Income Date, the Contingent Owner (if any) becomes the designated
Beneficiary and we will treat any other Beneficiary as a contingent Beneficiary,
unless you indicate otherwise. Only your spouse can be a Contingent Owner. If
there is no surviving Contingent Owner, the death benefit is payable to the
Beneficiary you designate.
DEATH OF ANNUITANT
If the Annuitant, who is not a Contract Owner, dies on or before the Income
Date, you may name a new Annuitant. If you do not designate a new Annuitant, you
will become the Annuitant. However, if the Contract Owner is a non-natural
person (e.g., a corporation), then for purposes of the death benefit, the death
of the Annuitant will be treated as the death of the Contract Owner, and a new
Annuitant may not be named.
If the Annuitant dies on or after the Income Date, the remaining amounts
payable, if any, will be as provided for in the Annuity Option selected. We will
require proof of the Annuitant's death. The remaining amounts payable will be
paid at least as rapidly as they were being paid at the Annuitant's death.
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 a wholly-owned subsidiary of Allianz Life Insurance Company of North
America (Allianz Life). Allianz Life is headquartered in Minneapolis, Minnesota.
Allianz Life is a wholly-owned subsidiary of Allianz Versicherungs-AG Holding.
Preferred Life is authorized to do direct business in six states, including New
York. Preferred Life offers group life, group accident and health insurance and
variable annuity products.
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. These costs are expensed as
incurred and total costs are not expected to have a significant effect on
Preferred Life's financial position or results of operations. Preferred Life
believes it is taking 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) to hold the assets that underlie the Contract,
except assets allocated to the Fixed Account. The Board of Directors of
Preferred Life adopted a resolution to establish the Separate Account on
February 26, 1988. Preferred Life has registered the Separate Account with the
Securities and Exchange Commission as a unit investment trust under the
Investment Company Act of 1940. The Separate Account is divided into Variable
Options (also known as sub-accounts). Each Variable Option invests in one
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 Contract 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 Contract 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 Contract. NFP is a wholly-owned subsidiary of
Allianz Life.
Commissions will be paid to broker-dealers who sell the Contracts.
Broker-dealers will be paid commissions up to 7.0% of Purchase Payments. The New
York Insurance Department permits asset-based compensation. Preferred Life may
adopt an asset-based compensation program in addition to, or instead of, the
present compensation program. Commissions may be recovered from a broker-dealer
if a withdrawal occurs within 12 months of a Purchase Payment.
ADMINISTRATION
Preferred Life has hired Delaware Valley Financial Services, Inc. (DVFS), 300
Berwyn Park, Berwyn, Pennsylvania, to perform certain administrative services
regarding the Contracts. The administrative services include issuance of the
Contracts and maintenance of Contract Owner's records.
FINANCIAL STATEMENTS
The financial statements of Preferred Life and the Separate Account have been
included in the Statement of Additional Information.
<PAGE>
TABLE OF CONTENTS
OF THE STATEMENT OF
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
Company 2
Experts 2
Legal Opinions 2
Distribution 2
Reduction or Elimination of the
Contingent Deferred Sales Charge 2
Calculation of Performance Data 2
Federal Tax Status 6
Annuity Provisions 11
Financial Statements 11
<PAGE>
APPENDIX
Condensed Financial Information
The financial statements of Preferred Life and the financial statements of the
Separate Account may be found in the Statement of Additional Information.
The table on the following pages includes Accumulation Unit values for the
periods indicated.
This information should be read in conjunction with the financial statements and
related notes to the Separate Account included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
(NUMBER OF UNITS IN THOUSANDS) FRANKLIN* FRANKLINFRANKLIN FRANKLIN
FRANKLIN GLOBAL GLOBAL GROWTH FRANKLIN FRANKLIN FRANKLIN MUTUAL
CAPITALHEALTH CARE UTILITIES AND HIGH INCOME MONEY DISCOVERY
VARIABLE OPTIONS: GROWTH SECURITIES SECURITIESINCOME INCOME SECURITIES MARKETSECURITIES
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Period Ended June 30, 1999
Unit value at beginning of period
Unit value at end of period
Number of units outstanding at end of period
Year Ended Dec. 31, 1998
Unit value at beginning of period $13.130 $10.000 $25.818 $24.551 $21.312 $25.065 $13.865 $11.983
Unit value at end of period $15.574 $10.610 $28.308 $26.226 $21.208 $25.122 $14.386 $11.226
Number of units outstanding at end of period 1,016 26 2,843 4,289 1,783 3,263 2,168 1,127
Year Ended Dec. 31, 1997
Unit value at beginning of period $11.254 NA $20.654 $19.490 $19.375 $21.708 $13.359 $10.180
Unit value at end of period $13.130 NA $25.818 $24.551 $21.312 $25.065 $13.865 $11.983
Number of units outstanding at end of period 622 NA 3,699 4,952 2,110 3,991 2,155 924
Year Ended Dec. 31, 1996
Unit value at beginning of period $10.214** NA $19.565 $17.310 $17.252 $19.785 $12.883 $10.122**
Unit value at end of period $11.254 NA $20.654 $19.490 $19.375 $21.708 $13.359 $10.180
Number of units outstanding at end of period 225 NA 4,998 5,070 2,164 4,519 2,433 27
Year Ended Dec. 31, 1995
Unit value at beginning of period NA NA $15.104 $13.215 $14.608 $16.392 $12.354 NA
Unit value at end of period NA NA $19.565 $17.310 $17.252 $19.785 $12.883 NA
Number of units outstanding at end of period NA NA 5,916 4,346 2,075 4,567 2,218 NA
Year Ended Dec. 31, 1994
Unit value at beginning of period NA NA $17.319 $13.677 $15.155 $17.734 $12.066 NA
Unit value at end of period NA NA $15.104 $13.215 $14.608 $16.392 $12.354 NA
Number of units outstanding at end of period NA NA 6,317 3,452 1,710 4,416 2,487 NA
Year Ended Dec. 31, 1993
Unit value at beginning of period NA NA $15.889 $12.574 $13.278 $15.163 $11.932 NA
Unit value at end of period NA NA $17.319 $13.677 $15.155 $17.734 $12.066 NA
Number of units outstanding at end of period NA NA 7,479 2,402 1,135 2,634 627 NA
Year Ended Dec. 31, 1992
Unit value at beginning of perio NA NA $14.821 $11.949 $11.583 $13.580 $11.742 NA
Unit value at end of period NA NA $15.889 $12.574 $13.278 $15.163 $11.932 NA
Number of units outstanding at end of period NA NA 2,519 1,227 266 668 301 NA
Period from Inception** to Dec. 31, 1991
Unit value at beginning of period NA NA $13.234 $11.061 $11.043 $12.811 $11.623 NA
Unit value at end of period NA NA $14.821 $11.949 $11.583 $13.580 $11.742 NA
Number of units outstanding at end of period NA NA 166 125 37 35 62 NA
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(NUMBER OF UNITS IN THOUSANDS) FRANKLINFRANKLIN FRANKLIN FRANKLIN FRANKLIN
MUTUAL NATURAL REAL FRANKLIN FRANKLIN U.S. FRANKLIN* ZERO
SHARES RESOURCES ESTATE RISING SMALL GOVERNMENT VALUE COUPON
VARIABLE OPTIONS: SECURITIESSECURITIESSECURITIESDIVIDENDS CAP SECURITES SECURITIES 2000
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Period Ended June 30, 1999
Unit value at beginning of period
Unit value at end of period
Number of units outstanding at end of period
Year Ended Dec. 31, 1998
Unit value at beginning of period $11.993 $11.559 $28.169 $20.074 $14.952 $17.947 $10.000 $19.512
Unit value at end of period $11.837 $ 8.505 $23.107 $21.165 $14.600 $19.014 $7.717 $20.684
Number of units outstanding at end of period 2,264 415 708 3,176 1,012 3,787 19 723
Year Ended Dec. 31, 1997
Unit value at beginning of period $10.330 $14.467 $23.668 $15.303 $12.913 $16.650 NA $18.475
Unit value at end of period $11.993 $11.559 $28.169 $20.074 $14.952 $17.947 NA $19.512
Number of units outstanding at end of period 1,823 458 942 3,489 938 4,844 NA 1,087
Year Ended Dec. 31, 1996
Unit value at beginning of period $10.112**$14.109 $18.073 $12.498 $12.517** $16.298 NA $18.294
Unit value at end of period $10.330 $14.467 $23.668 $15.303 $12.913 $16.650 NA $18.475
Number of units outstanding at end of period 43 566 859 3,394 416 6,017 NA 1,358
Year Ended Dec. 31, 1995
Unit value at beginning of period NA $13.979 $15.594 $ 9.769 NA $13.835 NA $15.373
Unit value at end of period NA $14.109 $18.073 $12.498 NA $16.298 NA $18.294
Number of units outstanding at end of period NA 516 794 3,182 NA 5,089 NA 1,416
Year Ended Dec. 31, 1994
Unit value at beginning of period NA $14.464 $15.369 $10.327 NA $14.698 NA $16.717
Unit value at end of period NA $13.979 $15.594 $ 9.769 NA $13.835 NA $15.373
Number of units outstanding at end of period NA 647 900 2,936 NA 5,331 NA 1,158
Year Ended Dec. 31, 1993
Unit value at beginning of period NA $ 9.424 $13.095 $10.848 NA $13.586 NA $14.595
Unit value at end of period NA $14.464 $15.369 $10.327 NA $14.698 NA $16.717
Number of units outstanding at end of period NA 391 437 2,772 NA 6,108 NA 795
Year Ended Dec. 31, 1992
Unit value at beginning of period NA $10.635 $11.848$ 9.992** NA $12.798 NA $13.570
Unit value at end of period NA $ 9.424 $13.095 $10.848 NA $13.586 NA $14.595
Number of units outstanding at end of period NA 30 77 617 NA 2,266 NA 397
Period from Inception** to Dec. 31, 1991
Unit value at beginning of period NA $10.433 $10.787 NA NA $12.036 NA $12.274
Unit value at end of period NA $10.635 $11.848 NA NA $12.798 NA $13.570
Number of units outstanding at end of period NA 5 8 NA NA 213 NA 6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(NUMBER OF UNITS IN THOUSANDS) FRANKLIN FRANKLIN TEMPLETON TEMPLETON TEMPLETON TEMPLETONTEMPLETON
ZERO ZERO DEVELOPING GLOBAL TEMPLETON GLOBAL INTER- INTER- TEMPLETON
COUPON COUPON MARKETS ASSET GLOBAL INCOME NATIONAL NATIONAL PACIFIC
VARIABLE OPTIONS: 2005 2010 EQUITY ALLOCATION GROWTHSECURITIES EQUITY SMALLER COS.GROWTH
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Period Ended June 30, 1999
Unit value at beginning of period
Unit value at end of period
Number of units outstanding at end of period
Year Ended Dec. 31, 1998
Unit value at beginning of period $22.532 $24.740 $10.340 $13.786 $15.176 $16.957 $17.711 $10.825 $ 9.431
Unit value at end of period $25.003 $27.920 $ 7.993 $13.589 $16.309 $17.905 $18.437 $ 9.364 $ 8.078
Number of units outstanding at end of period 349 272 749 318 2,239 787 2,938 114 821
Year Ended Dec. 31, 1997
Unit value at beginning of period $20.517 $21.522 $11.487 $12.514 $13.560 $16.781 $16.081 $11.145 $14.932
Unit value at end of period $22.532 $24.740 $10.340 $13.786 $15.176 $16.957 $17.711 $10.825 $ 9.431
Number of units outstanding at end of period 345 292 1,160 424 2,594 1,072 4,063 173 1,251
Year Ended Dec. 31, 1996
Unit value at beginning of period $20.914 $22.431 $ 9.582 $10.591 $11.339 $15.522 $13.263$10.174** $13.630
Unit value at end of period $20.517 $21.522 $11.487 $12.514 $13.560 $16.781 $16.081 $11.145 $14.932
Number of units outstanding at end of period 428 348 1,042 300 2,146 1,354 4,375 65 1,751
Year Ended Dec. 31, 1995
Unit value at beginning of period $16.096 $15.930 $ 9.454$10.322** $10.201 $13.726 $12.161 NA $12.802
Unit value at end of period $20.914 $22.431 $ 9.582 $10.591 $11.339 $15.522 $13.263 NA $13.630
Number of units outstanding at end of period 456 372 757 36 1,417 1,472 4,073 NA 1,811
Year Ended Dec. 31, 1994
Unit value at beginning of period $18.050 $18.144 $ 9.994** NA$ 9.984** $14.650 $12.226 NA $14.233
Unit value at end of period $16.096 $15.930 $ 9.454 NA $10.201 $13.726 $12.161 NA $12.802
Number of units outstanding at end of period 403 252 591 NA 921 1,667 4,079 NA 2,112
Year Ended Dec. 31, 1993
Unit value at beginning of period $14.975 $14.670 NA NA NA $12.733 $ 9.642 NA $ 9.761
Unit value at end of period $18.050 $18.144 NA NA NA $14.650 $12.226 NA $14.233
Number of units outstanding at end of period 341 193 NA NA NA 1,045 1,346 NA 915
Year Ended Dec. 31, 1992
Unit value at beginning of period $13.705 $13.482 NA NA NA $12.962$ 9.992** NA $ 9.992**
Unit value at end of period $14.975 $14.670 NA NA NA $12.733 $ 9.642 NA $ 9.761
Number of units outstanding at end of period 108 60 NA NA NA 406 88 NA 58
Period from Inception** to Dec. 31, 1991
Unit value at beginning of period $12.369 $12.013 NA NA NA $12.296 NA NA NA
Unit value at end of period $13.705 $13.482 NA NA NA $12.962 NA NA NA
Number of units outstanding at end of period 3 1 NA NA NA 47 NA NA NA
<FN>
* The Franklin Global Health Care Securities and the Franklin Value Securities Variable Options commenced operations May 1, 1998.
** Unit Value at inception.
The Accumulation Unit value for each Variable Option was initially arbitrarily set. The inception date
for all Variable Options, except those noted below, was September 6, 1991. Inception was 1/9/89 for Alger American Growth
Portfolio; 3/10/92 for Franklin Rising Dividends, Templeton International Equity, and Templeton Pacific Growth; 5/5/93 for AIM
V.I. Growth Fund; 4/25/94 for Templeton Developing Markets Equity and Templeton Global Growth; 1/25/95 for Alger American
Leveraged AllCap Portfolio; 8/4/95 for Templeton Global Asset Allocation; 6/10/96 for Franklin Capital Growth, Franklin Small Cap,
and Templeton International Smaller Companies; 12/2/96 for Franklin Mutual Discovery Securities and Franklin Mutual Shares
Securities; and 8/17/98 for Franklin Global Health Care Securities and Franklin Value Securities. There are no Accumulation Unit
Values shown for the AIM V.I. Growth, Alger American Growth, Alger American Leveraged AllCap, Franklin S&P 500 Index, USAllianz
VIP Diversified Assets, USAllianz VIP Growth, and USAllianz VIP Intermediate Fixed Income Variable Options because they commenced
operations as of the date of this prospectus and therefore had no assets as of June 30, 1999.
</FN>
</TABLE>
This page intentionally left blank.
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
FRANKLIN VALUEMARK II
INDIVIDUAL FLEXIBLE PAYMENT
VARIABLE ANNUITY CONTRACTS
issued by
PREFERRED LIFE VARIABLE ACCOUNT C
and
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
October 25, 1999
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS FOR THE INDIVIDUAL FLEXIBLE PAYMENT
VARIABLE ANNUITY CONTRACTS WHICH ARE REFERRED TO HEREIN. THE PROSPECTUS
CONCISELY SETS FORTH INFORMATION THAT A PROSPECTIVE INVESTOR OUGHT TO KNOW
BEFORE INVESTING.FOR A COPY OF THE PRO-SPECTUS, CALL OR WRITE THE COMPANY AT:
152 West 57th Street, New York, NY 10019, (800) 542-5427.
THIS STATEMENT OF ADDITIONAL INFORMATION AND THE PROSPECTUS ARE DATED OCTOBER
25, 1999, AND AS MAY BE AMENDED FROM TIME TO TIME.
<PAGE>
TABLE OF CONTENTS
Contents Page
- --------------------------------------------------------
Insurance Company 2
Experts 2
Legal Opinions 2
Distributor 2
Reduction or Elimination of the
Contingent Deferred Sales Charge 2
Calculation of Performance Data 2
Federal Tax Status 6
Annuity Provisions 11
Financial Statements 11
<PAGE>
Insurance Company
- --------------------------------------------------------------------------------
Information regarding Preferred Life Insurance Company of New York (the
"Company") and its ownership is contained in the Prospectus. The Company is
rated A+e (Superior, 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
consolidated 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 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, a subsidiary of Allianz Life Insurance Company of
North America, the Company's parent, acts as the distributor. The offering is on
a continuous basis.
Reduction or Elimination of the
Contingent Deferred Sales Charge
- --------------------------------------------------------------------------------
The amount of the Contingent Deferred Sales Charge on the Contracts may be
reduced or eliminated when sales of the Contracts are made to individuals or to
a group of individuals in a manner that results in savings of sales expenses.
The entitlement to a reduction of the Contingent Deferred Sales Charge will be
determined by the Insurance Company after examination of the following factors:
1) the size of the group; 2) the total amount of purchase payments expected to
be received from the group; 3) the nature of the group for which the Contracts
are purchased, and the persistency expected in that group; 4) the purpose for
which the Contracts are purchased and whether that purpose makes it likely that
expenses will be reduced; and 5) any other circumstances which the Company
believes to be relevant to determining whether reduced sales or administrative
expenses may be expected. None of the reductions in charges for sales is
contractually guaranteed.
The Contingent Deferred Sales Charge may be eliminated when the Contracts are
issued to an officer, director or employee of the Company or any of its
affiliates. The Contingent Deferred Sales Charge may be reduced or eliminated
when the Contract is sold by an agent of the Company to any members of his or
her immediate family and the commission is waived. In no event will any
reduction or elimination of the Contingent Deferred Sales Charge be permitted
where the reduction or elimination will be unfairly discriminatory to any
person.
<PAGE>
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, personalized hypothetical illustrations, and Contract Owner
communications. Such data will show the percentage change in the value of an
accumulation unit based on the performance of a variable option over a stated
period of time which is determined by dividing the increase (or decrease) in
value for that unit by the accumulation unit value at the beginning of the
period.
Any such performance data will include total return figures for the one, five,
and ten year (or since inception) time periods indicated. Such total return
figures will reflect the deduction of a 1.25% Mortality and Expense Risk Charge,
a 0.15% Administrative Expense Charge, the operating expenses of the underlying
Portfolios and any applicable Contingent Deferred Sales Charge and Contract
Maintenance Charge ("Standardized Total Return"). The Contingent Deferred Sales
Charge and Contract Maintenance Charge deductions are calculated assuming a
Contract is surrendered at the end of the reporting period.
The hypothetical value of a Contract purchased for the time periods described
will be determined by using the actual accumulation unit values for an initial
$1,000 purchase payment, and deducting any applicable Contingent Deferred Sales
Charge and Contract Maintenance Charge to arrive at the ending hypothetical
value. The average annual total return is then determined by computing the fixed
interest rate that a $1,000 purchase payment would have to earn annually,
compounded annually, to grow to the hypothetical value at the end of the time
periods described. The formula used in these calculations is:
P (1 + T)n = ERV
where:
P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years;
ERV = ending redeemable value of a hypothetical $1,000 purchase payment made at
the beginning of the period at the end of the period.
The Company may also advertise performance data which will be calculated in the
same manner as described above but which will not reflect the deduction of the
Contingent Deferred Sales Charge and the Contract Maintenance Charge. Cumulative
total return is calculated in a similar manner as described above except that
the results are not annualized. The Company may also advertise cumulative and
total return information over different periods of time. The Company may also
present performance information computed on a different basis ("Non-Standardized
Total Return").
Yield
The Franklin Money Market Sub-Account. The Company may advertise yield
information for the Franklin Money Market Sub-Account. The Franklin Money Market
Sub-Account's current yield may vary each day, depending upon, among other
things, the average maturity of the underlying Portfolio's investment securities
and changes in interest rates, operating expenses, the deduction of the
Mortality and Expense Risk Charge, the Administrative Expense Charge and the
Contract Maintenance Charge and, in certain instances, the value of the
underlying Portfolio's investment securities. The fact that the 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 Franklin Money Market Sub-Account's current yield is computed on a base
period return of a hypothetical Contract having a beginning balance of one
accumulation unit for a particular period of time (generally seven days). The
return is determined by dividing the net change (exclusive of any capital
changes) in such accumulation unit by its beginning value, and then multiplying
it by 365/7 to get the annualized current yield. The calculation of net change
reflects the value of additional shares purchased with the dividends paid by the
Portfolio, and the deduction of the Mortality and Expense Risk Charge,
Administrative Expense Charge and Contract Maintenance Charge.
The effective yield reflects the effects of compounding and represents an
annualization of the current return with all dividends reinvested. (Effective
yield = [(Base Period Return + 1)365/7] -1.)
For the seven-day period ending on 12/31/98, the Franklin 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
accumulation unit earned during the period (minus the deduction for the
Mortality and Expense Risk Charge, Administrative Expense Charge and Contract
Maintenance Charge) by the accumulation unit value on the last day of the period
and annualizing the resulting figure, according to the following formula:
Yield = 2 [((a-b) + 1)6 - 1]
--------------------
cd
where:
a = net investment income earned during the period by the 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 accumulation units outstanding during the
period;
d = the maximum offering price per accumulation unit on the last day of the
period.
The above formula will be used in calculating quotations of yield, based on
specified 30-day periods (or one month) identified in the sales literature,
advertisement, or communication. Yield calculations assume that no Contingent
Deferred Sales Charges have been deducted (see the Prospectus for information
regarding the Contingent Deferred Sales Charge). The Company does not currently
advertise yield information for any 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 indices and data
from Lipper Analytical Services, Inc., Standard & Poor's Indices, or VARDS(R).
From time to time, evaluation of performance by independent sources may also be
used.
<PAGE>
Performance Information
Total returns reflect all aspects of a Sub-Account's return, including the
automatic reinvestment by Preferred Life Variable Account C of all distributions
and any change in a Sub-Account's value over the period.
The returns reflect the deduction of the Mortality and Expense Risk Charge,
Administrative Expense Charge and the operating expenses of each Portfolio and
are shown both with and without the deduction of the Contingent Deferred Sales
Charge and Contract Maintenance Charge. 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.
Past performance does not guarantee future results.
Standardized Total Return
<TABLE>
<CAPTION>
Average Annual Total Return for the periods ended June 30, 1999: with Contingent Deferred Sales Charge and Other Charges
Portfolio
Inception One Five Since
Sub-Account Date Year Year Inception
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Franklin Capital Growth 5/1/96 14.27% NA 17.33%
Franklin Global Health Care Securities 5/1/98 NA NA 2.63%
Franklin Global Utilities Securities 1/24/89 5.29% 10.18% 10.97%
Franklin Growth and Income 1/24/89 2.48% 13.78% 10.11%
Franklin High Income 1/24/89 -4.83% 6.81% 7.78%
Franklin Income Securities 1/24/89 -4.12% 7.07% 9.64%
Franklin Money Market+ 1/24/89 -0.59% 3.42% 3.64%
Franklin Mutual Discovery Securities 11/8/96 -10.67% NA 4.44%
Franklin Mutual Shares Securities 11/8/96 -5.65% NA 7.11%
Franklin Natural Resources Securities 1/24/89 -30.77% -10.30% -1.70%
Franklin Real Estate Securities 1/24/89 -22.32% 8.36% 8.72%
Franklin Rising Dividends 1/27/92 1.09% 15.31% 11.34%
Franklin Small Cap 11/1/95 -6.71% NA 12.29%
Franklin U.S. Government Securities 3/14/89 1.60% 5.13% 6.70%
Franklin Value Securities 5/1/98 NA NA -37.77%
Franklin Zero Coupon - 2000+ 3/14/89 1.66% 4.19% 7.62%
Franklin Zero Coupon - 2005+ 3/14/89 6.62% 6.58% 9.73%
Franklin Zero Coupon - 2010+ 3/14/89 8.51% 8.86% 10.97%
Templeton Developing Markets Equity 3/15/94 -27.05% NA -4.76%
Templeton Global Asset Allocation 5/1/95 -5.78% NA 8.36%
Templeton Global Growth 3/15/94 3.11% NA 10.59%
Templeton Global Income Securities 1/24/89 1.24% 3.94% 5.96%
Templeton International Equity 1/27/92 -0.26% 8.42% 9.15%
Templeton International Smaller Companies 5/1/96 -17.84% NA -3.40%
Templeton Pacific Growth 1/27/92 -18.69% -10.94% -3.12%
<FN>
The Global Health Care Securities and the Value Securities Sub-Accounts commenced operations on May 1, 1998.
The Franklin S&P 500, USAllianz VIP Diversified Assets, USAllianz VIP Growth, and USAllianz VIP Intermediate
Fixed Income Sub-Accounts commenced operations on October 25, 1999.
+ Calculated with waiver of fees
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Non-Standardized Total Return
Total Return for the periods ended June 30, 1999: Without Contingent Deferred Sales Charge or Contract Maintenance Charge
Annual Total Return Cumulative Total Return
------------------------------ --------------------------
Portfolio
Inception One Three Five Since Three Five Since
Sub-Account Date Year Year Year Inception Year Year Inception
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Franklin Capital Growth 5/1/96 18.62% NA NA 18.06% NA NA 55.74%
Franklin Global Health Care Securities 5/1/98 NA NA NA 9.27% NA NA 6.10%
Franklin Global Utilities Securities 1/24/89 9.64% 13.10% 10.33% 11.04% 44.69% 63.45% 183.08%
Franklin Growth and Income 1/24/89 6.83% 14.86% 13.91% 10.19% 51.51% 91.76% 162.26%
Franklin High Income 1/24/89 -0.48% 7.13% 6.95% 7.86% 22.93% 39.94% 112.08%
Franklin Income Securities 1/24/89 0.23% 8.29% 7.21% 9.71% 26.97% 41.66% 151.22%
Franklin Money Market+ 1/24/89 3.76% 3.74% 3.58% 3.73% 11.66% 19.23% 43.86%
Franklin Mutual Discovery Securities 11/8/96 -6.32% NA NA 5.54% NA NA 12.26%
Franklin Mutual Shares Securities 11/8/96 -1.30% NA NA 8.18% NA NA 18.37%
Franklin Natural Resources Securities 1/24/89 -26.42% -15.52% -10.07% -1.62% -39.71% -41.19% -14.95%
Franklin Real Estate Securities 1/24/89 -17.97% 8.54% 8.50% 8.79% 27.85% 50.35% 131.07%
Franklin Rising Dividends 1/27/92 5.44% 19.20% 15.43% 11.42% 69.35% 104.95% 111.65%
Franklin Small Cap 11/1/95 -2.36% 12.90% NA 12.69% 43.89% NA 46.00%
Franklin U.S. Government Securities 3/14/89 5.95% 5.27% 5.28% 6.77% 16.67% 29.36% 90.14%
Franklin Value Securities 5/1/98 NA NA NA -32.13% NA NA -22.83%
Franklin Zero Coupon - 2000+ 3/14/89 6.01% 4.18% 4.35% 7.69% 13.07% 23.73% 106.84%
Franklin Zero Coupon - 2005+ 3/14/89 10.97% 6.13% 6.73% 9.80% 19.55% 38.52% 150.03%
Franklin Zero Coupon - 2010+ 3/14/89 12.86% 7.57% 9.00% 11.04% 24.47% 53.88% 179.20%
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 Global Income Securities 1/24/89 5.59% 4.88% 4.09% 6.04% 15.35% 22.22% 79.05%
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 -13.49% 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%
<FN>
The Global Health Care Securities and the Value Securities Sub-Accounts commenced operations on May 1, 1998.
The Franklin S&P 500, USAllianz VIP Diversified Assets, USAllianz VIP Growth, and USAllianz VIP Intermediate
Fixed Income Sub-Accounts commenced operations on October 25, 1999.
+ Calculated with waiver of fees
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Non-Standardized Total Return
Total Return for the periods ended June 30, 1999: With Contingent Deferred Sales Charge and Other Charges
Annual Total Return Cumulative Total Return
------------------------------ -----------------------
Portfolio
Inception One Three Five Since Three Five Since
Sub-Account Date Year Year Year Inception Year Year Inception
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Franklin Capital Growth 5/1/96 14.27% NA NA 17.33% NA NA 53.20%
Franklin Global Health Care Securities 5/1/98 NA NA NA 2.63% NA NA 1.75%
Franklin Global Utilities Securities 1/24/89 5.29% 12.44% 10.18% 10.97% 42.14% 62.40% 181.38%
Franklin Growth and Income 1/24/89 2.48% 14.21% 13.78% 10.11% 48.97% 90.69% 160.43%
Franklin High Income 1/24/89 -4.83% 6.39% 6.81% 7.78% 20.43% 38.99% 110.59%
Franklin Income Securities 1/24/89 -4.12% 7.57% 7.07% 9.64% 24.46% 40.68% 149.65%
Franklin Money Market+ 1/24/89 -0.59% 2.96% 3.42% 3.64% 9.15% 18.31% 42.69%
Franklin Mutual Discovery Securities 11/8/96 -10.67% NA NA 4.44% NA NA 9.76%
Franklin Mutual Shares Securities 11/8/96 -5.65% NA NA 7.11% NA NA 15.87%
Franklin Natural Resources Securities 1/24/89 -30.77% -16.68% -10.30% -1.70% -42.15% -41.92% -15.69%
Franklin Real Estate Securities 1/24/89 -22.32% 7.83% 8.36% 8.72% 25.37% 49.42% 129.52%
Franklin Rising Dividends 1/27/92 1.09% 18.60% 15.31% 11.34% 66.80% 103.84% 110.53%
Franklin Small Cap 11/1/95 -6.71% 12.23% NA 12.29% 41.38% NA 44.37%
Franklin U.S. Government Securities 3/14/89 1.60% 4.51% 5.13% 6.70% 14.15% 28.42% 88.80%
Franklin Value Securities 5/1/98 NA NA NA -37.77% NA NA -27.18%
Franklin Zero Coupon - 2000+ 3/14/89 1.66% 3.40% 4.19% 7.62% 10.55% 22.79% 105.48%
Franklin Zero Coupon - 2005+ 3/14/89 6.62% 5.38% 6.58% 9.73% 17.02% 37.54% 148.47%
Franklin Zero Coupon - 2010+ 3/14/89 8.51% 6.83% 8.86% 10.97% 21.93% 52.86% 177.47%
Templeton Developing Markets Equity 3/15/94 -27.05% -6.80% NA -4.76% -19.03% NA -20.86%
Templeton Global Asset Allocation 5/1/95 -5.78% 7.95% NA 8.36% 25.79% NA 34.27%
Templeton Global Growth 3/15/94 3.11% 12.21% NA 10.59% 41.30% NA 62.10%
Templeton Global Income Securities 1/24/89 1.24% 4.11% 3.94% 5.96% 12.84% 21.29% 77.78%
Templeton International Equity 1/27/92 -0.26% 10.93% 8.42% 9.15% 36.49% 49.82% 83.42%
Templeton International Smaller
Companies 5/1/96 -17.84% NA NA -3.40% NA NA -8.82%
Templeton Pacific Growth 1/27/92 -18.69% -17.17% -10.94% -3.12% -43.17% -43.98% -19.73%
<FN>
The Global Health Care Securities and the Value Securities Sub-Accounts commenced operations on May 1, 1998.
The Franklin S&P 500, USAllianz VIP Diversified Assets, USAllianz VIP Growth, and USAllianz VIP Intermediate
Fixed Income Sub-Accounts commenced operations on October 25, 1999.
+ Calculated with waiver fees
</FN>
</TABLE>
<PAGE>
The chart below shows hypothetical accumulation unit performance based on the
historical performance of the AIM V.I. Growth Fund, the Alger American Growth
Fund and the Alger American Leveraged AllCap Fund. The performance figures
assume that your Contract was invested in each of the Portfolios commencing from
the inception date of the Portfolio. The performance figures in Column I reflect
the deduction of the Mortality and Expense Risk Charge, Administrative Charge
and the operating expenses of the Portfolios. The performance figures in Column
II reflect the deduction of the Mortality and Expense Risk Charge,
Administrative Charge, the Contract Maintenance Charge, the operating expenses
of the Portfolios and assumes that you make a withdrawal at the end of the
period (and therefore the Contingent Deferred Sales Charge is reflected). Past
performance does not guarantee future results.
Total Return for the periods ended June 30, 1999
<TABLE>
<CAPTION>
Column I Column II
===============================================================================================================================
Portfolio One Three Five 10 Years/ One Three Five 10 Years/
Portfolio Inception Year Years Years Since Year Years Years Since
Date Inception Inception
- --------------- ----------- ------------ ------------ ----------- ------------ ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AIM V.I.
Growth
Alger
American
Growth
Alger
American
Leveraged
AllCap
</TABLE>
You 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 your total return may be
in any future period.
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 ("Code") governs
taxation of annuities in general. A Contract Owner is not taxed on increases in
the value of a Contract until distribution occurs, either in the form of a lump
sum payment or as annuity payments under the Annuity Option elected. For a lump
sum payment received as a total surrender (total redemption) or death benefit,
the recipient is taxed on the portion of the payment that exceeds the cost basis
of the Contract. For Non-Qualified Contracts, this cost basis is generally the
purchase payments, while for Qualified Contracts there may be no cost basis. The
taxable portion of the lump sum payment is taxed at ordinary income tax rates.
For annuity payments, a portion of each payment in excess of an exclusion amount
is includible in taxable income. The exclusion amount for payments based on a
fixed annuity option is determined by multiplying the payment by the ratio that
the cost basis of the Contract (adjusted for any period certain or refund
feature) bears to the expected return under the Contract. The exclusion amount
for payments based on a variable annuity option is determined by dividing the
cost basis of the Contract (adjusted for any period certain or refund guarantee)
by the number of years over which the annuity is expected to be paid. Payments
received after the investment in the Contract has been recovered (i.e. when the
total of the excludible amounts equal the investment in the Contract) are fully
taxable. The taxable portion is taxed at ordinary income rates. For certain
types of Qualified Plans there may be no cost basis in the Contract within the
meaning of Section 72 of the Code. Contract Owners, annuitants and beneficiaries
under the Contracts should seek competent financial advice about the tax
consequences of any distributions
The Company is taxed as a life insurance company under the Code. For federal
income tax purposes, the 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 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 underlying the Contracts will be managed
by the investment advisers 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
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.
Contract Owners should consult a tax adviser prior to purchasing more than one
non-qualified annuity contract in any calendar year period.
Contracts Owned by Other than Natural Persons
Under Section 72(u) of the Code, the investment earnings on purchase payments
for the Contracts will be taxed currently to the Contract Owner if the Owner is
a non-natural person, e.g., a corporation or certain other entities. Such
Contracts generally will not be treated as annuities for federal income tax
purposes. However, this treatment is not applied to Contracts held by a trust or
other entity as an agent for a natural person nor to Contracts held by qualified
plans. Purchasers should consult their own tax counsel or other tax adviser
before purchasing a Contract to be owned by a non-natural person.
Tax Treatment of Assignments
An assignment or pledge of a Contract may be a taxable event. Contract Owners
should therefore consult competent tax advisers should they wish to assign or
pledge their Contracts.
Death Benefits
Any death benefits paid under the Contract are taxable to the beneficiary. The
rules governing the taxation of payments from an annuity contract, as discussed
above, generally apply to the payment of death benefits and depend on whether
the death benefits are paid as a lump sum or as annuity payments. Estate taxes
may also apply.
Income Tax Withholding
All distributions or the portion thereof which is includible in the gross income
of the Contract Owner are subject to federal income tax withholding. Generally,
amounts are withheld from periodic payments at the same rate as wages and at the
rate of 10% from non-periodic payments. However, the Contract Owner, in most
cases, may elect not to have taxes withheld or to have withholding done at a
different rate.
Effective January 1, 1993, certain distributions from retirement plans qualified
under Section 401 or Section 403(b) of the Code, which are not directly rolled
over to another eligible retirement plan or individual retirement account or
individual retirement annuity, are subject to a mandatory 20% withholding for
federal income tax. The 20% withholding requirement generally does not apply to:
(a) a series of substantially equal payments made at least annually for the life
or life expectancy of the participant or joint and last survivor expectancy of
the participant and a designated beneficiary, or for a specified period of 10
years or more; or (b) distributions which are required minimum distributions; or
(c) the portion of the distributions not includible in gross income (i.e.
returns of after-tax contributions); or (d) hardship withdrawals. Participants
should consult their own tax counsel or other tax adviser regarding withholding
requirements.
Tax Treatment of Withdrawals -
Non-Qualified Contracts
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the contract value exceeds the aggregate purchase
payments made, any amount withdrawn will be treated as coming first from the
earnings and then, only after the income portion is exhausted, as coming from
the principal. Withdrawn earnings are includible in gross income. It further
provides that a ten percent (10%) penalty will apply to the income portion of
any distribution. However, the penalty is not imposed on amounts received: (a)
after the taxpayer reaches age 591/2; (b) after the death of the Contract Owner;
(c) if the taxpayer is totally disabled (for this purpose disability is as
defined in Section 72(m) (7) of the Code); (d) in a series of substantially
equal periodic payments made not less frequently than annually for the life (or
life expectancy) of the taxpayer or for the joint lives (or joint life
expectancies) of the taxpayer and his Beneficiary; (e) under an immediate
annuity; or (f) which are allocable to purchase payments made prior to August
14, 1982.
With respect to (d) above, if the series of substantially equal periodic
payments is modified before the later of your attaining age 591/2 or 5 years
from the date of the first periodic 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.
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 Withdrawals - Qualified Contracts.")
Qualified Plans
The Contracts offered by the Prospectus are designed to be suitable for use
under various types of Qualified Plans. Because of the minimum purchase payment
requirements, these Contracts may not be appropriate for some periodic payment
retirement plans. Taxation of participants in each Qualified Plan varies with
the type of plan and terms and conditions of each specific plan. Contract
Owners, annuitants and beneficiaries are cautioned that benefits under a
Qualified Plan may be subject to the terms and conditions of the plan regardless
of the terms and conditions of the Contracts issued pursuant to the plan. Some
retirement plans are subject to distribution and other requirements that are not
incorporated into the Company's administrative procedures. Contract Owners,
participants and beneficiaries are responsible for determining that
contributions, distributions and other transactions with respect to the
Contracts comply with applicable law. Following are general descriptions of the
types of Qualified Plans with which the Contracts may be used.
Such descriptions are not exhaustive and are for general informational purposes
only. The tax rules regarding Qualified Plans are very complex and will have
differing applications, depending on individual facts and circumstances. Each
purchaser should obtain competent tax advice prior to purchasing a Contract
issued under a Qualified Plan.
On July 6, 1983, the Supreme Court decided in Arizona Governing Committee v.
Norris that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. The Contracts sold by the Insurance Company in
connection with Qualified Plans will utilize annuity tables which do not
differentiate on the basis of sex. Such annuity tables will also be available
for use in connection with certain non-qualified deferred compensation plans.
Contracts issued pursuant to Qualified Plans include special provisions
restricting Contract provisions that may otherwise be available and described in
this Statement of Additional Information. Generally, Contracts issued pursuant
to Qualified Plans are not transferable except upon surrender or annuitization.
Various penalty and excise taxes may apply to contributions or distributions
made in violation of applicable limitations. Furthermore, certain withdrawal
penalties and restrictions may apply to withdrawals from Qualified Contracts.
(See "Tax Treatment of Withdrawals - Qualified Contracts.")
a. Tax-Sheltered Annuities
Section 403(b) of the Code permits the purchase of "tax-sheltered annuities" by
public schools and certain charitable, educational and scientific organizations
described in Section 501(c) (3) of the Code. These qualifying employers may make
contributions to the Contracts for the benefit of their employees. Such
contributions are not includible in the gross income of the employee until the
employee receives distributions from the Contract. The amount of contributions
to the tax-sheltered annuity is limited to certain maximums imposed by the Code.
Furthermore, the Code sets forth additional restrictions governing such items as
transferability, distributions, nondiscrimination and withdrawals. (See "Tax
Treatment of Withdrawals - Qualified Contracts" and "Tax-Sheltered Annuities -
Withdrawal Limitations.") Employee loans are not allowed under these Contracts.
Any employee should obtain competent tax advice as to the tax treatment and
suitability of such an investment.
b. Individual Retirement Annuities
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity"
("IRA"). Under applicable limitations, certain amounts may be contributed to an
IRA which may be deductible from the individual's taxable income. These IRAs are
subject to limitations on eligibility, contributions, transferability and
distributions. (See "Tax Treatment of Withdrawals - Qualified Contracts.") Under
certain conditions, distributions from other IRAs and other Qualified Plans may
be rolled over or transferred on a tax-deferred basis into an IRA. Sales of
Contracts for use with IRAs are subject to special requirements imposed by the
Code, including the requirement that certain informational disclosure be given
to persons desiring to establish an IRA. Purchasers of Contracts to be qualified
as Individual Retirement Annuities should obtain competent tax advice as to the
tax treatment and suitability of such an investment.
Roth IRAs
Section 408A of the Code provides that beginning in 1998, individuals may
purchase a new type of non-deductible IRA, known as a Roth IRA. Purchase
payments for a Roth IRA are limited to a maximum of $2,000 per year and are not
deductible from taxable income. Lower maximum limitations apply to individuals
with adjusted gross incomes between $95,000 and $110,000 in the case of single
taxpayers, between $150,000 and $160,000 in the case of married taxpayers filing
joint returns, and between $0 and $10,000 in the case of married taxpayers
filing separately. An overall $2,000 annual limitation continues to apply to all
of a taxpayer's IRA contributions, including Roth IRA and non-Roth IRAs.
Qualified distributions from Roth IRAs are free from federal income tax. A
qualified distribution requires that an individual has held the Roth IRA for at
least five years and, in addition, that the distribution is made either after
the individual reaches age 591/2, on the individual's death or disability, or as
a qualified first-time home purchase, subject to a $10,000 lifetime maximum, for
the individual, a spouse, child, grandchild, or ancestor. Any distribution which
is not a qualified distribution is taxable to the extent of earnings in the
distribution. Distributions are treated as made from contributions first and
therefore no distributions are taxable until distributions exceed the amount of
contributions to the Roth IRA. The 10% penalty tax and the regular IRA
exceptions to the 10% penalty tax apply to taxable distributions from a Roth
IRA.
Amounts may be rolled over from one Roth IRA to another Roth IRA. Furthermore,
an individual may make a rollover contribution from a non-Roth IRA to a Roth
IRA, unless the individual has adjusted gross income over $100,000 or the
individual is a married taxpayer filing a separate return. The individual must
pay tax on any portion of the IRA being rolled over that represents income or a
previously deductible IRA contribution. However, for rollovers in 1998, the
individual may pay that tax ratably over the four taxable year periods beginning
with tax year 1998.
Purchasers of Contracts to be qualified as a Roth IRA should obtain competent
tax advice as to the tax treatment and suitability of such an investment.
c. Pension and Profit-Sharing Plans
Sections 401(a) and 401(k) of the Code permit employers, including self-employed
individuals, to establish various types of retirement plans for employees. These
retirement plans may permit the purchase of the Contracts to provide benefits
under the Plan. Contributions to the Plan for the benefit of employees will not
be includible in the gross income of the employee until distributed from the
Plan. The tax consequences to participants may vary, depending upon the
particular Plan design. However, the Code places limitations and restrictions on
all Plans, including on such items as: amount of allowable contributions; form,
manner and timing of distributions; transferability of benefits; vesting and
nonforfeitability of interests; nondiscrimination in eligibility and
participation; and the tax treatment of distributions and withdrawals.
Participant loans are not allowed under the Contracts purchased in connection
with these Plans. (See "Tax Treatment of Withdrawals - Qualified Contracts.")
Purchasers of Contracts for use with Pension or Profit-Sharing Plans should
obtain competent tax advice as to the tax treatment and suitability of such an
investment.
Tax Treatment of Withdrawals -
Qualified Contracts
In the case of a withdrawal under a Qualified Contract, a ratable portion of the
amount received is taxable, generally based on the ratio of the individual's
cost basis to the individual's total accrued benefit under the retirement plan.
Special tax rules may be available for certain distributions from a Qualified
Contract. Section 72(t) of the Code imposes a 10% penalty tax on the taxable
portion of any distribution from qualified retirement plans, including Contracts
issued and qualified under Code Sections 401 (Pension and Profit-Sharing Plans),
403(b) (Tax-Sheltered Annuities) and 408 and 408A (Individual Retirement
Annuities). To the extent amounts are not includible in gross income because
they have been properly rolled over to an IRA or to another eligible Qualified
Plan, no tax penalty will be imposed. The tax penalty will not apply to the
following distributions: (a) if distribution is made on or after the date on
which the Contract Owner or Annuitant (as applicable) reaches age 591/2; (b)
distributions following the death or disability of the Contract Owner or
Annuitant (as applicable) (for this purpose disability is as defined in Section
72(m) (7) of the Code); (c) after separation from service, distributions that
are part of substantially equal periodic payments made not less frequently than
annually for the life (or life expectancy) of the Contract Owner or Annuitant
(as applicable) or the joint lives (or joint life expectancies) of such Contract
Owner or Annuitant (as applicable) and his or her designated beneficiary; (d)
distributions to a Contract Owner or Annuitant (as applicable) who has separated
from service after he or she has attained age 55; (e) distributions made to the
Contract Owner or Annuitant (as applicable) to the extent such distributions do
not exceed the amount allowable as a deduction under Code Section 213 to the
Contract Owner or Annuitant (as applicable) for amounts paid during the taxable
year for medical care; (f) distributions made to an alternate payee pursuant to
a qualified domestic relations order; (g) distributions from an Individual
Retirement Annuity for the purchase of medical insurance (as described in
Section 213(d) (1) (D) of the Code) for the Contract Owner or Annuitant (as
applicable) and his or her spouse and dependents if the Contract Owner or
Annuitant (as applicable) has received unemployment compensation for at least 12
weeks (this exception no longer applies after the Contract Owner or Annuitant
(as applicable) has been re-employed for at least 60 days); (h) distributions
from an Individual Retirement Annuity made to the Owner or Annuitant (as
applicable) to the extent such distributions do not exceed the qualified higher
education expenses (as defined in Section 72 (t) (7) of the Code) of the Owner
or Annuitant (as applicable) for the taxable year; and (i) distributions from an
Individual Retirement Annuity made to the Owner or Annuitant (as applicable)
which are qualified first-time home buyer distributions (as defined in Section
72 (t) (8) of the Code). The exceptions stated in items (d) and (f) above do not
apply in the case of an Individual Retirement Annuity. The exception stated in
item (c) applies to an Individual Retirement Annuity without the requirement
that there be a separation from service.
With respect to (c) above, if the series of substantially equal periodic
payments is modified before the later of your attaining age 591/2 or 5 years
from the date of the first periodic 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.
Generally, distributions from a Qualified Plan must commence no later than April
1 of the calendar year following the later of: (a) the year in which the
employee attains age 701/2, or (b) the calendar year in which the employee
retires. The date set forth in (b) does not apply to an Individual Retirement
Annuity. Required distributions must be over a period not exceeding the life
expectancy of the individual or the joint lives or life expectancies of the
individual and his or her designated beneficiary. If the required minimum
distributions are not made, a 50% penalty tax is imposed as to the amount not
distributed.
Tax-Sheltered Annuities -
Withdrawal Limitations
The Code limits the withdrawal of amounts attributable to contributions made
pursuant to a salary reduction agreement (as defined in Section 403 (b) (11) of
the Code) to circumstances only when the Contract Owner: (1) attains age 591/2;
(2) separates from service; (3) dies; (4) becomes disabled (within the meaning
of Section 72 (m) (7) of the Code); or (5) in the case of hardship. However,
withdrawals for hardship are restricted to the portion of the Contract Owner's
Contract Value which represents contributions by the Contract Owner and does not
include any investment results. The limitations on withdrawals became effective
on January 1, 1989 and apply only to salary reduction contributions made after
December 31, 1988, and to income attributable to such contributions and to
income attributable to amounts held as of December 31, 1988. The limitations on
withdrawals do not affect rollovers and transfers between certain Qualified
Plans. Contract Owners should consult their own tax counsel or other tax adviser
regarding any distributions.
Annuity Provisions
- --------------------------------------------------------------------------------
Variable Annuity Payout
A variable annuity is an annuity with payments which:
(1) are not predetermined as to dollar amount; and (2) will vary in amount with
the net investment results of the applicable Sub-Account(s) of the Variable
Account. At the Income 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. Both sex distinct and unisex Annuity Tables are
utilized by the Company, depending on the state and type of Contract. If, as of
the Income Date, the then current Annuity Option rates applicable to this class
of Contracts provide a larger income than that guaranteed for the same form of
annuity under the Contract, the larger amount will be paid. The dollar amount of
annuity payments after the first is determined as follows:
1. The dollar amount of the first annuity payment is divided by the value of an
Annuity Unit as of the Income Date. This establishes the number of Annuity Units
for each monthly payment. The number of Annuity Units remains fixed during the
annuity payment period.
2. The fixed number of Annuity Units is multiplied by the Annuity Unit value for
the last Valuation Period of the month preceding the month for which the payment
is due. This result is the dollar amount of the payment.
3. The total dollar amount of each Variable Annuity variable payout is the sum
of all Sub-Account Variable Annuity payments, reduced by the Contract
Maintenance Charge.
Annuity Unit Value
- --------------------------------------------------------------------------------
The value of an Annuity Unit for a Sub-Account is determined (see below) by
subtracting (2) from (1), dividing the result by (3) and multiplying the result
by .999866337248 (.999866337248 is the daily factor to neutralize the assumed
net investment rate of 5% per annum which is built into the annuity rate table)
where:
1. is the net result of
a. the assets of the Sub-Account attributable to the Annuity Units; plus or
minus
b. the cumulative charge or credit for taxes reserved which is determined by the
Company to have resulted from the operation of the Sub-Account;
2. is the cumulative unpaid charge for the Mortality and Expense Risk Charge and
for the Administrative Expense Charge; and
3. is the number of Annuity Units outstanding at the end of the Valuation
Period.
The value of an Annuity Unit may increase or decrease from Valuation Period to
Valuation Period.
Fixed Annuity Payout
A fixed annuity is an annuity with payments which are guaranteed as to dollar
amount by the Company and do not vary with the investment experience of the
Variable Account. The Fixed Option value on the day immediately preceding the
Annuity Date will be used to determine the Fixed Annuity monthly payment. The
monthly Annuity Payment will be based upon the Contract Value at the time of
annuitization, the Annuity Option selected, the age of the annuitant and any
joint annuitant and the sex of the annuitant and any joint annuitant where
allowed.
Financial Statements
- --------------------------------------------------------------------------------
The audited financial statements of the Company as of and for the year ended
December 31, 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 and the unaudited financial statements of the Separate Account
as of and for the period ended June 30, 1999 are also included herein.
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
a. Financial Statements
The financial statements of the Company and the Variable Account will be
filed by Amendment.
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(3)
4. Individual Variable Annuity Contract(2)
5. Application for Individual Variable Annuity Contract(2)
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(2)&(4)
9. Opinion and Consent of Counsel(4)
10. Independent Auditors' Consent(4)
11. Not Applicable
12. Not Applicable
13. Calculation of Performance Information(4)
14. Company Organizational Chart(3)
27. Not Applicable
(1) Incorporated by reference to Post-Effective Amendment No. 9 to
Registrant's Form N-4 as filed electronically on October 27, 1995.
(2) Incorporated by reference to Post-Effective Amendment No. 10 to
Registrants Form N-4 as filed electronically on April 18, 1996.
(3) Incorporated by reference to Post-Effective Amendment No.14 to
Registrants Form N-4 as filed electronically on April 29, 1998.
(4) To be filed by Amendment.
Item 25. Directors and Officers of the Depositor
The following are the Officers and Directors of the Company:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices
Business Address with Depositor
- ----------------- ------------------------------
<S> <C>
Lowell C. Anderson Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Ronald L. Wobbeking Chairman, Chief Executive Officer and Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Thomas G. Brown Director
One Liberty Plaza,
45th Floor
New York, NY 10006
Edward J. Bonach Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Thomas D. Barta Treasurer
1750 Hennepin Avenue
Minneapolis, MN 55403
Dennis Marion Director
500 Valley Road
Wayne, NJ 07470
Kenneth P. Schrapp Appointed Actuary
1750 Hennepin Avenue
Minneapolis, MN 55403
Robert S. James Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Eugene T. Wilkinson Director
14 Commerce Drive
Cranford, NJ 07016
Eugene Long Vice President of Operations
152 W. 57th Street and Director
18th Floor
New York, NY 10019
Thomas J. Lynch President and Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Reinhard W. Obermueller Director
560 Lexington Ave
New York, NY 10022
Stephen R. Herbert Director
900 Third Avenue
New York, NY 10022
Jack F. Rockett Director
140 East 95th Street, Ste 6A
New York, NY 10129
</TABLE>
Item 26. Persons Controlled by or Under Common Control with the Depositor
or Registrant
The Company organizational chart was filed as Exhibit 14 in Post-Effective
Amendment No. 14 to Registrant's Form N-4 and is incorporated herein by
reference.
Item 27. Number of Contract Owners
As of July 30, 1999, there were 4,361 qualified Contract Owners and 8,820
non-qualified Contract Owners.
Item 28. Indemnification
The Bylaws of the Company provide that:
Each person (and the heirs, executors, and administrators of such person) made
or threatened to be made a party to any action, civil or criminal, by reason of
being or having been a Director, officer, or employee of the corporation (or by
reason of serving any other organization at the request of the corporation)
shall be indemnified to the extent permitted by the laws of the State of New
York, and in the manner prescribed therein.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted for directors and officers or controlling persons of the
Company pursuant to the foregoing, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
Item 29. Principal Underwriters
a. NALAC Financial Plans, LLC is the principal underwriter for the
Contracts. It also is the principal underwriter for:
Allianz Life Variable Account A
Allianz Life Variable Account B
b. The following are the officers(managers) and directors(Board of
Governors) of NALAC Financial Plans, LLC:
<TABLE>
<CAPTION>
Name & Principal Positions and Offices
Business Address with Underwriter
- ---------------- ---------------------
<S> <C>
Christopher H. Pinkerton Governor
1750 Hennepin Avenue
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.
REPRESENTATIONS
The Company hereby represents that it is relying upon a No-Action Letter issued
to the American Council of Life Insurance, dated November 28, 1988 (Commission
ref. IP-6-88), and that the following provisions have been complied with:
1. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration statement, including the
prospectus, used in connection with the offer of the contract;
2. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in connection with
the offer of the contract;
3. Instruct sales representatives who solicit participants to purchase the
contract specifically to bring the redemption restrictions imposed by Section
403(b)(11) to the attention of the potential participants;
4. Obtain from each plan participant who purchases a Section 403(b) annuity
contract, prior to or at the time of such purchase, a signed statement
acknowledging the participant's understanding of (1) the restrictions on
redemption imposed by Section 403(b)(11), and (2) other investment alternatives
available under the employer's Section 403(b) arrangement to which the
participant may elect to transfer his contract value.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, as amended, the Registrant certifies that it has caused this registration
statement to be signed on its behalf in the City of Minneapolis and State of
Minnesota, on this 19th day of August, 1999.
<TABLE>
<CAPTION>
<S> <C>
PREFERRED LIFE VARIABLE
ACCOUNT C
(Registrant)
By: PREFERRED LIFE INSURANCE
COMPANY OF NEW YORK
(Depositor)
By: /s/ Michael T. Westermeyer
--------------------------
PREFERRED LIFE INSURANCE
COMPANY OF NEW YORK
(Depositor)
By: /s/ Michael T. Westermeyer
--------------------------
</TABLE>
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
Signature and Title
<TABLE>
<CAPTION>
<S> <C> <C>
Lowell C. Anderson* Director
Lowell C. Anderson 08/19/99
Ronald L. Wobbeking* Chairman, Chief Executive
Ronald L. Wobbeking Officer and Director 08/19/99
Thomas D. Barta* Treasurer
Thomas D. Barta 08/19/99
Thomas G. Brown* Director
Thomas G. Brown 08/19/99
Edward J. Bonach* Director
Edward J. Bonach 08/19/99
Robert S. James* Director
Robert S. James 08/19/99
Thomas J. Lynch* President and Director
Thomas J. Lynch 08/19/99
Dennis Marion* Director
Dennis Marion 08/19/99
Eugene T. Wilkinson* Director
Eugene T. Wilkinson 08/19/99
Eugene Long* Director
Eugene Long 08/19/99
Reinhard W. Obermueller*Director
Reinhard W. Obermueller 08/19/99
Stephen R. Herbert* Director
Stephen R. Herbert 08/19/99
Jack F. Rockett* Director
Jack F. Rockett 08/19/99
</TABLE>
* By /S/ Michael T. Westermeyer
--------------------------
Attorney-in-Fact
Secretary and Director
EXHIBITS
TO
POST-EFFECTIVE AMENDMENT NO. 17
TO
FORM N-4
PREFERRED LIFE VARIABLE ACCOUNT C
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
INDEX TO EXHIBITS
Exhibit Page
To be filed by Amendment
