V2NY *P2
Supplement Dated January 15, 1999 to
Prospectus Dated May 1, 1998
of
FRANKLIN(R) VALUEMARK(R) II
Preferred Life Insurance Company of New York
Preferred Life Variable Account C
I. YEAR 2000 Preferred Life has initiated programs to ensure that all of the
computer systems utilized to provide services and administer policies will
function properly in the year 2000. An assessment of the total expected costs
specifically related to the year 2000 conversion has been completed; the total
amounts to be expensed over the next two years are not expected to have a
significant effect on Preferred Life's financial position or results of
operations. Preferred Life believes it has taken steps that are reasonably
designed to address the potential failure of computer systems used by its
service providers and to ensure its year 2000 program is completed on a timely
basis.
II. The Prospectus is revised to include the addition of a fixed account
investment option described as follows: The Contract contains a Fixed Option
(referred to in the Contract as the "Fixed Account"). The Fixed Option offers
an interest rate that is guaranteed by Preferred Life for all deposits made
within the twelve month period. This interest rate is set monthly and is
guaranteed for 12 months. Preferred Life guarantees that the interest credited
to the Fixed Option will not be less than 3% per year. If a Contract Owner
selects the Fixed Option, the purchase payment will be placed with the other
general assets of Preferred Life. Also, if a Contract Owner selects the Fixed
Option, the amount of money accumulated in the Contract prior to the Income
Date depends upon the total interest credited to the Contract. A Contract
Owner can make a transfer to or from the Fixed Option and to or from any
Portfolio prior to the Income Date. After the Income Date, a Contract Owner
may make at least one transfer from a Variable Annuity Option to a Fixed
Annuity Option. We reserve the right to modify the transfer provisions of the
Contract without notice. All transfers are subject to the applicable charges
as described in the Prospectus in the section entitled "Charges and Deductions
Deduction for Transfer Fee" and the applicable restrictions as described in
the Prospectus in the section entitled "Purchase Payments and Contract Value -
Transfer of Contract Values".
The following information replaces the section entitled "Surrenders -
Systematic Withdrawal" contained in the Prospectus:
Systematic Withdrawal Program
If the value of a Contract is at least $25,000, Preferred Life offers a plan
which provides automatic monthly or quarterly payments to a Contract Owner
from the Contract each year. The total systematic withdrawals which can be
made each year without Preferred Life deducting a contingent deferred sales
charge is limited to 9% of the value of the Contract determined on the
Valuation Date before we receive the request. A Contract Owner may surrender
any amount under this program if the payments are no longer subject to the
contingent deferred sales charge. If a Contract Owner makes surrenders under
this plan, the 15% free surrender amount may not be used that year. For a
discussion of the contingent deferred sales charge and the 15% free surrender
amount, see "Charges and Deductions Deductions for Contingent Deferred Sales
Charge (Sales Load)". All systematic withdrawals will be made on the 9th day
of the month unless that day is not a business day. If it is not, then the
surrender will be made the previous Valuation Date.
INCOME TAXES, TAX PENALTIES AND CERTAIN RESTRICTIONS MAY APPLY TO SYSTEMATIC
WITHDRAWALS.
The following information replaces the section entitled "Purchase Payments and
Contract Value - Dollar Cost Averaging" contained in the prospectus:
Dollar Cost Averaging Program
The Dollar Cost Averaging Program allows a Contract Owner to systematically
transfer a set amount of money each month or quarter from any one Portfolio
or the Fixed Option to up to eight of the other Portfolios. By allocating
amounts on a regularly scheduled basis, as opposed to allocating the total
amount at one particular time, a Contract may be less susceptible to the
impact of market fluctuations. A Contract Owner may only participate in this
program prior to the Income Date.
There are two Dollar Cost Averaging options. The first option is the Dollar
Cost Averaging Fixed Option and it is available for new Contracts and
additional Purchase Payments to new and existing Contracts which will receive
a special fixed rate guaranteed for one year by Preferred Life. Dollar Cost
Averaging will take place over twelve months and requires a minimum
investment of $6,000.
The second option is the Standard Dollar Cost Averaging Option which requires
a $3,000 minimum investment and participation for at least six months (or two
quarters).
All Dollar Cost Averaging transfers will be made on the 10th day of the month
unless that day is not a Valuation Date. If it is not, then the transfer will
be made the next Valuation Date. The Portfolio(s) a Contract Owner transfers
from may not be the Portfolio(s) a Contract Owner transfers to in this
program. A Contract Owner may elect either program by properly completing the
Dollar Cost Averaging form provided by Preferred Life. A Contract Owner's
participation in the program will end when any of the following occurs:
(1) the number of desired transfers have been made;
(2) a Contract Owner does not have enough money in the Portfolio(s) or Fixed
Option to make the transfer (if less money is available, that amount will be
dollar cost averaged and the program will end);
(3) a Contract Owner requests to terminate the program (a request must be
received by Preferred Life by the first of the month to terminate that
month); or
(4) the Contract is terminated.
If a Contract Owner participates in the Dollar Cost Averaging Program, the
transfers made under the program are not taken into account in determining
any transfer fee. A Contract Owner may not participate in the Dollar Cost
Averaging Program and Flexible Rebalancing at the same time.
The following information replaces the section entitled "Purchase Payments and
Contract Value - Automatic Investment Plan" contained in the prospectus:
Automatic Investment Plan
The Automatic Investment Plan (AIP) is a program which allows a Contract
Owner to make additional Purchase Payments to the Contract on a monthly or
quarterly basis by electronic transfer of funds from a Contract Owner's
savings or checking account. A Contract owner may participate in this program
by completing the appropriate form. Preferred Life must receive the 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 Valuation Date. The
minimum investment that can be made by AIP is $100. A Contract Owner may stop
AIP at any time. Notification must be given by a Contract Owner to Preferred
Life by the first of the month in order to stop or change AIP that month. If
AIP is used for a Qualified Contract, a Contract Owner should consult a tax
adviser for advice regarding maximum contributions.
The following provision is added to the Prospectus after "Purchase Payments
and Contract Value - Dollar Cost Averaging":
Flexible Rebalancing
Once a Contract Owner's money has been invested, the performance of the
Portfolios may cause the chosen allocation to shift. Flexible Rebalancing is
designed to help a Contract Owner maintain a specified allocation mix among
the different Portfolios. A Contract Owner can direct Preferred Life to
readjust the Contract Value on a quarterly, semi-annual or annual basis to
return to the original Portfolio allocations. Flexible Rebalancing transfers
will be made on the 20th day of the month unless that day is not a Valuation
Date. If it is not, then the transfer will be made on the previous day. If a
Contract Owner participates in Flexible Rebalancing, the transfers made under
the program are not taken into account in determining any transfer fee. The
Fixed Option is not part of Flexible Rebalancing.
The following provision is added to the Prospectus after "Surrenders -
Systematic Withdrawal":
Minimum Distribution Program
If a Contract is an Individual Retirement Annuity (IRA), a Contract Owner may
select the Minimum Distribution Program. Under this program, Preferred Life
will make payments to a Contract Owner from the Contract that are designed to
meet the applicable minimum distribution requirements imposed by the Internal
Revenue Code for IRAs. If the value of a Contract is at least $25,000,
Preferred Life will make payments to a Contract Owner on a monthly or
quarterly basis. The payments will not be subject to the contingent deferred
sales charge and will be instead of the 15% free surrender amount.
III. The following changes are made to the section entitled "Franklin Valuemark
Funds' Annual Expenses":
a) The following chart restates information about certain Portfolios, as
indicated below.
Management Total
and Portfolio Other Annual
Portfolio Administration Fees1 Expenses Expenses
- -------------------------------------------------------------------------------
Mutual Discovery Securities Fund ..... .95%* .11% 1.06%
Mutual Shares Securities Fund ........ .75%* .05% .80%
Templeton Global Asset Allocation Fund .80%* .14% .94%
Templeton International Smaller
Companies Fund ........................ 1.00%* .06% 1.06%
Zero Coupon Fund - 20005 ............... .60% .03% .63%
Zero Coupon Fund - 20055 ............... .62% .03% .65%
Zero Coupon Fund - 20105 ............... .62% .03% .65%
*Includes a .15% Administration Fee which is a direct expense of the Portfolio.
b) The following footnotes are restated as follows:
4For the year ended December 31, 1997, Franklin Advisers, Inc. ("Advisers")
agreed in advance to waive a portion of its management fees and, if
necessary, to pay certain expenses of the Fund. With this reduction,
management fees and total annual expenses, including management and portfolio
administration fees, paid by the Portfolio represented .43% and .45% of the
Portfolio's average net assets, respectively. The voluntary expense reduction
was discontinued by Advisers effective January 1, 1999.
5For the year ended December 31, 1997, Advisers agreed in advance to waive a
portion of its management fees and, if necessary, to pay certain expenses of
the Fund. With this reduction, management fees and total annual expenses,
including management and portfolio administration fees, represented .37% and
.40% of each Portfolio's average net assets, respectively. The voluntary
expense reduction was discontinued by Advisers effective January 1, 1999.
c) The Examples shown on pages 8 and 9 are restated for the Portfolios listed
below:
Examples
If the Contract is fully surrendered at the end of the applicable time period
and no prior surrenders have occurred, the Contract Owner would have incurred
the following expenses on a $1,000 investment, assuming a 5% rate of return
on assets compounded annually:
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Zero Coupon Fund - 2000 ....... $64 $89 $118 $246
Zero Coupon Fund - 2005 ....... $64 $89 $119 $248
Zero Coupon Fund - 2010 ....... $64 $89 $119 $248
If the Contract is not surrendered at the end of the applicable time period and
no prior surrenders have occurred or is annuitized, the Contract Owner would
have incurred the following expenses on a $1,000 investment, assuming a 5%
annual return on assets compounded annually:
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Zero Coupon Fund - 2000 ....... $22 $67 $114 $246
Zero Coupon Fund - 2005 ....... $22 $67 $115 $248
Zero Coupon Fund - 2010 ....... $22 $67 $115 $248
IV. The following replaces the first sentence under "Franklin Valuemark Funds":
Each of the Contract Sub-Accounts of the Variable Account is invested solely
in Class 1 shares of one of the Portfolios of Franklin Valuemark Funds
("Trust").
