File Nos.333-19699
811-05716
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ( )
Pre-Effective Amendment No. ( )
Post-Effective Amendment No. 7 (X)
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 ( )
Amendment No. 40 (X)
(Check appropriate box or boxes.)
PREFERRED LIFE VARIABLE ACCOUNT C
---------------------------------
(Exact Name of Registrant)
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
---------------------------------------------
(Name of Depositor)
152 West 57th Street, 18th Floor, New York, New York 10019
---------------------------------------------------- ---------
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (212) 586-7733
Name and Address of Agent for Service
- -------------------------------------
Eugene Long
Preferred Life Insurance Company of New York
152 West 57th Street, 18th Floor
New York, New York 10019
Copies to:
Judith A. Hasenauer
Blazzard, Grodd & Hasenauer, P.C.
P.O. Box 5108
Westport, CT 06881
(203) 226-7866
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b) of Rule 485
_X_ on November 12, 1999 pursuant to paragraph (b) of Rule 485
___ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
___ on (date) pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following:
___ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Registered:
Individual Deferred Variable Annuity Contracts
CROSS REFERENCE SHEET
(Required by Rule 495)
<TABLE>
<CAPTION>
<S> <C> <C>
Item No. Location
PART A
Item 1. Cover Page. Cover Page
Item 2. Definitions. Index of Terms
Item 3. Synopsis or Highlights Summary
Item 4. Condensed Financial Information Appendix
Item 5. General Description of Registrant,
Depositor, and Portfolio Companies Preferred Life,
The Separate
Account, Investment
Options
Item 6. Deductions Expenses
Item 7. General Description of Variable
Annuity Contracts The Valuemark IV
Variable and Fixed
Annuity Contract
Item 8. Annuity Period Annuity Payments
(The Payout Phase)
Item 9. Death Benefit Death Benefit
Item 10. Purchases and Contract Value Purchase
Item 11. Redemptions. Access to Your
Money
Item 12. Taxes Taxes
Item 13. Legal Proceedings None
Item 14. Table of Contents of the Statement of
Additional Information Table of Contents of
the Statement of
Additional Information
PART B
Item 15. Cover Page Cover Page
Item 16. Table of Contents Table of Contents
Item 17. General Information and History Insurance Company
Item 18. Services Not Applicable
Item 19. Purchase of Securities Being Offered Not Applicable
Item 20. Underwriters Distributor
Item 21. Calculation of Performance Data Calculation of
Performance Data
Item 22. Annuity Payments Annuity Provisions
Item 23. Financial Statements Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item so numbered, in Part C to this Registration Statement.
<PAGE>
PART A
THE VALUEMARK IV VARIABLE ANNUITY CONTRACT
issued by
Preferred Life Variable Account C
and
Preferred Life Insurance Company of New York
- -------------------------------------------------------------------------------
This prospectus describes the Valuemark IV Variable Annuity Contract with a
Fixed Account 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 a Fixed Account of
Preferred Life. Each Variable Option invests in a Portfolio of the corresponding
fund listed below. You can select up to 10 investment choices (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 LONG-TERM
Capital Growth
Alger American Growth Fund
Alger American Leveraged AllCap Fund
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 Communications Securities Fund*
Franklin Growth and Income Fund
Franklin Income Securities Fund
Franklin Real Estate Securities Fund
Franklin Rising Dividends Fund
Franklin Value Securities Fund
Mutual Shares Securities Fund Templeton Global Asset Allocation Fund
Portfolios Seeking Capital Growth
Franklin Capital Growth Fund
Franklin Global Health Care Securities Fund
Franklin Natural Resources Securities Fund
Franklin S&P 500 Index Fund
Franklin Small Cap Fund
Mutual Discovery Securities 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
Portfolio Seeking Growth and Income
USAllianz VIP Diversified Assets Fund
PORTFOLIO SEEKING INCOME
USAllianz VIP Fixed Income Fund
* Prior to November 15, 1999, this was the Franklin Global Utilities Securities
Fund.
The Securities and Exchange Commission has not approved or disapproved these
securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense. Please read this
prospectus before investing and keep it for future reference. It contains
important information about the Valuemark IV Variable Annuity Contract with a
Fixed Account.
To learn more about the annuity offered by this prospectus, you can obtain a
copy of the Statement of Additional Information (SAI) dated November 12, 1999.
The SAI has been filed with the Securities and Exchange Commission (SEC) and is
incorporated by reference into this prospectus. The Table of Contents of the SAI
is on page 23 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, 18th Floor, New York, New York 10019.
The Valuemark IV 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
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: November 12, 1999
<PAGE>
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
Index of Terms 4
Summary 5
Fee Table 6
1. The Valuemark IV
Variable Annuity Contract 10
Contract Owner 10
Joint Owner 10
Annuitant 10
Beneficiary 10
Assignment 10
2. Annuity Payments (The Payout Phase) 11
Annuity Options 11
3. Purchase 12
Purchase Payments 12
Automatic Investment Plan 12
Allocation of Purchase Payments 12
Free Look 12
Accumulation Units 12
4. Investment Options 13
Transfers 15
Dollar Cost Averaging Program 16
Flexible Rebalancing 16
Voting Privileges 16
Substitution 16
5. Expenses 16
Insurance Charges 16
Mortality and Expense Risk Charge 16
Administrative Charge 17
Contract Maintenance Charge 17
Contingent Deferred Sales Charge 17
Waiver of Contingent Deferred
++Sales Charge 18
Reduction or Elimination of the
Contingent Deferred Sales Charge 18
Transfer Fee 18
Income Taxes 18
Portfolio Expenses 18
6. Taxes 18
Annuity Contracts in General 19
Qualified and Non-Qualified Contracts
Multiple Contracts 19
Withdrawals - Non-Qualified Contracts 19
Withdrawals - Qualified Contracts 19
Withdrawals - Tax-Sheltered Annuities 19
Diversification 19
7. Access to Your Money 20
Systematic Withdrawal Program 20
Minimum Distribution Program 20
Suspension of Payments or Transfers 20
8. Performance 20
9. Death Benefit 21
Upon Your Death 21
Death of Annuitant 22
10. Other Information 22
Preferred Life 22
Year 2000 22
The Separate Account 22
Distribution 23
Administration 23
Financial Statements 23
Table of Contents of the
Statement of Additional Information 23
Appendix 24
<PAGE>
INDEX OF TERMS
- -------------------------------------------------------------------------------
This prospectus is written in plain English to make it as understandable for you
as possible. However, there are some technical terms used which are capitalized
in this prospectus. The page that is indicated below is where you will find the
definition for the word or term.
Page
Accumulation Phase 10
Accumulation Unit 13
Annuitant 10
Annuity Options 11
Annuity Payments 11
Annuity Unit 13
Beneficiary 10
Contract 10
Contract Owner 10
Fixed Account 10
Page
Income Date 11
Joint Owner 10
Non-Qualified 19
Payout Phase 10
Portfolios 10
Purchase Payment 12
Qualified 19
Tax Deferral 10
Variable Option 5
<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, the available Variable Options or both. 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:
You can buy the Contract with $5,000 or more under most circumstances. You can
add $250 or more any time you like during the Accumulation Phase.
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 $50,000.
Preferred Life deducts a mortality and expense risk charge which is equal, on an
annual basis, to 1.34% of the average daily value of the Contract invested in a
Variable Option during the Accumulation Phase (1.25% during the Payout Phase).
Preferred Life also deducts an administrative charge which is equal, on an
annual basis, to 0.15% of the 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 6% in the first year and declines to 0% after 7
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
0.49% 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 591/2 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.
Free-Look:
You can cancel the contract within 10 days after receiving it. Preferred Life
will refund the value of your Contract on the day it receives your request to
cancel the Contract. This may be more or less than your original payment. If you
have purchased the Contract as an individual retirement annuity, Preferred Life
will refund the Purchase Payment.
Inquiries:
If you have questions about your Contract or need more information, please
contact us at:
Valuemark Service Center
300 Berwyn Park
P.O. Box 3031
Berwyn, PA 19312-0031
1-800-624-0197
<PAGE>
FEE TABLE
- -------------------------------------------------------------------------------
The purpose of this Fee Table is to help you understand the costs of investing,
directly or indirectly, in the Variable Options under 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 6%
1-2 6%
2-3 6%
3-4 5%
4-5 4%
5-6 3%
6-7 2%
7 + 0%
Transfer Fee First 12 transfers in a Contract year are free. Thereafter, the
fee is $25 (or 2% of the amount transferred, if less). Dollar
Cost Averaging transfers and Flexible Rebalancing transfers
are not counted.
CONTRACT MAINTENANCE CHARGE** $30 per Contract per year
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Charge*** 1.34%
Administrative Charge 0.15%
-----------
Total Separate Account Annual Expenses 1.49%
* Each year after the first Contract year, you may make multiple partial
withdrawals of up to a total of 15% of the value of your Contract and no
contingent deferred sales charge will be assessed. See Section 7 - "Access
to Your Money" for additional options.
** During the Accumulation Phase, the charge is waived if the value of your
Contract is at least $50,000. If you own more than one Valuemark IV Contract
(registered with the same social security number), we will determine the
total value of all your Contracts. If the total value of all your Contracts
is at least $50,000, the charge is waived. Currently, the charge is also
waived during the Payout Phase if the value of your Contract at the Income
Date is at least $50,000.
*** The Mortality and Expense Risk Charge is 1.25% during the Payout Phase.
<PAGE>
<TABLE>
<CAPTION>
FUND ANNUAL EXPENSES
(as a percentage of the fund's average net assets for the most recent fiscal year). See the accompanying fund prospectuses for
more information.
Management
and Portfolio 12b-1 Total Annual
Administration Fees1 Fees Other Expenses Expenses
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM V.I. Growth Fund .64% -- .08% .72%
Alger American Growth Fund .75% -- .04% .79%
Alger American Leveraged AllCap Fund2 .85% -- .11% .96%
Franklin Capital Growth Fund .75% -- .02% .77%
Franklin Global Health Care Securities Fund3 .75% -- .09% .84%
Franklin Global Communications Securities Fund4 .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 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 Fund5 .15% -- .38% .53%
Franklin Small Cap Fund .75% -- .02% .77%
Franklin U.S. Government Securities Fund .48% -- .02% .50%
Franklin Value Securities Fund3 .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%
Mutual Discovery Securities Fund .95% -- .05% 1.00%
Mutual Shares Securities Fund .74% -- .03% .77%
Templeton Developing Markets Equity Fund 1.25% -- .16% 1.41%
Templeton Global Asset Allocation Fund .80% -- .04% .84%
Templeton Global Growth Fund .83% -- .05% .88%
Templeton 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 Fund5 .55% .25% .40% 1.20%
USAllianz VIP Fixed Income Fund5 .50% .25% .30% 1.05%
USAllianz VIP Growth Fund5 .75% .25% .28% 1.28%
<FN>
1. The Portfolio Administration Fee is a direct expense for the Franklin Global Health Care Securities Fund, the Franklin Value
Securities Fund, the Mutual Discovery Securities Fund, the Mutual Shares Securities Fund, the Templeton Global Asset Allocation
Fund, and the Templeton International Smaller Companies Fund. Other Portfolios of Franklin Templeton Variable Insurance Products
Trust pay for similar services indirectly through the Management Fee. See the Franklin Templeton Variable Insurance Products Trust
prospectus for further information regarding these fees.
2. Other expenses for the Alger American Leveraged AllCap Fund 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. Prior to November 15, 1999, this was the Franklin Global Utilities Securities Fund.
5. The Franklin S&P 500 Index Fund, the US Allianz VIP Diversified Assets Fund, the US Allianz VIP Fixed Income Fund, and the US
Allianz VIP Growth Fund commenced operations as of the date of this prospectus. The expenses shown above for these portfolios are
therefore estimated for 1999.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXAMPLES
oThe examples below should not be considered a representation of past or future expenses. Actual expenses may be greater or less
than those shown.
oThe $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.
oPremium taxes are not reflected in the tables. Premium taxes may apply.
oFor additional information, see Section 5 - "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 $83 $123 $157 $264
Alger American Growth Fund $84 $125 $161 $272
Alger American Leveraged AllCap Fund $86 $130 $170 $289
Franklin Capital Growth Fund $84 $125 $160 $270
Franklin Global Health Care Securities Fund* $85 $127 $164 $277
Franklin Global Communications Securities Fund $81 $116 $146 $242
Franklin Growth and Income Fund $81 $116 $146 $241
Franklin High Income Fund $82 $117 $148 $245
Franklin Income Securities Fund $81 $116 $146 $241
Franklin Money Market Fund $82 $117 $148 $245
Franklin Natural Resources Securities Fund $83 $121 $153 $256
Franklin Real Estate Securities Fund $82 $118 $148 $246
Franklin Rising Dividends Fund $83 $123 $157 $264
Franklin S&P 500 Index Fund* $82 $117 $148 $245
Franklin Small Cap Fund $84 $125 $160 $270
Franklin U.S. Government Securities Fund $81 $116 $146 $242
Franklin Value Securities Fund* $85 $126 $163 $276
Franklin Zero Coupon Fund - 2000 $83 $121 $154 $258
Franklin Zero Coupon Fund - 2005 $83 $121 $154 $258
Franklin Zero Coupon Fund - 2010 $83 $121 $154 $258
Mutual Discovery Securities Fund $86 $132 $172 $293
Mutual Shares Securities Fund $84 $125 $160 $270
Templeton Developing Markets Equity Fund $90 $144 $192 $332
Templeton Global Asset Allocation Fund $85 $127 $164 $277
Templeton Global Growth Fund $85 $128 $166 $281
Templeton Global Income Securities Fund $83 $120 $153 $255
Templeton International Equity Fund $85 $128 $166 $281
Templeton International Smaller Companies Fund $87 $135 $177 $302
Templeton Pacific Growth Fund $87 $135 $177 $302
USAllianz VIP Diversified Assets Fund* $88 $138 $181 $312
USAllianz VIP Fixed Income Fund* $87 $133 $174 $298
USAllianz VIP Growth Fund* $89 $140 $185 $320
<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 your Contract is not
surrendered or if you apply your Contract value to an Annuity Option:
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM V.I. Growth Fund $23 $72 $123 $264
Alger American Growth Fund $24 $74 $127 $272
Alger American Leveraged All Cap $26 $79 $136 $289
Franklin Capital Growth Fund $24 $74 $126 $270
Franklin Global Health Care Securities Fund* $25 $76 $130 $277
Franklin Global Communications Securities Fund $21 $65 $112 $242
Franklin Growth and Income Fund $21 $65 $112 $241
Franklin High Income Fund $22 $66 $114 $245
Franklin Income Securities Fund $21 $65 $112 $241
Franklin Money Market Fund $22 $66 $114 $245
Franklin Natural Resources Securities Fund $23 $70 $119 $256
Franklin Real Estate Securities Fund $22 $67 $114 $246
Franklin Rising Dividends Fund $23 $72 $123 $264
Franklin Small Cap Fund $24 $74 $126 $270
Franklin S&P 500 Index Fund* $22 $66 $114 $245
Franklin U.S. Government Securities Fund $21 $65 $112 $242
Franklin Value Securities Fund* $25 $75 $129 $276
Franklin Zero Coupon Fund - 2000 $23 $70 $120 $258
Franklin Zero Coupon Fund - 2005 $23 $70 $120 $258
Franklin Zero Coupon Fund - 2010 $23 $70 $120 $258
Mutual Discovery Securities Fund $26 $81 $138 $293
Mutual Shares Securities Fund $24 $74 $126 $270
Templeton Developing Markets Equity Fund $30 $93 $158 $332
Templeton Global Asset Allocation Fund $25 $76 $130 $277
Templeton Global Growth Fund $25 $77 $132 $281
Templeton Global Income Securities Fund $23 $69 $119 $255
Templeton International Equity Fund $25 $77 $132 $281
Templeton International Smaller Companies Fund $27 $84 $143 $302
Templeton Pacific Growth Fund $27 $84 $143 $302
USAllianz VIP Diversified Assets Fund* $28 $87 $147 $312
USAllianz VIP Fixed Income Fund* $27 $82 $140 $298
USAllianz VIP Growth Fund* $29 $89 $151 $320
<FN>
*Estimated
</FN>
</TABLE>
<PAGE>
See the Appendix for Accumulation Unit Values - Condensed Financial Information.
1. THE VALUEMARK IV
VARIABLE ANNUITY CONTRACT
- -------------------------------------------------------------------------------
This prospectus describes a variable deferred annuity contract with a Fixed
Account offered by Preferred Life.
An annuity is a contract between you, the owner, and an insurance company (in
this case Preferred Life), where the insurance company promises to pay you (or
someone else you choose) an income, in the form of Annuity Payments, beginning
on a designated date that is at least two years in the future. Until you decide
to begin receiving Annuity Payments, your annuity is in the Accumulation Phase.
Once you begin receiving Annuity Payments, your Contract switches to the Payout
Phase.
The Contract benefits from Tax Deferral. Tax Deferral means that you are not
taxed on earnings or appreciation on the assets in your Contract until you take
money out of your Contract.
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 the Contract, the amount of money you are able to accumulate in your
Contract during the Accumulation Phase depends in large part upon the investment
performance of the Portfolio(s) you select. The amount of the Annuity Payments
you receive during the Payout Phase from the variable annuity portion of the
Contract also depends in large part upon the investment performance of the
Portfolios you select for the Payout Phase.
The Contract also contains a Fixed Account. The Fixed Account offers an interest
rate that is guaranteed by Preferred Life for all deposits made within the
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 at any time. This may be a taxable event. You should
consult with your tax adviser before doing this.
JOINT OWNER
The Contract can be owned by Joint Owners. Upon the death of either Joint Owner,
the surviving Joint Owner will be the designated Beneficiary. Any other
Beneficiary designation at the time the Contract was issued or as may have been
later changed will be treated as a contingent Beneficiary unless otherwise
indicated.
ANNUITANT
The Annuitant is the natural person on whose life we base Annuity Payments. You
name an Annuitant. You may change the Annuitant at any time before the Income
Date unless the Contract is owned by a non-individual (for example, a
corporation).
BENEFICIARY
The Beneficiary is the person(s) or entity you name to receive any death
benefit. The Beneficiary is named at the time the Contract is issued unless
changed at a later date. Unless an irrevocable Beneficiary has been named, you
can change the Beneficiary or contingent Beneficiary.
ASSIGNMENT
You can transfer ownership (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 it takes in accordance with the Contract before it
receives notice of the assignment. Any assignment made after the death benefit
has become payable can only be done with our consent. An assignment may be a
taxable event.
If the Contract is issued pursuant to a Qualified plan, there may be limitations
on your ability to assign the Contract.
2. ANNUITY PAYMENTS
(THE PAYOUT PHASE)
- -------------------------------------------------------------------------------
You can receive regular monthly income payments under your Contract. You can
choose the month and year in which those payments begin. We call that date the
Income Date. Your Income Date must be the first day of a calendar month and must
be at least 2 full years after you buy the Contract. You can also choose among
income plans. We call those Annuity Options.
We ask you to choose your Income Date when you purchase the Contract. You can
change it at any time before the Income Date with 30 days notice to us. Annuity
Payments must begin by the first day of the first calendar month following the
Annuitant's 90th birthday. You (or someone you designate) will receive the
Annuity Payments. You will receive tax reporting on those payments.
You may elect to receive your Annuity Payments as a variable payout, a fixed
payout, or a combination of both. Under a fixed payout, all of the Annuity
Payments will be the same dollar amount (equal installments). If you choose a
variable payout, you can select from the available 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
payment will depend upon three things:
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,
and
3) the performance of the Variable Option(s) you selected.
If the actual performance exceeds the 5% assumed investment rate, your Annuity
Payments will increase. Similarly, if the actual rate is less than 5%, your
Annuity Payments will decrease.
ANNUITY OPTIONS
You can choose one of the following Annuity Options or any other Annuity Option
you want and that Preferred Life agrees to provide. After Annuity Payments
begin, you cannot change the Annuity Option. If you do not choose an Annuity
Option prior to the Income Date, we will assume that you selected Option 2 which
provides a life annuity with 5 years of guaranteed payments.
OPTION 1. Life Annuity. Under this option, we will make monthly Annuity Payments
so long as the Annuitant is alive. After the Annuitant dies, we stop making
Annuity Payments.
OPTION 2. Life Annuity with 5, 10, 15 or 20 Year Payments Guaranteed. Under this
option, we will make monthly Annuity Payments so long as the Annuitant is alive.
However, if the Annuitant dies before the end of the selected guaranteed period,
we will continue to make Annuity Payments to you or any person you choose for
the rest of the guaranteed period. If you do not want to receive Annuity
Payments after the Annuitant's death, you can ask us for a single lump sum.
OPTION 3. Joint and Last Survivor Annuity. Under this option, we will make
monthly Annuity Payments during the joint lifetime of the Annuitant and the
joint Annuitant. When the Annuitant dies, if the joint Annuitant is still alive,
we will continue to make Annuity Payments so long as the joint Annuitant
continues to live. The amount of the Annuity Payments we will make to you can be
equal to 100%, 75% or 50% of the amount that was being paid when both Annuitants
were alive. The monthly Annuity Payments will end when the last surviving
Annuitant dies.
OPTION 4. Joint and Last Survivor Annuity with 5, 10, 15 or 20 Year Payments
Guaranteed. Under this option, we will make monthly Annuity Payments during the
joint lifetime of the Annuitant and the joint Annuitant. When the Annuitant
dies, if the joint Annuitant is still alive, we will continue to make Annuity
Payments, so long as the surviving Annuitant continues to live, at 100% of the
amount that would have been paid if they were both alive. If, when the last
death occurs, we have made Annuity Payments for less than the selected
guaranteed period, we will continue to make Annuity Payments to you or any
person you choose for rest of the guaranteed period. If you do not want to
receive Annuity Payments after the last Annuitant's death, you can ask us for a
single lump sum.
OPTION 5. Refund Life Annuity. Under this option, we will make monthly Annuity
Payments during the Annuitant's lifetime. The last Annuity Payment will be made
before the Annuitant dies and if the value of the Annuity Payments made is less
than the value applied to the Annuity Option, then you will receive a refund as
set forth in the Contract.
3. PURCHASE
- -------------------------------------------------------------------------------
PURCHASE PAYMENTS
A Purchase Payment is the money you invest in the Contract. The minimum payment
Preferred Life will accept is $5,000 when the Contract is bought as a
Non-Qualified Contract. If you enroll in the automatic investment plan (which is
described below), your Purchase Payment can be $2,000. If you are buying the
Contract as part of an IRA (Individual Retirement Annuity), 401(k) or other
qualified plan, the minimum amount we will accept is $2,000. The maximum we will
accept without our prior approval is $1 million. You can make additional
Purchase Payments of $250 (or as low as $100 if you have selected the automatic
investment plan) or more to either type of Contract. Preferred Life may, at its
sole discretion, waive minimum payment requirements. At the time you buy the
Contract, you and the Annuitant cannot be older than 85 years old.
This product is not designed for professional market timing organizations, other
entities, or persons using programmed, large or frequent transfers.
AUTOMATIC INVESTMENT PLAN
The Automatic Investment Plan (AIP) is a program which allows you to make
additional Purchase Payments to your Contract on a monthly or quarterly basis by
electronic transfer of funds from your savings or checking account. You may
participate in this program by completing the appropriate form. We must receive
your form by the first of the month in order for AIP to begin that same month.
Investments will take place on the 20th of the month, or the next business day.
The minimum investment that can be made by AIP is $100. You may stop AIP at any
time you want. We need to be notified by the first of the month in order to stop
or change AIP that month. If AIP is used for a Qualified Contract, you should
consult your tax adviser for advice regarding maximum contributions.
ALLOCATION OF PURCHASE PAYMENTS
When you purchase a Contract, we will allocate your Purchase Payment to the
Fixed Account and/or one or more of the Variable Options you have selected. We
ask that you allocate your money in either whole percentages or round dollars.
You can instruct us how to allocate additional Purchase Payments you make.
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 10 investment choices at any one time (which includes any of the Variable
Options listed in Section 4 and the Preferred Life Fixed Account). We may change
this in the future. However, we will always allow you to invest in at least five
Variable Options.
Once we receive your Purchase Payment and the necessary information, we will
issue your Contract and allocate your first Purchase Payment within 2 business
days. If you do not give us all of the information we need, we will contact you
or your registered representative to get it. If for some reason we are unable to
complete this process within 5 business days, we will either send back your
money or get your permission to keep it until we get all of the necessary
information. If you make additional Purchase Payments, we will credit these
amounts to your Contract within one business day. Our business day closes when
the New York Stock Exchange closes, which is usually at 4:00 p.m. Eastern time.
FREE LOOK
If you change your mind about owning the Contract, you can cancel it within 10
days after receiving it. Return of the Contract by mail is effective on being
postmarked, properly addressed and postage prepaid. When you cancel the Contract
within this time period, Preferred Life will not assess a contingent deferred
sales charge. You will receive back whatever your Contract is worth on the day
we receive your request. If you have purchased the Contract as an IRA, we are
required to give you back your Purchase Payment if you decide to cancel your
Contract within 10 days after receiving it. If that is the case, we have the
right to allocate your initial Purchase Payment to the Franklin Money Market
Fund for 15 days after we receive it. At the end of that period, we will
re-allocate your money as you selected. Currently, however, we will directly
allocate your money to the Variable Options and/or the Fixed Account as you have
selected.
ACCUMULATION UNITS
The value of the portion of your Contract allocated to the Variable Options will
go up or down depending 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 credited is determined by dividing the amount
of the Purchase Payment allocated to a Variable Option by the value of the
Accumulation Unit.
We calculate the value of an Accumulation Unit after the New York Stock Exchange
closes each day and then credit your Contract.
EXAMPLE:
On Wednesday we receive an additional Purchase Payment of $3,000 from you. You
have told us you want this to go to the 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.
4. INVESTMENT OPTIONS
- -------------------------------------------------------------------------------
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 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.
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 in connection with your Contract.
Investment advisers for each Portfolio are listed in the table below and are as
follows: A I M Advisors, Inc., Allianz of America, Inc., Fred Alger Management,
Inc., Franklin Advisers, Inc., Franklin Advisory Services, LLC, Franklin Mutual
Advisers, LLC, 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> Investment
Available Portfolios Advisers
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
AIM VARIABLE INSURANCE FUNDS, INC.:
Portfolio Seeking Capital Growth
AIM V.I. Growth Fund A I M Advisors, Inc.
THE ALGER AMERICAN FUND:
Portfolios Seeking LONG-TERM Capital Growth
Alger American Growth Fund Fred Alger Management, Inc.
Alger American Leveraged AllCap Fund 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 and 2010 Franklin Advisers, Inc.
Templeton Global Income Securities Fund Franklin Advisers, Inc.
Portfolios Seeking Growth And Income
Franklin Global Communications Securities Fund* Franklin Advisers, Inc.
Franklin Growth and Income Fund Franklin Advisers, Inc.
Franklin Income Securities Fund Franklin Advisers, Inc.
Franklin Real Estate Securities Fund Franklin Advisers, Inc.
Franklin Rising Dividends Fund Franklin Advisory Services, LLC
Franklin Value Securities Fund Franklin Advisory Services, LLC
Mutual Shares Securities Fund Franklin Mutual Advisers, LLC
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 Natural Resources Securities Fund Franklin Advisers, Inc.
Franklin S&P 500 Index Fund Franklin Advisers, Inc.
Franklin Small Cap Fund Franklin Advisers, Inc.
Mutual Discovery Securities Fund Franklin Mutual Advisers, LLC
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.
<FN>
* Prior to November 15, 1999, this was the Franklin Global Utilities Securities Fund.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Investment
Available Portfolios Advisers
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
USALLIANZ VARIABLE
INSURANCE PRODUCTS TRUST:
Portfolio Seeking Capital Growth
USAllianz VIP Growth Allianz of America, Inc.
Portfolio Seeking Growth and Income
USAllianz VIP Diversified Assets Fund Allianz of America, Inc.
PORTFOLIO SEEKING INCOME
USAllianz VIP Fixed Income Fund Allianz of America, Inc.
</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 Preferred 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.
Preferred Life may enter into certain arrangements 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. Preferred Life may change this practice in the future. However, this
product is not designed for professional market timing organizations or other
persons using programmed, large, or frequent transfers. Such activity may be
disruptive to a Portfolio. We reserve the right to reject any specific Purchase
Payment allocation or transfer request from any person, if in the Portfolio
managers' judgment, a Portfolio would be unable to invest effectively in
accordance with its investment objectives and policies, or would otherwise
potentially be adversely affected.
Your Contract provides that you can make 12 transfers every year without charge.
We measure a year from the anniversary of the day we issued your Contract. You
can make a transfer to or from the Fixed Account and to or from any Variable
Option. If you make more than 12 transfers in a year, there is a transfer fee
deducted. The fee is $25 per transfer or, if less, 2% of the amount transferred.
The following applies to any transfer:
1) The minimum amount which you can transfer is $1,000 or your entire value in
the Variable Option or Fixed Account. This requirement is waived if the transfer
is in connection with the Dollar Cost Averaging Program or Flexible Rebalancing
(which are described below).
2) We may not allow you to make transfers during the free look period.
3) Your request for a transfer must clearly state which 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.
Preferred Life has reserved the right to modify the transfer provisions subject
to the guarantees described above.
You can make transfers by telephone by properly completing the telephone
transfer forms provided by Preferred Life. We may allow you to authorize someone
else to make transfers by telephone on your behalf. If you own the Contract with
a Joint Owner, unless Preferred Life is instructed otherwise, Preferred Life
will accept instructions from either one of you. Preferred Life will use
reasonable procedures to confirm that instructions given us by telephone are
genuine. If we do not use such procedures, we may be liable for any losses due
to unauthorized or fraudulent instructions. Preferred Life tape records all
telephone instructions.
DOLLAR COST AVERAGING PROGRAM
The Dollar Cost Averaging Program allows you to systematically transfer a set
amount of money each month or quarter from any one 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.
You must participate in the program for at least six months (or two quarters)
and must transfer at least $500 each time (or $1,500 each quarter). Your
allocations can be in whole percentages or dollar amounts. You may elect this
program by properly completing the Dollar Cost Averaging forms printed by
Preferred Life.
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.
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 will be made on the 20th day of the month unless that day
is not a business day. If it is not, then the transfer will be made on the
previous day.
If you participate in Flexible Rebalancing, the transfers made under the program
are not taken into account in determining any transfer fee. The Fixed 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. We may also limit further investment in a Variable Option if we deem
the investment inappropriate.
5. EXPENSES
- -------------------------------------------------------------------------------
There are charges and other expenses associated with the Contract that will
reduce your investment return. These charges and expenses are:
INSURANCE CHARGES
Each day, Preferred Life makes a deduction for its insurance charges. Preferred
Life does this as part of its calculation of the value of the Accumulation Units
and the Annuity Units. The insurance charge has two parts:
1) the mortality and expense risk charge, and
2) the administrative charge.
Mortality and Expense Risk Charge. During the Accumulation Phase, this charge is
equal, on an annual basis, to 1.34% of the average daily value of the Contract
invested in a Variable Option. During the Payout Phase, the charge is equal, on
an annual basis, to 1.25% of the average daily value of the Contract invested in
a Variable Option. 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). The
amount of the mortality and expense risk charge is less during the Payout Phase
because Preferred Life does not pay a death benefit separate from benefits under
the Annuity Option if you die during the Payout Phase.
Administrative Charge. This charge is equal, on an annual basis, to .15% of the
average daily value of the Contract invested in a Variable Option. 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 is at
least $50,000 when the deduction for the charge is to be made, Preferred Life
will not deduct this charge. If you own more than one Valuemark IV Contract,
Preferred Life will determine the total value of all your Valuemark IV
Contracts. If the total value of all Contracts registered under the same social
security number is at least $50,000, Preferred Life will not assess the contract
maintenance charge. Currently, the charge is also waived during the Payout Phase
if the value of your Contract at the Income Date is at least $50,000. If the
Contract is owned by a non-natural person (e.g., a corporation), Preferred Life
will look to the Annuitant to determine if it will assess the charge.
If you make a complete withdrawal from your Contract, the contract maintenance
charge will also be deducted. During the Payout Phase, if the contract
maintenance charge is deducted, the charge will be collected monthly out of each
Annuity Payment.
CONTINGENT DEFERRED SALES CHARGE
Withdrawals 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 how long Preferred Life has had your payment.
The charge is:
Contingent Deferred
Sales Charge
Years Since (as a percentage of
Purchase Payment Purchase Payments)
-----------------------------------------------------
0-1 6%
1-2 6%
2-3 6%
3-4 5%
4-5 4%
5-6 3%
6-7 2%
7+ 0%
However, after Preferred Life has had a Purchase Payment for 7 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. Preferred Life does not assess the
contingent deferred sales charge on any payments paid out as Annuity Payments or
as death benefits.
NOTE: For tax purposes, 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 (referred to in sales literature as "15% Withdrawal
Privilege") - Each year after the first Contract year, you can make multiple
withdrawals of up to 15% of the value of your Contract and no contingent
deferred sales charge will be deducted from the 15% you take out. Withdrawals in
excess of that free amount 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 also elect to participate in the Systematic Withdrawal Program or the
Minimum Distribution Program which allow you to make withdrawals without the
deduction of the contingent deferred sales charge under certain circumstances.
You cannot use these programs and the 15% free withdrawal amount in the same
Contract year. See Section 7 - "Access to Your Money" for a description of the
Systematic Withdrawal Program and the Minimum Distribution Program.
Waiver of Contingent Deferred Sales Charge
Under certain circumstances, after the first year, Preferred Life will permit
you to take your money out of the Contract without deducting the contingent
deferred sales charge if you or your Joint Owner become totally disabled for at
least 90 consecutive days.
Reduction or Elimination of the
Contingent Deferred Sales Charge
Preferred Life will reduce or eliminate the amount of the contingent deferred
sales charge when the Contract is sold under circumstances which reduce its
sales expenses. Some examples are: if there is a large group of individuals that
will be purchasing the Contract or a prospective purchaser already had a
relationship with Preferred Life. Preferred Life may not deduct a contingent
deferred sales charge under a Contract issued to an officer, director or
employee of Preferred Life or any of its affiliates. Any circumstances resulting
in reduction or elimination of the contingent deferred sales charge requires
prior approval of Preferred Life.
TRANSFER FEE
You can make 12 free transfers every year. We measure a year from the day we
issue your Contract. If you make more than 12 transfers a year, we will deduct a
transfer fee of $25 or 2% of the amount that is transferred, whichever is less,
for each additional transfer. The transfer fee will be deducted from the
Variable Option or the Fixed Account from which the transfer is made. If the
entire amount is transferred, the fee will be deducted from the amount
transferred.
If the transfer is part of the Dollar Cost Averaging Program or Flexible
Rebalancing, it will not count in determining the transfer fee.
INCOME TAXES
Preferred Life reserves the right to deduct from the Contract for any income
taxes which it may incur because of the Contract. Currently, Preferred Life is
not making any such deductions.
PORTFOLIO EXPENSES
There are deductions from the assets of the various Portfolios for operating
expenses (including management fees) which are described in the Fee Table in
this prospectus and the accompanying fund prospectuses.
6. TAXES
- -------------------------------------------------------------------------------
NOTE: Preferred Life has prepared the following information on taxes as a
general discussion of the subject. It is not intended as tax advice. You should
consult your own tax adviser about your own circumstances. Preferred Life has
included additional information regarding taxes in the Statement of Additional
Information.
ANNUITY CONTRACTS IN GENERAL
Annuity contracts are a means of setting aside money for future needs - usually
retirement. Congress recognized how important saving for retirement was and
provided special rules in the Internal Revenue Code (Code) for annuities.
Basically, these rules provide that you will not be taxed on any earnings on the
money held in your annuity Contract until you take the money out. This is
referred to as Tax Deferral. There are different rules regarding how you will be
taxed depending upon how you take the money out and the type of Contract -
Qualified or Non-Qualified (see following sections).
You, as the Contract Owner, will not be taxed on increases in the value of your
Contract until a distribution occurs either as a 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 591(0)2;
2) paid after you die;
3) paid if the taxpayer becomes totally disabled (as that term is defined in the
Code);
4) paid in a series of substantially equal payments made annually (or more
frequently) for the life or life expectancy of the taxpayer;
5) paid under an immediate annuity; or
6) which come from Purchase Payments made prior to August 14, 1982.
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 amounts attributable to Purchase Payments made
under a salary reduction agreement by Contract Owners from Tax-Sheltered
Annuities. Withdrawals can only be made when a Contract Owner:
1) reaches age 591(0)2;
2) leaves his/her job;
3) dies;
4) becomes disabled (as that term is defined in the Code); or
5) in the case of hardship. However, in the case of hardship, the Contract Owner
can only withdraw the Purchase Payments and not any earnings.
DIVERSIFICATION
The Code provides that the underlying investments for a variable annuity must
satisfy certain diversification requirements in order to be treated as an
annuity contract. Preferred Life believes that the Portfolios are being managed
so as to comply with the requirements.
Neither the Code nor the Internal Revenue Service Regulations issued to date
provide guidance as to the circumstances under which you, because of the degree
of control you exercise over the underlying investments, and not Preferred Life
would be considered the owner of the shares of the Portfolios. If 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.
7. ACCESS TO YOUR MONEY
- -------------------------------------------------------------------------------
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, less any premium tax and less any contract maintenance charge.
(See Section 5 - "Expenses" for a discussion of the charges.)
Any partial withdrawal must be for at least $500. Unless you instruct Preferred
Life otherwise, a partial withdrawal will be made pro-rata from all the Variable
Options and the Fixed Account you selected. Preferred Life requires that after
you make a partial withdrawal the value of your Contract must be at least
$2,000.
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 Section 6 - "Taxes" and
the discussion in the SAI.
SYSTEMATIC WITHDRAWAL PROGRAM
If the value of your Contract is at least $25,000, Preferred Life offers a plan
which provides automatic monthly or quarterly payments to you from your Contract
each year. The total systematic withdrawals which you can make each year without
Preferred Life deducting a contingent deferred sales charge is limited to 15% of
the value of your Contract determined on the business day before we receive your
request. You may withdraw any amount you want under this program if your
payments are no longer subject to the contingent deferred sales charge. If you
make withdrawals under this plan, you may not also use the 15% free withdrawal
amount that year. For a discussion of the contingent deferred sales charge and
the 15% free withdrawal amount, see Section 5 - "Expenses." All systematic
withdrawals will be made on the 9th day of the month unless that day is not a
business day. If it is not, then the withdrawal will be made the previous
business day.
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.
8. 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
Portfolio expenses. It does not reflect the deduction of any applicable
contingent deferred sales charge and contract maintenance charge. The deduction
of any applicable contract maintenance charges and contingent deferred sales
charges would reduce the percentage increase or make greater any percentage
decrease. Any advertisement will also include average annual total return
figures which reflect the deduction of the insurance charges, contract
maintenance charge, contingent deferred sales charges and the expenses of the
Portfolios. Preferred Life may also advertise cumulative total return
information. Cumulative total return is determined the same way except that the
results are not annualized. Performance information for the underlying
Portfolios may also be advertised; see the fund prospectuses for more
information.
Certain Portfolios have been in existence for some time and have investment
performance history. In order to demonstrate how the actual investment
experience of the Portfolios may affect your Accumulation Unit values, Preferred
Life has prepared performance information. The performance is based on the
historical performance of the Portfolios, modified to reflect the charges and
expenses of your Contract as if the Contract had been in existence for the time
periods shown. The inception dates of the Portfolios pre-date the inception
dates of the corresponding Variable Options. For periods starting prior to the
date the Variable Options 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 and does not
guarantee future results of the Variable Options.
9. DEATH BENEFIT
- --------------------------------------------------------------------------------
UPON YOUR DEATH
If you or your Joint Owner die during the Accumulation Phase, Preferred Life
will pay a death benefit to your Beneficiary (see below). No death benefit is
paid during the Payout Phase. The amount of the death benefit is:
I. Contracts That Receive An Enhanced Death Benefit Endorsement
Contracts that are owned individually, or jointly with another person, or as
agent for an individual person, will receive an enhanced death benefit
endorsement. For these Contracts, the death benefit will be the greater of
(1) or (2) below:
1) The current value of your Contract, less any taxes owed. This amount is
determined as of the day we receive all claim proofs and payment election
forms at our Valuemark Service Center.
2) The guaranteed minimum death benefit (as explained below and in the
enhanced death benefit endorsement to your Contract), as of the day we
receive all claim proofs and payment election forms at our Valuemark Service
Center.
A.+During the first year of all such Contracts and if you are age 81 or
older at the time of purchase, the following guaranteed minimum death
benefit will apply:
o payments you have made,
o less any money you have taken out,
o less any applicable charges paid on money taken out.
B.+After the first Contract year, for Contracts issued before your 81st
birthday, and until you reach age 81, the greater of (a) or (b) below
will be your guaranteed minimum death benefit:
a)+Purchase Payments
o payments you have made,
o less any money you have taken out,
o less any applicable charges paid on money taken out.
b)+Contract Value
o highest value of the Contract on each Contract anniversary,
o plus any payments made since that
Contract anniversary,
o less any money you have taken out since that anniversary,
o less any applicable charges paid on money taken out since that
anniversary,
C.After your 81st birthday, the following guaranteed minimum death
benefit will apply:
o your guaranteed minimum death benefit on the Contract anniversary
prior to your 81st birthday,
o plus any payments you have made since then,
o less any money you have taken out since then,
o less any applicable charges paid on money taken out since then.
II.Contracts That Do Not Receive An Enhanced Death Benefit Endorsement
For all Contracts that do not receive an enhanced death benefit endorsement, the
death benefit will be:
The current value of your Contract, less any taxes owed. We determine this
amount as of the day we receive all claim proofs and payment election forms
at our Valuemark Service Center.
III.+Additional Provisions
If you have a Joint Owner, the age of the oldest Contract Owner will be used to
determine the guaranteed minimum death benefit. The guaranteed minimum death
benefit will be reduced by any amounts withdrawn after the date of death. If the
Contract is owned by a non-natural person, then all references to you mean the
Annuitant. If you have a Joint Owner, and the Joint Owner dies, the surviving
Owner will be the Beneficiary.
A Beneficiary may request that the death benefit be paid in one of the following
ways: (1) payment of the entire death benefit within 5 years of the date of
death; or (2) payment of the death benefit under an Annuity Option. The death
benefit payable under an Annuity Option must be paid over the Beneficiary's
lifetime or for a period not extending beyond the Beneficiary's life expectancy.
Payment must begin within one year of the date of death. (3) If the Beneficiary
is the spouse of the Contract Owner, he/she can choose to continue the Contract
in his/her own name at the then current value, or if greater, the death benefit
value. (4) If a lump sum payment is elected and all the necessary requirements,
including any required tax consent from the state of New York (when required),
are met, the payment will be made within 7 days. We may delay paying the death
benefit until we receive the tax consent (when required).
If you (or any Joint Owner) die during the Payout Phase and you are not the
Annuitant, any payments which are remaining under the Annuity Option selected
will continue at least as rapidly as they were being paid at your death. If you
die during the Payout Phase, the Beneficiary becomes the Contract Owner.
DEATH OF ANNUITANT
If the Annuitant, who is not a Contract Owner or Joint Owner, dies during the
Accumulation Phase, you can name a new Annuitant. If you do not name a new
Annuitant within 30 days of the death of the Annuitant, you will become the
Annuitant. However, if the Contract Owner is a non-natural person (e.g., a
corporation), then the death of the Annuitant will be treated as the death of
the Contract Owner, and a new Annuitant may not be named.
If the Annuitant dies after Annuity Payments have begun, the remaining amounts
payable, if any, will be as provided for in the Annuity Option selected. The
remaining amounts payable will be paid to the Contract Owner at least as rapidly
as they were being paid at the Annuitant's death.
10. OTHER INFORMATION
- -------------------------------------------------------------------------------
PREFERRED LIFE
Preferred Life Insurance Company of New York (Preferred Life), 152 West 57th
Street, 18th Floor, New York, NY 10019, was organized under the laws of the
state of New York. Preferred Life offers annuities and group life, group
accident and health insurance and variable annuity products. Preferred Life is
licensed to do business in six states and the District of Columbia. Preferred
Life is a wholly-owned subsidiary of Allianz Life Insurance Company of North
America, which is a wholly-owned subsidiary of Allianz Versicherungs AG Holding.
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 Contracts,
except assets you allocate to the Fixed Account. The Board of Directors of
Preferred Life adopted a resolution to establish the Separate Account under New
York insurance law on February 26, 1988. Preferred Life has registered the
Separate Account with the Securities and Exchange Commission as a unit
investment trust under the Investment Company Act of 1940. The Separate Account
is divided into Variable Options (also known as sub-accounts). Each Variable
Option invests in a Portfolio.
The assets of the Separate Account are held in Preferred Life's name on behalf
of the Separate Account and legally belong to Preferred Life. However, those
assets that underlie the Contracts, are not chargeable with liabilities arising
out of any other business Preferred Life may conduct. All the income, gains and
losses (realized or unrealized) resulting from these assets are credited to or
charged against the Contracts and not against any other contracts Preferred Life
may issue.
DISTRIBUTION
USAllianz Investor Services, LLC (formerly NALAC Financial Plans, LLC), 1750
Hennepin Avenue, Minneapolis, MN 55403, acts as the distributor of the
Contracts. USAllianz Investor Services, LLC, is an affiliate of Preferred 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. In
addition, Preferred Life may pay certain sellers for other services not directly
related to the sale of the Contracts (such as special marketing support
allowances). The New York Insurance Department permits compensation based on the
assets in your Contract. Preferred Life may adopt a different compensation
program based on the assets in your Contract in addition to, or in lieu of, the
present compensation program. Commissions may be recovered from broker-dealers
if a full or partial withdrawal occurs within 12 months of a Purchase Payment or
there is a recission of the Contract within the Free-Look period.
ADMINISTRATION
Preferred Life has hired Delaware Valley Financial Services, Inc., 300 Berwyn
Park, Berwyn, Pennsylvania, to perform administrative services regarding the
Contracts. The administrative services include issuance of the Contracts and
maintenance of Contract Owner's records.
FINANCIAL STATEMENTS
The financial statements of Preferred Life and the Separate Account have been
included in the Statement of Additional Information.
TABLE OF CONTENTS
OF THE STATEMENT OF
ADDITIONAL INFORMATION
- -----------------------------------------------------------------
Insurance Company 2
Experts 2
Legal Opinions 2
Distributor 2
Reduction or Elimination of the
Contingent Deferred Sales Charge 2
Calculation of Performance Data 2
Federal Tax Status 4
Annuity Provisions 9
Mortality and Expense Risk Guarantee 10
Financial Statements 10
APPENDIX
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONDENSED FINANCIAL INFORMATION
The consolidated financial statements of Preferred Life Insurance Company of New
York and the financial statements of Preferred Life Variable Account C may be
found in the Statement of Additional Information.
The table below includes Accumulation Unit values for the period indicated.
This information should be read in conjunction with the financial statements and
related notes of the Separate Account included in the Statement of of Additional
Information.
(Number of units in thousands)
Period from
Period Inception
ended (8/17/98) to
Sub-Accounts: June 30, 1999 Dec. 31, 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Franklin Capital Growth
Unit value at beginning of period $15.537 $13.110
Unit value at end of period $17.321 $15.537
Number of units outstanding at end of period 52 17
Franklin Global Health Care Securities
Unit value at beginning of period $10.604 $10.000
Unit value at end of period $8.963 $10.604
Number of units outstanding at end of period 14 8
Franklin Global Communications Securities*
Unit value at beginning of period $28.082 $25.635
Unit value at end of period $30.398 $28.082
Number of units outstanding at end of period 8 2
Franklin Growth and Income
Unit value at beginning of period $25.993 $24.354
Unit value at end of period $27.829 $25.993
Number of units outstanding at end of period 53 17
Franklin High Income
Unit value at beginning of period $21.020 $21.141
Unit value at end of period $21.132 $21.020
Number of units outstanding at end of period 50 25
Franklin Income Securities
Unit value at beginning of period $24.898 $24.864
Unit value at end of period $25.153 $24.898
Number of units outstanding at end of period 43 14
Franklin Money Market
Unit value at beginning of period $14.260 $13.756
Unit value at end of period $14.470 $14.260
Number of units outstanding at end of period 9 12
Franklin Natural Resources Securities
Unit value at beginning of period $8.430 $11.466
Unit value at end of period $10.811 $8.430
Number of units outstanding at end of period 10 7
</TABLE>
<TABLE>
<CAPTION>
(Number of units in thousands)
Period from
Period Inception
ended (8/17/98) to
Sub-Accounts: June 30, 1999 Dec. 31, 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Franklin Real Estate Securities
Unit value at beginning of period $22.901 $27.944
Unit value at end of period $23.987 $22.901
Number of units outstanding at end of period 3 1
Franklin Rising Dividends
Unit value at beginning of period $21.034 $19.968
Unit value at end of period $21.467 $21.034
Number of units outstanding at end of period 53 17
Franklin Small Cap
Unit value at beginning of period $14.558 $14.923
Unit value at end of period $16.831 $14.558
Number of units outstanding at end of period 18 9
Franklin U.S. Government Securities
Unit value at beginning of period $18.847 $17.805
Unit value at end of period $18.465 $18.847
Number of units outstanding at end of period 81 28
Franklin Value Securities
Unit value at beginning of period $7.713 $10.000
Unit value at end of period $8.491 $ 7.713
Number of units outstanding at end of period 41 22
Franklin Zero Coupon 2000
Unit value at beginning of period $20.502 $19.358
Unit value at end of period $20.557 $20.502
Number of units outstanding at end of period 10 2
Franklin Zero Coupon 2005
Unit value at beginning of period $24.786 $22.357
Unit value at end of period $23.383 $24.786
Number of units outstanding at end of period 4 2
Franklin Zero Coupon 2010
Unit value at beginning of period $27.674 $24.544
Unit value at end of period $25.048 $27.674
Number of units outstanding at end of period 7 3
Mutual Discovery Securities
Unit value at beginning of period $11.205 $11.971
Unit value at end of period $12.462 11.205
Number of units outstanding at end of period 27 17
(Number of units in thousands)
</TABLE>
<TABLE>
<CAPTION>
Period from
Period Inception
ended (8/17/98) to
Sub-Accounts: June 30, 1999 Dec. 31, 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Mutual Shares Securities
Unit value at beginning of period $11.814 $11.981
Unit value at end of period $13.433 $11.814
Number of units outstanding at end of period 87 38
(Number of units in thousands)
Templeton Developing Markets Equity
Unit value at beginning of period $7.958 $10.305
Unit value at end of period $10.735 $7.958
Number of units outstanding at end of period 2 5
Templeton Global Asset Allocation
Unit value at beginning of period $13.543 $13.752
Unit value at end of period $14.133 $13.543
Number of units outstanding at end of period 3 1
Templeton Global Growth
Unit value at beginning of period $16.238 $15.124
Unit value at end of period $18.050 $16.238
Number of units outstanding at end of period 47 10
Templeton Global Income Securities
Unit value at beginning of period $17.746 $16.821
Unit value at end of period $16.698 $17.746
Number of units outstanding at end of period 6 2
Templeton International Equity
Unit value at beginning of period $18.322 $17.617
Unit value at end of period $20.261 $18.322
Number of units outstanding at end of period 13 8
Templeton International Smaller Companies
Unit value at beginning of period $9.342 $10.809
Unit value at end of period $10.856 $9.342
Number of units outstanding at end of period 4 3
Templeton Pacific Growth
Unit value at beginning of period $8.028 $9.381
Unit value at end of period $10.261 $8.028
Number of units outstanding at end of period 7 6
* Prior to November 15, 1999, this was the Franklin Global Utilities Securities Fund.
<FN>
There are no Accumulation Unit Values shown for the Franklin S&P 500 Index, AIM
V.I. Growth, Alger American Growth, Alger American Leveraged AllCap, USAllianz
VIP Diversified Assets, USAllianz VIP Fixed Income and USAllianz VIP Growth
Sub-Accounts because they commenced operations as of the date of this prospectus
and therefore had no assets as of June 30, 1999.
</FN>
</TABLE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
VALUEMARK IV
INDIVIDUAL FLEXIBLE PAYMENT
VARIABLE ANNUITY CONTRACTS
issued by
PREFERRED LIFE VARIABLE ACCOUNT C
and
PREFERRED LIFE INSURANCE COMPANY OF NEWYORK
November 12, 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 PROSPECTUS, CALL OR WRITE THE
INSURANCE COMPANY AT: 152 West 57th Street, 18th Floor, New York, NY 10019,
(800) 542-5427.
THIS STATEMENT OF ADDITIONAL INFORMATION AND THE PROSPECTUS ARE DATED NOVEMBER
12, 1999, AND AS MAY BE AMENDED FROM TIME TO TIME.
Table of Contents
- --------------------------------------------------------
Contents Page
Insurance Company ............................... 2
Experts ......................................... 2
Legal Opinions .................................. 2
Distributor ..................................... 2
Reduction or Elimination of the
Contingent Deferred Sales Charge ............... 2
Calculation of Performance Data ................. 2
Federal Tax Status .............................. 5
Annuity Provisions .............................. 10
Mortality and Expense Risk Guarantee ............ 11
Financial Statements ............................ 11
Insurance Company
- --------------------------------------------------------------------------------
Information regarding Preferred Life Insurance Company of New York ("Insurance
Company") is contained in the Prospectus.
The Insurance Company is rated A+ (Superior, Group Rating) by A.M. BEST, an
independent analyst of the insurance industry. The financial strength of an
insurance company may be relevant insofar as the ability of a company to make
fixed annuity payments from its general account.
Experts
- -------------------------------------------------------------------------------
The financial statements of Preferred Life Variable Account C and the financial
statements of the Insurance Company as of and for the year ended December 31
1998, included in this Statement of Additional Information have been audited by
KPMG, LLP independent auditors, as indicated in their reports included in this
Statement of Additional Information and are included herein in reliance upon
such reports and upon the authority of said firm as experts in accounting and
auditing.
Legal Opinions
- --------------------------------------------------------------------------------
Blazzard, Grodd & Hasenauer, P.C., Westport, Connecticut has provided advice on
certain matters relating to the federal securities and income tax laws in
connection with the Contracts.
Distributor
- --------------------------------------------------------------------------------
USAllianz Investor Services, LLC (formerly NALAC Financial Plans, LLC) an
affiliate of the Insurance Company, acts as the distributor. The offering is on
a continuous basis.
Reduction or Elimination of the
Contingent Deferred Sales Charge
- --------------------------------------------------------------------------------
The amount of the Contingent Deferred Sales Charge on the Contracts may be
reduced or eliminated when sales of the Contracts are made to individuals or to
a group of individuals in a manner that results in savings of sales expenses.
The entitlement to a reduction of the Contingent Deferred Sales Charge will be
determined by the Insurance Company after examination of the following factors:
1) the size of the group; 2) the total amount of purchase payments expected to
be received from the group; 3) the nature of the group for which the Contracts
are purchased, and the persistency expected in that group; 4) the purpose for
which the Contracts are purchased and whether that purpose makes it likely that
expenses will be reduced; and 5) any other circumstances which the Insurance
Company believes to be relevant to determining whether reduced sales or
administrative expenses may be expected. None of the reductions in charges for
sales is contractually guaranteed.
The Contingent Deferred Sales Charge may be eliminated when the Contracts are
issued to an officer, director or employee of the Insurance Company or any of
its affiliates. In no event will any reduction or elimination of the Contingent
Deferred Sales Charge be permitted where the reduction or elimination will be
unfairly discriminatory to any person.
Calculation of Performance Data
- --------------------------------------------------------------------------------
Total Return
From time to time, the Insurance Company may advertise the performance data for
the Variable Options in sales literature, advertisements, personalized
hypothetical illustrations and Contract Owner communications. Such data will
show the percentage change in the value of an accumulation unit based on the
performance of a Portfolio over a stated period of time, usually a calendar
year, which is determined by dividing the increase (or decrease) in value for
that unit by the accumulation unit value at the beginning of the period.
Any such performance data will also include average annual total return figures
for one, five and ten year (or since inception) time periods indicated. Such
total return figures will reflect the deduction of a 1.34% mortality and expense
risk charge, a .15% administrative charge, the operating expenses of the
underlying Portfolio and any applicable contract maintenance charge and
contingent deferred sales charges. The contingent deferred sales charge and
contract maintenance charge deductions are calculated assuming a Contract is
surrendered at the end of the reporting period. The hypothetical value of a
Contract purchased for the time periods described will be determined by using
the actual accumulation unit values for an initial $1,000 purchase payment, and
deducting any applicable contract maintenance charges and any applicable
contingent deferred sales charge to arrive at the ending hypothetical value. The
average annual total return is then determined by computing the fixed interest
rate that a $1,000 purchase payment would have to earn annually, compounded
annually, to grow to the hypothetical value at the end of the time periods
described. The formula used in these calculations is:
P (1 + T)n = ERV
where:
P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years;
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the time periods used at the end of such time periods (or
fractional portion thereof).
The Insurance Company may also advertise performance data which will be
calculated in the same manner as described above but which will not reflect the
deduction of the contingent deferred sales charge and the Contract maintenance
charge. The Insurance Company may also advertise cumulative and average total
return information over different periods of time. The Insurance Company may
also present performance information computed on a different basis.
Cumulative total return is calculated in a similar manner, except that the
results are not annualized. Each calculation assumes that no sales load is
deducted from the initial $1,000 payment at the time it is allocated to the
Portfolios and assumes that the income earned by the investment in the Portfolio
is reinvested.
Contract Owners should note that investment results will fluctuate over time,
and any presentation of total return for any period should not be considered as
a representation of what an investment may earn or what a Contract Owner's total
return may be in any future period.
Yield
The Franklin Money Market Fund. The Insurance Company may advertise yield
information for the Franklin Money Market Fund. The Franklin Money Market Fund's
current yield may vary each day, depending upon, among other things, the average
maturity of the underlying Portfolio's investment securities and changes in
interest rates, operating expenses, the deduction of the Mortality and Expense
Risk Charge, the Administrative Charge and the Contract Maintenance Charge and,
in certain instances, the value of the underlying Portfolio's investment
securities. The fact that the Portfolio's current yield will fluctuate and that
the principal is not guaranteed should be taken into consideration when using
the Portfolio's current yield as a basis for comparison with savings accounts or
other fixed-yield investments. The yield at any particular time is not
indicative of what the yield may be at any other time.
The Franklin Money Market Fund's current yield is computed on a base period
return of a hypothetical Contract having a beginning balance of one accumulation
unit for a particular period of time (generally seven days). The return is
determined by dividing the net change (exclusive of any capital changes) in such
accumulation unit by its beginning value, and then multiplying it by 365/7 to
get the annualized current yield. The calculation of net change reflects the
value of additional shares purchased with the dividends paid by the Portfolio,
and the deduction of the mortality and expense risk charge, the administrative
charge and contract maintenance charge. The effective yield reflects the effects
of compounding and represents an annualization of the current return with all
dividends reinvested. (Effective yield = [(Base Period Return + 1)365/7] - 1.)
For the seven-day period ending on June 30, 1999, the Franklin Money Market
Sub-Account had a current yield of 2.92% and an effective yield of 2.96%. The
yield information assumes that the Sub-Account was invested in the Franklin
Money Market Fund for the time period shown.
Other Portfolios. The Insurance Company may also quote yield in sales
literature, advertisements, personalized hypothetical illustrations, and
Contract Owner communications for the other Portfolios. Each Portfolio (other
than the Franklin Money Market Fund) will publish standardized total return
information with any quotation of current yield.
The yield computation is determined by dividing the net investment income per
accumulation unit earned during the period (minus the deduction for the
mortality and expense risk charge, administrative charge and the Contract
maintenance charge) by the accumulation unit value on the last day of the period
and annualizing the resulting figure, according to the following formula:
Yield = 2 [(a-b + 1)6 - 1]
cd
where:
a = net investment income earned during the period by the Portfolio attributable
to shares owned by the Sub-Account;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of accumulation units outstanding during the
period;
d = the maximum offering price per accumulation unit on the last day of the
period.
The above formula will be used in calculating quotations of yield, based on
specified 30-day periods (or one month) identified in the sales literature,
advertisement or communication. Yield calculations assume no sales load. The
Insurance Company does not currently advertise any yield information for any
Portfolio.
Performance Ranking
Total return may be compared to relevant indices, including U. S. domestic and
international indices and data from Lipper Analytical Services, Inc., Standard &
Poor's Indices, or VARDS. From time to time, evaluation of performance by
independent sources may also be used.
Performance Information
In order to show how investment performance of the Portfolios affects
Accumulation Unit values, the following performance information was developed.
The chart below shows Accumulation Unit performance which assumes that the
Accumulation Units were invested in each of the Portfolios for the same periods.
The performance figures in Column I represent performance figures for the
Accumulation Units which reflect the deduction of the mortality and expense risk
charge, administrative charge, and the operating expenses of the Portfolios.
Column II represents performance figures for the Accumulation Units which
reflect the mortality and expense risk charge, administrative charge, the
contract maintenance charge, the operating expenses of the Portfolios and
assumes that you make a withdrawal at the end of the period (therefore the
contingent deferred sales charge is reflected). Past performance does not
guarantee future results.
<TABLE>
<CAPTION>
Valuemark IV
Total Return for the periods ended June 30, 1999
Column I Column II
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio
Inception One Five Ten Since One Five Ten Since
Portfolio Date Year Years Years Inception Year Years Years Inception
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Franklin Capital Growth 5/1/96 18.62% NA NA 18.94% 12.52% NA NA 17.91%
Franklin Global Health Care
Securities 5/1/9 -10.77 NA NA -8.95% -16.87% NA NA -13.59%
Franklin Global Communications
Securities 1/24/89 12.16% 16.23% 11.02% 11.25% 6.06% 15.78% 10.95% 11.18%
Franklin Growth and Income 1/24/89 9.21% 16.56% 10.83% 10.31% 3.11% 16.11% 10.76% 10.23%
Franklin High Income 1/24/89 -3.06% 7.94% 7.50% 7.44% -9.16% 7.35% 7.42% 7.36%
Franklin Income Securities 1/24/89 0.62% 8.80% 9.41% 9.25% -5.48% 8.23% 9.34% 9.18%
Franklin Money Market+ 1/24/89 3.29% 3.63% 7.03% 3.60% -2.81% 2.94% 6.85% 3.52%
Franklin Natural Resources
Securities 1/24/89 2.59% -4.26% 0.47% 0.75% -3.51% -5.19% 0.38% 0.66%
Franklin Real Estate Securities 1/24/89 -9.45% 8.86% 8.62% 8.75% -15.55% 8.29% 8.54% 8.68%
Franklin Rising Dividends 1/27/92 3.06% 17.20% NA 10.84% -3.04% 16.76% NA 10.75%
Franklin Small Cap 11/01/95 7.91% NA NA 15.26% 1.81% NA NA 14.37%
Franklin U.S. Government
Securities 3/14/89 0.88% 6.13% 6.32% 6.14% -5.22% 5.51% 6.24% 6.06%
Franklin Value Securities 5/1/98 -6.87% NA NA -13.07% -12.97% NA NA -17.75%
Franklin Zero Coupon - 2000+ 3/14/89 3.58% 5.86% 6.93% 7.25% -2.52% 5.22% 6.86% 7.18%
Franklin Zero Coupon - 2005+ 3/14/89 0.49% 7.89% 7.58% 8.60% -5.61% 7.30% 7.50% 8.53%
Franklin Zero Coupon - 2010+ 3/14/89 -3.64% 9.95% 8.34% 9.33% -9.74% 9.41% 8.26% 9.26%
Mutual Discovery Securities 11/08/96 -5.30% NA NA 8.69% -11.40% NA NA 6.88%
Mutual Shares Securities 11/08/96 4.96% NA NA 11.82% -1.14% NA NA 10.09%
Templeton Developing Markets
Equity 3/15/94 28.13% 1.54% NA 1.35% 22.03% 0.79% NA 0.77%
Templeton Global Asset Allocation 5/1/95 0.71% NA NA 8.66% -5.39% NA NA 7.92%
Templeton Global Growth 3/15/94 10.63% 12.59% NA 11.80% 4.53% 12.08% NA 11.41%
Templeton Global Income Securities1/24/89 -2.60% 4.40% 4.96% 5.04% -8.70% 3.73% 4.89% 4.96%
Templeton International Equity 1/27/92 2.19% 10.73% NA 9.98% -3.91% 10.19% NA 9.89%
Templeton International
Smaller Companies 5/01/96 -1.02% NA NA 2.63% -7.12% NA NA 1.22%
Templeton Pacific Growth 1/27/92 49.80% -4.96% NA 0.35% 43.70% -5.93% NA 0.25%
<FN>
The Franklin Global Health Care Securities and the Franklin Value Securities
Sub-Accounts commenced operations on May 1, 1998.
The Franklin S&P 500, USAllianz VIP Growth, USAllianz VIP Diversified
Assets, and the USAllianz VIP Fixed Income Sub-Accounts commenced operations
on November 12, 1999.
+Calculated with waiver of fees.
</FN>
</TABLE>
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 1 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.
<TABLE>
<CAPTION>
Total Return
for the periods ended June 30, 1999
Column I Column II
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio
Inception One Five Ten Since One Five Ten Since
Portfolio Date Year Years Years Inception Year Years Years Inception
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AIM V.I. Growth 5/5/93 25.16% 24.63% NA 19.55% 19.06% 24.28% NA 19.36%
Alger American Growth 1/9/89 33.21% 28.22% 20.65% 20.84% 27.11% 27.90% 20.59% 20.78%
Alger American Leveraged AllCap 1/25/95 55.38% NA NA 39.25% 49.28% NA NA 38.93%
</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 Insurance Company's
understanding of current federal income tax law applicable to annuities in
general. The Insurance Company cannot predict the probability that any changes
in such laws will be made. Purchasers are cautioned to seek competent tax advice
regarding the possibility of such changes. The Insurance Company does not
guarantee the tax status of the Contracts. Purchasers bear the complete risk
that the Contracts may not be treated as "annuity contracts" under federal
income tax laws. It should be further understood that the following discussion
is not exhaustive and that special rules not described herein may be applicable
in certain situations. Moreover, no attempt has been made to consider any
applicable state or other tax laws.
General
Section 72 of the Internal Revenue Code of 1986, as amended (the "Code") governs
taxation of annuities in general. A Contract Owner is not taxed on increases in
the value of a Contract until distribution occurs, either in the form of a lump
sum payment or as annuity payments under the Annuity Option elected. For a lump
sum payment received as a total surrender (total redemption) or death benefit,
the recipient is taxed on the portion of the payment that exceeds the cost basis
of the Contract. For Non-Qualified Contracts, this cost basis is generally the
purchase payments, while for Qualified Contracts there may be no cost basis. The
taxable portion of the lump sum payment is taxed at ordinary income tax rates.
For annuity payments, a portion of each payment in excess of an exclusion amount
is 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 Insurance Company is taxed as a life insurance company under the Code. For
federal income tax purposes, the Separate Account is not a separate entity from
the Insurance Company, and its operations form a part of the Insurance Company.
Diversification
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not adequately
diversified in accordance with regulations prescribed by the United States
Treasury Department ("Treasury Department"). Disqualification of the Contract as
an annuity contract would result in imposition of federal income tax to the
Contract Owner with respect to earnings allocable to the Contract prior to the
receipt of payments under the Contract. The Code contains a safe harbor
provision which provides that annuity contracts such as the Contracts meet the
diversification requirements if, as of the end of each quarter, the underlying
assets meet the diversification standards for a regulated investment company and
no more than fifty-five percent (55%) of the total assets consist of cash, cash
items, U.S. government securities and securities of other regulated investment
companies.
On March 2, 1989, the Treasury Department issued regulations (Treas. Reg.
1.817-5) which established diversification requirements for the investment
portfolios underlying variable contracts such as the Contracts. The regulations
amplify the diversification requirements for variable contracts set forth in the
Code and provide an alternative to the safe harbor provision described above.
Under the regulations, an investment portfolio will be deemed adequately
diversified if: (1) no more than 55% of the value of the total assets of the
portfolio is represented by any one investment; (2) no more than 70% of the
value of the total assets of the portfolio is represented by any two
investments; (3) no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and (4) no more than 90% of
the value of the total assets of the portfolio is represented by any four
investments.
The Code provides that for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable contracts
by Section 817(h) of the Code have been met, "each United States government
agency or instrumentality shall be treated as a separate issuer."
The Insurance Company intends that all Portfolios 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 Insurance Company reserves the right to
modify the Contract in an attempt to maintain favorable tax treatment.
Multiple Contracts
The Code provides that multiple non-qualified annuity contracts which are issued
within a calendar year period to the same contract owner by one company or its
affiliates are treated as one annuity contract for purposes of determining the
tax consequences of any distribution. Such treatment may result in adverse tax
consequences, including more rapid taxation of the distributed amounts from such
combination of contracts. 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 59 1/2; (b) after the death of the Contract
Owner; (c) if the taxpayer is totally disabled (for this purpose disability is
as defined in Section 72(m)(7) of the Code); (d) in a series of substantially
equal periodic payments made not less frequently than annually for the life (or
life expectancy) of the taxpayer 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 59 1/2 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 are designed to be suitable for use under various types of
Qualified Plans. Because of the minimum purchase payment requirements, these
Contracts may not be appropriate for some periodic payment retirement plans.
Taxation of participants in each Qualified Plan varies with the type of plan and
terms and conditions of each specific plan. Contract Owners, annuitants and
beneficiaries are cautioned that benefits under a Qualified Plan may be subject
to the terms and conditions of the plan regardless of the terms and conditions
of the Contracts issued pursuant to the plan. Some retirement plans are subject
to distribution and other requirements that are not incorporated into the
Insurance Company's administrative procedures. Contract Owners, participants and
beneficiaries are responsible for determining that contributions, distributions
and other transactions with respect to the Contracts comply with applicable law.
Following are general descriptions of the types of Qualified Plans with which
the Contracts may be used. Such descriptions are not exhaustive and are for
general informational purposes only. The tax rules regarding Qualified Plans are
very complex and will have differing applications, depending on individual facts
and circumstances. Each purchaser should obtain competent tax advice prior to
purchasing a Contract issued under a Qualified Plan.
On July 6, 1983, the Supreme Court decided in Arizona Governing Committee v.
Norris that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. The Contracts sold by the Insurance Company in
connection with Qualified Plans will utilize annuity tables which do not
differentiate on the basis of sex. Such annuity tables will also be available
for use in connection with certain non-qualified deferred compensation plans.
Contracts issued pursuant to Qualified Plans include special provisions
restricting Contract provisions that may otherwise be available and described in
this Statement of Additional Information. Generally, Contracts issued pursuant
to Qualified Plans are not transferable except upon surrender or annuitization.
Various penalty and excise taxes may apply to contributions or distributions
made in violation of applicable limitations. Furthermore, certain 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 surrenders. (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 IRAs 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 59 1/2; (b)
distributions following the death or disability of the Contract Owner or
Annuitant (as applicable) (for this purpose disability is as defined in Section
72(m)(7) of the Code); (c) after separation from service, distributions that are
part of substantially equal periodic payments made not less frequently than
annually for the life (or life expectancy) of the Contract Owner or Annuitant
(as applicable) or the joint lives (or joint life expectancies) of such Contract
Owner or Annuitant (as applicable) and his designated beneficiary; (d)
distributions to a Contract Owner or Annuitant (as applicable) who has separated
from service after he has attained age 55; (e) distributions made to the
Contract Owner or Annuitant (as applicable) to the extent such distributions do
not exceed the amount allowable as a deduction under Code Section 213 to the
Contract Owner or Annuitant (as applicable) for amounts paid during the taxable
year for medical care; (f) distributions made to an alternate payee pursuant to
a qualified domestic relations order; (g) distributions from an Individual
Retirement Annuity for the purchase of medical insurance (as described in
Section 213(d)(1)(D) of the Code) for the Contract Owner or Annuitant (as
applicable) and his or her spouse and dependents if the Contract Owner or
Annuitant (as applicable) has received unemployment compensation for at least 12
weeks (this exception will no longer apply after the Contract Owner or Annuitant
(as applicable) has been re-employed for at least 60 days); (h) distributions
from an Individual Retirement Annuity made to the Owner or Annuitant (as
applicable) to the extent such distributions do not exceed the qualified higher
education expenses (as defined in Section 72(t)(7) of the Code) of the Owner or
Annuitant (as applicable) for the taxable year; and (i) distributions from an
Individual Retirement Annuity made to the Owner or Annuitant (as applicable)
which are qualified first-time home buyer distributions (as defined in Section
72(t)(8) of the Code). The exceptions stated in items (d) and (f) above do not
apply in the case of an Individual Retirement Annuity. The exception stated in
item (c) applies to an Individual Retirement Annuity without the requirement
that there be a separation from service.
With respect to (c) above, if the series of substantially equal periodic
payments is modified before the later of your attaining age 59 1/2 or 5 years
from the date of the first 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 70 1/2 or (b) the calendar year in which the employee
retires. The date set forth in (b) does not apply to an Individual Retirement
Annuity. 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 59 1/2;
(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
- -------------------------------------------------------------------------------
Fixed Annuity Payout
A fixed annuity is an annuity with payments which are guaranteed as to dollar
amount by the Insurance Company and do not vary with the investment experience
of a Portfolio. The Fixed Account value on the day immediately preceding the
Income Date will be used to determine the Fixed Annuity monthly payment. The
monthly Annuity Payment will be based upon the Contract Value at the time of
annuitization, the Annuity Option selected, the age of the annuitant and any
joint annuitant and the sex of the annuitant and joint annuitant where allowed.
Variable Annuity Payout
A variable annuity is an annuity with payments which:
(1) are not predetermined as to dollar amount; and
(2) will vary in amount with the net investment results of the applicable
Portfolio(s).
Annuity Unit Value
On the Income Date, a fixed number of Annuity Units will be purchased as
follows:
The first Annuity Payment is equal to the Adjusted Contract Value, divided first
by $1,000 and then multiplied by the appropriate Annuity Payment amount for each
$1,000 of value for the Annuity Option selected. In each Portfolio the fixed
number of Annuity Units is determined by dividing the amount of the initial
Annuity Payment determined for each Portfolio by the Annuity Unit value on the
Income Date. Thereafter, the number of Annuity Units in each Portfolio remains
unchanged unless the Contract Owner elects to transfer between Portfolios. All
calculations will appropriately reflect the Annuity Payment frequency selected.
On each subsequent Annuity Payment date, the total Annuity Payment is the sum of
the Annuity Payments for each Portfolio. The Annuity Payment in each Portfolio
is determined by multiplying the number of Annuity Units then allocated to such
Portfolio by the Annuity Unit value for that Portfolio.
On each subsequent Valuation Date, the value of an Annuity Unit is determined in
the following way:
First: The Net Investment Factor is determined as described in the Prospectus
under "Purchase - Accumulation Units."
Second: The value of an Annuity Unit for a Valuation Period is equal to:
a. the value of the Annuity Unit for the immediately preceding Valuation Period.
b. multiplied by the Net Investment Factor for the current Valuation Period;
c. divided by the Assumed Net Investment Factor (see below) for the Valuation
Period.
The Assumed Net Investment Factor is equal to one plus the Assumed Investment
Return which is used in determining the basis for the purchase of an Annuity,
adjusted to reflect the particular Valuation Period. The Assumed Investment
Return that the Insurance Company will use is 5%. However, the Insurance Company
may agree to use a different value.
Mortality and Expense Risk Guarantee
- --------------------------------------------------------------------------------
The Insurance Company guarantees that the dollar amount of each annuity payment
after the first annuity payment will not be affected by variations in mortality
and expense experience.
Financial Statements
- --------------------------------------------------------------------------------
The audited financial statements of the Insurance Company as of and for the year
ended December 31, 1998, included herein should be considered only as bearing
upon the ability of the Insurance Company to meet its obligations under the
Contracts. The audited financial statements of the Separate Account as of and
for the year ended December 31, 1998, and the unaudited financial statements of
the Separate Account for the period ended June 30, 1999, are also included
herein.
PREFERRED LIFE VARIABLE ACCOUNT C
OF
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements
June 30, 1999 (unaudited)
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements
Statements of Assets and Liabilities
June 30, 1999 (unaudited)
(In thousands)
Capital Global Health Global Utilities Growth and High Income Money
Growth Care Securities Securities Income Income Securities Market
Fund Fund Fund Fund Fund Fund Fund
-------- --------------- -------------- ----------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Capital Growth Fund,
1,357 shares, cost $19,699 $24,507 - - - - - -
Global Health Care Securities Fund,
86 shares, cost $809 - 784 - - - - -
Global Utilities Securities Fund,
3,367 shares, cost $56,344 - - 75,058 - - - -
Growth and Income Fund,
4,859 shares, cost $79,149 - - - 106,706 - - -
High Income Fund,
2,459 shares, cost $33,166 - - - - 33,068 - -
Income Securities Fund,
4,030 shares, cost $62,655 - - - - - 69,392 -
Money Market Fund,
25,693 shares, cost $25,693 - - - - - - 25,693
- --------------------------------------------------------------------------------------------------------------------------
Total assets 24,507 784 75,058 106,706 33,068 69,392 25,693
Liabilities:
Accrued mortality and expense risk charges
- Valuemark II 3 2 5 6 3 5 3
Accrued mortality and expense risk charges
- Valuemark IV 5 1 1 8 7 6 1
Accrued administrative charges - Valuemark II - 1 2 - 1 - 1
Accrued administrative charges - Valuemark IV 1 - - 1 1 1 -
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities 9 4 8 15 12 12 5
Net assets $24,498 780 75,050 106,691 33,056 69,380 25,688
- --------------------------------------------------------------------------------------------------------------------------
Contract owners' equity:
Contracts in accumulation period
- Valuemark II 23,596 651 74,803 105,205 32,000 68,297 25,553
Contracts in accumulation period
- Valuemark IV 902 129 247 1,486 1,056 1,083 135
- --------------------------------------------------------------------------------------------------------------------------
Total contract owners' equity $24,498 780 75,050 106,691 33,056 69,380 25,688
- --------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
June 30, 1999 (unaudited)
(In thousands)
Templeton
Mutual Mutual Natural Developing
Discovery Shares Resources Real Estate Rising Small Markets
SecuritiesSecuritiesSecurities Securities Dividends Cap Equity
Fund Fund Fund Fund Fund Fund Fund
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Mutual Discovery Securities Fund,
933 shares, cost $10,978 $11,802 - - - - - -
Mutual Shares Securities Fund,
2,092 shares, cost $24,421 - 28,661 - - - - -
Natural Resources Securities Fund,
301 shares, cost $3,989 - - 3,266 - - - -
Real Estate Securities Fund,
645 shares, cost $11,889 - - - 13,573 - - -
Rising Dividends Fund,
3,138 shares, cost $42,344 - - - - 58,438 - -
Small Cap Fund,
874 shares, cost $12,245 - - - - - 13,963 -
Templeton Developing Markets Equity Fund,
791 shares, cost $8,070 - - - - - - 7,428
- ---------------------------------------------------------------------------------------------------------------------------
Total assets 11,802 28,661 3,266 13,573 58,438 13,963 7,428
Liabilities:
Accrued mortality and expense risk charges
- Valuemark II 2 4 2 3 4 2 2
Accrued mortality and expense risk charges
- Valuemark IV 2 7 1 1 6 2 -
Accrued administrative charges
- Valuemark II 2 - 1 - 1 1 -
Accrued administrative charges
- Valuemark IV - 1 - - 1 - -
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities 6 12 4 4 12 5 2
Net assets $11,796 28,649 3,262 13,569 58,426 13,958 7,426
- ----------------------------------------------------------------------------------------------------------------------------
Contract owners' equity:
Contracts in accumulation period - Valuemark II 11,461 27,481 3,156 13,496 57,298 13,662 7,401
Contracts in accumulation period - Valuemark IV 335 1,168 106 73 1,128 296 25
- ----------------------------------------------------------------------------------------------------------------------------
Total contract owners' equity $11,796 28,649 3,262 13,569 58,426 13,958 7,426
- ----------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
June 30, 1999 (unaudited)
(In thousands)
Templeton
Templeton Templeton Templeton TempletonInternationalTempleton U.S.
Global Asset Global Global IncomeInternationalSmaller PacificGovernment
Allocation Growth Securities Equity Companies Growth Securities
Fund Fund Fund Fund Fund Fund Fund
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Templeton Global Asset Allocation Fund,
304 shares, cost $3,753 $4,054 - - - - - -
Templeton Global Growth Fund,
2,278 shares, cost $29,362 - 37,679 - - - - -
Templeton Global Income Securities Fund,
944 shares, cost $12,096 - - 11,519 - - - -
Templeton International Equity Fund,
2,875 shares, cost $40,107 - - - 49,709 - - -
Templeton International Smaller Companies Fund,
07 shares, cost $1,199 - - - - 1,150 - -
Templeton Pacific Growth Fund,
794 shares, cost $9,585 - - - - - 7,679 -
U.S. Government Securities Fund,
4,600 shares, cost $61,623 - - - - - - 63,061
- -------------------------------------------------------------------------------------------------------------------------
Total assets 4,054 37,679 11,519 49,709 1,150 7,679 63,061
Liabilities:
Accrued mortality and expense risk charges
- Valuemark II 3 4 2 4 2 2 4
Accrued mortality and expense risk charges
- Valuemark IV - 4 1 2 - 1 8
Accrued administrative charges - Valuemark II 1 - - 1 1 - 1
Accrued administrative charges - Valuemark IV - - - - - - 1
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities 4 8 3 7 3 3 14
Net assets $4,050 37,671 11,516 49,702 1,147 7,676 63,047
- --------------------------------------------------------------------------------------------------------------------------
Contract owners' equity:
Contracts in accumulation period - Valuemark II 4,009 36,827 11,409 49,435 1,105 7,601 61,552
Contracts in accumulation period - Valuemark IV 41 844 107 267 42 75 1,495
- --------------------------------------------------------------------------------------------------------------------------
Total contract owners' equity $4,050 37,671 11,516 49,702 1,147 7,676 63,047
- --------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OFPREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
June 30, 1999 (unaudited)
(In thousands)
Value Zero Zero Zero Total
Securities Coupon Coupon Coupon All
Fund Fund - 2000Fund - 2005Fund - 2010 Funds
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Value Securities Fund,
68 shares, cost $508 $584 - - -
Zero Coupon Fund - 2000
884 shares, cost $12,805 - 13,229 - -
Zero Coupon Fund - 2005
436 shares, cost $6,866 - - 7,347 -
Zero Coupon Fund - 2010
353 shares, cost $5,863 - - - 6,132
- ------------------------------------------------------------------------------------------------------------------------
Total assets 584 13,229 7,347 6,132 674,482
Liabilities:
Accrued mortality and expense risk charges - Valuemark II 2 3 3 2 77
Accrued mortality and expense risk charges - Valuemark IV 2 1 1 1 69
Accrued administrative charges - Valuemark II - - - 1 15
Accrued administrative charges - Valuemark IV - - - - 7
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities 4 4 4 4 168
Net assets $580 13,225 7,343 6,128 674,314
- -------------------------------------------------------------------------------------------------------------------------
Contract owners' equity:
Contracts in accumulation period - Valuemark II 229 13,024 7,248 5,944 662,443
Contracts in accumulation period - Valuemark IV 351 201 95 184 11,871
- -------------------------------------------------------------------------------------------------------------------------
Total contract owners' equity $580 13,225 7,343 6,128 674,314
- -------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Operations
For the period ended June 30, 1999 (unaudited)
(In thousands)
Capital Global Health Global Utilities Growth and High Income Money
Growth Care Securities Securities Income Income Securities Market
Fund Fund Fund Fund Fund Fund Fund
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares - - - - - - 646
- -------------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges - Valuemark II 132 3 469 666 222 461 181
Mortality and expense risk charges - Valuemark IV 4 1 1 7 5 51
Administrative charges - Valuemark II 16 - 56 80 27 55 22
Administrative charges - Valuemark IV 1 - - 1 1 1 -
- -------------------------------------------------------------------------------------------------------------------------------
Total expenses 153 4 526 754 255 522 204
Investment income (loss), net (153) (4) (526) (754) (255) (522) 442
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions on mutual funds - - - - - - -
Realized gains (losses) on sales of investments, n 424 (22) 2,288 3,579 7 1,135 -
Realized gains (losses) on investments, net 424 (22) 2,288 3,579 7 1,135 -
- -------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) on investments 2,189 (60) 4,059 4,502 518 4 -
- -------------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments, net 2,613 (82) 6,347 8,081 525 1,139 -
Net increase (decrease) in net assets from operations $2,460 (86) 5,821 7,327 270 617 442
- -------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Operations (cont.)
For the period ended June 30, 1999 (unaudited)
(In thousands)
Templeton
Mutual Mutual Natural Developing
Discovery Shares Resources Real Estate Rising Small Markets
SecuritiesSecuritiesSecurities Securities Dividends Cap Equity
Fund Fund Fund Fund Fund Fund Fund
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares - - - - - - -
- -------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges - Valuemark II 73 166 22 89 369 87 40
Mortality and expense risk charges - Valuemark IV 2 6 1 - 5 2 -
Administrative charges - Valuemark II 9 20 3 11 44 10 5
Administrative charges - Valuemark IV - 1 - - 1 - -
- -------------------------------------------------------------------------------------------------------------------------
Total expenses 84 193 26 100 419 99 45
Investment income (loss), net (84) (193) (26) (100) (419) (99) (45)
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions on mutual funds - - - - - - -
Realized gains (losses) on sales of investments, net (34) 293 (627) 254 2,606 32 (492)
Realized gains (losses) on investments, net (34) 293 (627) 254 2,606 32 (492)
- -------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) on investments 1,369 3,445 1,474 434 (1,397) 2,042 2,425
- -------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments, net 1,335 3,738 847 688 1,209 2,074 1,933
Net increase (decrease) in net assets from operations $1,251 3,545 821 588 790 1,975 1,888
- -------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Operations (cont.)
For the period ended June 30, 1999 (unaudited)
(In thousands)
Templeton
Templeton Templeton Templeton TempletonInternationalTempleton U.S.
Global Asset Global Global IncomeInternationalSmaller PacificGovernment
Allocation Growth Securities Equity Companies Growth Securities
Fund Fund Fund Fund Fund Fund Fund
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares - - - - - - -
- -------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges - Valuemark II 25 223 78 317 7 43 417
Mortality and expense risk charges - Valuemark IV - 4 1 2 - - 7
Administrative charges - Valuemark II 3 27 9 38 1 5 50
Administrative charges - Valuemark IV - - - - - - 1
- -------------------------------------------------------------------------------------------------------------------------
Total expenses 28 254 88 357 8 48 475
Investment income (loss), net (28) (254) (88) (357) (8) (48) (475)
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions
on mutual funds - - - - - - -
Realized gains (losses) on sales
of investments, net 12 662 (43) 1,521 (36) (1,357) 356
- -------------------------------------------------------------------------------------------------------------------------
Realized gains (losses)
on investments, net 12 662 (43) 1,521 (36) (1,357) 356
Net change in unrealized appreciation
(depreciation) on investments 177 3,434 (640) 3,944 202 3,129 (1,213)
- -------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses)
and unrealized appreciation
(depreciation) on investments, net 189 4,096 (683) 5,465 166 1,772 (857)
Net increase (decrease) in net
assets from operations $161 3,842 (771) 5,108 158 1,724 (1,332)
- -------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Operations (cont.)
For the period ended June 30, 1999 (unaudited)
(In thousands)
Value Zero Zero Zero Total
Securities Coupon Coupon Coupon All
Fund Fund - 2000Fund - 2005Fund - 2010 Funds
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investments income:
Dividends reinvested in fund shares - - - - 646
Expenses:
Mortality and expense risk charges - Valuemark II 1 87 50 42 4,270
Mortality and expense risk charges - Valuemark IV 2 1 - 1 58
Administrative charges - Valuemark II - 10 6 5 512
Administrative charges - Valuemark IV - - - - 7
Total expenses 3 98 56 48 4,847
- ------------------------------------------------------------------------------------------------------------------------
Investment income (loss), net (3) (98) (56) (48) (4,201)
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions
on mutual funds - - - - -
Realized gains (losses) on sales
of investments, net 3 58 98 113 10,830
- ------------------------------------------------------------------------------------------------------------------------
Realized gains (losses)
on investments, net 3 58 98 113 10,830
Net change in unrealized appreciation
(depreciation) on investments 63 84 (519) (762) 28,903
- ------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses)
and unrealized appreciation
(depreciation) on investments, net 66 142 (421) (649) 39,733
Net increase (decrease) in net
assets from operations $63 44 (477) (697) 35,532
- ------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Changes in Net Assets
For the period ended June 30, 1999 (unaudited)
and the year ended December 31, 1998
(In thousands)
Global Health Global Utilities Growth and
Capital Growth Fund Care Securities Fund Securities Fund Income Fund
- ------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net ($153) (125) (4) - (526) 2,287 (754) 2,168
Realized gains (losses) on investments, net 424 287 (22) 1 2,288 9,083 3,579 13,649
Net change in unrealized appreciation
(depreciation) on investments 2,189 1,864 (60) 35 4,059 (3,678) 4,502 (8,207)
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations 2,460 2,026 (86) 36 5,821 7,692 7,327 7,610
Contract transactions - Valuemark II (note 4):
Purchase payments 292 2,983 6 1 162 1,613 405 7,159
Transfers between funds 9,312 4,392 532 250 (671) (1,689) 346 2,872
Surrenders and terminations (4,210) (1,877) (92) - (11,135) (22,589) (15,463)(26,820)
Rescissions - (17) - - - (109) - (167)
Other transactions (note 2) (1) 180 - - 166 64 228 253
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark II 5,393 5,661 446 251 (11,478) (22,710) (14,484)(16,703)
Contract transactions - Valuemark IV (note 4):
Purchase payments 404 206 26 77 139 44 416 347
Transfers between funds 185 32 29 4 34 11 529 92
Surrenders and terminations (9) - (3) - - - (15) (1)
Rescissions (27) - - - - - - (1)
Other transactions (note 2) - - - - - - 4 -
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark IV 553 238 52 81 173 55 934 437
Increase (decrease) in net assets 8,406 7,925 412 368 (5,484) (14,963) (6,223) (8,656)
Net assets at beginning of period 16,092 8,167 368 - 80,534 95,497 112,914 121,570
- ------------------------------------------------------------------------------------------------------------------------
Net assets at end of period $24,498 16,092 780 368 75,050 80,534 106,691 112,914
- ------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the period ended June 30, 1999 (unaudited)
and the year ended December 31, 1998
(In thousands)
Mutual Discovery
High Income Fund Income Securities Fund Money Market Fund Securities Fund
- ------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net ($255) 3,336 (522) 5,905 442 1,127 (84) (3)
Realized gains (losses) on investments, net 7 314 1,135 3,814 - - (34) 64
Net change in unrealized appreciation
(depreciation) on investments 518 (3,777) 4 (9,694) - - 1,369 (1,320)
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations 270 (127) 617 25 442 1,127 1,251 (1,259)
Contract transactions - Valuemark II (note 4):
Purchase payments 98 5,061 176 5,484 298 9,399 44 3,318
Transfers between funds (1,978) (862) (2,840) (3,061) 1,792 6,983 (784) 1,746
Surrenders and terminations (4,250) (11,159) (11,642)(20,428) (8,601) (15,831) (1,662) (2,175)
Rescissions - (67) - (109) (17) (392) - (57)
Other transactions (note 2) 56 13 40 29 453 22 (4) 18
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark II (6,074) (7,014) (14,266)(18,085) (6,075) 181 (2,406) 2,850
Contract transactions - Valuemark IV (note 4):
Purchase payments 230 412 360 257 77 269 59 153
Transfers between funds 322 91 358 94 (107) (104) 62 18
Surrenders and terminations (16) (1) (6) - (3) - (2) -
Rescissions - - - - - - - -
Other transactions (note 2) - - 1 - - - - -
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark IV 536 502 713 351 (33) 165 119 171
Increase (decrease) in net assets (5,268) (6,639) (12,936)(17,709) (5,666) 1,473 (1,036) 1,762
Net assets at beginning of period 38,324 44,963 82,316 100,025 31,354 29,881 12,832 11,070
- ------------------------------------------------------------------------------------------------------------------------
Net assets at end of period $33,056 38,324 69,380 82,316 25,688 31,354 11,796 12,832
- ------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the period ended June 30, 1999 (unaudited)
and the year ended December 31, 1998
(In thousands)
Mutual Shares Natural Resources
Securities Fund Securities Fund Real Estate Securities Fund Rising Dividends Fund
- ---------------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net ($193) (83) (26) 4 (100) 609 (419) (213)
Realized gains (losses) on investments, net 293 303 (627) (613) 254 1,784 2,606 12,765
Net change in unrealized appreciation
(depreciation) on investments 3,445 (929) 1,474 (747) 434 (6,791) (1,397) (9,268)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations 3,545 (709) 821 (1,356) 588 (4,398) 790 3,284
Contract transactions - Valuemark II (note 4):
Purchase payments 96 6,717 5 685 24 1,188 245 7,196
Transfers between funds 353 4,383 (397) (306) (1,437) (1,790) (1,398) 2,318
Surrenders and terminations (3,183) (5,431) (784) (787) (2,015) (5,162) (9,496)(15,723)
Rescissions - (84) - - - (20) - (104)
Other transactions (note 2) (3) 84 - 1 (1) (10) (6) 230
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark II (2,737) 5,669 (1,176) (407) (3,429) (5,794) (10,655) (6,083)
Contract transactions - Valuemark IV (note 4):
Purchase payments 147 311 32 56 18 30 472 269
Transfers between funds 476 107 (6) - 17 5 254 58
Surrenders and terminations (18) - (1) - - - (8) -
Rescissions - - - - - - - -
Other transactions (note 2) - - - - - - 4 -
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark IV 605 418 25 56 35 35 722 327
Increase (decrease) in net assets 1,413 5,378 (330) (1,707) (2,806) (10,157) (9,143) (2,472)
Net assets at beginning of period 27,236 21,858 3,592 5,299 16,375 26,532 67,569 70,041
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period $28,649 27,236 3,262 3,592 13,569 16,375 58,426 67,569
- ---------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the period ended June 30, 1999 (unaudited)
and the year ended December 31, 1998
(In thousands)
Templeton Developing Templeton Global Templeton
Small Cap Fund Markets Equity Fund Asset Allocation Fund Global Growth Fund
- --------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net ($99) (199) (45) 161 (28) 114 (254) 476
Realized gains (losses) on investments, net 32 935 (492) (440) 12 370 662 4,755
Net change in unrealized appreciation
(depreciation) on investments 2,042 (1,359) 2,425 (2,104) 177 (572) 3,434 (2,835)
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations 1,975 (623) 1,888 (2,383) 161 (88) 3,842 2,396
Contract transactions - Valuemark II (note 4):
Purchase payments 56 2,596 17 560 27 667 83 3,461
Transfers between funds (729) 1,577 285 (2,638) (278) (1,307) (128) (2,518)
Surrenders and terminations (2,367) (2,847) (766) (1,536) (248) (791) (3,435) (6,107)
Rescissions - (25) - (5) - (13) - (56)
Other transactions (note 2) (4) 91 4 (3) 32 - 20 (20)
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark II (3,044) 1,392 (460) (3,622) (467) (1,444) (3,460) (5,240)
Contract transactions - Valuemark IV (note 4):
Purchase payments 97 106 - 41 9 13 231 81
Transfers between funds 36 6 4 - 10 2 385 85
Surrenders and terminations (8) (1) (34) - - - (6) -
Rescissions - - - - - - (9) -
Other transactions (note 2) - - - - 4 - 2 -
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark IV 125 111 (30) 41 23 15 603 166
Increase (decrease) in net assets (944) 880 1,398 (5,964) (283) (1,517) 985 (2,678)
Net assets at beginning of period 14,902 14,022 6,028 11,992 4,333 5,850 36,686 39,364
- --------------------------------------------------------------------------------------------------------------------------
Net assets at end of period $13,958 14,902 7,426 6,028 4,050 4,333 37,671 36,686
- --------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the period ended June 30, 1999 (unaudited)
and the year ended December 31, 1998
(In thousands)
Templeton Global Templeton Templeton International Templeton
Income Securities Fund International Equity Fund Smaller Companies Fund Pacific Growth Fund
- --------------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net ($88) 955 (357) 1,102 (8) 15 (48) 254
Realized gains (losses) on investments, net(43) (2) 1,521 7,567 (36) (33) (1,357) (3,085)
Net change in unrealized appreciation
(depreciation) on investments (640) (103) 3,944 (5,800) 202 (190) 3,129 987
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations (771) 850 5,108 2,869 158 (208) 1,724 (1,844)
Contract transactions - Valuemark II (note 4):
Purchase payments 26 547 94 1,430 3 103 26 182
Transfers between funds (426) (1,413) (1,591) (7,532) 6 (348) 271 (1,806)
Surrenders and terminations (1,515) (4,077) (8,396)(14,571) (122) (357) (1,042) (1,677)
Rescissions - (15) - (58) - - - (5)
Other transactions (note 2) (4) 25 70 82 - 1 6 (5)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark II (1,919) (4,933) (9,823)(20,649) (113) (601) (739) (3,311)
Contract transactions - Valuemark IV (note 4):
Purchase payments 52 41 103 127 - 31 6 44
Transfers between funds 15 4 6 8 3 2 6 (3)
Surrenders and terminations - - (3) - - - - -
Rescissions - - (9) - - - - -
Other transactions (note 2) - - - - - - - -
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark IV 67 45 97 135 3 33 12 41
Increase (decrease) in net assets (2,623) (4,038) (4,618)(17,645) 48 (776) 997 (5,114)
Net assets at beginning of period 14,139 18,177 54,320 71,965 1,099 1,875 6,679 11,793
- --------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period $11,516 14,139 49,702 54,320 1,147 1,099 7,676 6,679
- --------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the period ended June 30, 1999 (unaudited)
and the year ended December 31, 1998
(In thousands)
U.S. Government Value Zero Coupon Zero Coupon
Securities Fund Securities Fund Fund - 2000 Fund - 2005
- -----------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net ($475) 4,461 (3) - (98) 1,120 (56) 390
Realized gains (losses) on investments, net 356 895 3 2 58 502 98 315
Net change in unrealized appreciation
(depreciation) on investments (1,213) (812) 63 14 84 (584) (519) 146
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations (1,332) 4,544 63 16 44 1,038 (477) 851
Contract transactions - Valuemark II (note 4):
Purchase payments 300 3,571 3 21 32 345 32 1,287
Transfers between funds (562) (301) 63 115 (238) (941) (153) 727
Surrenders and terminations (8,949) (22,669) (5) - (1,771) (6,689) (898) (1,750)
Rescissions - (118) - - - (10) - (180)
Other transactions (note 2) 79 31 - - 16 (7) 1 31
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark II (9,132) (19,486) 61 136 (1,961) (7,302) (1,018) 115
Contract transactions - Valuemark IV (note 4):
Purchase payments 469 492 43 124 34 27 37 47
Transfers between funds 574 41 108 34 116 25 12 4
Surrenders and terminations (40) - (5) - - - - -
Rescissions (21) (3) - - - - - -
Other transactions (note 2) 4 - - - - - - -
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark IV 986 530 146 158 150 52 49 51
Increase (decrease) in net assets (9,478) (14,412) 270 310 (1,767) (6,212) (1,446) 1,017
Net assets at beginning of period 72,525 86,937 310 - 14,992 21,204 8,789 7,772
- -----------------------------------------------------------------------------------------------------------------------
Net assets at end of period $63,047 72,525 580 $310 13,225 14,992 7,343 8,789
- -----------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the period ended June 30, 1999 (unaudited)
and the year ended December 31, 1998
(In thousands)
Zero Coupon Fund - 2010 Total All Funds
- --------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net ($48) 327 (4,201) 24,188
Realized gains (losses) on investments, net 113 535 10,830 53,767
Net change in unrealized appreciation
(depreciation) on investments (762) 23 28,903 (55,701)
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations (697) 885 35,532 22,254
Contract transactions - Valuemark II (note 4):
Purchase payments 42 873 2,592 66,447
Transfers between funds (234) 381 (884) (768)
Surrenders and terminations (767) (1,759) (102,814) (192,812)
Rescissions - (7) (17) (1,618)
Other transactions (note 2) (2) (4) 1,146 1,106
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark II (961) (516) (99,977) (127,645)
Contract transactions - Valuemark IV (note 4):
Purchase payments 125 92 3,586 3,697
Transfers between funds (22) - 3,406 616
Surrenders and terminations - - (177) (3)
Rescissions - - (66) (4)
Other transactions (note 2) 2 - 21 -
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark IV 105 92 6,770 4,306
Increase (decrease) in net assets (1,553) 461 (57,675) (101,085
Net assets at beginning of period 7,681 7,220 731,989 833,074
- --------------------------------------------------------------------------------------------------------------------------
Net assets at end of period $6,128 7,681 674,314 731,989
- --------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited financial statements.
</FN>
</TABLE>
<PAGE>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Notes to Financial Statements
June 30, 1999 (unaudited)
1. ORGANIZATION
Preferred Life Variable Account C (Variable Account) is a segregated investment
account of Preferred Life Insurance Company of New York (Preferred Life) and is
registered with the Securities and Exchange Commission as a unit investment
trust pursuant to the provisions of the Investment Company Act of 1940 (as
amended). The Variable Account was established by Preferred Life on February 26,
1988 and commenced operations September 6, 1991. Accordingly, it is an
accounting entity wherein all segregated account transactions are reflected.
The Variable Account's assets are the property of Preferred Life and are held
for the benefit of the owners and other persons entitled to payments under
variable annuity contracts issued through the Variable Account and underwritten
by Preferred Life. The assets of the Variable Account, equal to the reserves and
other liabilities of the Variable Account, are not chargeable with liabilities
that arise from any other business which Preferred Life may conduct.
The Variable Account's sub-accounts may invest, at net asset values, in one or
more of the funds of the Franklin Valuemark Funds (FVF), managed by Franklin
Advisers, Inc. and its Templeton and Franklin affiliates, in accordance with the
selection made by the contract owner.
Certain officers and trustees of the FVF are also officers and/or directors of
Franklin Advisers, Inc. and/or Preferred Life.
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
INVESTMENTS
Investments of the Variable Account are valued daily at market value using net
asset values provided by Franklin Advisers, Inc.
Realized investment gains include gains on the sale of fund shares as determined
by the average cost method. Dividend distributions received from the FVF are
reinvested in additional shares of the FVF and are recorded as income to the
Variable Account on the ex-dividend date.
Two Fixed Account investment options are available to deferred annuity contract
owners. A Flexible Fixed Option is available to all deferred annuity contract
owners and a Dollar Cost Averaging Option is available to Valuemark IV deferred
annuity contract owners. These accounts are comprised of equity and fixed income
investments which are part of the general obligations of Preferred Life. The
liabilities of the Fixed Accounts are part of the general obligations of
Preferred Life and are not included in the Variable Account.
The guaranteed minimum rate of return on the Fixed Accounts is 3%.
The Global Health Care Securities Fund and Value Securities Fund were added as
available investment options on August 17, 1998. On May 1, 1998, the Utility
Equity Fund name was changed to Global Utilities Securities Fund.
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EXPENSES
ASSET BASED EXPENSES
A mortality and expense risk charge is deducted from the Variable Account on a
daily basis. The charge is equal, on an annual basis, to 1.25% of the daily net
assets of Valuemark II and 1.34% of the daily net assets of Valuemark IV.
An administrative charge is deducted from the Variable Account on a daily basis
equal, on an annual basis, to 0.15% of the daily net assets of all products
which comprise the Variable Account
CONTRACT BASED EXPENSES
A contract maintenance charge is paid by the contract owner annually from each
contract by liquidating contract units at the end of the contract year and at
the time of full surrender. The amount of the charge is $30 each year. Contract
maintenance charges deducted during the period ended June 30, 1999 (unaudited)
and the year ended December 31, 1998 were $241,950 and $487,077, respectively.
These contract charges are reflected in the Statements of Changes in Net Assets
as other transactions.
A contingent deferred sales charge is deducted from the contract value at the
time of a surrender. This charge applies only to a surrender of purchase
payments received within five years of the date of surrender for Valuemark II
contracts and within seven years of the date of surrender for Valuemark IV
contracts. For this purpose, purchase payments are allocated on a first-in,
first-out basis. The amount of the contingent deferred sales charge is
calculated by: (a) allocating purchase payments to the amount surrendered; and
(b) multiplying each allocated purchase payment that has been held under the
contract for the period shown below by the charge shown below:
Years Since Contingent Deferred Sales Charge
Payment Valuemark II Valuemark IV
0-1 5% 6%
1-2 5% 6%
2-3 4% 6%
3-4 3% 5%
4-5 1.5% 4%
5-6 0% 3%
6-7 0% 2%
7+ 0% 0%
and (c) adding the products of each multiplication in (b) above.
A Valuemark II deferred annuity contract owner may, not more frequently than
once annually on a cumulative basis, make a surrender each contract year of
fifteen percent (15%) of purchase payments paid, less any prior surrenders,
without incurring a contingent deferred sales charge. A Valuemark IV deferred
annuity contract owner may make multiple surrenders, each year after the first
contract year, up to fifteen percent (15%) of the contract value without
incurring a contingent deferred sales charge. For a partial surrender, the
contingent deferred sales charge will be deducted from the remaining contract
value, if sufficient; otherwise it will be deducted from the amount surrendered.
Total contingent deferred sales charges paid by the contract owners for the
period ended June 30, 1999 (unaudited) and the year ended December 31, 1998 were
$609,723 and $941,938, respectively.
Currently, twelve transfers are permitted each contract year. Thereafter, the
fee is $25 per transfer, or 2% of the amount transferred, if less. Currently,
transfers associated with the dollar cost averaging program are not counted.
Total transfer charges for the period ended June 30, 1999 (unaudited) and the
year ended December 31, 1998 were $1,925 and $1,945, respectively. Transfer
charges are reflected in the Statement of Changes in Net Assets as other
transactions. Net transfers from the Fixed Accounts were $2,522,065 for the
period ended June 30, 1999 (unaudited). Net transfers to the Fixed Accounts were
$152,026 for the year ended December 31, 1998.
Premium taxes or other taxes payable to a state or other governmental entity
will be charged against the contract values. Preferred Life may, at its sole
discretion, pay taxes when due and deduct that amount from the contract value at
a later date. Payment at an earlier date does not waive any right Preferred Life
may have to deduct such amounts at a later date.
On Valuemark II deferred annuity contracts, a systematic withdrawal plan is
available which allows an owner to withdraw up to nine percent (9%) of purchase
payments less prior surrenders annually, paid monthly or quarterly, without
incurring a contingent deferred sales charge. The systematic withdrawal plan
available to Valuemark IV deferred annuity contract owners allows up to fifteen
percent (15%) of the contract value withdrawn annually, paid monthly or
quarterly, without incurring a contingent deferred sales charge. The exercise of
the systematic withdrawal plan in any contract year replaces the 15% penalty
free privilege for that year for all deferred annuity contracts.
A rescission is defined as a contract that is returned to the company and
canceled within the free-look period, generally within 10 days.
3. FEDERAL INCOME TAXES
Operations of the Variable Account form a part of, and are taxed with,
operations of Preferred Life, which is taxed as a life insurance company under
the Internal Revenue Code.
Preferred Life does not expect to incur any federal income taxes in the
operation of the Variable Account. If, in the future, Preferred Life determines
that the Variable Account may incur federal income taxes, it may then assess a
charge against the Variable Account for such taxes.
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Notes to Financial Statements (continued)
June 30, 1999 (unaudited)
4. CONTRACT TRANSACTIONS - ACCUMULATION UNIT ACTIVITY (IN THOUSANDS)
Transactions in units for each fund for the period ended June 30, 1999
(unaudited) and the year ended December 31, 1998 were as follows:
Global Global Mutual Mutual
Capital Health Care Utilities Growth and High Income Money Discovery Shares
Growth Securities Securities Income Income Securities Market Securities Securities
Fund Fund Fund Fund Fund Fund Fund Fund Fund
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
VALUEMARK II
Accumulation units outstanding at
December 31, 1997 622 - 3,699 4,952 2,110 3,991 2,155 924 1,823
Contract transactions:
Purchase payments 215 - 61 281 233 219 657 261 541
Transfers between funds 303 26 (64) 110 (37) (125) 505 128 349
Surrenders and terminations (135) - (851) (1,058) (521) (819) (1,123) (184) (450)
Rescissions (1) - (4) (6) (3) (4) (28) (4) (6)
Other transactions 12 - 2 10 1 1 2 2 7
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract transactions 394 26 (856) (663) (327) (728) 13 203 441
Accumulation units outstanding at
December 31, 1998 1,016 26 2,843 4,289 1,783 3,263 2,168 1,127 2,264
- ----------------------------------------------------------------------------------------------------------------------------------
Contract transactions (unaudited):
Purchase payments 18 1 6 15 5 7 19 4 8
Transfers between funds 583 55 (24) 12 (91) (115) 125 (69) 23
Surrenders and terminations (259) (9) (390) (579) (198) (467) (593) (143) (253)
Rescissions - - - - - - (1) - -
Other transactions - - 6 8 3 2 31 - -
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract transactions 342 47 (402) (544) (281) (573) (419) (208) (222)
Accumulation units outstanding at
June 30, 1999 (unaudited) 1,358 73 2,441 3,745 1,502 2,690 1,749 919 2,042
- ----------------------------------------------------------------------------------------------------------------------------------
VALUEMARK II
Accumulation units outstanding at
December 31, 1997 - - - - - - - - -
Contract transactions:
Purchase payments 15 8 2 14 21 11 19 15 29
Transfers between funds 2 - - 3 4 3 (7) 2 9
Surrenders and terminations - - - - - - - - -
Rescissions - - - - - - - - -
Other transactions - - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract transactions 17 8 2 17 25 14 12 17 38
Accumulation units outstanding at
December 31, 1998 17 8 2 17 25 14 12 17 38
- ----------------------------------------------------------------------------------------------------------------------------------
Contract transactions (unaudited):
Purchase payments 26 3 5 16 11 15 5 5 12
Transfers between funds 12 3 1 20 15 15 (7) 5 38
Surrenders and terminations (1) - - (1) (1) - - - (1)
Rescissions (2) - - - - - - - -
Other transactions - - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract transactions 35 6 6 35 25 30 (2) 10 49
Accumulation units outstanding at
June 30, 1999 (unaudited) 52 14 8 52 50 44 10 27 87
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Notes to Financial Statements (continued)
June 30, 1999 (unaudited)
4. CONTRACT TRANSACTIONS - ACCUMULATION UNIT ACTIVITY (IN THOUSANDS) (CONTINUED)
Natural TempletonTempletonTempletonTempletonTempleton
ResourcesReal EstateRising DevelopingGlobal AssetGlobalGlobal Income International
SecuritiesSecuritiesDividendsSmall CapMarkets Equity AllocationGrowth SecuritiesEquity
Fund Fund Fund Fund Fund Fund Fund Fund Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
VALUEMARK II
Accumulation units outstanding at
December 31, 1997 458 942 3,489 938 1,160 424 2,594 1,072 4,063
Contract transactions:
Purchase payments 66 44 345 171 59 47 213 32 76
Transfers between funds (33) (73) 103 96 (295) (94) (177) (82) (429)
Surrenders and terminations (76) (204) (767) (198) (174) (58) (387) (235) (773)
Rescissions - (1) (5) (2) (1) (1) (3) (1) (3)
Other transactions - - 11 7 - - (1) 1 4
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract transactions (43) (234) (313) 74 (411) (106) (355) (285) (1,125)
Accumulation units outstanding at
December 31, 1998 415 708 3,176 1,012 749 318 2,239 787 2,938
- -----------------------------------------------------------------------------------------------------------------------------------
Contract transactions (unaudited):
Purchase payments 1 1 12 4 2 2 5 1 5
Transfers between funds (44) (64) (68) (50) 22 (21) (10) (24) (88)
Surrenders and terminations (83) (87) (468) (156) (86) (18) (205) (87) (436)
Rescissions - - - - - - - - -
Other transactions - - - - - 2 1 - 4
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract transactions (126) (150) (524) (202) (62) (35) (209) (110) (515)
Accumulation units outstanding at
June 30, 1999 (unaudited) 289 558 2,652 810 687 283 2,030 677 2,423
- -----------------------------------------------------------------------------------------------------------------------------------
VALUEMARK II
Accumulation units outstanding at
December 31, 1997 - - - - - - - - -
Contract transactions:
Purchase payments 7 1 14 9 5 1 5 2 8
Transfers between funds - - 3 - - - 5 - -
Surrenders and terminations - - - - - - - - -
Rescissions - - - - - - - - -
Other transactions - - - - - - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract transactions 7 1 17 9 5 1 10 2 8
Accumulation units outstanding at
December 31, 1998 7 1 17 9 5 1 10 2 8
- -----------------------------------------------------------------------------------------------------------------------------------
Contract transactions (unaudited):
Purchase payments 4 1 24 7 - 1 14 3 6
Transfers between funds (1) 1 13 2 - 1 23 1 -
Surrenders and terminations - - - (1) (4) - - - -
Rescissions - - - - - - (1) - -
Other transactions - - - - - - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract transactions 3 2 37 8 (4) 2 36 46 6
Accumulation units outstanding at
June 30, 1999 (unaudited) 10 3 54 17 1 3 46 6 14
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Notes to Financial Statements (continued)
June 30, 1999 (unaudited)
4. CONTRACT TRANSACTIONS - ACCUMULATION UNIT ACTIVITY (IN THOUSANDS) (CONTINUED)
Templeton
International Templeton U.S. Zero Zero Zero
Smaller Pacific Government Value Coupon Coupon Coupon Total
CompaniesGrowth Securities Securities Fund - Fund - Fund - All
Fund Fund Fund Fund 2000 2005 2010 Funds
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
VALUEMARK II
Accumulation units outstanding at December 31, 1997 173 1,251 4,844 - 1,087 345 292 43,408
Contract transactions:
Purchase payments 9 21 194 3 17 55 34 3,854
Transfers between funds (35) (232) (20) 16 (47) 30 13 (64)
Surrenders and terminations (33) (217) (1,227) - (334) (74) (67) (9,965)
Rescissions - (1) (6) - - (8) - (88)
Other transactions - (1) 2 - - 1 - 61
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract transactions (59) (430) (1,057) 19 (364) 4 (20) (6,202)
Accumulation units outstanding at December 31, 1998 114 821 3,787 19 723 349 272 37,206
- -------------------------------------------------------------------------------------------------------------------------
Contract transactions (unaudited):
Purchase payments - 3 16 - 2 1 2 140
Transfers between funds - 29 (30) 9 (11) (6) (9) 134
Surrenders and terminations (12) (118) (474) (1) (86) (37) (29) (5,274)
Rescissions - - - - - - - (1)
Other transactions - 1 4 - 1 - - 63
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract transactions (12) (85) (484) 8 (94) (42) (36) (4,938)
Accumulation units outstanding at
June 30, 1999 (unaudited) 102 736 3,303 27 629 307 236 32,268
- -------------------------------------------------------------------------------------------------------------------------
VALUEMARK II
Accumulation units outstanding at December 31, 1997 - - - - - - - -
Contract transactions:
Purchase payments 3 6 26 17 1 2 3 244
Transfers between funds - - 2 5 1 - - 32
Surrenders and terminations - - - - - - - -
Rescissions - - - - - - - -
Other transactions - - - - - - - -
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract transactions 3 6 28 22 2 2 3 276
Accumulation units outstanding at December 31, 1998 3 6 28 22 2 2 3 276
- -------------------------------------------------------------------------------------------------------------------------
Contract transactions (unaudited):
Purchase payments - 1 25 6 2 2 5 199
Transfers between funds - 1 31 14 6 1 (1) 194
Surrenders and terminations - - (2) (1) - - - (12)
Rescissions - - (1) - - - - (4)
Other transactions - - - - - - - -
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract transactions - 2 53 19 8 3 4 377
Accumulation units outstanding at
June 30, 1999 (unaudited) 3 8 81 41 10 5 7 653
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Notes to Financial Statements (continued)
June 30, 1999 (unaudited)
5. UNIT VALUES
A summary of accumulation unit values and accumulation units outstanding for
variable annuity contracts and the expense ratios, including expenses of the
underlying funds, for the six-month period ended June 30, 1999 (unaudited) and
each of the five years in the period ended December 31, 1998 follows.
VALUEMARK II VALUEMARK IV
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of Ratio of
Accumulation Expenses Accumulation Expenses
Units Outstanding Accumulation Net Assets to Average Units Outstanding Accumulation Net Assets to Average
(in thousands) Unit Value (in thousands) Net Assets* (in thousands) Unit Value (in thousands) Net Assets*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth Fund
June 30,1999 (unaudited) 1,358 $17.371 $23,596 2.17% 52 $17.321 $902 2.26%
December 31,
1998 1,016 15.574 15,825 2.17 17 15.537 267 2.26
1997 622 13.130 8,167 2.17 - - - -
19961 225 11.254 2,529 2.17+ - - - -
Global Health Care Securities Fund
June 30,1999 (unaudited) 73 8.973 651 2.21 14 8.963 129 2.30
December 31,
19982 26 10.610 275 2.24+ 8 10.604 93 2.33+
Global Utilities Securities Fund
June 30,1999 (unaudited) 2,441 30.656 74,803 1.91 8 30.398 247 2.00
December 31,
1998 2,843 28.308 80,480 1.90 2 28.082 54 1.99
1997 3,699 25.818 95,497 1.90 - - - -
1996 4,998 20.654 103,225 1.90 - - - -
1995 5,916 19.555 115,743 1.90 - - - -
1994 6,317 15.104 95,415 1.92 - - - -
Growth and Income Fund
June 30,1999 (unaudited) 3,745 28.092 105,205 1.89 52 27.829 1,486 1.98
December 31,
1998 4,289 26.226 112,466 1.89 17 25.993 448 1.98
1997 4,952 24.551 121,570 1.89 - - - -
1996 5,070 19.490 98,821 1.90 - - - -
1995 4,347 17.310 75,240 1.92 - - - -
1994 3,452 13.215 45,616 1.94 - - - -
High Income Fund
June 30,1999 (unaudited) 1,502 21.331 32,000 1.95 50 21.132 1,056 2.04
December 31,
1998 1,783 21.208 37,806 1.93 25 21.020 518 2.02
1997 2,110 21.312 44,963 1.93 - - - -
1996 2,164 19.375 41,921 1.94 - - - -
1995 2,076 17.252 35,808 1.96 - - - -
1994 1,710 14.608 24,984 2.00 - - - -
Income Securities Fund
June 30,1999 (unaudited) 2,690 25.390 68,297 1.92 44 25.153 1,083 2.01
December 31,
1998 3,263 25.122 81,970 1.89 14 24.898 346 1.98
1997 3,991 25.065 100,025 1.90 - - - -
1996 4,519 21.708 98,109 1.90 - - - -
1995 4,567 19.785 90,364 1.91 - - - -
1994 4,416 16.392 72,389 1.94 - - - -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Notes to Financial Statements (continued)
June 30, 1999 (unaudited)
5. UNIT VALUES (CONTINUED)
VALUEMARK II VALUEMARK IV
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of Ratio of
Accumulation Expenses Accumulation Expenses
Units OutstandingAccumulationNet Assetsto Average Units OutstandingAccumulationNet Assetsto Average
(in thousands)Unit Value(in thousands)Net Assets* (in thousands)Unit Value(in thousands)Net Assets*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market Fund
June 30,1999 (unaudited) 1,749 $14.604 $25,553 1.92% 10 $14.470 $135 2.01%
December 31,
1998 2,168 14.386 31,188 1.85 12 14.260 166 1.94
1997 2,155 13.865 29,881 1.85 - - - -
1996 2,433 13.359 32,508 1.83 - - - -
1995 2,218 12.883 28,571 1.80 - - - -
1994 2,487 12.354 30,730 1.86 - - - -
Mutual Discovery Securities Fund
June 30,1999 (unaudited) 919 12.492 11,461 2.38 27 12.462 335 2.47
December 31,
1998 1,127 11.226 12,646 2.40 17 11.205 186 2.49
1997 924 11.983 11,070 2.46 - - - -
19963 27 10.180 278 2.77+ - - - -
Mutual Shares Securities Fund
June 30,1999 (unaudited) 2,042 13.465 27,481 2.18 87 13.433 1,168 2.27
December 31,
1998 2,264 11.837 26,789 2.17 38 11.814 447 2.26
1997 1,823 11.993 21,858 2.20 - - - -
19963 43 10.330 442 2.40+ - - - -
Natural Resources Securities Fund
June 30,1999 (unaudited) 289 10.913 3,156 2.07 10 10.811 106 2.16
December 31,
1998 415 8.505 3,536 2.04 7 8.430 56 2.13
1997 458 11.559 5,299 2.09 - - - -
1996 566 14.467 8,189 2.05 - - - -
1995 516 14.109 7,278 2.06 - - - -
1994 647 13.979 9,050 2.08 - - - -
Real Estate Securities Fund
June 30,1999 (unaudited) 558 24.213 13,496 1.97 3 23.987 73 2.06
December 31,
1998 708 23.107 16,340 1.94 1 22.901 35 2.03
1997 942 28.169 26,532 1.94 - - - -
1996 859 23.668 20,335 1.97 - - - -
1995 794 18.073 14,344 1.99 - - - -
1994 900 15.594 14,035 2.02 - - - -
Rising Dividends Fund
June 30,1999 (unaudited) 2,652 21.611 57,298 2.14 54 21.467 1,128 2.23
December 31,
1998 3,176 21.165 67,223 2.12 17 21.034 346 2.21
1997 3,489 20.074 70,041 2.14 - - - -
1996 3,394 15.303 51,934 2.16 - - - -
1995 3,182 12.498 39,770 2.18 - - - -
1994 2,936 9.769 28,685 2.20 - - - -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Notes to Financial Statements (continued)
June 30, 1999 (unaudited)
5. UNIT VALUES (CONTINUED)
VALUEMARK II VALUEMARK IV
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of Ratio of
Accumulation Expenses Accumulation Expenses
Units OutstandingAccumulationNet Assetsto Average Units OutstandingAccumulationNet Assetsto Average
(in thousands)Unit Value(in thousands)Net Assets* (in thousands)Unit Value(in thousands)Net Assets*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap Fund
June 30,1999 (unaudited) 810 $16.887 $13,662 2.20% 17 $16.831 $296 2.29%
December 31,
1998 1,012 14.600 14,771 2.17 9 14.558 131 2.26
1997 938 14.952 14,022 2.17 - - - -
19961 416 12.913 5,369 2.17+ - - - -
Templeton Developing Markets Equity Fund
June 30,1999 (unaudited) 687 10.786 7,401 2.80 1 10.735 25 2.89
December 31,
1998 749 7.993 5,983 2.81 5 7.958 45 2.90
1997 1,160 10.340 11,992 2.82 - - - -
1996 1,042 11.487 11,970 2.89 - - - -
1995 757 9.582 7,254 2.81 - - - -
19944 591 9.454 5,589 2.93+ - - - -
Templeton Global Asset Allocation Fund
June 30,1999 (unaudited) 283 14.187 4,009 2.23 3 14.133 41 2.32
December 31,
1998 318 13.589 4,317 2.24 1 13.543 16 2.33
1997 424 13.786 5,850 2.34 - - - -
1996 300 12.514 3,759 2.26 - - - -
19955 36 10.591 379 2.30+ - - - -
Templeton Global Growth Fund
June 30,1999 (unaudited) 2,030 18.137 36,827 2.28 46 18.050 844 2.37
December 31,
1998 2,239 16.309 36,512 2.28 10 16.238 174 2.37
1997 2,594 15.176 39,364 2.28 - - - -
1996 2,146 13.560 29,103 2.33 - - - -
1995 1,416 11.339 16,061 2.37 - - - -
19944 922 10.201 9,400 2.54+ - - - -
Templeton Global Income Securities Fund
June 30,1999 (unaudited) 677 16.856 11,409 2.06 6 16.698 107 2.15
December 31,
1998 787 17.905 14,094 2.03 2 17.746 45 2.12
1997 1,072 16.957 18,177 2.02 - - - -
1996 1,354 16.781 22,719 2.01 - - - -
1995 1,472 15.522 22,851 2.04 - - - -
1994 1,667 13.726 22,888 2.11 - - - -
Templeton International Equity Fund
June 30,1999 (unaudited) 2,423 20.397 49,435 2.31 14 20.261 267 2.40
December 31,
1998 2,938 18.437 54,177 2.28 8 18.322 143 2.37
1997 4,063 17.711 71,965 2.29 - - - -
1996 4,375 16.081 70,362 2.29 - - - -
1995 4,073 13.263 54,018 2.32 - - - -
1994 4,079 12.161 49,607 2.39 - - - -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Notes to Financial Statements (continued)
June 30, 1999 (unaudited)
5. UNIT VALUES (CONTINUED)
VALUEMARK II VALUEMARK IV
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of Ratio of
Accumulation Expenses Accumulation Expenses
Units OutstandingAccumulationNet Assetsto Average Units OutstandingAccumulationNet Assetsto Average
(in thousands)Unit Value(in thousands)Net Assets* (in thousands)Unit Value(in thousands)Net Assets*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Templeton International Smaller Companies Fund
June 30,1999 (unaudited) 102 $10.887 $1,105 2.53% 3 $10.856 $42 2.62%
December 31,
1998 114 9.364 1,065 2.50 3 9.342 34 2.59
1997 173 10.825 1,875 2.46 - - - -
19961 65 11.145 722 2.18+ - - - -
Templeton Pacific Growth Fund
June 30,1999 (unaudited) 736 10.330 7,601 2.49 8 10.261 75 2.58
December 31,
1998 821 8.078 6,633 2.50 6 8.028 46 2.59
1997 1,251 9.431 11,793 2.43 - - - -
1996 1,751 14.932 26,148 2.39 - - - -
1995 1,812 13.630 24,693 2.41 - - - -
1994 2,112 12.802 27,037 2.47 - - - -
U.S. Government Securities Fund
June 30,1999 (unaudited) 3,303 18.638 61,552 1.94 81 18.465 1,495 2.03
December 31,
1998 3,787 19.014 71,990 1.90 28 18.847 535 1.99
1997 4,844 17.947 86,937 1.90 - - - -
1996 6,017 16.650 100,185 1.91 - - - -
1995 5,089 16.298 82,935 1.92 - - - -
1994 5,331 13.835 73,747 1.93 - - - -
Value Securities Fund
June 30,1999 (unaudited) 27 8.500 229 2.27 41 8.491 351 2.36
December 31,
19982 19 7.717 143 2.52+ 22 7.713 167 2.61+
Zero Coupon Fund - 2000
June 30,1999 (unaudited) 629 20.749 13,024 2.06 10 20.557 201 2.15
December 31,
1998 723 20.684 14,941 1.80 2 20.502 51 1.89
1997 1,087 19.512 21,204 1.80 - - - -
1996 1,358 18.475 25,085 1.80 - - - -
1995 1,416 18.294 25,910 1.80 - - - -
1994 1,158 15.373 17,797 1.80 - - - -
Zero Coupon Fund - 2005
June 30,1999 (unaudited) 307 23.598 7,248 2.06 5 23.383 95 2.15
December 31,
1998 349 25.003 8,739 1.80 2 24.786 50 1.89
1997 345 22.532 7,772 1.80 - - - -
1996 428 20.517 8,777 1.80 - - - -
1995 456 20.914 9,531 1.80 - - - -
1994 403 16.096 6,483 1.80 - - - -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Notes to Financial Statements (continued)
June 30, 1999 (unaudited)
5. UNIT VALUES (CONTINUED)
VALUEMARK II VALUEMARK IV
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of Ratio of
Accumulation Expenses Accumulation Expenses
Units OutstandingAccumulationNet Assetsto Average Units OutstandingAccumulationNet Assetsto Average
(in thousands)Unit Value(in thousands)Net Assets* (in thousands)Unit Value(in thousands)Net Assets*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Zero Coupon Fund - 2010
June 30,1999 (unaudited) 236 $25.282 $5,944 2.06% 7 $25.048 $184 2.15%
December 31,
1998 272 27.920 7,588 1.80 3 27.674 93 1.89
1997 292 24.740 7,220 1.80 - - - -
1996 348 21.522 7,492 1.80 - - - -
1995 371 22.431 8,329 1.80 - - - -
1994 252 15.930 4,008 1.80 - - - -
<FN>
* For the period ended June 30, 1999 (unaudited) or the year ended December 31,
including the effect of the expenses of the underlying funds.
+ Annualized.
1 Period from June 10, 1996 (fund commencement) to December 31, 1996. 2 Period
from August 17, 1998 (fund commencement) to December 31, 1998. 3 Period from
December 2, 1996 (fund commencement) to December 31, 1996. 4 Period from April
25, 1994 (fund commencement) to December 31, 1994. 5 Period from August 4, 1995
(fund commencement) to December 31, 1995.
</FN>
</TABLE>
PREFERRED LIFE VARIABLE ACCOUNT C
OF
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements
December 31, 1998
<PAGE>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Independent Auditors'Report
The Board of Directors of Preferred Life Insurance Company of New York and
Contract Owners of Preferred Life Variable Account C:
We have audited the accompanying statements of assets and liabilities of the
sub-accounts of Preferred Life Variable Account C as of December 31, 1998, the
related statements of operations for the year then ended and the statements of
changes in net assets for each of the years in the two-years then ended. These
financial statements are the responsibility of the Variable Account's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Investment securities
held in custody for the benefit of the Variable Account were confirmed to us by
the Franklin Valuemark Funds. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets and liabilities of the sub-accounts of
Preferred Life Variable Account C at December 31, 1998, the results of their
operations for the year then ended and the changes in their net assets for each
of the years in the two-years then ended, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 29, 1999
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements
Statements of Assets and Liabilities
December 31, 1998
(In thousands)
Global Global
Capital Health Utilities Growth and High Income Money
Growth Care Securities Securities Income Income Securities Market
Fund Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Capital Growth Fund, 1,001 shares, cost $13,477 $16,095 - - - - - -
Global Health Care Securities Fund, 34 shares,
cost $334 - 369 - - - - -
Global Utilities Securities Fund, 3,940 shares,
cost $65,886 - - 80,540 - - - -
Growth and Income Fund, 5,546 shares, cost $89,867 - - - 112,922 - - -
High Income Fund, 2,886 shares, cost $38,946 - - - - 38,329 - -
Income Securities Fund, 4,865 shares, cost $75,590 - - - - - 82,322 -
Money Market Fund, 31,357 shares, cost $31,357 - - - - - - 31,357
- ---------------------------------------------------------------------------------------------------------------------------
Total assets 16,095 369 80,540 112,922 38,329 82,322 31,357
Liabilities:
Accrued mortality and expense risk charges -
Valuemark II 2 1 5 6 4 5 3
Accrued mortality and expense risk charges -
Valuemark IV 1 - - 1 1 1 -
Accrued administrative charges - Valuemark II - - 1 1 - - -
Accrued administrative charges - Valuemark IV - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 3 1 6 8 5 6 3
Net assets $16,092 368 80,534 112,914 38,324 82,316 31,354
- ---------------------------------------------------------------------------------------------------------------------------
Contract owners' equity:
Contracts in accumulation period - Valuemark II 15,825 275 80,480 112,466 37,806 81,970 31,188
Contracts in accumulation period - Valuemark IV 267 93 54 448 518 346 166
- ---------------------------------------------------------------------------------------------------------------------------
Total contract owners' equity $16,092 368 80,534 112,914 38,324 82,316 31,354
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
December 31, 1998
(In thousands)
Mutual Mutual Natural Templeton
Discovery Shares Resources Real Estate Rising Small Developing
Securities Securities Securities Securities Dividends Cap Markets
Fund Fund Fund Fund Fund Fund Equity Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Mutual Discovery Securities Fund, 1,137 shares,
cost $13,382 $12,836 - - - - - -
Mutual Shares Securities Fund, 2,278 shares,
cost $26,446 - 27,241 - - - - -
Natural Resources Securities Fund, 429 shares,
cost $5,793 - - 3,596 - - - -
Real Estate Securities Fund, 822 shares, cost $15,127- - - 16,377 - - -
Rising Dividends Fund, 3,731 shares, cost $50,084 - - - - 67,575 - -
Small Cap Fund, 1,086 shares, cost $15,229 - - - - - 14,905 -
Templeton Developing Markets Equity Fund, 873 shares,
cost $9,097 - - - - - - 6,031
- ---------------------------------------------------------------------------------------------------------------------------
Total assets 12,836 27,241 3,596 16,377 67,575 14,905 6,031
Liabilities:
Accrued mortality and expense risk charges -
Valuemark II 3 3 3 2 5 3 2
Accrued mortality and expense risk charges -
Valuemark IV - 1 - - 1 - -
Accrued administrative charges - Valuemark II 1 1 1 - - - 1
Accrued administrative charges - Valuemark IV - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 4 5 4 2 6 3 3
Net assets $12,832 27,236 3,592 16,375 67,569 14,902 6,028
- ---------------------------------------------------------------------------------------------------------------------------
Contract owners' equity:
Contracts in accumulation period - Valuemark II 12,646 26,789 3,536 16,340 67,223 14,771 5,983
Contracts in accumulation period - Valuemark IV 186 447 56 35 346 131 45
- ---------------------------------------------------------------------------------------------------------------------------
Total contract owners' equity $12,832 27,236 3,592 16,375 67,569 14,902 6,028
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
December 31, 1998
(In thousands)
Templeton
Templeton Templeton Templeton Templeton International Templeton U.S.
Global Asset Global Global Income International Smaller Pacific Government
Allocation Growth Securities Equity Companies Growth Securities
Fund Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Templeton Global Asset Allocation Fund, 342 shares,
cost $4,212 $4,336 - - - - - -
Templeton Global Growth Fund, 2,484 shares,
cost $31,808 - 36,691 - - - - -
Templeton Global Income Securities Fund, 1,099 shares,
cost $14,080 - - 14,143 - - - -
Templeton International Equity Fund, 3,500 shares,
cost $48,667 - - - 54,325 - - -
Templeton International Smaller Companies Fund,
120 shares, cost $1,352 - - - - 1,102 - -
Templeton Pacific Growth Fund, 890 shares,
cost $11,717 - - - - - 6,682 -
U.S. Government Securities Fund, 5,222 shares,
cost $69,881 - - - - - - 72,532
- ---------------------------------------------------------------------------------------------------------------------------
Total assets 4,336 36,691 14,143 54,325 1,102 6,682 72,532
Liabilities:
Accrued mortality and expense risk charges -
Valuemark II 2 4 4 4 2 3 5
Accrued mortality and expense risk charges -
Valuemark IV - - - - - - 1
Accrued administrative charges - Valuemark II 1 1 - 1 1 - 1
Accrued administrative charges - Valuemark IV - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 3 5 4 5 3 3 7
Net assets $4,333 36,686 14,139 54,320 1,099 6,679 72,525
- ---------------------------------------------------------------------------------------------------------------------------
Contract owners' equity:
Contracts in accumulation period - Valuemark II 4,317 36,512 14,094 54,177 1,065 6,633 71,990
Contracts in accumulation period - Valuemark IV 16 174 45 143 34 46 535
- ---------------------------------------------------------------------------------------------------------------------------
Total contract owners' equity $4,333 36,686 14,139 54,320 1,099 6,679 72,525
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
December 31, 1998
(In thousands)
Value Zero Zero Zero Total
Securities Coupon Coupon Coupon All
Fund Fund - 2000 Fund - 2005 Fund - 2010 Funds
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Value Securities Fund,
40 shares, cost $296 $310 - - -
Zero Coupon Fund - 2000
1,013 shares, cost $14,656 - 14,995 - -
Zero Coupon Fund - 2005
496 shares, cost $7,791 - - 8,792 -
Zero Coupon Fund - 2010
403 shares, cost $6,654 - - - 7,684
- ---------------------------------------------------------------------------------------------------------------------------
Total assets 310 14,995 8,792 7,684 732,087
Liabilities:
Accrued mortality and expense risk charges - Valuemark II - 3 3 3 80
Accrued mortality and expense risk charges - Valuemark IV - - - - 7
Accrued administrative charges - Valuemark II - - - - 11
Accrued administrative charges - Valuemark IV - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities - 3 3 3 98
Net assets $310 14,992 8,789 7,681 731,989
- ---------------------------------------------------------------------------------------------------------------------------
Contract owners' equity:
Contracts in accumulation period - Valuemark II 143 14,941 8,739 7,588 727,497
Contracts in accumulation period - Valuemark IV 167 51 50 93 4,492
- ---------------------------------------------------------------------------------------------------------------------------
Total contract owners' equity $310 14,992 8,789 7,681 731,989
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Operations
For the year ended December 31, 1998
(In thousands)
Global Global
Capital Health Utilities Growth and High Income Money
Growth Care Securities Securities Income Income Securities Market
Fund Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ 44 - 3,509 3,838 3,948 7,201 1,556
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges - Valuemark II 150 - 1,091 1,490 546 1,156 383
Mortality and expense risk charges - Valuemark IV 1 - - 1 1 1 -
Administrative charges - Valuemark II 18 - 131 179 65 139 46
Administrative charges - Valuemark IV - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 169 - 1,222 1,670 612 1,296 429
Investment income (loss), net (125) - 2,287 2,168 3,336 5,905 1,127
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions on mutual - - 5,116 9,029 234 1,701 -
funds
Realized gains (losses) on sales of investments, 287 1 3,967 4,620 80 2,113 -
net
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on investments, net 287 1 9,083 13,649 314 3,814 -
Net change in unrealized appreciation
(depreciation) on investments 1,864 35 (3,678) (8,207) (3,777) (9,694) -
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments, net 2,151 36 5,405 5,442 (3,463) (5,880) -
Net increase (decrease) in net assets from $2,026 36 7,692 7,610 (127) 25 1,127
operations
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Operations (cont.)
For the year ended December 31, 1998
(In thousands)
Mutual Mutual Natural Templeton
Discovery Shares Resources Real Estate Rising Small Developing
Securities Securities Securities Securities Dividends Cap Markets
Fund Fund Fund Fund Fund Fund Equity Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ 193 308 67 915 775 10 274
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges - Valuemark II 175 348 56 273 881 187 101
Mortality and expense risk charges - Valuemark IV - 1 - - 1 - -
Administrative charges - Valuemark II 21 42 7 33 106 22 12
Administrative charges - Valuemark IV - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 196 391 63 306 988 209 113
Investment income (loss), net (3) (83) 4 609 (213) (199) 161
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions on mutual funds 180 269 - 567 9,498 1,273 890
Realized gains (losses) on sales of investments, net(116) 34 (613) 1,217 3,267 (338) (1,330)
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on investments, net 64 303 (613) 1,784 12,765 935 (440)
Net change in unrealized appreciation (depreciation)
on investments (1,320) (929) (747) (6,791) (9,268) (1,359) (2,104)
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments, net (1,256) (626) (1,360) (5,007) 3,497 (424) (2,544)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from ($1,259) (709) (1,356) (4,398) 3,284 (623) (2,383)
operations
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Operations (cont.)
For the year ended December 31, 1998
(In thousands)
Templeton
Templeton Templeton Templeton Templeton International Templeton U.S.
Global Asset Global Global Income International Smaller Pacific Government
Allocation Growth Securities Equity Companies Growth Securities
Fund Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $187 1,026 1,178 2,014 35 364 5,565
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges - Valuemark II 65 491 199 814 18 98 985
Mortality and expense risk charges - Valuemark IV - - - - - - 1
Administrative charges - Valuemark II 8 59 24 98 2 12 118
Administrative charges - Valuemark IV - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 73 550 223 912 20 110 1,104
Investment income (loss), net 114 476 955 1,102 15 254 4,461
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions on mutual 222 3,737 - 4,045 41 111 -
funds
Realized gains (losses) on sales of investments, 148 1,018 (2) 3,522 (74) (3,196) 895
net
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on investments, net 370 4,755 (2) 7,567 (33) (3,085) 895
Net change in unrealized appreciation (depreciation)
on investments (572) (2,835) (103) (5,800) (190) 987 (812)
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments, net (202) 1,920 (105) 1,767 (223) (2,098) 83
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from ($88) 2,396 850 2,869 (208) (1,844) 4,544
operations
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Operations (cont.)
For the year ended December 31, 1998
(In thousands)
Value Zero Zero Zero Total
Securities Coupon Coupon Coupon All
Fund Fund - 2000 Fund - 2005 Fund - 2010 Funds
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares - 1,368 509 432 35,316
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges - Valuemark II - 221 106 94 9,928
Mortality and expense risk charges - Valuemark IV - - - - 7
Administrative charges - Valuemark II - 27 13 11 1,193
Administrative charges - Valuemark IV - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses - 248 119 105 11,128
Investment income (loss), net - 1,120 390 327 24,188
Realized gains (losses) and unrealized appreciation
(depreciation) on investments:
Realized capital gain distributions on mutual funds - 219 118 60 37,310
Realized gains (losses) on sales of investments, net 2 283 197 475 16,457
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on investments, net 2 502 315 535 53,767
Net change in unrealized appreciation (depreciation) on investments 14 (584) 146 23
(55,701)
Total realized gains (losses) and unrealized appreciation
(depreciation) on investments, net 16 (82) 461 558 (1,934)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations $16 1,038 851 885 22,254
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Changes in Net Assets For the years ended December 31, 1998 and
1997 (In thousands)
Global Health Global Utilities
Capital Growth Fund Care Securities Fund Securities Fund Growth and Income Fund
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net ($125) (64) - - 2,287 3,392 2,168 2,066
Realized gains (losses) on
investments, net 287 92 1 - 9,083 9,199 13,649 7,354
Net change in unrealized
appreciation (depreciation)
on investments 1,864 670 35 - (3,678) 7,826 (8,207) 15,947
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations 2,026 698 36 - 7,692 20,417 7,610 25,367
Contract transactions -
Valuemark II (note 4):
Purchase payments 2,983 3,011 1 - 1,613 1,846 7,159 10,533
Transfers between funds 4,392 2,196 250 - (1,689) (9,521) 2,872 4,602
Surrenders and terminations (1,877) (237) - - (22,589) (20,611) (26,820) (17,705)
Rescissions (17) (33) - - (109) (4) (167) (126)
Other transactions (note 2) 180 3 - - 64 145 253 78
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from contract
transactions - Valuemark II 5,661 4,940 251 - (22,710) (28,145) (16,703) (2,618)
Contract transactions -
Valuemark IV (note 4):
Purchase payments 206 - 77 - 44 - 347 -
Transfers between funds 32 - 4 - 11 - 92 -
Surrenders and terminations - - - - - - (1) -
Rescissions - - - - - - (1) -
Other transactions (note 2) - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from contract
transactions - Valuemark IV 238 - 81 - 55 - 437 -
Increase (decrease) in net assets 7,925 5,638 368 - (14,963) (7,728) (8,656) 22,749
Net assets at beginning of year 8,167 2,529 - - 95,497 103,225 121,570 98,821
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $16,092 8,167 368 - 80,534 95,497 112,914 121,570
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1998 and 1997
(In thousands)
Mutual Discovery
High Income Fund Income Securities Fund Money Market Fund Securities Fund
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 3,336 2,753 5,905 5,816 1,127 1,215 (3) (78)
Realized gains (losses) on
investments, net 314 1,241 3,814 3,637 - - 64 15
Net change in unrealized appreciation
(depreciation) on investments (3,777) (99) (9,694) 4,604 - - (1,320) 771
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations (127) 3,895 25 14,057 1,127 1,215 (1,259) 708
Contract transactions -
Valuemark II (note 4):
Purchase payments 5,061 6,687 5,484 7,073 9,399 14,086 3,318 4,882
Transfers between funds (862) (631) (3,061) (2,645) 6,983 (6,695) 1,746 5,667
Surrenders and terminations (11,159) (6,845) (20,428) (16,530) (15,831) (11,292) (2,175) (427)
Rescissions (67) (120) (109) (78) (392) (53) (57) (29)
Other transactions (note 2) 13 56 29 39 22 112 18 (9)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark II (7,014) (853) (18,085) (12,141) 181 (3,842) 2,850 10,084
Contract transactions -
Valuemark IV (note 4):
Purchase payments 412 - 257 - 269 - 153 -
Transfers between funds 91 - 94 - (104) - 18 -
Surrenders and terminations (1) - - - - - - -
Rescissions - - - - - - - -
Other transactions (note 2) - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark IV 502 - 351 - 165 - 171 -
Increase (decrease) in net assets (6,639) 3,042 (17,709) 1,916 1,473 (2,627) 1,762 10,792
Net assets at beginning of year 44,963 41,921 100,025 98,109 29,881 32,508 11,070 278
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $ 38,324 44,963 82,316 100,025 31,354 29,881 12,832 11,070
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1998 and 1997
(In thousands)
Mutual Shares Natural Resources
Securities Fund Securities Fund Real Estate Securities Fund Rising Dividends Fund
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net ($83) (151) 4 9 609 332 (213) 19
Realized gains (losses) on
investments, net 303 15 (613) (353) 1,784 1,390 12,765 3,916
Net change in unrealized
appreciation (depreciation)
on investments (929) 1,716 (747) (1,172) (6,791) 2,407 (9,268) 12,343
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations (709) 1,580 (1,356) (1,516) (4,398) 4,129 3,284 16,278
Contract transactions -
Valuemark II (note 4):
Purchase payments 6,717 11,012 685 496 1,188 2,849 7,196 7,130
Transfers between funds 4,383 9,916 (306) (698) (1,790) 1,804 2,318 4,129
Surrenders and terminations (5,431) (992) (787) (1,164) (5,162) (2,578) (15,723) (9,509)
Rescissions (84) (95) - (10) (20) (10) (104) (36)
Other transactions (note 2) 84 (5) 1 2 (10) 3 230 115
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark II 5,669 19,836 (407) (1,374) (5,794) 2,068 (6,083) 1,829
Contract transactions -
Valuemark IV (note 4):
Purchase payments 311 - 56 - 30 - 269 -
Transfers between funds 107 - - - 5 - 58 -
Surrenders and terminations - - - - - - - -
Rescissions - - - - - - - -
Other transactions (note 2) - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark IV 418 - 56 - 35 - 327 -
Increase (decrease) in net assets 5,378 21,416 (1,707) (2,890) (10,157) 6,197 (2,472) 18,107
Net assets at beginning of year 21,858 442 5,299 8,189 26,532 20,335 70,041 51,934
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $27,236 21,858 3,592 5,299 16,375 26,532 67,569 70,041
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1998 and 1997
(In thousands)
Templeton Developing Templeton Global Templeton
Small Cap Fund Markets Equity Fund Asset Allocation Fund Global Growth Fund
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net ($199) (113) 161 (36) 114 24 476 60
Realized gains (losses) on
investments, net 935 494 (440) 412 370 132 4,755 684
Net change in unrealized
appreciation (depreciation)
on investments (1,359) 821 (2,104) (2,170) (572) 293 (2,835) 2,887
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations (623) 1,202 (2,383) (1,794) (88) 449 2,396 3,631
Contract transactions -
Valuemark II (note 4):
Purchase payments 2,596 3,879 560 2,943 667 1,533 3,461 7,275
Transfers between funds 1,577 4,438 (2,638) 192 (1,307) 632 (2,518) 2,733
Surrenders and terminations (2,847) (814) (1,536) (1,291) (791) (504) (6,107) (3,295)
Rescissions (25) (48) (5) (25) (13) (18) (56) (128)
Other transactions (note 2) 91 (4) (3) (3) - (1) (20)
45
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark II 1,392 7,451 (3,622) 1,816 (1,444) 1,642 (5,240) 6,630
Contract transactions -
Valuemark IV (note 4):
Purchase payments 106 - 41 - 13 - 81 -
Transfers between funds 6 - - - 2 - 85 -
Surrenders and terminations (1) - - - - - - -
Rescissions - - - - - - - -
Other transactions (note 2) - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark IV 111 - 41 - 15 - 166 -
Increase (decrease) in net assets 880 8,653 (5,964) 22 (1,517) 2,091 (2,678) 10,261
Net assets at beginning of year 14,022 5,369 11,992 11,970 5,850 3,759 39,364 29,103
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $14,902 14,022 6,028 11,992 4,333 5,850 36,686 39,364
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1998 and 1997
(In thousands)
Templeton Global Templeton Templeton International Templeton
Income Securities Fund International Equity Fund Smaller Companies Fund Pacific Growth Fund
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 955 1,158 1,102 978 15 (13) 254 151
Realized gains (losses) on
investments, net (2) 111 7,567 6,035 (33) 38 (3,085) (474)
Net change in unrealized appreciation
(depreciation) on investments (103) (1,107) (5,800) 211 (190) (109) 987 (7,415)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations 850 162 2,869 7,224 (208) (84) (1,844) (7,738)
Contract transactions -
Valuemark II (note 4):
Purchase payments 547 1,089 1,430 5,493 103 964 182 502
Transfers between funds (1,413) (2,668) (7,532) (443) (348) 577 (1,806) (4,197)
Surrenders and terminations (4,077) (3,152) (14,571) (10,782) (357) (304) (1,677) (2,904)
Rescissions (15) (3) (58) (50) - - (5) (14)
Other transactions (note 2) 25 30 82 161 1 - (5) (4)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark II (4,933) (4,704) (20,649) (5,621) (601) 1,237 (3,311) (6,617)
Contract transactions -
Valuemark IV (note 4):
Purchase payments 41 - 127 - 31 - 44 -
Transfers between funds 4 - 8 - 2 - (3) -
Surrenders and terminations - - - - - - - -
Rescissions - - - - - - - -
Other transactions (note 2) - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark IV 45 - 135 - 33 - 41 -
Increase (decrease) in net assets (4,038) (4,542) (17,645) 1,603 (776) 1,153 (5,114) (14,355)
Net assets at beginning of year 18,177 22,719 71,965 70,362 1,875 722 11,793 26,148
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $14,139 18,177 54,320 71,965 1,099 1,875 6,679 11,793
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1998 and 1997
(In thousands)
U.S. Government Value
Securities Fund Securities Fund Zero Coupon Fund - 2000 Zero Coupon Fund - 2005
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 4,461 3,794 - - 1,120 1,246 390 366
Realized gains (losses) on
investments, net 895 352 2 - 502 262 315 200
Net change in unrealized appreciation
(depreciation) on investments (812) 2,712 14 - (584) (281) 146 131
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations 4,544 6,858 16 - 1,038 1,227 851 697
Contract transactions -
Valuemark II (note 4):
Purchase payments 3,571 5,076 21 - 345 839 1,287 767
Transfers between funds (301) (6,248) 115 - (941) (1,349) 727 (735)
Surrenders and terminations (22,669) (18,871) - - (6,689) (4,616) (1,750) (1,730)
Rescissions (118) (49) - - (10) - (180) -
Other transactions (note 2) 31 (14) - - (7) 18 31 (4)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark II (19,486) (20,106) 136 - (7,302) (5,108) 115 (1,702)
Contract transactions -
Valuemark IV (note 4):
Purchase payments 492 - 124 - 27 - 47 -
Transfers between funds 41 - 34 - 25 - 4 -
Surrenders and terminations - - - - - - - -
Rescissions (3) - - - - - - -
Other transactions (note 2) - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark IV 530 - 158 - 52 - 51 -
Increase (decrease) in net assets(14,412) (13,248) 310 - (6,212) (3,881) 1,017 (1,005)
Net assets at beginning of year 86,937 100,185 - - 21,204 25,085 7,772 8,777
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $ 72,525 86,937 310 - 14,992 21,204 8,789 7,772
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1998 and 1997
(In thousands)
Zero Coupon Fund - 2010 Total All Funds
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 327 310 24,188 23,234
Realized gains (losses) on investments, net 535 199 53,767 34,951
Net change in unrealized appreciation (depreciation) on investments 23 407 (55,701) 41,393
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations 885 916 22,254 99,578
Contract transactions - Valuemark II (note 4):
Purchase payments 873 794 66,447 100,759
Transfers between funds 381 (1,056) (768) -
Surrenders and terminations (1,759) (922) (192,812) (137,075)
Rescissions (7) - (1,618) (929)
Other transactions (note 2) (4) (4) 1,106 759
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from contract
transactions - Valuemark II (516) (1,188) (127,645) (36,486)
Contract transactions - Valuemark IV (note 4):
Purchase payments 92 - 3,697 -
Transfers between funds - - 616 -
Surrenders and terminations - - (3) -
Rescissions - - (4) -
Other transactions (note 2) - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from contract
transactions - Valuemark IV 92 - 4,306 -
Increase (decrease) in net assets 461 (272) (101,085) 63,092
Net assets at beginning of year 7,220 7,492 833,074 769,982
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $ 7,681 7,220 731,989 833,074
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Notes to Financial Statements
December 31, 1998
1. ORGANIZATION
Preferred Life Variable Account C (Variable Account) is a segregated investment
account of Preferred Life Insurance Company of New York (Preferred Life) and is
registered with the Securities and Exchange Commission as a unit investment
trust pursuant to the provisions of the Investment Company Act of 1940 (as
amended). The Variable Account was established by Preferred Life on February 26,
1988 and commenced operations September 6, 1991. Accordingly, it is an
accounting entity wherein all segregated account transactions are reflected.
The Variable Account's assets are the property of Preferred Life and are held
for the benefit of the owners and other persons entitled to payments under
variable annuity contracts issued through the Variable Account and underwritten
by Preferred Life. The assets of the Variable Account, equal to the reserves and
other liabilities of the Variable Account, are not chargeable with liabilities
that arise from any other business which Preferred Life may conduct.
The Variable Account's sub-accounts may invest, at net asset values, in one or
more of the funds of the Franklin Valuemark Funds (FVF), managed by Franklin
Advisers, Inc. and its Templeton and Franklin affiliates, in accordance with the
selection made by the contract owner.
Certain officers and trustees of the FVF are also officers and/or directors of
Franklin Advisers, Inc. and/or Preferred Life.
2. SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Investments
Investments of the Variable Account are valued daily at market value using net
asset values provided by Franklin Advisers, Inc.
Realized investment gains include gains on the sale of fund shares as determined
by the average cost method. Dividend distributions received from the FVF are
reinvested in additional shares of the FVF and are recorded as income to the
Variable Account on the ex-dividend date.
Two Fixed Account investment options are available to deferred annuity contract
owners. A Flexible Fixed Option is available to all deferred annuity contract
owners and a Dollar Cost Averaging Option is available to Valuemark IV deferred
annuity contract owners. These accounts are comprised of equity and fixed income
investments which are part of the general obligations of Preferred Life. The
liabilities of the Fixed Accounts are part of the general obligations of
Preferred Life and are not included in the Variable Account. The guaranteed
minimum rate of return on the Fixed Accounts is 3%.
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES (cont.)
Investments (cont.)
The Global Health Care Securities Fund and Value Securities Fund were added as
available investment options on August 17, 1998. On May 1, 1998, the Utility
Equity Fund name was changed to Global Utilities Securities Fund. The Precious
Metals Fund name was changed to Natural Resources Securities Fund on May 1,
1997.
Expenses
Asset Based Expenses
A mortality and expense risk charge is deducted from the Variable Account on a
daily basis. The charge is equal, on an annual basis, to 1.25% of the daily net
assets of Valuemark II and 1.34% of the daily net assets of Valuemark IV.
An administrative charge is deducted from the Variable Account on a daily basis
equal, on an annual basis, to 0.15% of the daily net assets of all products
which comprise the Variable Account
Contract Based Expenses
A contract maintenance charge is paid by the contract owner annually from each
contract by liquidating contract units at the end of the contract year and at
the time of full surrender. The amount of the charge is $30 each year. Contract
maintenance charges deducted during the years ended December 31, 1998 and 1997
were $487,077and $478,510, respectively. These contract charges are reflected in
the Statements of Changes in Net Assets as other transactions.
A contingent deferred sales charge is deducted from the contract value at the
time of a surrender. This charge applies only to a surrender of purchase
payments received within five years of the date of surrender for Valuemark II
contracts and within seven years of the date of surrender for Valuemark IV
contracts. For this purpose, purchase payments are allocated on a first-in,
first-out basis. The amount of the contingent deferred sales charge is
calculated by: (a) allocating purchase payments to the amount surrendered; and
(b) multiplying each allocated purchase payment that has been held under the
contract for the period shown below by the charge shown below:
Years Since Contingent Deferred Sales Charge
- --------------------------------------------------------------------------------
Payment Valuemark II Valuemark IV
- --------------------------------------------------------------------------------
0-1 5% 6%
1-2 5% 6%
2-3 4% 6%
3-4 3% 5%
4-5 1.5% 4%
5-6 0% 3%
6-7 0% 2%
7+ 0% 0%
and (c) adding the products of each multiplication in (b) above.
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES (cont.)
Contract Based Expenses (cont.)
A Valuemark II deferred annuity contract owner may, not more frequently than
once annually on a cumulative basis, make a surrender each contract year of
fifteen percent (15%) of purchase payments paid, less any prior surrenders,
without incurring a contingent deferred sales charge. A Valuemark IV deferred
annuity contract owner may make multiple surrenders, each year after the first
contract year, up to fifteen percent (15%) of the contract value without
incurring a contingent deferred sales charge. For a partial surrender, the
contingent deferred sales charge will be deducted from the remaining contract
value, if sufficient; otherwise it will be deducted from the amount surrendered.
Total contingent deferred sales charges paid by the contract owners for the
years ended December 31, 1998 and 1997 were $941,938 and $983,164, respectively.
Currently, twelve transfers are permitted each contract year. Thereafter, the
fee is $25 per transfer, or 2% of the amount transferred, if less. Currently,
transfers associated with the dollar cost averaging program are not counted.
Total transfer charges for the years ended December 31, 1998 and 1997 were
$1,945 and $4,226, respectively. Transfer charges are reflected in the Statement
of Changes in Net Assets as other transactions. Net transfers to the Fixed
Accounts were $152,026 for the year ended December 31, 1998.
Premium taxes or other taxes payable to a state or other governmental entity
will be charged against the contract values. Preferred Life may, at its sole
discretion, pay taxes when due and deduct that amount from the contract value at
a later date. Payment at an earlier date does not waive any right Preferred Life
may have to deduct such amounts at a later date.
On Valuemark II deferred annuity contracts, a systematic withdrawal plan is
available which allows an owner to withdraw up to nine percent (9%) of purchase
payments less prior surrenders annually, paid monthly or quarterly, without
incurring a contingent deferred sales charge. The systematic withdrawal plan
available to Valuemark IV deferred annuity contract owners allows up to fifteen
percent (15%) of the contract value withdrawn annually, paid monthly or
quarterly, without incurring a contingent deferred sales charge. The exercise of
the systematic withdrawal plan in any contract year replaces the 15% penalty
free privilege for that year for all deferred annuity contracts.
A rescission is defined as a contract that is returned to the company and
canceled within the free-look period, generally within 10 days.
3. FEDERAL INCOME TAXES
Operations of the Variable Account form a part of, and are taxed with,
operations of Preferred Life, which is taxed as a life insurance company under
the Internal Revenue Code.
Preferred Life does not expect to incur any federal income taxes in the
operation of the Variable Account. If, in the future, Preferred Life determines
that the Variable Account may incur federal income taxes, it may then assess a
charge against the Variable Account for such taxes.
<PAGE>
4. CONTRACT TRANSACTIONS - ACCUMULATION UNIT ACTIVITY (In thousands)
Transactions in units for each fund for the years ended December 31, 1998 and
1997 were as follows: <TABLE> <CAPTION>
Global Global Mutual Mutual
Capital Health Care Utilities Growth and High Income Money Discovery Shares
Growth Securities Securities Income Income Securities Market Securities Securities
Fund Fund Fund Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Valuemark II
Accumulation units outstanding
at December 31, 1996 225 - 4,998 5,070 2,164 4,519 2,433 27 43
Contract transactions:
Purchase payments 241 - 86 483 330 309 1,035 428 981
Transfers between funds 178 - (449) 210 (44) (119) (487) 511 893
Surrenders and terminations (19) - (943) (809) (337) (717) (830) (38) (86)
Rescissions (3) - - (6) (6) (3) (4) (3) (8)
Other transactions - - 7 4 3 2 8 (1) -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
accumulation units resulting
from contract transactions 397 - (1,299) (118) (54) (528) (278) 897 1,780
Accumulation units outstanding
at December 31, 1997 622 - 3,699 4,952 2,110 3,991 2,155 924 1,823
- ---------------------------------------------------------------------------------------------------------------------------
Contract transactions:
Purchase payments 215 - 61 281 233 219 657 261 541
Transfers between funds 303 26 (64) 110 (37) (125) 505 128 349
Surrenders and terminations (135) - (851) (1,058) (521) (819) (1,123) (184) (450)
Rescissions (1) - (4) (6) (3) (4) (28) (4) (6)
Other transactions 12 - 2 10 1 1 2 2 7
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract
transactions 394 26 (856) (663) (327) (728) 13 203 441
Accumulation units outstanding
at December 31, 1998 1,016 26 2,843 4,289 1,783 3,263 2,168 1,127 2,264
- ---------------------------------------------------------------------------------------------------------------------------
Valuemark IV
Accumulation units outstanding
at December 31, 1997 - - - - - - - - -
Contract transactions:
Purchase payments 15 8 2 14 21 11 19 15 29
Transfers between funds 2 - - 3 4 3 (7) 2 9
Surrenders and terminations - - - - - - - - -
Rescissions - - - - - - - - -
Other transactions - - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract
transactions 17 8 2 17 25 14 12 17 38
Accumulation units outstanding
at December 31, 1998 17 8 2 17 25 14 12 17 38
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
4. CONTRACT TRANSACTIONS - ACCUMULATION UNIT ACTIVITY (In thousands) (cont.)
<TABLE>
<CAPTION>
Natural Real Templeton Templeton Templeton Templeton Templeton
Resources Estate Rising Small Developing Global Asset Global Global Income International
Securities Securities Dividends Cap Markets Equity Allocation Growth Securities Equity
Fund Fund Fund Fund Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Valuemark II
Accumulation units outstanding
at December 31, 1996 566 859 3,394 416 1,042 300 2,146 1,354 4,375
Contract transactions:
Purchase payments 37 114 399 275 231 114 489 65 313
Transfers between funds (58) 72 225 310 (9) 48 184 (160) (23)
Surrenders and terminations (86) (103) (533) (59) (102) (37) (219) (189) (608)
Rescissions (1) - (2) (4) (2) (1) (9) - (3)
Other transactions - - 6 - - - 3 2 9
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
accumulation units resulting
from contract transactions (108) 83 95 522 118 124 448 (282)
(312)
Accumulation units outstanding
at December 31, 1997 458 942 3,489 938 1,160 424 2,594 1,072 4,063
- ---------------------------------------------------------------------------------------------------------------------------
Contract transactions:
Purchase payments 66 44 345 171 59 47 213 32 76
Transfers between funds (33) (73) 103 96 (295) (94) (177) (82) (429)
Surrenders and terminations (76) (204) (767) (198) (174) (58) (387) (235)
(773)
Rescissions - (1) (5) (2) (1) (1) (3) (1) (3)
Other transactions - - 11 7 - - (1) 1 4
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
accumulation units resulting
from contract transactions (43) (234) (313) 74 (411) (106) (355) (285)
(1,125)
Accumulation units outstanding
at December 31, 1998 415 708 3,176 1,012 749 318 2,239 787 2,938
- ---------------------------------------------------------------------------------------------------------------------------
Valuemark IV
Accumulation units outstanding
at December 31, 1997 - - - - - - - - -
Contract transactions:
Purchase payments 7 1 14 9 5 1 5 2 8
Transfers between funds - - 3 - - - 5 - -
Surrenders and terminations - - - - - - - - -
Rescissions - - - - - - - - -
Other transactions - - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
accumulation units resulting
from contract transactions 7 1 17 9 5 1 10 2 8
Accumulation units outstanding
at December 31, 1998 7 1 17 9 5 1 10 2 8
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
4. CONTRACT TRANSACTIONS - ACCUMULATION UNIT ACTIVITY (In thousands) (cont.)
<TABLE>
<CAPTION>
Templeton
International Templeton U.S. Zero Zero Zero
Smaller Pacific Government Value Coupon Coupon Coupon Total
Companies Growth Securities Securities Fund - Fund - Fund - All
Fund Fund Fund Fund 2000 2005 2010 Funds
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Valuemark II
Accumulation units outstanding at December 31, 65 1,751 6,017 - 1,358 428 348 43,898
1996
Contract transactions:
Purchase payments 84 37 297 - 44 36 34 6,462
Transfers between funds 50 (324) (370) - (72) (37) (49) 480
Surrenders and terminations (26) (212) (1,096) - (244) (82) (41) (7,416)
Rescissions - (1) (3) - - - - (59)
Other transactions - - (1) - 1 - - 43
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation units
resulting from contract transactions 108 (500) (1,173) - (271) (83) (56) (490)
Accumulation units outstanding at December 31, 173 1,251 4,844 - 1,087 345 292 43,408
1997
- ---------------------------------------------------------------------------------------------------------------------------
Contract transactions:
Purchase payments 9 21 194 3 17 55 34 3,854
Transfers between funds (35) (232) (20) 16 (47) 30 13 (64)
Surrenders and terminations (33) (217) (1,227) - (334) (74) (67) (9,965)
Rescissions - (1) (6) - - (8) - (88)
Other transactions - (1) 2 - - 1 - 61
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation units
resulting from contract transactions (59) (430) (1,057) 19 (364) 4 (20) (6,202)
Accumulation units outstanding at December 31, 114 821 3,787 19 723 349 272 37,206
1998
- ---------------------------------------------------------------------------------------------------------------------------
Valuemark IV
Accumulation units outstanding at December 31, - - - - - - - -
1997
Contract transactions:
Purchase payments 3 6 26 17 1 2 3 244
Transfers between funds - - 2 5 1 - - 32
Surrenders and terminations - - - - - - - -
Rescissions - - - - - - - -
Other transactions - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation units
resulting from contract transactions 3 6 28 22 2 2 3 276
Accumulation units outstanding at December 31, 1998 3 6 28 22 2 2 3 276
</TABLE>
<PAGE>
5. UNIT VALUES
<TABLE>
<CAPTION>
A summary of accumulation unit values and accumulation units outstanding for
variable annuity contracts and the expense ratios, including expenses of the
underlying funds, for each of the five years in the period ended December 31,
1998 follows.
Valuemark II Valuemark IV
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation Ratio of Expenses Accumulation Ratio of Expenses
Units Outstanding Accumulation Net Assets to Average Units Outstanding Accumulation Net Assets to Average
(in thousands) Unit Value (in thousands) Net Assets* (in thousands) Unit Value (in thousands) Net Assets*
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth Fund
December 31,
1998 1,016 $15.574 $15,825 2.17% 17 $15.537 $267 2.26%
1997 622 13.130 8,167 2.17 - - - -
19961 225 11.254 2,529 2.17+ - - - -
Global Health Care Securities Fund
December 31,
19982 26 10.610 275 2.24+ 8 10.604 93 2.33+
Global Utilities Securities Fund
December 31,
1998 2,843 28.308 80,480 1.90 2 28.082 54 1.99
1997 3,699 25.818 95,497 1.90 - - - -
1996 4,998 20.654 103,225 1.90 - - - -
1995 5,916 19.555 115,743 1.90 - - - -
1994 6,317 15.104 35,415 1.92 - - - -
Growth and Income Fund
December 31,
1998 4,289 26.226 112,466 1.89 17 25.993 448 1.98
1997 4,952 24.551 121,570 1.89 - - - -
1996 5,070 19.490 98,821 1.90 - - - -
1995 4,347 17.310 75,240 1.92 - - - -
1994 3,452 13.215 45,616 1.94 - - - -
High Income Fund
December 31,
1998 1,783 21.208 37,806 1.93 25 21.020 518 2.02
1997 2,110 21.312 44,963 1.93 - - - -
1996 2,164 19.375 41,921 1.94 - - - -
1995 2,076 17.252 35,808 1.96 - - - -
1994 1,710 14.608 24,984 2.00 - - - -
Income Securities Fund
December 31,
1998 3,263 25.122 81,970 1.89 14 24.898 346 1.98
1997 3,991 25.065 100,025 1.90 - - - -
1996 4,519 21.708 98,109 1.90 - - - -
1995 4,567 19.785 90,364 1.91 - - - -
1994 4,416 16.392 72,389 1.94 - - - -
</TABLE>
<PAGE>
5. UNIT VALUES (cont.)
<TABLE>
<CAPTION>
Valuemark II Valuemark IV
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation Ratio of Expenses Accumulation Ratio of Expenses
Units Outstanding Accumulation Net Assets to Average Units Outstanding Accumulation Net Assets to Average
(in thousands) Unit Value (in thousands) Net Assets* (in thousands) Unit Value (in thousands) Net Assets*
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market Fund
December 31,
1998 2,168 $14.386 $31,188 1.85% 12 $14.260 $166 1.94%
1997 2,155 13.865 29,881 1.85 - - - -
1996 2,433 13.359 32,508 1.83 - - - -
1995 2,218 12.883 28,571 1.80 - - - -
1994 2,487 12.354 30,730 1.86 - - - -
Mutual Discovery Securities Fund
December 31,
1998 1,127 11.226 12,646 2.40 17 11.205 186 2.49
1997 924 11.983 11,070 2.46 - - - -
19963 27 10.180 278 2.77+ - - - -
Mutual Shares Securities Fund
December 31,
1998 2,264 11.837 26,789 2.17 38 11.814 447 2.26
1997 1,823 11.993 21,858 2.20 - - - -
19963 43 10.330 442 2.40+ - - - -
Natural Resources Securities Fund
December 31,
1998 415 8.505 3,536 2.04 7 8.430 56 2.13
1997 458 11.559 5,299 2.09 - - - -
1996 566 14.467 8,189 2.05 - - - -
1995 516 14.109 7,278 2.06 - - - -
1994 647 13.979 9,050 2.08 - - - -
Real Estate Securities Fund
December 31,
1998 708 23.107 16,340 1.94 1 22.901 35 2.03
1997 942 28.169 26,532 1.94 - - - -
1996 859 23.668 20,335 1.97 - - - -
1995 794 18.073 14,344 1.99 - - - -
1994 900 15.594 14,035 2.02 - - - -
Rising Dividends Fund
December 31,
1998 3,176 21.165 67,223 2.12 17 21.034 346 2.21
1997 3,489 20.074 70,041 2.14 - - - -
1996 3,394 15.303 51,934 2.16 - - - -
1995 3,182 12.498 39,770 2.18 - - - -
1994 2,936 9.769 28,685 2.20 - - - -
Small Cap Fund
December 31,
1998 1,012 14.600 14,771 2.17 9 14.558 131 2.26
1997 938 14.952 14,022 2.17 - - - -
19961 416 12.913 5,369 2.17+ - - - -
</TABLE>
<PAGE>
5. UNIT VALUES (cont.)
<TABLE>
<CAPTION>
Valuemark II Valuemark IV
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation Ratio of Expenses Accumulation Ratio of Expenses
Units Outstanding Accumulation Net Assets to Average Units Outstanding Accumulation Net Assets to Average
(in thousands) Unit Value (in thousands) Net Assets* (in thousands) Unit Value (in thousands) Net Assets*
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Templeton Developing Markets Equity Fund
December 31,
1998 749 $ 7.993 $ 5,983 2.81% 5 $ 7.958 $ 45 2.90%
1997 1,160 10.340 11,992 2.82 - - - -
1996 1,042 11.487 11,970 2.89 - - - -
1995 757 9.582 7,254 2.81 - - - -
19944 591 9.454 5,589 2.93+ - - - -
Templeton Global Asset Allocation Fund
December 31,
1998 318 13.589 4,317 2.24 1 13.543 16 2.33
1997 424 13.786 5,850 2.34 - - - -
1996 300 12.514 3,759 2.26 - - - -
19955 36 10.591 379 2.30+ - - - -
Templeton Global Growth Fund
December 31,
1998 2,239 16.309 36,512 2.28 10 16.238 174 2.37
1997 2,594 15.176 39,364 2.28 - - - -
1996 2,146 13.560 29,103 2.33 - - - -
1995 1,416 11.339 16,061 2.37 - - - -
19944 922 10.201 9,400 2.54+ - - - -
Templeton Global Income Securities Fund
December 31,
1998 787 17.905 14,094 2.03 2 17.746 45 2.12
1997 1,072 16.957 18,177 2.02 - - - -
1996 1,354 16.781 22,719 2.01 - - - -
1995 1,472 15.522 22,851 2.04 - - - -
1994 1,667 13.726 22,888 2.11 - - - -
Templeton International Equity Fund
December 31,
1998 2,938 18.437 54,177 2.28 8 18.322 143 2.37
1997 4,063 17.711 71,965 2.29 - - - -
1996 4,375 16.081 70,362 2.29 - - - -
1995 4,073 13.263 54,018 2.32 - - - -
1994 4,079 12.161 49,607 2.39 - - - -
Templeton International Smaller Companies Fund
December 31,
1998 114 9.364 1,065 2.50 3 9.342 34 2.59
1997 173 10.825 1,875 2.46 - - - -
19961 65 11.145 722 2.18+ - - - -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
5. UNIT VALUES (cont.)
Valuemark II Valuemark IV
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation Ratio of Expenses Accumulation Ratio of Expenses
Units Outstanding Accumulation Net Assets to Average Units Outstanding Accumulation Net Assets to Average
(in thousands) Unit Value (in thousands) Net Assets* (in thousands) Unit Value (in thousands) Net Assets*
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Templeton Pacific Growth Fund
December 31,
1998 821 $ 8.078 $ 6,633 2.50% 6 $ 8.028 $ 46 2.59%
1997 1,251 9.431 11,793 2.43 - - - -
1996 1,751 14.932 26,148 2.39 - - - -
1995 1,812 13.630 24,693 2.41 - - - -
1994 2,112 12.802 27,037 2.47 - - - -
U.S. Government Securities Fund
December 31,
1998 3,787 19.014 71,990 1.90 28 18.847 535 1.99
1997 4,844 17.947 86,937 1.90 - - - -
1996 6,017 16.650 100,185 1.91 - - - -
1995 5,089 16.298 82,935 1.92 - - - -
1994 5,331 13.835 73,747 1.93 - - - -
Value Securities Fund
December 31,
19982 19 7.717 143 2.52+ 22 7.713 167 2.61+
Zero Coupon Fund - 2000
December 31,
1998 723 20.684 14,941 1.80 2 20.502 51 1.89
1997 1,087 19.512 21,204 1.80 - - - -
1996 1,358 18.475 25,085 1.80 - - - -
1995 1,416 18.294 25,910 1.80 - - - -
1994 1,158 15.373 17,797 1.80 - - - -
Zero Coupon Fund - 2005
December 31,
1998 349 25.003 8,739 1.80 2 24.786 50 1.89
1997 345 22.532 7,772 1.80 - - - -
1996 428 20.517 8,777 1.80 - - - -
1995 456 20.914 9,531 1.80 - - - -
1994 403 16.096 6,483 1.80 - - - -
Zero Coupon Fund - 2010
December 31,
1998 272 27.920 7,588 1.80 3 27.674 93 1.89
1997 292 24.740 7,220 1.80 - - - -
1996 348 21.522 7,492 1.80 - - - -
1995 371 22.431 8,329 1.80 - - - -
1994 252 15.930 4,008 1.80 - - - -
<FN>
*For the year ended December 31, including the effect of the expenses of the underlying funds.
+Annualized.
1Period from June 10, 1996 (fund commencement) to December 31, 1996.
2Period from August 17, 1998 (fund commencement) to December 31, 1998.
3Period from December 2, 1996 (fund commencement) to December 31, 1996.
4Period from April 25, 1994 (fund commencement) to December 31, 1994.
5Period from August 4, 1995 (fund commencement) to December 31, 1995.
</FN>
</TABLE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Financial Statements
December 31, 1998 and 1997
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Independent Auditors Report
The Board of Directors
Preferred Life Insurance Company of New York:
We have audited the accompanying balance sheets of Preferred Life Insurance
Company of New York as of December 31, 1998 and 1997, and the related statements
of income, comprehensive income, stockholder's equity and cash flows for each of
the years in the three-year period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Preferred Life Insurance
Company of New York as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
KPMGPeat Marwick LLF
Minneapolis, Minnesota
February 5, 1999
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Financial Statements
Balance Sheets
December 31, 1998 and 1997
(In thousands except share data)
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments:
Fixed maturities, at market $ 38,784 30,106
Equity securities, at market 1,752 0
Certificates of deposit and short-term securities 10,069 698
- ---------------------------------------------------------------------------------------------------------------------------
Total investments 50,605 30,804
Cash 6,135 5,321
Receivables 3,595 5,006
Reinsurance receivable:
Recoverable on future benefit reserves 156 166
Recoverable on unpaid claims 9,545 10,537
Receivable on paid claims 1,935 2,500
Deferred acquisition costs 33,387 37,447
Other assets 4,805 6,976
- ---------------------------------------------------------------------------------------------------------------------------
Assets, exclusive of separate account assets 110,163 98,757
Separate account assets 732,046 833,083
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $842,209 931,840
Liabilities and Stockholder's Equity
Liabilities:
Future benefit reserves:
Life $ 1,827 1,362
Annuity 7,716 634
Policy and contract claims 27,278 30,758
Unearned premiums 913 1,590
Other policyholder funds 3,551 1,230
Reinsurance payable 1,497 2,116
Deferred income taxes 9,977 10,173
Accrued expenses and other liabilities 3,894 3,111
Commissions due and accrued 622 930
Payable to parent 3,403 3,182
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities, exclusive of separate account liabilities 60,678 55,086
Separate account liabilities 732,046 833,083
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 792,724 888,169
Stockholder's equity:
Common stock, $10 par value; 200,000 shares authorized, issued and outstanding 2,000 2,000
Additional paid-in capital 15,500 15,500
Retained earnings 31,052 25,455
Accumulated other comprehensive income 933 716
- ---------------------------------------------------------------------------------------------------------------------------
Total stockholder's equity 49,485 43,671
Commitments and contingencies (notes 6, 11 and 12)
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity $842,209 931,840
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Financial Statements (continued)
Statements of Income
Years ended December 31, 1998, 1997 and 1996
(In thousands)
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Life insurance premiums $ 7,115 8,866 9,174
Annuity considerations 12,643 12,791 11,725
Accident and health premiums 21,148 22,114 22,105
- ---------------------------------------------------------------------------------------------------------------------------
Total premiums and considerations 40,906 43,771 43,004
Premiums ceded 11,427 12,939 11,574
- ---------------------------------------------------------------------------------------------------------------------------
Net premiums and considerations 29,479 30,832 31,430
Investment income, net 2,021 1,626 1,220
Realized investment gains (losses) 1,003 (1) (62)
Other income 62 93 0
- ---------------------------------------------------------------------------------------------------------------------------
Total revenue 32,565 32,550 32,588
Benefits and expenses:
Life insurance benefits 3,508 5,074 5,971
Annuity benefits 351 323 202
Accident and health insurance benefits 10,579 14,709 13,406
- ---------------------------------------------------------------------------------------------------------------------------
Total benefits 14,438 20,106 19,579
Benefit recoveries 5,770 9,200 6,614
- ---------------------------------------------------------------------------------------------------------------------------
Net benefits 8,668 10,906 12,965
Commissions and other agent compensation 7,091 8,295 8,596
General and administrative expenses 4,148 4,018 3,576
Taxes, licenses and fees 187 654 688
Change in deferred acquisition costs, net 4,060 798 341
- ---------------------------------------------------------------------------------------------------------------------------
Total benefits and expenses 24,154 24,671 26,166
Income from operations before income taxes 8,411 7,879 6,422
Income tax expense (benefit):
Current 3,126 1,573 435
Deferred (312) 1,029 2,396
- ---------------------------------------------------------------------------------------------------------------------------
Total income tax expense 2,814 2,602 2,831
Net income $ 5,597 5,277 3,591
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Financial Statements (continued)
Statements of Comprehensive
Income Years ended December 31, 1998, 1997 and 1996
(In thousands)
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $5,597 5,277 3,591
- ---------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss):
Unrealized gains (losses) on fixed maturities and equity securities:
Unrealized holding gains (losses) arising during the period net of tax of $468 in 1998,
$403 in 1997, and $(188) in 1996 869 749 (348)
Reclassification adjustment for realized (gains) losses included in net income, net of tax
of $351 in 1998, $0 in 1997, and $(22) in 1996 (652) 1 40
- ---------------------------------------------------------------------------------------------------------------------------
Total other comprehensive income (loss) 217 750 (308)
Total comprehensive income $5,814 6,027 3,283
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Financial Statements (continued)
Statements of Stockholder's Equity
Years ended December 31, 1998, 1997 and 1996
(In thousands)
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common stock:
Balance at beginning and end of year $ 2,000 2,000 2,000
- ---------------------------------------------------------------------------------------------------------------------------
Additional paid-in capital:
Balance at beginning and end of year 15,500 15,500 15,500
- ---------------------------------------------------------------------------------------------------------------------------
Retained earnings:
Balance at beginning of year 25,455 20,178 16,587
Net income 5,597 5,277 3,591
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of year 31,052 25,455 20,178
Accumulated other comprehensive income (loss):
Balance at beginning of year 716 (34) 274
Net unrealized gain (loss) during the year, net of deferred federal income taxes 217 750
(308)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of year 933 716 (34)
Total stockholder's equity $49,485 43,671 37,644
Statements of Cash Flows
Years ended December 31, 1998, 1997 and 1996
(In thousands)
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows provided by (used in) operating activities:
Net income $ 5,597 5,277 3,591
- ---------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Realized (gains) losses on investments (1,003) 1 62
Deferred federal income tax expense (312) 1,029 2,396
Interest credited to policyholder account balances 42 0 0
Change in:
Receivables and other assets 5,149 (4,283) 2,831
Deferred acquisition costs 4,060 798 341
Future benefit reserves 829 452 944
Policy and contract claims (3,480) 847 (353)
Unearned premiums (677) (297) (443)
Other policyholder funds 2,321 551 (12)
Reinsurance payable (619) (17) 881
Accrued expenses and other liabilities 783 649 (1,523)
Commissions due and accrued (308) 108 (2)
Due to parent 221 2,080 439
Depreciation and amortization (275) (110) (46)
- ---------------------------------------------------------------------------------------------------------------------------
Total adjustments 6,731 1,808 5,515
Net cash provided by operating activities 12,328 7,085 9,106
Cash flows provided by (used in) investing activities:
Purchase of fixed maturities (28,065) (8,680) (8,525)
Purchase of equity securities (2,105) 0 0
Sale of fixed maturities 20,414 81 2,654
Sale of equity securities 553 0 0
Other investments, net (8,987) 1,859 (1,492)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (18,190) (6,740) (7,363)
Cash flows provided by financing activities:
Policyholders' deposits to account balances 6,676 0 0
- ---------------------------------------------------------------------------------------------------------------------------
Net increase in cash 814 345 1,743
Cash at beginning of year 5,321 4,976 3,233
- ---------------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 6,135 5,321 4,976
</TABLE>
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements
(in thousands)
(1) Summary of Significant Accounting Policies
Preferred Life Insurance Company of New York (the Company) is a wholly owned
subsidiary of Allianz Life Insurance Company of North America (Allianz Life)
which, in turn, is a wholly-owned subsidiary of Allianz of America, Inc. (AZOA),
a majority-owned subsidiary of Allianz A.G. Holding, a Federal Republic of
Germany company.
The Company is a life insurance company licensed to sell group life and accident
and health policies and individual variable annuity contracts in six states and
the District of Columbia. Based on 1998 revenue and consideration volume, 19%,
43% and 38% of the Company's business is life, annuity and accident and health,
respectively. The Company's primary distribution channels are through strategic
alliances with third party marketing organizations. The Company has a
significant relationship with The Franklin Templeton Group and its broker/dealer
network for marketing its variable annuity products.
Following is a summary of the significant accounting policies reflected in the
accompanying financial statements.
Basis of Presentation
The financial statements have been prepared in accordance with generally
accepted accounting principles (GAAP) which vary in certain respects from
accounting rules prescribed or permitted by state insurance regulatory
authorities. Certain amounts as previously reported have been reclassified to be
consistent with the current year's presentation.
The preparation of financial statements in conformity with GAAP requires
management to make certain estimates and assumptions that affect reported assets
and liabilities including reporting or disclosure of contingent assets and
liabilities as of the balance sheet date and the reported amounts of revenues
and expenses during the reporting period.
Actual results could vary significantly from management's estimates.
Traditional Life, Group Life and Group Accident and Health Insurance
Premiums on traditional life and group life products are recognized as income
when due. Group accident and health premiums are recognized as earned on a pro
rata basis over the risk coverage periods. Benefits and expenses are matched
with earned premiums so that profits are recognized over the premium paying
periods of the contracts. This matching is accomplished by establishing
provisions for future policy benefits and policy and contract claims, and
deferring and amortizing related policy acquisition costs.
Variable Annuity Business
Variable annuity contracts do not have significant mortality or morbidity risks
and are accounted for in a manner consistent with interest bearing financial
instruments. Accordingly, premium receipts are reported as deposits to the
contractholder's account, while revenues consist of amounts assessed against
contractholders including surrender charges and earned administrative service
fees. Benefits consist of claims and benefits incurred in excess of the
contractholder's balance.
Deferred Acquisition Costs
Acquisition costs, consisting of commissions and other costs, which vary with
and are primarily related to production of new business, are deferred. For
variable annuity contracts, acquisition costs are amortized in relation to the
present value of expected gross profits from investment margins and expense
charges. Acquisition costs for group life and group accident and health products
are deferred and amortized over the lives of the policies in the same manner as
premiums are earned. Deferred acquisition costs amortized during 1998, 1997 and
1996 were $8,763, $10,147, and $6,541, respectively.
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements (continued)
(in thousands)
(1) Summary of Significant Accounting Policies (cont.)
Future Benefit Reserves
Future benefits on life insurance products are computed by net level premium
methods and the commissioners reserve valuation method based upon estimated
future investment yield and mortality, commensurate with the Company's
experience.
Future benefit reserves for variable annuity products are carried at accumulated
contract values. Any additional reserves for any death benefits that may exceed
the accumulated contract values are carried at an amount greater than or equal
to a one year term cost.
Policy and Contract Claims
Policy and contract claims represent an estimate of claims and claim adjustment
expenses that have been reported but not yet paid and incurred but not yet
reported as of December 31.
Investments
The Company has classified all of its fixed maturity and equity portfolio as
"available-for-sale" and, accordingly, the securities are carried at fair value.
Realized gains and losses are computed based on the specific identification
method.
Short term investments, which include certificate of deposits, are carried at
amortized cost which approximates market.
As of December 31, 1998 and 1997, investments with a carrying value of $1,711
and $1,645, respectively, were pledged to the New York Superintendent of
Insurance as required by statutory regulation.
The fair values of invested assets are deemed by management to approximate their
estimated market values. Changes in market conditions subsequent to December 31
may cause estimates of fair values to differ from the amounts presented herein.
Reinsurance
Insurance liabilities are reported before the effects of reinsurance. Amounts
paid or deemed to have been paid for claims covered by reinsurance contracts are
recorded as reinsurance receivables. Estimated reinsurance receivables are
recognized in a manner consistent with the liabilities related to the underlying
reinsured contracts.
Separate Accounts
Separate accounts represent funds for which investment income and investment
gains and losses accrue directly to the contractholders. Each account has
specific investment objectives and the assets are carried at market value. The
assets of each account are legally segregated and are not subject to claims
which arise out of any other business of the Company.
Fair values of separate account assets were determined using the market value of
the underlying investments held in segregated fund accounts. Fair values of
separate account liabilities were determined using the cash surrender values of
the contractholders' accounts.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the period that
includes the enactment date.
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements (continued)
(in thousands)
(1) Summary of Significant Accounting Policies (cont.)
Receivables
Receivable balances approximate estimated fair values. This is based on
pertinent information available to management as of year end including the
financial condition and credit worthiness of the parties underlying the
receivables. Changes in market conditions subsequent to year end may cause
estimates of fair values to differ from the amounts presented herein.
Accounting Changes
In 1998, the Company adopted SFAS No. 130, Reporting Comprehensive Income. A
Statement of Comprehensive Income is now included in these financial statements.
Accounting Pronouncements to be Adopted
In December 1997, the AICPA issued Statement of Position (SOP) 97-3, Accounting
by Insurance and Other Enterprises for Insurance-Related Assessments. The SOP
provides guidance for determining when to recognize a liability for guaranty
fund assessments, how to measure the liability and for determining when an asset
may be recognized for premium tax offset recoveries. The SOP is effective for
years beginning after December 15, 1998. The Company will adopt SOP 97-3 on
January 1, 1999. Adoption of this SOP is not expected to have a significant
impact on the financial statements.
Reclassifications
Certain 1997 balances have been reclassified to conform to the 1998
presentation.
(2) Investments
Investments at December 31, 1998 consist of:
<TABLE>
Amount
Amortized cost Estimated shown on
or cost fair value balance sheet
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities:
U.S. government $30,595 31,739 31,739
Foreign government 499 496 496
Corporate securities 5,227 5,263 5,263
Mortgage backed securities 957 972 972
Public utilities 304 314 314
- ---------------------------------------------------------------------------------------------------------------------------
Total fixed maturities $37,582 38,784 38,784
Equity securities:
Common stocks:
Banks, trusts and insurance companies 101 85 85
Industrial and miscellaneous 1,417 1,667 1,667
- ---------------------------------------------------------------------------------------------------------------------------
Total equity securities $ 1,518 1,752 1,752
Other investments:
Short-term securities 10,069 XXXXXXX 10,069
- ---------------------------------------------------------------------------------------------------------------------------
Total investments $49,169 XXXXXXX 50,605
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements (continued)
(in thousands)
(2) Investments (cont.)
At December 31, 1998 and 1997, the amortized cost, gross unrealized gains, gross
unrealized losses and estimated fair values of securities are as follows:
<TABLE>
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998:
U.S. government $30,595 1,378 234 31,739
Foreign government 499 0 3 496
Corporate securities 5,227 39 3 5,263
Mortgage backed securities 957 15 0 972
Public utilities 304 10 0 314
- ---------------------------------------------------------------------------------------------------------------------------
Total fixed maturities 37,582 1,442 240 38,784
Equity securities 1,518 337 103 1,752
- ---------------------------------------------------------------------------------------------------------------------------
Total $39,100 1,779 343 40,536
1997:
U.S. government $28,189 1,070 3 29,256
Mortgage backed securities 815 35 0 850
- ---------------------------------------------------------------------------------------------------------------------------
Total fixed maturities $29,004 $1,105 $ 3 $30,106
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The changes in unrealized gains on fixed maturities were $100, $1,155, and
$(475) for the years ended December 31, 1998, 1997 and 1996, respectively.
The change in unrealized gains from equity securities was $234 for the year
ended December 31, 1998.
The amortized cost and estimated fair value of fixed maturities at December 31,
1998, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
Amortized Estimated
cost fair value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Due after one year through five years: $16,796 16,731
Due after five years through ten years 11,132 11,444
Due after ten years 8,697 9,637
Mortgage backed securities 957 972
- ---------------------------------------------------------------------------------------------------------------------------
Totals $37,582 38,784
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales of investments in available-for-sale securities during 1998,
1997 and 1996 were $20,967, $81, and $2,654, respectively. Gross gains of
$1,080, $0, and $0 and gross losses of $77, $0, and $62 were realized on sales
of available-for-sale securities in 1998, 1997 and 1996, respectively.
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements (continued)
(in thousands)
(2) Investments (cont.)
<TABLE>
Major categories of net investment income for the respective years ended
December 31 are:
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest:
Fixed maturities $1,592 1,494 1,132
Short-term investments 393 168 98
Dividends:
Equity securities 12 0 0
Other 52 11 1
- ---------------------------------------------------------------------------------------------------------------------------
Total investment income 2,049 1,673 1,231
Investment expenses 28 47 11
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income $2,021 1,626 1,220
</TABLE>
(3) Summary Table of Fair Value Disclosures
<TABLE>
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets
Fixed maturities, at market
U.S. government $31,739 $31,739 $29,256 $29,256
Foreign government 496 496 0 0
Corporate securities 5,263 5,263 0 0
Mortgage backed securities 972 972 850 850
Public utilities 314 314 0 0
Equity securities 1,752 1,752 0 0
Certificates of deposit and other short term securities 10,069 10,069 698 698
Receivables 3,595 3,595 5,006 5,006
Separate accounts assets 732,046 732,046 833,083 833,083
Financial liabilities
Separate account liabilities 732,046 723,593 833,083 821,457
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Note (1) "Summary of Significant Accounting Policies" for description of the
methods and significant assumptions used to estimate fair values.
(4) Receivables
Receivables at December 31 consist of the following:
<TABLE>
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Premiums due $2,747 4,565
Reinsurance commission receivable 115 38
Other 733 403
- ---------------------------------------------------------------------------------------------------------------------------
Total receivables $3,595 5,006
</TABLE>
(5) Accident and Health Claims Reserves
Accident and health claims reserves are based on estimates which are subject to
uncertainty. Uncertainty regarding reserves of a given accident year is
gradually reduced as new information emerges each succeeding year, allowing more
reliable re-evaluations of such reserves. While management believes that
reserves as of December 31, are adequate, uncertainties in the reserving process
could cause such reserves to develop favorably or unfavorably in the near term
as new or additional information emerges. Any adjustments to reserves are
reflected in the operating results of the periods in which they are made.
Movements in reserves that are small relative to the amount of such reserves
could significantly impact future reported earnings of the Company.
Activity in the accident and health claims reserves, exclusive of hospital
indemnity and AIDS reserves of $838, $662, and $293 in 1998, 1997 and 1996,
respectively, is summarized as follows:
<TABLE>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, net of reinsurance recoverables of $7,643, $7,476 and $9,249 $17,804 $16,126 $15,096
Incurred related to:
Current year 11,203 11,440 11,372
Prior years (4,946) (3,199) (3,079)
- ---------------------------------------------------------------------------------------------------------------------------
Total incurred 6,257 8,241 8,293
Paid related to:
Current year 3,697 1,686 1,458
Prior years 4,714 4,877 5,805
- ---------------------------------------------------------------------------------------------------------------------------
Total paid 8,411 6,563 7,263
Balance at December 31, net of reinsurance recoverables of $6,540, $7,643 and $7,476 $15,650 $17,804 $16,126
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Due to lower than anticipated losses related to prior years, the provision for
prior year claims and claim adjustment expenses decreased. In 1998, the Company
experienced positive development in its HMO reinsurance business which further
decreased the provision for prior year claims.
(6) Reinsurance
In the normal course of business, the Company seeks to limit its exposure to
loss on any single insured and to recover a portion of benefits paid by ceding
risks under excess coverage and coinsurance contracts. The Company retains a
maximum of $50 coverage per individual life.
Reinsurance contracts do not relieve the Company from its obligations to
policyholders. Failure of reinsurers to honor their obligations could result in
losses to the Company. The Company evaluates the financial condition of its
reinsurers and monitors concentrations of credit risk to minimize its exposure
to significant losses from reinsurer insolvencies.
Included in reinsurance receivables at December 31, 1998 and 1997 are
recoverables on paid claims, unpaid claims and future benefit reserves from
Allianz Life of $3,043 and $2,850, respectively. A contingent liability exists
to the extent that Allianz Life or the Company's unaffiliated reinsurers are
unable to meet their contractual obligations under reinsurance contracts.
Management is of the opinion that no liability will accrue to the Company with
respect to this contingency.
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements (continued)
(in thousands)
(6) Reinsurance (cont.)
Life insurance, annuities and accident and health business assumed from and
ceded to other companies is as follows:
<TABLE>
Percentage
Assumed Ceded of amount
Direct from other to other Net assumed
Year ended amount companies companies amount to net
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
December 31, 1998:
Life insurance in force $ 856,149 0 277,168 578,981 0.0%
- ---------------------------------------------------------------------------------------------------------------------------
Premiums:
Life insurance 7,115 0 1,568 5,547 0.0%
Annuities 12,643 0 0 12,643 0.0%
Accident and health insurance 15,813 5,335 9,859 11,289 47.3%
- ---------------------------------------------------------------------------------------------------------------------------
Total Premiums 35,571 5,335 11,427 29,479 18.1%
December 31, 1997:
Life insurance in force $1,591,244 0 484,546 1,106,698 0.0%
- ---------------------------------------------------------------------------------------------------------------------------
Premiums:
Life insurance 8,866 0 2,450 6,416 0.0%
Annuities 12,791 0 0 12,791 0.0%
Accident and health insurance 14,823 7,291 10,489 11,625 62.7%
- ---------------------------------------------------------------------------------------------------------------------------
Total Premiums 36,480 7,291 12,939 30,832 23.6%
December 31, 1996:
Life insurance in force $1,700,286 0 647,863 1,052,423 0.0%
- ---------------------------------------------------------------------------------------------------------------------------
Premiums:
Life insurance 9,174 0 2,304 6,870 0.0%
Annuities 11,725 0 0 11,725 0.0%
Accident and health insurance 15,482 6,623 9,270 12,835 51.6%
- ---------------------------------------------------------------------------------------------------------------------------
Total Premiums 36,381 6,623 11,574 31,430 21.1%
- ---------------------------------------------------------------------------------------------------------------------------
Of the amounts assumed from and ceded to other companies, life and accident and
health insurance assumed from and ceded to Allianz Life is as follows:
Assumed Ceded
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Life insurance in force $ 0 0 0 1,992 2,032 2,432
- ---------------------------------------------------------------------------------------------------------------------------
Premiums:
Life insurance $ 0 0 0 10 44 36
Accident and health insurance 1,575 1,566 2,547 635 841 766
- ---------------------------------------------------------------------------------------------------------------------------
Total premiums $1,575 1,566 2,547 645 885 802
</TABLE>
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements (continued)
(in thousands)
(7) Income Taxes
Income Tax Expense
Total income tax expenses (benefits) for the years ended December 31 are as
follows:
<TABLE>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense attributable to operations:
Current tax expense $3,126 1,573 435
Deferred tax (benefit) expense (312) 1,029 2,396
- ---------------------------------------------------------------------------------------------------------------------------
Total income tax expense attributable to operations $2,814 2,602 2,831
Income tax effect on equity:
Attributable to unrealized gains and losses for the year 116 404 (166)
- ---------------------------------------------------------------------------------------------------------------------------
Total income tax effect on equity $2,930 3,006 2,665
Components of Income Tax Expense
Income tax expense computed at the statutory rate of 35% varies from tax expense
reported in the Statements of Income for the respective years ended December 31
as follows:
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Income tax expense computed at the statutory rate $2,943 2,758 2,248
Other (129) (156) 583
- ---------------------------------------------------------------------------------------------------------------------------
Income tax expense as reported $2,814 2,602 2,831
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Components of Deferred Tax Assets and Liabilities on the Balance Sheet
Tax effects of temporary differences giving rise to the significant components
of the net deferred tax liabilities at December 31, 1998 and 1997 are as
follows:
<TABLE>
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Future benefit reserves $ 1,821 2,675
- ---------------------------------------------------------------------------------------------------------------------------
Total deferred tax assets 1,821 2,675
Deferred tax liabilities:
Deferred acquisition costs 9,003 10,382
Unrealized gains on investments 502 385
Other 2,293 2,081
- ---------------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 11,798 12,848
Net deferred tax liability $ 9,977 10,173
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Although realization is not assured, the Company believes it is not necessary to
establish a valuation allowance for the deferred tax asset as it is more likely
than not the deferred tax asset will be realized principally through future
reversals of existing taxable temporary differences and future taxable income.
The amount of the deferred tax asset considered realizable, however, could be
reduced in the near term if estimates of future reversals of existing taxable
temporary differences and future taxable income are reduced.
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements (continued)
(in thousands)
(7) Income Taxes (cont.)
The Company files a consolidated federal income tax return with AZOA and all of
its wholly owned subsidiaries. The consolidated tax allocation agreement
stipulates that each company participating in the return will bear its share of
the tax liability pursuant to United States Treasury Department regulations. The
Company accrues income taxes payable to Allianz Life under AZOA intercompany tax
allocation agreements. The Company's liability for current taxes was $969 and
$2,077 as of December 31, 1998 and 1997, respectively, and is included in
payable to parent in the liability section of the accompanying balance sheet.
(8) Related Party Transactions
Allianz Life performs certain administrative services for the Company. The
Company reimbursed Allianz Life $1,729, $1,463, and $1,246 in 1998, 1997 and
1996, respectively, for related administrative expenses incurred. The Company's
liability to Allianz Life for incurred but unpaid service fees as of December
31, 1998 and 1997 was $356 and $569, respectively, and is included in payable to
parent in the liability section of the accompanying balance sheet.
AZOA's investment division manages the Company's investment portfolio. The
Company paid AZOA $18, $15, and $11 in 1998, 1997 and 1996, respectively, for
investment advisory fees. The Company had no incurred but unpaid fees to AZOA as
of December 31, 1998 and 1997.
(9) Employee Benefit Plans
The Company participates in the Allianz Primary Retirement Plan (Primary
Retirement Plan), a defined contribution plan. The Company makes contributions
to a money purchase pension plan on behalf of eligible participants. All
employees are eligible to participate in the Primary Retirement Plan after two
years of service. The contributions are based on a percentage of the
participant's salary with the participants being 100% vested upon eligibility.
It is the Company's policy to fund the plan costs as accrued. Total pension
contributions were $30, $37, and $29 in 1998, 1997 and 1996, respectively.
The Company participates in the Allianz Asset Accumulation Plan (Allianz Plan),
a defined contribution plan sponsored by AZOA. Under the Allianz Plan
provisions, the Company will match from 50% to 100% of eligible employees'
contributions up to a maximum of 6% of a participant's compensation. The total
Company match for 1998, 1997 and 1996 Plan participants was 75%, 90%, and 100%,
respectively. All employees are eligible to participate after one year of
service and are fully vested in the Company's matching contribution after three
years of service. The Allianz Plan will accept participants' pretax or after-tax
contributions up to 15% of the participant's compensation. It is the Company's
policy to fund the Allianz Plan costs as accrued. The Company accrued $18, $59,
and $41 in 1998, 1997 and 1996, respectively, toward planned contributions.
(10) Statutory Financial Data and Dividend Restrictions
Statutory accounting is directed toward insurer solvency and protection of
policyholders. Accordingly, certain items recorded in financial statements
prepared under GAAP are excluded or vary in determining statutory policyholders'
surplus and gain from operations. Currently, these items include, among others,
deferred acquisition costs, furniture and fixtures, accident and health premiums
receivable which are more than 90 days past due, deferred taxes and undeclared
dividends to policyholders. Additionally, future life and annuity policy benefit
reserves calculated for statutory accounting do not include provisions for
withdrawals.
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements (continued)
(in thousands)
<TABLE>
(10) Statutory Financial Data and Dividend Restrictions (cont.)
The differences between stockholder's equity and net income reported in
accordance with statutory accounting practices and the accompanying financial
statements for the years ended December 31 are as follows:
Stockholder's equity Net Income
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statutory basis $32,866 25,940 6,891 4,292 2,358
Adjustments:
Change in reserve basis (9,216) (10,494) 2,147 2,424 4,070
Deferred acquisition costs 33,387 37,447 (4,060) (798) (341)
Deferred taxes (9,977) (10,173) 312 (1,029) (2,396)
Nonadmitted assets 75 171 0 0 0
Interest maintenance reserve 569 (88) 657 (19) (99)
Asset valuation reserve 283 2 0 0 0
Liability for unauthorized reinsurers 239 225 0 0 0
Unrealized gains on investments 1,202 1,102 0 0 0
Other 57 (461) (350) 407 (1)
- ---------------------------------------------------------------------------------------------------------------------------
As reported in the accompanying financial statements $49,485 43,671 5,597 5,277 3,591
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company is required to meet minimum capital and surplus requirements. At
December 31, 1998 and 1997, the Company was in compliance with these
requirements. In accordance with New York Statutes, the Company may not pay a
stockholder dividend without prior approval by the Superintendent of Insurance.
The Company paid no dividends in 1998, 1997 and 1996.
Regulatory Risk Based Capital
An insurance enterprise's state of domicile imposes minimum risk-based capital
requirements that were developed by the National Association of Insurance
Commissioners (NAIC). The formulas for determining the amount of risk-based
capital specify various weighting factors that are applied to financial balances
or various levels of activity based on the perceived degree of risk. Regulatory
compliance is determined by a ratio of an enterprise's regulatory total adjusted
capital to its authorized control level risk-based capital, as defined by the
NAIC. Enterprises below specific triggerpoints or ratios are classified within
certain levels, each of which requires specified corrective action. The levels
and ratios are as follows:
<TABLE>
Ratio of total adjusted capital to
authorized control level risk-based
Regulatory Event Capital (less than or equal to)
- --------------------------------------------------------------------------------
<S> <C> <C>
Company action level 2 (or 2.5 with negative trends)
Regulatory action level 1.5
Authorized control level 1
Mandatory control level 0.7
</TABLE>
The Company's adjusted capital is in excess of the Company action level as of
December 31, 1998 and 1997.
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements (continued)
(in thousands)
(10) Statutory Financial Data and Dividend Restrictions (cont.)
Permitted Statutory Accounting Practices
The Company is required to file annual statements with insurance regulatory
authorities which are prepared on an accounting basis prescribed or permitted by
such authorities. Currently, prescribed statutory accounting practices include
state laws, regulations, and general administrative rules, as well as a variety
of publications of the NAIC. Permitted statutory accounting practices encompass
all accounting practices that are not prescribed; such practices differ from
state to state, may differ from company to company within a state, and may
change in the future. The Company does not currently use permitted statutory
accounting practices that have a significant impact on its statutory financial
statements. Furthermore, the NAIC has completed a project to codify statutory
accounting practices, the result of which will constitute the only source of
"prescribed" statutory accounting practices. Accordingly, that project, which is
currently in the process of state adoption, will change the definition of what
comprises prescribed versus permitted statutory accounting practices, and may
result in changes to existing accounting policies insurance enterprises use to
prepare their statutory financial statements.
(11) Commitments and Contingencies
The Company is subject to claims and lawsuits that arise in the ordinary course
of business. In the opinion of management, the ultimate resolution of such
litigation will not have a material adverse effect on the financial position of
the Company.
The Company is contingently liable for possible future assessments under
regulatory requirements pertaining to insolvencies and impairments of
unaffiliated insurance companies. Provision has been made for assessments
currently received and assessments anticipated for known insolvencies.
(12) Year 2000
The Company is expending significant resources to assure that its computer
systems are reprogrammed in time to effectively deal with transactions in the
year 2000 and beyond. Additional costs associated with this effort are not
expected to be material and will be expensed as incurred. This "Year 2000
Computer Problem" creates risk for the Company from unforeseen problems in its
own computer systems and from third parties with whom the Company deals on
financial transactions worldwide. Failures of the Company and/or third parties'
computer systems could have a material impact on the Company's ability to
conduct its business, and especially to process and account for the transfer of
funds electronically.
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements (continued)
(in thousands)
<TABLE>
(13) Supplementary Insurance Information
The following table summarizes certain financial information by line of business
for 1998, 1997 and 1996:
As of December 31 For the year ended December 31
- ---------------------------------------------------------------------------------------------------------------------------
Future Other Premium Benefits, Net change
Deferred benefits, policy revenue claims in
policy losses, claims and and other Net losses, and policy Other
acquisition claims and Unearned benefits contract investment settlement acquisition operating
costs loss expense premiums payable considerations income expenses costs (a)expenses
- ---------------------------------------------------------------------------------------------------------------------------
1998:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Life insurance $ 57 1,827 246 3,424 5,547 303 2,160 165 1,518
Annuities 33,206 7,716 0 827 12,643 243 351 3,899 6,047
Accident and
health insurance 124 0 667 23,027 11,289 1,475 6,157 (4) 3,861
- ---------------------------------------------------------------------------------------------------------------------------
$33,387 9,543 913 27,278 29,479 2,021 8,668 4,060 11,426
1997:
Life insurance $ 222 1,362 983 4,177 6,416 406 2,587 68 2,075
Annuities 37,105 634 0 471 12,791 0 323 750 8,023
Accident and
health insurance 120 0 607 26,109 11,625 1,220 7,996 (20) 2,869
- ---------------------------------------------------------------------------------------------------------------------------
$37,447 1,996 1,590 30,757 30,832 1,626 10,906 798 12,967
1996:
Life insurance $ 290 1,219 908 5,151 6,870 268 4,371 (27) 2,297
Annuities 37,855 325 0 864 11,725 0 202 265 7,069
Accident and
health insurance 100 0 979 23,895 12,835 952 8,392 103 3,494
- ---------------------------------------------------------------------------------------------------------------------------
$38,245 1,544 1,887 29,910 31,430 1,220 12,965 341 12,860
</TABLE>
(a) See note 1 for aggregate gross amortization.
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
a. Financial Statements
a. Financial Statements
The following financial statements of the Company are included in Part
B hereof.
1. Independent Auditors' Report.
2. Consolidated Balance Sheets as of December 31, 1998 and 1997.
3. Consolidated Statements of Income for the years ended December
31, 1998, 1997 and 1996.
4. Consolidated Statements of Stockholder's Equity for the years
ended December 31, 1998, 1997 and 1996.
5. Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996.
6. Notes to Consolidated Financial Statements - December 31, 1998,
1997 and 1996.
The following financial statements of the Variable Account are
included in Part B hereof.
1. Statements of Assets and Liabilities as of June 30, 1999
(unaudited).
2. Statements of Operations for the period ended June 30, 1999
(unaudited).
3. Statements of Changes in Net Assets for the period ended June 30,
1999 (unaudited).
4. Notes to Financial Statements - June 30, 1999 (unaudited).
5. Independent Auditors' Report.
6. Statements of Assets and Liabilities as of December 31, 1998.
7. Statements of Operations for the year ended December 31, 1998.
8. Statements of Changes in Net Assets for the years ended
December 31, 1998 and 1997.
9. Notes to Financial Statements - December 31, 1998.
b. Exhibits
1. Resolution of Board of Directors of the Company authorizing the
establishment of the Variable Account (1)
2. Not Applicable
3. Principal Underwriter Agreement (2)
4. Individual Variable Annuity Contract (1)
4a. Waiver of Contingent Deferred Sales Charge Endorsement (1)
4b. Enhanced Death Benefit Endorsement (1)
5. Application for Individual Variable Annuity Contract (1)
6. (i) Copy of Articles of Incorporation of the Company (1)
(ii) Copy of the Bylaws of the Company (3)
7. Not Applicable
8. (i) Form of Fund Participation Agreement between AIM Variable
Insurance Funds, Inc., Preferred Life Insurance Company of New York
and NALAC Financial Plans LLC.
(ii)Form of Fund Participation Agreement between Alger American Fund,
Preferred Life Insurance Company of New York and Fred Alger and
Company.
(iii)Form of Fund Participation Agreement between USAllianz Variable
Insurance Products Trust, Preferred Life Insurance Company of New
York and BISYS Fund Services Limited Partnership.
9. Opinion and Consent of Counsel
10. Independent Auditors' Consent
11. Not Applicable
12. Not Applicable
13. Calculation of Performance Information
14. Company Organizational Chart (1)
27. Not Applicable
(1) Incorporated by reference to Registrant's N-4 filing (File Nos.
333-19699 and 811-05716) as electronically filed on January 13, 1997.
(2) Incorporated by reference to Registrant's Pre-Effective Amendment No. 1
to Form N-4 electronically filed on May 12, 1997.
(3) Incorporated by reference to Registrant's Pre-Effective Amendment No. 2
to Form N-4 electronically filed on May 29, 1997.
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The following are the Officers and Directors of the Company:
<TABLE>
<CAPTION>
<S> <C>
Name and Principal Positions and Offices
Business Address with Depositor
- ----------------- ------------------------------
<S> <C>
Lowell C. Anderson Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Ronald L. Wobbeking Chairman
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 to Registrant's N-4
as filed on January 13, 1997 and is incorporated herein by reference.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of September 30, 1999 there were 165 qualified Contract Owners and 206
non-qualified Contract Owners with Contracts in the Separate Account.
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. USAllianz Investor Services, LLC (formerly 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 USAllianz Investor Services, 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,
55403 and Delaware Valley Financial Services, Valuemark Service Center, 300
Berwyn Park, Berwyn, Pennsylvania 19312, maintains physical possession of the
accounts, books or documents of the Variable Account required to be maintained
by Section 31(a) of the Investment Company Act of 1940, as amended, and the
rules promulgated thereunder.
ITEM 31. MANAGEMENT SERVICES
Not Applicable
ITEM 32. UNDERTAKINGS
a. Registrant hereby undertakes to file a post-effective amendment to
this registration statement as frequently as is necessary to ensure that the
audited financial statements in the registration statement are never more than
sixteen (16) months old for so long as payment under the variable annuity
contracts may be accepted.
b. Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
postcard or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement of Additional
Information.
c. Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form promptly upon written or oral request.
d. Preferred Life Insurance Company of New York ("Company") hereby
represents that the fees and charges deducted under the Contract described in
the Prospectus, in the aggregate, are reasonable in relation to the services
rendered, the expenses to be incurred and the risks assumed by the Company.
REPRESENTATIONS
The Company hereby represents that it is relying upon a No-Action Letter
issued to the American Council of Life Insurance, dated November 28, 1988
(Commission ref. IP-6-88), and that the following provisions have been
complied with:
1. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration statement, including the
prospectus, used in connection with the offer of the contract;
2. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in connection with
the offer of the contract;
3. Instruct sales representatives who solicit participants to purchase
the contract specifically to bring the redemption restrictions imposed by
Section 403(b)(11) to the attention of the potential participants;
4. Obtain from each plan participant who purchases a Section 403(b)
annuity contract, prior to or at the time of such purchase, a signed statement
acknowledging the participant's understanding of (1) the restrictions on
redemption imposed by Section 403(b)(11), and (2) other investment
alternatives available under the employer's Section 403(b) arrangement to
which the participant may elect to transfer his contract value.
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, as amended, the Registrant certifies that it meets the requirements of
Securities Act Rule 485(b) for effectiveness of this Registration Statement and
has caused this Registration Statement to be signed on its behalf in the City of
Minneapolis and State of Minnesota, on this 8th day of November, 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>
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 11-08-99
Ronald L. Wobbeking* Chairman
Ronald L. Wobbeking 11-08-99
Thomas D. Barta* Treasurer
Thomas D. Barta 11-08-99
Thomas G. Brown* Director
Thomas G. Brown 11-08-99
Edward J. Bonach* Director
Edward J. Bonach 11-08-99
Robert S. James* Director
Robert S. James 11-08-99
Thomas J. Lynch* President and Director
Thomas J. Lynch 11-08-99
Dennis Marion* Director
Dennis Marion 11-08-99
Eugene T. Wilkinson* Director
Eugene T. Wilkinson 11-08-99
Eugene Long* Director
Eugene Long 11-08-99
Reinhard W. Obermueller*Director
Reinhard W. Obermueller 11-08-99
Stephen R. Herbert* Director
Stephen R. Herbert 11-08-99
Jack F. Rockett* Director
Jack F. Rockett 11-08-99
</TABLE>
* By /S/ Michael T. Westermeyer
--------------------------
Attorney-in-Fact
Secretary and Director
EXHIBITS
TO
POST-EFFECTIVE AMENDMENT NO. 7
TO
FORM N-4
(FILE NOS. 333-19699 AND 811-05716)
PREFERRED LIFE VARIABLE ACCOUNT C
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
INDEX TO EXHIBITS
EXHIBIT
99.B8(i) Form of Fund Participation Agreement-AIM
99.B8(ii) Form of Fund Participation Agreement-Alger
99.B8(iii) Form of Fund Participation Agreement-USAllianz
99.B9 Opinion and Consent of Counsel
99.B10 Independent Auditors' Consent
99.B13 Calculation of Performance Data
PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE FUNDS, INC.,
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS,
AND
NALAC FINANCIAL PLANS, LLC
PA-ALZ-NY_AGR.doc
072699 (1) dmr
<PAGE>
TABLE OF CONTENTS
Description Page
- ----------- ----
Section 1. Available Funds....................................................2
1.1 Availability.................................................2
1.2 Addition, Deletion or Modification of Funds..................2
1.3 No Sales to the General Public...............................2
Section 2. Processing Transactions............................................2
2.1 Timely Pricing and Orders....................................2
2.2 Timely Payments..............................................3
2.3 Applicable Price.............................................3
2.4 Dividends and Distributions..................................4
2.5 Book Entry...................................................4
Section 3. Costs and Expenses.................................................4
3.1 General......................................................4
3.2 Parties To Cooperate.........................................4
Section 4. Legal Compliance...................................................4
4.1 Tax Laws.....................................................4
4.2 Insurance and Certain Other Laws.............................7
4.3 Securities Laws..............................................7
4.4 Notice of Certain Proceedings and Other Circumstances........8
4.5 LIFE COMPANY To Provide Documents; Information About AVIF....9
4.6 AVIF To Provide Documents; Information About LIFE COMPANY...10
Section 5. Mixed and Shared Funding..........................................11
5.1 General.....................................................11
5.2 Disinterested Directors.....................................12
5.3 Monitoring for Material Irreconcilable Conflicts............12
5.4 Conflict Remedies...........................................13
5.5 Notice to LIFE COMPANY......................................14
5.6 Information Requested by Board of Directors.................14
5.7 Compliance with SEC Rules...................................14
5.8 Other Requirements..........................................14
Section 6. Termination.......................................................15
6.1 Events of Termination.......................................15
6.2 Notice Requirement for Termination..........................16
6.3 Funds To Remain Available...................................16
6.4 Survival of Warranties and Indemnifications.................16
6.5 Continuance of Agreement for Certain Purposes...............17
Section 7. Parties To Cooperate Respecting Termination.......................17
Section 8. Assignment........................................................17
Section 9. Notices...........................................................17
Section 10. Voting Procedures................................................18
Section 11. Foreign Tax Credits..............................................18
Section 12. Indemnification..................................................19
12.1 Of AVIF by LIFE COMPANY and UNDERWRITER.....................19
12.2 Of A LIFE COMPANY and UNDERWRITER by AVIF...................21
12.3 Effect of Notice............................................23
12.4 Successors..................................................23
Section 13. Applicable Law...................................................24
Section 14. Execution in Counterparts........................................24
Section 15. Severability.....................................................24
Section 16. Rights Cumulative................................................24
Section 17. Headings.........................................................24
Section 18. Confidentiality..................................................24
Section 19. Trademarks and Fund Names........................................25
Section 20. Parties to Cooperate.............................................26
Section 21. Amendments.......................................................26
<PAGE>
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the 27th day of July,
1999 ("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland
corporation ("AVIF"), Preferred Life Insurance Company of New York, a New York
life insurance company (ALIFE COMPANY@), on behalf of itself and each of its
segregated asset accounts listed in Schedule A hereto, as the parties hereto may
amend from time to time (each, an "Account," and collectively, the "Accounts");
and NALAC Financial Plans, LLC, an affiliate of LIFE COMPANY and the principal
underwriter of the Contracts ("UNDERWRITER") (collectively, the AParties@).
WITNESSETH THAT:
WHEREAS, AVIF is registered with the Securities and Exchange Commission
("SEC") as an open-end management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, AVIF currently consists of fifteen separate series ("Series"),
shares ("Shares") of each of which are registered under the Securities Act of
1933, as amended (the "1933 Act") and are currently sold to one or more separate
accounts of life insurance companies to fund benefits under variable annuity
contracts and variable life insurance contracts; and
WHEREAS, AVIF will make Shares of each Series listed on Schedule A
hereto as the Parties hereto may amend from time to time (each a "Fund";
reference herein to "AVIF" includes reference to each Fund, to the extent the
context requires) available for purchase by the Accounts; and
WHEREAS, LIFE COMPANY will be the issuer of certain variable annuity
contracts and variable life insurance contracts ("Contracts") as set forth on
Schedule A hereto, as the Parties hereto may amend from time to time, which
Contracts (hereinafter collectively, the "Contracts"), if required by applicable
law, will be registered under the 1933 Act; and
WHEREAS, LIFE COMPANY will fund the Contracts through the Accounts,
each of which may be divided into two or more subaccounts ("Subaccounts";
reference herein to an "Account" includes reference to each Subaccount thereof
to the extent the context requires); and
WHEREAS, LIFE COMPANY will serve as the depositor of the Accounts, each
of which is registered as a unit investment trust investment company under the
1940 Act (or exempt therefrom), and the security interests deemed to be issued
by the Accounts under the Contracts will be registered as securities under the
1933 Act (or exempt therefrom); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, LIFE COMPANY intends to purchase Shares in one or more of the Funds
on behalf of the Accounts to fund the Contracts; and
WHEREAS, UNDERWRITER is a broker-dealer registered with the SEC under
the Securities Exchange Act of 1934 ("1934 Act")and a member in good standing of
the National Association of Securities Dealers, Inc. ("NASD");
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Parties hereto agree as follows:
SECTION 1. AVAILABLE FUNDS
1.1 AVAILABILITY.
AVIF will make Shares of each Fund available to LIFE COMPANY for
purchase and redemption at net asset value and with no sales charges, subject to
the terms and conditions of this Agreement. The Board of Directors of AVIF may
refuse to sell Shares of any Fund to any person, or suspend or terminate the
offering of Shares of any Fund if such action is required by law or by
regulatory authorities having jurisdiction or if, in the sole discretion of the
Directors acting in good faith and in light of their fiduciary duties under
federal and any applicable state laws, such action is deemed in the best
interests of the shareholders of such Fund.
1.2 ADDITION, DELETION OR MODIFICATION OF FUNDS
The Parties hereto may agree, from time to time, to add other Funds to
provide additional funding media for the Contracts, or to delete, combine, or
modify existing Funds, by amending Schedule A hereto. Upon such amendment to
Schedule A, any applicable reference to a Fund, AVIF, or its Shares herein shall
include a reference to any such additional Fund. Schedule A, as amended from
time to time, is incorporated herein by reference and is a part hereof.
1.3 NO SALES TO THE GENERAL PUBLIC
AVIF represents and warrants that no Shares of any Fund have been or
will be sold to the general public.
SECTION 2. PROCESSING TRANSACTIONS
2.1 TIMELY PRICING AND ORDERS
(a) AVIF or its designated agent will use its best efforts to provide
LIFE COMPANY with the net asset value per Share for each Fund by 6:00 p.m.
Central Time on each Business Day. As used herein, "Business Day" shall mean any
day on which (i) the New York Stock Exchange is open for regular trading, (ii)
AVIF calculates the Fund's net asset value, and (iii) LIFE COMPANY is open for
business.
(b) LIFE COMPANY will use the data provided by AVIF each Business Day
pursuant to paragraph (a) immediately above to calculate Account unit values and
to process transactions that receive that same Business Day's Account unit
values. LIFE COMPANY will perform such Account processing the same Business Day,
and will place corresponding orders to purchase or redeem Shares with AVIF by
9:00 a.m. Central Time the following Business Day; provided, however, that AVIF
shall provide additional time to LIFE COMPANY in the event that AVIF is unable
to meet the 6:00 p.m. time stated in paragraph (a) immediately above. Such
additional time shall be equal to the additional time that AVIF takes to make
the net asset values available to LIFE COMPANY.
(c) With respect to payment of the purchase price by LIFE COMPANY and
of redemption proceeds by AVIF, LIFE COMPANY and AVIF shall net purchase and
redemption orders with respect to each Fund and shall transmit one net payment
per Fund in accordance with Section 2.2, below.
(d) If AVIF provides materially incorrect Share net asset value
information (as determined under SEC guidelines), LIFE COMPANY shall be entitled
to an adjustment to the number of Shares purchased or redeemed to reflect the
correct net asset value per Share. Any material error in the calculation or
reporting of net asset value per Share, dividend or capital gain information
shall be reported promptly upon discovery to LIFE COMPANY.
2.2 TIMELY PAYMENTS
LIFE COMPANY will wire payment for net purchases to a custodial account
designated by AVIF by 1:00 p.m. Central Time on the same day as the order for
Shares is placed, to the extent practicable. AVIF will wire payment for net
redemptions to an account designated by LIFE COMPANY by 1:00 p.m. Central Time
on the same day as the Order is placed, to the extent practicable, but in any
event within five (5) calendar days after the date the order is placed in order
to enable LIFE COMPANY to pay redemption proceeds within the time specified in
Section 22(e) of the 1940 Act or such shorter period of time as may be required
by law.
2.3 APPLICABLE PRICE
(a) Share purchase payments and redemption orders that result from
purchase payments, premium payments, surrenders and other transactions under
Contracts (collectively, "Contract transactions") and that LIFE COMPANY receives
prior to the close of regular trading on the New York Stock Exchange on a
Business Day will be executed at the net asset values of the appropriate Funds
next computed after receipt by AVIF or its designated agent of the orders. For
purposes of this Section 2.3(a), LIFE COMPANY shall be the designated agent of
AVIF for receipt of orders relating to Contract transactions on each Business
Day and receipt by such designated agent shall constitute receipt by AVIF;
provided that AVIF receives notice of such orders by 9:00 a.m. Central Time on
the next following Business Day or such later time as computed in accordance
with Section 2.1(b) hereof.
(b) All other Share purchases and redemptions by LIFE COMPANY will be
effected at the net asset values of the appropriate Funds next computed after
receipt by AVIF or its designated agent of the order therefor, and such orders
will be irrevocable.
2.4 DIVIDENDS AND DISTRIBUTIONS
AVIF will furnish notice by wire or telephone (followed by written
confirmation) on or prior to the payment date to LIFE COMPANY of any income
dividends or capital gain distributions payable on the Shares of any Fund. LIFE
COMPANY hereby elects to reinvest all dividends and capital gains distributions
in additional Shares of the corresponding Fund at the ex-dividend date net asset
values until LIFE COMPANY otherwise notifies AVIF in writing, it being agreed by
the Parties that the ex-dividend date and the payment date with respect to any
dividend or distribution will be the same Business Day. LIFE COMPANY reserves
the right to revoke this election and to receive all such income dividends and
capital gain distributions in cash.
2.5 BOOK ENTRY
Issuance and transfer of AVIF Shares will be by book entry only. Stock
certificates will not be issued to LIFE COMPANY. Shares ordered from AVIF will
be recorded in an appropriate title for LIFE COMPANY, on behalf of its Account.
SECTION 3. COSTS AND EXPENSES
3.1 GENERAL
Except as otherwise specifically provided in Schedule B, attached
hereto and made a part hereof, each Party will bear, or arrange for others to
bear, all expenses incident to its performance under this Agreement.
3.2 PARTIES TO COOPERATE
Each Party agrees to cooperate with the others, as applicable, in
arranging to print, mail and/or deliver, in a timely manner, combined or
coordinated prospectuses or other materials of AVIF and the Accounts.
SECTION 4. LEGAL COMPLIANCE
4.1 TAX LAWS
(a) AVIF represents and warrants that each Fund is currently qualified
as a regulated investment company ("RIC") under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), and represents that it will use
its best efforts to qualify and to maintain qualification of each Fund as a RIC.
AVIF will notify LIFE COMPANY immediately upon having a reasonable basis for
believing that a Fund has ceased to so qualify or that it might not so qualify
in the future.
(b) AVIF represents that it will use its best efforts to comply and to
maintain each Fund's compliance with the diversification requirements set forth
in Section 817(h) of the Code and Section 1.817-5(b) of the regulations under
the Code. AVIF will notify LIFE COMPANY immediately upon having a reasonable
basis for believing that a Fund has ceased to so comply or that a Fund might not
so comply in the future. In the event of a breach of this Section 4.1(b) by
AVIF, it will take all reasonable steps to adequately diversify the Fund so as
to achieve compliance within the grace period afforded by Section 1.817-5 of the
regulations under the Code.
(c) LIFE COMPANY agrees that if the Internal Revenue Service ("IRS")
asserts in writing in connection with any governmental audit or review of LIFE
COMPANY or, to LIFE COMPANY'S knowledge, of any Participant, that any Fund has
failed to comply with the diversification requirements of Section 817(h) of the
Code or LIFE COMPANY otherwise becomes aware of any facts that could give rise
to any claim against AVIF or its affiliates as a result of such a failure or
alleged failure:
(i) LIFE COMPANY shall promptly notify AVIF of such assertion or
potential claim (subject to the Confidentiality provisions
of Section 18 as to any Participant);
(ii) LIFE COMPANY shall consult with AVIF as to how to minimize
any liability that may arise as a result of such failure or
alleged failure;
(iii)LIFE COMPANY shall use its best efforts to minimize any
liability of AVIF or its affiliates resulting from such
failure, including, without limitation, demonstrating,
pursuant to Treasury Regulations Section 1.817-5(a)(2), to
the Commissioner of the IRS that such failure was
inadvertent;
(iv) LIFE COMPANY shall permit AVIF, its affiliates and their
legal and accounting advisors to participate in any
conferences, settlement discussions or other administrative
or judicial proceeding or contests (including judicial
appeals thereof) with the IRS, any Participant or any other
claimant regarding any claims that could give rise to
liability to AVIF or its affiliates as a result of such a
failure or alleged failure; provided, however, that LIFE
COMPANY will retain control of the conduct of such
conferences discussions, proceedings, contests or appeals;
(v) any written materials to be submitted by LIFE COMPANY to the
IRS, any Participant or any other claimant in connection
with any of the foregoing proceedings or contests
(including, without limitation, any such materials to be
submitted to the IRS pursuant to Treasury Regulations
Section 1.817-5(a)(2)), (a) shall be provided by LIFE
COMPANY to AVIF (together with any supporting information or
analysis); subject to the confidentiality provisions of
Section 18, at least ten (10) business days or such shorter
period to which the Parties hereto agree prior to the day on
which such proposed materials are to be submitted, and (b)
shall not be submitted by LIFE COMPANY to any such person
without the express written consent of AVIF which shall not
be unreasonably withheld;
(vi) LIFE COMPANY shall provide AVIF or its affiliates and their
accounting and legal advisors with such cooperation as AVIF
shall reasonably request (including, without limitation, by
permitting AVIF and its accounting and legal advisors to
review the relevant books and records of LIFE COMPANY) in
order to facilitate review by AVIF or its advisors of any
written submissions provided to it pursuant to the preceding
clause or its assessment of the validity or amount of any
claim against its arising from such a failure or alleged
failure;
(vii)LIFE COMPANY shall not with respect to any claim of the IRS
or any Participant that would give rise to a claim against
AVIF or its affiliates (a) compromise or settle any claim,
(b) accept any adjustment on audit, or (c) forego any
allowable administrative or judicial appeals, without the
express written consent of AVIF or its affiliates, which
shall not be unreasonably withheld, provided that LIFE
COMPANY shall not be required, after exhausting all
administrative penalties, to appeal any adverse judicial
decision unless AVIF or its affiliates shall have provided
an opinion of independent counsel to the effect that a
reasonable basis exists for taking such appeal; and provided
further that the costs of any such appeal shall be borne
equally by the Parties hereto; and
(viii) AVIF and its affiliates shall have no liability as a
result of such failure or alleged failure if LIFE COMPANY
fails to comply with any of the foregoing clauses (i)
through (vii), and such failure could be shown to have
materially contributed to the liability.
Should AVIF or any of its affiliates refuse to give its written consent
to any compromise or settlement of any claim or liability hereunder, LIFE
COMPANY may, in its discretion, authorize AVIF or its affiliates to act in the
name of LIFE COMPANY in, and to control the conduct of, such conferences,
discussions, proceedings, contests or appeals and all administrative or judicial
appeals thereof, and in that event AVIF or its affiliates shall bear the fees
and expenses associated with the conduct of the proceedings that it is so
authorized to control; provided, that in no event shall LIFE COMPANY have any
liability resulting from AVIF's refusal to accept the proposed settlement or
compromise with respect to any failure caused by AVIF. As used in this
Agreement, the term "affiliates" shall have the same meaning as "affiliated
person" as defined in Section 2(a)(3) of the 1940 Act.
(d) LIFE COMPANY represents and warrants that the Contracts currently
are and will be treated as annuity contracts or life insurance contracts under
applicable provisions of the Code and that it will use its best efforts to
maintain such treatment; LIFE COMPANY will notify AVIF immediately upon having a
reasonable basis for believing that any of the Contracts have ceased to be so
treated or that they might not be so treated in the future.
(e) LIFE COMPANY represents and warrants that each Account is a
"segregated asset account" and that interests in each Account are offered
exclusively through the purchase of or transfer into a "variable contract,"
within the meaning of such terms under Section 817 of the Code and the
regulations thereunder. LIFE COMPANY will use its best efforts to continue to
meet such definitional requirements, and it will notify AVIF immediately upon
having a reasonable basis for believing that such requirements have ceased to be
met or that they might not be met in the future.
4.2 INSURANCE AND CERTAIN OTHER LAWS
(a) AVIF will use its best efforts to comply with any applicable state
insurance laws or regulations, to the extent specifically requested in writing
by LIFE COMPANY, including, the furnishing of information not otherwise
available to LIFE COMPANY which is required by state insurance law to enable
LIFE COMPANY to obtain the authority needed to issue the Contracts in any
applicable state.
(b) LIFE COMPANY represents and warrants that (i) it is an insurance
company duly organized, validly existing and in good standing under the laws of
the State of New York and has full corporate power, authority and legal right to
execute, deliver and perform its duties and comply with its obligations under
this Agreement, (ii) it has legally and validly established and maintains each
Account as a segregated asset account under New York Insurance Law and the
regulations thereunder, and (iii) the Contracts comply in all material respects
with all other applicable federal and state laws and regulations.
(c) AVIF represents and warrants that it is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Maryland and has full power, authority, and legal right to execute, deliver, and
perform its duties and comply with its obligations under this Agreement.
4.3 SECURITIES LAWS
(a) LIFE COMPANY represents and warrants that (i) interests in each
Account pursuant to the Contracts will be registered under the 1933 Act to the
extent required by the 1933 Act, (ii) the Contracts will be duly authorized for
issuance and sold in compliance with all applicable federal and state laws,
including, without limitation, the 1933 Act, the 1934 Act, the 1940 Act and New
York law, (iii) each Account is and will remain registered under the 1940 Act,
to the extent required by the 1940 Act, (iv) each Account does and will comply
in all material respects with the requirements of the 1940 Act and the rules
thereunder, to the extent required, (v) each Account's 1933 Act registration
statement relating to the Contracts, together with any amendments thereto, will
at all times comply in all material respects with the requirements of the 1933
Act and the rules thereunder, (vi) LIFE COMPANY will amend the registration
statement for its Contracts under the 1933 Act and for its Accounts under the
1940 Act from time to time as required in order to effect the continuous
offering of its Contracts or as may otherwise be required by applicable law, and
(vii) each Account Prospectus will at all times comply in all material respects
with the requirements of the 1933 Act and the rules thereunder.
(b) AVIF represents and warrants that (i) Shares sold pursuant to this
Agreement will be registered under the 1933 Act to the extent required by the
1933 Act and duly authorized for issuance and sold in compliance with Maryland
law, (ii) AVIF is and will remain registered under the 1940 Act to the extent
required by the 1940 Act, (iii) AVIF will amend the registration statement for
its Shares under the 1933 Act and itself under the 1940 Act from time to time as
required in order to effect the continuous offering of its Shares, (iv) AVIF
does and will comply in all material respects with the requirements of the 1940
Act and the rules thereunder, (v) AVIF's 1933 Act registration statement,
together with any amendments thereto, will at all times comply in all material
respects with the requirements of the 1933 Act and rules thereunder, and (vi)
AVIF's Prospectus will at all times comply in all material respects with the
requirements of the 1933 Act and the rules thereunder.
(c) AVIF will at its expense register and qualify its Shares for sale
in accordance with the laws of any state or other jurisdiction if and to the
extent reasonably deemed advisable by AVIF.
(d) AVIF currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it reserves the right to make such payments in the future. To the
extent that it decides to finance distribution expenses pursuant to Rule 12b-1,
AVIF undertakes to have its Board of Directors, a majority of whom are not
"interested" persons of the Fund, formulate and approve any plan under Rule
12b-1 to finance distribution expenses.
(e) AVIF represents and warrants that all of its trustees, officers,
employees, investment advisers, and other individuals/entities having access to
the funds and/or securities of the Fund are and continue to be at all times
covered by a blanket fidelity bond or similar coverage for the benefit of the
Fund in an amount not less than the minimal coverage as required currently by
Rule 17g-(1) of the 1940 Act or related provisions as may be promulgated from
time to time. The aforesaid bond includes coverage for larceny and embezzlement
and is issued by a reputable bonding company.
4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES
(a) AVIF will immediately notify LIFE COMPANY of (i) the issuance by
any court or regulatory body of any stop order, cease and desist order, or other
similar order with respect to AVIF's registration statement under the 1933 Act
or AVIF Prospectus, (ii) any request by the SEC for any amendment to such
registration statement or AVIF Prospectus that may affect the offering of Shares
of AVIF, (iii) the initiation of any proceedings for that purpose or for any
other purpose relating to the registration or offering of AVIF's Shares, or (iv)
any other action or circumstances that may prevent the lawful offer or sale of
Shares of any Fund in any state or jurisdiction, including, without limitation,
any circumstances in which (a) such Shares are not registered and, in all
material respects, issued and sold in accordance with applicable state and
federal law, or (b) such law precludes the use of such Shares as an underlying
investment medium of the Contracts issued or to be issued by LIFE COMPANY. AVIF
will make every reasonable effort to prevent the issuance, with respect to any
Fund, of any such stop order, cease and desist order or similar order and, if
any such order is issued, to obtain the lifting thereof at the earliest possible
time.
(b) LIFE COMPANY will immediately notify AVIF of (i) the issuance by
any court or regulatory body of any stop order, cease and desist order, or other
similar order with respect to each Account's registration statement under the
1933 Act relating to the Contracts or each Account Prospectus, (ii) any request
by the SEC for any amendment to such registration statement or Account
Prospectus that may affect the offering of Shares of AVIF, (iii) the initiation
of any proceedings for that purpose or for any other purpose relating to the
registration or offering of each Account's interests pursuant to the Contracts,
or (iv) any other action or circumstances that may prevent the lawful offer or
sale of said interests in any state or jurisdiction, including, without
limitation, any circumstances in which said interests are not registered and, in
all material respects, issued and sold in accordance with applicable state and
federal law. LIFE COMPANY will make every reasonable effort to prevent the
issuance of any such stop order, cease and desist order or similar order and, if
any such order is issued, to obtain the lifting thereof at the earliest possible
time.
4.5 LIFE COMPANY TO PROVIDE DOCUMENTS; INFORMATION ABOUT AVIF4
(a) LIFE COMPANY will provide to AVIF or its designated agent at least
one (1) complete copy of all SEC registration statements, Account Prospectuses,
reports, any preliminary and final voting instruction solicitation material,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to each Account or the Contracts,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
(b) LIFE COMPANY will provide to AVIF or its designated agent at least
one (1) complete copy of each piece of sales literature or other promotional
material in which AVIF or any of its affiliates is named, at least five (5)
Business Days prior to its use or such shorter period as the Parties hereto may,
from time to time, agree upon. No such material shall be used if AVIF or its
designated agent objects to such use within five (5) Business Days after receipt
of such material or such shorter period as the Parties hereto may, from time to
time, agree upon. AVIF hereby designates AIM as the entity to receive such sales
literature, until such time as AVIF appoints another designated agent by giving
notice to LIFE COMPANY in the manner required by Section 9 hereof.
(c) Neither LIFE COMPANY nor any of its affiliates, will give any
information or make any representations or statements on behalf of or concerning
AVIF or its affiliates in connection with the sale of the Contracts other than
(i) the information or representations contained in the registration statement,
including the AVIF Prospectus contained therein, relating to Shares, as such
registration statement and AVIF Prospectus may be amended from time to time; or
(ii) in reports or proxy materials for AVIF; or (iii) in published reports for
AVIF that are in the public domain and approved by AVIF for distribution; or
(iv) in sales literature or other promotional material approved by AVIF, except
with the express written permission of AVIF.
(d) LIFE COMPANY shall adopt and implement procedures reasonably
designed to ensure that information concerning AVIF and its affiliates that is
intended for use only by brokers or agents selling the Contracts (i.e.,
information that is not intended for distribution to Participants) ("broker only
materials") is so used, and neither AVIF nor any of its affiliates shall be
liable for any losses, damages or expenses relating to the improper use of such
broker only materials.
(e) For the purposes of this Section 4.5, the phrase Asales literature
or other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media, (e.g.,
on-line networks such as the Internet or other electronic messages), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act.
4.6 AVIF TO PROVIDE DOCUMENTS; INFORMATION ABOUT LIFE COMPANY
(a) AVIF will provide to LIFE COMPANY at least one (1) complete copy of
all SEC registration statements, AVIF Prospectuses, reports, any preliminary and
final proxy material, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to AVIF or the
Shares of a Fund, contemporaneously with the filing of such document with the
SEC or other regulatory authorities.
(b) AVIF will provide to LIFE COMPANY a camera ready copy of all AVIF
prospectuses and printed copies, in an amount specified by LIFE COMPANY, of AVIF
statements of additional information, proxy materials, periodic reports to
shareholders and other materials required by law to be sent to Participants who
have allocated any Contract value to a Fund. AVIF will provide such copies to
LIFE COMPANY in a timely manner so as to enable LIFE COMPANY, as the case may
be, to print and distribute such materials within the time required by law to be
furnished to Participants.
(c) AVIF will provide to LIFE COMPANY or its designated agent at least
one (1) complete copy of each piece of sales literature or other promotional
material in which LIFE COMPANY, or any of its respective affiliates is named, or
that refers to the Contracts, at least five (5) Business Days prior to its use
or such shorter period as the Parties hereto may, from time to time, agree upon.
No such material shall be used if LIFE COMPANY or its designated agent objects
to such use within five (5) Business Days after receipt of such material or such
shorter period as the Parties hereto may, from time to time, agree upon. LIFE
COMPANY shall receive all such sales literature until such time as it appoints a
designated agent by giving notice to AVIF in the manner required by Section 9
hereof.
(d) Neither AVIF nor any of its affiliates will give any information or
make any representations or statements on behalf of or concerning LIFE COMPANY,
each Account, or the Contracts other than (i) the information or representations
contained in the registration statement, including each Account Prospectus
contained therein, relating to the Contracts, as such registration statement and
Account Prospectus may be amended from time to time; or (ii) in published
reports for the Account or the Contracts that are in the public domain and
approved by LIFE COMPANY for distribution; or (iii) in sales literature or other
promotional material approved by LIFE COMPANY or its affiliates, except with the
express written permission of LIFE COMPANY.
(e) AVIF shall cause its principal underwriter to adopt and implement
procedures reasonably designed to ensure that information concerning LIFE
COMPANY, and its respective affiliates that is intended for use only by brokers
or agents selling the Contracts (i.e., information that is not intended for
distribution to Participants) ("broker only materials") is so used, and neither
LIFE COMPANY, nor any of its respective affiliates shall be liable for any
losses, damages or expenses relating to the improper use of such broker only
materials.
(f) For purposes of this Section 4.6, the phrase Asales literature or
other promotional material@ includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media, (e.g.,
on-line networks such as the Internet or other electronic messages), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act.
SECTION 5. MIXED AND SHARED FUNDING
5.1 GENERAL
The SEC has granted an order to AVIF exempting it from certain
provisions of the 1940 Act and rules thereunder so that AVIF may be available
for investment by certain other entities, including, without limitation,
separate accounts funding variable annuity contracts or variable life insurance
contracts, separate accounts of insurance companies unaffiliated with LIFE
COMPANY, and trustees of qualified pension and retirement plans (collectively,
"Mixed and Shared Funding"). The Parties recognize that the SEC has imposed
terms and conditions for such orders that are substantially identical to many of
the provisions of this Section 5. Sections 5.2 through 5.8 below shall apply
pursuant to such an exemptive order granted to AVIF. AVIF hereby notifies LIFE
COMPANY that, in the event that AVIF implements Mixed and Shared Funding, it may
be appropriate to include in the prospectus pursuant to which a Contract is
offered disclosure regarding the potential risks of Mixed and Shared Funding.
5.2 DISINTERESTED DIRECTORS
AVIF agrees that its Board of Directors shall at all times consist of
directors a majority of whom (the "Disinterested Directors") are not interested
persons of AVIF within the meaning of Section 2(a)(19) of the 1940 Act and the
rules thereunder and as modified by any applicable orders of the SEC, except
that if this condition is not met by reason of the death, disqualification, or
bona fide resignation of any director, then the operation of this condition
shall be suspended (a) for a period of forty-five (45) days if the vacancy or
vacancies may be filled by the Board;(b) for a period of sixty (60) days if a
vote of shareholders is required to fill the vacancy or vacancies; or (c) for
such longer period as the SEC may prescribe by order upon application.
5.3 MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS
AVIF agrees that its Board of Directors will monitor for the existence
of any material irreconcilable conflict between the interests of the
Participants in all separate accounts of life insurance companies utilizing AVIF
("Participating Insurance Companies"), including each Account, and participants
in all qualified retirement and pension plans investing in AVIF ("Participating
Plans"). LIFE COMPANY agrees to inform the Board of Directors of AVIF of the
existence of or any potential for any such material irreconcilable conflict of
which it is aware. The concept of a "material irreconcilable conflict" is not
defined by the 1940 Act or the rules thereunder, but the Parties recognize that
such a conflict may arise for a variety of reasons, including, without
limitation:
(a) an action by any state insurance or other regulatory authority;
(b) a change in applicable federal or state insurance, tax or
securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretative letter, or any similar action by insurance, tax or
securities regulatory authorities;
(c) an administrative or judicial decision in any relevant proceeding;
(d) the manner in which the investments of any Fund are being managed;
(e) a difference in voting instructions given by variable annuity
contract and variable life insurance contract Participants or by Participants of
different Participating Insurance Companies;
(f) a decision by a Participating Insurance Company to disregard the
voting instructions of Participants; or
(g) a decision by a Participating Plan to disregard the voting
instructions of Plan participants.
Consistent with the SEC's requirements in connection with exemptive
orders of the type referred to in Section 5.1 hereof, LIFE COMPANY will assist
the Board of Directors in carrying out its responsibilities by providing the
Board of Directors with all information reasonably necessary for the Board of
Directors to consider any issue raised, including information as to a decision
by LIFE COMPANY to disregard voting instructions of Participants. LIFE COMPANY=s
responsibilities in connection with the foregoing shall be carried out with a
view only to the interests of Participants.
5.4 CONFLICT REMEDIES
(a) It is agreed that if it is determined by a majority of the members
of the Board of Directors or a majority of the Disinterested Directors that a
material irreconcilable conflict exists, LIFE COMPANY will, if it is a
Participating Insurance Company for which a material irreconcilable conflict is
relevant, at its own expense and to the extent reasonably practicable (as
determined by a majority of the Disinterested Directors), take whatever steps
are necessary to remedy or eliminate the material irreconcilable conflict, which
steps may include, but are not limited to:
(i) withdrawing the assets allocable to some or all of the
Accounts from AVIF or any Fund and reinvesting such assets
in a different investment medium, including another Fund of
AVIF, or submitting the question whether such segregation
should be implemented to a vote of all affected Participants
and, as appropriate, segregating the assets of any
particular group (e.g., annuity Participants, life insurance
Participants or all Participants) that votes in favor of
such segregation, or offering to the affected Participants
the option of making such a change; and
(ii) establishing a new registered investment company of the type
defined as a "management company" in Section 4(3) of the
1940 Act or a new separate account that is operated as a
management company.
(b) If the material irreconcilable conflict arises because of LIFE
COMPANY's decision to disregard Participant voting instructions and that
decision represents a minority position or would preclude a majority vote, LIFE
COMPANY may be required, at AVIF's election, to withdraw each Account's
investment in AVIF or any Fund. No charge or penalty will be imposed as a result
of such withdrawal. Any such withdrawal must take place within six (6) months
after AVIF gives notice to LIFE COMPANY that this provision is being
implemented, and until such withdrawal AVIF shall continue to accept and
implement orders by LIFE COMPANY for the purchase and redemption of Shares of
AVIF.
(c) If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to LIFE COMPANY conflicts with
the majority of other state regulators, then LIFE COMPANY will withdraw each
Account's investment in AVIF within six (6) months after AVIF's Board of
Directors informs LIFE COMPANY that it has determined that such decision has
created a material irreconcilable conflict, and until such withdrawal AVIF shall
continue to accept and implement orders by LIFE COMPANY for the purchase and
redemption of Shares of AVIF. No charge or penalty will be imposed as a result
of such withdrawal.
(d) LIFE COMPANY agrees that any remedial action taken by it in
resolving any material irreconcilable conflict will be carried out at its
expense and with a view only to the interests of Participants.
(e) For purposes hereof, a majority of the Disinterested Directors will
determine whether or not any proposed action adequately remedies any material
irreconcilable conflict. In no event, however, will AVIF or any of its
affiliates be required to establish a new funding medium for any Contracts. LIFE
COMPANY will not be required by the terms hereof to establish a new funding
medium for any Contracts if an offer to do so has been declined by vote of a
majority of Participants materially adversely affected by the material
irreconcilable conflict.
5.5 NOTICE TO LIFE COMPANY
AVIF will promptly make known in writing to LIFE COMPANY the Board of
Directors' determination of the existence of a material irreconcilable conflict,
a description of the facts that give rise to such conflict and the implications
of such conflict.
5.6 INFORMATION REQUESTED BY BOARD OF DIRECTORS
LIFE COMPANY and AVIF (or its investment adviser) will at least
annually submit to the Board of Directors of AVIF such reports, materials or
data as the Board of Directors may reasonably request so that the Board of
Directors may fully carry out the obligations imposed upon it by the provisions
hereof or any exemptive order granted by the SEC to permit Mixed and Shared
Funding, and said reports, materials and data will be submitted at any
reasonable time deemed appropriate by the Board of Directors. All reports
received by the Board of Directors of potential or existing conflicts, and all
Board of Directors actions with regard to determining the existence of a
conflict, notifying Participating Insurance Companies and Participating Plans of
a conflict, and determining whether any proposed action adequately remedies a
conflict, will be properly recorded in the minutes of the Board of Directors or
other appropriate records, and such minutes or other records will be made
available to the SEC upon request.
5.7 COMPLIANCE WITH SEC RULES
If, at any time during which AVIF is serving as an investment medium
for variable life insurance Contracts, 1940 Act Rules 6e-3(T) or, if applicable,
6e-2 are amended or Rule 6e-3 is adopted to provide exemptive relief with
respect to Mixed and Shared Funding, AVIF agrees that it will comply with the
terms and conditions thereof and that the terms of this Section 5 shall be
deemed modified if and only to the extent required in order also to comply with
the terms and conditions of such exemptive relief that is afforded by any of
said rules that are applicable.
5.8 OTHER REQUIREMENTS
AVIF will require that each Participating Insurance Company and
Participating Plan enter into an agreement with AVIF that contains in substance
the same provisions as are set forth in Sections 4.1(b), 4.1(d), 4.3(a), 4.4(b),
4.5(a), 5, and 10 of this Agreement.
SECTION 6. TERMINATION
6.1 EVENTS OF TERMINATION
Subject to Section 6.4 below, this Agreement will terminate as to a
Fund:
(a) at the option of any party, with or without cause with respect to
the Fund, upon six (6) months advance written notice to the other parties, or,
if later, upon receipt of any required exemptive relief from the SEC, unless
otherwise agreed to in writing by the parties; or
(b) at the option of AVIF upon institution of formal proceedings
against LIFE COMPANY or its affiliates by the NASD, the SEC, any state insurance
regulator or any other regulatory body regarding LIFE COMPANY'S obligations
under this Agreement or related to the sale of the Contracts, the operation of
each Account, or the purchase of Shares, if, in each case, AVIF reasonably
determines that such proceedings, or the facts on which such proceedings would
be based, have a material likelihood of imposing material adverse consequences
on the Fund with respect to which the Agreement is to be terminated; or
(c) at the option of LIFE COMPANY upon institution of formal
proceedings against AVIF, its principal underwriter, or its investment adviser
by the NASD, the SEC, or any state insurance regulator or any other regulatory
body regarding AVIF's obligations under this Agreement or related to the
operation or management of AVIF or the purchase of AVIF Shares, if, in each
case, LIFE COMPANY reasonably determines that such proceedings, or the facts on
which such proceedings would be based, have a material likelihood of imposing
material adverse consequences on LIFE COMPANY, or the Subaccount corresponding
to the Fund with respect to which the Agreement is to be terminated; or
(d) at the option of any Party in the event that (i) the Fund's Shares
are not registered and, in all material respects, issued and sold in accordance
with any applicable federal or state law, or (ii) such law precludes the use of
such Shares as an underlying investment medium of the Contracts issued or to be
issued by LIFE COMPANY; or
(e) upon termination of the corresponding Subaccount's investment in
the Fund pursuant to Section 5 hereof; or
(f) at the option of LIFE COMPANY if the Fund ceases to qualify as a
RIC under Subchapter M of the Code or under successor or similar provisions, or
if LIFE COMPANY reasonably believes that the Fund may fail to so qualify; or
(g) at the option of LIFE COMPANY if the Fund fails to comply with
Section 817(h) of the Code or with successor or similar provisions, or if LIFE
COMPANY reasonably believes that the Fund may fail to so comply; or
(h) at the option of AVIF if the Contracts issued by LIFE COMPANY cease
to qualify as annuity contracts or life insurance contracts under the Code
(other than by reason of the Fund's noncompliance with Section 817(h) or
Subchapter M of the Code) or if interests in an Account under the Contracts are
not registered, where required, and, in all material respects, are not issued or
sold in accordance with any applicable federal or state law; or
(i) upon another Party's material breach of any provision of this
Agreement.
6.2 NOTICE REQUIREMENT FOR TERMINATION
No termination of this Agreement will be effective unless and until the
Party terminating this Agreement gives prior written notice to the other Party
to this Agreement of its intent to terminate, and such notice shall set forth
the basis for such termination. Furthermore:
(a) in the event that any termination is based upon the provisions of
Sections 6.1(a) or 6.1(e) hereof, such prior written notice shall be given at
least six (6) months in advance of the effective date of termination unless a
shorter time is agreed to by the Parties hereto;
(b) in the event that any termination is based upon the provisions of
Sections 6.1(b) or 6.1(c) hereof, such prior written notice shall be given at
least ninety (90) days in advance of the effective date of termination unless a
shorter time is agreed to by the Parties hereto; and
(c) in the event that any termination is based upon the provisions of
Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, such prior written
notice shall be given as soon as possible within twenty-four (24) hours after
the terminating Party learns of the event causing termination to be required.
6.3 FUNDS TO REMAIN AVAILABLE
Notwithstanding any termination of this Agreement, AVIF will, at the
option of LIFE COMPANY, continue to make available additional shares of the Fund
pursuant to the terms and conditions of this Agreement, for all Contracts in
effect on the effective date of termination of this Agreement (hereinafter
referred to as AExisting Contracts"). Specifically, without limitation, the
owners of the Existing Contracts will be permitted to reallocate investments in
the Fund (as in effect on such date), redeem investments in the Fund and/or
invest in the Fund upon the making of additional purchase payments under the
Existing Contracts. The parties agree that this Section 6.3 will not apply to
any terminations under Section 5 and the effect of such terminations will be
governed by Section 5 of this Agreement.
6.4 SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS
All warranties and indemnifications will survive the termination of
this Agreement.
6.5 CONTINUANCE OF AGREEMENT FOR CERTAIN PURPOSES
If any Party terminates this Agreement with respect to any Fund
pursuant to Sections 6.1(b), 6.1(c), 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i)
hereof, this Agreement shall nevertheless continue in effect as to any Shares of
that Fund that are outstanding as of the date of such termination (the "Initial
Termination Date"). This continuation shall extend to the earlier of the date as
of which an Account owns no Shares of the affected Fund or a date (the "Final
Termination Date") six (6) months following the Initial Termination Date, except
that LIFE COMPANY may, by written notice shorten said six (6) month period in
the case of a termination pursuant to Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or
6.1(i).
SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION
The Parties hereto agree to cooperate and give reasonable assistance to
one another in taking all necessary and appropriate steps for the purpose of
ensuring that an Account owns no Shares of a Fund after the Final Termination
Date with respect thereto, or, in the case of a termination pursuant to Section
6.1(a), the termination date specified in the notice of termination. Such steps
may include combining the affected Account with another Account, substituting
other mutual fund shares for those of the affected Fund, or otherwise
terminating participation by the Contracts in such Fund.
SECTION 8. ASSIGNMENT
This Agreement may not be assigned by any Party, except with the
written consent of each other Party.
SECTION 9. NOTICES
Notices and communications required or permitted will be given by means
mutually acceptable to the Parties concerned. Each other notice or communication
required or permitted by this Agreement will be given to the following persons
at the following addresses and facsimile numbers, or such other persons,
addresses or facsimile numbers as the Party receiving such notices or
communications may subsequently direct in writing:
AIM VARIABLE INSURANCE FUNDS, INC.
11 Greenway Plaza, Suite 100
Houston, Texas 77046
Facsimile: (713) 993-9185
Attn: Nancy L. Martin, Esq.
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NALAC FINANCIAL PLANS, LLC
152 West 57th Street, 18th Floor
New York, NY 10019
Facsimile: (212) 586-7733
Attn: Eugene K. Long
SECTION 10. VOTING PROCEDURES
Subject to the cost allocation procedures set forth in Section 3
hereof, LIFE COMPANY will distribute all proxy material furnished by AVIF to
Participants to whom pass-through voting privileges are required to be extended
and will solicit voting instructions from Participants. LIFE COMPANY will vote
Shares in accordance with timely instructions received from Participants. LIFE
COMPANY will vote Shares that are (a) not attributable to Participants to whom
pass-through voting privileges are extended, or (b) attributable to
Participants, but for which no timely instructions have been received, in the
same proportion as Shares for which said instructions have been received from
Participants, so long as and to the extent that the SEC continues to interpret
the 1940 Act to require pass through voting privileges for Participants. Neither
LIFE COMPANY nor any of its affiliates will in any way recommend action in
connection with or oppose or interfere with the solicitation of proxies for the
Shares held for such Participants. LIFE COMPANY reserves the right to vote
shares held in any Account in its own right, to the extent permitted by law.
LIFE COMPANY shall be responsible for assuring that each of its Accounts holding
Shares calculates voting privileges in a manner consistent with that of other
Participating Insurance Companies or in the manner required by the Mixed and
Shared Funding exemptive order obtained by AVIF. AVIF will notify LIFE COMPANY
of any changes of interpretations or amendments to Mixed and Shared Funding
exemptive order it has obtained. AVIF will comply with all provisions of the
1940 Act requiring voting by shareholders, and in particular, AVIF either will
provide for annual meetings (except insofar as the SEC may interpret Section 16
of the 1940 Act not to require such meetings) or will comply with Section 16(c)
of the 1940 Act (although AVIF is not one of the trusts described in Section
16(c) of that Act) as well as with Sections 16(a) and, if and when applicable,
16(b). Further, AVIF will act in accordance with the SEC=s interpretation of the
requirements of Section 16(a) with respect to periodic elections of directors
and with whatever rules the SEC may promulgate with respect thereto.
SECTION 11. FOREIGN TAX CREDITS
AVIF agrees to consult in advance with LIFE COMPANY concerning any
decision to elect or not to elect pursuant to Section 853 of the Code to pass
through the benefit of any foreign tax credits to its shareholders.
SECTION 12. INDEMNIFICATION
12.1 Of AVIF by LIFE COMPANY and UNDERWRITER12.1 Of AVIF by LIFE
COMPANY and UNDERWRITER12.1 Of AVIF by LIFE COMPANY and UNDERWRITER.
(a) Except to the extent provided in Sections 12.1(b) and 12.1(c),
below, LIFE COMPANY and UNDERWRITER agree to indemnify and hold harmless AVIF,
its affiliates, and each person, if any, who controls AVIF, or its affiliates
within the meaning of Section 15 of the 1933 Act and each of their respective
directors and officers, (collectively, the "Indemnified Parties" for purposes of
this Section 12.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of LIFE COMPANY
and UNDERWRITER) or actions in respect thereof (including, to the extent
reasonable, legal and other expenses), to which the Indemnified Parties may
become subject under any statute, regulation, at common law or otherwise;
provided, the Account owns shares of the Fund and insofar as such losses,
claims, damages, liabilities or actions:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
any Account's 1933 Act registration statement, any Account
Prospectus, the Contracts, or sales literature or
advertising for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading;
provided, that this agreement to indemnify shall not apply
as to any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reliance upon
and in conformity with information furnished to LIFE COMPANY
or UNDERWRITER by or on behalf of AVIF for use in any
Account's 1933 Act registration statement, any Account
Prospectus, the Contracts, or sales literature or
advertising or otherwise for use in connection with the sale
of Contracts or Shares (or any amendment or supplement to
any of the foregoing); or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations
contained in AVIF's 1933 Act registration statement, AVIF
Prospectus, sales literature or advertising of AVIF, or any
amendment or supplement to any of the foregoing, not
supplied for use therein by or on behalf of LIFE COMPANY,
UNDERWRITER or their respective affiliates and on which such
persons have reasonably relied) or the negligent, illegal or
fraudulent conduct of LIFE COMPANY, UNDERWRITER or their
respective affiliates or persons under their control
(including, without limitation, their employees and "persons
associated with a member," as that term is defined in
paragraph (q) of Article I of the NASD's By-Laws), in
connection with the sale or distribution of the Contracts or
Shares; or
(iii)arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
AVIF's 1933 Act registration statement, AVIF Prospectus,
sales literature or advertising of AVIF, or any amendment or
supplement to any of the foregoing, or the omission or
alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading if such a statement or omission was
made in reliance upon and in conformity with information
furnished to AVIF, or its affiliates by or on behalf of LIFE
COMPANY, UNDERWRITER or their respective affiliates for use
in AVIF's 1933 Act registration statement, AVIF Prospectus,
sales literature or advertising of AVIF, or any amendment or
supplement to any of the foregoing; or
(iv) arise as a result of any failure by LIFE COMPANY or
UNDERWRITER to perform the obligations, provide the services
and furnish the materials required of them under the terms
of this Agreement, or any material breach of any
representation and/or warranty made by LIFE COMPANY or
UNDERWRITER in this Agreement or arise out of or result from
any other material breach of this Agreement by LIFE COMPANY
or UNDERWRITER; or
(v) arise as a result of failure by the Contracts issued by LIFE
COMPANY to qualify as annuity contracts or life insurance
contracts under the Code, otherwise than by reason of any
Fund's failure to comply with Subchapter M or Section 817(h)
of the Code.
(b) Neither LIFE COMPANY nor UNDERWRITER shall be liable under this
Section 12.1 with respect to any losses, claims, damages, liabilities or actions
to which an Indemnified Party would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance by that
Indemnified Party of its duties or by reason of that Indemnified Party's
reckless disregard of obligations or duties (i) under this Agreement, or (ii) to
AVIF.
(c) Neither LIFE COMPANY nor UNDERWRITER shall be liable under this
Section 12.1 with respect to any action against an Indemnified Party unless AVIF
shall have notified LIFE COMPANY and UNDERWRITER in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the action shall have been served upon such Indemnified Party (or
after such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify LIFE COMPANY and UNDERWRITER of any
such action shall not relieve LIFE COMPANY and UNDERWRITER from any liability
which they may have to the Indemnified Party against whom such action is brought
otherwise than on account of this Section 12.1. Except as otherwise provided
herein, in case any such action is brought against an Indemnified Party, LIFE
COMPANY and UNDERWRITER shall be entitled to participate, at their own expense,
in the defense of such action and also shall be entitled to assume the defense
thereof, with counsel approved by the Indemnified Party named in the action,
which approval shall not be unreasonably withheld. After notice from LIFE
COMPANY or UNDERWRITER to such Indemnified Party of LIFE COMPANY's or
UNDERWRITER=s election to assume the defense thereof, the Indemnified Party will
cooperate fully with LIFE COMPANY and UNDERWRITER and shall bear the fees and
expenses of any additional counsel retained by it, and neither LIFE COMPANY nor
UNDERWRITER will be liable to such Indemnified Party under this Agreement for
any legal or other expenses subsequently incurred by such Indemnified Party
independently in connection with the defense thereof, other than reasonable
costs of investigation.
12.2 OF LIFE COMPANY AND UNDERWRITER BY AVIF.
(a) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e), below, AVIF agrees to indemnify and hold harmless LIFE COMPANY,
UNDERWRITER, their respective affiliates, and each person, if any, who controls
LIFE COMPANY, UNDERWRITER or their respective affiliates within the meaning of
Section 15 of the 1933 Act and each of their respective directors and officers,
(collectively, the "Indemnified Parties" for purposes of this Section 12.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of AVIF) or actions in respect thereof
(including, to the extent reasonable, legal and other expenses), to which the
Indemnified Parties may become subject under any statute, regulation, at common
law, or otherwise; provided, the Account owns shares of the Fund and insofar as
such losses, claims, damages, liabilities or actions:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
AVIF's 1933 Act registration statement, AVIF Prospectus or
sales literature or advertising of AVIF (or any amendment or
supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading;
provided, that this agreement to indemnify shall not apply
as to any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reliance upon
and in conformity with information furnished to AVIF or its
affiliates by or on behalf of LIFE COMPANY, UNDERWRITER or
their respective affiliates for use in AVIF's 1933 Act
registration statement, AVIF Prospectus, or in sales
literature or advertising or otherwise for use in connection
with the sale of Contracts or Shares (or any amendment or
supplement to any of the foregoing); or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations
contained in any Account's 1933 Act registration statement,
any Account Prospectus, sales literature or advertising for
the Contracts, or any amendment or supplement to any of the
foregoing, not supplied for use therein by or on behalf of
AVIF, or its affiliates and on which such persons have
reasonably relied) or the negligent, illegal or fraudulent
conduct of AVIF, or its affiliates or persons under its
control (including, without limitation, their employees and
"persons associated with a member" as that term is defined
in Section (q) of Article I of the NASD By-Laws), in
connection with the sale or distribution of AVIF Shares; or
(iii)arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
any Account's 1933 Act registration statement, any Account
Prospectus, sales literature or advertising covering the
Contracts, or any amendment or supplement to any of the
foregoing, or the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, if
such statement or omission was made in reliance upon and in
conformity with information furnished to LIFE COMPANY,
UNDERWRITER or their respective affiliates by or on behalf
of AVIF or AIM for use in any Account's 1933 Act
registration statement, any Account Prospectus, sales
literature or advertising covering the Contracts, or any
amendment or supplement to any of the foregoing; or
(iv) arise as a result of any failure by AVIF to perform the
obligations, provide the services and furnish the materials
required of it under the terms of this Agreement, or any
material breach of any representation and/or warranty made
by AVIF in this Agreement or arise out of or result from any
other material breach of this Agreement by AVIF.
(b) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e) hereof, AVIF agrees to indemnify and hold harmless the Indemnified
Parties from and against any and all losses, claims, damages, liabilities
(including amounts paid in settlement thereof with, the written consent of AVIF)
or actions in respect thereof (including, to the extent reasonable, legal and
other expenses) to which the Indemnified Parties may become subject directly or
indirectly under any statute, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or actions directly or indirectly result
from or arise out of the failure of any Fund to operate as a regulated
investment company in compliance with (i) Subchapter M of the Code and
regulations thereunder, or (ii) Section 817(h) of the Code and regulations
thereunder, including, without limitation, any income taxes and related
penalties, rescission charges, liability under state law to Participants
asserting liability against LIFE COMPANY pursuant to the Contracts, the costs of
any ruling and closing agreement or other settlement with the IRS, and the cost
of any substitution by LIFE COMPANY of Shares of another investment company or
portfolio for those of any adversely affected Fund as a funding medium for each
Account that LIFE COMPANY reasonably deems necessary or appropriate as a result
of the noncompliance.
(c) AVIF shall be liable under this Section 12.2 with respect to any
losses, claims, damages, liabilities or actions to which an Indemnified Party
would otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance by that Indemnified Party of its duties or by
reason of such Indemnified Party's reckless disregard of its obligations and
duties (i) under this Agreement, or (ii) to LIFE COMPANY, UNDERWRITER, each
Account or Participants.
(d) AVIF shall be liable under this Section 12.2 with respect to any
action against an Indemnified Party unless the Indemnified Party shall have
notified AVIF in writing within a reasonable time after the summons or other
first legal process giving information of the nature of the action shall have
been served upon such Indemnified Party (or after such Indemnified Party shall
have received notice of such service on any designated agent), but failure to
notify AVIF of any such action shall not relieve AVIF from any liability which
it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this Section 12.2. Except as otherwise provided
herein, in case any such action is brought against an Indemnified Party, AVIF
will be entitled to participate, at its own expense, in the defense of such
action and also shall be entitled to assume the defense thereof (which shall
include, without limitation, the conduct of any ruling request and closing
agreement or other settlement proceeding with the IRS), with counsel approved by
the Indemnified Party named in the action, which approval shall not be
unreasonably withheld. After notice from AVIF to such Indemnified Party of
AVIF's or AIM=s election to assume the defense thereof, the Indemnified Party
will cooperate fully with AVIF and shall bear the fees and expenses of any
additional counsel retained by it, and AVIF will not be liable to such
Indemnified Party under this Agreement for any legal or other expenses
subsequently incurred by such Indemnified Party independently in connection with
the defense thereof, other than reasonable costs of investigation.
(e) In no event shall AVIF be liable under the indemnification
provisions contained in this Agreement to any individual or entity, including,
without limitation, LIFE COMPANY, UNDERWRITER or any other Participating
Insurance Company or any Participant, with respect to any losses, claims,
damages, liabilities or expenses that arise out of or result from (i) a breach
of any representation, warranty, and/or covenant made by LIFE COMPANY or
UNDERWRITER hereunder or by any Participating Insurance Company under an
agreement containing substantially similar representations, warranties and
covenants; (ii) the failure by LIFE COMPANY or any Participating Insurance
Company to maintain its segregated asset account (which invests in any Fund) as
a legally and validly established segregated asset account under applicable
state law and as a duly registered unit investment trust under the provisions of
the 1940 Act (unless exempt therefrom); or (iii) the failure by LIFE COMPANY or
any Participating Insurance Company to maintain its variable annuity or life
insurance contracts (with respect to which any Fund serves as an underlying
funding vehicle) as annuity contracts or life insurance contracts under
applicable provisions of the Code.
12.3 EFFECT OF NOTICE
Any notice given by the indemnifying Party to an Indemnified Party
referred to in Sections 12.1(c) or 12.2(d) above of participation in or control
of any action by the indemnifying Party will in no event be deemed to be an
admission by the indemnifying Party of liability, culpability or responsibility,
and the indemnifying Party will remain free to contest liability with respect to
the claim among the Parties or otherwise.
12.4 SUCCESSORS
A successor by law of any Party shall be entitled to the benefits of
the indemnification contained in this Section 12.
SECTION 13. APPLICABLE LAW
This Agreement will be construed and the provisions hereof interpreted
under and in accordance with Maryland law, without regard for that state's
principles of conflict of laws.
SECTION 14. EXECUTION IN COUNTERPARTS
This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together will constitute one and the same
instrument.
SECTION 15. SEVERABILITY
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
SECTION 16. RIGHTS CUMULATIVE
The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, that the Parties are entitled to under federal and state
laws.
SECTION 17. HEADINGS
The Table of Contents and headings used in this Agreement are for
purposes of reference only and shall not limit or define the meaning of the
provisions of this Agreement.
SECTION 18. CONFIDENTIALITY
AVIF acknowledges that the identities of the customers of LIFE COMPANY
or any of its affiliates (collectively, the ALIFE COMPANY Protected Parties@ for
purposes of this Section 18), information maintained regarding those customers,
and all computer programs and procedures or other information developed by the
LIFE COMPANY Protected Parties or any of their employees or agents in connection
with LIFE COMPANY=s performance of its duties under this Agreement are the
valuable property of the LIFE COMPANY Protected Parties. AVIF agrees that if it
comes into possession of any list or compilation of the identities of or other
information about the LIFE COMPANY Protected Parties= customers, or any other
information or property of the LIFE COMPANY Protected Parties, other than such
information as may be independently developed or compiled by AVIF from
information supplied to it by the LIFE COMPANY Protected Parties= customers who
also maintain accounts directly with AVIF, AVIF will hold such information or
property in confidence and refrain from using, disclosing or distributing any of
such information or other property except: (a) with LIFE COMPANY=s prior written
consent; or (b) as required by law or judicial process. LIFE COMPANY
acknowledges that the identities of the customers of AVIF or any of its
affiliates (collectively, the AAVIF Protected Parties@ for purposes of this
Section 18), information maintained regarding those customers, and all computer
programs and procedures or other information developed by the AVIF Protected
Parties or any of their employees or agents in connection with AVIF=s
performance of its duties under this Agreement are the valuable property of the
AVIF Protected Parties. LIFE COMPANY agrees that if it comes into possession of
any list or compilation of the identities of or other information about the AVIF
Protected Parties= customers or any other information or property of the AVIF
Protected Parties, other than such information as may be independently developed
or compiled by LIFE COMPANY from information supplied to it by the AVIF
Protected Parties= customers who also maintain accounts directly with LIFE
COMPANY, LIFE COMPANY will hold such information or property in confidence and
refrain from using, disclosing or distributing any of such information or other
property except: (a) with AVIF=s prior written consent; or (b) as required by
law or judicial process. Each party acknowledges that any breach of the
agreements in this Section 18 would result in immediate and irreparable harm to
the other parties for which there would be no adequate remedy at law and agree
that in the event of such a breach, the other parties will be entitled to
equitable relief by way of temporary and permanent injunctions, as well as such
other relief as any court of competent jurisdiction deems appropriate.
SECTION 19. TRADEMARKS AND FUND NAMES
(a) Except as may otherwise be provided in a License Agreement among A
I M Management Group, Inc., LIFE COMPANY and UNDERWRITER, neither LIFE COMPANY
nor UNDERWRITER or any of their respective affiliates, shall use any trademark,
trade name, service mark or logo of AVIF, AIM or any of their respective
affiliates, or any variation of any such trademark, trade name, service mark or
logo, without AVIF=s or AIM=s prior written consent, the granting of which shall
be at AVIF=s or AIM=s sole option.
(b) Except as otherwise expressly provided in this Agreement, neither
AVIF, its investment adviser, its principal underwriter, or any affiliates
thereof shall use any trademark, trade name, service mark or logo of LIFE
COMPANY, UNDERWRITER or any of their affiliates, or any variation of any such
trademark, trade name, service mark or logo, without LIFE COMPANY=s or
UNDERWRITER=s prior written consent, the granting of which shall be at LIFE
COMPANY=s or UNDERWRITER=s sole option.
SECTION 20. PARTIES TO COOPERATE
Each party to this Agreement will cooperate with each other party and
all appropriate governmental authorities (including, without limitation, the
SEC, the NASD and state insurance regulators) and will permit each other and
such authorities reasonable access to its books and records (including copies
thereof) in connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
SECTION 21. AMENDMENTS
No provision of this Agreement may be amended or modified in any manner
except by a written agreement executed by all parties hereto.
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed in their names and on their behalf by and through their duly authorized
officers signing below.
AIM VARIABLE INSURANCE FUNDS, INC.
/s/ Nancy L Martin /s/ Robert H Graham
Attest: _______________________ By: ___________________________________
Name: Nancy L. Martin Name: Robert H. Graham
Title Assistant Secretary Title: President
PREFERRED LIFE INSURANCE COMPANY OF
NEW YORK, on behalf of itself and its
separate accounts
/s/ Michael D Engel /s/ Michael T Westermeyer
Attest: ________________________ By: __________________________________
Michael D Engel Michael T Westermeyer
Name: ________________________ Name: __________________________________
Senior Counsel Secretary
Title: ________________________ Title: __________________________________
NALAC FINANCIAL PLANS, LLC
/s/ Michael D Engel /s/ Thomas B. Clifford
Attest: ________________________ By: __________________________________
Michael D Engel Thomas B Clifford
Name: ________________________ Name: __________________________________
Senior Counsel President
Title: ________________________ Title: __________________________________
SCHEDULE A
FUNDS AVAILABLE UNDER THE CONTRACTS
- -----------------------------------
$ AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Growth Fund
SEPARATE ACCOUNTS UTILIZING THE FUNDS
- -------------------------------------
o Preferred Life Variable Account C
CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS
- -----------------------------------------
o Franklin Valuemark II
o Franklin Valuemark IV
<TABLE>
<CAPTION>
SCHEDULE B
EXPENSE ALLOCATIONS
================================================================================
LIFE COMPANY AVIF / AIM
================================================================================
<S> <C>
Preparing and filing the Account=s preparing and filing the Fund=s
registration statement registration statement
- --------------------------------------------------------------------------------
text composition for Account text composition for Fund prospectuses
prospectuses and supplements and supplements
- --------------------------------------------------------------------------------
text alterations of prospectuses text alterations of prospectuses(Fund)
(Account) and supplements (Account) and supplements (Fund)
- --------------------------------------------------------------------------------
printing Account and Fund prospectuses a camera ready Fund prospectus
and supplements
- --------------------------------------------------------------------------------
text composition and printing Account text composition and printing Fund
SAIs SAIs
- --------------------------------------------------------------------------------
mailing and distributing Account SAIs mailing and distributing Fund SAIs to
to policy owners upon request by policy owners upon request by policy
policy owners owners
- --------------------------------------------------------------------------------
mailing and distributing prospectuses
(Account and Fund) and supplements
(Account and Fund) to policy owners of
record as required by Federal Securities
Laws and to prospective purchasers
- --------------------------------------------------------------------------------
text composition (Account), printing, text composition of annual and
mailing, and distributing annual and semi-annual reports (Fund)
semi-annual reports for Account (Fund
and Account as, applicable)
- --------------------------------------------------------------------------------
text composition, printing, mailing, text composition, printing, mailing,
distributing, and tabulation of proxy distributing and tabulation of proxy
statements and voting instruction statements and voting instruction
solicitation materials to policy owners solicitation materials to policy
with respect to proxies related to owners with respect to proxies related
the Account to the Fund
- --------------------------------------------------------------------------------
Preparation, printing and distributing
sales material and advertising relating
to the Funds, insofar as such materials
relate to the Contracts and filing such
materials with and obtaining approval
from, the SEC, the NASD, any state
insurance regulatory authority, and any
other appropriate regulatory authority,
to the extent Required
- --------------------------------------------------------------------------------
</TABLE>
PARTICIPATION AGREEMENT
THIS AGREEMENT is made this 27 day of July, 1999, by and among The
Alger American Fund (the "Trust"), an open-end management investment company
organized as a Massachusetts business trust, Preferred Life Insurance Company of
New York, a life insurance company organized as a corporation under the laws of
the State of New York, (the "Company"), on its own behalf and on behalf of each
segregated asset account of the Company set forth in Schedule A, as may be
amended from time to time (the "Accounts"), and Fred Alger & Company,
Incorporated, a Delaware corporation, the Trust's distributor (the
"Distributor").
WHEREAS, the Trust is registered with the Securities and Exchange
Commission (the "Commission") as an open-end management investment company under
the Investment Company Act of 1940, as amended (the "1940 Act"), and has an
effective registration statement relating to the offer and sale of the various
series of its shares under the Securities Act of 1933, as amended (the "1933
Act");
WHEREAS, the Trust and the Distributor desire that Trust shares be used
as an investment vehicle for separate accounts established for variable life
insurance policies and variable annuity contracts to be offered by life
insurance companies which have entered into fund participation agreements with
the Trust (the "Participating Insurance Companies");
WHEREAS, shares of beneficial interest in the Trust are divided into
the following series which are available for purchase by the Company for the
Accounts: Alger American Small Capitalization Portfolio, Alger American Growth
Portfolio, Alger American Income and Growth Portfolio, Alger American Balanced
Portfolio, Alger American MidCap Growth Portfolio, and Alger American Leveraged
AllCap Portfolio;
WHEREAS, the Trust has received an order from the Commission, dated
February 17, 1989 (File No. 812-7076), granting Participating Insurance
Companies and their separate accounts exemptions from the provisions of Sections
9(a), 13(a), 15(a) and 15(b) of the 1940 Act, and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the
Portfolios of the Trust to be sold to and held by variable annuity and variable
life insurance separate accounts of both affiliated and unaffiliated life
insurance companies (the "Shared Funding Exemptive Order");
WHEREAS, the Company has registered or will register under the 1933 Act
certain variable life insurance policies and variable annuity contracts to be
issued by the Company under which the Portfolios are to be made available as
investment vehicles (the "Contracts");
<PAGE>
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act unless an exemption from registration
under the 1940 Act is available and the Trust has been so advised;
WHEREAS, the Company desires to use shares of the Portfolios indicated
on Schedule A as investment vehicles for the Accounts;
NOW THEREFORE, in consideration of their mutual promises, the parties
agree as follows:
ARTICLE I.
Purchase and Redemption of Trust Portfolio Shares
1.1. For purposes of this Article I, the Company shall be the Trust's agent
for the receipt from each account of purchase orders and requests for
redemption pursuant to the Contracts relating to each Portfolio,
provided that the Company notifies the Trust of such purchase orders
and requests for redemption by 9:30 a.m. Eastern time on the next
following Business Day, as defined in Section 1.3.
1.2. The Trust shall make shares of the Portfolios available to the Accounts
at the net asset value next computed after receipt of a purchase order
by the Trust (or its agent), as established in accordance with the
provisions of the then current prospectus of the Trust describing
Portfolio purchase procedures. The Company will transmit orders from
time to time to the Trust for the purchase and redemption of shares of
the Portfolios. The Trustees of the Trust (the "Trustees") may refuse
to sell shares of any Portfolio to any person, or suspend or terminate
the offering of shares of any Portfolio if such action is required by
law or by regulatory authorities having jurisdiction or if, in the sole
discretion of the Trustees acting in good faith and in light of their
fiduciary duties under federal and any applicable state laws, such
action is deemed in the best interests of the shareholders of such
Portfolio.
1.3. The Company shall pay for the purchase of shares of a Portfolio on
behalf of an Account with federal funds to be transmitted by wire to
the Trust, with the reasonable expectation of receipt by the Trust by
2:00 p.m. Eastern time on the next Business Day after the Trust (or its
agent) receives the purchase order. Upon receipt by the Trust of the
federal funds so wired, such funds shall cease to be the responsibility
of the Company and shall become the responsibility of the Trust for
this purpose. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which the Trust calculates
its net asset value pursuant to the rules of the Commission.
1.4. The Trust will redeem for cash any full or fractional shares of any
Portfolio, when requested by the Company on behalf of an Account, at
the net asset value next computed after receipt by the Trust (or its
agent) of the request for redemption, as established in accordance with
the provisions of the then current prospectus of the Trust describing
Portfolio redemption procedures. The Trust shall make payment for such
shares in the manner established from time to time by the Trust.
Proceeds of redemption with respect to a Portfolio will normally be
paid to the Company for an Account in federal funds transmitted by wire
to the Company by order of the Trust with the reasonable expectation of
receipt by the Company by 2:00 p.m. Eastern time on the next Business
Day after the receipt by the Trust (or its agent) of the request for
redemption. Such payment may be delayed if, for example, the
Portfolio's cash position so requires or if extraordinary market
conditions exist, but in no event shall payment be delayed for a
greater period than is permitted by the 1940 Act. The Trust reserves
the right to suspend the right of redemption, consistent with Section
22(e) of the 1940 Act and any rules thereunder.
1.5. Payments for the purchase of shares of the Trust's Portfolios by the
Company under Section 1.3 and payments for the redemption of shares of
the Trust's Portfolios under Section 1.4 on any Business Day may be
netted against one another for the purpose of determining the amount of
any wire transfer.
1.6. Issuance and transfer of the Trust's Portfolio shares will be by book
entry only. Stock certificates will not be issued to the Company or the
Accounts. Portfolio Shares purchased from the Trust will be recorded in
the appropriate title for each Account or the appropriate subaccount of
each Account.
1.7. The Trust shall furnish, on or before the ex-dividend date, notice to
the Company of any income dividends or capital gain distributions
payable on the shares of any Portfolio of the Trust. The Company hereby
elects to receive all such income dividends and capital gain
distributions as are payable on a Portfolio's shares in additional
shares of that Portfolio. The Trust shall notify the Company of the
number of shares so issued as payment of such dividends and
distributions.
1.8. The Trust shall calculate the net asset value of each Portfolio on each
Business Day, as defined in Section 1.3. The Trust shall make the net
asset value per share for each Portfolio available to the Company or
its designated agent on a daily basis as soon as reasonably practical
after the net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available to the
Company by 6:30 p.m. Eastern time each Business Day. If the Trust
provides materially incorrect share net asset value information, the
number of shares purchased or redeemed shall be adjusted to reflect the
correct net asset value per share, unless the Distributor corrects such
error by reimbursing the Fund for any losses. Any material error in the
calculation or reporting of net asset value per share, dividend or
capital gain information shall be reported promptly upon discovery to
the Company.
1.9. The Trust agrees that its Portfolio shares will be sold only to
Participating Insurance Companies and their segregated asset accounts,
to the Fund Sponsor or its affiliates and to such other entities as may
be permitted by Section 817(h) of the Code, the regulations hereunder,
or judicial or administrative interpretations thereof. No shares of any
Portfolio will be sold directly to the general public. The Company
agrees that it will use Trust shares only for the purposes of funding
the Contracts through the Accounts listed in Schedule A, as amended
from time to time.
1.10. The Trust agrees that all Participating Insurance Companies shall have
the obligations and responsibilities regarding pass-through voting and
conflicts of interest corresponding materially to those contained in
Section 2.9 and Article IV of this Agreement.
ARTICLE II.
Obligations of the Parties
2.1. The Trust shall prepare and be responsible for filing with the
Commission and any state regulators requiring such filing all
shareholder reports, notices, proxy materials (or similar materials
such as voting instruction solicitation materials), prospectuses and
statements of additional information of the Trust. The Trust shall bear
the costs of registration and qualification of shares of the
Portfolios, preparation and filing of the documents listed in this
Section 2.1 and all taxes to which an issuer is subject on the issuance
and transfer of its shares.
2.2. The Company shall distribute such prospectuses, proxy statements and
periodic reports of the Trust to the Contract owners as required to be
distributed to such Contract owners under applicable federal or state
law.
2.3. The Trust shall provide such documentation (including a final copy of
the Trust's prospectus as set in type or in camera-ready copy) and
other assistance as is reasonably necessary in order for the Company to
print together in one document the current prospectus for the Contracts
issued by the Company and the current prospectus for the Trust. The
Trust shall bear the expense of printing copies of its current
prospectus that will be distributed to existing Contract owners, and
the Company shall bear the expense of printing copies of the Trust's
prospectus that are used in connection with offering the Contracts
issued by the Company.
2.4. The Trust and the Distributor shall provide (1) at the Trust's expense,
one copy of the Trust's current Statement of Additional Information
("SAI") to the Company and to any Contract owner who requests such SAI,
(2) at the Company's expense, such additional copies of the Trust's
current SAI as the Company shall reasonably request and that the
Company shall require in accordance with applicable law in connection
with offering the Contracts issued by the Company.
2.5. The Trust, at its expense, shall provide the Company with copies of its
proxy material, periodic reports to shareholders and other
communications to shareholders in such quantity as the Company shall
reasonably require for purposes of distributing to Contract owners. The
Trust, at the Company's expense, shall provide the Company with copies
of its periodic reports to shareholders and other communications to
shareholders in such quantity as the Company shall reasonably request
for use in connection with offering the Contracts issued by the
Company. If requested by the Company in lieu thereof, the Trust shall
provide such documentation (including a final copy of the Trust's proxy
materials, periodic reports to shareholders and other communications to
shareholders, as set in type or in camera-ready copy) and other
assistance as reasonably necessary in order for the Company to print
such shareholder communications for distribution to Contract owners.
2.6. The Company agrees and acknowledges that the Distributor is the sole
owner of the name and mark "Alger" and that all use of any designation
comprised in whole or part of such name or mark under this Agreement
shall inure to the benefit of the Distributor. Except as provided in
Section 2.5, the Company shall not use any such name or mark on its own
behalf or on behalf of the Accounts or Contracts in any registration
statement, advertisement, sales literature or other materials relating
to the Accounts or Contracts without the prior written consent of the
Distributor. Upon termination of this Agreement for any reason, the
Company shall cease all use of any such name or mark as soon as
reasonably practicable.
2.7. The Company shall furnish, or cause to be furnished, to the Trust or
its designee a copy of each Contract prospectus and/or statement of
additional information describing the Contracts, each report to
Contract owners, proxy statement, application for exemption or request
for no-action letter in which the Trust or the Distributor is named
contemporaneously with the filing of such document with the Commission.
The Company shall furnish, or shall cause to be furnished, to the Trust
or its designee each piece of sales literature or other promotional
material in which the Trust or the Distributor is named, at least five
Business Days prior to its use. No such material shall be used if the
Trust or its designee reasonably objects to such use within three
Business Days after receipt of such material.
2.8. The Company shall not give any information or make any representations
or statements on behalf of the Trust or concerning the Trust or the
Distributor in connection with the sale of the Contracts other than
information or representations contained in and accurately derived from
the registration statement or prospectus for the Trust shares (as such
registration statement and prospectus may be amended or supplemented
from time to time), annual and semi-annual reports of the Trust,
Trust-sponsored proxy statements, or in sales literature or other
promotional material approved by the Trust or its designee, except as
required by legal process or regulatory authorities or with the prior
written permission of the Trust, the Distributor or their respective
designees. The Trust and the Distributor agree to respond to any
request for approval on a prompt and timely basis. The Company shall
adopt and implement procedures reasonably designed to ensure that
"broker only" materials including information therein about the Trust
or the Distributor are not distributed to existing or prospective
Contract owners.
2.9. The Trust shall use its best efforts to provide the Company, on a
timely basis, with such information about the Trust, the Portfolios and
the Distributor, in such form as the Company may reasonably require, as
the Company shall reasonably request in connection with the preparation
of registration statements, prospectuses and annual and semi-annual
reports pertaining to the Contracts.
2.10. The Trust and the Distributor shall not give, and agree that no
affiliate of either of them shall give, any information or make any
representations or statements on behalf of the Company or concerning
the Company, the Accounts or the Contracts other than information or
representations contained in and accurately derived from the
registration statement or prospectus for the Contracts (as such
registration statement and prospectus may be amended or supplemented
from time to time), or in materials approved by the Company for
distribution including sales literature or other promotional materials,
except as required by legal process or regulatory authorities or with
the prior written permission of the Company. The Company agrees to
respond to any request for approval on a prompt and timely basis.
2.11. So long as, and to the extent that, the Commission interprets the 1940
Act to require pass-through voting privileges for Contract owners, the
Company will provide pass-through voting privileges to Contract owners
whose cash values are invested, through the registered Accounts, in
shares of one or more Portfolios of the Trust. The Trust shall require
all Participating Insurance Companies to calculate voting privileges in
the same manner and the Company shall be responsible for assuring that
the Accounts calculate voting privileges in the manner established by
the Trust. With respect to each registered Account, the Company will
vote shares of each Portfolio of the Trust held by a registered Account
and for which no timely voting instructions from Contract owners are
received in the same proportion as those shares for which voting
instructions are received. The Company and its agents will in no way
recommend or oppose or interfere with the solicitation of proxies for
Portfolio shares held to fund the Contacts without the prior written
consent of the Trust, which consent may be withheld in the Trust's sole
discretion. The Company reserves the right, to the extent permitted by
law, to vote shares held in any Account in its sole discretion.
2.12. The Company and the Trust will each provide to the other information
about the results of any regulatory examination relating to the
Contracts or the Trust, including relevant portions of any "deficiency
letter" and any response thereto.
2.13. No compensation shall be paid by the Trust to the Company, or by the
Company to the Trust, under this Agreement (except for specified
expense reimbursements). However, nothing herein shall prevent the
parties hereto from otherwise agreeing to perform, and arranging for
appropriate compensation for, other services relating to the Trust, the
Accounts or both.
ARTICLE III.
Representations and Warranties
3.1. The Company represents and warrants that it is an insurance company
duly organized and in good standing under the laws of the State of
Minnesota and that it has legally and validly established each Account
as a segregated asset account under such law as of the date set forth
in Schedule A, and that NALAC Financial Plans LLC, the principal
underwriter for the Contracts, is registered as a broker-dealer under
the Securities Exchange Act of 1934 and is a member in good standing of
the National Association of Securities Dealers, Inc.
3.2. The Company represents and warrants that it has registered or, prior to
any issuance or sale of the Contracts, will register each Account as a
unit investment trust in accordance with the provisions of the 1940 Act
and cause each Account to remain so registered to serve as a segregated
asset account for the Contracts, unless an exemption from registration
is available.
3.3. The Company represents and warrants that the Contracts will be
registered under the 1933 Act unless an exemption from registration is
available prior to any issuance or sale of the Contracts; the Contracts
will be issued and sold in compliance in all material respects with all
applicable federal and state laws; and the sale of the Contracts shall
comply in all material respects with state insurance law suitability
requirements.
3.4. The Trust represents and warrants that it is duly organized and validly
existing under the laws of the Commonwealth of Massachusetts and that
it does and will comply in all material respects with the 1940 Act and
the rules and regulations thereunder.
3.5. The Trust and the Distributor represent and warrant that the Portfolio
shares offered and sold pursuant to this Agreement will be registered
under the 1933 Act and sold in accordance with all applicable federal
and state laws, and the Trust shall be registered under the 1940 Act
prior to and at the time of any issuance or sale of such shares. The
Trust shall amend its registration statement under the 1933 Act and the
1940 Act from time to time as required in order to effect the
continuous offering of its shares. The Trust shall register and qualify
its shares for sale in accordance with the laws of the various states
only if and to the extent deemed advisable by the Trust.
3.6. The Trust represents and warrants that the investments of each
Portfolio will comply with the diversification requirements for
variable annuity, endowment or life insurance contracts set forth in
Section 817(h) of the Internal Revenue Code of 1986, as amended (the
"Code"), and the rules and regulations thereunder, including without
limitation Treasury Regulation 1.817-5, and will notify the Company
immediately upon having a reasonable basis for believing any Portfolio
has ceased to comply or might not so comply and will immediately take
all reasonable steps to adequately diversify the Portfolio to achieve
compliance within the grace period afforded by Regulation 1.817-5.
3.7. The Trust represents and warrants that it is currently qualified as a
"regulated investment company" under Subchapter M of the Code, that it
will make every effort to maintain such qualification and will notify
the Company immediately upon having a reasonable basis for believing it
has ceased to so qualify or might not so qualify in the future.
3.8. The Trust represents and warrants that it, its directors, officers,
employees and others dealing with the money or securities, or both, of
a Portfolio shall at all times be covered by a blanket fidelity bond or
similar coverage for the benefit of the Trust in an amount not less
than the minimum coverage required by Rule 17g-1 or other applicable
regulations under the 1940 Act. Such bond shall include coverage for
larceny and embezzlement and be issued by a reputable bonding company.
3.9. The Distributor represents and warrants that it is duly organized and
validly existing under the laws of the State of Delaware and that it is
registered, and will remain registered, during the term of this
Agreement, as a broker-dealer under the Securities Exchange Act of 1934
and is a member in good standing of the National Association of
Securities Dealers, Inc.
ARTICLE IV.
Potential Conflicts
4.1. The parties acknowledge that a Portfolio's shares may be made available
for investment to other Participating Insurance Companies. In such
event, the Trustees will monitor the Trust for the existence of any
material irreconcilable conflict between the interests of the contract
owners of all Participating Insurance Companies. A material
irreconcilable conflict may arise for a variety of reasons, including:
(a) an action by any state insurance regulatory authority; (b) a change
in applicable federal or state insurance, tax or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar action by insurance, tax, or
securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in
voting instructions given by variable annuity contract and variable
life insurance contract owners; or (f) a decision by an insurer to
disregard the voting instructions of contract owners. The Trust shall
promptly inform the Company of any determination by the Trustees that a
material irreconcilable conflict exists and of the implications
thereof.
4.2. The Company agrees to report promptly any potential or existing
conflicts of which it is aware to the Trustees. The Company will assist
the Trustees in carrying out their responsibilities under the Shared
Funding Exemptive Order by providing the Trustees with all information
reasonably necessary for and requested by the Trustees to consider any
issues raised including, but not limited to, information as to a
decision by the Company to disregard Contract owner voting
instructions. All communications from the Company to the Trustees may
be made in care of the Trust.
4.3. If it is determined by a majority of the Trustees, or a majority of the
disinterested Trustees, that a material irreconcilable conflict exists
that affects the interests of contract owners, the Company shall, in
cooperation with other Participating Insurance Companies whose contract
owners are also affected, at its own expense and to the extent
reasonably practicable (as determined by the Trustees) take whatever
steps are necessary to remedy or eliminate the material irreconcilable
conflict, which steps could include: (a) withdrawing the assets
allocable to some or all of the Accounts from the Trust or any
Portfolio and reinvesting such assets in a different investment medium,
including (but not limited to) another Portfolio of the Trust, or
submitting the question of whether or not such segregation should be
implemented to a vote of all affected Contract owners and, as
appropriate, segregating the assets of any appropriate group (i.e.,
annuity contract owners, life insurance contract owners, or variable
contract owners of one or more Participating Insurance Companies) that
votes in favor of such segregation, or offering to the affected
Contract owners the option of making such a change; and (b)
establishing a new registered management investment company or managed
separate account.
4.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard Contract owner voting instructions and that
decision represents a minority position or would preclude a majority
vote, the Company may be required, at the Trust's election, to withdraw
the affected Account's investment in the Trust and terminate this
Agreement with respect to such Account; provided, however that such
withdrawal and termination shall be limited to the extent required by
the foregoing material irreconcilable conflict as determined by a
majority of the disinterested Trustees. Any such withdrawal and
termination must take place within six (6) months after the Trust gives
written notice that this provision is being implemented. Until the end
of such six (6) month period, the Trust shall continue to accept and
implement orders by the Company for the purchase and redemption of
shares of the Trust.
4.5. If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw
the affected Account's investment in the Trust and terminate this
Agreement with respect to such Account within six (6) months after the
Trustees inform the Company in writing that the Trust has determined
that such decision has created a material irreconcilable conflict;
provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested Trustees.
Until the end of such six (6) month period, the Trust shall continue to
accept and implement orders by the Company for the purchase and
redemption of shares of the Trust.
4.6. For purposes of Section 4.3 through 4.6 of this Agreement, a majority
of the disinterested Trustees shall determine whether any proposed
action adequately remedies any material irreconcilable conflict, but in
no event will the Trust be required to establish a new funding medium
for any Contract. The Company shall not be required to establish a new
funding medium for the Contracts if an offer to do so has been declined
by vote of a majority of Contract owners materially adversely affected
by the material irreconcilable conflict. In the event that the Trustees
determine that any proposed action does not adequately remedy any
material irreconcilable conflict, then the Company will withdraw the
Account's investment in the Trust and terminate this Agreement within
six (6) months after the Trustees inform the Company in writing of the
foregoing determination; provided, however, that such withdrawal and
termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested Trustees.
4.7. The Company shall at least annually submit to the Trustees such
reports, materials or data as the Trustees may reasonably request so
that the Trustees may fully carry out the duties imposed upon them by
the Shared Funding Exemptive Order, and said reports, materials and
data shall be submitted more frequently if reasonably deemed
appropriate by the Trustees.
4.8. If and to the extent that Rule 6e-3(T) is amended, or Rule 6e-3 is
adopted, to provide exemptive relief from any provision of the 1940 Act
or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Shared
Funding Exemptive Order, then the Trust and/or the Participating
Insurance Companies, as appropriate, shall take such steps as may be
necessary to comply with Rule 6e-3(T), as amended, or Rule 6e-3, as
adopted, to the extent such rules are applicable.
ARTICLE V.
Indemnification
5.1. Indemnification By the Company. The Company agrees to indemnify and
hold harmless the Distributor, the Trust and each of its Trustees,
officers, employees and agents and each person, if any, who controls
the Trust within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section
5.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Company, which consent shall not be unreasonably withheld) or expenses
(including the reasonable costs of investigating or defending any
alleged loss, claim, damage, liability or expense and reasonable legal
counsel fees incurred in connection therewith) (collectively,
"Losses"), to which the Indemnified Parties may become subject under
any statute or regulation, or at common law or otherwise, insofar as
such Losses are related to the sale or acquisition of the Contracts or
Trust shares and:
(a) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in a
registration statement or prospectus for the Contracts or in
the Contracts themselves or in sales literature generated or
approved by the Company on behalf of the Contracts or Accounts
(or any amendment or supplement to any of the foregoing)
(collectively, "Company Documents" for the purposes of this
Article V), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading, provided that this indemnity shall not
apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in
reliance upon and was accurately derived from written
information furnished to the Company by or on behalf of the
Trust for use in Company Documents or otherwise for use in
connection with the sale of the Contracts or Trust shares; or
(b) arise out of or result from statements or representations
(other than statements or representations contained in and
accurately derived from Trust Documents as defined in Section
5.2(a)) or wrongful conduct of the Company or persons under
its control, with respect to the sale or acquisition of the
Contracts or Trust shares; or
(c) arise out of or result from any untrue statement or
alleged untrue statement of a material fact contained in Trust
Documents as defined in Section 5.2(a) or the omission or
alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein
not misleading if such statement or omission was made in
reliance upon and accurately derived from written information
furnished to the Trust by or on behalf of the Company; or
(d) arise out of or result from any failure by the Company to
provide the services or furnish the materials required under
the terms of this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company; or
(f) arise out of or result from the provision by the Company
to the Trust of insufficient or incorrect information
regarding the purchase or sale of shares of any Portfolio, or
the failure of the Company to provide such information on a
timely basis.
5.2. Indemnification by the Distributor. The Distributor agrees to indemnify
and hold harmless the Company and each of its directors, officers,
employees, and agents and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for the purposes of this Section 5.2) against any
and all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Distributor, which consent
shall not be unreasonably withheld) or expenses (including the
reasonable costs of investigating or defending any alleged loss, claim,
damage, liability or expense and reasonable legal counsel fees incurred
in connection therewith) (collectively, "Losses"), to which the
Indemnified Parties may become subject under any statute or regulation,
or at common law or otherwise, insofar as such Losses are related to
the sale or acquisition of the Contracts or Trust shares and:
(a) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
the registration statement or prospectus for the Trust (or any
amendment or supplement thereto) (collectively, "Trust
Documents" for the purposes of this Article V), or arise out
of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading,
provided that this indemnity shall not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and
was accurately derived from written information furnished to
the Distributor or the Trust by or on behalf of the Company
for use in Trust Documents or otherwise for use in connection
with the sale of the Contracts or Trust shares; or
(b) arise out of or result from statements or representations
(other than statements or representations contained in and
accurately derived form Company Documents) or wrongful conduct
of the Distributor or persons under its control, with respect
to the sale or acquisition of the Contracts or Portfolio
shares; or
(c) arise out of or result from any untrue statement or
alleged untrue statement of a material fact contained in
Company Documents or the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading if
such statement or omission was made in reliance upon and
accurately derived from written information furnished to the
Company by or on behalf of the Trust; or
(d) arise out of or result from any failure by the Distributor
or the Trust to provide the services or furnish the materials
required under the terms of this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Distributor or the
Trust in this Agreement or arise out of or result from any
other material breach of this Agreement by the Distributor or
the Trust.
5.3. None of the Company, the Trust or the Distributor shall be liable under
the indemnification provisions of Sections 5.1 or 5.2, as applicable,
with respect to any Losses incurred or assessed against an Indemnified
Party that arise from such Indemnified Party's willful misfeasance, bad
faith or negligence in the performance of such Indemnified Party's
duties or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this Agreement.
5.4. None of the Company, the Trust or the Distributor shall be liable under
the indemnification provisions of Sections 5.1 or 5.2, as applicable,
with respect to any claim made against an Indemnified party unless such
Indemnified Party shall have notified the other party in writing within
a reasonable time after the summons, or other first written
notification, giving information of the nature of the claim shall have
been served upon or otherwise received by such Indemnified Party (or
after such Indemnified Party shall have received notice of service upon
or other notification to any designated agent), but failure to notify
the party against whom indemnification is sought of any such claim
shall not relieve that party from any liability which it may have to
the Indemnified Party in the absence of Sections 5.1 and 5.2.
5.5. In case any such action is brought against an Indemnified Party, the
indemnifying party shall be entitled to participate, at its own
expense, in the defense of such action. The indemnifying party also
shall be entitled to assume the defense thereof, with counsel
reasonably satisfactory to the party named in the action. After notice
from the indemnifying party to the Indemnified Party of an election to
assume such defense, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the indemnifying
party will not be liable to the Indemnified Party under this Agreement
for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than
reasonable costs of investigation.
ARTICLE VI.
Termination
6.1. This Agreement shall terminate:
(a) at the option of any party upon 6 months advance written
notice to the other parties, unless a shorter time is agreed
to by the parties;
(b) at the option of the Trust or the Distributor if the
Contracts issued by the Company cease to qualify as annuity
contracts or life insurance contracts, as applicable, under
the Code ( unless disqualification is caused by the Trust or
the Distributor) or if the Contracts are not registered,
issued or sold in accordance with applicable state and/or
federal law; or
(c) at the option of any party upon a determination by a
majority of the Trustees of the Trust, or a majority of its
disinterested Trustees, that a material irreconcilable
conflict exists; or
(d) at the option of the Company upon institution of formal
proceedings against the Trust or the Distributor by the NASD,
the SEC, or any state securities or insurance department or
any other regulatory body regarding the Trust's or the
Distributor's duties under this Agreement or related to the
sale of Trust shares or the operation of the Trust; or
(e) at the option of the Company if the Trust or a Portfolio
fails to meet the diversification requirements specified in
Section 3.6 hereof; or
(f) at the option of the Company if shares of the Series are
not reasonably available to meet the requirements of the
Variable Contracts issued by the Company, as determined by the
Company, and upon prompt notice by the Company to the other
parties; or
(g) at the option of the Company in the event any of the
shares of the Portfolio are not registered, issued or sold in
accordance with applicable state and/or federal law, or such
law precludes the use of such shares as the underlying
investment media of the Variable Contracts issued or to be
issued by the Company; or
(h) at the option of the Company, if the Portfolio fails to
qualify as a Regulated Investment Company under Subchapter M
of the Code; or
(i) at the option of the Distributor if it shall determine in
its sole judgment exercised in good faith, that the Company
and/or its affiliated companies has suffered a material
adverse change in its business, operations, financial
condition or prospects since the date of this Agreement or is
the subject of material adverse publicity.
6.2. Notwithstanding any termination of this Agreement, the Trust shall, at
the option of the Company, continue to make available additional shares
of any Portfolio and redeem shares of any Portfolio pursuant to the
terms and conditions of this Agreement for all Contracts in effect on
the effective date of termination of this Agreement.
6.3. The provisions of Article V and all warranties under Article III shall
survive the termination of this Agreement, and the provisions of
Article IV and Section 2.9 shall survive the termination of this
Agreement as long as shares of the Trust are held on behalf of Contract
owners in accordance with Section 6.2.
ARTICLE VII.
Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Trust or its Distributor:
Fred Alger Management, Inc.
30 Montgomery Street
Jersey City, NJ 07302
Attn: Gregory S. Duch
If to the Company:
Preferred Life Insurance Company of New York
152 West 57th Street, 18th Floor
New York, NY 10019
Attn: Eugene K. Long
ARTICLE VIII.
Miscellaneous
8.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
8.2. This Agreement may be executed in two or more counterparts, each of
which taken together shall constitute one and the same instrument.
8.3. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
8.4. This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of New York. It
shall also be subject to the provisions of the federal securities laws
and the rules and regulations thereunder and to any orders of the
Commission granting exemptive relief therefrom and the conditions of
such orders.
Copies of any such orders shall be promptly forwarded by the Trust to
the Company.
8.5. All liabilities of the Trust arising, directly or indirectly, under
this Agreement, of any and every nature whatsoever, shall be satisfied
solely out of the assets of the Trust and no Trustee, officer, agent or
holder of shares of beneficial interest of the Trust shall be
personally liable for any such liabilities.
8.6. Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the Commission,
the National Association of Securities Dealers, Inc. and state
insurance regulators) and shall permit such authorities reasonable
access to its books and records in connection with any investigation or
inquiry relating to this Agreement or the transactions contemplated
hereby.
8.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled
to under state and federal laws.
8.8. This Agreement shall not be exclusive in any respect.
8.9. Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the prior written approval of the
other party.
8.10. No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed
by both parties.
8.11. Each party hereto shall, except as required by law or otherwise
permitted by this Agreement, treat as confidential the names and
addresses of the owners of the Contracts and all information reasonably
identified as confidential in writing by any other party hereto, and
shall not disclose such confidential information without the written
consent of the affected party unless such information has become
publicly available.
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Participation Agreement as of the date and year first
above written.
Fred Alger & Company, Incorporated
By:___/s/ Gregory S. Duch___________
Name: Gregory S. Duch
Title: Executive Vice President
The Alger American Fund
By:___/s/ Gregory S. Duch___________
Name: Gregory S. Duch
Title: Treasurer
Preferred Life Insurance Company of New York
By:___/s/ Michael T. Westermeyer____________
Name: Michael T. Westermeyer
Title: Secretary
SCHEDULE A
The Accounts:
Variable Account C
The Portfolios:
The Alger American Fund:
Alger American Growth Portfolio
Alger American Leveraged AllCap Portfolio
PARTICIPATION AGREEMENT
THIS AGREEMENT is made this 6th day of October, 1999, by and among
USAllianz Insurance Variable Products Trust (the "Trust"), an open-end
management investment company organized as a Delaware Business Trust, Preferred
Life Insurance Company of New York, a life insurance company organized as a
corporation under the laws of the State of New York, (the "Company"), on its own
behalf and on behalf of each segregated asset account of the Company set forth
in Schedule A, as may be amended from time to time (the "Accounts"), and BISYS
Fund Services Limited Partnership, the Trust's distributor (the "Distributor").
WHEREAS, the Trust is registered with the Securities and Exchange
Commission (the "Commission") as an open-end management investment company under
the Investment Company Act of 1940, as amended (the "1940 Act").
WHEREAS, the Trust and the Distributor desire that Trust shares be used
as an investment vehicle for separate accounts established for variable life
insurance policies and variable annuity contracts to be offered by life
insurance companies which have entered into fund participation agreements with
the Trust (the "Participating Insurance Companies");
WHEREAS, the Company has registered or will register under the 1940 Act
certain variable life insurance policies and variable annuity contracts, set
forth in Schedule A, to be issued by the Company under which the Portfolios are
to be made as investment vehicles (the "Contracts);
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act unless an exemption from registration
under the 1940 Act is available and the Trust has been so advised;
WHEREAS, the Company desires to use shares of the Portfolios indicated on
Schedule A as investment vehicles for the Accounts;
NOW THEREFORE, in consideration of their mutual promises, the parties
agree as follows:
ARTICLE I.
Purchase and Redemption of Trust Portfolio Shares
1.1. For purposes of this Article I, the Company shall be the Trust's agent
for the receipt from each account of purchase orders and requests for
redemption pursuant to the Contracts relating to each Portfolio, provided
that the Company notifies the Trust of such purchase orders and requests
for redemption by 8:30 a.m. Eastern time on the next following Business
Day, as defined in Section 1.3.
1.2. The Trust shall make shares of the Portfolios available to the Accounts
at the net asset value next computed after receipt of a purchase order by
the Trust ( or its agent), as established in accordance with the
provisions of the then current prospectus of the Trust describing
Portfolio purchase procedures. The Company will transmit orders from time
to time to the Trust for the purchase and redemption of shares of the
Portfolios. The Trustees of the Trust (the "Trustees") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the
offering of shares of any Portfolio if such action is required by law or
by regulatory authorities having jurisdiction or if, in the sole
discretion of the Trustees acting in good faith and in light of their
fiduciary duties under Federal and any applicable state laws, such action
is deemed in the best interests of the shareholders of such Portfolio.
1.3. The Company shall pay for the purchase of shares of a Portfolio on behalf
of an Account with federal funds to be transmitted by wire to the Trust,
with the reasonable expectation of receipt by the Trust by 4:00 p.m.
Eastern time on the same Business Day that the Trust (or its agent)
receives the purchase order. Upon receipt by the Trust of the federal
funds so wired, such funds shall cease to be the responsibility of the
Company and shall become the responsibility of the Trust for this
purpose. "Business Day" shall mean any day on which the New York Stock
Exchange is open for trading and on which the Trust calculates its net
asset value pursuant to the rules of the Commission.
1.4. The Trust will redeem for cash any full or fractional shares of any
Portfolio, when requested by the Company on behalf of an Account, at the
net asset value next computed after receipt by the Trust (or its agent)
of the request for redemption, as established in accordance with the
provisions of the then current prospectus of the Trust describing
Portfolio redemption procedures. The Trust shall make payment for such
shares in the manner established from time to time by the Trust. Proceeds
of redemption with respect to a Portfolio will normally be paid to the
Company for an Account in federal funds transmitted by wire to the
Company by order of the Trust with the reasonable expectation of receipt
by the Company by 4:00 p.m. Eastern time on the same Business Day that
the Trust (or its agent) receives the request for redemption. Such
payment may be delayed if, for example, the Portfolio's cash position so
requires or if extraordinary market conditions exist, but in no event
shall payment be delayed for a greater period than is permitted by the
1940 Act. The Trust reserves the right to suspend the right of
redemption, consistent with Section 22(3) of the 1940 Act and any rules
thereunder.
1.5. Payments for the purchase of shares of the Trust's Portfolios by the
Company under Section 1.3 and payments for the redemption of shares of
the Trust's Portfolios under Section 1.4 on any Business Day may be
netted against one another for the purpose of determining the amount of
any wire transfer.
1.6. Issuance and transfer of the Trust's Portfolio shares will be by book
entry only. Stock certificates will not be issued to the Company or the
Accounts. Portfolio Shares purchased from the Trust will be recorded in
the appropriate title for each Account or the appropriate subaccount of
each account.
1.7. The Trust shall furnish, on or before the ex-dividend date, notice to the
Company of any income dividends or capital gain distributions payable on
the shares of any Portfolio of the Trust. The Company hereby elects to
receive all such income dividends and capital gain distributions as are
payable on a Portfolio's shares in additional shares of that Portfolio.
The Trust shall notify the Company of the number of shares so issued as
payment of such dividends and distributions.
1.8. The Trust shall calculate the net asset value of each Portfolio on each
Business Day, as defined in Section 1.3. The Trust shall make the net
asset value per share for each Portfolio available to the Company or its
designated agent on a daily basis as soon as reasonably practical after
the net asset value per share is calculated and shall use its best
efforts to make such net asset value per share available to the Company
by 6:30 p.m. Eastern time each Business Day. If the Trust provides
materially incorrect share net asset value information, the number of
shares purchased or redeemed shall be adjusted to reflect the correct net
asset value per share. Any material error in the calculation or reporting
of net asset value per share, dividend or capital gain information shall
be reported promptly upon discovery to the Company.
1.9. The Trust agrees that its Portfolio shares will be sold only to
Participating Insurance Companies and their segregated asset accounts, to
the Fund Sponsor or its affiliates and to such other entities as any be
permitted by Section 817(h) of the Code, the regulations hereunder, or
judicial or administrative interpretations thereof. No shares of any
Portfolio will be sold directly to the general public. The Company agrees
that it will use Trust shares only for the purposes of funding the
Contracts through the Accounts listed in Schedule A, as amended from time
to time.
1.10. The Trust agrees that all Participating Insurance Companies shall have
the obligations and responsibilities regarding pass-through voting and
conflicts of interest corresponding materially to those contained in
Section 2.11 and Article IV of this Agreement.
ARTICLE II.
Obligations of the Parties
2.1. The Trust shall prepare and file with the Commission a registration
statement under the Securities Act of 1933 as amended (the "1933 Act")
and this Agreement shall not be effective until such registration has
been declared effective by the Commission.
2.2. The Trust shall prepare and be responsible for filing with the Commission
and any state regulators requiring such filing all shareholder reports,
notices, proxy materials (or similar materials such as voting instruction
solicitation materials), prospectuses and statements of additional
information of the Trust. The Trust shall bear the costs of registration
and qualification of shares of the Portfolios, preparation and filing of
the documents listed in this Section 2.2 and all taxes to which an issuer
is subject on the issuance and transfer of its shares.
2.3. The Company shall distribute such prospectuses, proxy statements and
periodic reports of the Trust to the Contract owners as required to be
distributed to such Contract owners under applicable federal or state
law.
2.4. The Trust shall provide such documentation (including a final copy of the
Trust's prospectus as set in type or in camera-ready copy) and other
assistance as is reasonably necessary in order for the Company to print
together in one document the current prospectus for the Contracts issued
by the Company and the current prospectus for the Trust. The Trust shall
bear the expense of printing copies of its current prospectus that will
be distributed to existing Contract owners, and the Company shall bear
the expense of printing copies of the Trust's prospectus that are used in
connection with offering the Contracts issued by the Company.
2.5. The Trust and the Distributor shall provide (1) at the Trust's expense,
one copy of the Trust's current Statement of Additional Information
("SAI") to the Company and to any Contract owner who requests such SAI,
(2) at the Company's expense, such additional copies of the Trust's
current SAI as the Company shall reasonably request and that the Company
shall require in accordance with applicable law in connection with
offering the Contracts issued by the Company.
2.6. The Trust, at its expense, shall provide the Company with copies of its
proxy material, periodic reports to shareholders and other communications
to shareholders in such quantity as the Company shall reasonably require
for purposes of distributing to Contract owners. The Trust, at the
Company's expense, shall provide the Company with copies of its periodic
reports to shareholders and other communications to shareholders in such
quantity as the Company shall reasonably request for use in connection
with offering the Contracts issued by the Company. If requested by the
Company in lieu thereof, the Trust shall provide such documentation
(including a final copy of the Trust's proxy materials, periodic reports
to shareholders and other communications to shareholders, as set in type
or in camera-ready copy) and other assistance as reasonably necessary in
order for the Company to print such shareholder communications for
distribution to Contract owners.
2.7. The Company shall furnish, or cause to be furnished, to the Trust or its
designee a copy of each Contract prospectus and/or statement of
additional information describing the Contracts, each report to Contract
owners, proxy statement, application for exemption or request for
no-action letter in which the Trust or the Distributor is named
contemporaneously with the filing of such document with the Commission.
The Company shall furnish, or shall cause to be furnished, to the Trust
or its designee each piece of sales literature or other promotional
material in which the Trust or the Distributor is named, at least five
Business Days prior to its use. No such material shall be used if the
Trust or its designee reasonably objects to such use within three
Business Days after receipt of such material.
2.8. The Company shall not give any information or make any representations or
statements on behalf of the Trust or concerning the Trust or the
Distributor in connection with the sale of the Contracts other than
information or representations contained in and accurately derived from
the registration statement or prospectus for the Trust shares (as such
registration statement and prospectus may be amended or supplemented from
time to time), annual and semi-annual reports of the Trust,
Trust-sponsored proxy statements, or in sales literature or other
promotional material approved by the Trust or its designee, except as
required by legal process or regulatory authorities or with the prior
written permission of the Trust, the Distributor or their respective
designees. The Trust and the Distributor agree to respond to any request
for approval on a prompt and timely basis. The Company shall adopt and
implement procedures reasonably designed to ensure that "broker only"
materials including information therein about the Trust or the
Distributor are not distributed to existing or prospective Contract
owners.
2.9. The Trust shall use its best efforts to provide the Company, on a timely
basis, with such information about the Trust, the Portfolios and the
Distributor, in such form as the Company may reasonably require, as the
Company shall reasonably request in connection with the preparation of
registration statements, prospectuses and annual and semi-annual reports
pertaining to the Contracts.
2.10. The Trust and the Distributor shall not give, and agree that no affiliate
of either of them shall give, any information or make any representations
or statements on behalf of the Company or concerning the Company, the
Accounts or the Contracts other than information or representations
contained in and accurately derived from the registration statement or
prospectus for the Contracts (as such registration statement and
prospectus may be amended or supplemented from time to time), or in
materials approved by the Company for distribution including sales
literature or other promotional materials, except as required by legal
process or regulatory authorities or with the prior written permission of
the Company. The Company agrees to respond to any request for approval on
a prompt and timely basis.
2.11. So long as, and to the extent that, the Commission interprets the 1940
Act to require pass-through voting privileges for Contract owners, the
Company will provide pass-through voting privileges to Contract owners
whose cash values are invested, through the registered Accounts, in
shares of one or more Portfolios of the Trust. The Trust shall require
all Participating Insurance Companies to calculate voting privileges in
the same manner and the Company shall be responsible for assuring that
the Accounts calculate voting privileges in the manner established by the
Trust. With respect to each registered Account, the Company will vote
shares of each Portfolio of the Trust held by a registered Account and
for which no timely voting instructions from Contract owners are received
in the same proportion as those shares for which voting instructions are
received. The Company and its agents will in no way recommend or oppose
or interfere with the solicitation of proxies for Portfolio shares held
to fund the Contracts without the prior written consent of the Trust,
which consent may be withheld in the Trust's sole discretion. The Company
reserves the right, to the extent permitted by law, to vote shares held
in any Account in its sole discretion.
2.12. The Company and the Trust will each provide to the other information
about the results of any regulatory examination relating to the Contracts
or the Trust, including relevant portions of any "deficiency letter" and
any response thereto.
2.13. No compensation shall be paid by the Trust to the Company, or by the
Company to the Trust, under this Agreement (except for specified expense
reimbursements). However, nothing herein shall prevent the parties hereto
from otherwise agreeing to perform, and arranging for appropriate
compensation for, other services relating to the Trust, the Accounts or
both.
2.14. The Company shall take all such actions as are necessary under applicable
federal and state law to permit the sale of the Contracts issued by the
Company, including registering each Account as an investment company to
the extent required under the 1940 Act, and registering the Contracts or
interests in the Accounts under the Contracts to the extent required
under the 1933 Act, and obtaining all necessary approvals to offer the
Contracts from state insurance commissioners.
2.15. The Company shall make every effort to maintain the treatment of the
Contracts issued by the Company as annuity contracts or life insurance
policies, whichever is appropriate, under applicable provisions of the
Code, and shall notify the Trust and the Distributor immediately upon
having a reasonable basis for believing that such Contracts have ceased
to be so treated or that they might not be so treated in the future.
2.16. The Company shall offer and sell the Contracts issued by the Company in
accordance with the applicable provisions of the 1933 Act, the Securities
Exchange Act of 1934, as amended (the "1934 Act"), the 1940 Act, the NASD
Rules of Fair Practice, and state law respecting the offering of variable
life insurance policies and variable annuity contracts.
2.17. The Distributor shall sell and distribute the shares of the Portfolios of
the Fund in accordance with the applicable provisions of the 1933 Act,
the 1934 Act, the 1940 Act, the NASD Rules of Fair Practice, and state
law.
2.18. Each party hereby shall cooperate with each other party and all
appropriate governmental authorities having jurisdiction (including,
without limitation, the SEC, the NASD, and state insurance regulators)
and shall permit such authorities reasonable access to its books and
records in connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
ARTICLE III.
Representations and Warranties
3.1. The Company represents and warrants that it is an insurance company duly
organized and in good standing under the laws of the State of New York
and that it has legally and validly established each Account as a
segregated asset account under such law as of the date set forth in
Schedule A, and that USAllianz Investor Services, LLC, the principal
underwriter for the Contracts, is registered as a broker-dealer under the
1934 Act and is a member in good standing of the National Association of
Securities Dealers, Inc.
3.2. The Company represents and warrants that it has registered or, prior to
any issuance or sale of the Contracts, will register each Account as a
unit investment trust in accordance with the provisions of the 1940 Act
and cause each Account to remain so registered to serve as a segregated
asset account for the Contracts, unless an exemption from registration is
available.
3.3. The Company represents and warrants that the Contracts will be registered
under the 1933 Act unless an exemption from registration is available
prior to any issuance or sale of the Contracts; the Contracts will be
issued and sold in compliance in all material respects with all
applicable federal and state laws; and the sale of the Contracts shall
comply in all material respects with state insurance law suitability
requirements.
3.4. the Trust represents and warrants that it is duly organized and validly
existing under the laws of the State of Delaware and that it does and
will comply in all material respects with the 1940 Act and the rules and
regulations thereunder.
3.5. The Trust represents and warrants that the Portfolio shares offered and
sold pursuant to this Agreement will be registered under the 1933 Act and
sold in accordance with all applicable federal and state laws, and the
Trust shall be registered under the 1940 Act prior to and at the time of
any issuance or sale of such shares. The Trust shall amend its
registration statement under the 1933 Act and the 1940 Act from time to
time as required in order to effect the continuous offering of its
shares. The Trust shall register and qualify its shares for sale in
accordance with the laws of the various states only if and to the extent
deemed advisable by the Trust.
3.6. The Trust represents and warrants that the investments of each Portfolio
will comply with the diversification requirements for variable annuity,
endowment or life insurance contracts set forth in Section 817(h) of the
Internal Revenue Code of 1986, as amended (the "Code", and the rules and
regulations thereunder, including without limitation Treasury Regulation
1.817-5), and will notify the Company immediately upon having a
reasonable basis for believing any Portfolio has ceased to comply or
might not so comply and will immediately take all reasonable steps to
adequately diversify the Portfolio to achieve compliance within the grace
period afforded by Regulation 1.817-5.
3.7. The Trust represents and warrants that it is currently qualified as a
"regulated investment company" under Subchapter M of the Code, that it
will make every effort to maintain such qualification and will notify the
Company immediately upon having a reasonable basis for believing it has
ceased to so qualify or might not so qualify in the future.
3.8. The Trust represents and warrants that it, its directors, officers,
employees and others dealing with the money or securities, or both, of a
Portfolio shall at all times be covered by a blanket fidelity bond or
similar coverage for the benefit of the Trust in an amount not less than
the minimum coverage required by Rule 17g-1 or other applicable
regulations under the 1940 Act. Such bond shall include coverage for
larceny and embezzlement and be issued by a reputable bonding company.
3.9. The Distributor represents and warrants that it is duly organized and
validly existing under the laws of the State of Ohio and that it is
registered, and will remain registered, during the term of this
Agreement, as a broker-dealer under the 1934 Act and is a member in good
standing of the National Association of Securities Dealers, Inc.
ARTICLE IV.
Potential Conflicts
(This article intentionally left blank)
ARTICLE V.
Indemnification
5.1. Indemnification By the Company. The Company agrees to indemnify and hold
harmless the Distributor, the Trust and each of its Trustees, officers,
employees and agents and each person, if any, who controls the Trust
within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 5.1) against any and
all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Company, which consent shall
not be unreasonably withheld) or expenses (including the reasonable costs
of investigating or defending any alleged loss, claim, damage, liability
or expense and reasonable legal counsel fees incurred in connection
therewith) (collectively, "Losses"), to which the Indemnified Parties may
become subject under any statute or regulation, or at common law or
otherwise, insofar as such Losses are related to the sale or acquisition
of the Contracts or Trust shares and:
(a) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in a registration
statement or prospectus for the Contracts or in the Contracts
themselves or in sales literature generated or approved by the
Company on behalf of the Contracts or accounts (or any amendment
or supplement to any of the foregoing) (collectively, "Company
Documents" for the purposes of this Article V), or arise out of or
are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, provided that this
indemnity shall not apply as to any Indemnified party if such
statement or omission or such alleged statement or omission was
made in reliance upon and was accurately derived from written
information furnished to the Company by or on behalf of the Trust
for use in Company Documents or otherwise for use in connection
with the sale of the Contracts or Trust shares; or
(b) arise out of or result from statements or representations (other
than statements or representations contained in and accurately
derived from Trust Documents as defined in Section 5.2(a)) or
wrongful conduct of the Company or persons under its control, with
respect to the sale or acquisition of the Contracts or Trust
shares; or
(c) arise out of or result from any untrue statement or alleged untrue
statement of a material fact contained in Trust Documents as
defined in Section 5.2(a) or the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading if such
statement or omission was made in reliance upon and accurately
derived from written information furnished to the Trust by or on
behalf of the Company; or
(d) arise out of or result from any failure by the Company to provide
the services or furnish the materials required under the terms of
this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material breach
of this Agreement by the Company; or
(f) arise out of or result from the provision by the Company to the
Trust of insufficient or incorrect information regarding the
purchase or sale of shares of any Portfolio, or the failure of the
Company to provide such information on a timely basis.
5.2. Indemnification by the Distributor. The Distributor agrees to indemnify
and hold harmless the Company and each of its directors, officers,
employees, and agents and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" "or the purposes of this Section 5.2) against any
and all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Distributor, which consent
shall not be unreasonably withheld) or expenses (including the reasonable
costs of investigating or defending any alleged loss, claim, damage,
liability or expense and reasonable legal counsel fees incurred in
connection therewith) (collectively, "Losses"), to which the Indemnified
Parties may become subject under any statute or regulation, or at common
law or otherwise, insofar as such Losses are related to the sale or
acquisition of the Contracts or Trust shares and:
(a) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the
registration statement or prospectus for the Trust (or any
amendment or supplement thereto) (collectively, "Trust Documents"
for the purposes of this Article V), or arise out of or are based
upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading, provided that this
indemnity shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was
made in reliance upon and was accurately derived from written
information furnished to the Distributor or the Trust by or on
behalf of the Company for use in Trust documents or otherwise for
use in connection with the sale of the Contracts or Trust shares;
or
(b) arise out of or result from statements or representations (other
than statements or representations contained in and accurately
derived from Company Documents) or wrongful conduct of the
Distributor or persons under its control, with respect to the sale
or acquisition of the Contracts or Portfolio shares; or
(c) arise out of or result from any untrue statement or alleged untrue
statement of a material fact contained in Company Documents or the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading if such statement or omission was made in
reliance upon and accurately derived from written information
furnished to the Company by or on behalf of the Distributor; or
(d) arise out of or result from any failure by the Distributor to
provide the services or furnish the materials required under the
terms of this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Distributor in this
Agreement or arise out of or result from any other material breach
of this Agreement by the Distributor.
5.3. None of the Company, the Trust or the Distributor shall be liable under
the indemnification provisions of Sections 5.1 or 5.2, as applicable,
with respect to any Losses incurred or assessed against an Indemnified
Party that arise from such Indemnified Party's willful misfeasance, bad
faith or negligence in the performance of such Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this Agreement.
5.4. None of the Company, the Trust or the Distributor shall be liable under
the indemnification provisions of Sections 5.1 or 5.2, as applicable,
with respect to any claim made against an Indemnified party unless such
Indemnified Party shall have notified the other party in writing within a
reasonable time after the summons, or other first written notification,
giving information of the nature of the claim shall have been served upon
or otherwise received by such Indemnified Party (or after such
Indemnified Party shall have received notice of service upon or other
notification to any designated agent), but failure to notify the party
from any liability which it may have to the Indemnified party in the
absence of Sections 5.1 and 5.2.
5.5. In case any such action is brought against an Indemnified Party, the
indemnifying party shall be entitled to participate, at its own expense,
in the defense of such action. The indemnifying party also shall be
entitled to assume the defense thereof, with counsel reasonably
satisfactory to the party named in the action. After notice from the
indemnifying party to the Indemnified Party of an election to assume such
defense, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the indemnifying party will not be
liable to the Indemnified Party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
ARTICLE VI.
Termination
6.1 This Agreement shall terminate:
(a) at the option of any party upon 6 months advance written notice to
the other parties, unless a shorter time is agreed to by the
parties;
(b) at the option of the Trust or the Distributor if the Contracts
issued by the Company cease to qualify as annuity contracts or
life insurance contracts, as applicable, under the Code (unless
disqualification is caused by the Trust or the Distributor) or if
the Contracts are not registered, issued or sold in accordance
with applicable state and/or federal law; or
(c) at the option of any party upon a determination by a majority of
the Trustees of the Trust, or a majority of its disinterested
Trustees, that a material irreconcilable conflict exists; or
(d) at the option of the Company upon institution of formal
proceedings against the Trust or the Distributor by the NASD, the
SEC, or any state securities or insurance department or any other
regulatory body regarding the Trust's or the Distributor's duties
under this Agreement or related to the sale of Trust shares or the
operation of the Trust; or
(e) at the option of the Company if the Trust or a Portfolio fails to
meet the diversification requirements specified in Section 3.6
hereof; or
(f) at the option of the Company if shares of the Series are not
reasonably available to meet the requirements of the Variable
Contracts issued by the Company, as determined by the Company, and
upon prompt notice by the Company to the other parties; or
(g) at the option of the Company in the event any of the shares of the
Portfolio are not registered, issued or sold in accordance with
applicable state and/or federal law, or such law precludes the use
of such shares as the underlying investment media of the Variable
Contracts issued or to be issued by the Company; or
(h) at the option of the Company, if the Portfolio fails to qualify as
a Regulated investment Company under Subchapter M of the Code: or
(i) at the option of the Distributor if it shall determine in its sole
judgment exercised in good faith, that the Company and/or its
affiliated companies has suffered a material adverse change in its
business, operations, financial condition or prospects since the
date of this Agreement or is the subject of material adverse
publicity.
(j) immediately, in the event the Distributor ceases, for any reason,
to act in the capacity of distributor for the Trust and its
shares.
6.2. Notwithstanding any termination of this Agreement, the Trust shall, at
the option of the Company, continue to make available additional shares
of any Portfolio and redeem shares of any Portfolio pursuant to the terms
and conditions of this Agreement for all Contracts in effect on the
effective date of termination of this Agreement.
6.3. The provisions of Article V and all warranties under Article III shall
survive the termination of this Agreement, and the provisions of Article
IV and Section 2.11 shall survive the termination of this Agreement as
long as shares of the Trust are held on behalf of Contract owners in
accordance with Section 6.2.
ARTICLE VII.
Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth
below or at such other address as such party may from time to time
specify in writing to the other party.
If to the Trust:
USAllianz Variable Insurance Products Trust
55 Greens Farms Road
Westport, CT 06881-5160
Attn: David P. Marks
President
If to the Distributor:
BISYS Fund Services Limited Partnership
3435 Stelzer Road
Columbus, Ohio 43219
Attn: William J. Tomko
If to the Company:
Preferred Life Insurance Company of New York
152 West 57th Street, 18th Floor
New York, New York 10019
Attn: Eugene K. Long
Vice President Operations
ARTICLE VIII.
Miscellaneous
8.1. The captions in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
8.2. This Agreement may be executed in two or more counterparts, each of which
taken together shall constitute one and the same instrument.
8.3. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
8.4. This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of New York. It shall
also be subject to the provisions of the federal securities laws and the
rules and regulations thereunder and to any orders of the Commission
granting exemptive relief therefrom and the conditions of such orders.
Copies of any such orders shall be promptly forwarded by the Trust to the
Company.
8.5. All liabilities of the Trust arising, directly or indirectly, under this
Agreement, of any and every nature whatsoever, shall be satisfied solely
out of the assets of the Trust and no Trustee, officer, agent or holder
of shares of beneficial interest of the Trust shall be personally liable
for any such liabilities.
8.6. Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the Commission,
the National Association of Securities Dealers, Inc. and state insurance
regulators) and shall permit such authorities reasonable access to its
books and records in connection with any investigation or inquiry
relating to this Agreement or the transactions contemplated hereby.
8.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled
to under state and federal laws.
8.8. This Agreement shall not be exclusive in any respect.
8.9. Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without prior written approval of the other
party.
8.10. No provisions of this Agreement may be amended or modified in any manner
except by a written agreement properly authorized and executed by both
parties.
8.11. Each party hereto shall, except as required by law or otherwise permitted
by this Agreement, treat as confidential the names and addresses of the
owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto, and shall not disclose
such confidential information without the written consent of the affected
party unless such information has become publicly available.
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Participation Agreement as of the date and year
first above written.
BISYS Fund Service Limited Partnership
BISYS Fund Services,Inc.,its General Partner
By: /s/ Irimga Mckay
____________________________________
Name: Irimga Mckay
Title: Senior Vice President
USAllianz Variable Insurance Products Trust
By: /s/ Greg Maddox
_____________________________________
Name: Greg Maddox
Title: Vice President
Preferred Life Insurance Company of New York
By: /s/ Michael Westermeyer
_____________________________________
Name: Michael T. Westermeyer
Title: Vice President Corporate Legal
Officer & Secretary
SCHEDULE A
Funds Available Under the Contracts
o Diversified Assets Fund, a portfolio of USAllianz Variable Insurance
Products Trust
o Intermediate Fixed Income Fund, a portfolio of USAllianz Variable
Insurance Products Trust
o Growth Fund, a portfolio of USAllianz Variable Insurance
Products Trust
Separate Account Utilizing the Funds
o Variable Account C
Contracts Funded By the Separate Accounts
Variable Account C
o Franklin Valuemark II
o Franklin Valuemark IV
Blazzard, Grodd & Hasenauer, P.C.
943 Post Road East
Westport, CT 06880
(203) 226-7866
November 8, 1999
Board of Directors
Preferred Life Insurance Company of New York
152 W 57th Street, 18th Floor
New York, NY 10019
Re: Opinion and Consent of Counsel
Preferred Life Variable Account C
Dear Sir or Madam:
You have requested our Opinion of Counsel in connection with the filing with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended, of a Registration Statement on Form N-4 for the Individual Deferred
Variable Annuity Contracts to be issued by Preferred Life Insurance Company of
New York and its separate account, Preferred Life Variable Account C.
We are of the following opinions:
1. Preferred Life Variable Account C is a unit investment trust as that term is
defined in Section 4(2) of the Investment Company Act of 1940 (the "Act"),
and is currently registered with the Securities and Exchange Commission,
pursuant to Section 8(a) of the Act.
2. Upon the acceptance of purchase payments made by a Contract Owner pursuant
to a Contract issued in accordance with the Prospectus contained in the
Registration Statement and upon compliance with applicable law, such a
Contract Owner will have a legally-issued, fully-paid, non-assessable
contractual interest under such Contract.
You may use this opinion letter, or copy hereof, as an exhibit to the
Registration Statement.
We consent to the reference to our Firm under the caption "Legal Opinions"
contained in the Statement of Additional Information which forms a part of the
Registration Statement.
Sincerely,
BLAZZARD, GRODD, & HASENAUER, P.C.
By: /s/ LYNN KORMAN STONE
- ----------------------------------
Lynn Korman Stone
KPMG LLP
4200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
Independent Auditors' Consent
The Board of Directors of Preferred Life Insurance Company of New York
and Contract Owners of Preferred Life Variable Account C:
We consent to the use of our report, dated January 29, 1999, on the financial
statements of Preferred Life Variable Account C and our report dated February 5,
1999, on the financial statements of Preferred Life Insurance Company of New
York included herein and to the reference to our Firm under the heading
"EXPERTS".
KPMG LLP
Minneapolis, Minnesota
November 8, 1999
<TABLE>
<CAPTION>
Valuemark(R) IV
Preferred Life Variable Account C
Cumulative and Average Annual Total Return Calculations
Original Purchase as of June 30, 1998
Valuation Date as of June 30, 1999
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
Franklin Capital Growth
<S> <C> <C> <C> <C> <C> <C>
6-30-98 Purchase $1,000.00 $14.60256524 68.481 68.481 $1,000.00
6-30-99 Contract Fee (1.00) 17.32145585 (0.058) 68.423 1,185.19
6-30-99 Value before Surr Chg 17.32145585 0.000 68.423 1,185.19
6-30-99 Surrender Charge (60.00) 17.32145585 (3.464) 64.959 1,125.19
Cumulative and Average Annual Total Returns
without/with charges 18.62% A 12.52% B
Franklin Growth and Income
6-30-98 Purchase $1,000.00 $25.48139973 39.244 39.244 $1,000.00
6-30-99 Contract Fee (1.00) 27.82914670 (0.036) 39.208 1,091.14
6-30-99 Value before Surr Chg 27.82914670 0.000 39.208 1,091.14
6-30-99 Surrender Charge (60.00) 27.82914670 (2.156) 37.052 1,031.14
Cumulative and Average Annual Total Returns
without/with charges 9.21% A 3.11% B
Franklin High Income
6-30-98 Purchase $1,000.00 $21.80002340 45.872 45.872 $1,000.00
6-30-99 Contract Fee (1.00) 21.13194534 (0.047) 45.824 968.35
6-30-99 Value before Surr Chg 21.13194534 0.000 45.824 968.35
6-30-99 Surrender Charge (60.00) 21.13194534 (2.839) 42.985 908.35
Cumulative and Average Annual Total Returns
without/with charges -3.06% A -9.16% B
Franklin Income Securities
6-30-98 Purchase $1,000.00 $24.99672715 40.005 40.005 $1,000.00
6-30-99 Contract Fee (1.00) 25.15286592 (0.040) 39.965 1,005.25
6-30-99 Value before Surr Chg 25.15286592 0.000 39.965 1,005.25
6-30-99 Surrender Charge (60.00) 25.15286592 (2.385) 37.580 945.25
Cumulative and Average Annual Total Returns
without/with charges 0.62% A -5.48% B
Franklin Money Market
6-30-98 Purchase $1,000.00 $14.00847401 71.385 71.385 $1,000.00
6-30-99 Contract Fee (1.00) 14.47001675 (0.069) 71.316 1,031.95
6-30-99 Value before Surr Chg 14.47001675 0.000 71.316 1,031.95
6-30-99 Surrender Charge (60.00) 14.47001675 (4.147) 67.170 971.95
Cumulative and Average Annual Total Returns
without/with charges 3.29% A -2.81% B
Mutual Discovery Securities
6-30-98 Purchase $1,000.00 $13.15898582 75.994 75.994 $1,000.00
6-30-99 Contract Fee (1.00) 12.46194426 (0.080) 75.913 946.03
6-30-99 Value before Surr Chg 12.46194426 0.000 75.913 946.03
6-30-99 Surrender Charge (60.00) 12.46194426 (4.815) 71.099 886.03
Cumulative and Average Annual Total Returns
without/with charges -5.30% A -11.40% B
Mutual Shares Securities
6-30-98 Purchase $1,000.00 $12.79882279 78.132 78.132 $1,000.00
6-30-99 Contract Fee (1.00) 13.43316575 (0.074) 78.058 1,048.56
6-30-99 Value before Surr Chg 13.43316575 0.000 78.058 1,048.56
6-30-99 Surrender Charge (60.00) 13.43316575 (4.467) 73.591 988.56
Cumulative and Average Annual Total Returns
without/with charges 4.96% A -1.14% B
Franklin Natural Resources Securities
6-30-98 Purchase $1,000.00 $10.53813081 94.893 94.893 $1,000.00
6-30-99 Contract Fee (1.00) 10.81112496 (0.092) 94.801 1,024.91
6-30-99 Value before Surr Chg 10.81112496 0.000 94.801 1,024.91
6-30-99 Surrender Charge (60.00) 10.81112496 (5.550) 89.251 964.91
Cumulative and Average Annual Total Returns
without/with charges 2.59% A -3.51% B
Franklin Real Estate Securities
6-30-98 Purchase $1,000.00 $26.48895990 37.752 37.752 $1,000.00
6-30-99 Contract Fee (1.00) 23.98705371 (0.042) 37.710 904.55
6-30-99 Value before Surr Chg 23.98705371 0.000 37.710 904.55
6-30-99 Surrender Charge (60.00) 23.98705371 (2.501) 35.209 844.55
Cumulative and Average Annual Total Returns
without/with charges -9.45% A -15.55% B
Franklin Rising Dividends
6-30-98 Purchase $1,000.00 $20.82988434 48.008 48.008 $1,000.00
6-30-99 Contract Fee (1.00) 21.46719404 (0.047) 47.961 1,029.60
6-30-99 Value before Surr Chg 21.46719404 0.000 47.961 1,029.60
6-30-99 Surrender Charge (60.00) 21.46719404 (2.795) 45.166 969.60
Cumulative and Average Annual Total Returns
without/with charges 3.06% A -3.04% B
Franklin Small Cap
6-30-98 Purchase $1,000.00 $15.59788697 64.111 64.111 $1,000.00
6-30-99 Contract Fee (1.00) 16.83123568 (0.059) 64.052 1,078.07
6-30-99 Value before Surr Chg 16.83123568 0.000 64.052 1,078.07
6-30-99 Surrender Charge (60.00) 16.83123568 (3.565) 60.487 1,018.07
Cumulative and Average Annual Total Returns
without/with charges 7.91% A 1.81% B
Templeton Developing Markets Equity
6-30-98 Purchase $1,000.00 $8.37789859 119.362 119.362 $1,000.00
6-30-99 Contract Fee (1.00) 10.73475762 (0.093) 119.269 1,280.32
6-30-99 Value before Surr Chg 10.73475762 0.000 119.269 1,280.32
6-30-99 Surrender Charge (60.00) 10.73475762 (5.589) 113.679 1,220.32
Cumulative and Average Annual Total Returns
without/with charges 28.13% A 22.03% B
Templeton Global Asset Allocation
6-30-98 Purchase $1,000.00 $14.03313224 71.260 71.260 $1,000.00
6-30-99 Contract Fee (1.00) 14.13328693 (0.071) 71.189 1,006.14
6-30-99 Value before Surr Chg 14.13328693 0.000 71.189 1,006.14
6-30-99 Surrender Charge (60.00) 14.13328693 (4.245) 66.944 946.14
Cumulative and Average Annual Total Returns
without/with charges 0.71% A -5.39% B
Templeton Global Growth
6-30-98 Purchase $1,000.00 $16.31635191 61.288 61.288 $1,000.00
6-30-99 Contract Fee (1.00) 18.05030611 (0.055) 61.233 1,105.27
6-30-99 Value before Surr Chg 18.05030611 0.000 61.233 1,105.27
6-30-99 Surrender Charge (60.00) 18.05030611 (3.324) 57.909 1,045.27
Cumulative and Average Annual Total Returns
without/with charges 10.63% A 4.53% B
Templeton Global Income Securities
6-30-98 Purchase $1,000.00 $17.14318723 58.332 58.332 $1,000.00
6-30-99 Contract Fee (1.00) 16.69802045 (0.060) 58.272 973.03
6-30-99 Value before Surr Chg 16.69802045 0.000 58.272 973.03
6-30-99 Surrender Charge (60.00) 16.69802045 (3.593) 54.679 913.03
Cumulative and Average Annual Total Returns
without/with charges -2.60% A -8.70% B
Templeton International Equity
6-30-98 Purchase $1,000.00 $19.82805109 50.434 50.434 $1,000.00
6-30-99 Contract Fee (1.00) 20.26134036 (0.049) 50.384 1,020.85
6-30-99 Value before Surr Chg 20.26134036 0.000 50.384 1,020.85
6-30-99 Surrender Charge (60.00) 20.26134036 (2.961) 47.423 960.85
Cumulative and Average Annual Total Returns
without/with charges 2.19% A -3.91% B
Templeton International Smaller Companies
6-30-98 Purchase $1,000.00 $10.96750543 91.178 91.178 $1,000.00
6-30-99 Contract Fee (1.00) 10.85569231 (0.092) 91.086 988.81
6-30-99 Value before Surr Chg 10.85569231 0.000 91.086 988.81
6-30-99 Surrender Charge (60.00) 10.85569231 (5.527) 85.559 928.81
Cumulative and Average Annual Total Returns
without/with charges -1.02% A -7.12% B
Templeton Pacific Growth
6-30-98 Purchase $1,000.00 $6.85019464 145.981 145.981 $1,000.00
6-30-99 Contract Fee (1.00) 10.26126773 (0.097) 145.884 1,496.95
6-30-99 Value before Surr Chg 10.26126773 0.000 145.884 1,496.95
6-30-99 Surrender Charge (60.00) 10.26126773 (5.847) 140.037 1,436.95
Cumulative and Average Annual Total Returns
without/with charges 49.80% A 43.70% B
Franklin U.S. Government Securities
6-30-98 Purchase $1,000.00 $18.30521146 54.629 54.629 $1,000.00
6-30-99 Contract Fee (1.00) 18.46547047 (0.054) 54.575 1,007.75
6-30-99 Value before Surr Chg 18.46547047 0.000 54.575 1,007.75
6-30-99 Surrender Charge (60.00) 18.46547047 (3.249) 51.326 947.75
Cumulative and Average Annual Total Returns
without/with charges 0.88% A -5.22% B
Franklin Global Utilities Securities
6-30-98 Purchase $1,000.00 $27.10331597 36.896 36.896 $1,000.00
6-30-99 Contract Fee (1.00) 30.39824832 (0.033) 36.863 1,120.57
6-30-99 Value before Surr Chg 30.39824832 0.000 36.863 1,120.57
6-30-99 Surrender Charge (60.00) 30.39824832 (1.974) 34.889 1,060.57
Cumulative and Average Annual Total Returns
without/with charges 12.16% A 6.06% B
Franklin Zero Coupon - 2000
6-30-98 Purchase $1,000.00 $19.84757618 50.384 50.384 $1,000.00
6-30-99 Contract Fee (1.00) 20.55715072 (0.049) 50.335 1,034.75
6-30-99 Value before Surr Chg 20.55715072 0.000 50.335 1,034.75
6-30-99 Surrender Charge (60.00) 20.55715072 (2.919) 47.417 974.75
Cumulative and Average Annual Total Returns
without/with charges 3.58% A -2.52% B
Franklin Zero Coupon - 2005
6-30-98 Purchase $1,000.00 $23.26941083 42.975 42.975 $1,000.00
6-30-99 Contract Fee (1.00) 23.38292589 (0.043) 42.932 1,003.88
6-30-99 Value before Surr Chg 23.38292589 0.000 42.932 1,003.88
6-30-99 Surrender Charge (60.00) 23.38292589 (2.566) 40.366 943.88
Cumulative and Average Annual Total Returns
without/with charges 0.49% A -5.61% B
Franklin Zero Coupon - 2010
6-30-98 Purchase $1,000.00 $25.99460614 38.470 38.470 $1,000.00
6-30-99 Contract Fee (1.00) 25.04775737 (0.040) 38.430 962.58
6-30-99 Value before Surr Chg 25.04775737 0.000 38.430 962.58
6-30-99 Surrender Charge (60.00) 25.04775737 (2.395) 36.034 902.58
Cumulative and Average Annual Total Returns
without/with charges -3.64% A -9.74% B
Franklin Global Health Care Securities
6-30-98 Purchase $1,000.00 $10.04536457 99.548 99.548 $1,000.00
6-30-99 Contract Fee (1.00) 8.96313257 (0.112) 99.437 891.27
6-30-99 Value before Surr Chg 8.96313257 0.000 99.437 891.27
6-30-99 Surrender Charge (60.00) 8.96313257 (6.694) 92.743 831.27
Cumulative and Average Annual Total Returns
without/with charges -10.77% A -16.87% B
Franklin Value Securities
6-30-98 Purchase $1,000.00 $9.11763974 109.678 109.678 $1,000.00
6-30-99 Contract Fee (1.00) 8.49138875 (0.118) 109.560 930.31
6-30-99 Value before Surr Chg 8.49138875 0.000 109.560 930.31
6-30-99 Surrender Charge (60.00) 8.49138875 (7.066) 102.494 870.31
Cumulative and Average Annual Total Returns
without/with charges -6.87% A -12.97% B
A = (Unit Value as of June 30, 1999 - Unit Value at Purchase)/Unit Value at
Purchase B = (Accumulated Value as of June 30, 1999 - Accum. Value at
Purch.)/Accum. Value at Purch.
Original Purchase as of June 30, 1994
Valuation Date as of June 30, 1999
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
Franklin Growth and Income
6-30-94 Purchase $1,000.00 $12.93727424 77.296 77.296 $1,000.00
6-30-95 Contract Fee (1.00) 15.02497409 (0.067) 77.229 1,160.37
6-30-96 Contract Fee (1.00) 18.02065761 (0.055) 77.174 1,390.73
6-30-97 Contract Fee (1.00) 21.71133685 (0.046) 77.128 1,674.55
6-30-98 Contract Fee (1.00) 25.48139973 (0.039) 77.089 1,964.33
6-30-99 Contract Fee (1.00) 27.82914670 (0.036) 77.053 2,144.31
6-30-99 Value before Surr Chg 27.82914670 0.000 77.053 2,144.31
6-30-99 Surrender Charge (34.00) 27.82914670 (1.222) 75.831 2,110.31
Cumulative Total Returns without/with chrgs. 115.11% A 111.03% C
Avg. Annual Total Returns without/with chrgs. 16.56% B 16.11% D
Franklin High Income
6-30-94 Purchase $1,000.00 $14.42292450 69.334 69.334 $1,000.00
6-30-95 Contract Fee (1.00) 16.34932272 (0.061) 69.273 1,132.57
6-30-96 Contract Fee (1.00) 17.65865281 (0.057) 69.216 1,222.27
6-30-97 Contract Fee (1.00) 20.01866071 (0.050) 69.166 1,384.62
6-30-98 Contract Fee (1.00) 21.80002340 (0.046) 69.120 1,506.83
6-30-99 Contract Fee (1.00) 21.13194534 (0.047) 69.073 1,459.65
6-30-99 Value before Surr Chg 21.13194534 0.000 69.073 1,459.65
6-30-99 Surrender Charge (34.00) 21.13194534 (1.609) 67.464 1,425.65
Cumulative Total Returns without/with chrgs. 46.52% A 42.56% C
Avg. Annual Total Returns without/with chrgs. 7.94% B 7.35% D
Franklin Income Securities
6-30-94 Purchase $1,000.00 $16.49579717 60.622 60.622 $1,000.00
6-30-95 Contract Fee (1.00) 18.13712739 (0.055) 60.566 1,098.50
6-30-96 Contract Fee (1.00) 20.30460628 (0.049) 60.517 1,228.78
6-30-97 Contract Fee (1.00) 22.81473491 (0.044) 60.473 1,379.68
6-30-98 Contract Fee (1.00) 24.99672715 (0.040) 60.433 1,510.63
6-30-99 Contract Fee (1.00) 25.15286592 (0.040) 60.394 1,519.07
6-30-99 Value before Surr Chg 25.15286592 0.000 60.394 1,519.07
6-30-99 Surrender Charge (34.00) 25.15286592 (1.352) 59.042 1,485.07
Cumulative Total Returns without/with chrgs. 52.48% A 48.51% C
Avg. Annual Total Returns without/with chrgs. 8.80% B 8.23% D
Franklin Money Market
6-30-94 Purchase $1,000.00 $12.10443970 82.614 82.614 $1,000.00
6-30-95 Contract Fee (1.00) 12.55121525 (0.080) 82.535 1,035.91
6-30-96 Contract Fee (1.00) 13.03050692 (0.077) 82.458 1,074.47
6-30-97 Contract Fee (1.00) 13.50201928 (0.074) 82.384 1,112.35
6-30-98 Contract Fee (1.00) 14.00847401 (0.071) 82.312 1,153.07
6-30-99 Contract Fee (1.00) 14.47001675 (0.069) 82.243 1,190.06
6-30-99 Value before Surr Chg 14.47001675 0.000 82.243 1,190.06
6-30-99 Surrender Charge (34.00) 14.47001675 (2.350) 79.894 1,156.06
Cumulative Total Returns without/with chrgs. 19.54% A 15.61% C
Avg. Annual Total Returns without/with chrgs. 3.63% B 2.94% D
Franklin Natural Resources Securities
6-30-94 Purchase $1,000.00 $13.44188476 74.394 74.394 $1,000.00
6-30-95 Contract Fee (1.00) 13.93486984 (0.072) 74.323 1,035.68
6-30-96 Contract Fee (1.00) 15.11198761 (0.066) 74.256 1,122.16
6-30-97 Contract Fee (1.00) 13.04136833 (0.077) 74.180 967.40
6-30-98 Contract Fee (1.00) 10.53813081 (0.095) 74.085 780.72
6-30-99 Contract Fee (1.00) 10.81112496 (0.092) 73.992 799.94
6-30-99 Value before Surr Chg 10.81112496 0.000 73.992 799.94
6-30-99 Surrender Charge (34.00) 10.81112496 (3.145) 70.847 765.94
Cumulative Total Returns without/with chrgs. -19.57% A -23.41% C
Avg. Annual Total Returns without/with chrgs. -4.26% B -5.19% D
Franklin Real Estate Securities
6-30-94 Purchase $1,000.00 $15.68855571 63.741 63.741 $1,000.00
6-30-95 Contract Fee (1.00) 16.04574487 (0.062) 63.678 1,021.77
6-30-96 Contract Fee (1.00) 19.10662239 (0.052) 63.626 1,215.68
6-30-97 Contract Fee (1.00) 25.09697799 (0.040) 63.586 1,595.82
6-30-98 Contract Fee (1.00) 26.48895990 (0.038) 63.548 1,683.33
6-30-99 Contract Fee (1.00) 23.98705371 (0.042) 63.507 1,523.34
6-30-99 Value before Surr Chg 23.98705371 0.000 63.507 1,523.34
6-30-99 Surrender Charge (34.00) 23.98705371 (1.417) 62.089 1,489.34
Cumulative Total Returns without/with chrgs. 52.90% A 48.93% C
Avg. Annual Total Returns without/with chrgs. 8.86% B 8.29% D
Franklin Rising Dividends
6-30-94 Purchase $1,000.00 $9.70789728 103.009 103.009 $1,000.00
6-30-95 Contract Fee (1.00) 11.00119461 (0.091) 102.918 $1,132.22
6-30-96 Contract Fee (1.00) 13.25810670 (0.075) 102.843 $1,363.50
6-30-97 Contract Fee (1.00) 17.59317070 (0.057) 102.786 1,808.33
6-30-98 Contract Fee (1.00) 20.82988434 (0.048) 102.738 2,140.02
6-30-99 Contract Fee (1.00) 21.46719404 (0.047) 102.691 2,204.49
6-30-99 Value before Surr Chg 21.46719404 0.000 102.691 2,204.49
6-30-99 Surrender Charge (34.00) 21.46719404 (1.584) 101.107 2,170.49
Cumulative Total Returns without/with chrgs. 121.13% A 117.05% C
Avg. Annual Total Rtns. without/with chrgs. 17.20% B 16.76% D
Templeton Developing Markets Equity
6-30-94 Purchase $1,000.00 $9.94645764 100.538 100.538 $1,000.00
6-30-95 Contract Fee (1.00) 9.66716598 (0.103) 100.435 970.92
6-30-96 Contract Fee (1.00) 11.00773296 (0.091) 100.344 1,104.56
6-30-97 Contract Fee (1.00) 13.59109068 (0.074) 100.270 1,362.78
6-30-98 Contract Fee (1.00) 8.37789859 (0.119) 100.151 839.06
6-30-99 Contract Fee (1.00) 10.73475762 (0.093) 100.058 1,074.10
6-30-99 Value before Surr Chg 10.73475762 0.000 100.058 1,074.10
6-30-99 Surrender Charge (34.00) 10.73475762 (3.167) 96.891 1,040.10
Cumulative Total Returns without/with chrgs. 7.93% A 4.01% C
Avg. Annual Total Rtns. without/with chrgs. 1.54% B 0.79% D
Templeton Global Growth
6-30-94 Purchase $1,000.00 $9.97601329 100.240 100.240 $1,000.00
6-30-95 Contract Fee (1.00) 10.84212585 (0.092) 100.148 1,085.82
6-30-96 Contract Fee (1.00) 12.45329039 (0.080) 100.068 1,246.17
6-30-97 Contract Fee (1.00) 15.28815115 (0.065) 100.003 1,528.85
6-30-98 Contract Fee (1.00) 16.31635191 (0.061) 99.941 1,630.68
6-30-99 Contract Fee (1.00) 18.05030611 (0.055) 99.886 1,802.97
6-30-99 Value before Surr Chg 18.05030611 0.000 99.886 1,802.97
6-30-99 Surrender Charge (34.00) 18.05030611 (1.884) 98.002 1,768.97
Cumulative Total Returns without/with chrgs. 80.94% A 76.90% C
Avg. Annual Total Rtns. without/with chrgs. 12.59% B 12.08% D
Templeton Global Income Securities
6-30-94 Purchase $1,000.00 $13.46216452 74.282 74.282 $1,000.00
6-30-95 Contract Fee (1.00) 14.64037580 (0.068) 74.214 1,086.52
6-30-96 Contract Fee (1.00) 15.50611791 (0.064) 74.149 1,149.77
6-30-97 Contract Fee (1.00) 16.59486576 (0.060) 74.089 1,229.50
6-30-98 Contract Fee (1.00) 17.14318723 (0.058) 74.031 1,269.13
6-30-99 Contract Fee (1.00) 16.69802045 (0.060) 73.971 1,235.17
6-30-99 Value before Surr Chg 16.69802045 0.000 73.971 1,235.17
6-30-99 Surrender Charge (34.00) 16.69802045 (2.036) 71.935 1,201.17
Cumulative Total Returns without/with chrgs. 24.04% A 20.12% C
Avg. Annual Total Returns without/with chrgs. 4.40% B 3.73% D
Templeton International Equity
6-30-94 Purchase $1,000.00 $12.17156456 82.159 82.159 $1,000.00
6-30-95 Contract Fee (1.00) 12.96475877 (0.077) 82.082 1,064.17
6-30-96 Contract Fee (1.00) 14.73320607 (0.068) 82.014 1,208.32
6-30-97 Contract Fee (1.00) 18.09132929 (0.055) 81.958 1,482.74
6-30-98 Contract Fee (1.00) 19.82805109 (0.050) 81.908 1,624.08
6-30-99 Contract Fee (1.00) 20.26134036 (0.049) 81.859 1,658.57
6-30-99 Value before Surr Chg 20.26134036 0.000 81.859 1,658.57
6-30-99 Surrender Charge (34.00) 20.26134036 (1.678) 80.181 1,624.57
Cumulative Total Returns without/with chrgs. 66.46% A 62.46% C
Avg. Annual Total Rtns. without/with chrgs. 10.73% B 10.19% D
Templeton Pacific Growth
6-30-94 Purchase $1,000.00 $13.23313886 75.568 75.568 $1,000.00
6-30-95 Contract Fee (1.00) 12.97546433 (0.077) 75.491 979.53
6-30-96 Contract Fee (1.00) 15.12099228 (0.066) 75.425 1,140.50
6-30-97 Contract Fee (1.00) 15.19593399 (0.066) 75.359 1,145.15
6-30-98 Contract Fee (1.00) 6.85019464 (0.146) 75.213 515.22
6-30-99 Contract Fee (1.00) 10.26126773 (0.097) 75.115 770.78
6-30-99 Value before Surr Chg 10.26126773 0.000 75.115 770.78
6-30-99 Surrender Charge (34.00) 10.26126773 (3.313) 71.802 736.78
Cumulative Total Returns without/with chrgs. -22.46% A -26.32% C
Avg. Annual Total Rtns. without/with chrgs. -4.96% B -5.93% D
Franklin U.S. Government Securities
6-30-94 Purchase $1,000.00 $13.71116538 72.933 72.933 $1,000.00
6-30-95 Contract Fee (1.00) 15.36272963 (0.065) 72.868 1,119.45
6-30-96 Contract Fee (1.00) 15.84280380 (0.063) 72.805 1,153.44
6-30-97 Contract Fee (1.00) 17.02416691 (0.059) 72.746 1,238.45
6-30-98 Contract Fee (1.00) 18.30521146 (0.055) 72.692 1,330.64
6-30-99 Contract Fee (1.00) 18.46547047 (0.054) 72.638 1,341.29
6-30-99 Value before Surr Chg 18.46547047 0.000 72.638 1,341.29
6-30-99 Surrender Charge (34.00) 18.46547047 (1.841) 70.796 1,307.29
Cumulative Total Returns without/with chrgs. 34.67% A 30.73% C
Avg. Annual Total Returns without/with chrgs. 6.13% B 5.51% D
Franklin Global Utilities Securities
6-30-94 Purchase $1,000.00 $14.32790513 69.794 69.794 $1,000.00
6-30-95 Contract Fee (1.00) 16.80832864 (0.059) 69.734 1,172.12
6-30-96 Contract Fee (1.00) 20.15215080 (0.050) 69.685 1,404.30
6-30-97 Contract Fee (1.00) 21.87757235 (0.046) 69.639 1,523.53
6-30-98 Contract Fee (1.00) 27.10331597 (0.037) 69.602 1,886.45
6-30-99 Contract Fee (1.00) 30.39824832 (0.033) 69.569 2,114.78
6-30-99 Value before Surr Chg 30.39824832 0.000 69.569 2,114.78
6-30-99 Surrender Charge (34.00) 30.39824832 (1.118) 68.451 2,080.78
Cumulative Total Returns without/with chrgs. 112.16% A 108.08% C
Avg. Annual Total Returns without/with chrgs. 16.23% B 15.78% D
Franklin Zero Coupon - 2000
6-30-94 Purchase $1,000.00 $15.46386617 64.667 64.667 $1,000.00
6-30-95 Contract Fee (1.00) 17.26898333 (0.058) 64.609 1,115.73
6-30-96 Contract Fee (1.00) 17.66928482 (0.057) 64.552 1,140.59
6-30-97 Contract Fee (1.00) 18.64051914 (0.054) 64.499 1,202.29
6-30-98 Contract Fee (1.00) 19.84757618 (0.050) 64.448 1,279.14
6-30-99 Contract Fee (1.00) 20.55715072 (0.049) 64.400 1,323.87
6-30-99 Value before Surr Chg 20.55715072 0.000 64.400 1,323.87
6-30-99 Surrender Charge (34.00) 20.55715072 (1.654) 62.746 1,289.87
Cumulative Total Returns without/with chrgs. 32.94% A 28.99% C
Avg. Annual Total Returns without/with chrgs. 5.86% B 5.22% D
Franklin Zero Coupon - 2005
6-30-94 Purchase $1,000.00 $15.99331951 62.526 62.526 $1,000.00
6-30-95 Contract Fee (1.00) 18.95506513 (0.053) 62.473 1,184.19
6-30-96 Contract Fee (1.00) 19.23481832 (0.052) 62.421 1,200.66
6-30-97 Contract Fee (1.00) 20.66244634 (0.048) 62.373 1,288.78
6-30-98 Contract Fee (1.00) 23.26941083 (0.043) 62.330 1,450.38
6-30-99 Contract Fee (1.00) 23.38292589 (0.043) 62.287 1,456.46
6-30-99 Value before Surr Chg 23.38292589 0.000 62.287 1,456.46
6-30-99 Surrender Charge (34.00) 23.38292589 (1.454) 60.833 1,422.46
Cumulative Total Returns without/with chrgs. 46.20% A 42.25% C
Avg. Annual Total Returns without/with chrgs. 7.89% B 7.30% D
Franklin Zero Coupon - 2010
6-30-94 Purchase $1,000.00 $15.58486894 64.165 64.165 $1,000.00
6-30-95 Contract Fee (1.00) 19.48443734 (0.051) 64.113 1,249.22
6-30-96 Contract Fee (1.00) 19.77580128 (0.051) 64.063 1,266.90
6-30-97 Contract Fee (1.00) 21.60810819 (0.046) 64.017 1,383.28
6-30-98 Contract Fee (1.00) 25.99460614 (0.038) 63.978 1,663.09
6-30-99 Contract Fee (1.00) 25.04775737 (0.040) 63.938 1,601.51
6-30-99 Value before Surr Chg 25.04775737 0.000 63.938 1,601.51
6-30-99 Surrender Charge (34.00) 25.04775737 (1.357) 62.581 1,567.51
Cumulative Total Returns without/with chrgs. 60.72% A 56.75% C
Avg. Annual Total Returns without/with chrgs. 9.95% B 9.41% D
<FN>
A = (Unit Value as of June 30, 1999 - Unit Value at Purchase)/Unit Value at
Purchase B = [(A+1)^(1/5 Years)]-1 C = (Accumulated Value as of June 30, 1999 -
Accum. Value at Purch.)/Accum. Value at Purch.
D = [(C+1)^(1/5 Years)]-1
</FN>
</TABLE>
<TABLE>
<CAPTION>
Original Purchase as of June 30, 1989
Valuation Date as of June 30, 1999
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
Franklin Growth and Income
<S> <C> <C> <C> <C> <C> <C>
6-30-89 Purchase $1,000.00 $9.94828222 100.520 100.520 $1,000.00
6-30-90 Contract Fee (1.00) 10.49279710 (0.095) 100.425 1,053.73
6-30-91 Contract Fee (1.00) 10.49141653 (0.095) 100.329 1,052.60
6-30-92 Contract Fee (1.00) 11.37012867 (0.088) 100.241 1,139.76
6-30-93 Contract Fee (1.00) 12.82659966 (0.078) 100.163 1,284.75
6-30-94 Contract Fee (1.00) 12.93727424 (0.077) 100.086 1,294.84
6-30-95 Contract Fee (1.00) 15.02497409 (0.067) 100.019 1,502.79
6-30-96 Contract Fee (1.00) 18.02065761 (0.055) 99.964 1,801.42
6-30-97 Contract Fee (1.00) 21.71133685 (0.046) 99.918 2,169.35
6-30-98 Contract Fee (1.00) 25.48139973 (0.039) 99.879 2,545.05
6-30-99 Contract Fee (1.00) 27.82914670 (0.036) 99.843 2,778.54
6-30-99 Value before Surr Chg 27.82914670 0.000 99.843 2,778.54
6-30-99 Surrender Charge 27.82914670 0.000 99.843 2,778.54
Cumulative Total Returns without/with chrgs. 179.74% A 177.85%
Avg. Annual Total Returns without/with chrgs. 22.84% B 22.68%
Franklin High Income
6-30-89 Purchase $1,000.00 $10.25698768 97.495 97.495 $1,000.00
6-30-90 Contract Fee (1.00) 9.96176342 (0.100) 97.394 970.22
6-30-91 Contract Fee (1.00) 10.54429547 (0.095) 97.299 1,025.95
6-30-92 Contract Fee (1.00) 12.53786325 (0.080) 97.220 1,218.93
6-30-93 Contract Fee (1.00) 14.27545762 (0.070) 97.149 1,386.85
6-30-94 Contract Fee (1.00) 14.42292450 (0.069) 97.080 1,400.18
6-30-95 Contract Fee (1.00) 16.34932272 (0.061) 97.019 1,586.19
6-30-96 Contract Fee (1.00) 17.65865281 (0.057) 96.962 1,712.22
6-30-97 Contract Fee (1.00) 20.01866071 (0.050) 96.912 1,940.06
6-30-98 Contract Fee (1.00) 21.80002340 (0.046) 96.867 2,111.69
6-30-99 Contract Fee (1.00) 21.13194534 (0.047) 96.819 2,045.98
6-30-99 Value before Surr Chg 21.13194534 0.000 96.819 2,045.98
6-30-99 Surrender Charge 21.13194534 0.000 96.819 2,045.98
Cumulative Total Returns without/with chrgs. 106.02% A 104.60%
Avg. Annual Total Returns without/with chrgs. 15.55% B 15.39%
Franklin Income Securities
6-30-89 Purchase $1,000.00 $10.23707120 97.684 97.684 $1,000.00
6-30-90 Contract Fee (1.00) 10.82044452 (0.092) 97.592 1,055.99
6-30-91 Contract Fee (1.00) 12.03241338 (0.083) 97.509 1,173.26
6-30-92 Contract Fee (1.00) 14.77671640 (0.068) 97.441 1,439.86
6-30-93 Contract Fee (1.00) 16.58417279 (0.060) 97.381 1,614.98
6-30-94 Contract Fee (1.00) 16.49579717 (0.061) 97.320 1,605.37
6-30-95 Contract Fee (1.00) 18.13712739 (0.055) 97.265 1,764.11
6-30-96 Contract Fee (1.00) 20.30460628 (0.049) 97.216 1,973.93
6-30-97 Contract Fee (1.00) 22.81473491 (0.044) 97.172 2,216.95
6-30-98 Contract Fee (1.00) 24.99672715 (0.040) 97.132 2,427.98
6-30-99 Contract Fee (1.00) 25.15286592 (0.040) 97.092 2,442.14
6-30-99 Value before Surr Chg 25.15286592 0.000 97.092 2,442.14
6-30-99 Surrender Charge 25.15286592 0.000 97.092 2,442.14
Cumulative Total Returns without/with chrgs. 145.70% A 144.21%
Avg. Annual Total Returns without/with chrgs. 19.70% B 19.55%
Franklin Money Market
6-30-89 Purchase $1,000.00 $10.30299600 97.059 97.059 $1,000.00
6-30-90 Contract Fee (1.00) 10.93712376 (0.091) 96.968 1,060.55
6-30-91 Contract Fee (1.00) 11.51413216 (0.087) 96.881 1,115.50
6-30-92 Contract Fee (1.00) 11.82065483 (0.085) 96.796 1,144.20
6-30-93 Contract Fee (1.00) 11.95116766 (0.084) 96.713 1,155.83
6-30-94 Contract Fee (1.00) 12.10443970 (0.083) 96.630 1,169.65
6-30-95 Contract Fee (1.00) 12.55121525 (0.080) 96.550 1,211.82
6-30-96 Contract Fee (1.00) 13.03050692 (0.077) 96.474 1,257.10
6-30-97 Contract Fee (1.00) 13.50201928 (0.074) 96.399 1,301.59
6-30-98 Contract Fee (1.00) 14.00847401 (0.071) 96.328 1,349.41
6-30-99 Contract Fee (1.00) 14.47001675 (0.069) 96.259 1,392.87
6-30-99 Value before Surr Chg 14.47001675 0.000 96.259 1,392.87
6-30-99 Surrender Charge 14.47001675 0.000 96.259 1,392.87
Cumulative Total Returns without/with chrgs. 40.44% A 39.29%
Avg. Annual Total Returns without/with chrgs. 7.03% B 6.85%
Franklin Natural Resources Securities
6-30-89 Purchase $1,000.00 $10.31673712 96.930 96.930 $1,000.00
6-30-90 Contract Fee (1.00) 11.16300190 (0.090) 96.840 1,081.03
6-30-91 Contract Fee (1.00) 10.87715871 (0.092) 96.748 1,052.35
6-30-92 Contract Fee (1.00) 10.85685445 (0.092) 96.656 1,049.38
6-30-93 Contract Fee (1.00) 12.88261163 (0.078) 96.579 1,244.18
6-30-94 Contract Fee (1.00) 13.44188476 (0.074) 96.504 1,297.20
6-30-95 Contract Fee (1.00) 13.93486984 (0.072) 96.432 1,343.77
6-30-96 Contract Fee (1.00) 15.11198761 (0.066) 96.366 1,456.29
6-30-97 Contract Fee (1.00) 13.04136833 (0.077) 96.290 1,255.75
6-30-98 Contract Fee (1.00) 10.53813081 (0.095) 96.195 1,013.71
6-30-99 Contract Fee (1.00) 10.81112496 (0.092) 96.102 1,038.97
6-30-99 Value before Surr Chg 10.81112496 0.000 96.102 1,038.97
6-30-99 Surrender Charge 10.81112496 0.000 96.102 1,038.97
Cumulative Total Returns without/with chrgs. 4.79% A 3.90%
Avg. Annual Total Returns without/with chrgs. 0.94% B 0.77%
Franklin Real Estate Securities
6-30-89 Purchase $1,000.00 $10.49598545 95.275 95.275 $1,000.00
6-30-90 Contract Fee (1.00) 10.06777447 (0.099) 95.175 958.20
6-30-91 Contract Fee (1.00) 10.73156284 (0.093) 95.082 1,020.38
6-30-92 Contract Fee (1.00) 11.80091694 (0.085) 94.997 1,121.05
6-30-93 Contract Fee (1.00) 14.65769310 (0.068) 94.929 1,391.44
6-30-94 Contract Fee (1.00) 15.68855571 (0.064) 94.865 1,488.30
6-30-95 Contract Fee (1.00) 16.04574487 (0.062) 94.803 1,521.18
6-30-96 Contract Fee (1.00) 19.10662239 (0.052) 94.751 1,810.36
6-30-97 Contract Fee (1.00) 25.09697799 (0.040) 94.711 2,376.95
6-30-98 Contract Fee (1.00) 26.48895990 (0.038) 94.673 2,507.79
6-30-99 Contract Fee (1.00) 23.98705371 (0.042) 94.631 2,269.93
6-30-99 Value before Surr Chg 23.98705371 0.000 94.631 2,269.93
6-30-99 Surrender Charge 23.98705371 0.000 94.631 2,269.93
Cumulative Total Returns without/with chrgs. 128.54% A 126.99%
Avg. Annual Total Returns without/with chrgs. 17.98% B 17.82%
Templeton Global Income Securities
6-30-89 Purchase $1,000.00 $10.28686240 97.211 97.211 $1,000.00
6-30-90 Contract Fee (1.00) 11.23448179 (0.089) 97.122 1,091.12
6-30-91 Contract Fee (1.00) 11.94031363 (0.084) 97.039 1,158.67
6-30-92 Contract Fee (1.00) 13.19858013 (0.076) 96.963 1,279.77
6-30-93 Contract Fee (1.00) 13.85578453 (0.072) 96.891 1,342.50
6-30-94 Contract Fee (1.00) 13.46216452 (0.074) 96.816 1,303.36
6-30-95 Contract Fee (1.00) 14.64037580 (0.068) 96.748 1,416.43
6-30-96 Contract Fee (1.00) 15.50611791 (0.064) 96.684 1,499.19
6-30-97 Contract Fee (1.00) 16.59486576 (0.060) 96.623 1,603.45
6-30-98 Contract Fee (1.00) 17.14318723 (0.058) 96.565 1,655.43
6-30-99 Contract Fee (1.00) 16.69802045 (0.060) 96.505 1,611.44
6-30-99 Value before Surr Chg 16.69802045 0.000 96.505 1,611.44
6-30-99 Surrender Charge 16.69802045 0.000 96.505 1,611.44
Cumulative Total Returns without/with chrgs. 62.32% A 61.14%
Avg. Annual Total Returns without/with chrgs. 10.17% B 10.01%
Franklin U.S. Government Securities
6-30-89 Purchase $1,000.00 $10.00889534 99.911 99.911 $1,000.00
6-30-90 Contract Fee (1.00) 10.59080948 (0.094) 99.817 1,057.14
6-30-91 Contract Fee (1.00) 11.60838902 (0.086) 99.731 1,157.71
6-30-92 Contract Fee (1.00) 13.01290987 (0.077) 99.654 1,296.78
6-30-93 Contract Fee (1.00) 14.41632943 (0.069) 99.584 1,435.64
6-30-94 Contract Fee (1.00) 13.71116538 (0.073) 99.511 1,364.42
6-30-95 Contract Fee (1.00) 15.36272963 (0.065) 99.446 1,527.77
6-30-96 Contract Fee (1.00) 15.84280380 (0.063) 99.383 1,574.51
6-30-97 Contract Fee (1.00) 17.02416691 (0.059) 99.324 1,690.92
6-30-98 Contract Fee (1.00) 18.30521146 (0.055) 99.270 1,817.16
6-30-99 Contract Fee (1.00) 18.46547047 (0.054) 99.216 1,832.06
6-30-99 Value before Surr Chg 18.46547047 0.000 99.216 1,832.06
6-30-99 Surrender Charge 18.46547047 0.000 99.216 1,832.06
Cumulative Total Returns without/with chrgs. 84.49% A 83.21%
Avg. Annual Total Returns without/with chrgs. 13.03% B 12.87%
Franklin Global Utilities Securities
6-30-89 Purchase $1,000.00 $10.68519201 93.587 93.587 $1,000.00
6-30-90 Contract Fee (1.00) 11.45966531 (0.087) 93.500 1,071.48
6-30-91 Contract Fee (1.00) 12.44925968 (0.080) 93.420 1,163.01
6-30-92 Contract Fee (1.00) 14.81240450 (0.068) 93.352 1,382.77
6-30-93 Contract Fee (1.00) 17.33146587 (0.058) 93.295 1,616.93
6-30-94 Contract Fee (1.00) 14.32790513 (0.070) 93.225 1,335.72
6-30-95 Contract Fee (1.00) 16.80832864 (0.059) 93.165 1,565.95
6-30-96 Contract Fee (1.00) 20.15215080 (0.050) 93.116 1,876.48
6-30-97 Contract Fee (1.00) 21.87757235 (0.046) 93.070 2,036.15
6-30-98 Contract Fee (1.00) 27.10331597 (0.037) 93.033 2,521.51
6-30-99 Contract Fee (1.00) 30.39824832 (0.033) 93.000 2,827.04
6-30-99 Value before Surr Chg 30.39824832 0.000 93.000 2,827.04
6-30-99 Surrender Charge 30.39824832 0.000 93.000 2,827.04
Cumulative Total Returns without/with chrgs. 184.49% A 182.70%
Avg. Annual Total Returns without/with chrgs. 23.26% B 23.10%
Franklin Zero Coupon - 2000
6-30-89 Purchase $1,000.00 $10.51680943 95.086 95.086 $1,000.00
6-30-90 Contract Fee (1.00) 10.72614891 (0.093) 94.993 1,018.91
6-30-91 Contract Fee (1.00) 11.59188612 (0.086) 94.906 1,100.14
6-30-92 Contract Fee (1.00) 13.57729087 (0.074) 94.833 1,287.57
6-30-93 Contract Fee (1.00) 16.24888420 (0.062) 94.771 1,539.93
6-30-94 Contract Fee (1.00) 15.46386617 (0.065) 94.707 1,464.53
6-30-95 Contract Fee (1.00) 17.26898333 (0.058) 94.649 1,634.49
6-30-96 Contract Fee (1.00) 17.66928482 (0.057) 94.592 1,671.37
6-30-97 Contract Fee (1.00) 18.64051914 (0.054) 94.538 1,762.24
6-30-98 Contract Fee (1.00) 19.84757618 (0.050) 94.488 1,875.36
6-30-99 Contract Fee (1.00) 20.55715072 (0.049) 94.439 1,941.40
6-30-99 Value before Surr Chg 20.55715072 0.000 94.439 1,941.40
6-30-99 Surrender Charge 20.55715072 0.000 94.439 1,941.40
Cumulative Total Returns without/with chrgs. 95.47% A 94.14%
Avg. Annual Total Returns without/with chrgs. 14.34% B 14.19%
Franklin Zero Coupon - 2005
6-30-89 Purchase $1,000.00 $11.26535477 88.768 88.768 $1,000.00
6-30-90 Contract Fee (1.00) 10.85458360 (0.092) 88.676 962.54
6-30-91 Contract Fee (1.00) 11.46056817 (0.087) 88.588 1,015.27
6-30-92 Contract Fee (1.00) 13.53610417 (0.074) 88.514 1,198.14
6-30-93 Contract Fee (1.00) 17.37752728 (0.058) 88.457 1,537.16
6-30-94 Contract Fee (1.00) 15.99331951 (0.063) 88.394 1,413.72
6-30-95 Contract Fee (1.00) 18.95506513 (0.053) 88.342 1,674.52
6-30-96 Contract Fee (1.00) 19.23481832 (0.052) 88.290 1,698.24
6-30-97 Contract Fee (1.00) 20.66244634 (0.048) 88.241 1,823.28
6-30-98 Contract Fee (1.00) 23.26941083 (0.043) 88.198 2,052.32
6-30-99 Contract Fee (1.00) 23.38292589 (0.043) 88.156 2,061.33
6-30-99 Value before Surr Chg 23.38292589 0.000 88.156 2,061.33
6-30-99 Surrender Charge 23.38292589 0.000 88.156 2,061.33
Cumulative Total Returns without/with chrgs. 107.56% A 106.13%
Avg. Annual Total Returns without/with chrgs. 15.73% B 15.57%
Franklin Zero Coupon - 2010
6-30-89 Purchase $1,000.00 $11.24382372 88.938 88.938 $1,000.00
6-30-90 Contract Fee (1.00) 10.85648884 (0.092) 88.846 964.55
6-30-91 Contract Fee (1.00) 11.02817122 (0.091) 88.755 978.80
6-30-92 Contract Fee (1.00) 13.11837202 (0.076) 88.679 1,163.32
6-30-93 Contract Fee (1.00) 16.93650395 (0.059) 88.620 1,500.91
6-30-94 Contract Fee (1.00) 15.58486894 (0.064) 88.555 1,380.13
6-30-95 Contract Fee (1.00) 19.48443734 (0.051) 88.504 1,724.45
6-30-96 Contract Fee (1.00) 19.77580128 (0.051) 88.454 1,749.24
6-30-97 Contract Fee (1.00) 21.60810819 (0.046) 88.407 1,910.31
6-30-98 Contract Fee (1.00) 25.99460614 (0.038) 88.369 2,297.11
6-30-99 Contract Fee (1.00) 25.04775737 (0.040) 88.329 2,212.44
6-30-99 Value before Surr Chg 25.04775737 0.000 88.329 2,212.44
6-30-99 Surrender Charge 25.04775737 0.000 88.329 2,212.44
Cumulative Total Returns without/with chrgs. 122.77% A 121.24%
Avg. Annual Total Returns without/with chrgs. 17.37% B 17.21%
<FN>
A = (Unit Value as of June 30, 1999 - Unit Value at Purchase)/Unit Value at
Purchase B = [(A+1)^(1/10 Years)]-1 C = (Accumulated Value as of June 30, 1999 -
Accum. Value at Purch.)/Accum. Value at Purch.
D = [(C+1)^(1/10 Years)]-1
</FN>
</TABLE>
<TABLE>
<CAPTION>
Original Purchase as of Sub-Account Inception
Valuation Date as of June 30, 1999
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
Franklin Capital Growth
<S> <C> <C> <C> <C> <C> <C>
5-1-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-1-97 Contract Fee (1.00) $11.17227997 (0.090) 99.910 $1,116.23
5-1-98 Contract Fee (1.00) $14.62013773 (0.068) 99.842 $1,459.71
5-1-99 Contract Fee (1.00) $16.46083654 (0.061) 99.781 $1,642.48
6-30-99 Contract Fee (1.00) $17.32145585 (0.058) 99.724 $1,727.36
6-30-99 Value before Surr Chg $17.32145585 0.000 99.724 $1,727.36
6-30-99 Surrender Charge (42.50) $17.32145585 (2.454) 97.270 $1,684.86
Cumulative Total Returns without/with chgs. 73.21% A 68.49% C
Avg. Annual Total Returns without/with chgs. 18.96% B 17.92% D
Franklin Growth and Income
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 9.59756692 (0.104) 99.896 958.76
1-24-91 Contract Fee (1.00) 10.03104257 (0.100) 99.796 1,001.06
1-24-92 Contract Fee (1.00) 12.16171947 (0.082) 99.714 1,212.69
1-24-93 Contract Fee (1.00) 12.57661487 (0.080) 99.634 1,253.06
1-24-94 Contract Fee (1.00) 14.09886247 (0.071) 99.563 1,403.73
1-24-95 Contract Fee (1.00) 13.27759299 (0.075) 99.488 1,320.96
1-24-96 Contract Fee (1.00) 17.25393143 (0.058) 99.430 1,715.56
1-24-97 Contract Fee (1.00) 19.79450666 (0.051) 99.380 1,967.17
1-24-98 Contract Fee (1.00) 23.84479142 (0.042) 99.338 2,368.69
1-24-99 Contract Fee (1.00) 25.33178429 (0.039) 99.298 2,515.40
6-30-99 Value before Surr Chg 27.82914670 0.000 99.298 2,763.39
6-30-99 Contract Fee (1.00) 27.82914670 (0.036) 99.262 2,762.39
6-30-99 Surrender Charge 0.00 27.82914670 0.000 99.262 2,762.39
Cumulative Total Returns without/with chgs. 178.29% A 176.24% C
Avg. Annual Total Returns without/with chgs. 10.30% B 10.23% D
Franklin High Income
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 9.98265449 (0.100) 99.900 997.27
1-24-91 Contract Fee (1.00) 8.98103976 (0.111) 99.788 896.20
1-24-92 Contract Fee (1.00) 11.85616038 (0.084) 99.704 1,182.11
1-24-93 Contract Fee (1.00) 13.39874388 (0.075) 99.630 1,334.91
1-24-94 Contract Fee (1.00) 15.29126669 (0.065) 99.564 1,522.46
1-24-95 Contract Fee (1.00) 14.64571855 (0.068) 99.496 1,457.19
1-24-96 Contract Fee (1.00) 17.40215300 (0.057) 99.438 1,730.44
1-24-97 Contract Fee (1.00) 19.32656477 (0.052) 99.387 1,920.80
1-24-98 Contract Fee (1.00) 21.32546077 (0.047) 99.340 2,118.47
1-24-99 Contract Fee (1.00) 21.17467503 (0.047) 99.293 2,102.49
6-30-99 Value before Surr Chg 21.13194534 0.000 99.293 2,098.24
6-30-99 Contract Fee (1.00) 21.13194534 (0.047) 99.245 2,097.24
6-30-99 Surrender Charge 0.00 21.13194534 0.000 99.245 2,097.24
Cumulative Total Returns without/with chgs. 111.32% A 109.72% C
Avg. Annual Total Returns without/with chgs. 7.43% B 7.35% D
Franklin Income Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.70345941 (0.093) 99.907 1,069.35
1-24-91 Contract Fee (1.00) 9.93454622 (0.101) 99.806 991.53
1-24-92 Contract Fee (1.00) 13.99562082 (0.071) 99.734 1,395.85
1-24-93 Contract Fee (1.00) 15.30544228 (0.065) 99.669 1,525.48
1-24-94 Contract Fee (1.00) 17.64961404 (0.057) 99.612 1,758.12
1-24-95 Contract Fee (1.00) 16.27638185 (0.061) 99.551 1,620.33
1-24-96 Contract Fee (1.00) 20.08267334 (0.050) 99.501 1,998.25
1-24-97 Contract Fee (1.00) 21.74528582 (0.046) 99.455 2,162.68
1-24-98 Contract Fee (1.00) 24.54291374 (0.041) 99.415 2,439.92
1-24-99 Contract Fee (1.00) 24.52276055 (0.041) 99.374 2,436.92
6-30-99 Value before Surr Chg 25.15286592 0.000 99.374 2,499.53
6-30-99 Contract Fee (1.00) 25.15286592 (0.040) 99.334 2,498.53
6-30-99 Surrender Charge 0.00 25.15286592 0.000 99.334 2,498.53
Cumulative Total Returns without/with chgs. 151.53% A 149.85% C
Avg. Annual Total Returns without/with chgs. 9.24% B 9.17% D
Franklin Money Market
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.67178511 (0.094) 99.906 1,066.18
1-24-91 Contract Fee (1.00) 11.31010498 (0.088) 99.818 1,128.95
1-24-92 Contract Fee (1.00) 11.72881708 (0.085) 99.733 1,169.75
1-24-93 Contract Fee (1.00) 11.90009827 (0.084) 99.649 1,185.83
1-24-94 Contract Fee (1.00) 12.02348344 (0.083) 99.565 1,197.12
1-24-95 Contract Fee (1.00) 12.32338409 (0.081) 99.484 1,225.98
1-24-96 Contract Fee (1.00) 12.84105599 (0.078) 99.406 1,276.48
1-24-97 Contract Fee (1.00) 13.29676207 (0.075) 99.331 1,320.78
1-24-98 Contract Fee (1.00) 13.78822114 (0.073) 99.259 1,368.60
1-24-99 Contract Fee (1.00) 14.28684165 (0.070) 99.189 1,417.09
6-30-99 Value before Surr Chg 14.47001675 0.000 99.189 1,435.26
6-30-99 Contract Fee (1.00) 14.47001675 (0.069) 99.120 1,434.26
6-30-99 Surrender Charge 0.00 14.47001675 0.000 99.120 1,434.26
Cumulative Total Returns without/with chgs. 44.70% A 43.43% C
Avg. Annual Total Returns without/with chgs. 3.60% B 3.52% D
Mutual Discovery Securities
11-8-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
11-8-97 Contract Fee (1.00) 11.82973739 (0.085) 99.915 1,181.97
11-8-98 Contract Fee (1.00) 10.94138042 (0.091) 99.824 1,092.21
6-30-99 Contract Fee (1.00) 12.46194426 (0.080) 99.744 1,243.00
6-30-99 Value before Surr Chg 12.46194426 0.000 99.744 1,243.00
6-30-99 Surrender Charge (51.00) 12.46194426 (4.092) 95.651 1,192.00
Cumulative Total Returns without/with chgs. 24.62% A 19.20% C
Avg. Annual Total Returns without/with chgs. 8.69% B 6.88% D
Mutual Shares Securities
11-8-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
11-8-97 Contract Fee (1.00) 11.75083052 (0.085) 99.915 1,174.08
11-8-98 Contract Fee (1.00) 11.57328030 (0.086) 99.828 1,155.34
6-30-99 Value before Surr Chg 13.43316575 0.000 99.828 1,341.01
6-30-99 Contract Fee (1.00) 13.43316575 (0.074) 99.754 1,340.01
6-30-99 Surrender Charge (51.00) 13.43316575 (3.797) 95.957 1,289.01
Cumulative Total Returns without/with chgs. 34.33% A 28.90% C
Avg. Annual Total Returns without/with chgs. 11.82% B 10.09% D
Franklin Natural Resources Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 12.88562226 (0.078) 99.922 1,287.56
1-24-91 Contract Fee (1.00) 9.76834317 (0.102) 99.820 975.08
1-24-92 Contract Fee (1.00) 10.91292825 (0.092) 99.728 1,088.33
1-24-93 Contract Fee (1.00) 9.12197464 (0.110) 99.619 908.72
1-24-94 Contract Fee (1.00) 14.41516281 (0.069) 99.549 1,435.02
1-24-95 Contract Fee (1.00) 12.96347704 (0.077) 99.472 1,289.51
1-24-96 Contract Fee (1.00) 15.88612084 (0.063) 99.409 1,579.23
1-24-97 Contract Fee (1.00) 13.72771013 (0.073) 99.336 1,363.66
1-24-98 Contract Fee (1.00) 10.52200700 (0.095) 99.241 1,044.22
1-24-99 Contract Fee (1.00) 8.19126066 (0.122) 99.119 811.91
6-30-99 Value before Surr Chg 10.81112496 0.000 99.119 1,071.59
6-30-99 Contract Fee (1.00) 10.81112496 (0.092) 99.027 1,070.59
6-30-99 Surrender Charge 0.00 10.81112496 0.000 99.027 1,070.59
Cumulative Total Returns without/with chgs. 8.11% A 7.06% C
Avg. Annual Total Returns without/with chgs. 0.75% B 0.66% D
Franklin Real Estate Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.13076509 (0.099) 99.901 1,012.08
1-24-91 Contract Fee (1.00) 9.36020172 (0.107) 99.794 934.10
1-24-92 Contract Fee (1.00) 12.25114822 (0.082) 99.713 1,221.60
1-24-93 Contract Fee (1.00) 13.49614031 (0.074) 99.639 1,344.74
1-24-94 Contract Fee (1.00) 15.30618064 (0.065) 99.573 1,524.09
1-24-95 Contract Fee (1.00) 14.92840438 (0.067) 99.506 1,485.47
1-24-96 Contract Fee (1.00) 18.04447622 (0.055) 99.451 1,794.54
1-24-97 Contract Fee (1.00) 23.78351943 (0.042) 99.409 2,364.29
1-24-98 Contract Fee (1.00) 27.81930359 (0.036) 99.373 2,764.49
1-24-99 Contract Fee (1.00) 22.54748470 (0.044) 99.329 2,239.61
6-30-99 Value before Surr Chg 23.98705371 0.000 99.329 2,382.60
6-30-99 Contract Fee (1.00) 23.98705371 (0.042) 99.287 2,381.60
6-30-99 Surrender Charge 0.00 23.98705371 0.000 99.287 2,381.60
Cumulative Total Returns without/with chgs. 139.87% A 138.16% C
Avg. Annual Total Returns without/with chgs. 8.75% B 8.67% D
Franklin Rising Dividends
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Contract Fee (1.00) 10.68876950 (0.094) 99.906 1,067.88
1-27-94 Contract Fee (1.00) 10.36623339 (0.096) 99.810 1,034.65
1-27-95 Contract Fee (1.00) 9.94675745 (0.101) 99.709 991.79
1-27-96 Contract Fee (1.00) 12.48933274 (0.080) 99.629 1,244.30
1-27-97 Contract Fee (1.00) 15.20870091 (0.066) 99.564 1,514.23
1-27-98 Contract Fee (1.00) 19.73278049 (0.051) 99.513 1,963.67
1-27-99 Contract Fee (1.00) 19.71148388 (0.051) 99.462 1,960.55
6-30-99 Value before Surr Chg 21.46719404 0.000 99.462 2,135.17
6-30-99 Contract Fee (1.00) 21.46719404 (0.047) 99.416 2,134.17
6-30-99 Surrender Charge 0.00 21.46719404 0.000 99.416 2,134.17
Cumulative Total Returns without/with chgs. 114.67% A 113.42% C
Avg. Annual Total Returns without/with chgs. 10.83% B 10.75% D
Franklin Small Cap
11-1-95 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
11-1-96 Contract Fee (1.00) 12.14713625 (0.082) 99.918 1,213.71
11-1-97 Contract Fee (1.00) 15.53654825 (0.064) 99.853 1,551.38
11-1-98 Contract Fee (1.00) 12.49929024 (0.080) 99.773 1,247.10
6-30-99 Value before Surr Chg 16.83123568 0.000 99.773 1,679.31
6-30-99 Contract Fee (1.00) 16.83123568 (0.059) 99.714 1,678.31
6-30-99 Surrender Charge (42.50) 16.83123568 (2.525) 97.189 1,635.81
Cumulative Total Returns without/with chgs. 68.31% A 63.58% C
Avg. Annual Total Returns without/with chgs. 15.27% B 14.38% D
Templeton Developing Markets Equity
3-15-94 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-15-95 Contract Fee (1.00) 8.62058630 (0.116) 99.884 861.06
3-15-96 Contract Fee (1.00) 10.27729571 (0.097) 99.787 1,025.54
3-15-97 Contract Fee (1.00) 12.41978933 (0.081) 99.706 1,238.33
3-15-98 Contract Fee (1.00) 10.51420276 (0.095) 99.611 1,047.33
3-15-99 Contract Fee (1.00) 8.18678208 (0.122) 99.489 814.49
6-30-99 Value before Surr Chg 10.73475762 0.000 99.489 1,067.99
6-30-99 Contract Fee (1.00) 10.73475762 (0.093) 99.396 1,066.99
6-30-99 Surrender Charge (25.50) 10.73475762 (2.375) 97.020 1,041.49
Cumulative Total Returns without/with chgs. 7.35% A 4.15% C
Avg. Annual Total Returns without/with chgs. 1.35% B 0.77% D
Templeton Global Asset Allocation
5-1-95 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-1-96 Contract Fee (1.00) 11.24184599 (0.089) 99.911 1,123.18
5-1-97 Contract Fee (1.00) 12.74937771 (0.078) 99.833 1,272.80
5-1-98 Contract Fee (1.00) 14.95108178 (0.067) 99.766 1,491.61
5-1-99 Contract Fee (1.00) 14.11534088 (0.071) 99.695 1,407.23
6-30-99 Value before Surr Chg 14.13328693 0.000 99.695 1,409.02
6-30-99 Contract Fee (1.00) 14.13328693 (0.071) 99.624 1,408.02
6-30-99 Surrender Charge (34.00) 14.13328693 (2.406) 97.218 1,374.02
Cumulative Total Returns without/with chgs. 41.33% A 37.40% C
Avg. Annual Total Returns without/with chgs. 8.66% B 7.92% D
Templeton Global Growth
3-15-94 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-15-95 Contract Fee (1.00) 10.09452231 (0.099) 99.901 1,008.45
3-15-96 Contract Fee (1.00) 11.79417892 (0.085) 99.816 1,177.25
3-15-97 Contract Fee (1.00) 14.06170230 (0.071) 99.745 1,402.58
3-15-98 Contract Fee (1.00) 16.68243544 (0.060) 99.685 1,662.99
3-15-99 Contract Fee (1.00) 16.12348021 (0.062) 99.623 1,606.27
6-30-99 Value before Surr Chg 18.05030611 0.000 99.623 1,798.23
6-30-99 Contract Fee (1.00) 18.05030611 (0.055) 99.568 1,797.23
6-30-99 Surrender Charge (25.50) 18.05030611 (1.413) 98.155 1,771.73
Cumulative Total Returns without/with chgs. 80.50% A 77.17% C
Avg. Annual Total Returns without/with chgs. 11.80% B 11.40% D
Templeton Global Income Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.85157001 (0.092) 99.908 1,084.16
1-24-91 Contract Fee (1.00) 11.76337661 (0.085) 99.823 1,174.25
1-24-92 Contract Fee (1.00) 12.92541183 (0.077) 99.745 1,289.25
1-24-93 Contract Fee (1.00) 12.75002133 (0.078) 99.667 1,270.76
1-24-94 Contract Fee (1.00) 14.76765782 (0.068) 99.599 1,470.85
1-24-95 Contract Fee (1.00) 13.50498150 (0.074) 99.525 1,344.09
1-24-96 Contract Fee (1.00) 15.35232035 (0.065) 99.460 1,526.94
1-24-97 Contract Fee (1.00) 16.46140335 (0.061) 99.399 1,636.25
1-24-98 Contract Fee (1.00) 16.93462624 (0.059) 99.340 1,682.29
1-24-99 Contract Fee (1.00) 17.81240927 (0.056) 99.284 1,768.49
6-30-99 Value before Surr Chg 16.69802045 0.000 99.284 1,657.85
6-30-99 Contract Fee (1.00) 16.69802045 (0.060) 99.224 1,656.85
6-30-99 Surrender Charge 0.00 16.69802045 0.000 99.224 1,656.85
Cumulative Total Returns without/with chgs. 66.98% A 65.68% C
Avg. Annual Total Returns without/with chgs. 5.04% B 4.96% D
Templeton International Equity
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Contract Fee (1.00) 9.53509236 (0.105) 99.895 952.51
1-27-94 Contract Fee (1.00) 12.85431852 (0.078) 99.817 1,283.08
1-27-95 Contract Fee (1.00) 11.91221607 (0.084) 99.733 1,188.05
1-27-96 Contract Fee (1.00) 13.52801052 (0.074) 99.659 1,348.19
1-27-97 Contract Fee (1.00) 16.14799023 (0.062) 99.598 1,608.30
1-27-98 Contract Fee (1.00) 17.44491176 (0.057) 99.540 1,736.47
1-27-99 Contract Fee (1.00) 17.72403072 (0.056) 99.484 1,763.25
6-30-99 Value before Surr Chg 20.26134036 0.000 99.484 2,015.67
6-30-99 Contract Fee (1.00) 20.26134036 (0.049) 99.434 2,014.67
6-30-99 Surrender Charge 0.00 20.26134036 0.000 99.434 2,014.67
Cumulative Total Returns without/with chgs. 102.61% A 101.47% C
Avg. Annual Total Returns without/with chgs. 9.97% B 9.89% D
Templeton International Smaller Companies
5-1-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-1-97 Contract Fee (1.00) $11.32006145 (0.088) 99.912 1,131.01
5-1-98 Contract Fee (1.00) $12.03423474 (0.083) 99.829 1,201.36
5-1-99 Contract Fee (1.00) $10.34721028 (0.097) 99.732 1,031.95
6-30-99 Value before Surr Chg $10.85569231 0.000 99.732 1,082.66
6-30-99 Contract Fee (1.00) $10.85569231 (0.092) 99.640 1,081.66
6-30-99 Surrender Charge (42.50) $10.85569231 (3.915) 95.725 1,039.16
Cumulative Total Returns without/with chgs. 8.56% A 3.92% C
Avg. Annual Total Returns without/with chgs. 2.63% B 1.22% D
Templeton Pacific Growth
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Contract Fee (1.00) 9.91965141 (0.101) 99.899 990.97
1-27-94 Contract Fee (1.00) 14.07652865 (0.071) 99.828 1,405.23
1-27-95 Contract Fee (1.00) 11.91556247 (0.084) 99.744 1,188.51
1-27-96 Contract Fee (1.00) 14.44474860 (0.069) 99.675 1,439.78
1-27-97 Contract Fee (1.00) 14.58766078 (0.069) 99.606 1,453.03
1-27-98 Contract Fee (1.00) 8.42138869 (0.119) 99.488 837.82
1-27-99 Contract Fee (1.00) 7.82724368 (0.128) 99.360 777.71
6-30-99 Value before Surr Chg 10.26126773 0.000 99.360 1,019.56
6-30-99 Contract Fee (1.00) 10.26126773 (0.097) 99.262 1,018.56
6-30-99 Surrender Charge 0.00 10.26126773 0.000 99.262 1,018.56
Cumulative Total Returns without/with chgs. 2.61% A 1.86% C
Avg. Annual Total Returns without/with chgs. 0.35% B 0.25% D
Franklin U.S. Government Securities
3-14-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-14-90 Contract Fee (1.00) 10.29864074 (0.097) 99.903 1,028.86
3-14-91 Contract Fee (1.00) 11.44148140 (0.087) 99.815 1,142.04
3-14-92 Contract Fee (1.00) 12.36677937 (0.081) 99.735 1,233.40
3-14-93 Contract Fee (1.00) 14.05074266 (0.071) 99.663 1,400.35
3-14-94 Contract Fee (1.00) 14.20297756 (0.070) 99.593 1,414.52
3-14-95 Contract Fee (1.00) 14.59412892 (0.069) 99.525 1,452.47
3-14-96 Contract Fee (1.00) 15.82460547 (0.063) 99.461 1,573.94
3-14-97 Contract Fee (1.00) 16.60622197 (0.060) 99.401 1,650.68
3-14-98 Contract Fee (1.00) 18.04599170 (0.055) 99.346 1,792.79
3-14-99 Contract Fee (1.00) 18.76504555 (0.053) 99.292 1,863.23
6-30-99 Value before Surr Chg 18.46547047 0.000 99.292 1,833.48
6-30-99 Contract Fee (1.00) 18.46547047 (0.054) 99.238 1,832.48
6-30-99 Surrender Charge 0.00 18.46547047 0.000 99.238 1,832.48
Cumulative Total Returns without/with chgs. 84.65% A 83.25% C
Avg. Annual Total Returns without/with chgs. 6.13% B 6.06% D
Franklin Global Utilities Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 11.47363453 (0.087) 99.913 1,146.36
1-24-91 Contract Fee (1.00) 11.95102656 (0.084) 99.829 1,193.06
1-24-92 Contract Fee (1.00) 14.20139407 (0.070) 99.759 1,416.71
1-24-93 Contract Fee (1.00) 15.91822229 (0.063) 99.696 1,586.98
1-24-94 Contract Fee (1.00) 16.43119760 (0.061) 99.635 1,637.12
1-24-95 Contract Fee (1.00) 15.48692698 (0.065) 99.571 1,542.04
1-24-96 Contract Fee (1.00) 19.69346882 (0.051) 99.520 1,959.89
1-24-97 Contract Fee (1.00) 20.83359223 (0.048) 99.472 2,072.35
1-24-98 Contract Fee (1.00) 25.00670659 (0.040) 99.432 2,486.46
1-24-99 Contract Fee (1.00) 27.85091832 (0.036) 99.396 2,768.27
6-30-99 Value before Surr Chg 30.39824832 0.000 99.396 3,021.46
6-30-99 Contract Fee (1.00) 30.39824832 (0.033) 99.363 3,020.46
6-30-99 Surrender Charge 0.00 30.39824832 0.000 99.363 3,020.46
Cumulative Total Returns without/with chgs. 203.98% A 202.05% C
Avg. Annual Total Returns without/with chgs. 11.24% B 11.17% D
Franklin Zero Coupon - 2000
3-14-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-14-90 Contract Fee (1.00) 10.37748201 (0.096) 99.904 1,036.75
3-14-91 Contract Fee (1.00) 11.49325260 (0.087) 99.817 1,147.22
3-14-92 Contract Fee (1.00) 12.63019476 (0.079) 99.737 1,259.70
3-14-93 Contract Fee (1.00) 15.48457708 (0.065) 99.673 1,543.39
3-14-94 Contract Fee (1.00) 15.97181577 (0.063) 99.610 1,590.96
3-14-95 Contract Fee (1.00) 16.16440029 (0.062) 99.548 1,609.14
3-14-96 Contract Fee (1.00) 17.74484226 (0.056) 99.492 1,765.47
3-14-97 Contract Fee (1.00) 18.31427141 (0.055) 99.437 1,821.12
3-14-98 Contract Fee (1.00) 19.60681587 (0.051) 99.386 1,948.65
3-14-99 Contract Fee (1.00) 20.49783627 (0.049) 99.338 2,036.21
6-30-99 Value before Surr Chg 20.55715072 0.000 99.338 2,042.10
6-30-99 Contract Fee (1.00) 20.55715072 (0.049) 99.289 2,041.10
6-30-99 Surrender Charge 0.00 20.55715072 0.000 99.289 2,041.10
Cumulative Total Returns without/with chgs. 105.57% A 104.11% C
Avg. Annual Total Returns without/with chgs. 7.25% B 7.17% D
Franklin Zero Coupon - 2005
3-14-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-14-90 Contract Fee (1.00) 10.38882453 (0.096) 99.904 1,037.88
3-14-91 Contract Fee (1.00) 11.53456820 (0.087) 99.817 1,151.35
3-14-92 Contract Fee (1.00) 12.62819047 (0.079) 99.738 1,259.51
3-14-93 Contract Fee (1.00) 16.36793990 (0.061) 99.677 1,631.50
3-14-94 Contract Fee (1.00) 16.86182251 (0.059) 99.617 1,679.73
3-14-95 Contract Fee (1.00) 17.12592868 (0.058) 99.559 1,705.04
3-14-96 Contract Fee (1.00) 19.37651757 (0.052) 99.507 1,928.11
3-14-97 Contract Fee (1.00) 20.04125698 (0.050) 99.458 1,993.25
3-14-98 Contract Fee (1.00) 22.73556936 (0.044) 99.414 2,260.22
3-14-99 Contract Fee (1.00) 24.04541704 (0.042) 99.372 2,389.44
6-30-99 Value before Surr Chg 23.38292589 0.000 99.372 2,323.61
6-30-99 Contract Fee (1.00) 23.38292589 (0.043) 99.329 2,322.61
6-30-99 Surrender Charge 0.00 23.38292589 0.000 99.329 2,322.61
Cumulative Total Returns without/with chgs. 133.83% A 132.26% C
Avg. Annual Total Returns without/with chgs. 8.60% B 8.52% D
Franklin Zero Coupon - 2010
3-14-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-14-90 Contract Fee (1.00) 10.25922011 (0.097) 99.903 1,024.92
3-14-91 Contract Fee (1.00) 11.34740047 (0.088) 99.814 1,132.63
3-14-92 Contract Fee (1.00) 12.25923536 (0.082) 99.733 1,222.65
3-14-93 Contract Fee (1.00) 16.12714811 (0.062) 99.671 1,607.41
3-14-94 Contract Fee (1.00) 16.82866376 (0.059) 99.611 1,676.33
3-14-95 Contract Fee (1.00) 17.03620553 (0.059) 99.553 1,696.00
3-14-96 Contract Fee (1.00) 19.87163939 (0.050) 99.502 1,977.28
3-14-97 Contract Fee (1.00) 20.61421426 (0.049) 99.454 2,050.16
3-14-98 Contract Fee (1.00) 24.97939657 (0.040) 99.414 2,483.30
3-14-99 Contract Fee (1.00) 26.34826167 (0.038) 99.376 2,618.38
6-30-99 Value before Surr Chg 25.04775737 0.000 99.376 2,489.14
6-30-99 Contract Fee (1.00) 25.04775737 (0.040) 99.336 2,488.14
6-30-99 Surrender Charge 0.00 25.04775737 0.000 99.336 2,488.14
Cumulative Total Returns without/with chgs. 150.48% A 148.81% C
Avg. Annual Total Returns without/with chgs. 9.32% B 9.25% D
Franklin Global Health Care Securities
5-1-98 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-1-99 Contract Fee (1.00) 8.68990569 (0.115) 99.885 867.99
6-30-99 Value before Surr Chg 8.96313257 0.000 99.885 895.28
6-30-99 Contract Fee (1.00) 8.96313257 (0.112) 99.773 894.28
6-30-99 Surrender Charge (51.00) 8.96313257 (5.690) 94.083 843.28
Cumulative Total Returns without/with chgs. -10.37% A -15.67% C
Avg. Annual Total Returns without/with chgs. -8.97% B -13.62% D
Franklin Value Securities
5-1-98 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-1-99 Contract Fee (1.00) 7.78347562 (0.128) 99.872 777.35
6-30-99 Value before Surr Chg 8.49138875 0.000 99.872 848.05
6-30-99 Contract Fee (1.00) 8.49138875 (0.118) 99.754 847.05
6-30-99 Surrender Charge (51.00) 8.49138875 (6.006) 93.748 796.05
Cumulative Total Returns without/with chgs. -15.09% A -20.40% C
Avg. Annual Total Returns without/with chgs. -13.10% B -17.79% D
<FN>
A = (Unit Value as of June 30, 1999 - Unit Value at Purchase)/Unit Value at
Purchase B = [(A+1)^(1/Years since Inception)]-1 C = (Accumulated Value as of
June 30, 1999 - Accum. Value at Purch.)/Accum. Value at Purch.
D = [(C+1)^(1/Years since Inception)]-1
</FN>
</TABLE>
<TABLE>
<CAPTION>
Valuemark(R) IV
Preferred Life Variable Account C
Cumulative and Average Annual Total Return Calculations - HYPOTHETICAL
Original Purchase as of June 30, 1998
Valuation Date as of June 30, 1999
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
AIM VI Growth
<S> <C> <C> <C> <C> <C> <C>
6-30-98 Purchase $1,000.00 $23.98571337 41.691 41.691 $1,000.00
6-30-99 Contract Fee (1.00) 30.02023684 (0.033) 41.658 1,250.59
6-30-99 Value before Surr Chg 30.02023684 0.000 41.658 1,250.59
6-30-99 Surrender Charge (60.00) 30.02023684 (1.999) 39.660 1,190.59
Cumulative and Average Annual Total Returns
without/with charges 25.16% A 19.06% B
Alger American Growth
6-30-98 Purchase $1,000.00 $54.52728205 18.339 18.339 $1,000.00
6-30-99 Contract Fee (1.00) 72.63538663 (0.014) 18.326 1,331.09
6-30-99 Value before Surr Chg 72.63538663 0.000 18.326 1,331.09
6-30-99 Surrender Charge (60.00) 72.63538663 (0.826) 17.500 1,271.09
Cumulative and Average Annual Total Returns
without/with charges 33.21% A 27.11% B
Alger American Leveraged AllCap
6-30-98 Purchase $1,000.00 $27.89920509 35.843 35.843 $1,000.00
6-30-99 Contract Fee (1.00) 43.34944541 (0.023) 35.820 1,552.79
6-30-99 Value before Surr Chg 43.34944541 0.000 35.820 1,552.79
6-30-99 Surrender Charge (60.00) 43.34944541 (1.384) 34.436 1,492.79
Cumulative and Average Annual Total Returns
without/with charges 55.38% A 49.28% B
<FN>
A = (Unit Value as of June 30, 1999 - Unit Value at Purchase)/Unit Value at
Purchase B = (Accumulated Value as of June 30, 1999 - Accum. Value at
Purch.)/Accum. Value at Purch.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Original Purchase as of June 30, 1994
Valuation Date as of June 30, 1999
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
AIM VI Growth
<S> <C> <C> <C> <C> <C> <C>
6-30-94 Purchase $1,000.00 $9.98195470 100.181 100.181 $1,000.00
6-30-95 Contract Fee (1.00) 12.79094752 (0.078) 100.103 $1,280.41
6-30-96 Contract Fee (1.00) 15.01934463 (0.067) 100.036 $1,502.48
6-30-97 Contract Fee (1.00) 18.64492837 (0.054) 99.982 1,864.16
6-30-98 Contract Fee (1.00) 23.98571337 (0.042) 99.941 2,397.15
6-30-99 Contract Fee (1.00) 30.02023684 (0.033) 99.907 2,999.24
6-30-99 Value before Surr Chg 30.02023684 0.000 99.907 2,999.24
6-30-99 Surrender Charge (34.00) 30.02023684 (1.133) 98.775 2,965.24
Cumulative Total Returns without/with chrgs. 200.75% A 196.52% C
Avg. Annual Total Returns without/with chrgs. 24.63% B 24.28% D
Alger American Growth
6-30-94 Purchase $1,000.00 $20.95700101 47.717 47.717 $1,000.00
6-30-95 Contract Fee (1.00) 28.90420339 (0.035) 47.682 1,378.21
6-30-96 Contract Fee (1.00) 33.03811182 (0.030) 47.652 1,574.33
6-30-97 Contract Fee (1.00) 40.27554189 (0.025) 47.627 1,918.21
6-30-98 Contract Fee (1.00) 54.52728205 (0.018) 47.609 2,595.97
6-30-99 Contract Fee (1.00) 72.63538663 (0.014) 47.595 3,457.08
6-30-99 Value before Surr Chg 72.63538663 0.000 47.595 3,457.08
6-30-99 Surrender Charge (34.00) 72.63538663 (0.468) 47.127 3,423.08
Cumulative Total Returns without/with chrgs. 246.59% A 242.31% C
Avg. Annual Total Returns without/with chrgs. 28.22% B 27.90% D
<FN>
A = (Unit Value as of June 30, 1999 - Unit Value at Purchase)/Unit Value at
Purchase B = [(A+1)^(1/5 Years)]-1 C = (Accumulated Value as of June 30, 1999 -
Accum. Value at Purch.)/Accum. Value at Purch.
D = [(C+1)^(1/5 Years)]-1
</FN>
</TABLE>
<TABLE>
<CAPTION>
Original Purchase as of June 30, 1989
Valuation Date as of June 30, 1999
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
Alger American Growth
<S> <C> <C> <C> <C> <C> <C>
6-30-89 Purchase $1,000.00 $11.11644864 89.957 89.957 $1,000.00
6-30-90 Contract Fee (1.00) 13.45450318 (0.074) 89.882 1,209.32
6-30-91 Contract Fee (1.00) 14.31003941 (0.070) 89.813 1,285.22
6-30-92 Contract Fee (1.00) 15.93950097 (0.063) 89.750 1,430.57
6-30-93 Contract Fee (1.00) 20.15378291 (0.050) 89.700 1,807.80
6-30-94 Contract Fee (1.00) 20.95700101 (0.048) 89.653 1,878.85
6-30-95 Contract Fee (1.00) 28.90420339 (0.035) 89.618 2,590.33
6-30-96 Contract Fee (1.00) 33.03811182 (0.030) 89.588 2,959.81
6-30-97 Contract Fee (1.00) 40.27554189 (0.025) 89.563 3,607.19
6-30-98 Contract Fee (1.00) 54.52728205 (0.018) 89.544 4,882.62
6-30-99 Contract Fee (1.00) 72.63538663 (0.014) 89.531 6,503.10
6-30-99 Value before Surr Chg 72.63538663 0.000 89.531 6,503.10
6-30-99 Surrender Charge 72.63538663 0.000 89.531 6,503.10
Cumulative Total Returns without/with chrgs. 553.40% A 550.31%
Avg. Annual Total Returns without/with chrgs. 20.65% B 20.59%
<FN>
A = (Unit Value as of June 30, 1999 - Unit Value at Purchase)/Unit Value at
Purchase B = [(A+1)^(1/10 Years)]-1 C = (Accumulated Value as of June 30, 1999 -
Accum. Value at Purch.)/Accum. Value at Purch.
D = [(C+1)^(1/10 Years)]-1
</FN>
</TABLE>
<TABLE>
<CAPTION>
Original Purchase as of Sub-Account Inception
Valuation Date as of June 30, 1999
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
AIM VI Growth
<S> <C> <C> <C> <C> <C> <C> <C>
5-5-93 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-5-94 Contract Fee (1.00) 10.49813411 (0.095) 99.905 1,048.81
5-5-95 Contract Fee (1.00) 11.72581335 (0.085) 99.819 1,170.46
5-5-96 Contract Fee (1.00) 14.79509721 (0.068) 99.752 1,475.84
5-5-97 Contract Fee (1.00) 17.40038646 (0.057) 99.694 1,734.72
5-5-98 Contract Fee (1.00) 23.41232831 (0.043) 99.652 2,333.08
5-5-99 Contract Fee (1.00) 28.63843892 (0.035) 99.617 2,852.87
6-30-99 Value before Surr Chg 30.02023684 0.000 99.617 2,990.52
6-30-99 Contract Fee (1.00) 30.02023684 (0.033) 99.583 2,989.52
6-30-99 Surrender Charge (17.00) 30.02023684 (0.566) 99.017 2,972.52
Cumulative Total Returns without/with chgs. 200.20% A 197.25% C
Avg. Annual Total Returns without/with chgs. 19.55% B 19.36% D
Alger American Growth
1-9-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-9-90 Contract Fee (1.00) 12.26566501 (0.082) 99.918 1,225.57
1-9-91 Contract Fee (1.00) 11.92832842 (0.084) 99.835 1,190.86
1-9-92 Contract Fee (1.00) 18.15458436 (0.055) 99.780 1,811.46
1-9-93 Contract Fee (1.00) 19.27638931 (0.052) 99.728 1,922.39
1-9-94 Contract Fee (1.00) 23.76088211 (0.042) 99.686 2,368.62
1-9-95 Contract Fee (1.00) 23.26591670 (0.043) 99.643 2,318.28
1-9-96 Contract Fee (1.00) 29.06841839 (0.034) 99.608 2,895.45
1-9-97 Contract Fee (1.00) 35.87591329 (0.028) 99.580 3,572.54
1-9-98 Contract Fee (1.00) 41.37466992 (0.024) 99.556 4,119.10
1-9-99 Contract Fee (1.00) 64.99059618 (0.015) 99.541 6,469.21
6-30-99 Value before Surr Chg 72.63538663 0.000 99.541 7,230.18
6-30-99 Contract Fee (1.00) 72.63538663 (0.014) 99.527 7,229.18
6-30-99 Surrender Charge 0.00 72.63538663 0.000 99.527 7,229.18
Cumulative Total Returns without/with chgs. 626.35% A 622.92% C
Avg. Annual Total Returns without/with chgs. 20.84% B 20.78% D
Alger American Leveraged AllCap
1-25-95 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-25-96 Contract Fee (1.00) 17.22146848 (0.058) 99.942 1,721.15
1-25-97 Contract Fee (1.00) 20.13007645 (0.050) 99.892 2,010.84
1-25-98 Contract Fee (1.00) 22.01326365 (0.045) 99.847 2,197.95
1-25-99 Contract Fee (1.00) 36.29540636 (0.028) 99.819 3,622.98
6-30-99 Value before Surr Chg 43.34944541 0.000 99.819 4,327.11
6-30-99 Contract Fee (1.00) 43.34944541 (0.023) 99.796 4,326.11
6-30-99 Surrender Charge (34.00) 43.34944541 (0.784) 99.012 4,292.11
Cumulative Total Returns without/with chgs. 333.49% A 329.21% C
Avg. Annual Total Returns without/with chgs. 39.25% B 38.93% D
<FN>
A = (Unit Value as of June 30, 1999 - Unit Value at Purchase)/Unit Value at
Purchase B = [(A+1)^(1/Years since Inception)]-1 C = (Accumulated Value as of
June 30, 1999 - Accum. Value at Purch.)/Accum. Value at Purch.
D = [(C+1)^(1/Years since Inception)]-1
</FN>
</TABLE>
