File Nos. 333-19173
811-05716
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ( )
Pre-Effective Amendment No. ( )
Post-Effective Amendment No. 2 (X)
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 ( )
Amendment No. 28 (X)
(Check appropriate box or boxes.)
PREFERRED LIFE VARIABLE ACCOUNT C
-------------------------------------
(Exact Name of Registrant)
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
---------------------------------------------------
(Name of Depositor)
152 West 57th Street, 18th Floor, New York, New York 10019
------------------------------------------------------- --------
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (212) 586-7733
Name and Address of Agent for Service
- -------------------------------------------
Eugene Long
Preferred Life Insurance Company of New York
152 West 57th Street, 18th Floor
New York, New York 10019
Copies to:
Judith A. Hasenauer
Blazzard, Grodd & Hasenauer, P.C.
P.O. Box 5108
Westport, CT 06881
(203) 226-7866
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b) of Rule 485
___ on (date) pursuant to paragraph (b) of Rule 485
_X_ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
___ on (date) pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following:
___ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Registered:
Individual Immediate Variable Annuity Contracts
CROSS REFERENCE SHEET
(Required by Rule 495)
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ITEM NO. LOCATION
PART A
Item 1. Cover Page.................................. Cover Page
Item 2. Definitions................................. Index of Terms
Item 3. Synopsis or Highlights...................... Profile
Item 4. Condensed Financial Information............. Appendix
Item 5. General Description of Registrant,
Depositor, and Portfolio Companies.......... The Company; The
Variable Account;
Franklin Valuemark
Funds
Item 6. Deductions.................................. Expenses
Item 7. General Description of Variable
Annuity Contracts........................... The Franklin Templeton
Valuemark Income Plus
Immediate Variable
Annuity Contract
Item 8. Annuity Period.............................. Annuity Payments (The
Payout Phase)
Item 9. Death Benefit............................... Death Benefit
Item 10. Purchases and Contract Value................ Purchase
Item 11. Redemptions................................. Access To Your Money
Item 12. Taxes....................................... Taxes
Item 13. Legal Proceedings........................... Not Applicable
Item 14. Table of Contents of the Statement of
Additional Information...................... Table of Contents
of the Statement of
Additional
Information
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ITEM NO. DEFINITION
PART B
Item 15. Cover Page................................... Cover Page
Item 16. Table of Contents............................ Table of Contents
Item 17. General Information and History.............. The Company
Item 18. Services..................................... Not Applicable
Item 19. Purchase of Securities Being Offered......... Not Applicable
Item 20. Underwriters................................. Distributor
Item 21. Calculation of Performance Data.............. Calculation of
Performance Data
Item 22. Annuity Payments............................. Annuity
Provisions
Item 23. Financial Statements......................... Financial
Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the appropriate
Item so numbered, in Part C to this Registration Statement.
<PAGE>
PART A
PROFILE OF THE FRANKLIN TEMPLETON VALUEMARK
INCOME PLUS IMMEDIATE VARIABLE ANNUITY CONTRACT
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
MAY 1, 1999
This profile is a summary of some of the more important points that you should
consider and know before purchasing the Franklin Templeton Valuemark Income Plus
immediate variable annuity contract. The contract is more fully described in the
prospectus which accompanies this profile. Please read the prospectus carefully.
1. THE FRANKLIN TEMPLETON VALUEMARK INCOME PLUS
IMMEDIATE VARIABLE ANNUITY CONTRACT
The Franklin Templeton Valuemark Income Plus immediate variable annuity contract
with variable and fixed payment options (Contract) is a contract between you,
the owner, and Preferred Life Insurance Company of New York (Preferred Life), an
insurance company. In this profile and the prospectus, "we," "us" and "our"
refers to Preferred Life. In return for your one time payment, the Contract
provides for income to you and another person (if elected) under a payment plan
you select.
The variable payment options offer a choice of 18 Class 1 portfolios of Franklin
Valuemark Funds which are listed in Section 4. Depending on market conditions
and the portfolios you choose, payments may go up or down. No minimum payment is
guaranteed under a variable payment option. The variable payment option is
designed to offer a better return than the fixed payment option. However, this
is not guaranteed.
The fixed payment option offers fixed annuity payments that are guaranteed by
Preferred Life. Any portion of your purchase payment allocated to the fixed
payment option will be temporarily allocated to the Money Market Fund on the day
we allocate your purchase payment. It will then be allocated to the fixed
payment option when you begin receiving annuity payments from your Contract (if
you choose a fixed payout).
You can allocate your money in up to ten variable options and the fixed payment
option. We may limit the number of variable options which you may invest in at
any one time. The requested allocation to each variable option and the fixed
payment option must be made in whole percentages and each must be at least 10%.
2. ANNUITY PAYMENTS
Under this Contract, you are the owner and the annuitant. You may name a joint
annuitant, if you choose. You select an income date when you buy the Contract.
The income date must not be later than 60 days after we allocate your purchase
payment.
You can receive annuity payments from your Contract by selecting one of the
following annuity options:
(1) payments for your life;
(2) payments for your life, but if you die before payments have been made
for the guaranteed period you selected, payments will continue to the
beneficiary for the remainder of the guaranteed period (5, 10, 15, 20
years);
(3) payments during the joint lifetime of you and the joint annuitant -
when either of you die, payments will continue as long as the survivor
lives;
(4) payments during the joint lifetime of you and the joint annuitant, but
if you and the joint annuitant die before payments have been made for
the guaranteed period you selected, payments will continue for the
remainder of the guaranteed period (5, 10, 15 or 20 years);
(5) payments for your life and ending with the last payment due prior to
your death with a guarantee that at your death, the beneficiary will
receive a single cash payment as set forth in the Contract; and
(6) payments for a specified period of time (5 - 30 years) with payments
continuing to the beneficiary for the remainder of the period certain
if you and any joint annuitant die before the end of the specified
period.(Option 6 is not available until approved by the New York
Insurance Department.)
Under certain circumstances, if you selected annuity option 6, you can exchange
it for a life contingent payout (options 1-5). Annuity payments can be based on
the available portfolios (variable payout) and/or the fixed payment option
(fixed payout) under all annuity options except annuity payments under Option 6.
Annuity payments under Option 6 may only come from the portfolios (variable
payout). If you choose to have any part of your payments based on the
performance of the portfolios (i.e., variable payout), the dollar amount of your
annuity payments may go up or down, depending on the investment performance of
the portfolio(s) you choose.
3. PURCHASE
You can buy the Contract with $35,000 or more under most circumstances. You
cannot add to your Contract at a later date (i.e., it is a single purchase
payment contract). Your investment representative can help you complete the
appropriate forms.
4. INVESTMENT OPTIONS
You may invest in the Preferred Life fixed payment option and/or the following
Class 1 portfolios of Franklin Valuemark Funds listed below. The High Income
Fund is not available until approved by the New York Insurance Department.
(Check with your registered representative regarding availability.) Franklin
Valuemark Funds are managed by Franklin Advisers, Inc. and its Templeton and
Franklin affiliates.
PORTFOLIO SEEKING STABILITY
OF PRINCIPAL AND INCOME:
Money Market Fund
PORTFOLIO SEEKING
CURRENT INCOME:
High Income Fund
PORTFOLIOS SEEKING
GROWTH AND INCOME:
Global Utilities Securities Fund
Growth and Income Fund
Income Securities Fund
Mutual Shares Securities Fund
Real Estate Securities Fund
Rising Dividends Fund
Templeton Global Asset Allocation Fund
PORTFOLIOS SEEKING
CAPITAL GROWTH
Capital Growth Fund
Mutual Discovery Securities Fund
Small Cap Fund
Templeton Developing Markets Equity Fund
Templeton Global Growth Fund
Templeton International Equity Fund
Templeton International Smaller Companies Fund
Templeton Pacific Growth Fund
Value Securities Fund
The portfolios are fully described in the attached prospectus for Franklin
Valuemark Funds. Your income will fluctuate up or down based on the portfolios'
performance. No minimum dollar payment is guaranteed.
5. EXPENSES
The Contract has insurance features and investment features, and there are costs
related to each.
o The annual insurance charges consist of the Mortality and Expense Risk
Charge and the Administrative Expense Charge. Together these charges
total 1.40% of the average daily value of your Contract allocated to
the variable options.
o If you choose Annuity Options 2 or 4 and make a liquidation, a
commutation fee of 5% in Contract year 2, reducing by 1% each year
until it is 1% for Contract year 6 and thereafter will apply. If you
choose Annuity Option 6 and make a liquidation, a commutation fee of 5%
in Contract years 1 and 2, reducing by 1% each year until it is 1% for
Contract year 6 and thereafter will apply.
o There are also annual portfolio operating expenses, which vary
depending upon the portfolios you select. In 1998, these expenses
ranged from ___% to ____% of the average daily value of the Class 1
portfolios.
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We have provided the following chart to help you understand the expenses in your
Contract.
o The column "Total Annual Expenses" shows the 1.40% insurance charges
and the total annual portfolio expenses for 1998 for each portfolio.
o The next two columns show you two examples of the expenses, in dollars,
you would pay under a Contract. The examples assume that you invested
$1,000 in a Contract which earns 5% annually and that you liquidate all
your money: (1) at the end of year 1, and (2) at the end of year 10.
The examples assume that you selected Annuity Option 6 and chose a 15
year specified period certain annuity option and a 5% assumed
investment return. For year 1, the Total Annual Expenses are assessed
as well as the commutation fee. For year 10, the example shows the
total of all the annual expenses for the 10 years, but there is no
commutation fee.
o The examples are purely hypothetical. They should not be considered a
representation of past or future expenses. Actual expenses may be more
or less than those shown.
<PAGE>
EXAMPLES:
1998
TOTAL
TOTAL ANNUAL TOTAL ANNUAL
ANNUAL CLASS 1 TOTAL EXPENSES AT END OF
INSURANCE PORTFOLIO ANNUAL (1) (2)
PORTFOLIO CHARGES EXPENSES EXPENSES 1 YEAR 10 YEARS
- - --------------------------------------------------------------------------------------------------
<C> <S> <S> <S> <S> <S>
Capital Growth 1.40% ____% ____% ____ _____
- - --------------------------------------------------------------------------------------------------
Global Utilities Securities 1.40% ____% ____% ____ _____
- - --------------------------------------------------------------------------------------------------
Growth and Income 1.40% ____% ____% ____ _____
- - --------------------------------------------------------------------------------------------------
High Income 1.40% ____% ____% ____ _____
- - --------------------------------------------------------------------------------------------------
Income Securities 1.40% ____% ____% ____ _____
- - --------------------------------------------------------------------------------------------------
Money Market 1.40% ____% ____% ____ _____
- - --------------------------------------------------------------------------------------------------
Mutual Discovery Securities 1.40% ____% ____% ____ _____
- - --------------------------------------------------------------------------------------------------
Mutual Shares Securities 1.40% ____% ____% ____ _____
- - --------------------------------------------------------------------------------------------------
Real Estate Securities 1.40% ____% ____% ____ _____
- - --------------------------------------------------------------------------------------------------
Rising Dividends 1.40% ____% ____% ____ _____
- - --------------------------------------------------------------------------------------------------
Small Cap 1.40% ____% ____% ____ _____
- - --------------------------------------------------------------------------------------------------
Templeton Developing Markets Equity 1.40% ____% ____% ____ _____
- - --------------------------------------------------------------------------------------------------
Templeton Global Asset Allocation 1.40% ____% ____% ____ _____
- - --------------------------------------------------------------------------------------------------
Templeton Global Growth 1.40% ____% ____% ____ _____
- - --------------------------------------------------------------------------------------------------
Templeton International Equity 1.40% ____% ____% ____ _____
- - --------------------------------------------------------------------------------------------------
Templeton International Smaller
Companies 1.40% ____% ____% ____ _____
- - --------------------------------------------------------------------------------------------------
Templeton Pacific Growth 1.40% ____% ____% ____ ____
- - --------------------------------------------------------------------------------------------------
Value Securities 1.40% ____% ____% ____ ____
- - --------------------------------------------------------------------------------------------------
For more detailed information, see the Fee Table in the prospectus for the
Contract.
</TABLE>
6. TAXES
For federal tax purposes, annuity payments will be treated as partly a return of
your original investment. That part of each payment is not taxable as income. If
the Contract is tax-qualified, the entire payment may be taxable. If you make a
partial liquidation, the earnings come out first and are taxed as income. If you
are younger than 59 1/2 when you make a liquidation, you may be charged a 10%
federal tax penalty on the taxable amount you withdraw. You should consult your
tax counsel or other tax adviser regarding any liquidations.
7. ACCESS TO YOUR MONEY
Generally, you may not make liquidations from your Contract. However, under
certain circumstances, you may make one liquidation (withdrawal) each Contract
year after the income date if you selected annuity options 2, 4 or 6. The amount
that you may liquidate is set forth in your Contract and is described in the
prospectus for the Contract. There may be a fee assessed when you make a
liquidation (commutation fee). Also, there may be adverse tax consequences,
leading to lower annuity payments than those that would have been paid without
the partial liquidation (during the period certain). You may not make any
liquidations before your income date. Partial liquidations are not available
until approved by the New York Insurance Department.
<PAGE>
8. PERFORMANCE
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If you choose to receive variable payments, your payments will vary up or down.
The increase or decrease will depend on whether the variable options you choose
perform better or worse than the "benchmark" Assumed Investment Return (3% or 5%
per year) you choose.
The following chart shows total returns for the periods shown. Performance is
not shown for the Value Securities Fund because it was first offered for sale on
5/1/98. These numbers reflect the insurance charges and the operating expenses
of the portfolios, but are not adjusted for the Assumed Investment Return. Past
performance does not guarantee or predict future results.
CALENDAR YEAR
PORTFOLIO 1998 1997 1996 1995 1994 1993 1992 1991 1990
<C> <S> <S> <S> <S> <S> <S> <S> <S> <S>
Capital Growth 16.66% 12.54% NA NA NA NA NA NA
- ------------------------------------------------------------------------------------------------------------
Global Utilities
Securities 25.00% 5.57% 29.53% -12.79% 9.00% 7.20% 22.87% 0.44%
- ------------------------------------------------------------------------------------------------------------
Growth and Income 25.97% 12.59% 30.99% -3.38% 8.77% 5.22% 21.09% -3.70%
- ------------------------------------------------------------------------------------------------------------
High Income % % % % % % % %
- ------------------------------------------------------------------------------------------------------------
Income Securities 15.46% 9.72% 20.70% -7.57% 16.96% 11.65% 37.98% -8.73%
- ------------------------------------------------------------------------------------------------------------
Money Market 3.78% 3.69% 4.29% 2.39% 1.12% 1.62% 4.02% 6.12%
- ------------------------------------------------------------------------------------------------------------
Mutual Discovery
Securities 17.71% 1.80% NA NA NA NA NA NA
- ------------------------------------------------------------------------------------------------------------
Mutual Shares Securities 16.10% 3.30% NA NA NA NA NA NA
- ------------------------------------------------------------------------------------------------------------
Real Estate Securities 19.02% 30.96% 15.90% 1.46% 17.36% 10.53% 31.65% -13.20%
- ------------------------------------------------------------------------------------------------------------
Rising Dividends 31.18% 22.44% 27.94% -5.41% -4.80% 8.48% NA NA
- ------------------------------------------------------------------------------------------------------------
Small Cap 15.79% 27.26% 1.46% NA NA NA NA NA
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Templeton Developing
Markets Equity -9.99% 19.89% 1.35% -5.46% NA NA NA NA
- ------------------------------------------------------------------------------------------------------------
Templeton Global
Asset Allocation 10.16% 18.16% 5.91% NA NA NA NA NA
- ------------------------------------------------------------------------------------------------------------
Templeton Global Growth 11.92% 19.58% 11.16% 2.01% NA NA NA NA
- ------------------------------------------------------------------------------------------------------------
Templeton
International Equity 10.14% 21.25% 9.06% -0.53% 26.79% -3.58% NA NA
- ------------------------------------------------------------------------------------------------------------
Templeton International
Smaller Companies -2.87% 11.45% NA NA NA NA NA NA
- ------------------------------------------------------------------------------------------------------------
Templeton Pacific Growth -36.84% 9.55% 6.47% -10.06% 45.82% -2.39% NA NA
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
9. DEATH BENEFIT
If you die before the income date and there is no joint annuitant, the Contract
will be treated as if it had never been issued. We will return your purchase
payment to your estate. If you have chosen either annuity option 3, 4 or 6 with
a joint annuitant and either you or the joint annuitant dies before the income
date, the annuity option will be changed to option 2 (with 10 years of payments
guaranteed or 5 years of payments guaranteed if the survivor's life expectancy
is less than 10 years).
10. OTHER INFORMATION
FREE LOOK. If you cancel the Contract within 10 days after receiving it, you
will receive back the value of your Contract on the day we receive your request,
less any benefits paid (this may be more or less than your original payment). If
you have purchased the Contract as an IRA, we may be required to return your
purchase payment if you decide to cancel your Contract within 10 days after
receiving it.
PURCHASING CONSIDERATIONS. The Franklin Templeton Valuemark Income Plus
immediate variable annuity contract is designed for people seeking a medium to
long-term periodic payment plan. Many options provide for payments guaranteed
for as long as you live. We do not recommend buying this Contract if you cannot
accept the risk of getting back less money than you put in. Since certain
payment options do not permit you to liquidate (withdraw) money, and all options
limit payments to your heirs, we generally recommend you set other money aside
for non-routine expenses and bequests.
11. INQUIRIES
If you have any questions about your Contract or need more information, please
contact us at:
VIP Service Center
P.O. Box 30343
Tampa, Florida 33630-3343
(800) 774-5001
<PAGE>
THE FRANKLIN TEMPLETON VALUEMARK INCOME PLUS
IMMEDIATE VARIABLE ANNUITY CONTRACT
issued by
PREFERRED LIFE VARIABLE ACCOUNT C
and
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
This prospectus describes the Franklin Templeton Valuemark Income Plus Immediate
Variable Annuity Contract with a Fixed Payment Option. The Contract is offered
by Preferred Life Insurance Company of New York (Preferred Life).
The annuity has 19 investment choices - the 18 Variable Options each of which
invests in one Class 1 Portfolio of Franklin Valuemark Funds and a Fixed Payment
Option of Preferred Life. You can select up to 10 investment choices (which
includes any of the Variable Options and the Fixed Payment Option).
FRANKLIN VALUEMARK FUNDS:
PORTFOLIO SEEKING STABILITY OF PRINCIPAL AND INCOME
Money Market Fund
PORTFOLIO SEEKING CURRENT INCOME
High Income Fund
PORTFOLIOS SEEKING GROWTH AND INCOME
Global Utilities Securities Fund
Growth and Income Fund
Income Securities Fund
Mutual Shares Securities Fund
Real Estate Securities Fund
Rising Dividends Fund
Templeton Global Asset Allocation Fund
Value Securities Fund
PORTFOLIOS SEEKING CAPITAL GROWTH
Capital Growth Fund
Mutual Discovery Securities Fund
Small Cap Fund
Templeton Developing Markets Equity Fund
Templeton Global Growth Fund
Templeton International Equity Fund
Templeton International Smaller Companies Fund
Templeton Pacific Growth Fund
Please read this prospectus before investing and keep it for future reference.
It contains important information about the Franklin Templeton Valuemark Income
Plus Immediate Variable Annuity Contract with a Fixed Payment Option.
To learn more about the annuity offered by this prospectus, you can receive a
copy of the Statement of Additional Information (SAI) dated May 1, 1999. The SAI
has been filed with the Securities and Exchange Commission (SEC) and is legally
a part of this prospectus. The Table of Contents of the SAI is on Page ___ of
this prospectus. The SEC maintains a Web site (http://www.sec.gov) that contains
the SAI, material incorporated by reference and other information about
companies that file electronically with the SEC. For a free copy of the SAI,
call or write us at the VIP Service Center at the address and telephone number
listed in the Profile.
The Franklin Templeton Valuemark Income Plus Immediate Variable Annuity
Contracts:
o are not bank deposits
o are not federally insured
o are not endorsed by any bank or government agency
o are not guaranteed and may be subject to loss of principal
The Securities and Exchange Commission has not approved or disapproved these
securities nor has it determined if this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
This prospectus is not an offering of the securities in any state, country, or
jurisdiction in which we are not authorized to sell the Contracts. You should
rely only on the information contained in this prospectus or that we have
referred you to. We have not authorized anyone to provide you with information
that is different.
Dated: May 1, 1999
<PAGE>
TABLE OF CONTENTS
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Page
INDEX OF TERMS ...................................
FEE TABLE ........................................
1. THE FRANKLIN TEMPLETON VALUEMARK INCOME PLUS
IMMEDIATE VARIABLE ANNUITY CONTRACT ..........
Ownership ....................................
Contract Owner/Annuitant .................
Joint Owner ..............................
Beneficiary ..............................
Assignment ..................................
2. ANNUITY PAYMENTS
(THE PAYOUT PHASE) ...........................
Income Date ..................................
Annuity Payments .............................
Assumed Investment Return ....................
Annuity Options ..............................
3. PURCHASE .....................................
Purchase Payment .............................
Allocation of Purchase Payment ...............
Free Look ....................................
VIP Units ....................................
4. INVESTMENT OPTIONS ...........................
Transfers ....................................
Telephone Transfers ......................
Voting Privileges ............................
Substitution .................................
5. EXPENSES .....................................
Insurance Charges ............................
Mortality and Expense Risk Charge ...........
Administrative Charge .......................
Commutation Fee ..............................
Premium Taxes ................................
Income Taxes .................................
Portfolio Expenses ...........................
6. TAXES ........................................
Annuity Contracts in General .................
Qualified and Non-Qualified Contracts ........
Multiple Contracts ...........................
Liquidations - Non-Qualified Contracts .......
Liquidations - Qualified Contracts ...........
Diversification ..............................
7. ACCESS TO YOUR MONEY .........................
Suspension of Payments or Transfers ..........
8. PERFORMANCE ..................................
9. DEATH BENEFIT ................................
10. OTHER INFORMATION ............................
Preferred Life ...............................
Year 2000 ....................................
The Separate Account .........................
Distribution .................................
Administration ...............................
Financial Statements .........................
APPENDIX A - Condensed Financial Information .
APPENDIX B - Illustration of Annuity Income..
TABLE OF CONTENTS OF THE STATEMENT OF
ADDITIONAL INFORMATION .......................
<PAGE>
INDEX OF TERMS
This prospectus is written in plain English to make it as understandable as
possible. However, there are some technical terms used which are capitalized in
the prospectus. The page that is indicated below is where you will find the
definition for the word or term in this prospectus.
Page
Annuitant ........................................
Annuity Calculation Date .........................
Annuity Options ..................................
Annuity Payments .................................
Annuity Unit .....................................
Assumed Investment Return (AIR) ..................
Beneficiary ......................................
Contract .........................................
Contract Owner ...................................
Fixed Payment Option .............................
Income Date ......................................
Joint Annuitant ..................................
Joint Owner ......................................
Non-Qualified ....................................
Payout Phase .....................................
Portfolios .......................................
Purchase Payment .................................
Qualified ........................................
Tax Deferral .....................................
Total Liquidation Value ..........................
Variable Option ..................................
VIP Unit .........................................
<PAGE>
FEE TABLE
The purpose of this Fee Table is to help you understand the costs of investing
in the Contract. It reflects expenses of the separate account as well as the
Class 1 Portfolios.
We have provided "Illustrations of Annuity Income" in Appendix B to show you the
effects of the charges, expenses and investment performance on annuity income.
- --------------------------------------------------------------------------------
CONTRACT OWNER TRANSACTION FEES
COMMUTATION FEE *
(as a percentage of the amount taken out (liquidated))
Contract Year Charge
------------- ------
1 5%
2 5%
3 4%
4 3%
5 2%
6 (& thereafter) 1%
* After the first Contract year, you may make one liquidation from your Contract
each year if you have selected Annuity Options 2 or 4. If you have selected
Annuity Option 6, you may make a liquidation once each year beginning in the
first year.
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Charge .................... 1.25%
Administrative Expense Charge............................ .15%
-----
Total Separate Account Annual Expenses................... 1.40%
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK FUNDS' ANNUAL EXPENSES: CLASS 1 SHARES
(as a percentage of Franklin Valuemark Funds' average net assets)
The Management and Portfolio Administration Fees for each Portfolio are based on
a percentage of that Portfolio's net assets. See the prospectus for Franklin
Valuemark Funds for more information.
The "Management and Portfolio Administration Fees" below are the amounts that
were paid to the Managers and Portfolio administrators for the 1998 calendar
year except for Portfolios with fee waivers or newer Portfolios without a full
year of operations as of December 31, 1998.
Management and
Portfolio Total Annual
Administration Fees1 Other Expenses Expenses
<S> <C> <C> <C>
Capital Growth Fund ...................... .75% .02% .77%
Global Utilities Securities Fund.......... .47% .03% .50%
Growth and Income Fund ................... .47% .02% .49%
High Income Fund ......................... .50% .03% .53%
Income Securities Fund ................... .47% .03% .50%
Money Market Fund ....................... .51% .02% .53%
Mutual Discovery Securities Fund ......... .80% .26% 1.06%
Mutual Shares Securities Fund ............ .60% .20% .80%
Real Estate Securities Fund .............. .51% .03% .54%
Rising Dividends Fund .................... .72% .02% .74%
Small Cap Fund ........................... .75% .02% .77%
Templeton Developing Markets Equity Fund . 1.25% .17% 1.42%
Templeton Global Asset Allocation Fund ... .65% .29% .94%
Templeton Global Growth Fund ............. .83% .05% .88%
Templeton International Equity Fund ......... .80% .09% .89%
Templeton International Smaller Companies Fund.. .85% .21% 1.06%
Templeton Pacific Growth Fund .................. .92% .11% 1.03%
Value Securities Fund .......................... .75% .06% .81%
<FN>
1 The Portfolio Administration Fee is a direct expense for the Mutual Discovery
Securities Fund, the Mutual Shares Securities Fund, the Templeton Global Asset
Allocation Fund, the Templeton International Smaller Companies Fund and the
Value Securities Fund. Other Portfolios pay for similar services indirectly
through the Management Fee. See the Franklin Valuemark Funds prospectus for
further information regarding these fees.
</FN>
</TABLE>
EXAMPLES
o The examples below should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.
o The examples assume you invested $1,000 with annual payments based on a 15
year period certain payout under Annuity Option 6 with a 5% Assumed Investment
Return.
o For additional information, see Section 5 - "Expenses" and the Franklin
Valuemark Funds prospectus.
<TABLE>
<CAPTION>
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on your money (compounded annually) if you surrender your Contract
under Annuity Option 6 at the end of each time period:
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Growth Fund
Global Utilities Securities Fund
Growth and Income Fund
High Income Fund
Income Securities Fund
Money Market Fund
Mutual Discovery Securities Fund
Mutual Shares Securities Fund
Real Estate Securities Fund
Rising Dividends Fund
Small Cap Fund
Templeton Developing Markets Equity Fund
Templeton Global Asset Allocation Fund
Templeton Global Growth Fund
Templeton International Equity Fund
Templeton International Smaller Companies Fund
Templeton Pacific Growth Fund
Value Securities Fund*
<FN>
*Annualized
</FN>
</TABLE>
<TABLE>
<CAPTION>
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on your money (compounded annually) if your Contract is not
surrendered:
1 Year 3 Years 5 Years 10 Years
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Growth Fund
Global Utilities Securities Fund
Growth and Income Fund
High Income Fund
Income Securities Fund
Money Market Fund
Mutual Discovery Securities Fund
Mutual Shares Securities Fund
Real Estate Securities Fund
Rising Dividends Fund
Small Cap Fund
Templeton Developing Markets Equity Fund
Templeton Global Asset Allocation Fund
Templeton Global Growth Fund
Templeton International Equity Fund
Templeton International Smaller Companies Fund
Templeton Pacific Growth Fund
Value Securities Fund*
<FN>
*Annualized
</FN>
</TABLE>
See Appendix A for VIP Unit Values - Condensed Financial Information.
<PAGE>
1. THE FRANKLIN TEMPLETON VALUEMARK INCOME PLUS
IMMEDIATE VARIABLE ANNUITY CONTRACT
This prospectus describes an immediate variable annuity contract with a Fixed
Payment Option (Contract) offered by Preferred Life.
An annuity is a contract between you, the owner, and an insurance company (in
this case Preferred Life), where the insurance company promises to pay you (or
someone else you choose) an income, in the form of Annuity Payments. The Annuity
Payments must begin on a designated date that is no later than 60 days after we
allocate your Purchase Payment. This is called the Income Date.
The Contract benefits from Tax Deferral. Tax Deferral means that you are not
taxed on any earnings or appreciation on the assets in your Contract until you
take money out of your Contract.
The Contract is called a variable annuity because you can choose among 18
Variable Options, and depending upon market conditions, your payments can go up
or down based on the Portfolios' investment performance. The Portfolios are
designed to offer a better return than the Fixed Payment Option. However, this
is not guaranteed. If you select the variable annuity portion of the Contract,
your payments may go up or down based on the investment performance of the
Portfolio(s) you select.
The Contract also contains a Fixed Payment Option (referred to in the Contract
as the "Fixed Account"). The Fixed Payment Option offers an interest rate that
is guaranteed by Preferred Life. If you select the Fixed Payment Option, your
money will be placed with the other general assets of Preferred Life. Any
portion of your Purchase Payment allocated to the Fixed Payment Option will be
temporarily allocated to the Money Market Fund on the day we allocate your
Purchase Payment. It will then be allocated to the Fixed Payment Option when you
begin receiving Annuity Payments from your Contract.
We will not make any changes to your Contract without your permission except as
may be required by law. We may, however, add endorsements to your Contract from
time to time.
Ownership
Contract Owner/Annuitant
You are the Contract Owner and the Annuitant. You, as the Contract Owner, have
all the rights under the Contract. The Contract Owner is as designated at the
time the Contract is issued.
An Annuitant is the natural person on whose life we base Annuity Payments.
Joint Owner/Joint Annuitant
If there is more than one Contract Owner, each Contract Owner is a Joint Owner
of the Contract. Joint Owners have equal ownership rights. You both must
authorize those ownership rights unless otherwise allowed by Preferred Life. You
can name a Joint Annuitant. Each Joint Owner must be either an Annuitant or
Joint Annuitant.
IF YOU DIE BEFORE THE INCOME DATE AND THERE IS NO JOINT ANNUITANT, WE WILL TREAT
THE CONTRACT AS IF WE NEVER ISSUED IT AND WILL RETURN THE PURCHASE PAYMENT TO
YOUR ESTATE.
If you die while the Contract is in force, the Joint Annuitant (if not already a
Joint Owner) will become the Contract Owner. On or after the Income Date, if
there is no Joint Annuitant or when the Joint Annuitant dies, the
Beneficiary(ies) will be the Owner(s) of their respective shares.
Beneficiary
The Beneficiary is the person(s) or entity you name to receive any death
benefit. You can also name a contingent Beneficiary. The contingent Beneficiary
will receive any death benefit if the Beneficiary is not alive when you and any
Joint Annuitant die. The Beneficiary is named at the time the Contract is issued
unless changed at a later date. Unless an irrevocable Beneficiary has been
named, you can change the Beneficiary or contingent Beneficiary.
Assignment
You can transfer ownership (assign) the Contract at any time during your
lifetime. We will not be liable for any payment we make, or other action we
take, in accordance with the Contract before we receive written notice of the
assignment. AN ASSIGNMENT MAY BE A TAXABLE EVENT.
If the Contract is issued under a Qualified plan, you may be unable to assign
the Contract.
2. ANNUITY PAYMENTS (THE PAYOUT PHASE)
Income Date
You can receive regular income payments under your Contract as long as you and
any Joint Annuitant are alive on the Income Date. We call the date that you
receive your first Annuity Payment the Income Date. We ask you to choose your
Income Date when you purchase the Contract. Your Income Date must be the first
or fifteenth day of a calendar month and must not be later than 60 days from the
day we allocate your Purchase Payment.
Annuity Payments
Under Annuity Options 1-5, you may elect to receive your Annuity Payments as a
variable payout, a fixed payout, or a combination of both. Under Annuity Option
6, Annuity Payments will come from the Portfolios only (variable payout). If you
choose a Fixed Payment Option, all of the Annuity Payments will be the same
dollar amount (equal installments). If you choose a variable payout, you can
select from the available Variable Options.
If you choose to receive variable payments, we determine the amount of your
first variable payment based on:
1) your contract value on the Annuity Calculation Date (no more than 10
days before the first payment);
2) your age and the age of any Joint Annuitant on the Annuity Calcula-
tion Date (except in Option 6);
3) the Assumed Investment Return (AIR), a benchmark you select, and
4) the Annuity Option you select.
We credit your Contract with a fixed number of Annuity Units for each Variable
Option you select. We do this by allocating the first payment amount among the
Variable Options according to your instructions, and dividing the amount
allocated to each Variable Option by the Annuity Unit Value on the Annuity
Calculation Date. The number of Annuity Units in your Contract remains the same
unless you make a liquidation or transfer.
After the first payment, your payments will change based on the change in value
of the Annuity Units credited to your Contract. The amount of each change will
depend on how the Annuity Units in your Contract perform as compared to your AIR
benchmark.
You can choose the frequency of Annuity Payments (for example, monthly,
quarterly, semi-annually or annually).
The SAI contains a discussion of how we calculate Annuity Unit values.
Assumed Investment Return
We base your Annuity Payments on the Assumed Investment Return. You can choose
either a 5% or 3% AIR. If you do not choose one, the 5% AIR will automatically
apply. If the actual performance exceeds the AIR you chose, your Annuity
Payments will increase. Similarly, if the actual rate is less than the AIR you
chose, your Annuity Payments will decrease. If you choose a higher AIR, the
initial amount of income will be higher, but income will increase more slowly
during periods of good investment performance and decrease faster during periods
of poor investment performance.
Annuity Options
You can choose among income plans. We call those Annuity Options. Except for
Annuity Option 6, once you select an Annuity Option you may not change it.
You can choose one of the following Annuity Options. You can also choose any
other Annuity Option you want as long as Preferred Life agrees to provide it.
OPTION 1. LIFE ANNUITY. Under this option, we will make periodic
Annuity Payments so long as the Annuitant is alive. After the Annuitant dies, we
will stop making Annuity Payments.
OPTION 2. LIFE ANNUITY WITH 5, 10, 15 or 20 YEAR PAYMENTS GUARANTEED.
Under this option, we will make periodic Annuity Payments so long as the
Annuitant is alive. However, if the Annuitant dies before the end of the
selected guaranteed period, we will continue to make Annuity Payments to the
Beneficiary for the rest of the guaranteed period. If the Beneficiary does not
want to receive Annuity Payments after the Annuitant's death, he or she can ask
us for a single lump sum. The amount of the lump sum payment is described in
your Contract.
OPTION 3. JOINT AND LAST SURVIVOR ANNUITY. Under this option, we will
make periodic Annuity Payments during the joint lifetime of you and the Joint
Annuitant. When you die, if the Joint Annuitant is still alive, we will continue
to make Annuity Payments during the Joint Annuitant's life. The amount of the
Annuity Payments we will make can be equal to 100%, 75% or 50% of the amount
that was being paid when both you and the Joint Annuitant were alive. You choose
this percentage when you apply for the Contract. The Annuity Payments will end
when the last surviving Annuitant dies.
OPTION 4. JOINT AND LAST SURVIVOR ANNUITY WITH 5, 10, 15 or 20 YEAR
PAYMENTS GUARANTEED. Under this option, we will make periodic Annuity Payments
during the joint lifetime of you and the Joint Annuitant. When you die, if the
Joint Annuitant is still alive, we will continue to make Annuity Payments during
the life of the surviving Annuitant. The payments will be 100% of the amount
that was being paid when you were both alive. If, when the last death occurs, we
have made Annuity Payments for less than the selected guaranteed period, we will
continue to make Annuity Payments to the Beneficiary for the rest of the
guaranteed period. If the Beneficiary does not want to receive Annuity Payments,
he or she can ask us for a single lump sum. The amount of the lump sum payment
is described in your Contract.
OPTION 5. REFUND LIFE ANNUITY. Under this option, we will make periodic
Annuity Payments during your lifetime. The last Annuity Payment will be made
before you die. If the value of the Annuity Payments made is less than the value
applied to the Annuity Option, then the Beneficiary will receive a refund as set
forth in the Contract.
OPTION 6. SPECIFIED PERIOD CERTAIN ANNUITY. Under this option, we will
make periodic Annuity Payments for a specified period that you choose. The
period can be from 5 to 30 years (you must use whole numbers of years). If at
the time both you and any Joint Annuitant die, we have made Annuity Payments for
less than the selected specified period, we will continue to make Annuity
Payments to the Beneficiary for the rest of the specified period. This option
can only be elected as a variable payout. OPTION 6 IS NOT AVAILABLE UNTIL
APPROVED BY THE NEW YORK INSURANCE DEPARTMENT.
After the first Contract anniversary, you can exchange an Annuity Option 6
payout for a payout under Annuity Options 1-5. You can do this if the Total
Liquidation Value of your Contract is at least $25,000. Furthermore, if you own
a Non-Qualified Contract you must be 59 1/2 or older. If you own a Qualified
Contract you may make the exchange after the later of your reaching age 59 1/2
or 5 years from the date of the first Annuity Payment and prior to the year in
which you reach age 70 1/2. A new Contract will be issued to you for your
existing Contract. You must return your existing Contract to us. The Contract
Owner/Annuitant and Joint Annuitant (if any) must be the same under both
Contracts.
3. PURCHASE
Purchase Payment
The Purchase Payment is the money you put into in the Contract. The minimum
payment Preferred Life will accept is $35,000. The Contract is a single payment
Contract. This means that you cannot add to your Contract after you buy it. If
you buy more than one Contract, the Purchase Payment for each Contract does not
need to be $35,000 if the average payment for each Contract is $35,000 or more.
This product is not designed for market timers.
Allocation of Purchase Payment
When you purchase a Contract, we will allocate your Purchase Payment to one or
more of the Variable Options you have selected. If you want any portion of the
Purchase Payment to be allocated to the Fixed Payment Option, we will
temporarily allocate it to the Money Market Fund. It will be moved to the Fixed
Payment Option on the day we calculate your first Annuity Payment (Annuity
Calculation Date). The Annuity Calculation Date will be no more than 10 business
days before the Income Date. We ask that you allocate your money in whole
percentages. Each allocation must be at least 10%.
Currently, you may invest in 10 investment choices (which includes the Variable
Options and the Fixed Payment Option). We may, in the future, limit the number
of Variable Options that you may invest in at one time.
Once we receive your Purchase Payment, the necessary information and federal
funds (federal funds means monies credited to a bank's account with its regional
federal reserve bank), we will issue your Contract and allocate your Purchase
Payment within 2 business days. We will not issue a Contract if either the
Annuitant or the Joint Annuitant are over Age 90. If you do not give us all of
the information we need, we will contact you or your registered representative
to get it. If for some reason we are unable to complete this process within 5
business days, we will either send back your money or get your permission to
keep it until we get all of the necessary information. Our business day closes
when the New York Stock Exchange closes, which is usually at 4:00 p.m.
Eastern time.
Free Look
If you change your mind about owning the Contract, you can cancel it within 10
days after receiving it. You will receive back the value of your Contract on the
day we receive your request. If you have purchased the Contract as an IRA, we
may be required to give you back your Purchase Payment if you decide to cancel
your Contract within 10 days after receiving it. If that is the case, we reserve
the right to allocate your Purchase Payment to the Money Market Fund for 15 days
after we receive it. At the end of that period, we will re-allocate your money
as you selected. Currently, however, we will directly allocate your money to the
Variable Option(s) you have selected.
VIP Units
The value of the portion of your Contract allocated to the Variable Options will
go up or down based upon the investment performance of the Variable Option(s)
you choose. The value of your Contract will also depend on the expenses of the
Contract. In order to keep track of the value of your Contract prior to the
Annuity Calculation Date, we use a measurement called a VIP Unit (which is like
a share of a mutual fund). On and after the Annuity Calculation Date, we call it
an Annuity Unit.
Every business day we determine the value of a VIP Unit for each Variable Option
by:
1. determining the total amount of money invested in the particular
Variable Option;
2. subtracting from that amount any insurance charges and any other
charges such as taxes we have deducted; and
3. dividing this amount by the number of outstanding VIP Units.
The value of a VIP Unit may go up or down from day to day.
When you make the Purchase Payment, we credit your Contract with VIP Units. The
number of VIP Units we credit your Contract with is determined by dividing the
amount of the Purchase Payment allocated to a Variable Option by the value of
the corresponding VIP Unit.
We calculate the value of each VIP Unit after the New York Stock Exchange closes
each day and then credit your Contract.
Example:
On Monday we receive your Purchase Payment of $35,000. You have told us you want
this to go to the Growth and Income Fund. When the New York Stock Exchange
closes on that Tuesday, we determine that the value of a VIP Unit based on an
investment in the Growth and Income Fund is $12.50. We then divide $35,000 by
$12.50 and credit your Contract on Tuesday night with 2800 VIP Units.
4. INVESTMENT OPTIONS
The Contract offers Variable Options, which invest in Class 1 shares of 18
Portfolios of Franklin Valuemark Funds. The Contract also offers a Fixed Payment
Option of Preferred Life. Additional Portfolios may be available in the future.
YOU SHOULD READ THE FRANKLIN VALUEMARK FUNDS PROSPECTUS (WHICH IS ATTACHED TO
THIS PROSPECTUS) CAREFULLY BEFORE INVESTING.
Franklin Valuemark Funds (Trust) is the mutual fund underlying your Contract.
Each Portfolio has its own investment objective. The Trust issues two classes of
shares which are described in the attached Trust prospectus. Only Class 1 shares
are available with your Contract. Investment managers for each Portfolio are
listed in the table below and are as follows: Franklin Advisers, Inc.(FA),
Franklin Advisory Services, Inc. (FAS), Franklin Mutual Advisers, Inc. (FMA),
Templeton Asset Management Ltd. (TAM), Templeton Global Advisors Limited (TGA),
and Templeton Investment Counsel, Inc. (TIC). Certain managers have retained one
or more affiliated subadvisers to help them manage the Portfolios.
The following is a list of the Portfolios available under the Contract:
Investment
Available Portfolios Managers
- --------------------------------------------------------------------------------
Portfolio Seeking Stability
of Principal and Income
Money Market Fund ........................... FA
Portfolios Seeking Current Income
High Income Fund............................. FA
Portfolios Seeking Growth and Income
Global Utilities Securities Fund............. FA
Growth and Income Fund ...................... FA
Income Securities Fund ...................... FA
Mutual Shares Securities Fund ............... FMA
Real Estate Securities Fund ................. FA
Rising Dividends Fund ....................... FAS
Templeton Global Asset Allocation Fund ...... TGA
Value Securities Fund ....................... FAS
Portfolios Seeking Capital Growth
Capital Growth Fund ......................... FA
Mutual Discovery Securities Fund ............ FMA
Small Cap Fund .............................. FA
Templeton Developing Markets
Equity Fund ................................ TAM
Templeton Global Growth Fund ................ TGA
Templeton International Equity Fund ......... FA
Templeton International Smaller
Companies Fund ............................. TIC
Templeton Pacific Growth Fund ............... FA
Franklin Valuemark Funds serves as the underlying mutual fund for variable life
insurance policies offered by Preferred Life and other variable annuity
contracts offered by Preferred Life and its affiliates. Franklin Valuemark Funds
does not believe that offering its shares in this manner will be disadvantageous
to you.
Transfers
You can transfer money among the 18 Variable Options. You cannot make transfers
from the Fixed Payment Option to the Variable Options.
We currently allow you to make as many transfers as you want each year. We may
limit this in the future. However, you will always be allowed at least 12
transfers each year. This product is not designed for professional market timing
organizations or other persons using programmed, large, or frequent transfers.
Such activity may be disruptive to a Portfolio. We may reject any specific
Purchase Payment allocation or transfer request from any person, if in the
Portfolio managers' judgment, a Portfolio would be unable to invest effectively
in accordance with its investment objectives and policies, or if the Portfolio
would be potentially adversely affected.
The following applies to any transfer:
1. You cannot make transfers during the free look period.
2. Your request for a transfer must clearly state which Variable
Options or the Fixed Payment Option are involved in the transfer.
3. Your request for a transfer must clearly state how much the transfer
is for.
4. You cannot make a transfer if it would cause any Variable Option or
the Fixed Payment Option to provide less than 10% of the benefits
under your Contract.
5. You can make at least one allocation to the Fixed Payment Option.
Both your initial allocation to the Fixed Payment Option and each
transfer to the Fixed Payment Option will be treated as an
allocation.
Telephone Transfers
You can make transfers by telephone. If you own the Contract with a Joint Owner,
we will accept instructions from either one of you unless you instruct us
otherwise. We will use reasonable procedures to confirm that instructions given
to us by telephone are genuine. If we do not use such procedures, we may be
liable for any losses due to unauthorized or fraudulent instructions. We tape
record all telephone instructions.
Voting Privileges
We are the legal owner of the Trust's Class 1 Portfolio shares. However, when a
Portfolio solicits proxies in conjunction with a shareholder vote which affects
your investment, we will obtain from you and other affected Contract Owners
instructions as to how to vote those shares. When we receive those instructions,
we will vote all of the shares we own in proportion to those instructions. This
will also include any shares that we own on our own behalf. If we determine that
we are no longer required to comply with the above, we will vote the shares in
our own right.
Substitution
Preferred Life may substitute one of the Variable Options you have selected with
another Variable Option. We will not do this without the prior approval of the
Securities and Exchange Commission. We will give you notice of our intention to
do this.
5. EXPENSES
There are charges and other expenses associated with the Contract that will
reduce your investment return. These charges and expenses are:
Insurance Charges
Each day, we make a deduction for insurance charges. We do this as part of our
calculation of the value of the VIP Units and the Annuity Units. The insurance
charge has two parts: 1) the mortality and expense risk charge and 2) the
administrative charge.
o Mortality and Expense Risk Charge. During the Accumulation Phase, this charge
is equal, on an annual basis, to 1.25% of the average daily value of the
Contract invested in a Variable Option, after the deduction of expenses. This
charge compensates us for all the insurance benefits provided by your Contract
(for example, the guarantee of annuity rates, 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).
o Administrative Expense Charge. This charge is equal, on an annual basis, to
.15% of the average daily value of the Contract invested in a Variable Option
after the deduction of expenses. This charge is for all the expenses associated
with the administration of the Contract. Some of these expenses include:
preparation of the Contract, confirmations, annual reports and statements,
maintenance of contract records, personnel costs, legal and accounting fees,
filing fees, and computer and systems costs.
Commutation Fee
Under certain circumstances, you can liquidate (withdraw) all or part of a
Variable Option of the Contract. When you make a liquidation, the amount you
receive will be reduced by the commutation fee. The commutation fee is a
percentage of the amount withdrawn. The commutation fee is equal to:
Contract Year Charge
------------- ------
1 5%
2 5%
3 4%
4 3%
5 2%
6 (& thereafter) 1%
Income Taxes
Preferred Life reserves the right to deduct from the Contract any income taxes
which it may incur because of the Contract. Currently, it is not making any such
deductions.
Portfolio Expenses
There are deductions from the assets of the various Portfolios for operating
expenses (including management fees), which are described above in the Fee Table
and in the attached prospectus for Franklin Valuemark Funds.
6. TAXES
NOTE: Preferred Life has prepared the following information on taxes as a
general discussion of the subject. It is not intended as tax advice to any
individual. You should consult your own tax adviser about your own
circumstances. Preferred Life has included an additional discussion regarding
taxes in the Statement of Additional Information.
ANNUITY CONTRACTS IN GENERAL
Annuity contracts are a means of setting aside money for future needs and for
providing a series of periodic payments for life or a fixed number of years.
Congress recognized how important saving for retirement was and provided special
rules in the Internal Revenue Code (Code) for annuities.
Simply stated these rules provide that you will not be taxed on the earnings on
the money held in your annuity contract until you take the money out. This is
referred to as Tax-Deferral. There are different rules as to how you will be
taxed depending on how you take the money out and the type of Contract
- --Qualified or Non-Qualified (see following sections).
You, as the Owner, will not be taxed on increases in the value of your Contract
until a distribution occurs -- either as a surrender or as Annuity Payments.
When you make a surrender you are taxed on the amount of the surrender that is
earnings. For Annuity Payments, different rules apply. A portion of each Annuity
Payment is treated as a partial return of your Purchase Payment and will not be
taxed. The remaining portion of the Annuity Payment will be treated as ordinary
income. How the Annuity Payment is divided between taxable and non-taxable
portions depends upon the period over which the Annuity Payments are expected to
be made. Annuity Payments received after you have received all of your Purchase
Payment are fully includible in income.
QUALIFIED AND NON-QUALIFIED CONTRACTS
If you purchase the Contract as an individual and not as an individual
retirement annuity, your Contract is referred to as a Non-Qualified Contract.
If you purchase the Contract as an individual retirement annuity, your Contract
is referred to as a Qualified Contract.
LIQUIDATIONS -- NON-QUALIFIED CONTRACTS
If the value of your Contract exceeds your Purchase Payment, any withdrawals
will be included in taxable income to the extent of earnings in your Contract.
The Code also provides that any amount received under an annuity contract which
is included in income may be subject to a penalty. The amount of the penalty is
equal to 10% of the amount that is includible in income. Some distributions will
be exempt from the penalty. They include any amounts:
(1) paid on or after you reach age 59 1/2;
(2) paid after you die;
(3) paid if you become totally disabled (as that term is defined in the Code);
(4) paid in a series of substantially equal payments made annually (or more
frequently) under a lifetime annuity;
(5) paid as annuity payments under an immediate annuity; or
(6) which come from purchase payments made prior to August 14, 1982.
The Code does not specifically address withdrawals (liquidations) from immediate
annuity contracts. A Private Letter Ruling issued by the Internal Revenue
Service concludes that the ability to make withdrawals does not prevent a
contract from qualifying as an immediate annuity. However, the Ruling does not
address the issue of whether a withdrawal would affect the tax treatment of the
annuity payments made before and after the withdrawal under of the requirement
that all immediate annuity payment must be substantially equal. The loss of
favorable tax treatment would mean that the income portion of each annuity
payment received prior to your attaining age 59 1/2 would be subject to a 10%
penalty tax unless another exception to the penalty tax applies. While Preferred
Life currently believes that such withdrawals will not adversely affect the
favorable tax treatment of annuity payments received before or after a
withdrawal and Preferred Life intends to perform its tax reporting functions
accordingly, there can be no assurance that the Internal Revenue Service will
not take a contrary position. You should obtain competent tax advice prior to
making a partial or total liquidation.
LIQUIDATIONS -- QUALIFIED CONTRACTS
If you make a withdrawal under an IRA Contract, a portion of the amount is
taxable, generally based on the ratio of your cost basis to the total accrued
benefit under the contract. Often in the case of IRA's, there is not cost basis
resulting in the full amount of the withdrawal to be included in taxable income.
The Code imposes a 10% penalty tax on the taxable portion of any distributions
from qualified retirement plans, including IRA Contracts. The penalty tax will
not apply to the following distributions:
(a) distributions made on or after the date you reach of age 59 1/2;
(b) distributions following your death or disability (for this purpose
disability is as defined in Section 72(m)(7) of the Code);
(c) distributions that are part of a series of substantially equal periodic
payments made at least yearly for your life (or life expectancy) or the joint
lives (or joint life expectancies) of you and your designated Beneficiary;
(d) distributions made to you to the extent such distributions do not exceed
the amount allowable as a deduction under Code Section 213 for amounts paid
during the taxable year for medical care;
(e) distributions for the purchase of medical insurance (as described in Section
213(d)(1)(D) of the Code) for you and your spouse and dependents if you have
received unemployment compensation for at least 12 weeks (this exception will
no longer apply after you have been re-employed for at least 60 days);
(f) distributions made to you to the extent such distributions do not exceed
your qualified higher education expenses (as defined in Section 72(t)(7) of
the Code) for the taxable year; and
(g) distributions which are qualified first time home buyer distributions
(as defined in Section 72(t)(8) of the Code).
With respect to (c) above, if the series of substantially equal periodic
payments is modified before the later of your attaining age 59 1/2 or 5 years
from the date of the first Annuity Payment, then the tax for the year of the
modification is increased by an amount equal to the tax which would have been
imposed (the 10% penalty tax) but for the exception, plus interest for the tax
years in which the exception was used. A partial liquidation may result in the
modification of the series of annuity payments made after such liquidation and
therefore could result in the imposition of the 10% penalty tax and interest for
the period as described above. You should obtain competent tax advice before you
make any liquidations from an IRA Contract. Any amounts distributed will only be
paid to you, your Annuitant or your Beneficiary. Preferred Life will not
transfer or pay such amounts to another IRA or tax qualified plan.
DIVERSIFICATION
The Code provides that the underlying investments for a variable annuity must
satisfy certain diversification requirements in order to be treated as an
annuity contract. Preferred Life believes that the Portfolios of Franklin
Valuemark Funds are being managed so as to comply with the requirements.
Neither the Code nor the Internal Revenue Service Regulations issued to date
provide guidance as to the circumstances under which you, because of the degree
of control you exercise over the underlying investments, and not Preferred Life
would be considered the owner of the shares of the Portfolios. If you are
considered the owner of the shares, it will result in the loss of the favorable
tax treatment for the Contract. It is unknown to what extent Contract Owners are
permitted to select Portfolios, to make transfers among the Portfolios or the
number and type of Portfolios Contract Owners may select from without being
considered the owner of the shares. If any guidance is provided which is
considered a new position, then the guidance would generally be applied
prospectively. However, if such guidance is considered not to be a new position,
it may be applied retroactively. This would mean that you, as the Owner of the
Contract, could be treated as the owner of the Portfolios. Due to the
uncertainty in this area, Preferred Life reserves the right to modify the
Contracts in an attempt to maintain favorable tax treatment.
7. ACCESS TO YOUR MONEY
If you have chosen Annuity Options 2, 4 or 6 you may make liquidations
(withdrawals) from your Contract under the certain circumstances described
below.
o Annuity Options 2 and 4: If you have selected Annuity Option 2 or 4 and a
portion of your payments come from the Variable Options, you may make
partial liquidations (withdrawals) from your Contract. You can only make
liquidations after the first Contract year. During the lifetime of the
Annuitant(s) and while the number of Annuity Payments made is less than the
guaranteed number of payments elected under the Annuity Option, you can
request a liquidation once each year. You can liquidate a portion of the
Total Liquidation Value.(Total Liquidation Value is referred to as "Total
Withdrawal Value" in your Contract and endorsement.) The Total Liquidation
Value is equal to the present value of the remaining guaranteed Annuity
Payments (allocated to the Variable Options) to the end of the period
certain commuted at the AIR, less a commutation fee. The total amount you
can liquidate is guaranteed to not be less than 25% of the Total
Liquidation Value. Currently, you may liquidate up to 75% of the Total
Liquidation Value. Preferred Life may change this amount in the future. The
minimum amount you can liquidate is the lesser of $2,500 or the remaining
portion of the Total Liquidation Value available to be liquidated. Partial
liquidations are not available until approved by the New York Insurance
Department.
After a partial liquidation, the subsequent monthly Annuity Payment during
the guaranteed period certain will be reduced by the percentage of the
Total Liquidation Value liquidated, including the commutation fee.
o Annuity Option 6: If you have selected Annuity Option 6, you can currently
make one liquidation each year. You may liquidate the Total Liquidation
Value of your Contract. The Total Liquidation Value is equal to the present
value of the remaining Annuity Payments to the end of the period certain
commuted at the AIR less a commutation fee. Preferred Life may restrict the
amount of a partial liquidation to a minimum of $2,500. We may require a
complete liquidation of your Contract if the remaining Total Liquidation
Value after you request a partial liquidation would be less than $35,000.
Preferred Life will require you to return your Contract before we pay the
entire commuted value. Currently, Annuity Option 6 is not available until
approved by the New York Insurance Department.
We will process partial liquidations on the next Annuity Calculation Date after
your written request for a liquidation.
INCOME TAXES AND TAX PENALTIES AND CERTAIN RESTRICTIONS MAY APPLY TO ANY
LIQUIDATION YOU MAKE.
Suspension of Payments or Transfers
We may be required to suspend or postpone payments for liquidations or transfers
for any period when:
1. the New York Stock Exchange is closed (other than customary weekend and
holiday closings);
2. trading on the New York Stock Exchange is restricted;
3. an emergency exists as a result of which disposal of the Portfolio shares is
not reasonably practicable or we cannot reasonably value the Portfolio shares;
4. during any other period when the Securities and Exchange Commission, by
order, so permits for the protection of Contract Owners.
8. PERFORMANCE
We periodically advertise performance. We will calculate performance by
determining the percentage change in the value of a VIP Unit by dividing the
increase (decrease) for that unit by the value of the VIP Unit at the beginning
of the period. This performance number reflects the deduction of the insurance
charges. We may also advertise cumulative total return information. Cumulative
total return is determined the same way except that the results are not
annualized. Performance information for the underlying Portfolios may also be
advertised - see the Franklin Valuemark Funds prospectus for more information.
The inception dates of the Portfolios pre-date the inception dates of the
corresponding Variable Options. For periods starting prior to the date the
Variable Option invested in the Portfolio, the performance is based on the
historical performance of the corresponding Portfolio.
We may in the future also advertise yield information. If we do, we will provide
you with information regarding how yield is calculated. More detailed
information regarding how performance is calculated is found in the SAI.
We base any performance advertised on historical data. This performance does not
guarantee future results of the Portfolios.
9. DEATH BENEFIT
Death of Annuitant
IF YOU DIE BEFORE THE INCOME DATE AND THERE IS NO JOINT ANNUITANT, WE WILL TREAT
YOUR CONTRACT AS IF WE HAD NEVER ISSUED IT. WE WILL RETURN THE PURCHASE PAYMENT
TO YOUR ESTATE.
If you have chosen either Annuity Option 3, 4 or 6 with a Joint Annuitant and
either you or the Joint Annuitant dies before the Income Date, the Annuity
Option will be changed to Option 2 with 10 years of payments guaranteed. If the
survivor's life expectancy is less than 10 years, the period of guaranteed
payments will be 5 years instead.
If you or the Joint Annuitant dies on or after the Income Date, the death
benefit, if any, will be paid under the Annuity Option selected. We will require
proof of death. We may delay paying the death benefit until we receive any tax
consents and/or forms from a state.
Death of Beneficiary
Unless you tell us otherwise, any amount payable after your death and that of
any Joint Annuitant will be payable:
(1) in respective shares to the surviving Beneficiaries;
(2) if no Beneficiary is living, payment will be made in respective shares to
any surviving contingent Beneficiaries;
(3) if there is no surviving Beneficiary or contingent Beneficiary, payment will
be made to your estate.
10. OTHER INFORMATION
Preferred Life
Preferred Life Insurance Company of New York (Preferred Life) is a stock life
insurance company organized under the laws of the State of New York. Preferred
Life is authorized to do business in six states, including New York. The company
is a wholly-owned subsidiary of Allianz Life Insurance Company of North America
(Allianz Life). Allianz Life, 1750 Hennepin Avenue, Minneapolis, Minnesota
55403, was organized under the laws of the state of Minnesota in 1896. Allianz
Life offers fixed and variable life insurance and annuities and group life,
accident and health insurance. Allianz Life is a wholly-owned subsidiary of
Allianz Versicherungs-AG Holding.
Year 2000
Preferred Life has initiated programs to ensure that all of the computer systems
utilized to provide services and administer policies will function properly in
the year 2000. An assessment of the total expected costs specifically related to
the year 2000 conversion has been completed. The total amounts to be expended
over the next two years are not expected to have a significant effect on
Preferred Life's financial position or results of operations. Preferred Life
believes it has taken steps that are reasonably designed to address the
potential failure of computer systems used by its service providers and to
ensure its year 2000 program is completed on a timely basis. There can be no
assurance, however, that the steps taken by Preferred Life will be adequate to
avoid any adverse impact.
The Separate Account
Preferred Life established a separate account named Preferred Life Variable
Account C (Separate Account). The Separate Account holds the assets that
underlie the Contracts (except assets allocated to the Fixed Payment Option).
Preferred Life has registered the Separate Account with the Securities and
Exchange Commission as a unit investment trust under the Investment Company Act
of 1940. The Separate Account is divided into Variable Options (also known as
sub-accounts). Each Variable Option invests in one class of shares of a
Portfolio.
The assets of the Separate Account are held in Preferred Life's name on behalf
of the Separate Account and legally belong to Preferred Life. However, those
assets that underlie the variable Contracts are not chargeable with liabilities
arising out of any other business Preferred Life may conduct. All the income,
gains and losses (realized or unrealized) resulting from these assets are
credited to or charged against the Contracts and not against any other contracts
Preferred Life may issue.
Distribution
NALAC Financial Plans, LLC (NFP), 1750 Hennepin Avenue, Minneapolis, MN 55403,
acts as the distributor of the Contracts. NFP is a wholly-owned subsidiary of
Allianz Life and an affiliate of Preferred Life. NFP has subcontracted with
Franklin Advisers, Inc. ("Advisers") for it and/or certain of its affiliates to
provide certain marketing support services. NFP compensates these entities for
their services.
Commissions will be paid to broker-dealers who sell the Contracts.
Broker-dealers will be paid commissions at the time of purchase up to 4.0% of
the Purchase Payment.
Administration
We have hired Templeton Funds Annuity Company (in California, doing business as
"Templeton Funds Life & Annuity Insurance Company") (VIP Service Center) to
perform certain administrative services regarding the Contracts. The
administrative services include issuance of the Contracts and maintenance of
Contract Owner's records. Templeton Funds Annuity Company has entered into a
reinsurance agreement with us regarding certain risks under the Contracts.
Financial Statements
The consolidated financial statements of Preferred Life and the Separate Account
have been included in the Statement of Additional Information.
<PAGE>
APPENDIX A
- --------------------------------------------------------------------------------
CONDENSED FINANCIAL INFORMATION
To be filed by amendment.
<PAGE>
APPENDIX B
- --------------------------------------------------------------------------------
ILLUSTRATION OF ANNUITY INCOME
We have prepared the following tables to show you how investment performance
affects variable annuity income over time. The variable annuity income amounts
reflect three different assumptions for a constant investment return before all
expenses: 0%, 6% and 12%. These are hypothetical rates of return. Preferred Life
does not guarantee that the Contract will earn these returns for any one year or
any sustained period of time. The tables are for illustrative purposes only.
They do not represent past or future investment returns.
Your variable annuity income may be more or less than the income shown if the
actual returns of the Portfolios you select are different than those shown
below. Since it is very likely that investment returns will fluctuate over time,
the amount of variable annuity income you will receive will also fluctuate. The
total amount of annuity income you actually receive will depend on the
cumulative investment returns of the Portfolios you choose, how long you live
and the Annuity Option you choose.
Another factor which will affect the amount of variable annuity income you will
receive is the Assumed Investment Return (AIR). Income will increase from one
Income Date to the next if the annualized net rate of return during that time is
greater than the AIR you choose. It will decrease if the annualized net rate of
return is less than the AIR.
There are two illustrations. The first is based on a 3% AIR, and the second is
based on a 5% AIR.
The income amounts shown reflect the deduction of all fees and expenses. Actual
Portfolio fees and expenses will vary from year to year and from Portfolio to
Portfolio. Actual expenses may be higher or lower than the rate used in the
illustrations. The illustrations assume that each Portfolio will incur expenses
at an annual rate of _____% of the average daily net assets of the Portfolio.
This is the average in 1998, weighted by Portfolio net assets as of 12/31/98.
The insurance charges are calculated at an annual rate of 1.40% of the average
daily net assets of the Separate Account. After taking these expenses and
charges into consideration, the illustrated gross investment returns of 0%, 6%
and 12% are approximately equal to net rates (which means after expenses have
been deducted) of ____%, ____% and ____%, respectively.
<PAGE>
<TABLE>
<CAPTION>
VALUEMARK INCOME PLUS ILLUSTRATION
ANNUITANT: John Doe ANNUITY PURCHASE AMOUNT: $100,000
DATE OF BIRTH: 1/1/29 EFFECTIVE DATE: 12/1/1999
ANNUITY INCOME OPTION: Single Life Annuity FIRST ANNUITY INCOME DATE: 1/1/2000
PREMIUM TAX: 0% FREQUENCY OF ANNUITY INCOME: Monthly
ASSUMED INVESTMENT RETURN: 3%
The amount of monthly variable annuity income shown in the table below and the graph that follows
assumes a constant annual investment return. The amount of variable annuity income that is
actually received will depend on the investment performance of the underlying Portfolio(s)
selected. The variable annuity income can go up or down and no minimum dollar amount of variable
annuity income is guaranteed. The amounts shown are based on a 3% Assumed Investment Return.
Income will remain constant at $___ per month when the annualized net rate of return after
expenses is 3%.
MONTHLY ANNUITY PAYMENTS
Annual rate of return before expenses: 0% 6% 12%
Annuity Income Date Age Annual rate of return after expenses: -_.__% _.__% _.__%
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
January 1, 2000 70 $___ ___ $___
January 1, 2001 71 ___ ___ ___
January 1, 2002 72 ___ ___ ___
January 1, 2003 73 ___ ___ ___
January 1, 2004 74 ___ ___ ___
January 1, 2009 79 ___ ___ _,___
January 1, 2014 84 ___ ___ _,___
January 1, 2019 89 ___ ___ _,___
January 1, 2024 94 ___ ___ _,___
</TABLE>
<PAGE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY AND
SHOULD NOT BE DEEMED TO REPRESENT PAST OR FUTURE INVESTMENT PERFORMANCE. ACTUAL
RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER
OF FACTORS.
<TABLE>
<CAPTION>
The following table summarizes Annuity Income with an Assumed Investment Return
of 3%. This table is presented graphically in the printed prospectus.
Monthly Payment Amount
------------------------------------------------------------
-_.__% _.__% _.__%
Annual Rate Annual Rate Annual Rate
of Return of Return of Return
Year After Expenses After Expenses After Expenses
- ---------------------------------------------------------------------
<S> <C> <C> <C>
1 $ ___ $ ___ $ ___
2 ___ ___ ___
3 ___ ___ ___
4 ___ ___ ___
5 ___ ___ ___
6 ___ ___ ___
7 ___ ___ ___
8 ___ ___ ___
9 ___ ___ _,___
10 ___ ___ _,___
11 ___ ___ _,___
12 ___ ___ _,___
13 ___ ___ _,___
14 ___ ___ _,___
15 ___ ___ _,___
16 ___ ___ _,___
17 ___ ___ _,___
18 ___ ___ _,___
19 ___ ___ _,___
20 ___ ___ _,___
21 ___ ___ _,___
22 ___ ___ _,___
23 ___ ___ _,___
24 ___ ___ _,___
25 ___ ___ _,___
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VALUEMARK INCOME PLUS ILLUSTRATION
ANNUITANT: John Doe ANNUITY PURCHASE AMOUNT: $100,000
DATE OF BIRTH: 1/1/29 EFFECTIVE DATE: 12/1/1999
ANNUITY INCOME OPTION: Single Life Annuity FIRST ANNUITY INCOME DATE: 1/1/2000
PREMIUM TAX: 0% FREQUENCY OF ANNUITY INCOME: Monthly
ASSUMED INVESTMENT RETURN: 5%
The amount of monthly variable annuity income shown in the table below and the graph that follows
assumes a constant annual investment return. The amount of variable annuity income that is
actually received will depend on the investment performance of the underlying Portfolio(s)
selected. The variable annuity income can go up or down and no minimum dollar amount of variable
annuity income is guaranteed. The amounts shown are based on a 5% Assumed Investment Return.
Income will remain constant at $___ per month when the annual rate of return after expenses is
5%.
MONTHLY ANNUITY PAYMENTS
Annual rate of return before expenses: 0% 6% 12%
Annuity Income Date Age Annual rate of return after expenses: -_.__% _.__% _.__%
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
January 1, 2000 70 $___ $___ $___
January 1, 2001 71 ___ ___ ___
January 1, 2002 72 ___ ___ ___
January 1, 2003 73 ___ ___ ___
January 1, 2004 74 ___ ___ ___
January 1, 2009 79 ___ ___ _,___
January 1, 2014 84 ___ ___ _,___
January 1, 2019 89 ___ ___ _,___
January 1, 2024 94 ___ ___ _,___
</TABLE>
<PAGE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY AND
SHOULD NOT BE DEEMED TO REPRESENT PAST OR FUTURE INVESTMENT PERFORMANCE. ACTUAL
RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER
OF FACTORS.
<TABLE>
<CAPTION>
The following table summarizes Annuity Income with an Assumed Investment Return
of 5%. This table is presented graphically in the printed prospectus.
Monthly Payment Amount
------------------------------------------------------------
-_.__% _.__% _.__%
Annual Rate Annual Rate Annual Rate
of Return of Return of Return
Year After Expenses After Expenses After Expenses
- ---------------------------------------------------------------------
<S> <C> <C> <C>
1 $ ___ $ ___ $ ___
2 ___ ___ ___
3 ___ ___ ___
4 ___ ___ ___
5 ___ ___ ___
6 ___ ___ ___
7 ___ ___ ___
8 ___ ___ _,___
9 ___ ___ _,___
10 ___ ___ _,___
11 ___ ___ _,___
12 ___ ___ _,___
13 ___ ___ _,___
14 ___ ___ _,___
15 ___ ___ _,___
16 ___ ___ _,___
17 ___ ___ _,___
18 ___ ___ _,___
19 ___ ___ _,___
20 ___ ___ _,___
21 ___ ___ _,___
22 ___ ___ _,___
23 ___ ___ _,___
24 ___ ___ _,___
25 ___ ___ _,___
</TABLE>
<PAGE>
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
Insurance Company.................................
Experts ..........................................
Legal Opinions ...................................
Distributor ......................................
Calculation of Performance Data ..................
Federal Tax Status ...............................
Annuity Provisions................................
Mortality and Expense Risk Guarantee .............
Financial Statements .............................
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL IMMEDIATE
VARIABLE ANNUITY CONTRACTS
issued by
PREFERRED LIFE VARIABLE ACCOUNT C
And
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
MAY 1, 1999
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS FOR THE INDIVIDUAL IMMEDIATE VARIABLE
ANNUITY CONTRACTS WHICH ARE REFERRED TO HEREIN.
THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT A PROSPECTIVE INVESTOR
OUGHT TO KNOW BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS, CALL OR WRITE THE
COMPANY AT: 152 West 57th Street, 18th Floor, New York, NY 10019.(800)542-5427.
THIS STATEMENT OF ADDITIONAL INFORMATION AND THE PROSPECTUS ARE DATED MAY 1,
1999 AND AS MAY BE AMENDED FROM TIME TO TIME.
TABLE OF CONTENTS
- -------------------------------------------------------
CONTENTS PAGE
Company
Experts
Legal Opinions
Distributor
Calculation of Performance Data
Total Return
Yield
Performance Ranking
Performance Information
Annuity Income
Federal Tax Status
Annuity Provisions
Variable Annuity Payout
Fixed Annuity Payout
Financial Statements
<PAGE>
COMPANY
- --------------------------------------------------------------------------------
Information regarding Preferred Life Insurance Company of New York (the
"Company") and its ownership is contained in the Prospectus. The Company is
rated A+ (Superior, Group Rating) by A.M. BEST, an independent analyst of the
insurance industry. The financial strength of an insurance company may be
relevant insofar as the ability of a company to make fixed annuity payments from
its general account.
EXPERTS
- --------------------------------------------------------------------------------
The financial statements of Preferred Life Variable Account C and the financial
statements of the Company as of and for the year ended December 31, 1998,
included in this Statement of Additional Information have been audited by ____
________________, independent auditors, as indicated in their reports included
in this Statement of Additional Information and are included herein in reliance
upon such reports and upon the authority of said firm as experts in accounting
and auditing.
LEGAL OPINIONS
- --------------------------------------------------------------------------------
Blazzard, Grodd & Hasenauer, P.C., Westport, Connecticut has provided advice on
certain matters relating to the federal securities and income tax laws in
connection with the Contracts.
DISTRIBUTOR
- --------------------------------------------------------------------------------
NALAC Financial Plans, LLC, an affiliate of the Company, acts as the
distributor. The offering is on a continuous basis.
CALCULATION OF PERFORMANCE DATA
- --------------------------------------------------------------------------------
TOTAL RETURN
From time to time, the Company may advertise the performance data for the
Contract Sub-Accounts in sales literature, advertisements and personalized
hypothetical illustrations and Contract Owner communications. Such data will
show the percentage change in the value of a VIP Unit based on the performance
of a Contract Sub-Account over a stated period of time, usually a calendar year,
which is determined by dividing the increase (or decrease) in value for that
unit by the VIP Unit Value at the beginning of the period.
Any such performance data will include total return figures for the one, five
and ten year (or since inception) time periods indicated. Such total return
figures will reflect the deduction of a 1.25% Mortality and Expense Risk Charge,
a 0.15% Administrative Expense Charge and the operating expenses of the
underlying Portfolios.
The hypothetical value of a Contract purchased for the time periods described in
the advertisement will be determined by using the actual VIP Unit Values for an
initial $1,000 purchase payment. The average annual total return is then
determined by computing the fixed interest rate that a $1,000 purchase payment
would have to earn annually, compounded annually, to grow to the hypothetical
value at the end of the time periods described. The formula used in these
calculations is:
P(1+T)n = ERV
where:
P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years;
ERV = ending redeemable value of a hypothetical $1,000 purchase payment made at
the beginning of the period at the end of the period.
The Company may also advertise cumulative and total return information over
different periods of time. Cumulative total return is calculated in a similar
manner as described above except that the results are not annualized.
YIELD
The Money Market Sub-Account. The Company may advertise yield information for
the Money Market Sub-Account. The Money Market Sub-Account's current yield may
vary each day, depending upon, among other things, the average maturity of the
underlying Portfolio's investment securities and changes in interest rates,
operating expenses, the deduction of the Mortality and Expense Risk Charge, the
Administrative Expense Charge and, in certain instances, the value of the
underlying Portfolio's investment securities. The fact that the Contract
Sub-Account's current yield will fluctuate and that the principal is not
guaranteed should be taken into consideration when using the Contract
Sub-Account's current yield as a basis for comparison with savings accounts or
other fixed-yield investments. The yield at any particular time is not
indicative of what the yield may be at any other time.
The Money Market Sub-Account's current yield is computed on a base period return
of a hypothetical Contract having a beginning balance of one VIP Unit for a
particular period of time (generally seven days). The return is determined by
dividing the net change (exclusive of any capital changes) in such VIP Unit by
its beginning value, and then multiplying it by 365/7 to get the annualized
current yield. The calculation of net change reflects the value of additional
shares purchased with the dividends paid by the Portfolio, and the deduction of
the Mortality and Expense Risk Charge and the Administrative Expense Charge.
The effective yield reflects the effects of compounding and represents an
annualization of the current return with all dividends reinvested. (Effective
yield = [(Base Period Return + 1)365/7]-1.)
For the seven-day period ending on 12/31/98, the Money Market Sub-Account had a
current yield of ____% and an effective yield of ____%.
Other Contract Sub-Accounts. The Company may also quote yield in sales
literature, advertisements, personalized hypothetical illustrations and Contract
Owner communications for the other Contract Sub-Accounts. Each Contract
Sub-Account (other than the Money Market Sub-Account) will publish standardized
total return information with any quotation of current yield.
The yield computation is determined by dividing the net investment income per
VIP Unit earned during the period (minus the deduction for the Mortality and
Expense Risk Charge and Administrative Expense Charge) by the VIP Unit Value on
the last day of the period and annualizing the resulting figure, according to
the following formula:
Yield = 2 [((a-b) + 1)6 - 1]
---
cd
where:
a = net investment income earned during the period by the Portfolio attributable
to shares owned by the Contract Sub-Account;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of VIP Units outstanding during the period;
d = the maximum offering price per VIP Unit on the last day of the period.
The above formula will be used in calculating quotations of yield, based on
specified 30-day periods (or one month) identified in the sales literature,
advertisement or communication. The Company does not currently advertise yield
information for any Contract Sub-Account (other than the Money Market
Sub-Account).
PERFORMANCE RANKING
Total return information for the Contract Sub-Accounts and the Portfolios may be
compared to relevant indices, including U.S. domestic and international taxable
bond indices and data from Lipper Analytical Services, Inc., Standard & Poor's
Indices, or VARDS.
From time to time, evaluation of performance by independent sources may also be
used.
PERFORMANCE INFORMATION
Total returns reflect all aspects of a Contract Sub-Account's return, including
the automatic reinvestment by Preferred Life Variable Account C of all
distributions and any change in a Contract Sub-Account's value over the period.
The Portfolios of Franklin Valuemark Funds have been in existence for some time
and have investment performance history. In order to show how investment
performance of the Portfolios affects VIP Unit values, the following performance
information was developed. The inception dates of the Portfolios pre-date the
inception dates of the corresponding Sub-Accounts of the Separate Account. For
periods starting prior to the date the Sub-Accounts invested in the Portfolio,
the performance is based on the historical performance of the corresponding
Portfolio.
The returns reflect the deduction of the Mortality and Expense Risk Charge,
Administrative Expense Charge and the operating expenses of each Portfolio. Past
performance does not guarantee future results.
<TABLE>
<CAPTION>
STANDARDIZED TOTAL RETURN
Average Annual Total Return for the periods ended December 31, 1998
PORTFOLIO
INCEPTION ONE FIVE SINCE
CONTRACT SUB-ACCOUNT DATE YEAR YEARS INCEPTION
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Growth 5/1/96 _____% _____% _____%
Global Utilities Securities 1/24/89 _____% _____% _____%
Growth and Income 1/24/89 _____% _____% _____%
High Income 1/24/89 _____% _____% _____%
Income Securities 1/24/89 _____% _____% _____%
Money Market 1/24/89 _____% _____% _____%
Mutual Discovery Securities 11/8/96 _____% _____% _____%
Mutual Shares Securities 11/8/96 _____% _____% _____%
Real Estate Securities 1/24/89 _____% _____% _____%
Rising Dividends 1/27/92 _____% _____% _____%
Small Cap 11/1/95 _____% _____% _____%
Templeton Developing Markets Equity 3/15/94 _____% _____% _____%
Templeton Global Asset Allocation 5/1/95 _____% _____% _____%
Templeton Global Growth 3/15/94 _____% _____% _____%
Templeton International Equity 1/27/92 _____% _____% _____%
Templeton International Smaller Companies 5/1/96 _____% _____% _____%
Templeton Pacific Growth 1/27/92 _____% _____% _____%
</TABLE>
<TABLE>
<CAPTION>
NON-STANDARDIZED TOTAL RETURN
Total Return for the periods ended December 31, 1998
ANNUAL TOTAL RETURN CUMULATIVE TOTAL RETURN
PORTFOLIO ----------------------------------------------------------------------
INCEPTION ONE THREE FIVE SINCE THREE FIVE SINCE
CONTRACT SUB-ACCOUNT DATE YEAR YEARS YEARS INCEPTION YEARS YEARS INCEPTION
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth 5/1/96 _____% _____% _____% _____% _____% _____% _____%
Global Utilities Securities 1/24/89 _____% _____% _____% _____% _____% _____% _____%
Growth and Income 1/24/89 _____% _____% _____% _____% _____% _____% _____%
High Income 1/24/89 _____% _____% _____% _____% _____% _____% _____%
Income Securities 1/24/89 _____% _____% _____% _____% _____% _____% _____%
Money Market 1/24/89 _____% _____% _____% _____% _____% _____% _____%
Mutual Discovery Securities 11/8/96 _____% _____% _____% _____% _____% _____% _____%
Mutual Shares Securities 11/8/96 _____% _____% _____% _____% _____% _____% _____%
Real Estate Securities 1/24/89 _____% _____% _____% _____% _____% _____% _____%
Rising Dividends 1/27/92 _____% _____% _____% _____% _____% _____% _____%
Small Cap 11/1/95 _____% _____% _____% _____% _____% _____% _____%
Templeton Developing
Markets Equity 3/15/94 _____% _____% _____% _____% _____% _____% _____%
Templeton Global
Asset Allocation 5/1/95 _____% _____% _____% _____% _____% _____% _____%
Templeton Global Growth 3/15/94 _____% _____% _____% _____% _____% _____% _____%
Templeton
International Equity 1/27/92 _____% _____% _____% _____% _____% _____% _____%
Templeton International
Smaller Companies 5/1/96 _____% _____% _____% _____% _____% _____% _____%
Templeton Pacific Growth 1/27/92 _____% _____% _____% _____% _____% _____% _____%
</TABLE>
The Company may also present performance information computed on a different
basis.
Contract Owners should note that investment results will fluctuate over time,
and any presentation of total return for any period should not be considered as
a representation of what an investment may earn or what a Contract Owner's total
return may be in any future period.
ANNUITY INCOME
Periodic annuity income amounts may be illustrated using the historical
performance of the Contract Sub-Accounts, the Standard & Poor's 500 Composite
Stock Price Index or other recognized investment benchmark portfolios. All
illustrations will reflect the 1.25% annual Mortality and Expense Risk Charge
and the 0.15% Administrative Expense Charge and actual or assumed Portfolio
expenses.
FEDERAL TAX STATUS
- --------------------------------------------------------------------------------
NOTE: The following description is based upon the Company's understanding of
current federal income tax law applicable to annuities in general. The Company
cannot predict the probability that any changes in such laws will be made.
Purchasers are cautioned to seek competent tax advice regarding the possibility
of such changes. The Company does not guarantee the tax status of the Contracts.
Purchasers bear the complete risk that the Contracts may not be treated as
"annuity contracts" under federal income tax laws. It should be further
understood that the following discussion is not exhaustive and that special
rules not described in this Prospectus may be applicable in certain situations.
Moreover, no attempt has been made to consider any applicable state or other tax
laws.
GENERAL
Section 72 of the Internal Revenue Code of 1986, as amended (the "Code") governs
taxation of annuities in general. A Contract Owner is not taxed on increases in
the value of a Contract until distribution occurs, either in the form of a lump
sum payment or as annuity payments under the Annuity Option elected.
For annuity payments, the portion of a payment includable in income equals the
excess of the payment over the exclusion amount. The exclusion amount for
payments based on a variable annuity option is determined by dividing the
investment in the Contract (adjusted for any period certain or refund guarantee)
by the number of years over which the annuity is expected to be paid (determined
by Treasury Regulations). The exclusion amount for payments based on a fixed
annuity option is determined by multiplying the payment by the ratio that the
cost basis of the Contract (adjusted for any period certain or refund guarantee)
bears to the expected return under the Contract. Payments received after the
investment in the Contract has been recovered (i.e. the total of the excludable
amounts equal the investment in the Contract) are fully taxable. The taxable
portion of an annuity payment is taxed at ordinary income rates. For certain
types of Qualified Plans there may be no cost basis in the Contract within the
meaning of Section 72 of the Code. Contract Owners, Annuitants and Beneficiaries
under the Contracts should seek competent financial advice about the tax
consequences of any distributions.
The Company is taxed as a life insurance company under the Code. For federal
income tax purposes, the Variable Account is not a separate entity from the
Company, and its operations form a part of the Company.
DIVERSIFICATION
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not adequately
diversified in accordance with regulations prescribed by the United States
Treasury Department ("Treasury Department"). Disqualification of the Contract as
an annuity contract would result in the imposition of federal income tax to the
Contract Owner with respect to earnings allocable to the Contract prior to the
receipt of payments under the Contract. The Code contains a safe harbor
provision which provides that annuity contracts such as the Contracts meet the
diversification requirements if, as of the end of each quarter, the underlying
assets meet the diversification standards for a regulated investment company and
no more than fifty-five percent (55%) of the total assets consist of cash, cash
items, U.S. government securities and securities of other regulated investment
companies.
On March 2, 1989, the Treasury Department issued regulations (Treas. Reg.
1.817-5) which established diversification requirements for the investment
portfolios underlying variable contracts such as the Contracts. The regulations
amplify the diversification requirements for variable contracts set forth in the
Code and provide an alternative to the safe harbor provision described above.
Under the regulations, an investment portfolio will be deemed adequately
diversified if: (1) no more than 55% of the value of the total assets of the
portfolio is represented by any one investment; (2) no more than 70% of the
value of the total assets of the portfolio is represented by any two
investments; (3) no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and (4) no more than 90% of
the value of the total assets of the portfolio is represented by any four
investments.
The Code provides that for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable contracts
by Section 817(h) of the Code have been met, "each United States government
agency or instrumentality shall be treated as a separate issuer."
The Company intends that all Portfolios of the Trust underlying the Contracts
will be managed by the managers for the Trust in such a manner as to comply with
these diversification requirements.
The Treasury Department has indicated that the diversification Regulations do
not provide guidance regarding the circumstances in which Contract Owner control
of the investments of the Variable Account will cause the Contract Owner to be
treated as the owner of the assets of the Variable Account, thereby resulting in
the loss of favorable tax treatment for the Contract. At this time it cannot be
determined whether additional guidance will be provided and what standards may
be contained in such guidance.
The amount of Contract Owner control which may be exercised under the Contract
is different in some respects from the situations addressed in published rulings
issued by the Internal Revenue Service in which it was held that the policy
owner was not the owner of the assets of the separate account. It is unknown
whether these differences, such as the Contract Owner's ability to transfer
among investment choices or the number and type of investment choices available,
would cause the Contract Owner to be considered as the owner of the assets of
the Variable Account resulting in the imposition of federal income tax to the
Contract Owner with respect to earnings allocable to the Contract prior to
receipt of payments under the Contract.
In the event any forthcoming guidance or ruling is considered to set forth a new
position, such guidance or ruling will generally be applied only prospectively.
However, if such ruling or guidance was not considered to set forth a new
position, it may be applied retroactively resulting in the Contract Owner being
retroactively determined to be the owner of the assets of the Variable Account.
Due to the uncertainty in this area, the Company reserves the right to modify
the Contract in an attempt to maintain favorable tax treatment.
MULTIPLE CONTRACTS
Section 72(e)(11) of the Code provides that multiple non-qualified annuity
contracts which are issued within a calendar year period to the same contract
owner by one company or its affiliates are treated as one annuity contract for
purposes of determining the tax consequences of any distribution. Such treatment
may result in adverse tax consequences, including more rapid taxation of the
distributed amounts from such combination of contracts. For purposes of this
rule, contracts received in a Section 1035 exchange will be considered issued in
the year of the exchange. The legislative history of Section 72(e)(11) indicates
that it was not intended to apply to immediate annuities. However, the
legislative history also states that no inference is intended as to whether the
Treasury Department, under its authority to prescribe rules to enforce the tax
laws, may treat the combination purchase of a deferred annuity contract with an
immediate annuity contract as a single contract for purposes of determining the
tax consequences of any distribution.
TAX TREATMENT OF DISTRIBUTIONS -
NON-QUALIFIED CONTRACTS
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the Contract Value exceeds the aggregate purchase
payments made, any amount withdrawn will be treated as coming first from the
earnings and then, only after the income portion is exhausted, as coming from
the principal. Withdrawn earnings are includable in gross income. It further
provides that a ten percent (10%) penalty will apply to the income portion of
any distribution. However, the penalty is not imposed on amounts received: (a)
after the taxpayer reaches age 59 1/2; (b) after the death of the Contract
Owner; (c) if the taxpayer is totally disabled (for this purpose disability is
as defined in Section 72(m)(7) of the Code); (d) in a series of substantially
equal periodic payments made not less frequently than annually for the life (or
life expectancy) of the taxpayer and his Beneficiary; (e) as an annuity payment
under an immediate annuity; or (f) which are allocable to purchase payments made
prior to August 14, 1982.
The above information does not apply to Qualified Contracts. However, separate
tax withdrawal penalties and restrictions may apply to such Qualified Contracts.
(See "Tax Treatment of Distributions -IRA Contracts.")
The availability of total or partial withdrawals from an immediate annuity is
not expressly provided for in the Code or Treasury Regulations. The only tax
guidance currently available for such issue is a Private Letter Ruling holding
that the right to make withdrawals does not prevent a contract from qualifying
as an immediate annuity. However, the Private Letter Ruling does not address the
issue of whether the making of a withdrawal would adversely affect the favorable
tax treatment of annuity payments made before or after such partial withdrawal
because of the requirement that all immediate annuity payments must be
"substantially equal." The loss of favorable tax treatment would mean that the
income portion of each annuity payment received prior to the taxpayer's
attaining age 59 1/2 would be subject to a 10% penalty tax unless another
exception to the penalty tax applies. While the Company currently believes that
such withdrawals will not adversely affect the favorable tax treatment of
annuity payments received before or after a withdrawal and the Company intends
to perform its tax reporting functions accordingly, there can be no assurance
that the Internal Revenue Service will not take a contrary position. Contract
Owners should obtain competent tax advice prior to making a partial or total
withdrawal.
QUALIFIED PLANS
The Contracts offered by this Prospectus may also be used with a plan qualified
under Section 408(b) of the Code ("IRA Contracts"). Contract Owners, Annuitants
and Beneficiaries are cautioned that benefits under an IRA Contract may be
subject to the terms and conditions of the plan regardless of the terms and
conditions of the Contracts issued pursuant to the plan. The following
discussion of IRA Contracts is not exhaustive and is for general informational
purposes only. The tax rules regarding IRA Contracts are very complex and will
have differing applications depending on individual facts and circumstances.
Each purchaser should obtain competent tax advice prior to purchasing IRA
Contracts.
IRA Contracts include special provisions restricting Contract provisions that
may otherwise be available as described in this Prospectus. Generally, IRA
Contracts are not transferable except upon surrender or annuitization.
Various penalty and excise taxes may apply to contributions or distributions
made in violation of applicable limitations. Furthermore, certain withdrawal
penalties and restrictions may apply to distributions from IRA Contracts. (See
"Tax Treatment of Distributions - IRA Contracts.")
On July 6, 1983, the Supreme Court decided in Arizona Governing Committee v.
Norris that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. IRA Contracts will utilize annuity tables which do
not differentiate on the basis of sex because of the use of the IRA Contracts in
a Simplified Employee Pension. Such annuity tables will also be available for
use in connection with certain non-qualified deferred compensation plans.
Under applicable limitations, certain amounts may be contributed to an IRA
Contract which will be deductible from the individual's gross income. These IRAs
are subject to limitations on eligibility, contributions, transferability and
distributions. (See "Tax Treatment of Distributions - IRA Contracts.") Under
certain conditions, distributions from other IRAs and other qualified plans may
be rolled over or transferred on a tax-deferred basis into an IRA Contract.
Sales of Contracts for use as IRA Contracts are subject to special requirements
imposed by the Code, including the requirement that certain informational
disclosure be given to persons desiring to establish an IRA. Purchasers of
Contracts to be qualified as Individual Retirement Annuities should obtain
competent tax advice as to the tax treatment and suitability of such an
investment.
TAX TREATMENT OF DISTRIBUTIONS - IRA CONTRACTS
In the case of a withdrawal under an IRA Contract, a ratable portion of the
amount received is taxable, generally based on the ratio of the individual's
cost basis to the individual's total accrued benefit under the retirement plan.
Special tax rules may be available for certain distributions from a Qualified
Contract.
Section 72(t) of the Code imposes a 10% penalty tax on the taxable portion of
any distribution from qualified retirement plans, including IRA Contracts. To
the extent amounts are not includible in gross income because they have been
rolled over to an IRA or to another eligible qualified plan, no tax penalty will
be imposed. The tax penalty will not apply to the following distributions: (a)
if distribution is made on or after the date on which the Annuitant reaches age
59 1/2; (b) distributions following the death or disability of the Annuitant
(for this purpose disability is as defined in Section 72(m)(7) of the Code); (c)
distributions that are part of a series of substantially equal periodic payments
made not less frequently than annually for the life (or life expectancy) of the
Annuitant or the joint lives (or joint life expectancies) of the Annuitant and
his or her designated Beneficiary; (d) distributions made to the Annuitant to
the extent such distributions do not exceed the amount allowable as a deduction
under Code Section 213 to the Annuitant for amounts paid during the taxable year
for medical care; (e) distributions from an IRA Contract for the purchase of
medical insurance (as described in Section 213(d)(1)(D) of the Code) for the
Annuitant and his or her spouse and dependents if the Annuitant has received
unemployment compensation for at least 12 weeks (this exception will no longer
apply after the Annuitant has been re-employed for at least 60 days.); (f)
distributions from an Individual Retirement Annuity made to the Annuitant to the
extent such distributions do not exceed the qualified higher education expenses
(as defined in Section 72(t)(7) of the Code) of the Annuitant for the taxable
year; and (g) distributions from an Individual Retirement Annuity made to the
Annuitant which are qualified first-time home buyer distributions (as defined in
Section 72(t)(8) of the Code). With respect to (c) above, if the series of
substantially equal periodic payments is modified before the later of the
Annuitant attaining age 59 1/2 or 5 years from the date of the first annuity
payment, then the tax for the year of the modification is increased by an amount
equal to the tax which would have been imposed (the 10% penalty tax) but for the
exception, plus interest for the tax years in which the exception was used. A
partial withdrawal may result in the modification of the series of annuity
payments made after such withdrawal and therefore could result in the imposition
of the 10% penalty tax and interest for the period as described above. Competent
tax advice should be obtained prior to making any withdrawals from an IRA
Contract. Any amounts distributed will only be paid to the Annuitant, Joint
Annuitant or Beneficiary. The Company will not transfer or pay such amounts to
another IRA or tax qualified plan.
Generally, distributions from an IRA Contract must commence no later than April
1 of the calendar year, following the later of: (a) the year in which the
employee attains age 70 1/2 or (b) the calendar year in which the employee
retires. The date set forth in (b) does not apply to an Individual Retirement
Annuity. Generally, required distributions must be over a period not exceeding
the life or life expectancy of the individual or the joint lives or life
expectancies of the individual and his or her designated beneficiary. If the
required minimum distributions are not made, a 50% penalty tax is imposed as to
the amount not distributed.
TAX TREATMENT OF ASSIGNMENTS
An assignment or pledge of a Contract may be a taxable event. Contract Owners
should therefore consult competent tax advisers should they wish to assign their
Contracts.
INCOME TAX WITHHOLDING
All distributions or the portion thereof which is includible in the gross income
of the Contract Owner are subject to federal income tax withholding. Generally,
amounts are withheld from periodic payments at the same rate as wages and at the
rate of 10% from non-periodic payments. However, the Contract Owner, in most
cases, may elect not to have taxes withheld or to have withholding done at a
different rate.
ANNUITY PROVISIONS
- --------------------------------------------------------------------------------
VARIABLE ANNUITY PAYOUT
A variable annuity is an annuity with payments which: (1) are not predetermined
as to dollar amount; and (2) will vary in amount with the net investment results
of the applicable Contract Sub-Account(s) of the Variable Account. Annuity
payments also depend upon the Age of the Annuitant and any Joint Annuitant and
the Assumed Net Investment Factor utilized. On the Annuity Calculation Date, the
Contract Value in each Contract Sub-Account will be applied to the applicable
Annuity Tables. The Annuity Table used will depend upon the Annuity Option
chosen. Unisex Annuity Tables are utilized by the Company. The dollar amount of
annuity payments after the first is determined as follows:
1. The dollar amount of the first annuity payment is divided by the value of
an Annuity Unit as of the Annuity Calculation Date. This establishes the
number of Annuity Units for each monthly payment. The number of Annuity
Units remains fixed during the annuity payment period.
2. For each Contract Sub-Account, the fixed number of Annuity Units is
multiplied by the Annuity Unit value on each subsequent annuity payment
date. This result is the dollar amount of the payment for each Contract
Sub-Account.
3. The total dollar amount of each Variable Annuity variable payout is the sum
of all Contract Sub-Account Variable Annuity payments.
FIXED ANNUITY PAYOUT
Annuity payments from the Fixed Payment Annuity will be equal payments unless
otherwise specified by the Annuity Option selected.
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The audited financial statements of the Company as of and for the year ended
December 31, 1998 included herein should be considered only as bearing upon the
ability of the Company to meet its obligations under the Contracts. The audited
financial statements of the Variable Account as of and for the year ended
December 31, 1998 are also included herein.
To be filed by amendment.
VIPNY SAI 05/99
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
a. Financial Statements
To be filed by amendment
b. Exhibits
1. Resolution of Board of Directors of the Company authorizing the
establishment of the Variable Account (1)
2. Not Applicable
3. Principal Underwriter Agreement (2)
4. Individual Immediate Variable Annuity Contract (1)
4a. Joint Owners Endorsement (1)
4b. Period Certain and Partial Liquidation Endorsement (1)
5. Application for Individual Immediate Variable Annuity Contract (1)
6. (i) Copy of Articles of Incorporation of the Company (1)
(ii) Copy of the Bylaws of the Company (3)
7. Not Applicable
8. Form of Fund Participation Agreement (1)
9. Opinion and Consent of Counsel *
10. Independent Auditors' Consent *
11. Not Applicable
12. Not Applicable
13. Calculation of Performance Information *
14. Company Organizational Chart (1)
27. Not Applicable
(1) Incorporated by reference to Registrant's initial Form N-4 filed
electronically on January 2, 1997.
(2) Incorporated by reference to Registrant's Pre-Effective Amendment No. 1
to Form N-4 filed electronically on May 14, 1997.
(3) Incorporated by reference to Registrant's Pre-Effective Amendment No. 2
to Form N-4 filed electronically on June 2, 1997.
* To be filed by amendment.
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The following are the Officers and Directors of the Company:
<TABLE>
<CAPTION>
<S> <C>
Name and Principal Positions and Offices
Business Address with Depositor
- ------------------------------ ----------------------------------
Lowell C. Anderson Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Ronald L. Wobbeking Chairman, Chief Executive Officer
1750 Hennepin Avenue and Director
Minneapolis, MN 55403
Michael T. Westermeyer Secretary and Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Thomas G. Brown Director
One Liberty Plaza,
45th Floor
New York, NY 10006
Edward J. Bonach Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Thomas D. Barta Treasurer
1750 Hennepin Avenue
Minneapolis, MN 55403
Dennis Marion Director
500 Valley Road
Wayne, NJ 07470
Kenneth P. Schrapp Appointed Actuary
1750 Hennepin Avenue
Minneapolis, MN 55403
Robert S. James Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Eugene T. Wilkinson Director
14 Commerce Drive
Cranford, NJ 07016
Eugene Long Vice President of Operations
152 W. 57th Street and Director
18th Floor
New York, NY 10019
Thomas J. Lynch President and Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Reinhard Obermueller Director
560 Lexington Avenue
New York, NY 10022
Stephen R. Herbert Director
900 Third Avenue
New York, NY 10022
Jack F. Rockett Director
140 E. 95th Street, Ste. 6A
New York, NY 10129
</TABLE>
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR
OR REGISTRANT
The Company organizational chart is incorporated by reference to
Registrant's initial Form N-4 (File No. 333-19173).
ITEM 27. NUMBER OF CONTRACT OWNERS
As of March 02, 1999 there were no Contract Owners.
ITEM 28. INDEMNIFICATION
The Bylaws of the Company provide that:
Each person (and the heirs, executors, and administrators of such person) made
or threatened to be made a party to any action, civil or criminal, by reason of
being or having been a Director, officer, or employee of the corporation (or by
reason of serving any other organization at the request of the corporation)
shall be indemnified to the extent permitted by the laws of the State of New
York, and in the manner prescribed therein.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted for directors and officers or controlling persons of the
Company pursuant to the foregoing, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
ITEM 29. PRINCIPAL UNDERWRITERS
a. NALAC Financial Plans, LLC is the principal underwriter for the
Contracts. It also is the principal underwriter for:
Allianz Life Variable Account A
Allianz Life Variable Account B
b. The following are the officers and directors of NALAC Financial Plans,
LLC:
<TABLE>
<CAPTION>
<S> <C>
Name & Principal Positions and Offices
Business Address with Underwriter
- ---------------------- ----------------------
James P. Kelso Director
1750 Hennepin Ave.
Minneapolis, MN 55403
Thomas B. Clifford President and Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Michael T. Westermeyer Secretary and Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Michael J. Yates Treasurer
1750 Hennepin Avenue
Minneapolis, MN 55403
Edward J. Bonach Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Catherine L. Mielke Compliance Officer
1750 Hennepin Avenue
Minneapolis, MN 55403
</TABLE>
c. Not Applicable
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Thomas Clifford, whose address is 1750 Hennepin Avenue, Minneapolis, Minnesota,
maintains physical possession of the accounts, books or documents of the
Variable Account required to be maintained by Section 31(a) of the Investment
Company Act of 1940, as amended, and the rules promulgated thereunder.
ITEM 31. MANAGEMENT SERVICES
Not Applicable
ITEM 32. UNDERTAKINGS
a. Registrant hereby undertakes to file a post-effective amendment to this
registration statement as frequently as is necessary to ensure that the audited
financial statements in the registration statement are never more than sixteen
(16) months old for so long as payment under the variable annuity contracts may
be accepted.
b. Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
postcard or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement of Additional
Information.
c. Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form promptly upon written or oral request.
d. Preferred Life Insurance Company of New York ("Company") hereby
represents that the fees and charges deducted under the Contract described in
the Prospectus, in the aggregate, are reasonable in relation to the services
rendered, the expenses to be incurred and the risks assumed by the Company.
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, as amended, the Registrant certifies that it has caused this Registration
Statement to be signed on its behalf in the City of Minneapolis and State of
Minnesota, on this 1st day of March, 1999.
PREFERRED LIFE
VARIABLE ACCOUNT C
(Registrant)
By: PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
(Depositor)
By: /s/ MICHAEL T. WESTERMEYER
--------------------------------
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
By: /s/ MICHAEL T. WESTERMEYER
--------------------------------
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
Signature and Title
<TABLE>
<CAPTION>
<S> <C> <C>
Lowell C. Anderson* Director 03/01/99
Lowell C. Anderson
Ronald L. Wobbeking* Chairman, Chief Executive 03/01/99
Ronald L. Wobbeking Officer and Director
Thomas D. Barta* Treasurer 03/01/99
Thomas D. Barta
Thomas G. Brown* Director 03/01/99
Thomas G. Brown
Edward J. Bonach* Director 03/01/99
Edward J. Bonach
Robert S. James* Director 03/01/99
Robert S. James
Thomas J. Lynch* President and Director 03/01/99
Thomas J. Lynch
Dennis J. Marion* Director 03/01/99
Dennis J. Marion
Eugene T. Wilkinson* Director 03/01/99
Eugene T. Wilkinson
Eugene K. Long* Director 03/01/99
Eugene K. Long
Reinhard W. Obermueller* Director 03/01/99
Reinhard W. Obermueller
Stephen R. Herbert* Director 03/01/99
Stephen R. Herbert
Jack F. Rockett* Director 03/01/99
Jack F. Rockett
</TABLE>
By /S/ MICHAEL T. WESTERMEYER
--------------------------
Attorney-in-Fact
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Tom Barta, Treasurer of Preferred Life
Insurance Company of New York (Preferred Life), a corporation duly organized
under the laws of the State of New York, do hereby appoint Ronald L. Wobbeking
and Michael T. Westermeyer, as my attorney and agent, for me, and in my name as
Treasurer of Preferred Life on behalf of Preferred Life, with full power to
execute, deliver and file with the Securities and Exchange Commission all
documents required for registration of a security under the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as amended, and to do
and perform each and every act that said attorney may deem necessary or
advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 26th day of February 1999.
WITNESS:
Melissa ODonnell /s/ Tom Barta
___________________________ _____________________________
Tom Barta
EXHIBITS
TO
POST-EFFECTIVE AMENDMENT NO. 2
TO
FORM N-4 (FILE NO. 333-19173)
PREFERRED LIFE VARIABLE ACCOUNT C
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
INDEX TO EXHIBITS
EXHIBIT PAGE
To be filed by amendment.
