File Nos.333-19699
811-05716
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ( )
Pre-Effective Amendment No. ( )
Post-Effective Amendment No. 4 (X)
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 ( )
Amendment No. 31 (X)
(Check appropriate box or boxes.)
PREFERRED LIFE VARIABLE ACCOUNT C
---------------------------------
(Exact Name of Registrant)
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
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(Name of Depositor)
152 West 57th Street, 18th Floor, New York, New York 10019
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(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
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Eugene Long
Preferred Life Insurance Company of New York
152 West 57th Street, 18th Floor
New York, New York 10019
Copies to:
Judith A. Hasenauer
Blazzard, Grodd & Hasenauer, P.C.
P.O. Box 5108
Westport, CT 06881
(203) 226-7866
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b) of Rule 485
_X_ on May 1, 1999 pursuant to paragraph (b) of Rule 485
___ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
___ on (date) pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following:
___ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Registered:
Individual Deferred Variable Annuity Contracts
CROSS REFERENCE SHEET
(Required by Rule 495)
<TABLE>
<CAPTION>
<S> <C> <C>
Item No. Location
PART A
Item 1. Cover Page. Cover Page
Item 2. Definitions. Index of Terms
Item 3. Synopsis or Highlights Profile
Item 4. Condensed Financial Information Appendix
Item 5. General Description of Registrant,
Depositor, and Portfolio Companies Preferred Life,
The Separate
Account, Investment
Options
Item 6. Deductions Expenses
Item 7. General Description of Variable
Annuity Contracts The Franklin Valuemark IV
Variable and Fixed
Annuity Contract
Item 8. Annuity Period Annuity Payments
(The Payout Phase)
Item 9. Death Benefit Death Benefit
Item 10. Purchases and Contract Value Purchase
Item 11. Redemptions. Access to Your
Money
Item 12. Taxes Taxes
Item 13. Legal Proceedings None
Item 14. Table of Contents of the Statement of
Additional Information Table of Contents of
the Statement of
Additional Information
PART B
Item 15. Cover Page Cover Page
Item 16. Table of Contents Table of Contents
Item 17. General Information and History Insurance Company
Item 18. Services Not Applicable
Item 19. Purchase of Securities Being Offered Not Applicable
Item 20. Underwriters Distributor
Item 21. Calculation of Performance Data Calculation of
Performance Data
Item 22. Annuity Payments Annuity Provisions
Item 23. Financial Statements Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item so numbered, in Part C to this Registration Statement.
PART A
Profile of the Franklin Valuemark IV
Variable Annuity Contract
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
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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 Valuemark IV variable annuity
contract with a fixed account. The Contract is more fully described in the
prospectus which accompanies this profile. Please read the prospectus carefully.
1. THE FRANKLIN VALUEMARK IV VARIABLE ANNUITY CONTRACT
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The Franklin Valuemark IV variable annuity contract with a fixed account offered
by Preferred Life Insurance Company of New York (Preferred Life) is a contract
between you, the owner, and Preferred Life, an insurance company. In this
profile and the prospectus, "we", "us" and "our" refers to Preferred Life. The
Contract provides a means for investing on a tax-deferred basis. The Contract is
intended for retirement savings or other long-term investment purposes. The
Contract provides for a death benefit and guaranteed annuity income options.
The Contract has 25 variable options -- each of which invests in a portfolio of
Franklin Valuemark Funds, and a fixed account of Preferred Life. The portfolios
are managed by Franklin Advisers, Inc. and its Templeton and Franklin
affiliates. A list of the available portfolios is contained in Section 4.
Depending upon market conditions, you can make or lose money in the Contract
based on the portfolios' investment performance. The portfolios are designed to
offer a better return than the fixed account, however, this is not guaranteed.
The fixed account offers an interest rate that is guaranteed by Preferred Life.
Your initial interest rate is set on the date when your money is invested in the
fixed account and remains effective for one year. Initial interest rates are
declared monthly. If you select the fixed account, your money will be held in
our general account with principal and interest backed by Preferred Life.
Currently, you can put your money in 10 investment choices (which includes any
of the 25 variable options and the Preferred Life fixed account). Preferred Life
reserves the right to limit the number of variable options which you may invest
in at any one time (now or in the future).
Like all deferred annuity contracts, your Contract has two phases: the
accumulation phase and the payout phase. During the accumulation phase, your
earnings accumulate on a tax-deferred basis and are based on the investment
performance of the portfolio(s) you select and/or the interest rate earned on
the money you have in the fixed account. During the accumulation phase, the
earnings are taxed as income only when you make a withdrawal. The payout phase
occurs when you begin receiving regular payments from your Contract. The amount
of the payments you may receive during the payout phase depends, in part, upon
the amount of money you are able to accumulate in your Contract during the
accumulation phase.
2. ANNUITY PAYMENTS
(THE PAYOUT PHASE)
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You can receive monthly annuity payments from your Contract by selecting one of
the following annuity options (all of these options assume you are the owner and
the annuitant):
(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 you or any person
you designate for the remainder of the guaranteed period (5,10, 15 or 20 years);
(3) payments during the joint lifetime of you and the joint-annuitant when
either of you die, payments will continue as long as the survivor lives;
(4) payments during the joint lifetime of you and the joint annuitant, but if
you and the joint annuitant die before payments have been made for the
guaranteed period you selected, payments will continue to you or any person you
designate for the remainder of the guaranteed period (5, 10, 15 or 20 years);
and
(5) payments during your life ending with the last payment due prior to your
death with a guarantee that at your death Preferred Life will make a refund to
your beneficiary if the value of the payments made is less than the amount
applied to the annuity option.
Once you begin receiving regular payments, you cannot change your annuity option
or surrender your Contract.
During the payout phase, you may select from the variable options available or
the fixed account for your investment choices. You may elect to receive annuity
payments as a variable payout, a fixed payout, or a combination of both. If you
choose to have any part of your payments based on portfolio performance (i.e.
variable payout), the dollar amount of your annuity payments may go up or down,
depending on the investment performance.
3. PURCHASE
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You can purchase the Contract with $5,000 or more under most circumstances. You
can add $250 or more any time during the accumulation phase. Your registered
representative can help you complete the proper forms. You and the annuitant
cannot be older than 85 years old at the time you purchase the Contract. This
product is not appropriate for market timers.
4. INVESTMENT OPTIONS
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You may select the Preferred Life fixed account and/or the variable options
which invest in Class 1 shares of the portfolios of Franklin Valuemark Funds
listed below. Franklin Valuemark Funds has two classes of shares. You may only
invest in Class 1 shares with this Contract.
PORTFOLIO SEEKING
CAPITAL PRESERVATION AND INCOME:
Money Market Fund
PORTFOLIOS SEEKING INCOME:
High Income Fund
Templeton Global Income Securities Fund
U.S. Government Securities Fund
Zero Coupon Funds - 2000, 2005 and 2010
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
Global Health Care Securities Fund
Mutual Discovery Securities Fund
Natural Resources Securities Fund
Small Cap Fund
Templeton Developing Markets Equity Fund
Templeton Global Growth Fund
Templeton International Equity Fund
Templeton International Smaller Companies Fund
Templeton Pacific Growth Fund
The portfolios are fully described in the attached Franklin Valuemark Funds
prospectus. You can make or lose money based on the portfolios' performance.
5. EXPENSES
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The Contract has insurance and investment features, and there are costs related
to each.
o The annual insurance charges total 1.49% of the average daily value of your
Contract allocated to the variable options during the accumulation phase (1.40%
during the payout phase).
o Each year Preferred Life also deducts a $30 contract maintenance charge from
your Contract. Preferred Life currently waives this charge if the cumulative
value of all your Franklin Valuemark IV Contracts (registered with the same
social security number) are at least $50,000.
o There are also annual portfolio operating expenses, which vary depending upon
the portfolio(s) you select. These expenses range from .49% to 1.41% of the
average daily value of the portfolios' Class 1 shares.
o You can transfer between investment choices
up to 12 times a year without charge. After 12 transfers, the charge is $25 or
2% of the amount transferred, whichever is less. Market timing transfers may not
be permitted.
o If you make a withdrawal from the Contract, Preferred Life may assess a
contingent deferred sales charge (withdrawal charge). The amount of the charge
depends upon how long Preferred Life has had your payment. Each purchase payment
you add to your Contract has its own 7 year contingent deferred sales charge
period. The charge is:
Contingent Deferred
Sales Charge
Years Since (as a percentage
Purchase Payment of purchase payments)
-----------------------------------------------
0-1 6%
1-2 6%
2-3 6%
3-4 5%
4-5 4%
5-6 3%
6-7 2%
7+ 0%
o Under certain circumstances, after the first year, Preferred Life will permit
you to access your money in the Contract without deducting a contingent deferred
sales charge if you become disabled.
o The State of New York does not currently impose a premium tax on purchase
payments for annuities.
We have provided the following chart to help you understand the expenses in your
Contract. The column "Total Annual Expenses" shows the total of the $30 contract
maintenance charge (which has been converted to a percentage and is represented
as .10% below), the 1.49% insurance charges and the total annual portfolio
expenses for each portfolio.
The next two columns show you two examples of the expenses, in dollars, you
would pay under a Contract. The examples assume that you invested $1,000 in a
Contract which earns 5% annually and that you surrender your Contract: (1) at
the end of year 1, and (2) at the end of year 10. For year 1, the Total Annual
Expenses are assessed as well as the contingent deferred sales charge. For year
10, the Total Annual Charges are assessed but no contingent deferred sales
charge is deducted.
The premium tax is assumed to be 0% in both examples.
<PAGE>
<TABLE>
<CAPTION>
These are just examples. They do not represent past or future expenses or
returns. Actual expenses may be higher or lower than those shown.
EXAMPLES:
Total Annual Total Annual
Insurance Class 1 Portfolio Total Annual Expenses at end of:
Variable Option Charges Expenses Expenses 1 Year 10 Years
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Capital Growth 1.59% .77% 2.36% $84 $270
Global Health Care Securities1 1.59% .84% 2.43% $85 $277
Global Utilities Securities 1.59% .50% 2.09% $81 $242
Growth and Income 1.59% .49% 2.08% $81 $241
High Income 1.59% .53% 2.12% $82 $245
Income Securities 1.59% .49% 2.08% $81 $241
Money Market 1.59% .53% 2.12% $82 $245
Mutual Discovery Securities 1.59% 1.00% 2.59% $86 $293
Mutual Shares Securities 1.59% .77% 2.36% $84 $270
Natural Resources Securities 1.59% .64% 2.23% $83 $256
Real Estate Securities 1.59% .54% 2.13% $82 $246
Rising Dividends 1.59% .72% 2.31% $83 $264
Small Cap 1.59% .77% 2.36% $84 $270
Templeton Developing Markets Equity 1.59% 1.41% 3.00% $90 $332
Templeton Global Asset Allocation 1.59% .84% 2.43% $85 $277
Templeton Global Growth 1.59% .88% 2.47% $85 $281
Templeton Global Income Securities 1.59% .63% 2.22% $83 $255
Templeton International Equity 1.59% .88% 2.47% $85 $281
Templeton International Smaller Companies 1.59% 1.10% 2.69% $87 $302
Templeton Pacific Growth 1.59% 1.10% 2.69% $87 $302
U.S. Government Securities 1.59% .50% 2.09% $81 $242
Value Securities1 1.59% .83% 2.42% $85 $276
Zero Coupon 2000 1.59% .66% 2.25% $83 $258
Zero Coupon 2005 1.59% .66% 2.25% $83 $258
Zero Coupon 2010 1.59% .66% 2.25% $83 $258
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<FN>
1. Estimated for 1999
</FN>
</TABLE>
For more detailed information, see the Fee Table in the prospectus for the
Contract.
<PAGE>
6. TAXES
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You do not have to pay taxes on any earnings until you withdraw money from your
Contract. In most cases, if you make a withdrawal, earnings come out first and
are taxed as income. If you are younger than 591/2 when you take money out, you
may be charged a 10% federal tax penalty on the taxable amounts withdrawn.
Payments during the payout phase are considered 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.
7. ACCESS TO YOUR MONEY
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You may make a withdrawal at any time during the accumulation phase. Any partial
withdrawal must be for at least $500. You may request a withdrawal in writing or
by electing the Systematic Withdrawal Program or Minimum Distribution Program
which are briefly described in Section 10 of this profile. After the first year,
you can make multiple withdrawals up to a total of 15% of the value of your
Contract each year without charge from Preferred Life. Withdrawals in excess of
that amount will be subject to a contingent deferred sales charge. If you do not
withdraw the full 15% in any one Contract year, you may not carry over the
remaining percentage amount to another year. Withdrawals in excess of the 15%
free withdrawal amount will be charged a contingent deferred sales charge which
declines from 6% to 0% depending upon the number of complete years we have had
your payment. After Preferred Life has had a payment for 7 years, there is no
charge for withdrawals related to that payment. Each purchase payment you add to
your Contract has its own 7 year contingent deferred sales charge period. Of
course, you may also have to pay income tax and a tax penalty on any money you
take out of the Contract.
8. PERFORMANCE
OF THE PORTFOLIOS
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The value of the Contract will vary up or down depending upon the performance of
the portfolio(s) you choose.
The following chart shows total returns for the portfolios' Class 1 shares for
the periods shown. Performance is not shown for the Global Health Care
Securities Fund and the Value Securities Fund because they were first offered
for sale on May 1, 1998. These numbers reflect the insurance charges, the
contract maintenance charge and the operating expenses of the portfolios. These
numbers do not reflect any contingent deferred sales charges, which if applied,
would reduce such performance. Past
performance is not a guarantee of future results.
<PAGE>
<TABLE>
<CAPTION>
Calendar Year
Variable Option 1998 1997 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Capital Growth 18.41% 16.46% NA NA NA NA NA
Global Utilities Securities 9.44% 24.79% 5.47% 29.32% -12.97% 8.80% 7.00%
Growth and Income 6.63% 25.76% 12.39% 30.77% -3.57% 8.58% 5.03%
High Income -.67% 9.80% 12.10% 17.90% -3.80% 13.94% 14.43%
Income Securities .04% 15.26% 9.52% 20.49% -7.75% 16.76% 11.45%
Money Market 3.56% 3.59% 3.50% 4.09% 2.20% 0.93% 1.43%
Mutual Discovery Securities -6.50% 17.50% NA NA NA NA NA
Mutual Shares Securities -1.49% 15.89% NA NA NA NA NA
Natural Resources Securities -26.58% -20.27% 2.35% 0.74% -3.54% 53.23% -11.56%
Real Estate Securities -18.15% 18.81% 30.74% 15.69% 1.27% 17.16% 10.33%
Rising Dividends 5.24% 30.96% 22.23% 27.73% -5.59% -4.98% NA
Small Cap -2.54% 15.59% 27.05% NA NA NA NA
Templeton Developing Markets Equity -22.87% -10.17% 19.68% 1.16% NA NA NA
Templeton Global Asset Allocation -1.62% 9.96% 17.95% NA NA NA NA
Templeton Global Growth 7.26% 11.72% 19.38% 10.96% NA NA NA
Templeton Global Income Securities 5.40% 0.86% 7.91% 12.88% -6.49% 14.86% -1.96%
Templeton International Equity 3.90% 9.94% 21.04% 8.86% -0.72% -26.58% NA
Templeton International Smaller Companies -13.67% -3.06% NA NA NA NA NA
Templeton Pacific Growth -14.52% -37.00% 9.35% 6.28% -10.24% 45.59% NA
U.S. Government Securities 5.75% 7.59% 1.97% 17.60% -6.06% 7.99% 5.97%
Zero Coupon 2000 5.81% 5.42% 0.80% 18.79% -8.22% 14.34% 7.35%
Zero Coupon 2005 10.77% 9.62% -2.09% 29.71% -11.01% 20.33% 9.07%
Zero Coupon 2010 12.65% 14.75% -4.24% 40.59% -12.38% 23.48% 8.61%
</TABLE>
<PAGE>
9. DEATH BENEFIT
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If you die during the accumulation phase, the person you have selected as your
beneficiary will receive a death benefit. This death benefit will be the greater
of:
1) the current value of your Contract, less any taxes, on the day all claim
proofs and payment election forms are received by Preferred Life at the
Valuemark Service Center; or
2) (if applicable) the guaranteed minimum death benefit, less any taxes. The
guaranteed minimum death benefit, as of the day all claim proofs and payment
election forms are received by Preferred Life at the Valuemark Service Center,
is the greater of:
A) payments you have made, less any money you have taken out and charges
paid on the money you have taken out; or
B) the highest value of the Contract on each Contract anniversary prior to
your 81st birthday or date of death, increased by any payments made since that
anniversary, less any money taken out and charges paid on the money you have
taken out since that anniversary.
Different rules apply after your 81st birthday.
10. OTHER INFORMATION
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Free Look. If you cancel the Contract within 10 days after receiving it, we will
send your money back without assessing a contingent deferred sales charge. You
will receive whatever your Contract is worth on the day we receive your request.
This may be more or less than your original payment. If you purchase the
Contract as an IRA, we are required to refund your purchase payment if you
cancel the Contract within 10 days.
No Probate. In most cases, when you die, your beneficiary will receive the death
benefit without going through probate.
Purchasing Considerations. The Franklin Valuemark IV Variable Annuity Contract
is designed for people seeking long-term tax deferred accumulation of assets,
generally for retirement or other long-term purposes. The tax deferred feature
is most attractive to people in high federal and state tax brackets. You should
not buy this Contract if you are looking for a short-term investment or if you
cannot take the risk of getting back less money than you put in.
ADDITIONAL FEATURES
The Contract offers additional features which you might be interested in. These
include:
Automatic Investment Plan - You can automatically add to your Contract on a
monthly or quarterly basis for as little as $100. You can do this by
electronically transferring money from your savings or checking account.
Dollar Cost Averaging Program - You can arrange to have a regular amount of
money automatically transferred from selected variable options or the fixed
account to other variable options each month. Theoretically this can give you a
lower average cost per unit over time than a single one time purchase. However,
there are no guarantees that this will take place.
Flexible Rebalancing - Preferred Life will automatically readjust your Contract
value among the variable options to maintain your specified allocation mix. This
can be done quarterly, semi-annually or annually.
Systematic Withdrawal Program - You can elect to receive monthly or quarterly
payments from Preferred Life while your Contract is in the accumulation phase.
Of course, you may have to pay tax penalties and income taxes on the money you
receive.
Minimum Distribution Program - You can arrange to have money sent to you each
month or quarter to meet certain required distribution requirements imposed by
the Internal Revenue Code for IRAs (generally after age 701/2).
These features may not be suitable for your particular situation.
11. INQUIRIES
If you have any questions about your Contract or need more information, please
contact us at:
Valuemark Service Center
300 Berwyn Park
P.O. Box 3031
Berwyn, PA 19312-0031
(800) 624-0197
<PAGE>
THE FRANKLIN VALUEMARK(R) IV VARIABLE ANNUITY CONTRACT
issued by
PREFERRED LIFE VARIABLE ACCOUNT C
and
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
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This prospectus describes the Franklin Valuemark IV Variable Annuity Contract
with a Fixed Account offered by Preferred Life Insurance Company of New York
(Preferred Life).
The annuity has 25 Variable Options, each of which invests in one of the
Portfolios of Franklin Valuemark Funds which are listed below, and a Fixed
Account of Preferred Life. You can select up to 10 investment choices (which
includes any of the Variable Options and the Fixed Account).
FRANKLIN VALUEMARK FUNDS:
PORTFOLIO SEEKING
CAPITAL PRESERVATION AND INCOME
Money Market Fund
PORTFOLIOS SEEKING INCOME
High Income Fund
Templeton Global Income Securities Fund
U.S. Government Securities Fund
Zero Coupon Funds - 2000, 2005 and 2010
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
Global Health Care Securities Fund
Mutual Discovery Securities Fund
Natural Resources 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 Valuemark IV Variable
Annuity Contract with a Fixed Account.
To learn more about the annuity offered by this prospectus, you can obtain a
copy of the Statement of Additional Information (SAI) dated May 1, 1999. The SAI
has been filed with the Securities and Exchange Commission (SEC) and is
incorporated by reference into this prospectus. The Table of Contents of the SAI
is on page 20 of this prospectus. The SEC maintains a Web site
(http://www.sec.gov) that contains the SAI, material incorporated by reference
and other information about companies that file electronically with the SEC. For
a free copy of the SAI, call us at (800) 342-3863 or write us at: 152 West 57th
Street, 18th Floor, New York, New York 10019.
The Franklin Valuemark IV Variable Annuity Contracts:
o are not bank deposits
o are not federally insured
o are not endorsed by any bank or government agency
o are not guaranteed and may be subject to loss of principal
The Securities and Exchange Commission has not approved or disapproved these
securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
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
Index of Terms 3
Fee Table 4
1. The Franklin Valuemark IV
Variable Annuity Contract 8
Contract Owner 8
Joint Owner 8
Annuitant 8
Beneficiary 8
Assignment 8
2. Annuity Payments (The Payout Phase) 9
Annuity Options 9
3. Purchase 10
Purchase Payments 10
Automatic Investment Plan 10
Allocation of Purchase Payments 10
Free Look 10
Accumulation Units 10
4. Investment Options 11
Transfers 12
Dollar Cost Averaging Program 12
Flexible Rebalancing 13
Voting Privileges 13
Substitution 13
5. Expenses 13
Insurance Charges 13
Mortality and Expense Risk Charge 13
Administrative Charge 13
Contract Maintenance Charge 13
Contingent Deferred Sales Charge 14
Waiver of Contingent Deferred Sales Charge 14
Reduction or Elimination of the
Contingent Deferred Sales Charge 14
Transfer Fee 14
Income Taxes 15
Portfolio Expenses 15
6. Taxes 15
Annuity Contracts in General 15
Qualified and Non-Qualified Contracts
Multiple Contracts 15
Withdrawals - Non-Qualified Contracts 15
Withdrawals - Qualified Contracts 16
Withdrawals - Tax-Sheltered Annuities 16
Diversification 16
7. Access to Your Money 16
Systematic Withdrawal Program 16
Minimum Distribution Program 17
Suspension of Payments or Transfers 17
8. Performance 17
9. Death Benefit 18
Upon Your Death 18
Death of Annuitant 19
10. Other Information 19
Preferred Life 19
Year 2000 19
The Separate Account 19
Distribution 19
Administration 20
Financial Statements 20
Table of Contents of the
Statement of Additional Information 20
Appendix 21
<PAGE>
INDEX OF TERMS
This prospectus is written in plain English to make it as understandable for you
as possible. However, there are some technical terms used which are capitalized
in this prospectus. The page that is indicated below is where you will find the
definition for the word or term.
Page
Accumulation Phase 8
Accumulation Unit 10
Annuitant 8
Annuity Options 9
Annuity Payments 9
Annuity Unit 10
Beneficiary 8
Contract 8
Contract Owner 8
Fixed Account 8
Page
Income Date 9
Joint Owner 8
Non-Qualified 15
Payout Phase 9
Portfolios 11
Purchase Payment 10
Qualified 15
Tax Deferral 8
Variable Option 8
<PAGE>
FEE TABLE
The purpose of this Fee Table is to help you understand the costs of investing,
directly or indirectly, in the Variable Options under the Contract. It reflects
expenses of the Separate Account as well as the Portfolios.
CONTRACT OWNER TRANSACTION FEES
Contingent Deferred Sales Charge*
(as a percentage of purchase payments)
Years Since
Purchase Payment Charge
-------------------------
0-1 6%
1-2 6%
2-3 6%
3-4 5%
4-5 4%
5-6 3%
6-7 2%
7 + 0%
Transfer Fee First 12 transfers in a Contract year are free. Thereafter, the fee
is $25 (or 2% of the amount transferred, if less). Dollar Cost Averaging
transfers and Flexible Rebalancing transfers are not counted.
CONTRACT MAINTENANCE CHARGE** $30 per Contract per year
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Charge*** 1.34%
Administrative Charge .15%
Total Separate Account Annual Expenses 1.49%
*Each year after the first Contract year, you may make multiple partial
withdrawals of up to a total of 15% of the value of your Contract and no
contingent deferred sales charge will be assessed. See Section 7 - "Access to
Your Money" for additional options.
**During the Accumulation Phase, the charge is waived if the value of your
Contract is at least $50,000. If you own more than one Franklin Valuemark IV
Contract (registered with the same social security number), we will determine
the total value of all your Contracts. If the total value of all your Contracts
is at least $50,000, the charge is waived. Currently, the charge is also waived
during the Payout Phase if the value of your Contract at the Income Date is at
least $50,000.
***The Mortality and Expense Risk Charge is 1.25% during the Payout Phase.
<PAGE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK FUNDS' ANNUAL EXPENSES: CLASS 1 SHARES
(as a percentage of Franklin Valuemark Funds' average net assets)
The Management and Portfolio Administration Fees and Total Annual Expenses for each Portfolio are based on a percentage of that
Portfolio's average net assets for the most recent fiscal year. See the prospectus for Franklin Valuemark Funds for more
information.
Management
and Portfolio Other Total Annual
Administration Fees1 Expenses Expenses
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital Growth Fund .75% .02% .77%
Global Health Care Securities Fund2 .75% .09% .84%
Global Utilities Securities Fund .47% .03% .50%
Growth and Income Fund .47% .02% .49%
High Income Fund .50% .03% .53%
Income Securities Fund .47% .02% .49%
Money Market Fund .51% .02% .53%
Mutual Discovery Securities Fund .95% .05% 1.00%
Mutual Shares Securities Fund .74% .03% .77%
Natural Resources Securities Fund .62% .02% .64%
Real Estate Securities Fund .52% .02% .54%
Rising Dividends Fund .70% .02% .72%
Small Cap Fund .75% .02% .77%
Templeton Developing Markets Equity Fund 1.25% .16% 1.41%
Templeton Global Asset Allocation Fund .80% .04% .84%
Templeton Global Growth Fund .83% .05% .88%
Templeton Global Income Securities Fund .57% .06% .63%
Templeton International Equity Fund .80% .08% .88%
Templeton International Smaller Companies Fund 1.00% 10% 1.10%
Templeton Pacific Growth Fund .99% .11% 1.10%
U.S. Government Securities Fund .48% .02% .50%
Value Securities Fund2 .75% .08% .83%
Zero Coupon Fund - 2000 .63% .03% .66%
Zero Coupon Fund - 2005 .63% .03% .66%
Zero Coupon Fund - 2010 .62% .04% .66%
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
1. The Portfolio Administration Fee is a direct expense for the Global Health Care Securities Fund, the Mutual Discovery
Securities Fund, the Mutual Shares Securities Fund, the Templeton Global Asset Allocation Fund, the Templeton International
Smaller Companies Fund, and the Value Securities Fund; other Portfolios pay for similar services indirectly through the Management
Fee. See the Franklin Valuemark Funds prospectus for further information regarding these fees.
2. The Global Health Care Securities Fund and the Value Securities Fund commenced operations May 1, 1998. The expenses shown above
for these Portfolios are therefore estimated for 1999.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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 $30 contract maintenance charge is included in the examples as a prorated charge of $1. Since the average Contract size is
greater than $1,000, the contract maintenance charge is reduced accordingly.
o Premium taxes are not reflected in the tables.
o For additional information, see Section 5 - "Expenses" and the Franklin Valuemark Funds prospectus.
You would pay the following expenses on a $1,000 investment, assuming a 5% annual return on your money if you surrender your
Contract at the end of each time period:
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Growth Fund $84 $125 $160 $270
Global Health Care Securities Fund* $85 $127 $164 $277
Global Utilities Securities Fund $81 $116 $146 $242
Growth and Income Fund $81 $116 $146 $241
High Income Fund $82 $117 $148 $245
Income Securities Fund $81 $116 $146 $241
Money Market Fund $82 $117 $148 $245
Mutual Discovery Securities Fund $86 $132 $172 $293
Mutual Shares Securities Fund $84 $125 $160 $270
Natural Resources Securities Fund $83 $121 $153 $256
Real Estate Securities Fund $82 $118 $148 $246
Rising Dividends Fund $83 $123 $157 $264
Small Cap Fund $84 $125 $160 $270
Templeton Developing Markets Equity Fund $90 $144 $192 $332
Templeton Global Asset Allocation Fund $85 $127 $164 $277
Templeton Global Growth Fund $85 $128 $166 $281
Templeton Global Income Securities Fund $83 $120 $153 $255
Templeton International Equity Fund $85 $128 $166 $281
Templeton International Smaller Companies Fund $87 $135 $177 $302
Templeton Pacific Growth Fund $87 $135 $177 $302
U.S. Government Securities Fund $81 $116 $146 $242
Value Securities Fund* $85 $126 $163 $276
Zero Coupon Fund - 2000 $83 $121 $154 $258
Zero Coupon Fund - 2005 $83 $121 $154 $258
Zero Coupon Fund - 2010 $83 $121 $154 $258
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
*Estimated
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
You would pay the following expenses on a $1,000 investment, assuming a 5% annual return on your money if your Contract is not
surrendered or if you apply your Contract value to an Annuity Option:
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Growth Fund $24 $74 $126 $270
Global Health Care Securities Fund* $25 $76 $130 $277
Global Utilities Securities Fund $21 $65 $112 $242
Growth and Income Fund $21 $65 $112 $241
High Income Fund $22 $66 $114 $245
Income Securities Fund $21 $65 $112 $241
Money Market Fund $22 $66 $114 $245
Mutual Discovery Securities Fund $26 $81 $138 $293
Mutual Shares Securities Fund $24 $74 $126 $270
Natural Resources Securities Fund $23 $70 $119 $256
Real Estate Securities Fund $22 $67 $114 $246
Rising Dividends Fund $23 $72 $123 $264
Small Cap Fund $24 $74 $126 $270
Templeton Developing Markets Equity Fund $30 $93 $158 $332
Templeton Global Asset Allocation Fund $25 $76 $130 $277
Templeton Global Growth Fund $25 $77 $132 $281
Templeton Global Income Securities Fund $23 $69 $119 $255
Templeton International Equity Fund $25 $77 $132 $281
Templeton International Smaller Companies Fund $27 $84 $143 $302
Templeton Pacific Growth Fund $27 $84 $143 $302
U.S. Government Securities Fund $21 $65 $112 $242
Value Securities Fund* $25 $75 $129 $276
Zero Coupon Fund - 2000 $23 $70 $120 $258
Zero Coupon Fund - 2005 $23 $70 $120 $258
Zero Coupon Fund - 2010 $23 $70 $120 $258
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
*Estimated
</FN>
</TABLE>
See the Appendix for Accumulation Unit Values - Condensed Financial Information.
<PAGE>
1. THE FRANKLIN VALUEMARK IV
VARIABLE ANNUITY CONTRACT
- --------------------------------------------------------------------------------
This prospectus describes a variable deferred annuity contract with a Fixed
Account offered by Preferred Life.
An annuity is a contract between you, the owner, and an insurance company (in
this case Preferred Life), where the insurance company promises to pay you (or
someone else you choose) an income, in the form of Annuity Payments, beginning
on a designated date that is at least two years in the future. Until you decide
to begin receiving Annuity Payments, your annuity is in the Accumulation Phase.
Once you begin receiving Annuity Payments, your Contract switches to the Payout
Phase.
The Contract benefits from Tax Deferral. Tax Deferral means that you are not
taxed on earnings or appreciation on the assets in your Contract until you take
money out of your Contract.
You have 26 investment choices - the 25 Variable Options, each of which invests
in one of the Portfolios of Franklin Valuemark Funds, and the Fixed Account of
Preferred Life. The Contract is called a variable annuity because you can choose
among 25 Variable Options and depending upon market conditions, you can make or
lose money in the Contract based on the investment performance of the Portfolios
of Franklin Valuemark Funds. The Portfolios are designed to offer a better
return than the Fixed Account. However this is not guaranteed. If you select the
variable annuity portion of the Contract, the amount of money you are able to
accumulate in your Contract during the Accumulation Phase depends in large part
upon the investment performance of the Portfolio(s) you select. The amount of
the Annuity Payments you receive during the Payout Phase from the variable
annuity portion of the Contract also depends in large part upon the investment
performance of the Portfolios you select for the Payout Phase.
The Contract also contains a Fixed Account. The Fixed Account offers an interest
rate that is guaranteed by Preferred Life for all deposits made within the
twelve month period. Your initial interest rate is set on the date when your
money is invested in the Fixed Account and remains effective for one year.
Initial interest rates are declared monthly. Preferred Life guarantees that the
interest credited to the Fixed Account will not be less than 3% per year. If you
select the Fixed Account, your money will be placed with the other general
assets of Preferred Life. Preferred Life may change the terms of the Fixed
Account in the future. Please contact Preferred Life for the most current terms.
If you select the Fixed Account, the amount of money you are able to accumulate
in your Contract during the Accumulation Phase depends upon the total interest
credited to your Contract. We will not make any changes to your Contract without
your permission except as may be required by law.
CONTRACT OWNER
You, as the Contract Owner, have all the rights under the Contract. The Contract
Owner is as designated at the time the Contract is issued, unless changed. You
may change Contract Owners at any time. This may be a taxable event. You should
consult with your tax adviser before doing this.
JOINT OWNER
The Contract can be owned by Joint Owners. Upon the death of either Joint Owner,
the surviving Joint Owner will be the designated Beneficiary. Any other
Beneficiary designation at the time the Contract was issued or as may have been
later changed will be treated as a contingent Beneficiary unless otherwise
indicated.
ANNUITANT
The Annuitant is the natural person on whose life we base Annuity Payments. You
name an Annuitant. You may change the Annuitant at any time before the Income
Date unless the Contract is owned by a non-individual (for example, a
corporation).
BENEFICIARY
The Beneficiary is the person(s) or entity you name to receive any death
benefit. The Beneficiary is named at the time the Contract is issued unless
changed at a later date. Unless an irrevocable Beneficiary has been named, you
can change the Beneficiary or contingent Beneficiary.
ASSIGNMENT
You can transfer ownership (assign) the Contract at any time during your
lifetime. Preferred Life will not be bound by the assignment until it receives
the written notice of the assignment. Preferred Life will not be liable for any
payment or other action we take in accordance with the Contract before we
receive notice of the assignment. Any assignment made after the death benefit
has become payable can only be done with our consent. AN ASSIGNMENT MAY BE A
TAXABLE EVENT.
If the Contract is issued pursuant to a Qualified plan, there may be limitations
on your ability to assign the Contract.
2. ANNUITY PAYMENTS
(THE PAYOUT PHASE)
- --------------------------------------------------------------------------------
You can receive regular monthly income payments under your Contract. You can
choose the month and year in which those payments begin. We call that date the
Income Date. Your Income Date must be the first day of a calendar month and must
be at least 2 full years after you buy the Contract. You can also choose among
income plans. We call those Annuity Options.
We ask you to choose your Income Date when you purchase the Contract. You can
change it at any time before the Income Date with 30 days notice to us. Annuity
Payments must begin by the first day of the first calendar month following the
Annuitant's 90th birthday. You (or someone you designate) will receive the
Annuity Payments. You will receive tax reporting on those payments.
You may elect to receive your Annuity Payments as a variable payout, a fixed
payout, or a combination of both. Under a fixed payout, all of the Annuity
Payments will be the same dollar amount (equal installments). If you choose a
variable payout, you can select from the available Variable Options. If you do
not tell us otherwise, your Annuity Payments will be based on the investment
allocations that were in place on the Income Date.
If you choose to have any portion of your Annuity Payments based on the
investment performance of the Variable Option(s), the dollar amount of your
payment will depend upon three things:
1) the value of your Contract in the Variable Option(s) on the Income Date,
2) the 5% assumed investment rate used in the annuity table for the Contract,
and
3) the performance of the Variable Option(s) you selected.
If the actual performance exceeds the 5% assumed investment rate, your Annuity
Payments will increase. Similarly, if the actual rate is less than 5%, your
Annuity Payments will decrease.
ANNUITY OPTIONS
You can choose one of the following Annuity Options or any other Annuity Option
you want and that Preferred Life agrees to provide. After Annuity Payments
begin, you cannot change the Annuity Option. If you do not choose an Annuity
Option prior to the Income Date, we will assume that you selected Option 2 which
provides a life annuity with 5 years of guaranteed payments.
OPTION 1. Life Annuity. Under this option, we will make monthly Annuity Payments
so long as the Annuitant is alive. After the Annuitant dies, we stop making
Annuity Payments.
OPTION 2. Life Annuity with 5, 10, 15 or 20 Year Payments Guaranteed. Under this
option, we will make monthly Annuity Payments so long as the Annuitant is alive.
However, if the Annuitant dies before the end of the selected guaranteed period,
we will continue to make Annuity Payments to you or any person you choose for
the rest of the guaranteed period. If you do not want to receive Annuity
Payments after the Annuitant's death, you can ask us for a single lump sum.
OPTION 3. Joint and Last Survivor Annuity. Under this option, we will make
monthly Annuity Payments during the joint lifetime of the Annuitant and the
joint Annuitant. When the Annuitant dies, if the joint Annuitant is still alive,
we will continue to make Annuity Payments so long as the joint Annuitant
continues to live. The amount of the Annuity Payments we will make to you can be
equal to 100%, 75% or 50% of the amount that was being paid when both Annuitants
were alive. The monthly Annuity Payments will end when the last surviving
Annuitant dies.
OPTION 4. Joint and Last Survivor Annuity with 5, 10, 15 OR 20 Year Payments
Guaranteed. Under this option, we will make monthly Annuity Payments during the
joint lifetime of the Annuitant and the joint Annuitant. When the Annuitant
dies, if the joint Annuitant is still alive, we will continue to make Annuity
Payments, so long as the surviving Annuitant continues to live, at 100% of the
amount that would have been paid if they were both alive. If, when the last
death occurs, we have made Annuity Payments for less than the selected
guaranteed period, we will continue to make Annuity Payments to you or any
person you choose for rest of the guaranteed period. If you do not want to
receive Annuity Payments after the last Annuitant's death, you can ask us for a
single lump sum.
OPTION 5. Refund Life Annuity. Under this option, we will make monthly Annuity
Payments during the Annuitant's lifetime. The last Annuity Payment will be made
before the Annuitant dies and if the value of the Annuity Payments made is less
than the value applied to the Annuity Option, then you will receive a refund as
set forth in the Contract.
3. PURCHASE
- -------------------------------------------------------------------------------
PURCHASE PAYMENTS
A Purchase Payment is the money you invest in the Contract. The minimum payment
Preferred Life will accept is $5,000 when the Contract is bought as a
Non-Qualified Contract. If you enroll in the automatic investment plan (which is
described below), your Purchase Payment can be $2,000. If you are buying the
Contract as part of an IRA (Individual Retirement Annuity), 401(k) or other
qualified plan, the minimum amount we will accept is $2,000. The maximum we will
accept without our prior approval is $1 million. You can make additional
Purchase Payments of $250 (or as low as $100 if you have selected the automatic
investment plan) or more to either type of Contract. Preferred Life may, at its
sole discretion, waive minimum payment requirements. At the time you buy the
Contract, you and the Annuitant cannot be older than 85 years old. This product
is not designed for professional market timing organizations, other entities, or
persons using programmed, large or frequent transfers.
AUTOMATIC INVESTMENT PLAN
The Automatic Investment Plan (AIP) is a program which allows you to make
additional Purchase Payments to your Contract on a monthly or quarterly basis by
electronic transfer of funds from your savings or checking account. You may
participate in this program by completing the appropriate form. We must receive
your form by the first of the month in order for AIP to begin that same month.
Investments will take place on the 20th of the month, or the next business day.
The minimum investment that can be made by AIP is $100. You may stop AIP at any
time you want. We need to be notified by the first of the month in order to stop
or change AIP that month. If AIP is used for a Qualified Contract, you should
consult your tax adviser for advice regarding maximum contributions.
ALLOCATION OF PURCHASE PAYMENTS
When you purchase a Contract, we will allocate your Purchase Payment to the
Fixed Account and/or one or more of the Variable Options you have selected. We
ask that you allocate your money in either whole percentages or round dollars.
You can instruct us how to allocate additional Purchase Payments you make.
Transfers do not change the allocation instructions for payments. You can
instruct us how to allocate additional Purchase Payments you make. If you do not
instruct us, we will allocate them in the same way as your previous instructions
to us. You may change the allocation of future payments without fee, penalty or
other charge upon written notice or telephone instructions to the Valuemark
Service Center. A change will be effective for payments received on or after we
receive your notice or instructions. Preferred Life reserves the right to limit
the number of Variable Options that you may invest in at one time. Currently,
you may invest in 10 investment choices at any one time (which includes any of
the 25 Variable Options which invest in a Portfolio of Franklin Valuemark Funds
listed in Section 4 and the Preferred Life Fixed Account). We may change this in
the future. However, we will always allow you to invest in at least five
Variable Options.
Once we receive your Purchase Payment and the necessary information, we will
issue your Contract and allocate your first Purchase Payment within 2 business
days. If you do not give us all of the information we need, we will contact you
or your registered representative to get it. If for some reason we are unable to
complete this process within 5 business days, we will either send back your
money or get your permission to keep it until we get all of the necessary
information. If you make additional Purchase Payments, we will credit these
amounts to your Contract within one business day. Our business day closes when
the New York Stock Exchange closes, which is usually at 4:00 p.m. Eastern time.
FREE LOOK
If you change your mind about owning the Contract, you can cancel it within 10
days after receiving it. Return of the Contract by mail is effective on being
postmarked, properly addressed and postage prepaid. When you cancel the Contract
within this time period, Preferred Life will not assess a contingent deferred
sales charge. You will receive back whatever your Contract is worth on the day
we receive your request. If you have purchased the Contract as an IRA, we are
required to give you back your Purchase Payment if you decide to cancel your
Contract within 10 days after receiving it. If that is the case, we have the
right to allocate your initial Purchase Payment to the Money Market Fund for 15
days after we receive it. At the end of that period, we will re-allocate your
money as you selected. Currently, however, we will directly allocate your money
to the Variable Options and/or the Fixed Account as you have selected.
ACCUMULATION UNITS
The value of the portion of your Contract allocated to the Variable Options will
go up or down depending upon the investment performance of the Variable
Option(s) you choose. The value of your Contract will also depend on the
expenses of the Contract. In order to keep track of the value of your Contract,
we use a measurement called an Accumulation Unit (which is like a share of a
mutual fund). During the Payout Phase of the Contract we call it an Annuity
Unit.
Every business day we determine the value of an Accumulation Unit for each
Variable Option by multiplying the Accumulation Unit value for the previous
period by a factor for the current period. The factor is determined by:
1. dividing the value of a Portfolio at the end of the current period by the
value of a Portfolio for the previous period; and
2. multiplying it by one minus the daily amount of the insurance charges and any
charges for taxes.
The value of an Accumulation Unit may go up or down from day to day.
When you make a Purchase Payment, we credit your Contract with Accumulation
Units for any portion of your Purchase Payment allocated to a Variable Option.
The number of Accumulation Units credited is determined by dividing the amount
of the Purchase Payment allocated to a Variable Option by the value of the
Accumulation Unit.
We calculate the value of an Accumulation Unit after the New York Stock Exchange
closes each day and then credit your Contract.
EXAMPLE:
On Wednesday we receive an additional Purchase Payment of $3,000 from you. You
have told us you want this to go to the Growth and Income Fund. When the New
York Stock Exchange closes on that Wednesday, we determine that the value of an
Accumulation Unit based on an investment in the Growth and Income Fund is
$12.50. We then divide $3,000 by $12.50 and credit your Contract on Wednesday
night with 240 Accumulation Units.
4. INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
The Contract offers 25 Variable Options, which invest in Class 1 shares of 25
Portfolios of Franklin Valuemark Funds. The Contract also offers a Fixed Account
of Preferred Life. Additional Portfolios may be available in the future.
You should read the Franklin Valuemark Funds prospectus (which is attached to
this prospectus) carefully before investing.
Franklin Valuemark Funds (Trust) is the mutual fund underlying your Contract.
Each Portfolio has its own investment objective. The Trust issues two classes of
shares which are described in the attached Trust prospectus. Only Class 1 shares
are available with your Contract. Investment managers for each Portfolio are
listed in the table below and are as follows: Franklin Advisers, Inc. (FA),
Franklin Advisory Services, LLC (FAS), Franklin Mutual Advisers, LLC (FMA),
Templeton Asset Management Ltd. (TAM), Templeton Global Advisors Limited (TGA),
and Templeton Investment Counsel, Inc. (TIC). Certain managers have retained one
or more affiliated subadvisers to help them manage the Portfolios.
The following is a list of the Portfolios available under the Contract:
Investment
Available Portfolios Managers
- -------------------------------------------------------------------------------
PORTFOLIO SEEKING
CAPITAL PRESERVATION AND INCOME
Money Market Fund FA
PORTFOLIOS SEEKING INCOME
High Income Fund FA
Templeton Global Income Securities Fund FA
U.S. Government Securities Fund FA
Zero Coupon Funds - 2000, 2005, 2010 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
Global Health Care Securities Fund FA
Mutual Discovery Securities Fund FMA
Natural Resources Securities Fund FA
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 an affiliate of Preferred Life and other variable
annuity contracts offered by Preferred Life and its affiliates. Franklin
Valuemark Funds believes that offering its shares in this manner will not be
disadvantageous to you.
TRANSFERS
You can transfer money among the 25 Variable Options and/or the Fixed Account.
Preferred Life currently allows you to make as many transfers as you want to
each year. Preferred Life may change this practice in the future. However, this
product is not designed for professional market timing organizations or other
persons using programmed, large, or frequent transfers. Such activity may be
disruptive to a Portfolio. We reserve the right to reject any specific Purchase
Payment allocation or transfer request from any person, if in the Portfolio
managers' judgment, a Portfolio would be unable to invest effectively in
accordance with its investment objectives and policies, or would otherwise
potentially be adversely affected.
Your Contract provides that you can make 12 transfers every year without charge.
We measure a year from the anniversary of the day we issued your Contract. You
can make a transfer to or from the Fixed Account and to or from any Variable
Option. If you make more than 12 transfers in a year, there is a transfer fee
deducted. The fee is $25 per transfer or, if less, 2% of the amount transferred.
The following applies to any transfer:
1. The minimum amount which you can transfer is $1,000 or your entire value in
the Variable Option or Fixed Account. This requirement is waived if the transfer
is in connection with the Dollar Cost Averaging Program or Flexible Rebalancing
(which are described below).
2. We may not allow you to make transfers during the free look period.
3. Your request for a transfer must clearly state which Variable Option(s)or the
Fixed Account is involved in the transfer.
4. Your request for a transfer must clearly state how much the transfer is for.
5. You cannot make any transfers within 7 calendar days prior to the date your
first Annuity Payment is due.
6. During the Payout Phase, you may not make a transfer from a fixed Annuity
Option to a variable Annuity Option.
7. During the Payout Phase, you can make at least one transfer from a variable
Annuity Option to a fixed Annuity Option.
Preferred Life has reserved the right to modify the transfer provisions subject
to the guarantees described above.
You can make transfers by telephone by properly completing the telephone
transfer forms provided by Preferred Life. We may allow you to authorize someone
else to make transfers by telephone on your behalf. If you own the Contract with
a Joint Owner, unless Preferred Life is instructed otherwise, Preferred Life
will accept instructions from either one of you. Preferred Life will use
reasonable procedures to confirm that instructions given us by telephone are
genuine. If we do not use such procedures, we may be liable for any losses due
to unauthorized or fraudulent instructions. Preferred Life tape records all
telephone instructions.
DOLLAR COST AVERAGING PROGRAM
The Dollar Cost Averaging Program allows you to systematically transfer a set
amount of money each month or quarter from any one Variable Option or the Fixed
Account to up to eight of the other Variable Options. The Variable Option(s) you
transfer from may not be the Variable Option(s) you transfer to in this program.
By allocating amounts on a regularly scheduled basis, as opposed to allocating
the total amount at one particular time, you may be less susceptible to the
impact of market fluctuations. You may only participate in this program during
the Accumulation Phase.
There are two Dollar Cost Averaging options. The first option is the Dollar Cost
Averaging Fixed Option and it is available for new Contracts and additional
Purchase Payments to new and existing Contracts. You will receive a special
fixed rate guaranteed for one year by Preferred Life. Dollar Cost Averaging will
take place over twelve months from the DCA fixed account into the target
Portfolio of your choice. The required minimum investment is $6,000.
The second option is the Standard Dollar Cost Averaging Option which requires a
$3,000 minimum investment and participation for at least six months (or two
quarters).
All Dollar Cost Averaging transfers will be made on the 10th day of the month
unless that day is not a business day. If it is not, then the transfer will be
made the next business day. You may elect either program by properly completing
the Dollar Cost Averaging form provided by Preferred Life.
Your participation in the program will end when any of the following occurs:
(1) the number of desired transfers have been made;
(2) you do not have enough money in the Variable Option(s) or the Fixed Account
to make the transfer (if less money is available, that amount will be dollar
cost averaged and the program will end);
(3) you request to terminate the program (your request must be received by us by
the first of the month to terminate that month); or
(4) the Contract is terminated.
If you participate in the Dollar Cost Averaging Program, the transfers made
under the program are not taken into account in determining any transfer fee.
You may not participate in the Dollar Cost Averaging Program and Flexible
Rebalancing at the same time.
FLEXIBLE REBALANCING
Once your money has been invested, the performance of the Variable Options may
cause your chosen allocation to shift. Flexible Rebalancing is designed to help
you maintain your specified allocation mix among the different Variable Options.
You can direct us to readjust your Contract value on a quarterly, semi-annual or
annual basis to return to your original Variable Option allocations. Flexible
Rebalancing transfers will be made on the 20th day of the month unless that day
is not a business day. If it is not, then the transfer will be made on the
previous day.
If you participate in Flexible Rebalancing, the transfers made under the program
are not taken into account in determining any transfer fee. The Fixed Account is
not permitted to be part of Flexible Rebalancing.
VOTING PRIVILEGES
Preferred Life is the legal owner of the Trust's Class 1 Portfolio shares.
However, when a Portfolio solicits proxies in conjunction with a shareholder
vote which affects your investment, Preferred Life will obtain from you and
other affected Contract Owners instructions as to how to vote those shares. When
we receive those instructions, we will vote all of the shares we own in
proportion to those instructions. This will also include any shares that
Preferred Life owns on its own behalf. Should Preferred Life determine that it
is no longer required to comply with the above, we will vote the shares in our
own right.
SUBSTITUTION
Preferred Life may substitute one of the Variable Options you have selected with
another Variable Option. We would not do this without the prior approval of the
Securities and Exchange Commission. We will give you notice of our intention to
do this. We may also limit further investment in a Variable Option if we deem
the investment inappropriate.
5. EXPENSES
- --------------------------------------------------------------------------------
There are charges and other expenses associated with the Contract that will
reduce your investment return. These charges and expenses are:
INSURANCE CHARGES
Each day, Preferred Life makes a deduction for its insurance charges. Preferred
Life does this as part of its calculation of the value of the Accumulation Units
and the Annuity Units. The insurance charge has two parts:
1) the mortality and expense risk charge, and
2) the administrative charge.
Mortality and Expense Risk Charge. During the Accumulation Phase, this charge is
equal, on an annual basis, to 1.34% of the average daily value of the Contract
invested in a Variable Option, after the deduction of expenses. During the
Payout Phase, the charge is equal, on an annual basis, to 1.25% of the average
daily value of the Contract invested in a Variable Option, after the deduction
of expenses. This charge compensates us for all the insurance benefits provided
by your Contract (for example, our contractual obligation to make Annuity
Payments, the death benefits, certain expenses related to the Contract, and for
assuming the risk (expense risk) that the current charges will be insufficient
in the future to cover the cost of administering the Contract). The amount of
the mortality and expense risk charge is less during the Payout Phase because
Preferred Life does not pay a death benefit separate from benefits under the
Annuity Option if you die during the Payout Phase.
Administrative Charge. This charge is equal, on an annual basis, to .15% of the
average daily value of the Contract invested in a Variable Option, after the
deduction of expenses. This charge, together with the contract maintenance
charge (which is explained below), is for all the expenses associated with the
administration of the Contract. Some of these expenses include: preparation of
the Contract, confirmations, annual statements, maintenance of Contract records,
personnel costs, legal and accounting fees, filing fees, and computer and
systems costs.
CONTRACT MAINTENANCE CHARGE
Every year, at each Contract anniversary, Preferred Life deducts $30 from your
Contract as a contract maintenance charge. The fee is assessed on the last day
of each Contract year. This charge is for administrative expenses (see above).
This charge can not be increased.
However, during the Accumulation Phase, if the value of your Contract is at
least $50,000 when the deduction for the charge is to be made, Preferred Life
will not deduct this charge. If you own more than one Franklin Valuemark IV
Contract, Preferred Life will determine the total value of all your Franklin
Valuemark IV Contracts. If the total value of all Contracts registered under the
same social security number is at least $50,000, Preferred Life will not assess
the contract maintenance charge. Currently, the charge is also waived during the
Payout Phase if the value of your Contract at the Income Date is at least
$50,000. If the Contract is owned by a non-natural person (e.g., a corporation),
Preferred Life will look to the Annuitant to determine if it will assess the
charge.
If you make a complete withdrawal from your Contract, the contract maintenance
charge will also be deducted. During the Payout Phase, if the contract
maintenance charge is deducted, the charge will be collected monthly out of each
Annuity Payment.
CONTINGENT DEFERRED SALES CHARGE
Withdrawals may be subject to a contingent deferred sales charge. During the
Accumulation Phase, you can make withdrawals from your Contract. Preferred Life
keeps track of each Purchase Payment you make. The amount of the contingent
deferred sales charge depends upon how long Preferred Life has had your payment.
The charge is:
Contingent Deferred
Sales Charge
Years Since (as a percentage of
Purchase Payment Purchase Payments)
-------------------------------------------------
0-1 6%
1-2 6%
2-3 6%
3-4 5%
4-5 4%
5-6 3%
6-7 2%
7+ 0%
However, after Preferred Life has had a Purchase Payment for 7 full years, there
is no charge when you withdraw that Purchase Payment. For purposes of the
contingent deferred sales charge, Preferred Life treats withdrawals as coming
from the oldest Purchase Payments first. Preferred Life does not assess the
contingent deferred sales charge on any payments paid out as Annuity Payments or
as death benefits.
NOTE: For tax purposes, withdrawals are considered to have come from the last
money you put into the Contract. Thus, for tax purposes, earnings are considered
to come out first.
Free Withdrawal Amount (referred to in sales literature as "15% Withdrawal
Privilege") - Each year after the first Contract year, you can make multiple
withdrawals of up to 15% of the value of your Contract and no contingent
deferred sales charge will be deducted from the 15% you take out. Withdrawals in
excess of that free amount will be subject to the contingent deferred sales
charge. If you do not withdraw the full 15% in any one Contract year, you may
not carry over the remaining percentage amount to another year. You may also
elect to participate in the Systematic Withdrawal Program or the Minimum
Distribution Program which allow you to make withdrawals without the deduction
of the contingent deferred sales charge under certain circumstances. You cannot
use these programs and the 15% free withdrawal amount in the same Contract year.
See Section 7 - "Access to Your Money" for a description of the Systematic
Withdrawal Program and the Minimum Distribution Program.
Waiver of Contingent Deferred Sales Charge
Under certain circumstances, after the first year, Preferred Life will permit
you to take your money out of the Contract without deducting the contingent
deferred sales charge if you or your Joint Owner become totally disabled for at
least 90 consecutive days.
Reduction or Elimination of the
Contingent Deferred Sales Charge
Preferred Life will reduce or eliminate the amount of the contingent deferred
sales charge when the Contract is sold under circumstances which reduce its
sales expenses. Some examples are: if there is a large group of individuals that
will be purchasing the Contract or a prospective purchaser already had a
relationship with Preferred Life. Preferred Life may not deduct a contingent
deferred sales charge under a Contract issued to an officer, director or
employee of Preferred Life or any of its affiliates. Any circumstances resulting
in reduction or elimination of the contingent deferred sales charge requires
prior approval of Preferred Life.
TRANSFER FEE
You can make 12 free transfers every year. We measure a year from the day we
issue your Contract. If you make more than 12 transfers a year, we will deduct a
transfer fee of $25 or 2% of the amount that is transferred, whichever is less,
for each additional transfer. The transfer fee will be deducted from the
Variable Option or the Fixed Account from which the transfer is made. If the
entire amount is transferred, the fee will be deducted from the amount
transferred.
If the transfer is part of the Dollar Cost Averaging Program or Flexible
Rebalancing, it will not count in determining the transfer fee.
INCOME TAXES
Preferred Life reserves the right to deduct from the Contract for any income
taxes which it may incur because of the Contract. Currently, Preferred Life is
not making any such deductions.
PORTFOLIO EXPENSES
There are deductions from the assets of the various Portfolios for operating
expenses (including management fees) which are described in the Fee Table in
this prospectus and the accompanying 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. You should
consult your own tax adviser about your own circumstances. Preferred Life has
included additional information regarding taxes in the Statement of Additional
Information.
ANNUITY CONTRACTS IN GENERAL
Annuity contracts are a means of setting aside money for future needs - usually
retirement. Congress recognized how important saving for retirement was and
provided special rules in the Internal Revenue Code (Code) for annuities.
Basically, these rules provide that you will not be taxed on any earnings on the
money held in your annuity Contract until you take the money out. This is
referred to as Tax Deferral. There are different rules regarding how you will be
taxed depending upon how you take the money out and the type of Contract
- -Qualified or Non-Qualified (see following sections).
You, as the Contract Owner, will not be taxed on increases in the value of your
Contract until a distribution occurs -- either as a withdrawal or as Annuity
Payments. When you make a withdrawal you are taxed on the amount of the
withdrawal that is earnings. For Annuity Payments, different rules apply. A
portion of each Annuity Payment you receive will be treated as a partial return
of your Purchase Payments and will not be taxed. The remaining portion of the
Annuity Payment will be treated as ordinary income. How the Annuity Payment is
divided between taxable and non-taxable portions depends upon the period over
which the Annuity Payments are expected to be made. Annuity payments received
after you have received all of your Purchase Payments are fully includible in
income.
When a Non-Qualified Contract is owned by a non-natural person (e.g., a
corporation or certain other entities other than a trust holding the Contract as
an agent for a natural person), the Contract will generally not be treated as an
annuity for tax purposes. This means that the Contract may not receive the
benefits of Tax Deferral. Income may be taxed as ordinary income every year.
QUALIFIED AND NON-QUALIFIED CONTRACTS
If you purchase the Contract under a Qualified plan, your Contract is referred
to as a Qualified Contract. Examples of Qualified plans are: Individual
Retirement Annuities (IRAs), Tax-Sheltered Annuities (sometimes referred to as
403(b) contracts), and pension and profit-sharing plans, which include 401(k)
plans and H.R. 10 Plans. If you do not purchase the Contract under a Qualified
plan, your Contract is referred to as a Non-Qualified Contract.
MULTIPLE CONTRACTS
The Code provides that multiple Non-Qualified annuity contracts which are issued
within a calendar year period to the same Contract Owner by one company or its
affiliates are treated as one annuity contract for purposes of determining the
tax consequences of any distribution. Such treatment may result in adverse tax
consequences, including more rapid taxation of the distributed amounts from such
combination of contracts. For purposes of this rule, contracts received in a
Section 1035 exchange will be considered issued in the year of the exchange. You
should consult a tax adviser prior to purchasing more than one Non-Qualified
annuity contract in any calendar year period.
WITHDRAWALS - NON-QUALIFIED CONTRACTS
If you make a withdrawal from your Contract, the Code treats such a withdrawal
as first coming from earnings and then from your Purchase Payments. In most
cases, such withdrawn earnings are includible in income.
The Code also provides that any amount received under an annuity contract which
is included in income may be subject to a tax penalty. The amount of the penalty
is equal to 10% of the amount that is includible in income. Some withdrawals
will be exempt from the penalty. They include any amounts:
(1) paid on or after the taxpayer reaches age 591/2;
(2) paid after you die;
(3) paid if the taxpayer becomes totally disabled (as that term is defined in
the Code);
(4) paid in a series of substantially equal payments made annually (or more
frequently) for the life or life expectancy of the taxpayer;
(5) paid under an immediate annuity; or
(6) which come from Purchase Payments made prior to August 14, 1982.
WITHDRAWALS - QUALIFIED CONTRACTS
The above information describing the taxation of Non-Qualified Contracts does
not apply to Qualified Contracts. There are special rules that govern Qualified
Contracts. A more complete discussion of withdrawals from Qualified Contracts is
contained in the Statement of Additional Information.
WITHDRAWALS - TAX-SHELTERED ANNUITIES
The Code limits the withdrawal of Purchase Payments made by Contract Owners from
certain Tax-Sheltered Annuities. Withdrawals can only be made when a Contract
Owner:
(1) reaches age 591/2;
(2) leaves his/her job;
(3) dies;
(4) becomes disabled (as that term is defined in the Code); or
(5) in the case of hardship. However, in the case of hardship, the Contract
Owner can only withdraw the Purchase Payments and not any earnings.
DIVERSIFICATION
The Code provides that the underlying investments for
a variable annuity must satisfy certain diversification requirements in order to
be treated as an annuity contract. Preferred Life believes that the Portfolios
are being managed so as to comply with the requirements.
Neither the Code nor the Internal Revenue Service Regulations issued to date
provide guidance as to the circumstances under which you, because of the degree
of control you exercise over the underlying investments, and not Preferred Life
would be considered the owner of the shares of the Portfolios. If you are
considered the owner of the shares, it will result in the loss of the favorable
tax treatment for the Contract. It is unknown to what extent under federal tax
law Contract Owners are permitted to select Portfolios, to make transfers among
the Portfolios or the number and type of Portfolios Contract Owners may select
from without being considered the owner of the shares. If any guidance is
provided which is considered a new position, then the guidance would generally
be applied prospectively. However, if such guidance is considered not to be a
new position, it may be applied retroactively. This would mean that you, as the
owner of the Contract, could be treated as the owner of the Portfolios.
Due to the uncertainty in this area, Preferred Life reserves the right to modify
the Contract in an attempt to maintain favorable tax treatment.
7. ACCESS TO YOUR MONEY
- -------------------------------------------------------------------------------
You can have access to the money in your Contract:
(1) by making a withdrawal (either a partial or a total withdrawal);
(2) by receiving Annuity Payments; or
(3) when a death benefit is paid to your Beneficiary.
Withdrawals can only be made during the Accumulation Phase.
When you make a complete withdrawal you will receive the value of the Contract
on the day you made the withdrawal, less any applicable contingent deferred
sales charge, less any premium tax and less any contract maintenance charge.
(See Section 5 - "Expenses" for a discussion of the charges.)
Any partial withdrawal must be for at least $500. Unless you instruct Preferred
Life otherwise, a partial withdrawal will be made pro-rata from all the Variable
Options and the Fixed Account you selected. Preferred Life requires that after
you make a partial withdrawal the value of your Contract must be at least
$2,000.
Income taxes, tax penalties and certain restrictions may apply to any withdrawal
you make.
There are limits to the amount you can withdraw from a Qualified plan referred
to as a 403(b) plan. For a more complete explanation see Section 6 - "Taxes" and
the discussion in the SAI.
SYSTEMATIC WITHDRAWAL PROGRAM
If the value of your Contract is at least $25,000, Preferred Life offers a plan
which provides automatic monthly or quarterly payments to you from your Contract
each year. The total systematic withdrawals which you can make each year without
Preferred Life deducting a contingent deferred sales charge is limited to 15% of
the value of your Contract determined on the business day before we receive your
request. You may withdraw any amount you want under this program if your
payments are no longer subject to the contingent deferred sales charge. If you
make withdrawals under this plan, you may not also use the 15% free withdrawal
amount that year. For a discussion of the contingent deferred sales charge and
the 15% free withdrawal amount, see Section 5 - "Expenses." All systematic
withdrawals will be made on the 9th day of the month unless that day is not a
business day. If it is not, then the withdrawal will be made the previous
business day.
Income taxes, tax penalties and certain restrictions may apply to systematic
withdrawals.
MINIMUM DISTRIBUTION PROGRAM
If you own a Contract that is an Individual Retirement Annuity (IRA), you may
select the Minimum Distribution Program. Under this program, Preferred Life will
make payments to you from your Contract that are designed to meet the applicable
minimum distribution requirements imposed by the Code for IRAs. If the value of
your Contract is at least $25,000, Preferred Life will make payments to you on a
monthly or quarterly basis. The payments will not be subject to the contingent
deferred sales charge and will be instead of the 15% free withdrawal amount.
SUSPENSION OF PAYMENTS OR TRANSFERS
Preferred Life may be required to suspend or postpone payments for withdrawals
or transfers for any period when:
1. the New York Stock Exchange is closed (other than customary weekend and
holiday closings);
2. trading on the New York Stock Exchange is restricted;
3. an emergency exists as a result of which disposal of the Portfolio shares is
not reasonably practicable or Preferred Life cannot reasonably value the
Portfolio shares;
4. during any other period when the Securities and Exchange Commission, by
order, so permits for the protection of Contract Owners.
Preferred Life has reserved the right to defer payment for a withdrawal or
transfer from the Fixed Account for the period permitted by law but not for more
than six months.
8. PERFORMANCE
- --------------------------------------------------------------------------------
Preferred Life periodically advertises performance of the Variable Options.
Preferred Life will calculate performance by determining the percentage change
in the value of an Accumulation Unit by dividing the increase (decrease) for
that unit by the value of the Accumulation Unit at the beginning of the period.
This performance number reflects the deduction of the insurance charges and
Portfolio expenses. It does not reflect the deduction of any applicable
contingent deferred sales charge and contract maintenance charge. The deduction
of any applicable contract maintenance charges and contingent deferred sales
charges would reduce the percentage increase or make greater any percentage
decrease. Any advertisement will also include average annual total return
figures which reflect the deduction of the insurance charges, contract
maintenance charge, contingent deferred sales charges and the expenses of the
Portfolios. Preferred Life may also advertise cumulative total return
information. Cumulative total return is determined the same way except that the
results are not annualized. Performance information for the underlying
Portfolios may also be advertised; see the Franklin Valuemark Funds prospectus
for more information.
Certain Portfolios have been in existence for some time and have investment
performance history. In order to demonstrate how the actual investment
experience of the Portfolios may affect your Accumulation Unit values, Preferred
Life has prepared performance information. The performance is based on the
historical performance of the Portfolios, modified to reflect the charges and
expenses of your Contract as if the Contract had been in existence for the time
periods shown. The inception dates of the Portfolios pre-date the inception
dates of the corresponding Variable Options. For periods starting prior to the
date the Variable Options invested in the Portfolio, the performance is based on
the historical performance of the corresponding Portfolio.
Preferred Life may in the future also advertise yield information. If it does,
it will provide you with information regarding how yield is calculated. More
detailed information regarding how performance is calculated is found in the
SAI.
Any performance advertised will be based on historical data and does not
guarantee future results of the Variable Options.
9. DEATH BENEFIT
- --------------------------------------------------------------------------------
UPON YOUR DEATH
If you or your Joint Owner die during the Accumulation Phase, Preferred Life
will pay a death benefit to your Beneficiary (see below). No death benefit is
paid during the Payout Phase. The amount of the death benefit is:
I. Contracts That Receive An Enhanced Death Benefit Endorsement
Contracts that are owned individually, or jointly with another person, or as
agent for an individual person, will receive an enhanced death benefit
endorsement. For these Contracts, the death benefit will be the greater of (1)
or (2) below:
(1) The current value of your Contract, less any taxes owed. This amount is
determined as of the day we receive all claim proofs and payment election forms
at our Valuemark Service Center.
(2) The guaranteed minimum death benefit (as explained below and in the
enhanced death benefit endorsement to your Contract), as of the day we receive
all claim proofs and payment election forms at our Valuemark Service Center.
A. During the first year of all such Contracts and if you are age 81 or
older at the time of purchase, the following guaranteed minimum death benefit
will apply:
o payments you have made,
o less any money you have taken out,
o less any applicable charges paid on money taken out.
B. After the first Contract year, for Contracts issued before your 81st
birthday, and until you reach age 81, the greater of (a) or (b) below will be
your guaranteed minimum death benefit:
a) Purchase Payments
o payments you have made,
o less any money you have taken out,
o less any applicable charges paid on money taken out.
b) Contract Value
o highest value of the Contract on each Contract anniversary,
o plus any payments made since that Contract anniversary,
o less any money you have taken out since that anniversary,
o less any applicable charges paid on money taken out since that
anniversary,
C. After your 81st birthday, the following guaranteed minimum death
benefit will apply:
o your guaranteed minimum death benefit on the Contract anniversary
prior to your 81st birthday,
o plus any payments you have made since then,
o less any money you have taken out since then,
o less any applicable charges paid on money taken out since then.
II. Contracts That Do Not Receive An Enhanced Death
Benefit Endorsement
For all Contracts that do not receive an enhanced death benefit endorsement, the
death benefit will be:
The current value of your Contract, less any taxes owed. We determine this
amount as of the day we receive all claim proofs and payment election forms
at our Valuemark Service Center.
III. Additional Provisions
If you have a Joint Owner, the age of the oldest Contract Owner will be used to
determine the guaranteed minimum death benefit. The guaranteed minimum death
benefit will be reduced by any amounts withdrawn after the date of death. If the
Contract is owned by a non-natural person, then all references to you mean the
Annuitant. If you have a Joint Owner, and the Joint Owner dies, the surviving
Owner will be considered the Beneficiary.
A Beneficiary may request that the death benefit be paid in one of the following
ways: (1) payment of the entire death benefit within 5 years of the date of
death; or (2) payment of the death benefit under an Annuity Option. The death
benefit payable under an Annuity Option must be paid over the Beneficiary's
lifetime or for a period not extending beyond the Beneficiary's life expectancy.
Payment must begin within one year of the date of death. If the Beneficiary is
the spouse of the Contract Owner, he/she can choose to continue the Contract in
his/her own name at the then current value, or if greater, the death benefit
value. If a lump sum payment is elected and all the necessary requirements,
including any required tax consent from the state of New York (when required),
are met, the payment will be made within 7 days. We may delay paying the death
benefit until we receive the tax consent (when required).
If you (or any Joint Owner) die during the Payout Phase and you are not the
Annuitant, any payments which are remaining under the Annuity Option selected
will continue at least as rapidly as they were being paid at your death. If you
die during the Payout Phase, the Beneficiary becomes the Contract Owner.
DEATH OF ANNUITANT
If the Annuitant, who is not a Contract Owner or Joint Owner, dies during the
Accumulation Phase, you can name a new Annuitant. If you do not name a new
Annuitant within 30 days of the death of the Annuitant, you will become the
Annuitant. However, if the Contract Owner is a non-natural person (e.g., a
corporation), then the death of the Annuitant will be treated as the death of
the Contract Owner, and a new Annuitant may not be named.
If the Annuitant dies after Annuity Payments have begun, the remaining amounts
payable, if any, will be as provided for in the Annuity Option selected. The
remaining amounts payable will be paid to the Contract Owner at least as rapidly
as they were being paid at the Annuitant's death.
10. OTHER INFORMATION
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PREFERRED LIFE
Preferred Life Insurance Company of New York (Preferred Life), 152 West 57th
Street, 18th Floor, New York, NY 10019, was organized under the laws of the
state of New York. Preferred Life offers annuities and group life, group
accident and health insurance and variable annuity products. Preferred Life is
licensed to do business in six states and the District of Columbia. Preferred
Life is a wholly-owned subsidiary of Allianz Life Insurance Company of North
America, which is a wholly-owned subsidiary of Allianz Versicherungs AG Holding.
YEAR 2000
Preferred Life has initiated programs to ensure that all of the computer systems
utilized to provide services and administer policies will function properly in
the year 2000. An assessment of the total expected costs specifically related to
the year 2000 conversion has been completed. These costs are expensed as
incurred and total costs are not expected to have a significant effect on
Preferred Life's financial position or results of operations. Preferred Life
believes it is taking steps that are reasonably designed to address the
potential failure of computer systems used by its service providers and to
ensure its year 2000 program is completed on a timely basis. There can be no
assurance, however, that the steps taken by Preferred Life will be adequate to
avoid any adverse impact.
THE SEPARATE ACCOUNT
Preferred Life established a separate account named Preferred Life Variable
Account C (Separate Account), to hold the assets that underlie the Contracts,
except assets you allocate to the Fixed Account. The Board of Directors of
Preferred Life adopted a resolution to establish the Separate Account under New
York insurance law on February 26, 1988. Preferred Life has registered the
Separate Account with the Securities and Exchange Commission as a unit
investment trust under the Investment Company Act of 1940. The Separate Account
is divided into Variable Options (also known as sub-accounts). Each Variable
Option invests in 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 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 an affiliate of Preferred Life.
NFP has subcontracted with Franklin Advisers, Inc. for it or certain affiliates
to provide certain marketing services and NFP compensates these entities for
their services.
Commissions will be paid to broker-dealers who sell the Contracts.
Broker-dealers will be paid commissions up to 7.0% of Purchase Payments. In
addition, Preferred Life and Franklin Advisers, Inc. and/or its affiliates may
pay certain sellers for other services not directly related to the sale of the
Contracts (such as special marketing support allowances). The New York Insurance
Department permits compensation based on the assets in your Contract. Preferred
Life may adopt a different compensation program based on the assets in your
Contract in addition to, or in lieu of, the present compensation program.
Commissions may be recovered from broker-dealers if a full or partial withdrawal
occurs within 12 months of a Purchase Payment.
ADMINISTRATION
Preferred Life has hired Delaware Valley Financial Services, Inc., 300 Berwyn
Park, Berwyn, Pennsylvania, to perform administrative services regarding the
Contracts. The administrative services include issuance of the Contracts and
maintenance of Contract Owner's records.
FINANCIAL STATEMENTS
The financial statements of Preferred Life and the Separate Account have been
included in the Statement of Additional Information.
TABLE OF CONTENTS
OF THE STATEMENT OF
ADDITIONAL INFORMATION
Insurance Company 2
Experts 2
Legal Opinions 2
Distributor 2
Reduction or Elimination of the
Contingent Deferred Sales Charge 2
Calculation of Performance Data 2
Federal Tax Status 4
Annuity Provisions 9
Mortality and Expense Risk Guarantee 10
Financial Statements 10
<PAGE>
<TABLE>
<CAPTION>
APPENDIX
CONDENSED FINANCIAL INFORMATION
The consolidated financial statements of Preferred Life Insurance Company of New
York and the financial statements of Preferred Life Variable Account C may be
found in the Statement of Additional Information.
The table below includes Accumulation Unit values for the period indicated.
This information should be read in conjunction with the financial statements and
related notes of the Separate Account included in the Statement of of Additional
Information.
(Number of units in thousands)
Period from
Inception
(8/17/98) to
Sub-Accounts: Dec. 31, 1998
- --------------------------------------------------------------------------------
<S> <C>
Capital Growth
Unit value at beginning of period $13.110
Unit value at end of period $15.537
Number of units outstanding at end of period 17
Global Health Care Securities
Unit value at beginning of period $10.000
Unit value at end of period $10.604
Number of units outstanding at end of period 8
Global Utilities Securities
Unit value at beginning of period $25.635
Unit value at end of period $28.082
Number of units outstanding at end of period 2
Growth and Income
Unit value at beginning of period $24.354
Unit value at end of period $25.993
Number of units outstanding at end of period 17
High Income
Unit value at beginning of period $21.141
Unit value at end of period $21.020
Number of units outstanding at end of period 25
Income Securities
Unit value at beginning of period $24.864
Unit value at end of period $24.898
Number of units outstanding at end of period 14
Money Market
Unit value at beginning of period $13.756
Unit value at end of period $14.260
Number of units outstanding at end of period 12
Mutual Discovery Securities
Unit value at beginning of period $11.971
Unit value at end of period 11.205
Number of units outstanding at end of period 17
Mutual Shares Securities
Unit value at beginning of period $11.981
Unit value at end of period $11.814
Number of units outstanding at end of period 38
(Number of units in thousands)
Period from
Inception
(8/17/98) to
Sub-Accounts: Dec. 31, 1998
- -------------------------------------------------------------------------------
Natural Resources Securities
Unit value at beginning of period $11.466
Unit value at end of period $8.430
Number of units outstanding at end of period 7
Real Estate Securities
Unit value at beginning of period $27.944
Unit value at end of period $22.901
Number of units outstanding at end of period 1
Rising Dividends
Unit value at beginning of period $19.968
Unit value at end of period $21.034
Number of units outstanding at end of period 17
Small Cap
Unit value at beginning of period $14.923
Unit value at end of period $14.558
Number of units outstanding at end of period 9
Templeton Developing Markets Equity
Unit value at beginning of period $10.305
Unit value at end of period $7.958
Number of units outstanding at end of period 5
Templeton Global Asset Allocation
Unit value at beginning of period $13.752
Unit value at end of period $13.543
Number of units outstanding at end of period 1
Templeton Global Growth
Unit value at beginning of period $15.124
Unit value at end of period $16.238
Number of units outstanding at end of period 10
Templeton Global Income Securities
Unit value at beginning of period $16.821
Unit value at end of period $17.746
Number of units outstanding at end of period 2
Templeton International Equity
Unit value at beginning of period $17.617
Unit value at end of period $18.322
Number of units outstanding at end of period 8
(Number of units in thousands)
Period from
Inception
(8/17/98) to
Sub-Accounts: Dec. 31, 1998
- -------------------------------------------------------------------------------
Templeton International Smaller Companies
Unit value at beginning of period $10.809
Unit value at end of period $9.342
Number of units outstanding at end of period 3
Templeton Pacific Growth
Unit value at beginning of period $9.381
Unit value at end of period $8.028
Number of units outstanding at end of period 6
U.S. Government Securities
Unit value at beginning of period $17.805
Unit value at end of period $18.847
Number of units outstanding at end of period 28
Value Securities
Unit value at beginning of period $10.000
Unit value at end of period $ 7.713
Number of units outstanding at end of period 22
Zero Coupon 2000
Unit value at beginning of period $19.358
Unit value at end of period $20.502
Number of units outstanding at end of period 2
Zero Coupon 2005
Unit value at beginning of period $22.357
Unit value at end of period $24.786
Number of units outstanding at end of period 2
Zero Coupon 2010
Unit value at beginning of period $24.544
Unit value at end of period $27.674
Number of units outstanding at end of period 3
</TABLE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
FRANKLIN VALUEMARK IV
INDIVIDUAL FLEXIBLE PAYMENT
VARIABLE ANNUITY CONTRACTS
issued by
PREFERREDLIFE VARIABLE ACCOUNT C
and
PREFERREDLIFE INSURANCE COMPANY OF NEWYORK
May 1, 1999
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS FOR THE INDIVIDUAL FLEXIBLE PAYMENT
VARIABLE ANNUITY CONTRACTS WHICH ARE REFERRED TO HEREIN.
THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT A PROSPECTIVE INVESTOR
OUGHT TO KNOW BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS, CALL OR WRITE THE
INSURANCE COMPANY AT: 152 West 57th Street, 18th Floor, New York, NY 10019,
(800) 342-3863.
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
Insurance Company ............................... 2
Experts ......................................... 2
Legal Opinions .................................. 2
Distributor ..................................... 2
Reduction or Elimination of the
Contingent Deferred Sales Charge ............... 2
Calculation of Performance Data ................. 2
Federal Tax Status .............................. 4
Annuity Provisions .............................. 9
Mortality and Expense Risk Guarantee ............ 10
Financial Statements ............................ 10
V4NY SAI 05/99
Insurance Company
- -------------------------------------------------------------------------------
Information regarding Preferred Life Insurance Company of New York ("Insurance
Company") is contained in the Prospectus.
The Insurance Company is rated A+ (Superior, Group Rating) by A.M. BEST, an
independent analyst of the insurance industry. The financial strength of an
insurance company may be relevant insofar as the ability of a company to make
fixed annuity payments from its general account.
Experts
- -------------------------------------------------------------------------------
The financial statements of Preferred Life Variable Account C and the financial
statements of the Insurance Company as of and for the year ended December 31
1998, included in this Statement of Additional Information have been audited by
KPMGPeat Marwick LLP, independent auditors, as indicated in their reports
included in this Statement of Additional Information and are included herein in
reliance upon such reports and upon the authority of said firm as experts in
accounting and auditing.
Legal Opinions
- -------------------------------------------------------------------------------
Blazzard, Grodd & Hasenauer, P.C., Westport, Connecticut has provided advice on
certain matters relating to the federal securities and income tax laws in
connection with the Contracts.
Distributor
- -------------------------------------------------------------------------------
NALAC Financial Plans, LLC, an affiliate of the Insurance Company, acts as the
distributor. The offering is on a continuous basis.
Reduction or Elimination of the
Contingent Deferred Sales Charge
- -------------------------------------------------------------------------------
The amount of the Contingent Deferred Sales Charge on the Contracts may be
reduced or eliminated when sales of the Contracts are made to individuals or to
a group of individuals in a manner that results in savings of sales expenses.
The entitlement to a reduction of the Contingent Deferred Sales Charge will be
determined by the Insurance Company after examination of the following factors:
1) the size of the group; 2) the total amount of purchase payments expected to
be received from the group; 3) the nature of the group for which the Contracts
are purchased, and the persistency expected in that group; 4) the purpose for
which the Contracts are purchased and whether that purpose makes it likely that
expenses will be reduced; and 5) any other circumstances which the Insurance
Company believes to be relevant to determining whether reduced sales or
administrative expenses may be expected. None of the reductions in charges for
sales is contractually guaranteed.
The Contingent Deferred Sales Charge may be eliminated when the Contracts are
issued to an officer, director or employee of the Insurance Company or any of
its affiliates. In no event will any reduction or elimination of the Contingent
Deferred Sales Charge be permitted where the reduction or elimination will be
unfairly discriminatory to any person.
Calculation of Performance Data
- -------------------------------------------------------------------------------
Total Return
From time to time, the Insurance Company may advertise the performance data for
the Variable Options in sales literature, advertisements, personalized
hypothetical illustrations and Contract Owner communications. Such data will
show the percentage change in the value of an accumulation unit based on the
performance of a Portfolio over a stated period of time, usually a calendar
year, which is determined by dividing the increase (or decrease) in value for
that unit by the accumulation unit value at the beginning of the period.
Any such performance data will also include average annual total return figures
for one, five and ten year (or since inception) time periods indicated. Such
total return figures will reflect the deduction of a 1.34% mortality and expense
risk charge, a .15% administrative charge, the operating expenses of the
underlying Portfolio and any applicable contract maintenance charge and
contingent deferred sales charges. The contingent deferred sales charge and
contract maintenance charge deductions are calculated assuming a Contract is
surrendered at the end of the reporting period.
The hypothetical value of a Contract purchased for the time periods described
will be determined by using the actual accumulation unit values for an initial
$1,000 purchase payment, and deducting any applicable contract maintenance
charges and any applicable contingent deferred sales charge to arrive at the
ending hypothetical value. The average annual total return is then determined by
computing the fixed interest rate that a $1,000 purchase payment would have to
earn annually, compounded annually, to grow to the hypothetical value at the end
of the time periods described. The formula used in these calculations is:
P (1 + T)n = ERV
where:
P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years;
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the time periods used at the end of such time periods (or
fractional portion thereof).
The Insurance Company may also advertise performance data which will be
calculated in the same manner as described above but which will not reflect the
deduction of the contingent deferred sales charge and the Contract maintenance
charge. The Insurance Company may also advertise cumulative and average total
return information over different periods of time. The Insurance Company may
also present performance information computed on a different basis.
Cumulative total return is calculated in a similar manner, except that the
results are not annualized. Each calculation assumes that no sales load is
deducted from the initial $1,000 payment at the time it is allocated to the
Portfolios and assumes that the income earned by the investment in the Portfolio
is reinvested.
Contract Owners should note that investment results will fluctuate over time,
and any presentation of total return for any period should not be considered as
a representation of what an investment may earn or what a Contract Owner's total
return may be in any future period.
Yield
The Money Market Fund. The Insurance Company may advertise yield information for
the Money Market Fund. The Money Market Fund's current yield may vary each day,
depending upon, among other things, the average maturity of the underlying
Portfolio's investment securities and changes in interest rates, operating
expenses, the deduction of the Mortality and Expense Risk Charge, the
Administrative Charge and the Contract Maintenance Charge and, in certain
instances, the value of the underlying Portfolio's investment securities. The
fact that the Portfolio's current yield will fluctuate and that the principal is
not guaranteed should be taken into consideration when using the Portfolio's
current yield as a basis for comparison with savings accounts or other
fixed-yield investments. The yield at any particular time is not indicative of
what the yield may be at any other time.
The Money Market Fund's current yield is computed on a base period return of a
hypothetical Contract having a beginning balance of one accumulation unit for a
particular period of time (generally seven days). The return is determined by
dividing the net change (exclusive of any capital changes) in such accumulation
unit by its beginning value, and then multiplying it by 365/7 to get the
annualized current yield. The calculation of net change reflects the value of
additional shares purchased with the dividends paid by the Portfolio, and the
deduction of the mortality and expense risk charge, the administrative charge
and contract maintenance charge. The effective yield reflects the effects of
compounding and represents an annualization of the current return with all
dividends reinvested. (Effective yield = [(Base Period Return + 1)365/7] - 1.)
For the seven-day period ending on December 31, 1998, the Money Market
Sub-Account had a current yield of 3.29% and an effective yield of 3.35%. The
yield information assumes that the Sub-Account was invested in the Money Market
Fund for the time period shown.
Other Portfolios. The Insurance Company may also quote yield in sales
literature, advertisements, personalized hypothetical illustrations, and
Contract Owner communications for the other Portfolios. Each Portfolio (other
than the Money Market Fund) will publish standardized total return information
with any quotation of current yield.
The yield computation is determined by dividing the net investment income per
accumulation unit earned during the period (minus the deduction for the
mortality and expense risk charge, administrative charge and the Contract
maintenance charge) by the accumulation unit value on the last day of the period
and annualizing the resulting figure, according to the following formula:
Yield = 2 [(a-b + 1)6 - 1]
----
cd
where:
a = net investment income earned during the period by the Portfolio attributable
to shares owned by the Sub-Account;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of accumulation units outstanding during the
period;
d = the maximum offering price per accumulation unit on the last day of the
period.
The above formula will be used in calculating quotations of yield, based on
specified 30-day periods (or one month) identified in the sales literature,
advertisement or communication. Yield calculations assume no sales load. The
Insurance Company does not currently advertise any yield information for any
Portfolio.
Performance Ranking
Total return may be compared to relevant indices, including U. S. domestic and
international indices and data from Lipper Analytical Services, Inc., Standard &
Poor's Indices, or VARDS. From time to time, evaluation of performance by
independent sources may also be used.
Franklin Valuemark Funds - Existing Portfolios
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 Accumulation 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 chart below shows Accumulation Unit performance which assumes that the
Accumulation Units were invested in each of the Portfolios for the same periods.
The performance figures in Column I represent performance figures for the
Accumulation Units which reflect the deduction of the mortality and expense risk
charge, administrative charge, and the operating expenses of the Portfolios.
Column II represents performance figures for the Accumulation Units which
reflect the mortality and expense risk charge, administrative charge, the
contract maintenance charge, the operating expenses of the Portfolios and
assumes that you make a withdrawal at the end of the period (therefore the
contingent deferred sales charge is reflected). Past performance does not
guarantee future results.
<TABLE>
<CAPTION>
Franklin Valuemark IV
Total Return for the periods ended December 31, 1998
Column I Column II
------------------------------------ ----------------------------------------
Inception One Three Five Since One Three Five Since
Portfolio Date Year Years Years Inception Year Years Years Inception
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth 5/1/96 18.51% NA NA 17.95% 12.41% NA NA 16.39%
Global Health Care Securities 5/1/98 NA NA NA 9.17% NA NA NA -0.06%
Global Utilities Securities 1/24/89 9.54% 13.04% 10.25% 10.95% 3.44% 11.60% 9.69% 10.88%
Growth and Income 1/24/89 6.73% 14.75% 13.80% 10.09% 0.63% 13.36% 13.31% 10.01%
High Income 1/24/89 -0.57% 7.03% 6.86% 7.76% -6.67% 5.43% 6.24% 7.68%
Income Securities 1/24/89 0.14% 8.19% 7.12% 9.61% -5.96% 6.62% 6.50% 9.54%
Money Market 1/24/89 3.66% 3.65% 3.49% 3.63% -2.44% 1.94% 2.79% 3.56%
Mutual Discovery Securities 11/8/96 -6.40% NA NA 5.45% -12.50% NA NA 3.05%
Mutual Shares Securities 11/8/96 -1.39% NA NA 8.08% -7.49% NA NA 5.75%
Natural Resources Securities 1/24/89 -26.48% -15.60% -10.16% -1.70% -32.58% -18.17% -11.34% -1.79%
Real Estate Securities 1/24/89 -18.05% 8.44% 8.40% 8.69% -24.15% 6.89% 7.82% 8.62%
Rising Dividends 1/27/92 5.34% 19.09% 15.33% 11.32% -0.76% 17.79% 14.86% 11.24%
Small Cap 11/1/95 -2.44% 12.79% NA 12.59% -8.54% 11.36% NA 11.43%
Templeton Developing Markets Equity3/15/94 -22.77% -5.95% NA -4.65% -28.87% -8.01% NA -5.62%
Templeton Global Asset Allocation 5/1/95 -1.52% 8.56% NA 8.61% -7.62% 7.01% NA 7.58%
Templeton Global Growth 3/15/94 7.36% 12.78% NA 10.63% 1.26% 11.34% NA 10.05%
Templeton Global Income Securities1/24/89 5.50% 4.78% 4.00% 5.94% -0.60% 3.11% 3.32% 5.86%
Templeton International Equity 1/27/92 4.00% 11.50% 8.47% 9.13% -2.10% 10.03% 7.88% 9.05%
Templeton International
Smaller Companies 5/1/96 -13.57% NA NA -2.52% -19.67% NA NA -4.65%
Templeton Pacific Growth 1/27/92 -14.42% -16.08% -10.79% -3.12% -20.52% -18.68% -12.01% -3.21%
U.S. Government Securities 3/14/89 5.85% 5.18% 5.19% 6.68% -0.25% 3.52% 4.53% 6.60%
Value Securities 5/1/98 NA NA NA -32.19% NA NA NA -40.06%
Zero Coupon - 2000 3/14/89 5.91% 4.09% 4.26% 7.60% -0.19% 2.39% 3.58% 7.52%
Zero Coupon - 2005 3/14/89 10.87% 6.04% 6.64% 9.70% 4.77% 4.40% 6.01% 9.63%
Zero Coupon - 2010 3/14/89 12.75% 7.47% 8.90% 10.94% 6.65% 5.88% 8.32% 10.87%
<FN>
The Global Health Care Securities and Value Securities Sub-Accounts commenced operations on May 1, 1998.
Calculated with waiver of fees.
</FN>
</TABLE>
Federal Tax Status
- --------------------------------------------------------------------------------
Note: The following description is based upon the Insurance Company's
understanding of current federal income tax law applicable to annuities in
general. The Insurance Company cannot predict the probability that any changes
in such laws will be made. Purchasers are cautioned to seek competent tax advice
regarding the possibility of such changes. The Insurance Company does not
guarantee the tax status of the Contracts. Purchasers bear the complete risk
that the Contracts may not be treated as "annuity contracts" under federal
income tax laws. It should be further understood that the following discussion
is not exhaustive and that special rules not described herein may be applicable
in certain situations. Moreover, no attempt has been made to consider any
applicable state or other tax laws.
General
Section 72 of the Internal Revenue Code of 1986, as amended (the "Code") governs
taxation of annuities in general. A Contract Owner is not taxed on increases in
the value of a Contract until distribution occurs, either in the form of a lump
sum payment or as annuity payments under the Annuity Option elected. For a lump
sum payment received as a total surrender (total redemption) or death benefit,
the recipient is taxed on the portion of the payment that exceeds the cost basis
of the Contract. For Non-Qualified Contracts, this cost basis is generally the
purchase payments, while for Qualified Contracts there may be no cost basis. The
taxable portion of the lump sum payment is taxed at ordinary income tax rates.
For annuity payments, a portion of each payment in excess of an exclusion amount
is includible in taxable income. The exclusion amount for payments based on a
fixed annuity option is determined by multiplying the payment by the ratio that
the cost basis of the Contract (adjusted for any period certain or refund
feature) bears to the expected return under the Contract. The exclusion amount
for payments based on a variable annuity option is determined by dividing the
cost basis of the Contract (adjusted for any period certain or refund guarantee)
by the number of years over which the annuity is expected to be paid. Payments
received after the investment in the Contract has been recovered (i.e. when the
total of the excludible amounts equal the investment in the Contract) are fully
taxable. The taxable portion is taxed at ordinary income rates. For certain
types of Qualified Plans there may be no cost basis in the Contract within the
meaning of Section 72 of the Code. Contract Owners, annuitants and beneficiaries
under the Contracts should seek competent financial advice about the tax
consequences of any distributions.
The Insurance Company is taxed as a life insurance company under the Code. For
federal income tax purposes, the Separate Account is not a separate entity from
the Insurance Company, and its operations form a part of the Insurance Company.
Diversification
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not adequately
diversified in accordance with regulations prescribed by the United States
Treasury Department ("Treasury Department"). Disqualification of the Contract as
an annuity contract would result in imposition of federal income tax to the
Contract Owner with respect to earnings allocable to the Contract prior to the
receipt of payments under the Contract. The Code contains a safe harbor
provision which provides that annuity contracts such as the Contracts meet the
diversification requirements if, as of the end of each quarter, the underlying
assets meet the diversification standards for a regulated investment company and
no more than fifty-five percent (55%) of the total assets consist of cash, cash
items, U.S. government securities and securities of other regulated investment
companies.
On March 2, 1989, the Treasury Department issued regulations (Treas. Reg.
1.817-5) which established diversification requirements for the investment
portfolios underlying variable contracts such as the Contracts. The regulations
amplify the diversification requirements for variable contracts set forth in the
Code and provide an alternative to the safe harbor provision described above.
Under the regulations, an investment portfolio will be deemed adequately
diversified if: (1) no more than 55% of the value of the total assets of the
portfolio is represented by any one investment; (2) no more than 70% of the
value of the total assets of the portfolio is represented by any two
investments; (3) no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and (4) no more than 90% of
the value of the total assets of the portfolio is represented by any four
investments.
The Code provides that for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable contracts
by Section 817(h) of the Code have been met, "each United States government
agency or instrumentality shall be treated as a separate issuer."
The Insurance Company intends that all Portfolios of Franklin Valuemark Funds
underlying the Contracts will be managed by the investment managers for Franklin
Valuemark Funds in such a manner as to comply with these diversification
requirements.
The Treasury Department has indicated that the diversification Regulations do
not provide guidance regarding the circumstances in which Contract Owner control
of the investments of the Separate Account will cause the Contract Owner to be
treated as the owner of the assets of the Separate Account, thereby resulting in
the loss of favorable tax treatment for the Contract. At this time it cannot be
determined whether additional guidance will be provided and what standards may
be contained in such guidance.
The amount of Contract Owner control which may be exercised under the Contract
is different in some respects from the situations addressed in published rulings
issued by the Internal Revenue Service in which it was held that the policy
owner was not the owner of the assets of the separate account. It is unknown
whether these differences, such as the Contract Owner's ability to transfer
among investment choices or the number and type of investment choices available,
would cause the Contract Owner to be considered as the owner of the assets of
the Separate Account resulting in the imposition of federal income tax to the
Contract Owner with respect to earnings allocable to the Contract prior to
receipt of payments under the Contract.
In the event any forthcoming guidance or ruling is considered to set forth a new
position, such guidance or ruling will generally be applied only prospectively.
However, if such ruling or guidance was not considered to set forth a new
position, it may be applied retroactively resulting in the Contract Owner being
retroactively determined to be the owner of the assets of the Separate Account.
Due to the uncertainty in this area, the Insurance Company reserves the right to
modify the Contract in an attempt to maintain favorable tax treatment.
Multiple Contracts
The Code provides that multiple non-qualified annuity contracts which are issued
within a calendar year period to the same contract owner by one company or its
affiliates are treated as one annuity contract for purposes of determining the
tax consequences of any distribution. Such treatment may result in adverse tax
consequences, including more rapid taxation of the distributed amounts from such
combination of contracts. For purposes of this rule, contracts received in a
Section 1035 exchange will be considered issued in the year of the exchange.
Contract Owners should consult a tax adviser prior to purchasing more than one
non-qualified annuity contract in any calendar year period.
Contracts Owned by Other
than Natural Persons
Under Section 72(u) of the Code, the investment earnings on purchase payments
for the Contracts will be taxed currently to the Contract Owner if the Owner is
a non-natural person, e.g., a corporation or certain other entities. Such
Contracts generally will not be treated as annuities for federal income tax
purposes. However, this treatment is not applied to Contracts held by a trust or
other entity as an agent for a natural person nor to Contracts held by qualified
plans. Purchasers should consult their own tax counsel or other tax adviser
before purchasing a Contract to be owned by a non-natural person.
Tax Treatment of Assignments
An assignment or pledge of a Contract may be a taxable event. Contract Owners
should therefore consult competent tax advisers should they wish to assign or
pledge their Contracts.
Income Tax Withholding
All distributions or the portion thereof which is includible in the gross income
of the Contract Owner are subject to federal income tax withholding. Generally,
amounts are withheld from periodic payments at the same rate as wages and at the
rate of 10% from non-periodic payments. However, the Contract Owner, in most
cases, may elect not to have taxes withheld or to have withholding done at a
different rate.
Effective January 1, 1993, certain distributions from retirement plans qualified
under Section 401 or Section 403(b) of the Code, which are not directly rolled
over to another eligible retirement plan or individual retirement account or
individual retirement annuity, are subject to a mandatory 20% withholding for
federal income tax. The 20% withholding requirement generally does not apply to:
(a) a series of substantially equal payments made at least annually for the life
or life expectancy of the participant or joint and last survivor expectancy of
the participant and a designated beneficiary, or for a specified period of 10
years or more; or (b) distributions which are required minimum distributions; or
(c) the portion of the distributions not includible in gross income (i.e.
returns of after-tax contributions); or (d) hardship withdrawals. Participants
should consult their own tax counsel or other tax adviser regarding withholding
requirements.
Tax Treatment of Withdrawals -
Non-Qualified Contracts
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the contract value exceeds the aggregate purchase
payments made, any amount withdrawn will be treated as coming first from the
earnings and then, only after the income portion is exhausted, as coming from
the principal. Withdrawn earnings are includible in gross income. It further
provides that a ten percent (10%) penalty will apply to the income portion of
any distribution. However, the penalty is not imposed on amounts received: (a)
after the taxpayer reaches age 591/2; (b) after the death of the Contract Owner;
(c) if the taxpayer is totally disabled (for this purpose disability is as
defined in Section 72(m)(7) of the Code); (d) in a series of substantially equal
periodic payments made not less frequently than annually for the life (or life
expectancy) of the taxpayer or for the joint lives (or joint life expectancies)
of the taxpayer and his beneficiary; (e) under an immediate annuity; or (f)
which are allocable to purchase payments made prior to August 14, 1982.
With respect to (d) above, if the series of substantially equal periodic
payments is modified before the later of your attaining age 591/2 or 5 years
from the date of the first periodic payment, then the tax for the year of the
modification is increased by an amount equal to the tax which would have been
imposed (the 10% penalty tax) but for the exception, plus interest for the tax
years in which the exception was used.
The above information does not apply to Qualified Contracts. However, separate
tax withdrawal penalties and restrictions may apply to such Qualified Contracts.
(See "Tax Treatment of Withdrawals - Qualified Contracts.")
Qualified Plans
The Contracts offered are designed to be suitable for use under various types of
Qualified Plans. Because of the minimum purchase payment requirements, these
Contracts may not be appropriate for some periodic payment retirement plans.
Taxation of participants in each Qualified Plan varies with the type of plan and
terms and conditions of each specific plan. Contract Owners, annuitants and
beneficiaries are cautioned that benefits under a Qualified Plan may be subject
to the terms and conditions of the plan regardless of the terms and conditions
of the Contracts issued pursuant to the plan. Some retirement plans are subject
to distribution and other requirements that are not incorporated into the
Insurance Company's administrative procedures. Contract Owners, participants and
beneficiaries are responsible for determining that contributions, distributions
and other transactions with respect to the Contracts comply with applicable law.
Following are general descriptions of the types of Qualified Plans with which
the Contracts may be used. Such descriptions are not exhaustive and are for
general informational purposes only. The tax rules regarding Qualified Plans are
very complex and will have differing applications, depending on individual facts
and circumstances. Each purchaser should obtain competent tax advice prior to
purchasing a Contract issued under a Qualified Plan.
On July 6, 1983, the Supreme Court decided in Arizona Governing Committee v.
Norris that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. The Contracts sold by the Insurance Company in
connection with Qualified Plans will utilize annuity tables which do not
differentiate on the basis of sex. Such annuity tables will also be available
for use in connection with certain non-qualified deferred compensation plans.
Contracts issued pursuant to Qualified Plans include special provisions
restricting Contract provisions that may otherwise be available and described in
this Statement of Additional Information. Generally, Contracts issued pursuant
to Qualified Plans are not transferable except upon surrender or annuitization.
Various penalty and excise taxes may apply to contributions or distributions
made in violation of applicable limitations. Furthermore, certain withdrawal
penalties and restrictions may apply to withdrawals from Qualified Contracts.
(See "Tax Treatment of Withdrawals - Qualified Contracts.")
a. Tax-Sheltered Annuities
Section 403(b) of the Code permits the purchase of "tax-sheltered annuities" by
public schools and certain charitable, educational and scientific organizations
described in Section 501(c)(3) of the Code. These qualifying employers may make
contributions to the Contracts for the benefit of their employees. Such
contributions are not includible in the gross income of the employee until the
employee receives distributions from the Contract. The amount of contributions
to the tax-sheltered annuity is limited to certain maximums imposed by the Code.
Furthermore, the Code sets forth additional restrictions governing such items as
transferability, distributions, nondiscrimination and surrenders. (See "Tax
Treatment of Withdrawals - Qualified Contracts" and "Tax-Sheltered Annuities -
Withdrawal Limitations.") Employee loans are not allowed under these Contracts.
Any employee should obtain competent tax advice as to the tax treatment and
suitability of such an investment.
b. Individual Retirement Annuities
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity"
("IRA"). Under applicable limitations, certain amounts may be contributed to an
IRA which may be deductible from the individual's taxable income. These IRAs are
subject to limitations on eligibility, contributions, transferability and
distributions. (See "Tax Treatment of Withdrawals - Qualified Contracts.") Under
certain conditions, distributions from other IRAs and other Qualified Plans may
be rolled over or transferred on a tax-deferred basis into an IRA. Sales of
Contracts for use with IRAs are subject to special requirements imposed by the
Code, including the requirement that certain informational disclosure be given
to persons desiring to establish an IRA. Purchasers of Contracts to be qualified
as Individual Retirement Annuities should obtain competent tax advice as to the
tax treatment and suitability of such an investment.
Roth IRAs
Section 408A of the Code provides that beginning in 1998, individuals may
purchase a new type of non-deductible IRA, known as a Roth IRA. Purchase
payments for a Roth IRA are limited to a maximum of $2,000 per year and are not
deductible from taxable income. Lower maximum limitations apply to individuals
with adjusted gross incomes between $95,000 and $110,000 in the case of single
taxpayers, between $150,000 and $160,000 in the case of married taxpayers filing
joint returns, and between $0 and $10,000 in the case of married taxpayers
filing separately. An overall $2,000 annual limitation continues to apply to all
of a taxpayer's IRA contributions, including Roth IRAs and non-Roth IRAs.
Qualified distributions from Roth IRAs are free from federal income tax. A
qualified distribution requires that an individual has held the Roth IRA for at
least five years and, in addition, that the distribution is made either after
the individual reaches age 591/2, on the individual's death or disability, or as
a qualified first-time home purchase, subject to a $10,000 lifetime maximum, for
the individual, a spouse, child, grandchild, or ancestor. Any distribution which
is not a qualified distribution is taxable to the extent of earnings in the
distribution. Distributions are treated as made from contributions first and
therefore no distributions are taxable until distributions exceed the amount of
contributions to the Roth IRA. The 10% penalty tax and the regular IRA
exceptions to the 10% penalty tax apply to taxable distributions from a Roth
IRA.
Amounts may be rolled over from one Roth IRA to another Roth IRA. Furthermore,
an individual may make a rollover contribution from a non-Roth IRA to a Roth
IRA, unless the individual has adjusted gross income over $100,000 or the
individual is a married taxpayer filing a separate return. The individual must
pay tax on any portion of the IRA being rolled over that represents income or a
previously deductible IRA contribution. However, for rollovers in 1998, the
individual may pay that tax ratably over the four taxable year periods beginning
with tax year 1998.
Purchasers of Contracts to be qualified as a Roth IRA should obtain competent
tax advice as to the tax treatment and suitability of such an investment.
c. Pension and Profit-Sharing Plans
Sections 401(a) and 401(k) of the Code permit employers, including self-
employed individuals, to establish various types of retirement plans for
employees. These retirement plans may permit the purchase of the Contracts to
provide benefits under the Plan. Contributions to the Plan for the benefit of
employees will not be includible in the gross income of the employee until
distributed from the Plan. The tax consequences to participants may vary,
depending upon the particular Plan design. However, the Code places limitations
and restrictions on all Plans, including on such items as: amount of allowable
contributions; form, manner and timing of distributions; transferability of
benefits; vesting and nonforfeitability of interests; nondiscrimination in
eligibility and participation; and the tax treatment of distributions and
withdrawals. Participant loans are not allowed under the Contracts purchased in
connection with these Plans. (See "Tax Treatment of Withdrawals-Qualified
Contracts.") Purchasers of Contracts for use with Pension or Profit-Sharing
Plans should obtain competent tax advice as to the tax treatment and suitability
of such an investment.
Tax Treatment of Withdrawals -
Qualified Contracts
In the case of a withdrawal under a Qualified Contract, a ratable portion of the
amount received is taxable, generally based on the ratio of the individual's
cost basis to the individual's total accrued benefit under the retirement plan.
Special tax rules may be available for certain distributions from a Qualified
Contract. Section 72(t) of the Code imposes a 10% penalty tax on the taxable
portion of any distribution from qualified retirement plans, including Contracts
issued and qualified under Code Sections 401 (Pension and Profit-Sharing Plans),
403(b) (Tax-Sheltered Annuities) and 408 and 408A (Individual Retirement
Annuities). To the extent amounts are not includible in gross income because
they have been properly rolled over to an IRA or to another eligible Qualified
Plan, no tax penalty will be imposed. The tax penalty will not apply to the
following distributions: (a) if distribution is made on or after the date on
which the Contract Owner or Annuitant (as applicable) reaches age 591/2; (b)
distributions following the death or disability of the Contract Owner or
Annuitant (as applicable) (for this purpose disability is as defined in Section
72(m)(7) of the Code); (c) after separation from service, distributions that are
part of substantially equal periodic payments made not less frequently than
annually for the life (or life expectancy) of the Contract Owner or Annuitant
(as applicable) or the joint lives (or joint life expectancies) of such Contract
Owner or Annuitant (as applicable) and his designated beneficiary; (d)
distributions to a Contract Owner or Annuitant (as applicable) who has separated
from service after he has attained age 55; (e) distributions made to the
Contract Owner or Annuitant (as applicable) to the extent such distributions do
not exceed the amount allowable as a deduction under Code Section 213 to the
Contract Owner or Annuitant (as applicable) for amounts paid during the taxable
year for medical care; (f) distributions made to an alternate payee pursuant to
a qualified domestic relations order; (g) distributions from an Individual
Retirement Annuity for the purchase of medical insurance (as described in
Section 213(d)(1)(D) of the Code) for the Contract Owner or Annuitant (as
applicable) and his or her spouse and dependents if the Contract Owner or
Annuitant (as applicable) has received unemployment compensation for at least 12
weeks (this exception will no longer apply after the Contract Owner or Annuitant
(as applicable) has been re-employed for at least 60 days); (h) distributions
from an Individual Retirement Annuity made to the Owner or Annuitant (as
applicable) to the extent such distributions do not exceed the qualified higher
education expenses (as defined in Section 72(t)(7) of the Code) of the Owner or
Annuitant (as applicable) for the taxable year; and (i) distributions from an
Individual Retirement Annuity made to the Owner or Annuitant (as applicable)
which are qualified first-time home buyer distributions (as defined in Section
72(t)(8) of the Code). The exceptions stated in items (d) and (f) above do not
apply in the case of an Individual Retirement Annuity. The exception stated in
item (c) applies to an Individual Retirement Annuity without the requirement
that there be a separation from service.
With respect to (c) above, if the series of substantially equal periodic
payments is modified before the later of your attaining age 591/2 or 5 years
from the date of the first periodic payment, then the tax for the year of the
modification is increased by an amount equal to the tax which would have been
imposed (the 10% penalty tax) but for the exception, plus interest for the tax
years in which the exception was used.
Generally, distributions from a Qualified Plan must commence no later than April
1 of the calendar year following the later of: (a) the year in which the
employee attains age 701/2 or (b) the calendar year in which the employee
retires. The date set forth in (b) does not apply to an Individual Retirement
Annuity. Required distributions must be over a period not exceeding the life
expectancy of the individual or the joint lives or life expectancies of the
individual and his or her designated beneficiary. If the required minimum
distributions are not made, a 50% penalty tax is imposed as to the amount not
distributed.
Tax-Sheltered Annuities -
Withdrawal Limitations
The Code limits the withdrawal of amounts attributable to contributions made
pursuant to a salary reduction agreement (as defined in Section 403(b)(11) of
the Code) to circumstances only when the Contract Owner: (1) attains age 591/2;
(2) separates from service; (3) dies; (4) becomes disabled (within the meaning
of Section 72(m)(7) of the Code); or (5) in the case of hardship. However,
withdrawals for hardship are restricted to the portion of the Contract Owner's
Contract Value which represents contributions by the Contract Owner and does not
include any investment results. The limitations on withdrawals became effective
on January 1, 1989 and apply only to salary reduction contributions made after
December 31, 1988, and to income attributable to such contributions and to
income attributable to amounts held as of December 31, 1988. The limitations on
withdrawals do not affect rollovers and transfers between certain Qualified
Plans. Contract Owners should consult their own tax counsel or other tax adviser
regarding any distributions.
Annuity Provisions
- -------------------------------------------------------------------------------
Fixed Annuity Payout
A fixed annuity is an annuity with payments which are guaranteed as to dollar
amount by the Insurance Company and do not vary with the investment experience
of a Portfolio. The Fixed Account value on the day immediately preceding the
Income Date will be used to determine the Fixed Annuity monthly payment. The
monthly Annuity Payment will be based upon the Contract Value at the time of
annuitization, the Annuity Option selected, the age of the annuitant and any
joint annuitant and the sex of the annuitant and joint annuitant where allowed.
Variable Annuity Payout
A variable annuity is an annuity with payments which: (1) are not predetermined
as to dollar amount; and (2) will vary in amount with the net investment results
of the applicable Portfolio(s).
Annuity Unit Value
On the Income Date, a fixed number of Annuity Units will be purchased as
follows:
The first Annuity Payment is equal to the Adjusted Contract Value, divided first
by $1,000 and then multiplied by the appropriate Annuity Payment amount for each
$1,000 of value for the Annuity Option selected. In each Portfolio the fixed
number of Annuity Units is determined by dividing the amount of the initial
Annuity Payment determined for each Portfolio by the Annuity Unit value on the
Income Date. Thereafter, the number of Annuity Units in each Portfolio remains
unchanged unless the Contract Owner elects to transfer between Portfolios. All
calculations will appropriately reflect the Annuity Payment frequency selected.
On each subsequent Annuity Payment date, the total Annuity Payment is the sum of
the Annuity Payments for each Portfolio. The Annuity Payment in each Portfolio
is determined by multiplying the number of Annuity Units then allocated to such
Portfolio by the Annuity Unit value for that Portfolio.
On each subsequent Valuation Date, the value of an Annuity Unit is determined in
the following way:
First: The Net Investment Factor is determined as described in the Prospectus
under "Purchase - Accumulation Units."
Second: The value of an Annuity Unit for a Valuation Period is equal to:
a. the value of the Annuity Unit for the immediately preceding Valuation Period.
b. multiplied by the Net Investment Factor for the current Valuation Period;
c. divided by the Assumed Net Investment Factor (see below) for the Valuation
Period.
The Assumed Net Investment Factor is equal to one plus the Assumed Investment
Return which is used in determining the basis for the purchase of an Annuity,
adjusted to reflect the particular Valuation Period. The Assumed Investment
Return that the Insurance Company will use is 5%. However, the Insurance Company
may agree to use a different value.
Mortality and Expense Risk Guarantee
- -------------------------------------------------------------------------------
The Insurance Company guarantees that the dollar amount of each annuity payment
after the first annuity payment will not be affected by variations in mortality
and expense experience.
Financial Statements
- -------------------------------------------------------------------------------
The audited financial statements of the Insurance Company as of and for the year
ended December 31, 1998, included herein should be considered only as bearing
upon the ability of the Insurance Company to meet its obligations under the
Contracts. The audited financial statements of the Separate Account as of and
for the year ended December 31, 1998 are also included herein.
PREFERRED LIFE VARIABLE ACCOUNT C
OF
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements
December 31, 1998
<PAGE>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Independent Auditors'Report
The Board of Directors of Preferred Life Insurance Company of New York and
Contract Owners of Preferred Life Variable Account C:
We have audited the accompanying statements of assets and liabilities of the
sub-accounts of Preferred Life Variable Account C as of December 31, 1998, the
related statements of operations for the year then ended and the statements of
changes in net assets for each of the years in the two-years then ended. These
financial statements are the responsibility of the Variable Account's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Investment securities
held in custody for the benefit of the Variable Account were confirmed to us by
the Franklin Valuemark Funds. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets and liabilities of the sub-accounts of
Preferred Life Variable Account C at December 31, 1998, the results of their
operations for the year then ended and the changes in their net assets for each
of the years in the two-years then ended, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 29, 1999
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements
Statements of Assets and Liabilities
December 31, 1998
(In thousands)
Global Global
Capital Health Utilities Growth and High Income Money
Growth Care Securities Securities Income Income Securities Market
Fund Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Capital Growth Fund, 1,001 shares, cost $13,477 $16,095 - - - - - -
Global Health Care Securities Fund, 34 shares,
cost $334 - 369 - - - - -
Global Utilities Securities Fund, 3,940 shares,
cost $65,886 - - 80,540 - - - -
Growth and Income Fund, 5,546 shares, cost $89,867 - - - 112,922 - - -
High Income Fund, 2,886 shares, cost $38,946 - - - - 38,329 - -
Income Securities Fund, 4,865 shares, cost $75,590 - - - - - 82,322 -
Money Market Fund, 31,357 shares, cost $31,357 - - - - - - 31,357
- ---------------------------------------------------------------------------------------------------------------------------
Total assets 16,095 369 80,540 112,922 38,329 82,322 31,357
Liabilities:
Accrued mortality and expense risk charges -
Valuemark II 2 1 5 6 4 5 3
Accrued mortality and expense risk charges -
Valuemark IV 1 - - 1 1 1 -
Accrued administrative charges - Valuemark II - - 1 1 - - -
Accrued administrative charges - Valuemark IV - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 3 1 6 8 5 6 3
Net assets $16,092 368 80,534 112,914 38,324 82,316 31,354
- ---------------------------------------------------------------------------------------------------------------------------
Contract owners' equity:
Contracts in accumulation period - Valuemark II 15,825 275 80,480 112,466 37,806 81,970 31,188
Contracts in accumulation period - Valuemark IV 267 93 54 448 518 346 166
- ---------------------------------------------------------------------------------------------------------------------------
Total contract owners' equity $16,092 368 80,534 112,914 38,324 82,316 31,354
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
December 31, 1998
(In thousands)
Mutual Mutual Natural Templeton
Discovery Shares Resources Real Estate Rising Small Developing
Securities Securities Securities Securities Dividends Cap Markets
Fund Fund Fund Fund Fund Fund Equity Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Mutual Discovery Securities Fund, 1,137 shares,
cost $13,382 $12,836 - - - - - -
Mutual Shares Securities Fund, 2,278 shares,
cost $26,446 - 27,241 - - - - -
Natural Resources Securities Fund, 429 shares,
cost $5,793 - - 3,596 - - - -
Real Estate Securities Fund, 822 shares, cost $15,127- - - 16,377 - - -
Rising Dividends Fund, 3,731 shares, cost $50,084 - - - - 67,575 - -
Small Cap Fund, 1,086 shares, cost $15,229 - - - - - 14,905 -
Templeton Developing Markets Equity Fund, 873 shares,
cost $9,097 - - - - - - 6,031
- ---------------------------------------------------------------------------------------------------------------------------
Total assets 12,836 27,241 3,596 16,377 67,575 14,905 6,031
Liabilities:
Accrued mortality and expense risk charges -
Valuemark II 3 3 3 2 5 3 2
Accrued mortality and expense risk charges -
Valuemark IV - 1 - - 1 - -
Accrued administrative charges - Valuemark II 1 1 1 - - - 1
Accrued administrative charges - Valuemark IV - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 4 5 4 2 6 3 3
Net assets $12,832 27,236 3,592 16,375 67,569 14,902 6,028
- ---------------------------------------------------------------------------------------------------------------------------
Contract owners' equity:
Contracts in accumulation period - Valuemark II 12,646 26,789 3,536 16,340 67,223 14,771 5,983
Contracts in accumulation period - Valuemark IV 186 447 56 35 346 131 45
- ---------------------------------------------------------------------------------------------------------------------------
Total contract owners' equity $12,832 27,236 3,592 16,375 67,569 14,902 6,028
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
December 31, 1998
(In thousands)
Templeton
Templeton Templeton Templeton Templeton International Templeton U.S.
Global Asset Global Global Income International Smaller Pacific Government
Allocation Growth Securities Equity Companies Growth Securities
Fund Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Templeton Global Asset Allocation Fund, 342 shares,
cost $4,212 $4,336 - - - - - -
Templeton Global Growth Fund, 2,484 shares,
cost $31,808 - 36,691 - - - - -
Templeton Global Income Securities Fund, 1,099 shares,
cost $14,080 - - 14,143 - - - -
Templeton International Equity Fund, 3,500 shares,
cost $48,667 - - - 54,325 - - -
Templeton International Smaller Companies Fund,
120 shares, cost $1,352 - - - - 1,102 - -
Templeton Pacific Growth Fund, 890 shares,
cost $11,717 - - - - - 6,682 -
U.S. Government Securities Fund, 5,222 shares,
cost $69,881 - - - - - - 72,532
- ---------------------------------------------------------------------------------------------------------------------------
Total assets 4,336 36,691 14,143 54,325 1,102 6,682 72,532
Liabilities:
Accrued mortality and expense risk charges -
Valuemark II 2 4 4 4 2 3 5
Accrued mortality and expense risk charges -
Valuemark IV - - - - - - 1
Accrued administrative charges - Valuemark II 1 1 - 1 1 - 1
Accrued administrative charges - Valuemark IV - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 3 5 4 5 3 3 7
Net assets $4,333 36,686 14,139 54,320 1,099 6,679 72,525
- ---------------------------------------------------------------------------------------------------------------------------
Contract owners' equity:
Contracts in accumulation period - Valuemark II 4,317 36,512 14,094 54,177 1,065 6,633 71,990
Contracts in accumulation period - Valuemark IV 16 174 45 143 34 46 535
- ---------------------------------------------------------------------------------------------------------------------------
Total contract owners' equity $4,333 36,686 14,139 54,320 1,099 6,679 72,525
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
December 31, 1998
(In thousands)
Value Zero Zero Zero Total
Securities Coupon Coupon Coupon All
Fund Fund - 2000 Fund - 2005 Fund - 2010 Funds
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Value Securities Fund,
40 shares, cost $296 $310 - - -
Zero Coupon Fund - 2000
1,013 shares, cost $14,656 - 14,995 - -
Zero Coupon Fund - 2005
496 shares, cost $7,791 - - 8,792 -
Zero Coupon Fund - 2010
403 shares, cost $6,654 - - - 7,684
- ---------------------------------------------------------------------------------------------------------------------------
Total assets 310 14,995 8,792 7,684 732,087
Liabilities:
Accrued mortality and expense risk charges - Valuemark II - 3 3 3 80
Accrued mortality and expense risk charges - Valuemark IV - - - - 7
Accrued administrative charges - Valuemark II - - - - 11
Accrued administrative charges - Valuemark IV - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities - 3 3 3 98
Net assets $310 14,992 8,789 7,681 731,989
- ---------------------------------------------------------------------------------------------------------------------------
Contract owners' equity:
Contracts in accumulation period - Valuemark II 143 14,941 8,739 7,588 727,497
Contracts in accumulation period - Valuemark IV 167 51 50 93 4,492
- ---------------------------------------------------------------------------------------------------------------------------
Total contract owners' equity $310 14,992 8,789 7,681 731,989
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Operations
For the year ended December 31, 1998
(In thousands)
Global Global
Capital Health Utilities Growth and High Income Money
Growth Care Securities Securities Income Income Securities Market
Fund Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ 44 - 3,509 3,838 3,948 7,201 1,556
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges - Valuemark II 150 - 1,091 1,490 546 1,156 383
Mortality and expense risk charges - Valuemark IV 1 - - 1 1 1 -
Administrative charges - Valuemark II 18 - 131 179 65 139 46
Administrative charges - Valuemark IV - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 169 - 1,222 1,670 612 1,296 429
Investment income (loss), net (125) - 2,287 2,168 3,336 5,905 1,127
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions on mutual - - 5,116 9,029 234 1,701 -
funds
Realized gains (losses) on sales of investments, 287 1 3,967 4,620 80 2,113 -
net
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on investments, net 287 1 9,083 13,649 314 3,814 -
Net change in unrealized appreciation
(depreciation) on investments 1,864 35 (3,678) (8,207) (3,777) (9,694) -
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments, net 2,151 36 5,405 5,442 (3,463) (5,880) -
Net increase (decrease) in net assets from $2,026 36 7,692 7,610 (127) 25 1,127
operations
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Operations (cont.)
For the year ended December 31, 1998
(In thousands)
Mutual Mutual Natural Templeton
Discovery Shares Resources Real Estate Rising Small Developing
Securities Securities Securities Securities Dividends Cap Markets
Fund Fund Fund Fund Fund Fund Equity Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ 193 308 67 915 775 10 274
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges - Valuemark II 175 348 56 273 881 187 101
Mortality and expense risk charges - Valuemark IV - 1 - - 1 - -
Administrative charges - Valuemark II 21 42 7 33 106 22 12
Administrative charges - Valuemark IV - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 196 391 63 306 988 209 113
Investment income (loss), net (3) (83) 4 609 (213) (199) 161
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions on mutual funds 180 269 - 567 9,498 1,273 890
Realized gains (losses) on sales of investments, net(116) 34 (613) 1,217 3,267 (338) (1,330)
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on investments, net 64 303 (613) 1,784 12,765 935 (440)
Net change in unrealized appreciation (depreciation)
on investments (1,320) (929) (747) (6,791) (9,268) (1,359) (2,104)
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments, net (1,256) (626) (1,360) (5,007) 3,497 (424) (2,544)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from ($1,259) (709) (1,356) (4,398) 3,284 (623) (2,383)
operations
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Operations (cont.)
For the year ended December 31, 1998
(In thousands)
Templeton
Templeton Templeton Templeton Templeton International Templeton U.S.
Global Asset Global Global Income International Smaller Pacific Government
Allocation Growth Securities Equity Companies Growth Securities
Fund Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $187 1,026 1,178 2,014 35 364 5,565
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges - Valuemark II 65 491 199 814 18 98 985
Mortality and expense risk charges - Valuemark IV - - - - - - 1
Administrative charges - Valuemark II 8 59 24 98 2 12 118
Administrative charges - Valuemark IV - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 73 550 223 912 20 110 1,104
Investment income (loss), net 114 476 955 1,102 15 254 4,461
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions on mutual 222 3,737 - 4,045 41 111 -
funds
Realized gains (losses) on sales of investments, 148 1,018 (2) 3,522 (74) (3,196) 895
net
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on investments, net 370 4,755 (2) 7,567 (33) (3,085) 895
Net change in unrealized appreciation (depreciation)
on investments (572) (2,835) (103) (5,800) (190) 987 (812)
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments, net (202) 1,920 (105) 1,767 (223) (2,098) 83
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from ($88) 2,396 850 2,869 (208) (1,844) 4,544
operations
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Operations (cont.)
For the year ended December 31, 1998
(In thousands)
Value Zero Zero Zero Total
Securities Coupon Coupon Coupon All
Fund Fund - 2000 Fund - 2005 Fund - 2010 Funds
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares - 1,368 509 432 35,316
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges - Valuemark II - 221 106 94 9,928
Mortality and expense risk charges - Valuemark IV - - - - 7
Administrative charges - Valuemark II - 27 13 11 1,193
Administrative charges - Valuemark IV - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses - 248 119 105 11,128
Investment income (loss), net - 1,120 390 327 24,188
Realized gains (losses) and unrealized appreciation
(depreciation) on investments:
Realized capital gain distributions on mutual funds - 219 118 60 37,310
Realized gains (losses) on sales of investments, net 2 283 197 475 16,457
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on investments, net 2 502 315 535 53,767
Net change in unrealized appreciation (depreciation) on investments 14 (584) 146 23
(55,701)
Total realized gains (losses) and unrealized appreciation
(depreciation) on investments, net 16 (82) 461 558 (1,934)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations $16 1,038 851 885 22,254
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Changes in Net Assets For the years ended December 31, 1998 and
1997 (In thousands)
Global Health Global Utilities
Capital Growth Fund Care Securities Fund Securities Fund Growth and Income Fund
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net ($125) (64) - - 2,287 3,392 2,168 2,066
Realized gains (losses) on
investments, net 287 92 1 - 9,083 9,199 13,649 7,354
Net change in unrealized
appreciation (depreciation)
on investments 1,864 670 35 - (3,678) 7,826 (8,207) 15,947
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations 2,026 698 36 - 7,692 20,417 7,610 25,367
Contract transactions -
Valuemark II (note 4):
Purchase payments 2,983 3,011 1 - 1,613 1,846 7,159 10,533
Transfers between funds 4,392 2,196 250 - (1,689) (9,521) 2,872 4,602
Surrenders and terminations (1,877) (237) - - (22,589) (20,611) (26,820) (17,705)
Rescissions (17) (33) - - (109) (4) (167) (126)
Other transactions (note 2) 180 3 - - 64 145 253 78
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from contract
transactions - Valuemark II 5,661 4,940 251 - (22,710) (28,145) (16,703) (2,618)
Contract transactions -
Valuemark IV (note 4):
Purchase payments 206 - 77 - 44 - 347 -
Transfers between funds 32 - 4 - 11 - 92 -
Surrenders and terminations - - - - - - (1) -
Rescissions - - - - - - (1) -
Other transactions (note 2) - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from contract
transactions - Valuemark IV 238 - 81 - 55 - 437 -
Increase (decrease) in net assets 7,925 5,638 368 - (14,963) (7,728) (8,656) 22,749
Net assets at beginning of year 8,167 2,529 - - 95,497 103,225 121,570 98,821
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $16,092 8,167 368 - 80,534 95,497 112,914 121,570
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1998 and 1997
(In thousands)
Mutual Discovery
High Income Fund Income Securities Fund Money Market Fund Securities Fund
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 3,336 2,753 5,905 5,816 1,127 1,215 (3) (78)
Realized gains (losses) on
investments, net 314 1,241 3,814 3,637 - - 64 15
Net change in unrealized appreciation
(depreciation) on investments (3,777) (99) (9,694) 4,604 - - (1,320) 771
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations (127) 3,895 25 14,057 1,127 1,215 (1,259) 708
Contract transactions -
Valuemark II (note 4):
Purchase payments 5,061 6,687 5,484 7,073 9,399 14,086 3,318 4,882
Transfers between funds (862) (631) (3,061) (2,645) 6,983 (6,695) 1,746 5,667
Surrenders and terminations (11,159) (6,845) (20,428) (16,530) (15,831) (11,292) (2,175) (427)
Rescissions (67) (120) (109) (78) (392) (53) (57) (29)
Other transactions (note 2) 13 56 29 39 22 112 18 (9)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark II (7,014) (853) (18,085) (12,141) 181 (3,842) 2,850 10,084
Contract transactions -
Valuemark IV (note 4):
Purchase payments 412 - 257 - 269 - 153 -
Transfers between funds 91 - 94 - (104) - 18 -
Surrenders and terminations (1) - - - - - - -
Rescissions - - - - - - - -
Other transactions (note 2) - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark IV 502 - 351 - 165 - 171 -
Increase (decrease) in net assets (6,639) 3,042 (17,709) 1,916 1,473 (2,627) 1,762 10,792
Net assets at beginning of year 44,963 41,921 100,025 98,109 29,881 32,508 11,070 278
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $ 38,324 44,963 82,316 100,025 31,354 29,881 12,832 11,070
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1998 and 1997
(In thousands)
Mutual Shares Natural Resources
Securities Fund Securities Fund Real Estate Securities Fund Rising Dividends Fund
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net ($83) (151) 4 9 609 332 (213) 19
Realized gains (losses) on
investments, net 303 15 (613) (353) 1,784 1,390 12,765 3,916
Net change in unrealized
appreciation (depreciation)
on investments (929) 1,716 (747) (1,172) (6,791) 2,407 (9,268) 12,343
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations (709) 1,580 (1,356) (1,516) (4,398) 4,129 3,284 16,278
Contract transactions -
Valuemark II (note 4):
Purchase payments 6,717 11,012 685 496 1,188 2,849 7,196 7,130
Transfers between funds 4,383 9,916 (306) (698) (1,790) 1,804 2,318 4,129
Surrenders and terminations (5,431) (992) (787) (1,164) (5,162) (2,578) (15,723) (9,509)
Rescissions (84) (95) - (10) (20) (10) (104) (36)
Other transactions (note 2) 84 (5) 1 2 (10) 3 230 115
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark II 5,669 19,836 (407) (1,374) (5,794) 2,068 (6,083) 1,829
Contract transactions -
Valuemark IV (note 4):
Purchase payments 311 - 56 - 30 - 269 -
Transfers between funds 107 - - - 5 - 58 -
Surrenders and terminations - - - - - - - -
Rescissions - - - - - - - -
Other transactions (note 2) - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark IV 418 - 56 - 35 - 327 -
Increase (decrease) in net assets 5,378 21,416 (1,707) (2,890) (10,157) 6,197 (2,472) 18,107
Net assets at beginning of year 21,858 442 5,299 8,189 26,532 20,335 70,041 51,934
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $27,236 21,858 3,592 5,299 16,375 26,532 67,569 70,041
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1998 and 1997
(In thousands)
Templeton Developing Templeton Global Templeton
Small Cap Fund Markets Equity Fund Asset Allocation Fund Global Growth Fund
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net ($199) (113) 161 (36) 114 24 476 60
Realized gains (losses) on
investments, net 935 494 (440) 412 370 132 4,755 684
Net change in unrealized
appreciation (depreciation)
on investments (1,359) 821 (2,104) (2,170) (572) 293 (2,835) 2,887
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations (623) 1,202 (2,383) (1,794) (88) 449 2,396 3,631
Contract transactions -
Valuemark II (note 4):
Purchase payments 2,596 3,879 560 2,943 667 1,533 3,461 7,275
Transfers between funds 1,577 4,438 (2,638) 192 (1,307) 632 (2,518) 2,733
Surrenders and terminations (2,847) (814) (1,536) (1,291) (791) (504) (6,107) (3,295)
Rescissions (25) (48) (5) (25) (13) (18) (56) (128)
Other transactions (note 2) 91 (4) (3) (3) - (1) (20)
45
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark II 1,392 7,451 (3,622) 1,816 (1,444) 1,642 (5,240) 6,630
Contract transactions -
Valuemark IV (note 4):
Purchase payments 106 - 41 - 13 - 81 -
Transfers between funds 6 - - - 2 - 85 -
Surrenders and terminations (1) - - - - - - -
Rescissions - - - - - - - -
Other transactions (note 2) - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark IV 111 - 41 - 15 - 166 -
Increase (decrease) in net assets 880 8,653 (5,964) 22 (1,517) 2,091 (2,678) 10,261
Net assets at beginning of year 14,022 5,369 11,992 11,970 5,850 3,759 39,364 29,103
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $14,902 14,022 6,028 11,992 4,333 5,850 36,686 39,364
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1998 and 1997
(In thousands)
Templeton Global Templeton Templeton International Templeton
Income Securities Fund International Equity Fund Smaller Companies Fund Pacific Growth Fund
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 955 1,158 1,102 978 15 (13) 254 151
Realized gains (losses) on
investments, net (2) 111 7,567 6,035 (33) 38 (3,085) (474)
Net change in unrealized appreciation
(depreciation) on investments (103) (1,107) (5,800) 211 (190) (109) 987 (7,415)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations 850 162 2,869 7,224 (208) (84) (1,844) (7,738)
Contract transactions -
Valuemark II (note 4):
Purchase payments 547 1,089 1,430 5,493 103 964 182 502
Transfers between funds (1,413) (2,668) (7,532) (443) (348) 577 (1,806) (4,197)
Surrenders and terminations (4,077) (3,152) (14,571) (10,782) (357) (304) (1,677) (2,904)
Rescissions (15) (3) (58) (50) - - (5) (14)
Other transactions (note 2) 25 30 82 161 1 - (5) (4)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark II (4,933) (4,704) (20,649) (5,621) (601) 1,237 (3,311) (6,617)
Contract transactions -
Valuemark IV (note 4):
Purchase payments 41 - 127 - 31 - 44 -
Transfers between funds 4 - 8 - 2 - (3) -
Surrenders and terminations - - - - - - - -
Rescissions - - - - - - - -
Other transactions (note 2) - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark IV 45 - 135 - 33 - 41 -
Increase (decrease) in net assets (4,038) (4,542) (17,645) 1,603 (776) 1,153 (5,114) (14,355)
Net assets at beginning of year 18,177 22,719 71,965 70,362 1,875 722 11,793 26,148
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $14,139 18,177 54,320 71,965 1,099 1,875 6,679 11,793
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1998 and 1997
(In thousands)
U.S. Government Value
Securities Fund Securities Fund Zero Coupon Fund - 2000 Zero Coupon Fund - 2005
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 4,461 3,794 - - 1,120 1,246 390 366
Realized gains (losses) on
investments, net 895 352 2 - 502 262 315 200
Net change in unrealized appreciation
(depreciation) on investments (812) 2,712 14 - (584) (281) 146 131
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations 4,544 6,858 16 - 1,038 1,227 851 697
Contract transactions -
Valuemark II (note 4):
Purchase payments 3,571 5,076 21 - 345 839 1,287 767
Transfers between funds (301) (6,248) 115 - (941) (1,349) 727 (735)
Surrenders and terminations (22,669) (18,871) - - (6,689) (4,616) (1,750) (1,730)
Rescissions (118) (49) - - (10) - (180) -
Other transactions (note 2) 31 (14) - - (7) 18 31 (4)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark II (19,486) (20,106) 136 - (7,302) (5,108) 115 (1,702)
Contract transactions -
Valuemark IV (note 4):
Purchase payments 492 - 124 - 27 - 47 -
Transfers between funds 41 - 34 - 25 - 4 -
Surrenders and terminations - - - - - - - -
Rescissions (3) - - - - - - -
Other transactions (note 2) - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark IV 530 - 158 - 52 - 51 -
Increase (decrease) in net assets(14,412) (13,248) 310 - (6,212) (3,881) 1,017 (1,005)
Net assets at beginning of year 86,937 100,185 - - 21,204 25,085 7,772 8,777
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $ 72,525 86,937 310 - 14,992 21,204 8,789 7,772
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1998 and 1997
(In thousands)
Zero Coupon Fund - 2010 Total All Funds
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 327 310 24,188 23,234
Realized gains (losses) on investments, net 535 199 53,767 34,951
Net change in unrealized appreciation (depreciation) on investments 23 407 (55,701) 41,393
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations 885 916 22,254 99,578
Contract transactions - Valuemark II (note 4):
Purchase payments 873 794 66,447 100,759
Transfers between funds 381 (1,056) (768) -
Surrenders and terminations (1,759) (922) (192,812) (137,075)
Rescissions (7) - (1,618) (929)
Other transactions (note 2) (4) (4) 1,106 759
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from contract
transactions - Valuemark II (516) (1,188) (127,645) (36,486)
Contract transactions - Valuemark IV (note 4):
Purchase payments 92 - 3,697 -
Transfers between funds - - 616 -
Surrenders and terminations - - (3) -
Rescissions - - (4) -
Other transactions (note 2) - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from contract
transactions - Valuemark IV 92 - 4,306 -
Increase (decrease) in net assets 461 (272) (101,085) 63,092
Net assets at beginning of year 7,220 7,492 833,074 769,982
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $ 7,681 7,220 731,989 833,074
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Notes to Financial Statements
December 31, 1998
1. ORGANIZATION
Preferred Life Variable Account C (Variable Account) is a segregated investment
account of Preferred Life Insurance Company of New York (Preferred Life) and is
registered with the Securities and Exchange Commission as a unit investment
trust pursuant to the provisions of the Investment Company Act of 1940 (as
amended). The Variable Account was established by Preferred Life on February 26,
1988 and commenced operations September 6, 1991. Accordingly, it is an
accounting entity wherein all segregated account transactions are reflected.
The Variable Account's assets are the property of Preferred Life and are held
for the benefit of the owners and other persons entitled to payments under
variable annuity contracts issued through the Variable Account and underwritten
by Preferred Life. The assets of the Variable Account, equal to the reserves and
other liabilities of the Variable Account, are not chargeable with liabilities
that arise from any other business which Preferred Life may conduct.
The Variable Account's sub-accounts may invest, at net asset values, in one or
more of the funds of the Franklin Valuemark Funds (FVF), managed by Franklin
Advisers, Inc. and its Templeton and Franklin affiliates, in accordance with the
selection made by the contract owner.
Certain officers and trustees of the FVF are also officers and/or directors of
Franklin Advisers, Inc. and/or Preferred Life.
2. SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Investments
Investments of the Variable Account are valued daily at market value using net
asset values provided by Franklin Advisers, Inc.
Realized investment gains include gains on the sale of fund shares as determined
by the average cost method. Dividend distributions received from the FVF are
reinvested in additional shares of the FVF and are recorded as income to the
Variable Account on the ex-dividend date.
Two Fixed Account investment options are available to deferred annuity contract
owners. A Flexible Fixed Option is available to all deferred annuity contract
owners and a Dollar Cost Averaging Option is available to Valuemark IV deferred
annuity contract owners. These accounts are comprised of equity and fixed income
investments which are part of the general obligations of Preferred Life. The
liabilities of the Fixed Accounts are part of the general obligations of
Preferred Life and are not included in the Variable Account. The guaranteed
minimum rate of return on the Fixed Accounts is 3%.
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES (cont.)
Investments (cont.)
The Global Health Care Securities Fund and Value Securities Fund were added as
available investment options on August 17, 1998. On May 1, 1998, the Utility
Equity Fund name was changed to Global Utilities Securities Fund. The Precious
Metals Fund name was changed to Natural Resources Securities Fund on May 1,
1997.
Expenses
Asset Based Expenses
A mortality and expense risk charge is deducted from the Variable Account on a
daily basis. The charge is equal, on an annual basis, to 1.25% of the daily net
assets of Valuemark II and 1.34% of the daily net assets of Valuemark IV.
An administrative charge is deducted from the Variable Account on a daily basis
equal, on an annual basis, to 0.15% of the daily net assets of all products
which comprise the Variable Account
Contract Based Expenses
A contract maintenance charge is paid by the contract owner annually from each
contract by liquidating contract units at the end of the contract year and at
the time of full surrender. The amount of the charge is $30 each year. Contract
maintenance charges deducted during the years ended December 31, 1998 and 1997
were $487,077and $478,510, respectively. These contract charges are reflected in
the Statements of Changes in Net Assets as other transactions.
A contingent deferred sales charge is deducted from the contract value at the
time of a surrender. This charge applies only to a surrender of purchase
payments received within five years of the date of surrender for Valuemark II
contracts and within seven years of the date of surrender for Valuemark IV
contracts. For this purpose, purchase payments are allocated on a first-in,
first-out basis. The amount of the contingent deferred sales charge is
calculated by: (a) allocating purchase payments to the amount surrendered; and
(b) multiplying each allocated purchase payment that has been held under the
contract for the period shown below by the charge shown below:
Years Since Contingent Deferred Sales Charge
- --------------------------------------------------------------------------------
Payment Valuemark II Valuemark IV
- --------------------------------------------------------------------------------
0-1 5% 6%
1-2 5% 6%
2-3 4% 6%
3-4 3% 5%
4-5 1.5% 4%
5-6 0% 3%
6-7 0% 2%
7+ 0% 0%
and (c) adding the products of each multiplication in (b) above.
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES (cont.)
Contract Based Expenses (cont.)
A Valuemark II deferred annuity contract owner may, not more frequently than
once annually on a cumulative basis, make a surrender each contract year of
fifteen percent (15%) of purchase payments paid, less any prior surrenders,
without incurring a contingent deferred sales charge. A Valuemark IV deferred
annuity contract owner may make multiple surrenders, each year after the first
contract year, up to fifteen percent (15%) of the contract value without
incurring a contingent deferred sales charge. For a partial surrender, the
contingent deferred sales charge will be deducted from the remaining contract
value, if sufficient; otherwise it will be deducted from the amount surrendered.
Total contingent deferred sales charges paid by the contract owners for the
years ended December 31, 1998 and 1997 were $941,938 and $983,164, respectively.
Currently, twelve transfers are permitted each contract year. Thereafter, the
fee is $25 per transfer, or 2% of the amount transferred, if less. Currently,
transfers associated with the dollar cost averaging program are not counted.
Total transfer charges for the years ended December 31, 1998 and 1997 were
$1,945 and $4,226, respectively. Transfer charges are reflected in the Statement
of Changes in Net Assets as other transactions. Net transfers to the Fixed
Accounts were $152,026 for the year ended December 31, 1998.
Premium taxes or other taxes payable to a state or other governmental entity
will be charged against the contract values. Preferred Life may, at its sole
discretion, pay taxes when due and deduct that amount from the contract value at
a later date. Payment at an earlier date does not waive any right Preferred Life
may have to deduct such amounts at a later date.
On Valuemark II deferred annuity contracts, a systematic withdrawal plan is
available which allows an owner to withdraw up to nine percent (9%) of purchase
payments less prior surrenders annually, paid monthly or quarterly, without
incurring a contingent deferred sales charge. The systematic withdrawal plan
available to Valuemark IV deferred annuity contract owners allows up to fifteen
percent (15%) of the contract value withdrawn annually, paid monthly or
quarterly, without incurring a contingent deferred sales charge. The exercise of
the systematic withdrawal plan in any contract year replaces the 15% penalty
free privilege for that year for all deferred annuity contracts.
A rescission is defined as a contract that is returned to the company and
canceled within the free-look period, generally within 10 days.
3. FEDERAL INCOME TAXES
Operations of the Variable Account form a part of, and are taxed with,
operations of Preferred Life, which is taxed as a life insurance company under
the Internal Revenue Code.
Preferred Life does not expect to incur any federal income taxes in the
operation of the Variable Account. If, in the future, Preferred Life determines
that the Variable Account may incur federal income taxes, it may then assess a
charge against the Variable Account for such taxes.
<PAGE>
4. CONTRACT TRANSACTIONS - ACCUMULATION UNIT ACTIVITY (In thousands)
Transactions in units for each fund for the years ended December 31, 1998 and
1997 were as follows: <TABLE> <CAPTION>
Global Global Mutual Mutual
Capital Health Care Utilities Growth and High Income Money Discovery Shares
Growth Securities Securities Income Income Securities Market Securities Securities
Fund Fund Fund Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Valuemark II
Accumulation units outstanding
at December 31, 1996 225 - 4,998 5,070 2,164 4,519 2,433 27 43
Contract transactions:
Purchase payments 241 - 86 483 330 309 1,035 428 981
Transfers between funds 178 - (449) 210 (44) (119) (487) 511 893
Surrenders and terminations (19) - (943) (809) (337) (717) (830) (38) (86)
Rescissions (3) - - (6) (6) (3) (4) (3) (8)
Other transactions - - 7 4 3 2 8 (1) -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
accumulation units resulting
from contract transactions 397 - (1,299) (118) (54) (528) (278) 897 1,780
Accumulation units outstanding
at December 31, 1997 622 - 3,699 4,952 2,110 3,991 2,155 924 1,823
- ---------------------------------------------------------------------------------------------------------------------------
Contract transactions:
Purchase payments 215 - 61 281 233 219 657 261 541
Transfers between funds 303 26 (64) 110 (37) (125) 505 128 349
Surrenders and terminations (135) - (851) (1,058) (521) (819) (1,123) (184) (450)
Rescissions (1) - (4) (6) (3) (4) (28) (4) (6)
Other transactions 12 - 2 10 1 1 2 2 7
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract
transactions 394 26 (856) (663) (327) (728) 13 203 441
Accumulation units outstanding
at December 31, 1998 1,016 26 2,843 4,289 1,783 3,263 2,168 1,127 2,264
- ---------------------------------------------------------------------------------------------------------------------------
Valuemark IV
Accumulation units outstanding
at December 31, 1997 - - - - - - - - -
Contract transactions:
Purchase payments 15 8 2 14 21 11 19 15 29
Transfers between funds 2 - - 3 4 3 (7) 2 9
Surrenders and terminations - - - - - - - - -
Rescissions - - - - - - - - -
Other transactions - - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract
transactions 17 8 2 17 25 14 12 17 38
Accumulation units outstanding
at December 31, 1998 17 8 2 17 25 14 12 17 38
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
4. CONTRACT TRANSACTIONS - ACCUMULATION UNIT ACTIVITY (In thousands) (cont.)
<TABLE>
<CAPTION>
Natural Real Templeton Templeton Templeton Templeton Templeton
Resources Estate Rising Small Developing Global Asset Global Global Income International
Securities Securities Dividends Cap Markets Equity Allocation Growth Securities Equity
Fund Fund Fund Fund Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Valuemark II
Accumulation units outstanding
at December 31, 1996 566 859 3,394 416 1,042 300 2,146 1,354 4,375
Contract transactions:
Purchase payments 37 114 399 275 231 114 489 65 313
Transfers between funds (58) 72 225 310 (9) 48 184 (160) (23)
Surrenders and terminations (86) (103) (533) (59) (102) (37) (219) (189) (608)
Rescissions (1) - (2) (4) (2) (1) (9) - (3)
Other transactions - - 6 - - - 3 2 9
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
accumulation units resulting
from contract transactions (108) 83 95 522 118 124 448 (282)
(312)
Accumulation units outstanding
at December 31, 1997 458 942 3,489 938 1,160 424 2,594 1,072 4,063
- ---------------------------------------------------------------------------------------------------------------------------
Contract transactions:
Purchase payments 66 44 345 171 59 47 213 32 76
Transfers between funds (33) (73) 103 96 (295) (94) (177) (82) (429)
Surrenders and terminations (76) (204) (767) (198) (174) (58) (387) (235)
(773)
Rescissions - (1) (5) (2) (1) (1) (3) (1) (3)
Other transactions - - 11 7 - - (1) 1 4
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
accumulation units resulting
from contract transactions (43) (234) (313) 74 (411) (106) (355) (285)
(1,125)
Accumulation units outstanding
at December 31, 1998 415 708 3,176 1,012 749 318 2,239 787 2,938
- ---------------------------------------------------------------------------------------------------------------------------
Valuemark IV
Accumulation units outstanding
at December 31, 1997 - - - - - - - - -
Contract transactions:
Purchase payments 7 1 14 9 5 1 5 2 8
Transfers between funds - - 3 - - - 5 - -
Surrenders and terminations - - - - - - - - -
Rescissions - - - - - - - - -
Other transactions - - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
accumulation units resulting
from contract transactions 7 1 17 9 5 1 10 2 8
Accumulation units outstanding
at December 31, 1998 7 1 17 9 5 1 10 2 8
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
4. CONTRACT TRANSACTIONS - ACCUMULATION UNIT ACTIVITY (In thousands) (cont.)
<TABLE>
<CAPTION>
Templeton
International Templeton U.S. Zero Zero Zero
Smaller Pacific Government Value Coupon Coupon Coupon Total
Companies Growth Securities Securities Fund - Fund - Fund - All
Fund Fund Fund Fund 2000 2005 2010 Funds
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Valuemark II
Accumulation units outstanding at December 31, 65 1,751 6,017 - 1,358 428 348 43,898
1996
Contract transactions:
Purchase payments 84 37 297 - 44 36 34 6,462
Transfers between funds 50 (324) (370) - (72) (37) (49) 480
Surrenders and terminations (26) (212) (1,096) - (244) (82) (41) (7,416)
Rescissions - (1) (3) - - - - (59)
Other transactions - - (1) - 1 - - 43
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation units
resulting from contract transactions 108 (500) (1,173) - (271) (83) (56) (490)
Accumulation units outstanding at December 31, 173 1,251 4,844 - 1,087 345 292 43,408
1997
- ---------------------------------------------------------------------------------------------------------------------------
Contract transactions:
Purchase payments 9 21 194 3 17 55 34 3,854
Transfers between funds (35) (232) (20) 16 (47) 30 13 (64)
Surrenders and terminations (33) (217) (1,227) - (334) (74) (67) (9,965)
Rescissions - (1) (6) - - (8) - (88)
Other transactions - (1) 2 - - 1 - 61
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation units
resulting from contract transactions (59) (430) (1,057) 19 (364) 4 (20) (6,202)
Accumulation units outstanding at December 31, 114 821 3,787 19 723 349 272 37,206
1998
- ---------------------------------------------------------------------------------------------------------------------------
Valuemark IV
Accumulation units outstanding at December 31, - - - - - - - -
1997
Contract transactions:
Purchase payments 3 6 26 17 1 2 3 244
Transfers between funds - - 2 5 1 - - 32
Surrenders and terminations - - - - - - - -
Rescissions - - - - - - - -
Other transactions - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation units
resulting from contract transactions 3 6 28 22 2 2 3 276
Accumulation units outstanding at December 31, 1998 3 6 28 22 2 2 3 276
</TABLE>
<PAGE>
5. UNIT VALUES
<TABLE>
<CAPTION>
A summary of accumulation unit values and accumulation units outstanding for
variable annuity contracts and the expense ratios, including expenses of the
underlying funds, for each of the five years in the period ended December 31,
1998 follows.
Valuemark II Valuemark IV
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation Ratio of Expenses Accumulation Ratio of Expenses
Units Outstanding Accumulation Net Assets to Average Units Outstanding Accumulation Net Assets to Average
(in thousands) Unit Value (in thousands) Net Assets* (in thousands) Unit Value (in thousands) Net Assets*
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth Fund
December 31,
1998 1,016 $15.574 $15,825 2.17% 17 $15.537 $267 2.26%
1997 622 13.130 8,167 2.17 - - - -
19961 225 11.254 2,529 2.17+ - - - -
Global Health Care Securities Fund
December 31,
19982 26 10.610 275 2.24+ 8 10.604 93 2.33+
Global Utilities Securities Fund
December 31,
1998 2,843 28.308 80,480 1.90 2 28.082 54 1.99
1997 3,699 25.818 95,497 1.90 - - - -
1996 4,998 20.654 103,225 1.90 - - - -
1995 5,916 19.555 115,743 1.90 - - - -
1994 6,317 15.104 35,415 1.92 - - - -
Growth and Income Fund
December 31,
1998 4,289 26.226 112,466 1.89 17 25.993 448 1.98
1997 4,952 24.551 121,570 1.89 - - - -
1996 5,070 19.490 98,821 1.90 - - - -
1995 4,347 17.310 75,240 1.92 - - - -
1994 3,452 13.215 45,616 1.94 - - - -
High Income Fund
December 31,
1998 1,783 21.208 37,806 1.93 25 21.020 518 2.02
1997 2,110 21.312 44,963 1.93 - - - -
1996 2,164 19.375 41,921 1.94 - - - -
1995 2,076 17.252 35,808 1.96 - - - -
1994 1,710 14.608 24,984 2.00 - - - -
Income Securities Fund
December 31,
1998 3,263 25.122 81,970 1.89 14 24.898 346 1.98
1997 3,991 25.065 100,025 1.90 - - - -
1996 4,519 21.708 98,109 1.90 - - - -
1995 4,567 19.785 90,364 1.91 - - - -
1994 4,416 16.392 72,389 1.94 - - - -
</TABLE>
<PAGE>
5. UNIT VALUES (cont.)
<TABLE>
<CAPTION>
Valuemark II Valuemark IV
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation Ratio of Expenses Accumulation Ratio of Expenses
Units Outstanding Accumulation Net Assets to Average Units Outstanding Accumulation Net Assets to Average
(in thousands) Unit Value (in thousands) Net Assets* (in thousands) Unit Value (in thousands) Net Assets*
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market Fund
December 31,
1998 2,168 $14.386 $31,188 1.85% 12 $14.260 $166 1.94%
1997 2,155 13.865 29,881 1.85 - - - -
1996 2,433 13.359 32,508 1.83 - - - -
1995 2,218 12.883 28,571 1.80 - - - -
1994 2,487 12.354 30,730 1.86 - - - -
Mutual Discovery Securities Fund
December 31,
1998 1,127 11.226 12,646 2.40 17 11.205 186 2.49
1997 924 11.983 11,070 2.46 - - - -
19963 27 10.180 278 2.77+ - - - -
Mutual Shares Securities Fund
December 31,
1998 2,264 11.837 26,789 2.17 38 11.814 447 2.26
1997 1,823 11.993 21,858 2.20 - - - -
19963 43 10.330 442 2.40+ - - - -
Natural Resources Securities Fund
December 31,
1998 415 8.505 3,536 2.04 7 8.430 56 2.13
1997 458 11.559 5,299 2.09 - - - -
1996 566 14.467 8,189 2.05 - - - -
1995 516 14.109 7,278 2.06 - - - -
1994 647 13.979 9,050 2.08 - - - -
Real Estate Securities Fund
December 31,
1998 708 23.107 16,340 1.94 1 22.901 35 2.03
1997 942 28.169 26,532 1.94 - - - -
1996 859 23.668 20,335 1.97 - - - -
1995 794 18.073 14,344 1.99 - - - -
1994 900 15.594 14,035 2.02 - - - -
Rising Dividends Fund
December 31,
1998 3,176 21.165 67,223 2.12 17 21.034 346 2.21
1997 3,489 20.074 70,041 2.14 - - - -
1996 3,394 15.303 51,934 2.16 - - - -
1995 3,182 12.498 39,770 2.18 - - - -
1994 2,936 9.769 28,685 2.20 - - - -
Small Cap Fund
December 31,
1998 1,012 14.600 14,771 2.17 9 14.558 131 2.26
1997 938 14.952 14,022 2.17 - - - -
19961 416 12.913 5,369 2.17+ - - - -
</TABLE>
<PAGE>
5. UNIT VALUES (cont.)
<TABLE>
<CAPTION>
Valuemark II Valuemark IV
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation Ratio of Expenses Accumulation Ratio of Expenses
Units Outstanding Accumulation Net Assets to Average Units Outstanding Accumulation Net Assets to Average
(in thousands) Unit Value (in thousands) Net Assets* (in thousands) Unit Value (in thousands) Net Assets*
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Templeton Developing Markets Equity Fund
December 31,
1998 749 $ 7.993 $ 5,983 2.81% 5 $ 7.958 $ 45 2.90%
1997 1,160 10.340 11,992 2.82 - - - -
1996 1,042 11.487 11,970 2.89 - - - -
1995 757 9.582 7,254 2.81 - - - -
19944 591 9.454 5,589 2.93+ - - - -
Templeton Global Asset Allocation Fund
December 31,
1998 318 13.589 4,317 2.24 1 13.543 16 2.33
1997 424 13.786 5,850 2.34 - - - -
1996 300 12.514 3,759 2.26 - - - -
19955 36 10.591 379 2.30+ - - - -
Templeton Global Growth Fund
December 31,
1998 2,239 16.309 36,512 2.28 10 16.238 174 2.37
1997 2,594 15.176 39,364 2.28 - - - -
1996 2,146 13.560 29,103 2.33 - - - -
1995 1,416 11.339 16,061 2.37 - - - -
19944 922 10.201 9,400 2.54+ - - - -
Templeton Global Income Securities Fund
December 31,
1998 787 17.905 14,094 2.03 2 17.746 45 2.12
1997 1,072 16.957 18,177 2.02 - - - -
1996 1,354 16.781 22,719 2.01 - - - -
1995 1,472 15.522 22,851 2.04 - - - -
1994 1,667 13.726 22,888 2.11 - - - -
Templeton International Equity Fund
December 31,
1998 2,938 18.437 54,177 2.28 8 18.322 143 2.37
1997 4,063 17.711 71,965 2.29 - - - -
1996 4,375 16.081 70,362 2.29 - - - -
1995 4,073 13.263 54,018 2.32 - - - -
1994 4,079 12.161 49,607 2.39 - - - -
Templeton International Smaller Companies Fund
December 31,
1998 114 9.364 1,065 2.50 3 9.342 34 2.59
1997 173 10.825 1,875 2.46 - - - -
19961 65 11.145 722 2.18+ - - - -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
5. UNIT VALUES (cont.)
Valuemark II Valuemark IV
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation Ratio of Expenses Accumulation Ratio of Expenses
Units Outstanding Accumulation Net Assets to Average Units Outstanding Accumulation Net Assets to Average
(in thousands) Unit Value (in thousands) Net Assets* (in thousands) Unit Value (in thousands) Net Assets*
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Templeton Pacific Growth Fund
December 31,
1998 821 $ 8.078 $ 6,633 2.50% 6 $ 8.028 $ 46 2.59%
1997 1,251 9.431 11,793 2.43 - - - -
1996 1,751 14.932 26,148 2.39 - - - -
1995 1,812 13.630 24,693 2.41 - - - -
1994 2,112 12.802 27,037 2.47 - - - -
U.S. Government Securities Fund
December 31,
1998 3,787 19.014 71,990 1.90 28 18.847 535 1.99
1997 4,844 17.947 86,937 1.90 - - - -
1996 6,017 16.650 100,185 1.91 - - - -
1995 5,089 16.298 82,935 1.92 - - - -
1994 5,331 13.835 73,747 1.93 - - - -
Value Securities Fund
December 31,
19982 19 7.717 143 2.52+ 22 7.713 167 2.61+
Zero Coupon Fund - 2000
December 31,
1998 723 20.684 14,941 1.80 2 20.502 51 1.89
1997 1,087 19.512 21,204 1.80 - - - -
1996 1,358 18.475 25,085 1.80 - - - -
1995 1,416 18.294 25,910 1.80 - - - -
1994 1,158 15.373 17,797 1.80 - - - -
Zero Coupon Fund - 2005
December 31,
1998 349 25.003 8,739 1.80 2 24.786 50 1.89
1997 345 22.532 7,772 1.80 - - - -
1996 428 20.517 8,777 1.80 - - - -
1995 456 20.914 9,531 1.80 - - - -
1994 403 16.096 6,483 1.80 - - - -
Zero Coupon Fund - 2010
December 31,
1998 272 27.920 7,588 1.80 3 27.674 93 1.89
1997 292 24.740 7,220 1.80 - - - -
1996 348 21.522 7,492 1.80 - - - -
1995 371 22.431 8,329 1.80 - - - -
1994 252 15.930 4,008 1.80 - - - -
<FN>
*For the year ended December 31, including the effect of the expenses of the underlying funds.
+Annualized.
1Period from June 10, 1996 (fund commencement) to December 31, 1996.
2Period from August 17, 1998 (fund commencement) to December 31, 1998.
3Period from December 2, 1996 (fund commencement) to December 31, 1996.
4Period from April 25, 1994 (fund commencement) to December 31, 1994.
5Period from August 4, 1995 (fund commencement) to December 31, 1995.
</FN>
</TABLE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Financial Statements
December 31, 1998 and 1997
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Independent Auditors Report
The Board of Directors
Preferred Life Insurance Company of New York:
We have audited the accompanying balance sheets of Preferred Life Insurance
Company of New York as of December 31, 1998 and 1997, and the related statements
of income, comprehensive income, stockholder's equity and cash flows for each of
the years in the three-year period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Preferred Life Insurance
Company of New York as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
KPMGPeat Marwick LLF
Minneapolis, Minnesota
February 5, 1999
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Financial Statements
Balance Sheets
December 31, 1998 and 1997
(In thousands except share data)
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments:
Fixed maturities, at market $ 38,784 30,106
Equity securities, at market 1,752 0
Certificates of deposit and short-term securities 10,069 698
- ---------------------------------------------------------------------------------------------------------------------------
Total investments 50,605 30,804
Cash 6,135 5,321
Receivables 3,595 5,006
Reinsurance receivable:
Recoverable on future benefit reserves 156 166
Recoverable on unpaid claims 9,545 10,537
Receivable on paid claims 1,935 2,500
Deferred acquisition costs 33,387 37,447
Other assets 4,805 6,976
- ---------------------------------------------------------------------------------------------------------------------------
Assets, exclusive of separate account assets 110,163 98,757
Separate account assets 732,046 833,083
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $842,209 931,840
Liabilities and Stockholder's Equity
Liabilities:
Future benefit reserves:
Life $ 1,827 1,362
Annuity 7,716 634
Policy and contract claims 27,278 30,758
Unearned premiums 913 1,590
Other policyholder funds 3,551 1,230
Reinsurance payable 1,497 2,116
Deferred income taxes 9,977 10,173
Accrued expenses and other liabilities 3,894 3,111
Commissions due and accrued 622 930
Payable to parent 3,403 3,182
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities, exclusive of separate account liabilities 60,678 55,086
Separate account liabilities 732,046 833,083
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 792,724 888,169
Stockholder's equity:
Common stock, $10 par value; 200,000 shares authorized, issued and outstanding 2,000 2,000
Additional paid-in capital 15,500 15,500
Retained earnings 31,052 25,455
Accumulated other comprehensive income 933 716
- ---------------------------------------------------------------------------------------------------------------------------
Total stockholder's equity 49,485 43,671
Commitments and contingencies (notes 6, 11 and 12)
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity $842,209 931,840
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Financial Statements (continued)
Statements of Income
Years ended December 31, 1998, 1997 and 1996
(In thousands)
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Life insurance premiums $ 7,115 8,866 9,174
Annuity considerations 12,643 12,791 11,725
Accident and health premiums 21,148 22,114 22,105
- ---------------------------------------------------------------------------------------------------------------------------
Total premiums and considerations 40,906 43,771 43,004
Premiums ceded 11,427 12,939 11,574
- ---------------------------------------------------------------------------------------------------------------------------
Net premiums and considerations 29,479 30,832 31,430
Investment income, net 2,021 1,626 1,220
Realized investment gains (losses) 1,003 (1) (62)
Other income 62 93 0
- ---------------------------------------------------------------------------------------------------------------------------
Total revenue 32,565 32,550 32,588
Benefits and expenses:
Life insurance benefits 3,508 5,074 5,971
Annuity benefits 351 323 202
Accident and health insurance benefits 10,579 14,709 13,406
- ---------------------------------------------------------------------------------------------------------------------------
Total benefits 14,438 20,106 19,579
Benefit recoveries 5,770 9,200 6,614
- ---------------------------------------------------------------------------------------------------------------------------
Net benefits 8,668 10,906 12,965
Commissions and other agent compensation 7,091 8,295 8,596
General and administrative expenses 4,148 4,018 3,576
Taxes, licenses and fees 187 654 688
Change in deferred acquisition costs, net 4,060 798 341
- ---------------------------------------------------------------------------------------------------------------------------
Total benefits and expenses 24,154 24,671 26,166
Income from operations before income taxes 8,411 7,879 6,422
Income tax expense (benefit):
Current 3,126 1,573 435
Deferred (312) 1,029 2,396
- ---------------------------------------------------------------------------------------------------------------------------
Total income tax expense 2,814 2,602 2,831
Net income $ 5,597 5,277 3,591
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Financial Statements (continued)
Statements of Comprehensive
Income Years ended December 31, 1998, 1997 and 1996
(In thousands)
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $5,597 5,277 3,591
- ---------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss):
Unrealized gains (losses) on fixed maturities and equity securities:
Unrealized holding gains (losses) arising during the period net of tax of $468 in 1998,
$403 in 1997, and $(188) in 1996 869 749 (348)
Reclassification adjustment for realized (gains) losses included in net income, net of tax
of $351 in 1998, $0 in 1997, and $(22) in 1996 (652) 1 40
- ---------------------------------------------------------------------------------------------------------------------------
Total other comprehensive income (loss) 217 750 (308)
Total comprehensive income $5,814 6,027 3,283
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Financial Statements (continued)
Statements of Stockholder's Equity
Years ended December 31, 1998, 1997 and 1996
(In thousands)
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common stock:
Balance at beginning and end of year $ 2,000 2,000 2,000
- ---------------------------------------------------------------------------------------------------------------------------
Additional paid-in capital:
Balance at beginning and end of year 15,500 15,500 15,500
- ---------------------------------------------------------------------------------------------------------------------------
Retained earnings:
Balance at beginning of year 25,455 20,178 16,587
Net income 5,597 5,277 3,591
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of year 31,052 25,455 20,178
Accumulated other comprehensive income (loss):
Balance at beginning of year 716 (34) 274
Net unrealized gain (loss) during the year, net of deferred federal income taxes 217 750
(308)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of year 933 716 (34)
Total stockholder's equity $49,485 43,671 37,644
Statements of Cash Flows
Years ended December 31, 1998, 1997 and 1996
(In thousands)
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows provided by (used in) operating activities:
Net income $ 5,597 5,277 3,591
- ---------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Realized (gains) losses on investments (1,003) 1 62
Deferred federal income tax expense (312) 1,029 2,396
Interest credited to policyholder account balances 42 0 0
Change in:
Receivables and other assets 5,149 (4,283) 2,831
Deferred acquisition costs 4,060 798 341
Future benefit reserves 829 452 944
Policy and contract claims (3,480) 847 (353)
Unearned premiums (677) (297) (443)
Other policyholder funds 2,321 551 (12)
Reinsurance payable (619) (17) 881
Accrued expenses and other liabilities 783 649 (1,523)
Commissions due and accrued (308) 108 (2)
Due to parent 221 2,080 439
Depreciation and amortization (275) (110) (46)
- ---------------------------------------------------------------------------------------------------------------------------
Total adjustments 6,731 1,808 5,515
Net cash provided by operating activities 12,328 7,085 9,106
Cash flows provided by (used in) investing activities:
Purchase of fixed maturities (28,065) (8,680) (8,525)
Purchase of equity securities (2,105) 0 0
Sale of fixed maturities 20,414 81 2,654
Sale of equity securities 553 0 0
Other investments, net (8,987) 1,859 (1,492)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (18,190) (6,740) (7,363)
Cash flows provided by financing activities:
Policyholders' deposits to account balances 6,676 0 0
- ---------------------------------------------------------------------------------------------------------------------------
Net increase in cash 814 345 1,743
Cash at beginning of year 5,321 4,976 3,233
- ---------------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 6,135 5,321 4,976
</TABLE>
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements
(in thousands)
(1) Summary of Significant Accounting Policies
Preferred Life Insurance Company of New York (the Company) is a wholly owned
subsidiary of Allianz Life Insurance Company of North America (Allianz Life)
which, in turn, is a wholly-owned subsidiary of Allianz of America, Inc. (AZOA),
a majority-owned subsidiary of Allianz A.G. Holding, a Federal Republic of
Germany company.
The Company is a life insurance company licensed to sell group life and accident
and health policies and individual variable annuity contracts in six states and
the District of Columbia. Based on 1998 revenue and consideration volume, 19%,
43% and 38% of the Company's business is life, annuity and accident and health,
respectively. The Company's primary distribution channels are through strategic
alliances with third party marketing organizations. The Company has a
significant relationship with The Franklin Templeton Group and its broker/dealer
network for marketing its variable annuity products.
Following is a summary of the significant accounting policies reflected in the
accompanying financial statements.
Basis of Presentation
The financial statements have been prepared in accordance with generally
accepted accounting principles (GAAP) which vary in certain respects from
accounting rules prescribed or permitted by state insurance regulatory
authorities. Certain amounts as previously reported have been reclassified to be
consistent with the current year's presentation.
The preparation of financial statements in conformity with GAAP requires
management to make certain estimates and assumptions that affect reported assets
and liabilities including reporting or disclosure of contingent assets and
liabilities as of the balance sheet date and the reported amounts of revenues
and expenses during the reporting period.
Actual results could vary significantly from management's estimates.
Traditional Life, Group Life and Group Accident and Health Insurance
Premiums on traditional life and group life products are recognized as income
when due. Group accident and health premiums are recognized as earned on a pro
rata basis over the risk coverage periods. Benefits and expenses are matched
with earned premiums so that profits are recognized over the premium paying
periods of the contracts. This matching is accomplished by establishing
provisions for future policy benefits and policy and contract claims, and
deferring and amortizing related policy acquisition costs.
Variable Annuity Business
Variable annuity contracts do not have significant mortality or morbidity risks
and are accounted for in a manner consistent with interest bearing financial
instruments. Accordingly, premium receipts are reported as deposits to the
contractholder's account, while revenues consist of amounts assessed against
contractholders including surrender charges and earned administrative service
fees. Benefits consist of claims and benefits incurred in excess of the
contractholder's balance.
Deferred Acquisition Costs
Acquisition costs, consisting of commissions and other costs, which vary with
and are primarily related to production of new business, are deferred. For
variable annuity contracts, acquisition costs are amortized in relation to the
present value of expected gross profits from investment margins and expense
charges. Acquisition costs for group life and group accident and health products
are deferred and amortized over the lives of the policies in the same manner as
premiums are earned. Deferred acquisition costs amortized during 1998, 1997 and
1996 were $8,763, $10,147, and $6,541, respectively.
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements (continued)
(in thousands)
(1) Summary of Significant Accounting Policies (cont.)
Future Benefit Reserves
Future benefits on life insurance products are computed by net level premium
methods and the commissioners reserve valuation method based upon estimated
future investment yield and mortality, commensurate with the Company's
experience.
Future benefit reserves for variable annuity products are carried at accumulated
contract values. Any additional reserves for any death benefits that may exceed
the accumulated contract values are carried at an amount greater than or equal
to a one year term cost.
Policy and Contract Claims
Policy and contract claims represent an estimate of claims and claim adjustment
expenses that have been reported but not yet paid and incurred but not yet
reported as of December 31.
Investments
The Company has classified all of its fixed maturity and equity portfolio as
"available-for-sale" and, accordingly, the securities are carried at fair value.
Realized gains and losses are computed based on the specific identification
method.
Short term investments, which include certificate of deposits, are carried at
amortized cost which approximates market.
As of December 31, 1998 and 1997, investments with a carrying value of $1,711
and $1,645, respectively, were pledged to the New York Superintendent of
Insurance as required by statutory regulation.
The fair values of invested assets are deemed by management to approximate their
estimated market values. Changes in market conditions subsequent to December 31
may cause estimates of fair values to differ from the amounts presented herein.
Reinsurance
Insurance liabilities are reported before the effects of reinsurance. Amounts
paid or deemed to have been paid for claims covered by reinsurance contracts are
recorded as reinsurance receivables. Estimated reinsurance receivables are
recognized in a manner consistent with the liabilities related to the underlying
reinsured contracts.
Separate Accounts
Separate accounts represent funds for which investment income and investment
gains and losses accrue directly to the contractholders. Each account has
specific investment objectives and the assets are carried at market value. The
assets of each account are legally segregated and are not subject to claims
which arise out of any other business of the Company.
Fair values of separate account assets were determined using the market value of
the underlying investments held in segregated fund accounts. Fair values of
separate account liabilities were determined using the cash surrender values of
the contractholders' accounts.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the period that
includes the enactment date.
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements (continued)
(in thousands)
(1) Summary of Significant Accounting Policies (cont.)
Receivables
Receivable balances approximate estimated fair values. This is based on
pertinent information available to management as of year end including the
financial condition and credit worthiness of the parties underlying the
receivables. Changes in market conditions subsequent to year end may cause
estimates of fair values to differ from the amounts presented herein.
Accounting Changes
In 1998, the Company adopted SFAS No. 130, Reporting Comprehensive Income. A
Statement of Comprehensive Income is now included in these financial statements.
Accounting Pronouncements to be Adopted
In December 1997, the AICPA issued Statement of Position (SOP) 97-3, Accounting
by Insurance and Other Enterprises for Insurance-Related Assessments. The SOP
provides guidance for determining when to recognize a liability for guaranty
fund assessments, how to measure the liability and for determining when an asset
may be recognized for premium tax offset recoveries. The SOP is effective for
years beginning after December 15, 1998. The Company will adopt SOP 97-3 on
January 1, 1999. Adoption of this SOP is not expected to have a significant
impact on the financial statements.
Reclassifications
Certain 1997 balances have been reclassified to conform to the 1998
presentation.
(2) Investments
Investments at December 31, 1998 consist of:
<TABLE>
Amount
Amortized cost Estimated shown on
or cost fair value balance sheet
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities:
U.S. government $30,595 31,739 31,739
Foreign government 499 496 496
Corporate securities 5,227 5,263 5,263
Mortgage backed securities 957 972 972
Public utilities 304 314 314
- ---------------------------------------------------------------------------------------------------------------------------
Total fixed maturities $37,582 38,784 38,784
Equity securities:
Common stocks:
Banks, trusts and insurance companies 101 85 85
Industrial and miscellaneous 1,417 1,667 1,667
- ---------------------------------------------------------------------------------------------------------------------------
Total equity securities $ 1,518 1,752 1,752
Other investments:
Short-term securities 10,069 XXXXXXX 10,069
- ---------------------------------------------------------------------------------------------------------------------------
Total investments $49,169 XXXXXXX 50,605
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements (continued)
(in thousands)
(2) Investments (cont.)
At December 31, 1998 and 1997, the amortized cost, gross unrealized gains, gross
unrealized losses and estimated fair values of securities are as follows:
<TABLE>
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998:
U.S. government $30,595 1,378 234 31,739
Foreign government 499 0 3 496
Corporate securities 5,227 39 3 5,263
Mortgage backed securities 957 15 0 972
Public utilities 304 10 0 314
- ---------------------------------------------------------------------------------------------------------------------------
Total fixed maturities 37,582 1,442 240 38,784
Equity securities 1,518 337 103 1,752
- ---------------------------------------------------------------------------------------------------------------------------
Total $39,100 1,779 343 40,536
1997:
U.S. government $28,189 1,070 3 29,256
Mortgage backed securities 815 35 0 850
- ---------------------------------------------------------------------------------------------------------------------------
Total fixed maturities $29,004 $1,105 $ 3 $30,106
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The changes in unrealized gains on fixed maturities were $100, $1,155, and
$(475) for the years ended December 31, 1998, 1997 and 1996, respectively.
The change in unrealized gains from equity securities was $234 for the year
ended December 31, 1998.
The amortized cost and estimated fair value of fixed maturities at December 31,
1998, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
Amortized Estimated
cost fair value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Due after one year through five years: $16,796 16,731
Due after five years through ten years 11,132 11,444
Due after ten years 8,697 9,637
Mortgage backed securities 957 972
- ---------------------------------------------------------------------------------------------------------------------------
Totals $37,582 38,784
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales of investments in available-for-sale securities during 1998,
1997 and 1996 were $20,967, $81, and $2,654, respectively. Gross gains of
$1,080, $0, and $0 and gross losses of $77, $0, and $62 were realized on sales
of available-for-sale securities in 1998, 1997 and 1996, respectively.
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements (continued)
(in thousands)
(2) Investments (cont.)
<TABLE>
Major categories of net investment income for the respective years ended
December 31 are:
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest:
Fixed maturities $1,592 1,494 1,132
Short-term investments 393 168 98
Dividends:
Equity securities 12 0 0
Other 52 11 1
- ---------------------------------------------------------------------------------------------------------------------------
Total investment income 2,049 1,673 1,231
Investment expenses 28 47 11
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income $2,021 1,626 1,220
</TABLE>
(3) Summary Table of Fair Value Disclosures
<TABLE>
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets
Fixed maturities, at market
U.S. government $31,739 $31,739 $29,256 $29,256
Foreign government 496 496 0 0
Corporate securities 5,263 5,263 0 0
Mortgage backed securities 972 972 850 850
Public utilities 314 314 0 0
Equity securities 1,752 1,752 0 0
Certificates of deposit and other short term securities 10,069 10,069 698 698
Receivables 3,595 3,595 5,006 5,006
Separate accounts assets 732,046 732,046 833,083 833,083
Financial liabilities
Separate account liabilities 732,046 723,593 833,083 821,457
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Note (1) "Summary of Significant Accounting Policies" for description of the
methods and significant assumptions used to estimate fair values.
(4) Receivables
Receivables at December 31 consist of the following:
<TABLE>
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Premiums due $2,747 4,565
Reinsurance commission receivable 115 38
Other 733 403
- ---------------------------------------------------------------------------------------------------------------------------
Total receivables $3,595 5,006
</TABLE>
(5) Accident and Health Claims Reserves
Accident and health claims reserves are based on estimates which are subject to
uncertainty. Uncertainty regarding reserves of a given accident year is
gradually reduced as new information emerges each succeeding year, allowing more
reliable re-evaluations of such reserves. While management believes that
reserves as of December 31, are adequate, uncertainties in the reserving process
could cause such reserves to develop favorably or unfavorably in the near term
as new or additional information emerges. Any adjustments to reserves are
reflected in the operating results of the periods in which they are made.
Movements in reserves that are small relative to the amount of such reserves
could significantly impact future reported earnings of the Company.
Activity in the accident and health claims reserves, exclusive of hospital
indemnity and AIDS reserves of $838, $662, and $293 in 1998, 1997 and 1996,
respectively, is summarized as follows:
<TABLE>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, net of reinsurance recoverables of $7,643, $7,476 and $9,249 $17,804 $16,126 $15,096
Incurred related to:
Current year 11,203 11,440 11,372
Prior years (4,946) (3,199) (3,079)
- ---------------------------------------------------------------------------------------------------------------------------
Total incurred 6,257 8,241 8,293
Paid related to:
Current year 3,697 1,686 1,458
Prior years 4,714 4,877 5,805
- ---------------------------------------------------------------------------------------------------------------------------
Total paid 8,411 6,563 7,263
Balance at December 31, net of reinsurance recoverables of $6,540, $7,643 and $7,476 $15,650 $17,804 $16,126
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Due to lower than anticipated losses related to prior years, the provision for
prior year claims and claim adjustment expenses decreased. In 1998, the Company
experienced positive development in its HMO reinsurance business which further
decreased the provision for prior year claims.
(6) Reinsurance
In the normal course of business, the Company seeks to limit its exposure to
loss on any single insured and to recover a portion of benefits paid by ceding
risks under excess coverage and coinsurance contracts. The Company retains a
maximum of $50 coverage per individual life.
Reinsurance contracts do not relieve the Company from its obligations to
policyholders. Failure of reinsurers to honor their obligations could result in
losses to the Company. The Company evaluates the financial condition of its
reinsurers and monitors concentrations of credit risk to minimize its exposure
to significant losses from reinsurer insolvencies.
Included in reinsurance receivables at December 31, 1998 and 1997 are
recoverables on paid claims, unpaid claims and future benefit reserves from
Allianz Life of $3,043 and $2,850, respectively. A contingent liability exists
to the extent that Allianz Life or the Company's unaffiliated reinsurers are
unable to meet their contractual obligations under reinsurance contracts.
Management is of the opinion that no liability will accrue to the Company with
respect to this contingency.
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements (continued)
(in thousands)
(6) Reinsurance (cont.)
Life insurance, annuities and accident and health business assumed from and
ceded to other companies is as follows:
<TABLE>
Percentage
Assumed Ceded of amount
Direct from other to other Net assumed
Year ended amount companies companies amount to net
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
December 31, 1998:
Life insurance in force $ 856,149 0 277,168 578,981 0.0%
- ---------------------------------------------------------------------------------------------------------------------------
Premiums:
Life insurance 7,115 0 1,568 5,547 0.0%
Annuities 12,643 0 0 12,643 0.0%
Accident and health insurance 15,813 5,335 9,859 11,289 47.3%
- ---------------------------------------------------------------------------------------------------------------------------
Total Premiums 35,571 5,335 11,427 29,479 18.1%
December 31, 1997:
Life insurance in force $1,591,244 0 484,546 1,106,698 0.0%
- ---------------------------------------------------------------------------------------------------------------------------
Premiums:
Life insurance 8,866 0 2,450 6,416 0.0%
Annuities 12,791 0 0 12,791 0.0%
Accident and health insurance 14,823 7,291 10,489 11,625 62.7%
- ---------------------------------------------------------------------------------------------------------------------------
Total Premiums 36,480 7,291 12,939 30,832 23.6%
December 31, 1996:
Life insurance in force $1,700,286 0 647,863 1,052,423 0.0%
- ---------------------------------------------------------------------------------------------------------------------------
Premiums:
Life insurance 9,174 0 2,304 6,870 0.0%
Annuities 11,725 0 0 11,725 0.0%
Accident and health insurance 15,482 6,623 9,270 12,835 51.6%
- ---------------------------------------------------------------------------------------------------------------------------
Total Premiums 36,381 6,623 11,574 31,430 21.1%
- ---------------------------------------------------------------------------------------------------------------------------
Of the amounts assumed from and ceded to other companies, life and accident and
health insurance assumed from and ceded to Allianz Life is as follows:
Assumed Ceded
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Life insurance in force $ 0 0 0 1,992 2,032 2,432
- ---------------------------------------------------------------------------------------------------------------------------
Premiums:
Life insurance $ 0 0 0 10 44 36
Accident and health insurance 1,575 1,566 2,547 635 841 766
- ---------------------------------------------------------------------------------------------------------------------------
Total premiums $1,575 1,566 2,547 645 885 802
</TABLE>
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements (continued)
(in thousands)
(7) Income Taxes
Income Tax Expense
Total income tax expenses (benefits) for the years ended December 31 are as
follows:
<TABLE>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense attributable to operations:
Current tax expense $3,126 1,573 435
Deferred tax (benefit) expense (312) 1,029 2,396
- ---------------------------------------------------------------------------------------------------------------------------
Total income tax expense attributable to operations $2,814 2,602 2,831
Income tax effect on equity:
Attributable to unrealized gains and losses for the year 116 404 (166)
- ---------------------------------------------------------------------------------------------------------------------------
Total income tax effect on equity $2,930 3,006 2,665
Components of Income Tax Expense
Income tax expense computed at the statutory rate of 35% varies from tax expense
reported in the Statements of Income for the respective years ended December 31
as follows:
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Income tax expense computed at the statutory rate $2,943 2,758 2,248
Other (129) (156) 583
- ---------------------------------------------------------------------------------------------------------------------------
Income tax expense as reported $2,814 2,602 2,831
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Components of Deferred Tax Assets and Liabilities on the Balance Sheet
Tax effects of temporary differences giving rise to the significant components
of the net deferred tax liabilities at December 31, 1998 and 1997 are as
follows:
<TABLE>
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Future benefit reserves $ 1,821 2,675
- ---------------------------------------------------------------------------------------------------------------------------
Total deferred tax assets 1,821 2,675
Deferred tax liabilities:
Deferred acquisition costs 9,003 10,382
Unrealized gains on investments 502 385
Other 2,293 2,081
- ---------------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 11,798 12,848
Net deferred tax liability $ 9,977 10,173
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Although realization is not assured, the Company believes it is not necessary to
establish a valuation allowance for the deferred tax asset as it is more likely
than not the deferred tax asset will be realized principally through future
reversals of existing taxable temporary differences and future taxable income.
The amount of the deferred tax asset considered realizable, however, could be
reduced in the near term if estimates of future reversals of existing taxable
temporary differences and future taxable income are reduced.
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements (continued)
(in thousands)
(7) Income Taxes (cont.)
The Company files a consolidated federal income tax return with AZOA and all of
its wholly owned subsidiaries. The consolidated tax allocation agreement
stipulates that each company participating in the return will bear its share of
the tax liability pursuant to United States Treasury Department regulations. The
Company accrues income taxes payable to Allianz Life under AZOA intercompany tax
allocation agreements. The Company's liability for current taxes was $969 and
$2,077 as of December 31, 1998 and 1997, respectively, and is included in
payable to parent in the liability section of the accompanying balance sheet.
(8) Related Party Transactions
Allianz Life performs certain administrative services for the Company. The
Company reimbursed Allianz Life $1,729, $1,463, and $1,246 in 1998, 1997 and
1996, respectively, for related administrative expenses incurred. The Company's
liability to Allianz Life for incurred but unpaid service fees as of December
31, 1998 and 1997 was $356 and $569, respectively, and is included in payable to
parent in the liability section of the accompanying balance sheet.
AZOA's investment division manages the Company's investment portfolio. The
Company paid AZOA $18, $15, and $11 in 1998, 1997 and 1996, respectively, for
investment advisory fees. The Company had no incurred but unpaid fees to AZOA as
of December 31, 1998 and 1997.
(9) Employee Benefit Plans
The Company participates in the Allianz Primary Retirement Plan (Primary
Retirement Plan), a defined contribution plan. The Company makes contributions
to a money purchase pension plan on behalf of eligible participants. All
employees are eligible to participate in the Primary Retirement Plan after two
years of service. The contributions are based on a percentage of the
participant's salary with the participants being 100% vested upon eligibility.
It is the Company's policy to fund the plan costs as accrued. Total pension
contributions were $30, $37, and $29 in 1998, 1997 and 1996, respectively.
The Company participates in the Allianz Asset Accumulation Plan (Allianz Plan),
a defined contribution plan sponsored by AZOA. Under the Allianz Plan
provisions, the Company will match from 50% to 100% of eligible employees'
contributions up to a maximum of 6% of a participant's compensation. The total
Company match for 1998, 1997 and 1996 Plan participants was 75%, 90%, and 100%,
respectively. All employees are eligible to participate after one year of
service and are fully vested in the Company's matching contribution after three
years of service. The Allianz Plan will accept participants' pretax or after-tax
contributions up to 15% of the participant's compensation. It is the Company's
policy to fund the Allianz Plan costs as accrued. The Company accrued $18, $59,
and $41 in 1998, 1997 and 1996, respectively, toward planned contributions.
(10) Statutory Financial Data and Dividend Restrictions
Statutory accounting is directed toward insurer solvency and protection of
policyholders. Accordingly, certain items recorded in financial statements
prepared under GAAP are excluded or vary in determining statutory policyholders'
surplus and gain from operations. Currently, these items include, among others,
deferred acquisition costs, furniture and fixtures, accident and health premiums
receivable which are more than 90 days past due, deferred taxes and undeclared
dividends to policyholders. Additionally, future life and annuity policy benefit
reserves calculated for statutory accounting do not include provisions for
withdrawals.
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements (continued)
(in thousands)
<TABLE>
(10) Statutory Financial Data and Dividend Restrictions (cont.)
The differences between stockholder's equity and net income reported in
accordance with statutory accounting practices and the accompanying financial
statements for the years ended December 31 are as follows:
Stockholder's equity Net Income
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statutory basis $32,866 25,940 6,891 4,292 2,358
Adjustments:
Change in reserve basis (9,216) (10,494) 2,147 2,424 4,070
Deferred acquisition costs 33,387 37,447 (4,060) (798) (341)
Deferred taxes (9,977) (10,173) 312 (1,029) (2,396)
Nonadmitted assets 75 171 0 0 0
Interest maintenance reserve 569 (88) 657 (19) (99)
Asset valuation reserve 283 2 0 0 0
Liability for unauthorized reinsurers 239 225 0 0 0
Unrealized gains on investments 1,202 1,102 0 0 0
Other 57 (461) (350) 407 (1)
- ---------------------------------------------------------------------------------------------------------------------------
As reported in the accompanying financial statements $49,485 43,671 5,597 5,277 3,591
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company is required to meet minimum capital and surplus requirements. At
December 31, 1998 and 1997, the Company was in compliance with these
requirements. In accordance with New York Statutes, the Company may not pay a
stockholder dividend without prior approval by the Superintendent of Insurance.
The Company paid no dividends in 1998, 1997 and 1996.
Regulatory Risk Based Capital
An insurance enterprise's state of domicile imposes minimum risk-based capital
requirements that were developed by the National Association of Insurance
Commissioners (NAIC). The formulas for determining the amount of risk-based
capital specify various weighting factors that are applied to financial balances
or various levels of activity based on the perceived degree of risk. Regulatory
compliance is determined by a ratio of an enterprise's regulatory total adjusted
capital to its authorized control level risk-based capital, as defined by the
NAIC. Enterprises below specific triggerpoints or ratios are classified within
certain levels, each of which requires specified corrective action. The levels
and ratios are as follows:
<TABLE>
Ratio of total adjusted capital to
authorized control level risk-based
Regulatory Event Capital (less than or equal to)
- --------------------------------------------------------------------------------
<S> <C> <C>
Company action level 2 (or 2.5 with negative trends)
Regulatory action level 1.5
Authorized control level 1
Mandatory control level 0.7
</TABLE>
The Company's adjusted capital is in excess of the Company action level as of
December 31, 1998 and 1997.
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements (continued)
(in thousands)
(10) Statutory Financial Data and Dividend Restrictions (cont.)
Permitted Statutory Accounting Practices
The Company is required to file annual statements with insurance regulatory
authorities which are prepared on an accounting basis prescribed or permitted by
such authorities. Currently, prescribed statutory accounting practices include
state laws, regulations, and general administrative rules, as well as a variety
of publications of the NAIC. Permitted statutory accounting practices encompass
all accounting practices that are not prescribed; such practices differ from
state to state, may differ from company to company within a state, and may
change in the future. The Company does not currently use permitted statutory
accounting practices that have a significant impact on its statutory financial
statements. Furthermore, the NAIC has completed a project to codify statutory
accounting practices, the result of which will constitute the only source of
"prescribed" statutory accounting practices. Accordingly, that project, which is
currently in the process of state adoption, will change the definition of what
comprises prescribed versus permitted statutory accounting practices, and may
result in changes to existing accounting policies insurance enterprises use to
prepare their statutory financial statements.
(11) Commitments and Contingencies
The Company is subject to claims and lawsuits that arise in the ordinary course
of business. In the opinion of management, the ultimate resolution of such
litigation will not have a material adverse effect on the financial position of
the Company.
The Company is contingently liable for possible future assessments under
regulatory requirements pertaining to insolvencies and impairments of
unaffiliated insurance companies. Provision has been made for assessments
currently received and assessments anticipated for known insolvencies.
(12) Year 2000
The Company is expending significant resources to assure that its computer
systems are reprogrammed in time to effectively deal with transactions in the
year 2000 and beyond. Additional costs associated with this effort are not
expected to be material and will be expensed as incurred. This "Year 2000
Computer Problem" creates risk for the Company from unforeseen problems in its
own computer systems and from third parties with whom the Company deals on
financial transactions worldwide. Failures of the Company and/or third parties'
computer systems could have a material impact on the Company's ability to
conduct its business, and especially to process and account for the transfer of
funds electronically.
<PAGE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Notes to Financial Statements (continued)
(in thousands)
<TABLE>
(13) Supplementary Insurance Information
The following table summarizes certain financial information by line of business
for 1998, 1997 and 1996:
As of December 31 For the year ended December 31
- ---------------------------------------------------------------------------------------------------------------------------
Future Other Premium Benefits, Net change
Deferred benefits, policy revenue claims in
policy losses, claims and and other Net losses, and policy Other
acquisition claims and Unearned benefits contract investment settlement acquisition operating
costs loss expense premiums payable considerations income expenses costs (a)expenses
- ---------------------------------------------------------------------------------------------------------------------------
1998:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Life insurance $ 57 1,827 246 3,424 5,547 303 2,160 165 1,518
Annuities 33,206 7,716 0 827 12,643 243 351 3,899 6,047
Accident and
health insurance 124 0 667 23,027 11,289 1,475 6,157 (4) 3,861
- ---------------------------------------------------------------------------------------------------------------------------
$33,387 9,543 913 27,278 29,479 2,021 8,668 4,060 11,426
1997:
Life insurance $ 222 1,362 983 4,177 6,416 406 2,587 68 2,075
Annuities 37,105 634 0 471 12,791 0 323 750 8,023
Accident and
health insurance 120 0 607 26,109 11,625 1,220 7,996 (20) 2,869
- ---------------------------------------------------------------------------------------------------------------------------
$37,447 1,996 1,590 30,757 30,832 1,626 10,906 798 12,967
1996:
Life insurance $ 290 1,219 908 5,151 6,870 268 4,371 (27) 2,297
Annuities 37,855 325 0 864 11,725 0 202 265 7,069
Accident and
health insurance 100 0 979 23,895 12,835 952 8,392 103 3,494
- ---------------------------------------------------------------------------------------------------------------------------
$38,245 1,544 1,887 29,910 31,430 1,220 12,965 341 12,860
</TABLE>
(a) See note 1 for aggregate gross amortization.
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
a. Financial Statements
The following financial statements of the Company are included in Part
B hereof.
1. Independent Auditors' Report.
2. Balance Sheets as of December 31, 1998 and 1997.
3. Statements of Income for the years ended December 31, 1998, 1997
and 1996.
4. Statements of Stockholder's Equity for the years ended
December 31, 1998, 1997 and 1996.
5. Statements of Cash Flow for the years ended December 31, 1998,
1997 and 1996.
6. Notes to Financial Statements - December 31, 1998, 1997 and 1996.
The following financial statements of the Variable Account are
included in Part B hereof.
1. Independent Auditors' Report.
2. Statements of Assets and Liabilities as of December 31, 1998.
3. Statements of Operations for the year ended December 31, 1998.
4. Statements of Changes in Net Assets for the years ended
December 31, 1998 and 1997.
5. Notes to Financial Statements - December 31, 1998.
b. Exhibits
1. Resolution of Board of Directors of the Company authorizing the
establishment of the Variable Account (1)
2. Not Applicable
3. Principal Underwriter Agreement (2)
4. Individual Variable Annuity Contract (1)
4a. Waiver of Contingent Deferred Sales Charge Endorsement (1)
4b. Enhanced Death Benefit Endorsement (1)
5. Application for Individual Variable Annuity Contract (1)
6. (i) Copy of Articles of Incorporation of the Company (1)
(ii) Copy of the Bylaws of the Company (3)
7. Not Applicable
8. 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 N-4 filing (File Nos.
333-19699 and 811-05716) as electronically filed on January 13, 1997.
(2) Incorporated by reference to Registrant's Pre-Effective Amendment No. 1
to Form N-4 electronically filed on May 12, 1997.
(3) Incorporated by reference to Registrant's Pre-Effective Amendment No. 2
to Form N-4 electronically filed on May 29, 1997.
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The following are the Officers and Directors of the Company:
<TABLE>
<CAPTION>
<S> <C>
Name and Principal Positions and Offices
Business Address with Depositor
- ----------------- ------------------------------
<S> <C>
Lowell C. Anderson Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Ronald L. Wobbeking Chairman, Chief Executive Officer and Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Thomas G. Brown Director
One Liberty Plaza,
45th Floor
New York, NY 10006
Edward J. Bonach Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Thomas D. Barta Treasurer
1750 Hennepin Avenue
Minneapolis, MN 55403
Dennis Marion Director
500 Valley Road
Wayne, NJ 07470
Kenneth P. Schrapp Appointed Actuary
1750 Hennepin Avenue
Minneapolis, MN 55403
Robert S. James Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Eugene T. Wilkinson Director
14 Commerce Drive
Cranford, NJ 07016
Eugene Long Vice President of Operations
152 W. 57th Street and Director
18th Floor
New York, NY 10019
Thomas J. Lynch President and Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Reinhard W. Obermueller Director
560 Lexington Ave
New York, NY 10022
Stephen R. Herbert Director
900 Third Avenue
New York, NY 10022
Jack F. Rockett Director
140 East 95th Street, Ste 6A
New York, NY 10129
</TABLE>
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR
OR REGISTRANT
The Company organizational chart was filed as Exhibit 14 to Registrant's N-4
as filed on January 13, 1997 and is incorporated herein by reference.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of February 26, 1999 there were 91 qualified Contract Owners and 151
non-qualified Contract Owners with Contracts in the Separate Account.
ITEM 28. INDEMNIFICATION
The Bylaws of the Company provide that:
Each person (and the heirs, executors, and administrators of such person) made
or threatened to be made a party to any action, civil or criminal, by reason
of being or having been a Director, officer, or employee of the corporation
(or by reason of serving any other organization at the request of the
corporation) shall be indemnified to the extent permitted by the laws of the
State of New York, and in the manner prescribed therein.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted for directors and officers or controlling persons of the
Company pursuant to the foregoing, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
ITEM 29. PRINCIPAL UNDERWRITERS
a. NALAC Financial Plans, LLC is the principal underwriter for the
Contracts. It also is the principal underwriter for:
Allianz Life Variable Account A
Allianz Life Variable Account B
b. The following are the officers(managers) and directors(Board of
Governors) of NALAC Financial Plans LLC:
<TABLE>
<CAPTION>
Name & Principal Positions and Offices
Business Address with Underwriter
- ---------------------- ----------------------
<S> <C>
James P. Kelso Governor
1750 Hennepin Avenue
Minneapolis, MN 55403
Thomas B. Clifford Chief Manager and Governor
1750 Hennepin Avenue
Minneapolis, MN 55403
Michael T. Westermeyer Secretary and Governor
1750 Hennepin Avenue
Minneapolis, MN 55403
Michael J. Yates Treasurer
1750 Hennepin Avenue
Minneapolis, MN 55403
Edward J. Bonach Governor
1750 Hennepin Avenue
Minneapolis, MN 55403
Catherine L. Mielke Compliance Officer
1750 Hennepin Avenue
Minneapolis, MN 55403
</TABLE>
c. Not Applicable
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Thomas Clifford, whose address is 1750 Hennepin Avenue, Minneapolis,
Minnesota, maintains physical possession of the accounts, books or documents
of the Variable Account required to be maintained by Section 31(a) of the
Investment Company Act of 1940, as amended, and the rules promulgated
thereunder.
ITEM 31. MANAGEMENT SERVICES
Not Applicable
ITEM 32. UNDERTAKINGS
a. Registrant hereby undertakes to file a post-effective amendment to
this registration statement as frequently as is necessary to ensure that the
audited financial statements in the registration statement are never more than
sixteen (16) months old for so long as payment under the variable annuity
contracts may be accepted.
b. Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
postcard or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement of Additional
Information.
c. Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form promptly upon written or oral request.
d. Preferred Life Insurance Company of New York ("Company") hereby
represents that the fees and charges deducted under the Contract described in
the Prospectus, in the aggregate, are reasonable in relation to the services
rendered, the expenses to be incurred and the risks assumed by the Company.
REPRESENTATIONS
The Company hereby represents that it is relying upon a No-Action Letter
issued to the American Council of Life Insurance, dated November 28, 1988
(Commission ref. IP-6-88), and that the following provisions have been
complied with:
1. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration statement, including the
prospectus, used in connection with the offer of the contract;
2. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in connection with
the offer of the contract;
3. Instruct sales representatives who solicit participants to purchase
the contract specifically to bring the redemption restrictions imposed by
Section 403(b)(11) to the attention of the potential participants;
4. Obtain from each plan participant who purchases a Section 403(b)
annuity contract, prior to or at the time of such purchase, a signed statement
acknowledging the participant's understanding of (1) the restrictions on
redemption imposed by Section 403(b)(11), and (2) other investment
alternatives available under the employer's Section 403(b) arrangement to
which the participant may elect to transfer his contract value.
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, as amended, the Registrant certifies that it meets the requirements of
Securities Act Rule 485(b) for effectiveness of this Registrations Statement and
has caused this registration statement to be signed on its behalf in the City of
Minneapolis and State of Minnesota, on this 26th day of April, 1999.
<TABLE>
<CAPTION>
<S> <C>
PREFERRED LIFE VARIABLE
ACCOUNT C
(Registrant)
By: PREFERRED LIFE INSURANCE
COMPANY OF NEW YORK
(Depositor)
By: /s/ Michael T. Westermeyer
-------------------------
PREFERRED LIFE INSURANCE
COMPANY OF NEW YORK
(Depositor)
By: /s/ Michael T. Westermeyer
-------------------------
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
Signature and Title
<TABLE>
<CAPTION>
<S> <C> <C>
Lowell C. Anderson* Director
Lowell C. Anderson 4-26-99
Ronald L. Wobbeking* Chairman, Chief Executive
Ronald L. Wobbeking Officer and Director 4-26-99
Thomas D. Barta* Treasurer
Thomas D. Barta 4-26-99
Thomas G. Brown* Director
Thomas G. Brown 4-26-99
Edward J. Bonach* Director
Edward J. Bonach 4-26-99
Robert S. James* Director
Robert S. James 4-26-99
Thomas J. Lynch* President and Director
Thomas J. Lynch 4-26-99
Dennis Marion* Director
Dennis Marion 4-26-99
Eugene T. Wilkinson* Director
Eugene T. Wilkinson 4-26-99
Eugene Long* Director
Eugene Long 4-26-99
Reinhard W. Obermueller*Director
Reinhard W. Obermueller 4-26-99
Stephen R. Herbert* Director
Stephen R. Herbert 4-26-99
Jack F. Rockett* Director
Jack F. Rockett 4-26-99
</TABLE>
* By /S/ Michael T. Westermeyer
--------------------------
Attorney-in-Fact
Secretary and Director
EXHIBITS
TO
POST-EFFECTIVE AMENDMENT NO. 4
TO
FORM N-4
(FILE NOS. 333-19699 AND 811-05716)
PREFERRED LIFE VARIABLE ACCOUNT C
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
INDEX TO EXHIBITS
EXHIBIT PAGE
EX-99.B9 Opinion and Consent of Counsel
EX-99.B10 Independent Auditors' Consent
EX-99.B13 Calculation of Performance Information
Blazzard, Grodd & Hasenauer, P.C.
943 Post Road East
Westport, CT 06880
(203) 226-7866
April 19, 1999
Board of Directors
Preferred Life Insurance Company of New York
152 W 57th Street, 18th Floor
New York, NY 10019
Re: Opinion and Consent of Counsel
Preferred Life Variable Account C
Dear Sir or Madam:
You have requested our Opinion of Counsel in connection with the filing with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended, of a Registration Statement on Form N-4 for the Individual Deferred
Variable Annuity Contracts to be issued by Preferred Life Insurance Company of
New York and its separate account, Preferred Life Variable Account C.
We are of the following opinions:
1. Preferred Life Variable Account C is a unit investment trust as that term is
defined in Section 4(2) of the Investment Company Act of 1940 (the "Act"),
and is currently registered with the Securities and Exchange Commission,
pursuant to Section 8(a) of the Act.
2. Upon the acceptance of purchase payments made by a Contract Owner pursuant
to a Contract issued in accordance with the Prospectus contained in the
Registration Statement and upon compliance with applicable law, such a
Contract Owner will have a legally-issued, fully-paid, non-assessable
contractual interest under such Contract.
You may use this opinion letter, or copy hereof, as an exhibit to the
Registration Statement.
We consent to the reference to our Firm under the caption "Legal Opinions"
contained in the Statement of Additional Information which forms a part of the
Registration Statement.
Sincerely,
BLAZZARD, GRODD, & HASENAUER, P.C.
By: /s/ LYNN KORMAN STONE
- ----------------------------------
Lynn Korman Stone
KPMG Peat Marwick LLP
4200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
Independent Auditors' Consent
The Board of Directors of Preferred Life Insurance Company of New York
and Contract Owners of Preferred Life Variable Account C:
We consent to the use of our report, dated January 29, 1999, on the financial
statements of Preferred Life Variable Account C and our report dated February 5,
1999, on the financial statements of Preferred Life Insurance Company of New
York included herein and to the reference to our Firm under the heading
"EXPERTS".
KPMG Peat Marwick LLP
Minneapolis, Minnesota
April 23, 1999
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK IV
Preferred Life Variable Account C
Cumulative and Average Annual Total Return Calculations
Original Purchase as of December 31, 1997
Valuation Date as of December 31, 1998
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
<S> <C> <C> <C> <C> <C> <C>
Capital Growth
12-31-97 Purchase $1,000.00 $13.10996126 76.278 76.278 $1,000.00
12-31-98 Contract Fee (1.00) 15.53680530 (0.064) 76.214 1,184.11
12-31-98 Value before Surr Chg 15.53680530 0.000 76.214 1,184.11
12-31-98 Surrender (60.00) 15.53680530 (3.862) 72.352 1,124.11
Charge
Cumulative and Average Annual Total Returns
without/with charges 18.51% A 12.41% B
Growth and Income
12-31-97 Purchase $1,000.00 $24.35403985 41.061 41.061 $1,000.00
12-31-98 Contract Fee (1.00) 25.99287759 (0.038) 41.022 1,066.29
12-31-98 Value before Surr Chg 25.99287759 0.000 41.022 1,066.29
12-31-98 Surrender (60.00) 25.99287759 (2.308) 38.714 1,006.29
Charge
Cumulative and Average Annual Total Returns
without/with charges 6.73% A 0.63% B
High Income
12-31-97 Purchase $1,000.00 $21.14081079 47.302 47.302 $1,000.00
12-31-98 Contract Fee (1.00) 21.01959301 (0.048) 47.254 993.27
12-31-98 Value before Surr Chg 21.01959301 0.000 47.254 993.27
12-31-98 Surrender (60.00) 21.01959301 (2.854) 44.400 933.27
Charge
Cumulative and Average Annual Total Returns
without/with charges -0.57% A -6.67% B
Income Securities
12-31-97 Purchase $1,000.00 $24.86373833 40.219 40.219 $1,000.00
12-31-98 Contract Fee (1.00) 24.89795747 (0.040) 40.179 1,000.38
12-31-98 Value before Surr Chg 24.89795747 0.000 40.179 1,000.38
12-31-98 Surrender (60.00) 24.89795747 (2.410) 37.769 940.38
Charge
Cumulative and Average Annual Total Returns
without/with charges 0.14% A -5.96% B
Money Market
12-31-97 Purchase $1,000.00 $13.75569800 72.697 72.697 $1,000.00
12-31-98 Contract Fee (1.00) 14.25958767 (0.070) 72.627 1,035.63
12-31-98 Value before Surr Chg 14.25958767 0.000 72.627 1,035.63
12-31-98 Surrender (60.00) 14.25958767 (4.208) 68.419 975.63
Charge
Cumulative and Average Annual Total Returns
without/with charges 3.66% A -2.44% B
Mutual Discovery Securities
12-31-97 Purchase $1,000.00 $11.97090670 83.536 83.536 $1,000.00
12-31-98 Contract Fee (1.00) 11.20464895 (0.089) 83.447 934.99
12-31-98 Value before Surr Chg 11.20464895 0.000 83.447 934.99
12-31-98 Surrender (60.00) 11.20464895 (5.355) 78.092 874.99
Charge
Cumulative and Average Annual Total Returns
without/with charges -6.40% A -12.50% B
Mutual Shares Securities
12-31-97 Purchase $1,000.00 $11.98070033 83.468 83.468 $1,000.00
12-31-98 Contract Fee (1.00) 11.81402865 (0.085) 83.383 985.09
12-31-98 Value before Surr Chg 11.81402865 0.000 83.383 985.09
12-31-98 Surrender (60.00) 11.81402865 (5.079) 78.304 925.09
Charge
Cumulative and Average Annual Total Returns
without/with charges -1.39% A -7.49% B
Natural Resources Securities
12-31-97 Purchase $1,000.00 $11.46649607 87.211 87.211 $1,000.00
12-31-98 Contract Fee (1.00) 8.42970932 (0.119) 87.092 734.16
12-31-98 Value before Surr Chg 8.42970932 0.000 87.092 734.16
12-31-98 Surrender (60.00) 8.42970932 (7.118) 79.974 674.16
Charge
Cumulative and Average Annual Total Returns
without/with charges -26.48% A -32.58% B
Real Estate Securities
12-31-97 Purchase $1,000.00 $27.94367614 35.786 35.786 $1,000.00
12-31-98 Contract Fee (1.00) 22.90097471 (0.044) 35.743 818.54
12-31-98 Value before Surr Chg 22.90097471 0.000 35.743 818.54
12-31-98 Surrender (60.00) 22.90097471 (2.620) 33.123 758.54
Charge
Cumulative and Average Annual Total Returns
without/with charges -18.05% A -24.15% B
Rising Dividends
12-31-97 Purchase $1,000.00 $19.96761178 50.081 50.081 $1,000.00
12-31-98 Contract Fee (1.00) 21.03405907 (0.048) 50.034 1,052.41
12-31-98 Value before Surr Chg 21.03405907 0.000 50.034 1,052.41
12-31-98 Surrender (60.00) 21.03405907 (2.853) 47.181 992.41
Charge
Cumulative and Average Annual Total Returns
without/with charges 5.34% A -0.76% B
Small Cap
12-31-97 Purchase $1,000.00 $14.92280844 67.012 67.012 $1,000.00
12-31-98 Contract Fee (1.00) 14.55802199 (0.069) 66.943 974.56
12-31-98 Value before Surr Chg 14.55802199 0.000 66.943 974.56
12-31-98 Surrender (60.00) 14.55802199 (4.121) 62.821 914.56
Charge
Cumulative and Average Annual Total Returns
without/with charges -2.44% A -8.54% B
Templeton Developing Markets Equity
12-31-97 Purchase $1,000.00 $10.30480726 97.042 97.042 $1,000.00
12-31-98 Contract Fee (1.00) 7.95817952 (0.126) 96.916 771.28
12-31-98 Value before Surr Chg 7.95817952 0.000 96.916 771.28
12-31-98 Surrender (60.00) 7.95817952 (7.539) 89.377 711.28
Charge
Cumulative and Average Annual Total Returns
without/with charges -22.77% A -28.87% B
Templeton Global Asset Allocation
12-31-97 Purchase $1,000.00 $13.75214238 72.716 72.716 $1,000.00
12-31-98 Contract Fee (1.00) 13.54330315 (0.074) 72.642 983.81
12-31-98 Value before Surr Chg 13.54330315 0.000 72.642 983.81
12-31-98 Surrender (60.00) 13.54330315 (4.430) 68.212 923.81
Charge
Cumulative and Average Annual Total Returns
without/with charges -1.52% A -7.62% B
Templeton Global Growth
12-31-97 Purchase $1,000.00 $15.12444656 66.118 66.118 $1,000.00
12-31-98 Contract Fee (1.00) 16.23822650 (0.062) 66.057 1,072.64
12-31-98 Value before Surr Chg 16.23822650 0.000 66.057 1,072.64
12-31-98 Surrender (60.00) 16.23822650 (3.695) 62.362 1,012.64
Charge
Cumulative and Average Annual Total Returns
without/with charges 7.36% A 1.26% B
Templeton Global Income Securities
12-31-97 Purchase $1,000.00 $16.82084400 59.450 59.450 $1,000.00
12-31-98 Contract Fee (1.00) 17.74568378 (0.056) 59.394 1,053.98
12-31-98 Value before Surr Chg 17.74568378 0.000 59.394 1,053.98
12-31-98 Surrender (60.00) 17.74568378 (3.381) 56.013 993.98
Charge
Cumulative and Average Annual Total Returns
without/with charges 5.50% A -0.60% B
Templeton International Equity
12-31-97 Purchase $1,000.00 $17.61715343 56.763 56.763 $1,000.00
12-31-98 Contract Fee (1.00) 18.32204431 (0.055) 56.708 1,039.01
12-31-98 Value before Surr Chg 18.32204431 0.000 56.708 1,039.01
12-31-98 Surrender (60.00) 18.32204431 (3.275) 53.434 979.01
Charge
Cumulative and Average Annual Total Returns
without/with charges 4.00% A -2.10% B
Templeton International Smaller Companies
12-31-97 Purchase $1,000.00 $10.80891898 92.516 92.516 $1,000.00
12-31-98 Contract Fee (1.00) 9.34197461 (0.107) 92.409 863.28
12-31-98 Value before Surr Chg 9.34197461 0.000 92.409 863.28
12-31-98 Surrender (60.00) 9.34197461 (6.423) 85.987 803.28
Charge
Cumulative and Average Annual Total Returns
without/with charges -13.57% A -19.67% B
Templeton Pacific Growth
12-31-97 Purchase $1,000.00 $9.38089631 106.600 106.600 $1,000.00
12-31-98 Contract Fee (1.00) 8.02829857 (0.125) 106.475 854.81
12-31-98 Value before Surr Chg 8.02829857 0.000 106.475 854.81
12-31-98 Surrender (60.00) 8.02829857 (7.474) 99.001 794.81
Charge
Cumulative and Average Annual Total Returns
without/with charges -14.42% A -20.52% B
U.S. Government Securities
12-31-97 Purchase $1,000.00 $17.80492179 56.164 56.164 $1,000.00
12-31-98 Contract Fee (1.00) 18.84665157 (0.053) 56.111 1,057.51
12-31-98 Value before Surr Chg 18.84665157 0.000 56.111 1,057.51
12-31-98 Surrender (60.00) 18.84665157 (3.184) 52.928 997.51
Charge
Cumulative and Average Annual Total Returns
without/with charges 5.85% A -0.25% B
Global Utilities Securities
12-31-97 Purchase $1,000.00 $25.63546176 39.008 39.008 $1,000.00
12-31-98 Contract Fee (1.00) 28.08202457 (0.036) 38.973 1,094.44
12-31-98 Value before Surr Chg 28.08202457 0.000 38.973 1,094.44
12-31-98 Surrender (60.00) 28.08202457 (2.137) 36.836 1,034.44
Charge
Cumulative and Average Annual Total Returns
without/with charges 9.54% A 3.44% B
Zero Coupon - 2000
12-31-97 Purchase $1,000.00 $19.35767222 51.659 51.659 $1,000.00
12-31-98 Contract Fee (1.00) 20.50196174 (0.049) 51.610 1,058.11
12-31-98 Value before Surr Chg 20.50196174 0.000 51.610 1,058.11
12-31-98 Surrender (60.00) 20.50196174 (2.927) 48.684 998.11
Charge
Cumulative and Average Annual Total Returns
without/with charges 5.91% A -0.19% B
Zero Coupon - 2005
12-31-97 Purchase $1,000.00 $22.35667212 44.729 44.729 $1,000.00
12-31-98 Contract Fee (1.00) 24.78585655 (0.040) 44.689 1,107.66
12-31-98 Value before Surr Chg 24.78585655 0.000 44.689 1,107.66
12-31-98 Surrender (60.00) 24.78585655 (2.421) 42.268 1,047.66
Charge
Cumulative and Average Annual Total Returns
without/with charges 10.87% A 4.77% B
Zero Coupon - 2010
12-31-97 Purchase $1,000.00 $24.54360878 40.744 40.744 $1,000.00
12-31-98 Contract Fee (1.00) 27.67407049 (0.036) 40.708 1,126.55
12-31-98 Value before Surr Chg 27.67407049 0.000 40.708 1,126.55
12-31-98 Surrender (60.00) 27.67407049 (2.168) 38.540 1,066.55
Charge
Cumulative and Average Annual Total Returns
without/with charges 12.75% A 6.65% B
<FN>
A = (Unit Value as of December 31, 1998 - Unit Value at Purchase)/Unit Value at Purchase
B = (Accumulated Value as of December 31, 1998 - Accum. Value at Purch.)/Accum. Value at Purch.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK IV
Preferred Life Variable Account C
Cumulative and Average Annual Total Return Calculations
Original Purchase as of December 31, 1995
Valuation Date as of December 31, 1998
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
<S> <C> <C> <C> <C> <C> <C>
Growth and Income
12-31-95 Purchase $1,000.00 $17.20200155 58.133 58.133 $1,000.00
12-31-96 Contract Fee (1.00) 19.35081369 (0.052) 58.081 1,123.92
12-31-97 Contract Fee (1.00) 24.35403985 (0.041) 58.040 1,413.51
12-31-98 Contract Fee (1.00) 25.99287759 (0.038) 58.002 1,507.63
12-31-98 Value before Surr Chg 25.99287759 0.000 58.002 1,507.63
12-31-98 Surrender (51.00) 25.99287759 (1.962) 56.039 1,456.63
Charge
Cumulative Total Returns without/with chrgs 51.10% A 45.66% C
Avg. Annual Total Returns without/with chrgs. 14.75% B 13.36% D
High Income
12-31-95 Purchase $1,000.00 $17.14451419 58.328 58.328 $1,000.00
12-31-96 Contract Fee (1.00) 19.23682686 (0.052) 58.276 1,121.04
12-31-97 Contract Fee (1.00) 21.14081079 (0.047) 58.228 1,231.00
12-31-98 Contract Fee (1.00) 21.01959301 (0.048) 58.181 1,222.94
12-31-98 Value before Surr Chg 21.01959301 0.000 58.181 1,222.94
12-31-98 Surrender (51.00) 21.01959301 (2.426) 55.755 1,171.94
Charge
Cumulative Total Returns without/with chrgs. 22.60% A 17.19% C
Avg. Annual Total Returns without/with chrgs. 7.03% B 5.43% D
Income Securities
12-31-95 Purchase $1,000.00 $19.66228575 50.859 50.859 $1,000.00
12-31-96 Contract Fee (1.00) 21.55369456 (0.046) 50.812 1,095.19
12-31-97 Contract Fee (1.00) 24.86373833 (0.040) 50.772 1,262.39
12-31-98 Contract Fee (1.00) 24.89795747 (0.040) 50.732 1,263.12
12-31-98 Value before Surr Chg 24.89795747 0.000 50.732 1,263.12
12-31-98 Surrender (51.00) 24.89795747 (2.048) 48.684 1,212.12
Charge
Cumulative Total Returns without/with chrgs. 26.63% A 21.21% C
Avg. Annual Total Returns without/with chrgs. 8.19% B 6.62% D
Money Market
12-31-95 Purchase $1,000.00 $12.80529257 78.093 78.093 $1,000.00
12-31-96 Contract Fee (1.00) 13.26609762 (0.075) 78.017 1,034.99
12-31-97 Contract Fee (1.00) 13.75569800 (0.073) 77.945 1,072.18
12-31-98 Contract Fee (1.00) 14.25958767 (0.070) 77.875 1,110.46
12-31-98 Value before Surr Chg 14.25958767 0.000 77.875 1,110.46
12-31-98 Surrender (51.00) 14.25958767 (3.577) 74.298 1,059.46
Charge
Cumulative Total Returns without/with chrgs. 11.36% A 5.95% C
Avg. Annual Total Returns without/with chrgs. 3.65% B 1.94% D
Natural Resources Securities
12-31-95 Purchase $1,000.00 $14.02092182 71.322 71.322 $1,000.00
12-31-96 Contract Fee (1.00) 14.36439436 (0.070) 71.252 1,023.50
12-31-97 Contract Fee (1.00) 11.46649607 (0.087) 71.165 816.02
12-31-98 Contract Fee (1.00) 8.42970932 (0.119) 71.047 598.90
12-31-98 Value before Surr Chg 8.42970932 0.000 71.047 598.90
12-31-98 Surrender (51.00) 8.42970932 (6.050) 64.997 547.90
Charge
Cumulative Total Returns without/with chrgs. -39.88% A -45.21% C
Avg. Annual Total Returns without/with chrgs. -15.60% B -18.17% D
Real Estate Securities
12-31-95 Purchase $1,000.00 $17.96041830 55.678 55.678 $1,000.00
12-31-96 Contract Fee (1.00) 23.49916899 (0.043) 55.635 1,307.39
12-31-97 Contract Fee (1.00) 27.94367614 (0.036) 55.600 1,553.66
12-31-98 Contract Fee (1.00) 22.90097471 (0.044) 55.556 1,272.29
12-31-98 Value before Surr Chg 22.90097471 0.000 55.556 1,272.29
12-31-98 Surrender (51.00) 22.90097471 (2.227) 53.329 1,221.29
Charge
Cumulative Total Returns without/with chrgs. 27.51% A 22.13% C
Avg. Annual Total Returns without/with chrgs. 8.44% B 6.89% D
Rising Dividends
12-31-95 Purchase $1,000.00 $12.45442887 80.293 80.293 $1,000.00
12-31-96 Contract Fee (1.00) 15.23536682 (0.066) 80.227 1,222.29
12-31-97 Contract Fee (1.00) 19.96761178 (0.050) 80.177 1,600.94
12-31-98 Contract Fee (1.00) 21.03405907 (0.048) 80.129 1,685.45
12-31-98 Value before Surr Chg 21.03405907 0.000 80.129 1,685.45
12-31-98 Surrender (51.00) 21.03405907 (2.425) 77.705 1,634.45
Charge
Cumulative Total Returns without/with chrgs. 68.89% A 63.44% C
Avg. Annual Total Returns without/with chrgs. 19.09% B 17.79% D
Small Cap
12-31-95 Purchase $1,000.00 $10.14493678 98.571 98.571 $1,000.00
12-31-96 Contract Fee (1.00) 12.89918829 (0.078) 98.494 1,270.49
12-31-97 Contract Fee (1.00) 14.92280844 (0.067) 98.427 1,468.80
12-31-98 Contract Fee (1.00) 14.55802199 (0.069) 98.358 1,431.90
12-31-98 Value before Surr Chg 14.55802199 0.000 98.358 1,431.90
12-31-98 Surrender (51.00) 14.55802199 (3.503) 94.855 1,380.90
Charge
Cumulative Total Returns without/with chrgs. 43.50% A 38.09%
Average Annual Total Returns without/with chrgs 12.79% B 11.36%
Templeton Developing Markets Equity
12-31-95 Purchase $1,000.00 $9.56626187 104.534 104.534 $1,000.00
12-31-96 Contract Fee (1.00) 11.45833113 (0.087) 104.447 1,196.79
12-31-97 Contract Fee (1.00) 10.30480726 (0.097) 104.350 1,075.30
12-31-98 Contract Fee (1.00) 7.95817952 (0.126) 104.224 829.43
12-31-98 Value before Surr Chg 7.95817952 0.000 104.224 829.43
12-31-98 Surrender (51.00) 7.95817952 (6.409) 97.816 778.43
Charge
Cumulative Total Returns without/with chrgs. -16.81% A -22.16% C
Avg. Annual Total Returns without/with chrgs. -5.95% B -8.01% D
Templeton Global Asset Allocation
12-31-95 Purchase $1,000.00 $10.58454194 94.477 94.477 $1,000.00
12-31-96 Contract Fee (1.00) 12.49492743 (0.080) 94.397 1,179.49
12-31-97 Contract Fee (1.00) 13.75214238 (0.073) 94.325 1,297.17
12-31-98 Contract Fee (1.00) 13.54330315 (0.074) 94.251 1,276.47
12-31-98 Value before Surr Chg 13.54330315 0.000 94.251 1,276.47
12-31-98 Surrender (51.00) 13.54330315 (3.766) 90.485 1,225.47
Charge
Cumulative Total Returns without/with chrgs. 27.95% A 22.55% C
Avg. Annual Total Returns without/with chrgs. 8.56% B 7.01% D
Templeton Global Growth
12-31-95 Purchase $1,000.00 $11.32067650 88.334 88.334 $1,000.00
12-31-96 Contract Fee (1.00) 13.52541005 (0.074) 88.260 1,193.75
12-31-97 Contract Fee (1.00) 15.12444656 (0.066) 88.194 1,333.88
12-31-98 Contract Fee (1.00) 16.23822650 (0.062) 88.132 1,431.11
12-31-98 Value before Surr Chg 16.23822650 0.000 88.132 1,431.11
12-31-98 Surrender (51.00) 16.23822650 (3.141) 84.992 1,380.11
Charge
Cumulative Total Returns without/with chrgs. 43.44% A 38.01% C
Avg. Annual Total Returns without/with chrgs. 12.78% B 11.34% D
Templeton Global Income Securities
12-31-95 Purchase $1,000.00 $15.42592706 64.826 64.826 $1,000.00
12-31-96 Contract Fee (1.00) 16.66103106 (0.060) 64.766 1,079.07
12-31-97 Contract Fee (1.00) 16.82084400 (0.059) 64.706 1,088.42
12-31-98 Contract Fee (1.00) 17.74568378 (0.056) 64.650 1,147.26
12-31-98 Value before Surr Chg 17.74568378 0.000 64.650 1,147.26
12-31-98 Surrender (51.00) 17.74568378 (2.874) 61.776 1,096.26
Charge
Cumulative Total Returns without/with chrgs. 15.04% A 9.63% C
Avg. Annual Total Returns without/with chrgs. 4.78% B 3.11% D
Templeton International Equity
12-31-95 Purchase $1,000.00 $13.21605786 75.666 75.666 $1,000.00
12-31-96 Contract Fee (1.00) 16.01035857 (0.062) 75.603 1,210.43
12-31-97 Contract Fee (1.00) 17.61715343 (0.057) 75.546 1,330.91
12-31-98 Contract Fee (1.00) 18.32204431 (0.055) 75.492 1,383.16
12-31-98 Value before Surr Chg 18.32204431 0.000 75.492 1,383.16
12-31-98 Surrender (51.00) 18.32204431 (2.784) 72.708 1,332.16
Charge
Cumulative Total Returns without/with chrgs. 38.63% A 33.22% C
Avg. Annual Total Returns without/with chrgs. 11.50% B 10.03% D
Templeton Pacific Growth
12-31-95 Purchase $1,000.00 $13.58246157 73.624 73.624 $1,000.00
12-31-96 Contract Fee (1.00) 14.86560901 (0.067) 73.557 1,093.47
12-31-97 Contract Fee (1.00) 9.38089631 (0.107) 73.450 689.03
12-31-98 Contract Fee (1.00) 8.02829857 (0.125) 73.326 588.68
12-31-98 Value before Surr Chg 8.02829857 0.000 73.326 588.68
12-31-98 Surrender (51.00) 8.02829857 (6.353) 66.973 537.68
Charge
Cumulative Total Returns without/with chrgs. -40.89% A -46.23% C
Avg. Annual Total Returns without/with chrgs. -16.08% B -18.68% D
U.S. Government Securities
12-31-95 Purchase $1,000.00 $16.19773372 61.737 61.737 $1,000.00
12-31-96 Contract Fee (1.00) 16.53304452 (0.060) 61.677 1,019.70
12-31-97 Contract Fee (1.00) 17.80492179 (0.056) 61.620 1,097.15
12-31-98 Contract Fee (1.00) 18.84665157 (0.053) 61.567 1,160.34
12-31-98 Value before Surr Chg 18.84665157 0.000 61.567 1,160.34
12-31-98 Surrender (51.00) 18.84665157 (2.706) 58.861 1,109.34
Charge
Cumulative Total Returns without/with chrgs. 16.35% A 10.93% C
Avg. Annual Total Returns without/with chrgs. 5.18% B 3.52% D
Global Utilities Securities
12-31-95 Purchase $1,000.00 $19.44283491 51.433 51.433 $1,000.00
12-31-96 Contract Fee (1.00) 20.52658248 (0.049) 51.384 1,054.74
12-31-97 Contract Fee (1.00) 25.63546176 (0.039) 51.345 1,316.26
12-31-98 Contract Fee (1.00) 28.08202457 (0.036) 51.309 1,440.87
12-31-98 Value before Surr Chg 28.08202457 0.000 51.309 1,440.87
12-31-98 Surrender (51.00) 28.08202457 (1.816) 49.493 1,389.87
Charge
Cumulative Total Returns without/with chrgs. 44.43% A 38.99% C
Avg. Annual Total Returns without/with chrgs. 13.04% B 11.60% D
Zero Coupon - 2000
12-31-95 Purchase $1,000.00 $18.18141100 55.001 55.001 $1,000.00
12-31-96 Contract Fee (1.00) 18.34477774 (0.055) 54.947 1,007.99
12-31-97 Contract Fee (1.00) 19.35767222 (0.052) 54.895 1,062.64
12-31-98 Contract Fee (1.00) 20.50196174 (0.049) 54.846 1,124.46
12-31-98 Value before Surr Chg 20.50196174 0.000 54.846 1,124.46
12-31-98 Surrender (51.00) 20.50196174 (2.488) 52.359 1,073.46
Charge
Cumulative Total Returns without/with chrgs. 12.76% A 7.35% C
Avg. Annual Total Returns without/with chrgs. 4.09% B 2.39% D
Zero Coupon - 2005
12-31-95 Purchase $1,000.00 $20.78832859 48.104 48.104 $1,000.00
12-31-96 Contract Fee (1.00) 20.37523353 (0.049) 48.055 979.13
12-31-97 Contract Fee (1.00) 22.35667212 (0.045) 48.010 1,073.35
12-31-98 Contract Fee (1.00) 24.78585655 (0.040) 47.970 1,188.97
12-31-98 Value before Surr Chg 24.78585655 0.000 47.970 1,188.97
12-31-98 Surrender (51.00) 24.78585655 (2.058) 45.912 1,137.97
Charge
Cumulative Total Returns without/with chrgs. 19.23% A 13.80% C
Avg. Annual Total Returns without/with chrgs. 6.04% B 4.40% D
Zero Coupon - 2010
12-31-95 Purchase $1,000.00 $22.29375904 44.856 44.856 $1,000.00
12-31-96 Contract Fee (1.00) 21.37105221 (0.047) 44.809 957.61
12-31-97 Contract Fee (1.00) 24.54360878 (0.041) 44.768 1,098.77
12-31-98 Contract Fee (1.00) 27.67407049 (0.036) 44.732 1,237.91
12-31-98 Value before Surr Chg 27.67407049 0.000 44.732 1,237.91
12-31-98 Surrender (51.00) 27.67407049 (1.843) 42.889 1,186.91
Charge
Cumulative Total Returns without/with chrgs. 24.13% A 18.69% C
Avg. Annual Total Returns without/with chrgs. 7.47% B 5.88% D
<FN>
A = (Unit Value as of December 31, 1998 - Unit Value at Purchase)/Unit Value at Purchase
B = [(A+1)^(1/3 Years)]-1
C = (Accumulated Value as of December 31, 1998 - Accum. Value at Purch.)/Accum. Value at Purch.
D = [(C+1)^(1/3 Years)]-1
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK IV
Preferred Life Variable Account C
Cumulative and Average Annual Total Return Calculations
Original Purchase as of
Valuation Date as of
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
<S> <C> <C> <C> <C> <C> <C>
Growth and Income
12-31-93 Purchase $1,000.00 $13.61630571 73.441 73.441 $1,000.00
12-31-94 Contract Fee (1.00) 13.14423327 (0.076) 73.365 964.33
12-31-95 Contract Fee (1.00) 17.20200155 (0.058) 73.307 1,261.03
12-31-96 Contract Fee (1.00) 19.35081369 (0.052) 73.255 1,417.55
12-31-97 Contract Fee (1.00) 24.35403985 (0.041) 73.214 1,783.07
12-31-98 Contract Fee (1.00) 25.99287759 (0.038) 73.176 1,902.05
12-31-98 Value before Surr Chg 25.99287759 0.000 73.176 1,902.05
12-31-98 Surrender (34.00) 25.99287759 (1.308) 71.868 1,868.05
Charge
Cumulative Total Returns without/with chrgs. 90.90% A 86.81% C
Avg. Annual Total Returns without/with chrgs. 13.80% B 13.31% D
High Income
12-31-93 Purchase $1,000.00 $15.08792342 66.278 66.278 $1,000.00
12-31-94 Contract Fee (1.00) 14.52977464 (0.069) 66.209 962.01
12-31-95 Contract Fee (1.00) 17.14451419 (0.058) 66.151 1,134.13
12-31-96 Contract Fee (1.00) 19.23682686 (0.052) 66.099 1,271.54
12-31-97 Contract Fee (1.00) 21.14081079 (0.047) 66.052 1,396.39
12-31-98 Contract Fee (1.00) 21.01959301 (0.048) 66.004 1,387.38
12-31-98 Value before Surr Chg 21.01959301 0.000 66.004 1,387.38
12-31-98 Surrender (34.00) 21.01959301 (1.618) 64.387 1,353.38
Charge
Cumulative Total Returns without/with chrgs. 39.31% A 35.34% C
Avg. Annual Total Returns without/with chrgs. 6.86% B 6.24% D
Income Securities
12-31-93 Purchase $1,000.00 $17.65574049 56.639 56.639 $1,000.00
12-31-94 Contract Fee (1.00) 16.30439562 (0.061) 56.577 922.46
12-31-95 Contract Fee (1.00) 19.66228575 (0.051) 56.527 1,111.44
12-31-96 Contract Fee (1.00) 21.55369456 (0.046) 56.480 1,217.36
12-31-97 Contract Fee (1.00) 24.86373833 (0.040) 56.440 1,403.31
12-31-98 Contract Fee (1.00) 24.89795747 (0.040) 56.400 1,404.24
12-31-98 Value before Surr Chg 24.89795747 0.000 56.400 1,404.24
12-31-98 Surrender (34.00) 24.89795747 (1.366) 55.034 1,370.24
Charge
Cumulative Total Returns without/with chrgs. 41.02% A 37.02% C
Avg. Annual Total Returns without/with chrgs. 7.12% B 6.50% D
chrgs.
Money Market
12-31-93 Purchase $1,000.00 $12.01410752 83.235 83.235 $1,000.00
12-31-94 Contract Fee (1.00) 12.29002320 (0.081) 83.154 1,021.97
12-31-95 Contract Fee (1.00) 12.80529257 (0.078) 83.076 1,063.81
12-31-96 Contract Fee (1.00) 13.26609762 (0.075) 83.001 1,101.09
12-31-97 Contract Fee (1.00) 13.75569800 (0.073) 82.928 1,140.73
12-31-98 Contract Fee (1.00) 14.25958767 (0.070) 82.858 1,181.52
12-31-98 Value before Surr Chg 14.25958767 0.000 82.858 1,181.52
12-31-98 Surrender (34.00) 14.25958767 (2.384) 80.473 1,147.52
Charge
Cumulative Total Returns without/with chrgs. 18.69% A 14.75% C
Avg. Annual Total Returns without/with chrgs. 3.49% B 2.79% D
Natural Resources Securities
12-31-93 Purchase $1,000.00 $14.39941891 69.447 69.447 $1,000.00
12-31-94 Contract Fee (1.00) 13.90432727 (0.072) 69.375 964.62
12-31-95 Contract Fee (1.00) 14.02092182 (0.071) 69.304 971.71
12-31-96 Contract Fee (1.00) 14.36439436 (0.070) 69.234 994.51
12-31-97 Contract Fee (1.00) 11.46649607 (0.087) 69.147 792.88
12-31-98 Contract Fee (1.00) 8.42970932 (0.119) 69.029 581.89
12-31-98 Value before Surr Chg 8.42970932 0.000 69.029 581.89
12-31-98 Surrender (34.00) 8.42970932 (4.033) 64.995 547.89
Charge
Cumulative Total Returns without/with chrgs. -41.46% A -45.21% C
Avg. Annual Total Returns without/with chrgs. -10.16% B -11.34% D
Real Estate Securities
12-31-93 Purchase $1,000.00 $15.30083761 65.356 65.356 $1,000.00
12-31-94 Contract Fee (1.00) 15.51100005 (0.064) 65.291 1,012.74
12-31-95 Contract Fee (1.00) 17.96041830 (0.056) 65.236 1,171.66
12-31-96 Contract Fee (1.00) 23.49916899 (0.043) 65.193 1,531.99
12-31-97 Contract Fee (1.00) 27.94367614 (0.036) 65.157 1,820.74
12-31-98 Contract Fee (1.00) 22.90097471 (0.044) 65.114 1,491.17
12-31-98 Value before Surr Chg 22.90097471 0.000 65.114 1,491.17
12-31-98 Surrender (34.00) 22.90097471 (1.485) 63.629 1,457.17
Charge
Cumulative Total Returns without/with chrgs. 49.67% A 45.72% C
Avg. Annual Total Returns without/with chrgs. 8.40% B 7.82% D
Rising Dividends
12-31-93 Purchase $1,000.00 $10.30939159 96.999 96.999 $1,000.00
12-31-94 Contract Fee (1.00) 9.74313966 (0.103) 96.896 $944.07
12-31-95 Contract Fee (1.00) 12.45442887 (0.080) 96.816 $1,205.79
12-31-96 Contract Fee (1.00) 15.23536682 (0.066) 96.750 1,474.03
12-31-97 Contract Fee (1.00) 19.96761178 (0.050) 96.700 1,930.87
12-31-98 Contract Fee (1.00) 21.03405907 (0.048) 96.653 2,033.00
12-31-98 Value before Surr Chg 21.03405907 0.000 96.653 2,033.00
12-31-98 Surrender (34.00) 21.03405907 (1.616) 95.036 1,999.00
Charge
Cumulative Total Returns without/with chrgs. 104.03% A 99.90% C
Avg. Annual Total Rtns. without/with chrgs. 15.33% B 14.86% D
Templeton Global Income Securities
12-31-93 Purchase $1,000.00 $14.58489254 68.564 68.564 $1,000.00
12-31-94 Contract Fee (1.00) 13.65317533 (0.073) 68.491 935.12
12-31-95 Contract Fee (1.00) 15.42592706 (0.065) 68.426 1,055.53
12-31-96 Contract Fee (1.00) 16.66103106 (0.060) 68.366 1,139.05
12-31-97 Contract Fee (1.00) 16.82084400 (0.059) 68.307 1,148.97
12-31-98 Contract Fee (1.00) 17.74568378 (0.056) 68.250 1,211.15
12-31-98 Value before Surr Chg 17.74568378 0.000 68.250 1,211.15
12-31-98 Surrender (34.00) 17.74568378 (1.916) 66.334 1,177.15
Charge
Cumulative Total Returns without/with chrgs. 21.67% A 17.71% C
Avg. Annual Total Returns without/with chrgs. 4.00% B 3.32% D
Templeton International Equity
12-31-93 Purchase $1,000.00 $12.20456639 81.937 81.937 $1,000.00
12-31-94 Contract Fee (1.00) 12.12945216 (0.082) 81.854 992.85
12-31-95 Contract Fee (1.00) 13.21605786 (0.076) 81.778 1,080.79
12-31-96 Contract Fee (1.00) 16.01035857 (0.062) 81.716 1,308.30
12-31-97 Contract Fee (1.00) 17.61715343 (0.057) 81.659 1,438.60
12-31-98 Contract Fee (1.00) 18.32204431 (0.055) 81.605 1,495.16
12-31-98 Value before Surr Chg 18.32204431 0.000 81.605 1,495.16
12-31-98 Surrender (34.00) 18.32204431 (1.856) 79.749 1,461.16
Charge
Cumulative Total Returns without/with chrgs. 50.12% A 46.12% C
Avg. Annual Total Rtns. without/with chrgs. 8.47% B 7.88% D
Templeton Pacific Growth
12-31-93 Purchase $1,000.00 $14.20875721 70.379 70.379 $1,000.00
12-31-94 Contract Fee (1.00) 12.76818771 (0.078) 70.301 897.61
12-31-95 Contract Fee (1.00) 13.58246157 (0.074) 70.227 953.86
12-31-96 Contract Fee (1.00) 14.86560901 (0.067) 70.160 1,042.97
12-31-97 Contract Fee (1.00) 9.38089631 (0.107) 70.053 657.16
12-31-98 Contract Fee (1.00) 8.02829857 (0.125) 69.929 561.41
12-31-98 Value before Surr Chg 8.02829857 0.000 69.929 561.41
12-31-98 Surrender (34.00) 8.02829857 (4.235) 65.694 527.41
Charge
Cumulative Total Returns without/with chrgs. -43.50% A -47.26% C
Avg. Annual Total Rtns. without/with chrgs. -10.79% B -12.01% D
U.S. Government Securities
12-31-93 Purchase $1,000.00 $14.63435517 68.332 68.332 $1,000.00
12-31-94 Contract Fee (1.00) 13.76239537 (0.073) 68.260 939.42
12-31-95 Contract Fee (1.00) 16.19773372 (0.062) 68.198 1,104.65
12-31-96 Contract Fee (1.00) 16.53304452 (0.060) 68.137 1,126.52
12-31-97 Contract Fee (1.00) 17.80492179 (0.056) 68.081 1,212.18
12-31-98 Contract Fee (1.00) 18.84665157 (0.053) 68.028 1,282.10
12-31-98 Value before Surr Chg 18.84665157 0.000 68.028 1,282.10
12-31-98 Surrender (34.00) 18.84665157 (1.804) 66.224 1,248.10
Charge
Cumulative Total Returns without/with chrgs. 28.78% A 24.81% C
Avg. Annual Total Returns without/with chrgs. 5.19% B 4.53% D
Global Utilties Securities
12-31-93 Purchase $1,000.00 $17.24200577 57.998 57.998 $1,000.00
12-31-94 Contract Fee (1.00) 15.02348951 (0.067) 57.931 870.33
12-31-95 Contract Fee (1.00) 19.44283491 (0.051) 57.880 1,125.35
12-31-96 Contract Fee (1.00) 20.52658248 (0.049) 57.831 1,187.08
12-31-97 Contract Fee (1.00) 25.63546176 (0.039) 57.792 1,481.53
12-31-98 Contract Fee (1.00) 28.08202457 (0.036) 57.757 1,621.92
12-31-98 Value before Surr Chg 28.08202457 0.000 57.757 1,621.92
12-31-98 Surrender (34.00) 28.08202457 (1.211) 56.546 1,587.92
Charge
Cumulative Total Returns without/with chrgs. 62.87% A 58.79% C
Avg. Annual Total Returns without/with chrgs. 10.25% B 9.69% D
chrgs.
Zero Coupon - 2000
12-31-93 Purchase $1,000.00 $16.64474050 60.079 60.079 $1,000.00
12-31-94 Contract Fee (1.00) 15.29260574 (0.065) 60.014 917.77
12-31-95 Contract Fee (1.00) 18.18141100 (0.055) 59.959 1,090.13
12-31-96 Contract Fee (1.00) 18.34477774 (0.055) 59.904 1,098.93
12-31-97 Contract Fee (1.00) 19.35767222 (0.052) 59.852 1,158.60
12-31-98 Contract Fee (1.00) 20.50196174 (0.049) 59.804 1,226.09
12-31-98 Value before Surr Chg 20.50196174 0.000 59.804 1,226.09
12-31-98 Surrender (34.00) 20.50196174 (1.658) 58.145 1,192.09
Charge
Cumulative Total Returns without/with chrgs. 23.17% A 19.21% C
Avg. Annual Total Returns without/with chrgs. 4.26% B 3.58% D
Zero Coupon - 2005
12-31-93 Purchase $1,000.00 $17.97404729 55.636 55.636 $1,000.00
12-31-94 Contract Fee (1.00) 16.01393970 (0.062) 55.573 889.95
12-31-95 Contract Fee (1.00) 20.78832859 (0.048) 55.525 1,154.28
12-31-96 Contract Fee (1.00) 20.37523353 (0.049) 55.476 1,130.34
12-31-97 Contract Fee (1.00) 22.35667212 (0.045) 55.431 1,239.26
12-31-98 Contract Fee (1.00) 24.78585655 (0.040) 55.391 1,372.92
12-31-98 Value before Surr Chg 24.78585655 0.000 55.391 1,372.92
12-31-98 Surrender (34.00) 24.78585655 (1.372) 54.019 1,338.92
Charge
Cumulative Total Returns without/with chrgs. 37.90% A 33.89% C
Avg. Annual Total Returns without/with chrgs. 6.64% B 6.01% D
Zero Coupon - 2010
12-31-93 Purchase $1,000.00 $18.06559695 55.354 55.354 $1,000.00
12-31-94 Contract Fee (1.00) 15.84633119 (0.063) 55.291 876.16
12-31-95 Contract Fee (1.00) 22.29375904 (0.045) 55.246 1,231.64
12-31-96 Contract Fee (1.00) 21.37105221 (0.047) 55.199 1,179.66
12-31-97 Contract Fee (1.00) 24.54360878 (0.041) 55.158 1,353.78
12-31-98 Contract Fee (1.00) 27.67407049 (0.036) 55.122 1,525.46
12-31-98 Value before Surr Chg 27.67407049 0.000 55.122 1,525.46
12-31-98 Surrender (34.00) 27.67407049 (1.229) 53.894 1,491.46
Charge
Cumulative Total Returns without/with chrgs. 53.19% A 49.15% C
Avg. Annual Total Returns without/with chrgs. 8.90% B 8.32% D
<FN>
A = (Unit Value as of - Unit Value at Purchase)/Unit Value at Purchase
B = [(A+1)^(1/5 Years)]-1
C = (Accumulated Value as of - Accum. Value at Purch.)/Accum. Value at Purch.
D = [(C+1)^(1/5 Years)]-1
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK IV
Preferred Life Variable Account C
Calendar Year Total Return Calculations
Original Purchase as of Calender Year
Valuation Date as of December 31, 1998
Dollar Units This Accum. Accum. Annual
Date Transaction Amount Unit Value Trans. Units Value Return
<S> <C> <C> <C> <C> <C> <C> <C>
Capital Growth
12-31-96 Value $1,000.00 $11.24740541 88.909 88.909 $1,000.00
12-31-97 (1.00) 13.10996126 (0.076) 88.833 1,164.60 16.46%
12-31-98 (1.00) 15.53680530 (0.064) 76.214 1,184.11 18.41%
Growth and Income
12-31-89 Value $1,000.00 $10.17117733 98.317 98.317 $1,000.00
12-31-90 (1.00) 9.78568211 (0.102) 98.215 961.10 -3.89%
12-31-91 (1.00) 11.91776810 (0.084) 102.106 1,216.88 21.69%
12-31-92 (1.00) 12.52913900 (0.080) 83.829 1,050.30 5.03%
12-31-93 (1.00) 13.61630571 (0.073) 79.741 1,085.77 8.58%
12-31-94 (1.00) 13.14423327 (0.076) 73.365 964.33 -3.57%
12-31-95 (1.00) 17.20200155 (0.058) 76.021 1,307.71 30.77%
12-31-96 (1.00) 19.35081369 (0.052) 58.081 1,123.92 12.39%
12-31-97 (1.00) 24.35403985 (0.041) 51.636 1,257.55 25.76%
12-31-98 (1.00) 25.99287759 (0.038) 41.022 1,066.29 6.63%
High Income
12-31-89 Value $1,000.00 $10.01302492 99.870 99.870 $1,000.00
12-31-90 (1.00) 9.00999996 (0.111) 99.759 898.83 -10.12%
12-31-91 (1.00) 11.55232338 (0.087) 110.901 1,281.17 28.12%
12-31-92 (1.00) 13.23092335 (0.076) 86.487 1,144.30 14.43%
12-31-93 (1.00) 15.08792342 (0.066) 75.514 1,139.35 13.94%
12-31-94 (1.00) 14.52977464 (0.069) 66.209 962.01 -3.80%
12-31-95 (1.00) 17.14451419 (0.058) 68.766 1,178.96 17.90%
12-31-96 (1.00) 19.23682686 (0.052) 58.276 1,121.04 12.10%
12-31-97 (1.00) 21.14081079 (0.047) 51.936 1,097.98 9.80%
12-31-98 (1.00) 21.01959301 (0.048) 47.254 993.27 -0.67%
Income Securities
12-31-89 Value $1,000.00 $10.77413342 92.815 92.815 $1,000.00
12-31-90 (1.00) 9.82507230 (0.102) 92.713 910.91 -8.91%
12-31-91 (1.00) 13.54447496 (0.074) 101.707 1,377.56 37.76%
12-31-92 (1.00) 15.10888772 (0.066) 73.765 1,114.50 11.45%
12-31-93 (1.00) 17.65574049 (0.057) 66.130 1,167.57 16.76%
12-31-94 (1.00) 16.30439562 (0.061) 56.577 922.46 -7.75%
12-31-95 (1.00) 19.66228575 (0.051) 61.282 1,204.95 20.49%
12-31-96 (1.00) 21.55369456 (0.046) 50.812 1,095.19 9.52%
12-31-97 (1.00) 24.86373833 (0.040) 46.356 1,152.57 15.26%
12-31-98 (1.00) 24.89795747 (0.040) 40.179 1,000.38 0.04%
Money Market
12-31-89 Value $1,000.00 $10.62941159 94.079 94.079 $1,000.00
12-31-90 (1.00) 11.27022305 (0.089) 93.990 1,059.29 5.93%
12-31-91 (1.00) 11.71257195 (0.085) 88.644 1,038.25 3.82%
12-31-92 (1.00) 11.89167887 (0.084) 85.294 1,014.29 1.43%
12-31-93 (1.00) 12.01410752 (0.083) 84.009 1,009.30 0.93%
12-31-94 (1.00) 12.29002320 (0.081) 83.154 1,021.97 2.20%
12-31-95 (1.00) 12.80529257 (0.078) 81.289 1,040.93 4.09%
12-31-96 (1.00) 13.26609762 (0.075) 78.017 1,034.99 3.50%
12-31-97 (1.00) 13.75569800 (0.073) 75.307 1,035.91 3.59%
12-31-98 (1.00) 14.25958767 (0.070) 72.627 1,035.63 3.56%
Mutual Discovery Securities
12-31-96 Value $1,000.00 10.17920124 98.240 98.240 $1,000.00
12-31-97 (1.00) 11.97090670 (0.084) 98.156 1,175.02 17.50%
12-31-98 (1.00) 11.20464895 (0.089) 83.447 934.99 -6.50%
Mutual Shares Securities
12-31-96 Value $1,000.00 $10.32889538 96.816 96.816 $1,000.00
12-31-97 (1.00) 11.98070033 (0.083) 96.732 1,158.92 15.89%
12-31-98 (1.00) 11.81402865 (0.085) 83.383 985.09 -1.49%
Natural Resources Securities
12-31-89 Value $1,000.00 $12.23704328 81.719 81.719 $1,000.00
12-31-90 (1.00) 10.36932488 (0.096) 81.623 846.37 -15.36%
12-31-91 (1.00) 10.60671167 (0.094) 96.344 1,021.89 2.19%
12-31-92 (1.00) 9.39103298 (0.106) 94.173 884.39 -11.56%
12-31-93 (1.00) 14.39941891 (0.069) 106.415 1,532.32 53.23%
12-31-94 (1.00) 13.90432727 (0.072) 69.375 964.62 -3.54%
12-31-95 (1.00) 14.02092182 (0.071) 71.849 1,007.39 0.74%
12-31-96 (1.00) 14.36439436 (0.070) 71.252 1,023.50 2.35%
12-31-97 (1.00) 11.46649607 (0.087) 69.529 797.26 -20.27%
12-31-98 (1.00) 8.42970932 (0.119) 87.092 734.16 -26.58%
Real Estate Securities
12-31-89 Value $1,000.00 $10.35898333 96.535 96.535 $1,000.00
12-31-90 (1.00) 8.98392795 (0.111) 96.423 866.26 -13.37%
12-31-91 (1.00) 11.81685548 (0.085) 111.225 1,314.33 31.43%
12-31-92 (1.00) 13.04914908 (0.077) 84.548 1,103.28 10.33%
12-31-93 (1.00) 15.30083761 (0.065) 76.568 1,171.55 17.16%
12-31-94 (1.00) 15.51100005 (0.064) 65.291 1,012.74 1.27%
12-31-95 (1.00) 17.96041830 (0.056) 64.415 1,156.91 15.69%
12-31-96 (1.00) 23.49916899 (0.043) 55.635 1,307.39 30.74%
12-31-97 (1.00) 27.94367614 (0.036) 42.519 1,188.13 18.81%
12-31-98 (1.00) 22.90097471 (0.044) 35.743 818.54 -18.15%
Rising Dividends
12-31-92 Value $1,000.00 $10.83875667 92.262 92.262 $1,000.00
12-31-93 (1.00) 10.30939159 (0.097) 92.165 950.16 -4.98%
12-31-94 (1.00) 9.74313966 (0.103) 96.896 944.07 -5.59%
12-31-95 (1.00) 12.45442887 (0.080) 102.556 1,277.28 27.73%
12-31-96 (1.00) 15.23536682 (0.066) 80.227 1,222.29 22.23%
12-31-97 (1.00) 19.96761178 (0.050) 65.587 1,309.61 30.96%
12-31-98 (1.00) 21.03405907 (0.048) 50.034 1,052.41 5.24%
Small Cap
12-31-95 Value $1,000.00 $10.14493678 98.571 98.571 $1,000.00
12-31-96 (1.00) 12.89918829 (0.078) 98.494 1,270.49 27.05%
12-31-97 (1.00) 14.92280844 (0.067) 77.457 1,155.88 15.59%
12-31-98 (1.00) 14.55802199 (0.069) 66.943 974.56 -2.54%
Templeton Developing Markets Equity
12-31-94 Value $1,000.00 $9.44748810 105.848 105.848 $1,000.00
12-31-95 (1.00) 9.56626187 (0.105) 105.744 1,011.57 1.16%
12-31-96 (1.00) 11.45833113 (0.087) 104.447 1,196.79 19.68%
12-31-97 (1.00) 10.30480726 (0.097) 87.176 898.33 -10.17%
12-31-98 (1.00) 7.95817952 (0.126) 96.916 771.28 -22.87%
Templeton Global Asset Allocation
12-31-95 Value $1,000.00 $10.58454194 94.477 94.477 $1,000.00
12-31-96 (1.00) 12.49492743 (0.080) 94.397 1,179.49 17.95%
12-31-97 (1.00) 13.75214238 (0.073) 79.960 1,099.62 9.96%
12-31-98 (1.00) 13.54330315 (0.074) 72.642 983.81 -1.62%
Templeton Global Growth
12-31-94 Value $1,000.00 $10.19356357 98.101 98.101 $1,000.00
12-31-95 (1.00) 11.32067650 (0.088) 98.013 1,109.57 10.96%
12-31-96 (1.00) 13.52541005 (0.074) 88.260 1,193.75 19.38%
12-31-97 (1.00) 15.12444656 (0.066) 73.869 1,117.22 11.72%
12-31-98 (1.00) 16.23822650 (0.062) 66.057 1,072.64 7.26%
Templeton Global Income Securities
12-31-89 Value $1,000.00 $10.80378700 92.560 92.560 $1,000.00
12-31-90 (1.00) 11.68562859 (0.086) 92.475 1,080.62 8.06%
12-31-91 (1.00) 12.92781355 (0.077) 85.498 1,105.30 10.53%
12-31-92 (1.00) 12.68746730 (0.079) 77.274 980.41 -1.96%
12-31-93 (1.00) 14.58489254 (0.069) 78.749 1,148.55 14.86%
12-31-94 (1.00) 13.65317533 (0.073) 68.491 935.12 -6.49%
12-31-95 (1.00) 15.42592706 (0.065) 73.178 1,128.84 12.88%
12-31-96 (1.00) 16.66103106 (0.060) 64.766 1,079.07 7.91%
12-31-97 (1.00) 16.82084400 (0.059) 59.961 1,008.59 0.86%
12-31-98 (1.00) 17.74568378 (0.056) 59.394 1,053.98 5.40%
Templeton International Equity
12-31-92 Value $1,000.00 $9.63445037 103.794 103.794 $1,000.00
12-31-93 (1.00) 12.20456639 (0.082) 103.712 1,265.76 26.58%
12-31-94 (1.00) 12.12945216 (0.082) 81.854 992.85 -0.72%
12-31-95 (1.00) 13.21605786 (0.076) 82.368 1,088.58 8.86%
12-31-96 (1.00) 16.01035857 (0.062) 75.603 1,210.43 21.04%
12-31-97 (1.00) 17.61715343 (0.057) 62.403 1,099.36 9.94%
12-31-98 (1.00) 18.32204431 (0.055) 56.708 1,039.01 3.90%
Templeton International Smaller Companies
12-31-96 Value $1,000.00 $11.13849568 89.779 89.779 $1,000.00
12-31-97 (1.00) 10.80891898 (0.093) 89.686 969.41 -3.06%
12-31-98 (1.00) 9.34197461 (0.107) 92.409 863.28 -13.67%
Templeton Pacific Growth
12-31-92 Value $1,000.00 $9.75290673 102.534 102.534 $1,000.00
12-31-93 (1.00) 14.20875721 (0.070) 102.463 1,455.87 45.59%
12-31-94 (1.00) 12.76818771 (0.078) 70.301 897.61 -10.24%
12-31-95 (1.00) 13.58246157 (0.074) 78.246 1,062.77 6.28%
12-31-96 (1.00) 14.86560901 (0.067) 73.557 1,093.47 9.35%
12-31-97 (1.00) 9.38089631 (0.107) 67.163 630.05 -37.00%
12-31-98 (1.00) 8.02829857 (0.125) 106.475 854.81 -14.52%
U.S. Government Securities
12-31-89 Value $1,000.00 $10.41918956 95.977 95.977 $1,000.00
12-31-90 (1.00) 11.18037289 (0.089) 95.887 1,072.06 7.21%
12-31-91 (1.00) 12.76496129 (0.078) 89.364 1,140.73 14.07%
12-31-92 (1.00) 13.53931957 (0.074) 78.266 1,059.66 5.97%
12-31-93 (1.00) 14.63435517 (0.068) 73.791 1,079.88 7.99%
12-31-94 (1.00) 13.76239537 (0.073) 68.260 939.42 -6.06%
12-31-95 (1.00) 16.19773372 (0.062) 72.600 1,175.96 17.60%
12-31-96 (1.00) 16.53304452 (0.060) 61.677 1,019.70 1.97%
12-31-97 (1.00) 17.80492179 (0.056) 60.429 1,075.93 7.59%
12-31-98 (1.00) 18.84665157 (0.053) 56.111 1,057.51 5.75%
Global Utilties Securities
12-31-89 Value $1,000.00 $11.99981466 83.335 83.335 $1,000.00
12-31-90 (1.00) 12.04131448 (0.083) 83.252 1,002.46 0.25%
12-31-91 (1.00) 14.78233584 (0.068) 82.980 1,226.63 22.66%
12-31-92 (1.00) 15.83244652 (0.063) 67.585 1,070.04 7.00%
12-31-93 (1.00) 17.24200577 (0.058) 63.103 1,088.03 8.80%
12-31-94 (1.00) 15.02348951 (0.067) 57.931 870.33 -12.97%
12-31-95 (1.00) 19.44283491 (0.051) 66.511 1,293.16 29.32%
12-31-96 (1.00) 20.52658248 (0.049) 51.384 1,054.74 5.47%
12-31-97 (1.00) 25.63546176 (0.039) 48.678 1,247.89 24.79%
12-31-98 (1.00) 28.08202457 (0.036) 38.973 1,094.44 9.44%
Zero Coupon - 2000
12-31-89 Value $1,000.00 $10.95300003 91.299 91.299 $1,000.00
12-31-90 (1.00) 11.42731532 (0.088) 91.212 1,042.30 4.23%
12-31-91 (1.00) 13.53555410 (0.074) 87.436 1,183.49 18.35%
12-31-92 (1.00) 14.54452031 (0.069) 73.811 1,073.54 7.35%
12-31-93 (1.00) 16.64474050 (0.060) 68.694 1,143.40 14.34%
12-31-94 (1.00) 15.29260574 (0.065) 60.014 917.77 -8.22%
12-31-95 (1.00) 18.18141100 (0.055) 65.336 1,187.90 18.79%
12-31-96 (1.00) 18.34477774 (0.055) 54.947 1,007.99 0.80%
12-31-97 (1.00) 19.35767222 (0.052) 54.460 1,054.21 5.42%
12-31-98 (1.00) 20.50196174 (0.049) 51.610 1,058.11 5.81%
Zero Coupon - 2005
12-31-89 Value $1,000.00 $11.39947414 87.723 87.723 $1,000.00
12-31-90 (1.00) 11.52763908 (0.087) 87.637 1,010.24 1.02%
12-31-91 (1.00) 13.67194917 (0.073) 86.675 1,185.01 18.50%
12-31-92 (1.00) 14.92512949 (0.067) 73.075 1,090.66 9.07%
12-31-93 (1.00) 17.97404729 (0.056) 66.945 1,203.28 20.33%
12-31-94 (1.00) 16.01393970 (0.062) 55.573 889.95 -11.01%
12-31-95 (1.00) 20.78832859 (0.048) 62.397 1,297.14 29.71%
12-31-96 (1.00) 20.37523353 (0.049) 48.055 979.13 -2.09%
12-31-97 (1.00) 22.35667212 (0.045) 49.034 1,096.25 9.62%
12-31-98 (1.00) 24.78585655 (0.040) 44.689 1,107.66 10.77%
Zero Coupon - 2010
12-31-89 Value $1,000.00 $11.47692512 87.131 87.131 $1,000.00
12-31-90 (1.00) 11.37115980 (0.088) 87.043 989.78 -1.02%
12-31-91 (1.00) 13.44790271 (0.074) 87.867 1,181.63 18.16%
12-31-92 (1.00) 14.61898218 (0.068) 74.293 1,086.08 8.61%
12-31-93 (1.00) 18.06559695 (0.055) 68.349 1,234.76 23.48%
12-31-94 (1.00) 15.84633119 (0.063) 55.291 876.16 -12.38%
12-31-95 (1.00) 22.29375904 (0.045) 63.061 1,405.87 40.59%
12-31-96 (1.00) 21.37105221 (0.047) 44.809 957.61 -4.24%
12-31-97 (1.00) 24.54360878 (0.041) 46.752 1,147.45 14.75%
12-31-98 (1.00) 27.67407049 (0.036) 40.708 1,126.55 12.65%
<FN>
(Accumulated Value as of - Accum. Value at Purch.)/Accum. Value at Purch.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK IV
Preferred Life Variable Account C
Cumulative and Average Annual Total Return Calculations
Original Purchase as of Sub-Account Inception
Valuation Date as of December 31, 1998
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
Capital Growth
<S> <C> <C> <C> <C> <C> <C>
5-1-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-1-97 Contract Fee (1.00) $11.17227997 (0.090) 99.910 $1,116.23
5-1-98 Contract Fee (1.00) $14.62013773 (0.068) 99.842 $1,459.71
12-31-98 Contract Fee (1.00) $15.53680530 (0.064) 99.778 $1,550.23
12-31-98 Value before Surr Chg $15.53680530 0.000 99.778 $1,550.23
12-31-98 Surrender (51.00) $15.53680530 (3.283) 96.495 $1,499.23
Charge
Cumulative Total Returns without/with chrgs. 55.37% A 49.92% C
Avg. Annual Total Returns without/with chrgs. 17.95% B 16.39% D
Growth and Income
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 9.59756692 (0.104) 99.896 958.76
1-24-91 Contract Fee (1.00) 10.03104257 (0.100) 99.796 1,001.06
1-24-92 Contract Fee (1.00) 12.16171947 (0.082) 99.714 1,212.69
1-24-93 Contract Fee (1.00) 12.57661487 (0.080) 99.634 1,253.06
1-24-94 Contract Fee (1.00) 14.09886247 (0.071) 99.563 1,403.73
1-24-95 Contract Fee (1.00) 13.27759299 (0.075) 99.488 1,320.96
1-24-96 Contract Fee (1.00) 17.25393143 (0.058) 99.430 1,715.56
1-24-97 Contract Fee (1.00) 19.79450666 (0.051) 99.380 1,967.17
1-24-98 Contract Fee (1.00) 23.84479142 (0.042) 99.338 2,368.69
12-31-98 Value before Surr Chg 25.99287759 0.000 99.338 2,582.07
12-31-98 Contract Fee (1.00) 25.99287759 (0.038) 99.299 2,581.07
12-31-98 Surrender 0.00 25.99287759 0.000 99.299 2,581.07
Charge
Cumulative Total Returns without/with chrgs. 159.93% A 158.11% C
Avg. Annual Total Returns without/with chrgs. 10.09% B 10.01% D
High Income
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 9.98265449 (0.100) 99.900 997.27
1-24-91 Contract Fee (1.00) 8.98103976 (0.111) 99.788 896.20
1-24-92 Contract Fee (1.00) 11.85616038 (0.084) 99.704 1,182.11
1-24-93 Contract Fee (1.00) 13.39874388 (0.075) 99.630 1,334.91
1-24-94 Contract Fee (1.00) 15.29126669 (0.065) 99.564 1,522.46
1-24-95 Contract Fee (1.00) 14.64571855 (0.068) 99.496 1,457.19
1-24-96 Contract Fee (1.00) 17.40215300 (0.057) 99.438 1,730.44
1-24-97 Contract Fee (1.00) 19.32656477 (0.052) 99.387 1,920.80
1-24-98 Contract Fee (1.00) 21.32546077 (0.047) 99.340 2,118.47
12-31-98 Value before Surr Chg 21.01959301 0.000 99.340 2,088.08
12-31-98 Contract Fee (1.00) 21.01959301 (0.048) 99.292 2,087.08
12-31-98 Surrender 0.00 21.01959301 0.000 99.292 2,087.08
Charge
Cumulative Total Returns without/with chrgs. 110.20% A 108.71% C
Avg. Annual Total Returns without/with chrgs. 7.76% B 7.68% D
Income Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.70345941 (0.093) 99.907 1,069.35
1-24-91 Contract Fee (1.00) 9.93454622 (0.101) 99.806 991.53
1-24-92 Contract Fee (1.00) 13.99562082 (0.071) 99.734 1,395.85
1-24-93 Contract Fee (1.00) 15.30544228 (0.065) 99.669 1,525.48
1-24-94 Contract Fee (1.00) 17.64961404 (0.057) 99.612 1,758.12
1-24-95 Contract Fee (1.00) 16.27638185 (0.061) 99.551 1,620.33
1-24-96 Contract Fee (1.00) 20.08267334 (0.050) 99.501 1,998.25
1-24-97 Contract Fee (1.00) 21.74528582 (0.046) 99.455 2,162.68
1-24-98 Contract Fee (1.00) 24.54291374 (0.041) 99.415 2,439.92
12-31-98 Value before Surr Chg 24.89795747 0.000 99.415 2,475.22
12-31-98 Contract Fee (1.00) 24.89795747 (0.040) 99.374 2,474.22
12-31-98 Surrender 0.00 24.89795747 0.000 99.374 2,474.22
Charge
Cumulative Total Returns without/with chrgs. 148.98% A 147.42% C
Avg. Annual Total Returns without/with chrgs. 9.61% B 9.54% D
Money Market
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.67178511 (0.094) 99.906 1,066.18
1-24-91 Contract Fee (1.00) 11.31010498 (0.088) 99.818 1,128.95
1-24-92 Contract Fee (1.00) 11.72881708 (0.085) 99.733 1,169.75
1-24-93 Contract Fee (1.00) 11.90009827 (0.084) 99.649 1,185.83
1-24-94 Contract Fee (1.00) 12.02348344 (0.083) 99.565 1,197.12
1-24-95 Contract Fee (1.00) 12.32338409 (0.081) 99.484 1,225.98
1-24-96 Contract Fee (1.00) 12.84105599 (0.078) 99.406 1,276.48
1-24-97 Contract Fee (1.00) 13.29676207 (0.075) 99.331 1,320.78
12-31-98 Value before Surr Chg 14.25958767 0.000 99.331 1,416.42
12-31-98 Contract Fee (1.00) 14.25958767 (0.070) 99.261 1,415.42
12-31-98 Surrender 0.00 14.25958767 0.000 99.261 1,415.42
Charge
Cumulative Total Returns without/with chrgs. 42.60% A 41.54% C
Avg. Annual Total Returns without/with chrgs. 3.63% B 3.56% D
Mutual Discovery Securities
11-8-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
11-8-97 Contract Fee (1.00) 11.82973739 (0.085) 99.915 1,181.97
11-8-98 Contract Fee (1.00) 10.94138042 (0.091) 99.824 1,092.21
12-31-98 Contract Fee (1.00) 11.20464895 (0.089) 99.735 1,117.49
12-31-98 Value before Surr Chg 11.20464895 0.000 99.735 1,117.49
12-31-98 Surrender (51.00) 11.20464895 (4.552) 95.183 1,066.49
Charge
Cumulative Total Returns without/with chrgs. 12.05% A 6.65% C
Avg. Annual Total Returns without/with chrgs. 5.45% B 3.05% D
Mutual Shares Securities
11-8-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
11-8-97 Contract Fee (1.00) 11.75083052 (0.085) 99.915 1,174.08
11-8-98 Contract Fee (1.00) 11.57328030 (0.086) 99.828 1,155.34
12-31-98 Value before Surr Chg 11.81402865 0.000 99.828 1,179.38
12-31-98 Contract Fee (1.00) 11.81402865 (0.085) 99.744 1,178.38
12-31-98 Surrender (51.00) 11.81402865 (4.317) 95.427 1,127.38
Charge
Cumulative Total Returns without/with chrgs. 18.14% A 12.74% C
Avg. Annual Total Returns without/with chrgs. 8.08% B 5.75% D
Natural Resources Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 12.88562226 (0.078) 99.922 1,287.56
1-24-91 Contract Fee (1.00) 9.76834317 (0.102) 99.820 975.08
1-24-92 Contract Fee (1.00) 10.91292825 (0.092) 99.728 1,088.33
1-24-93 Contract Fee (1.00) 9.12197464 (0.110) 99.619 908.72
1-24-94 Contract Fee (1.00) 14.41516281 (0.069) 99.549 1,435.02
1-24-95 Contract Fee (1.00) 12.96347704 (0.077) 99.472 1,289.51
1-24-96 Contract Fee (1.00) 15.88612084 (0.063) 99.409 1,579.23
1-24-97 Contract Fee (1.00) 13.72771013 (0.073) 99.336 1,363.66
1-24-98 Contract Fee (1.00) 10.52200700 (0.095) 99.241 1,044.22
12-31-98 Value before Surr Chg 8.42970932 0.000 99.241 836.58
12-31-98 Contract Fee (1.00) 8.42970932 (0.119) 99.123 835.58
12-31-98 Surrender 0.00 8.42970932 0.000 99.123 835.58
Charge
Cumulative Total Returns without/with chrgs. -15.70% A -16.44% C
Avg. Annual Total Returns without/with chrgs. -1.70% B -1.79% D
Real Estate Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.13076509 (0.099) 99.901 1,012.08
1-24-91 Contract Fee (1.00) 9.36020172 (0.107) 99.794 934.10
1-24-92 Contract Fee (1.00) 12.25114822 (0.082) 99.713 1,221.60
1-24-93 Contract Fee (1.00) 13.49614031 (0.074) 99.639 1,344.74
1-24-94 Contract Fee (1.00) 15.30618064 (0.065) 99.573 1,524.09
1-24-95 Contract Fee (1.00) 14.92840438 (0.067) 99.506 1,485.47
1-24-96 Contract Fee (1.00) 18.04447622 (0.055) 99.451 1,794.54
1-24-97 Contract Fee (1.00) 23.78351943 (0.042) 99.409 2,364.29
1-24-98 Contract Fee (1.00) 27.81930359 (0.036) 99.373 2,764.49
12-31-98 Value before Surr Chg 22.90097471 0.000 99.373 2,275.74
12-31-98 Contract Fee (1.00) 22.90097471 (0.044) 99.329 2,274.74
12-31-98 Surrender 0.00 22.90097471 0.000 99.329 2,274.74
Charge
Cumulative Total Returns without/with chrgs. 129.01% A 127.47% C
Avg. Annual Total Returns without/with chrgs. 8.69% B 8.62% D
Rising Dividends
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Contract Fee (1.00) 10.68876950 (0.094) 99.906 1,067.88
1-27-94 Contract Fee (1.00) 10.36623339 (0.096) 99.810 1,034.65
1-27-95 Contract Fee (1.00) 9.94675745 (0.101) 99.709 991.79
1-27-96 Contract Fee (1.00) 12.48933274 (0.080) 99.629 1,244.30
1-27-97 Contract Fee (1.00) 15.20870091 (0.066) 99.564 1,514.23
1-27-98 Contract Fee (1.00) 19.73278049 (0.051) 99.513 1,963.67
12-31-98 Value before Surr Chg 21.03405907 0.000 99.513 2,093.16
12-31-98 Contract Fee (1.00) 21.03405907 (0.048) 99.465 2,092.16
12-31-98 Surrender 0.00 21.03405907 0.000 99.465 2,092.16
Charge
Cumulative Total Returns without/with chrgs. 110.34% A 109.22% C
Avg. Annual Total Returns without/with chrgs. 11.32% B 11.24% D
Small Cap
11-1-95 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
11-1-96 Contract Fee (1.00) 12.14713625 (0.082) 99.918 1,213.71
11-1-97 Contract Fee (1.00) 15.53654825 (0.064) 99.853 1,551.38
11-1-98 Contract Fee (1.00) 12.49929024 (0.080) 99.773 1,247.10
12-31-98 Value before Surr Chg 14.55802199 0.000 99.773 1,452.50
12-31-98 Contract Fee (1.00) 14.55802199 (0.069) 99.705 1,451.50
12-31-98 Surrender (42.50) 14.55802199 (2.919) 96.785 1,409.00
Charge
Cumulative Total Returns without/with chrgs. 45.58% A 40.90% C
Avg. Annual Total Returns without/with chrgs. 12.59% B 11.43% D
Templeton Developing Markets Equity
3-15-94 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-15-95 Contract Fee (1.00) 8.62058630 (0.116) 99.884 861.06
3-15-96 Contract Fee (1.00) 10.27729571 (0.097) 99.787 1,025.54
3-15-97 Contract Fee (1.00) 12.41978933 (0.081) 99.706 1,238.33
3-15-98 Contract Fee (1.00) 10.51420276 (0.095) 99.611 1,047.33
12-31-98 Value before Surr Chg 7.95817952 0.000 99.611 792.72
12-31-98 Contract Fee (1.00) 7.95817952 (0.126) 99.485 791.72
12-31-98 Surrender (34.00) 7.95817952 (4.272) 95.213 757.72
Charge
Cumulative Total Returns without/with chrgs. -20.42% A -24.23% C
Avg. Annual Total Returns without/with chrgs. -4.65% B -5.62% D
Templeton Global Asset Allocation
5-1-95 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-1-96 Contract Fee (1.00) 11.24184599 (0.089) 99.911 1,123.18
5-1-97 Contract Fee (1.00) 12.74937771 (0.078) 99.833 1,272.80
5-1-98 Contract Fee (1.00) 14.95108178 (0.067) 99.766 1,491.61
12-31-98 Value before Surr Chg 13.54330315 0.000 99.766 1,351.16
12-31-98 Contract Fee (1.00) 13.54330315 (0.074) 99.692 1,350.16
12-31-98 Surrender (42.50) 13.54330315 (3.138) 96.554 1,307.66
Charge
Cumulative Total Returns without/with chrgs. 35.43% A 30.77% C
Avg. Annual Total Returns without/with chrgs. 8.61% B 7.58% D
Templeton Global Growth
3-15-94 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-15-95 Contract Fee (1.00) 10.09452231 (0.099) 99.901 1,008.45
3-15-96 Contract Fee (1.00) 11.79417892 (0.085) 99.816 1,177.25
3-15-97 Contract Fee (1.00) 14.06170230 (0.071) 99.745 1,402.58
3-15-98 Contract Fee (1.00) 16.68243544 (0.060) 99.685 1,662.99
12-31-98 Value before Surr Chg 16.23822650 0.000 99.685 1,618.71
12-31-98 Contract Fee (1.00) 16.23822650 (0.062) 99.624 1,617.71
12-31-98 Surrender (34.00) 16.23822650 (2.094) 97.530 1,583.71
Charge
Cumulative Total Returns without/with chrgs. 62.38% A 58.37% C
Avg. Annual Total Returns without/with chrgs. 10.63% B 10.05% D
Templeton Global Income Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.85157001 (0.092) 99.908 1,084.16
1-24-91 Contract Fee (1.00) 11.76337661 (0.085) 99.823 1,174.25
1-24-92 Contract Fee (1.00) 12.92541183 (0.077) 99.745 1,289.25
1-24-93 Contract Fee (1.00) 12.75002133 (0.078) 99.667 1,270.76
1-24-94 Contract Fee (1.00) 14.76765782 (0.068) 99.599 1,470.85
1-24-95 Contract Fee (1.00) 13.50498150 (0.074) 99.525 1,344.09
1-24-96 Contract Fee (1.00) 15.35232035 (0.065) 99.460 1,526.94
1-24-97 Contract Fee (1.00) 16.46140335 (0.061) 99.399 1,636.25
1-24-98 Contract Fee (1.00) 16.93462624 (0.059) 99.340 1,682.29
12-31-98 Value before Surr Chg 17.74568378 0.000 99.340 1,762.86
12-31-98 Contract Fee (1.00) 17.74568378 (0.056) 99.284 1,761.86
12-31-98 Surrender 0.00 17.74568378 0.000 99.284 1,761.86
Charge
Cumulative Total Returns without/with chrgs. 77.46% A 76.19% C
Avg. Annual Total Returns without/with chrgs. 5.94% B 5.86% D
Templeton International Equity
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Contract Fee (1.00) 9.53509236 (0.105) 99.895 952.51
1-27-94 Contract Fee (1.00) 12.85431852 (0.078) 99.817 1,283.08
1-27-95 Contract Fee (1.00) 11.91221607 (0.084) 99.733 1,188.05
1-27-96 Contract Fee (1.00) 13.52801052 (0.074) 99.659 1,348.19
1-27-97 Contract Fee (1.00) 16.14799023 (0.062) 99.598 1,608.30
1-27-98 Contract Fee (1.00) 17.44491176 (0.057) 99.540 1,736.47
12-31-98 Value before Surr Chg 18.32204431 0.000 99.540 1,823.78
12-31-98 Contract Fee (1.00) 18.32204431 (0.055) 99.486 1,822.78
12-31-98 Surrender 0.00 18.32204431 0.000 99.486 1,822.78
Charge
Cumulative Total Returns without/with chrgs. 83.22% A 82.28% C
Avg. Annual Total Returns without/with chrgs. 9.13% B 9.05% D
Templeton International Smaller Companies
5-1-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-1-97 Contract Fee (1.00) $11.32006145 (0.088) 99.912 1,131.01
5-1-98 Contract Fee (1.00) $12.03423474 (0.083) 99.829 1,201.36
12-31-98 Value before Surr Chg $9.34197461 0.000 99.829 932.60
12-31-98 Contract Fee (1.00) $9.34197461 (0.107) 99.722 931.60
12-31-98 Surrender (51.00) $9.34197461 (5.459) 94.262 880.60
Charge
Cumulative Total Returns without/with chrgs. -6.58% A -11.94% C
Avg. Annual Total Returns without/with chrgs. -2.52% B -4.65% D
Templeton Pacific Growth
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Contract Fee (1.00) 9.91965141 (0.101) 99.899 990.97
1-27-94 Contract Fee (1.00) 14.07652865 (0.071) 99.828 1,405.23
1-27-95 Contract Fee (1.00) 11.91556247 (0.084) 99.744 1,188.51
1-27-96 Contract Fee (1.00) 14.44474860 (0.069) 99.675 1,439.78
1-27-97 Contract Fee (1.00) 14.58766078 (0.069) 99.606 1,453.03
1-27-98 Contract Fee (1.00) 8.42138869 (0.119) 99.488 837.82
12-31-98 Value before Surr Chg 8.02829857 0.000 99.488 798.72
12-31-98 Contract Fee (1.00) 8.02829857 (0.125) 99.363 797.72
12-31-98 Surrender 0.00 8.02829857 0.000 99.363 797.72
Charge
Cumulative Total Returns without/with chrgs. -19.72% A -20.23% C
Avg. Annual Total Returns without/with chrgs. -3.12% B -3.21% D
U.S. Government Securities
3-14-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-14-90 Contract Fee (1.00) 10.29864074 (0.097) 99.903 1,028.86
3-14-91 Contract Fee (1.00) 11.44148140 (0.087) 99.815 1,142.04
3-14-92 Contract Fee (1.00) 12.36677937 (0.081) 99.735 1,233.40
3-14-93 Contract Fee (1.00) 14.05074266 (0.071) 99.663 1,400.35
3-14-94 Contract Fee (1.00) 14.20297756 (0.070) 99.593 1,414.52
3-14-95 Contract Fee (1.00) 14.59412892 (0.069) 99.525 1,452.47
3-14-96 Contract Fee (1.00) 15.82460547 (0.063) 99.461 1,573.94
3-14-97 Contract Fee (1.00) 16.60622197 (0.060) 99.401 1,650.68
3-14-98 Contract Fee (1.00) 18.04599170 (0.055) 99.346 1,792.79
12-31-98 Value before Surr Chg 18.84665157 0.000 99.346 1,872.33
12-31-98 Contract Fee (1.00) 18.84665157 (0.053) 99.293 1,871.33
12-31-98 Surrender 0.00 18.84665157 0.000 99.293 1,871.33
Charge
Cumulative Total Returns without/with chrgs. 88.47% A 87.13% C
Avg. Annual Total Returns without/with chrgs. 6.68% B 6.60% D
Global Utilities Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 11.47363453 (0.087) 99.913 1,146.36
1-24-91 Contract Fee (1.00) 11.95102656 (0.084) 99.829 1,193.06
1-24-92 Contract Fee (1.00) 14.20139407 (0.070) 99.759 1,416.71
1-24-93 Contract Fee (1.00) 15.91822229 (0.063) 99.696 1,586.98
1-24-94 Contract Fee (1.00) 16.43119760 (0.061) 99.635 1,637.12
1-24-95 Contract Fee (1.00) 15.48692698 (0.065) 99.571 1,542.04
1-24-96 Contract Fee (1.00) 19.69346882 (0.051) 99.520 1,959.89
1-24-97 Contract Fee (1.00) 20.83359223 (0.048) 99.472 2,072.35
1-24-98 Contract Fee (1.00) 25.00670659 (0.040) 99.432 2,486.46
12-31-98 Value before Surr Chg 28.08202457 0.000 99.432 2,792.24
12-31-98 Contract Fee (1.00) 28.08202457 (0.036) 99.396 2,791.24
12-31-98 Surrender 0.00 28.08202457 0.000 99.396 2,791.24
Charge
Cumulative Total Returns without/with chrgs. 180.82% A 179.12% C
Avg. Annual Total Returns without/with chrgs 10.95% B 10.88% D
Zero Coupon - 2000
3-14-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-14-90 Contract Fee (1.00) 10.37748201 (0.096) 99.904 1,036.75
3-14-91 Contract Fee (1.00) 11.49325260 (0.087) 99.817 1,147.22
3-14-92 Contract Fee (1.00) 12.63019476 (0.079) 99.737 1,259.70
3-14-93 Contract Fee (1.00) 15.48457708 (0.065) 99.673 1,543.39
3-14-94 Contract Fee (1.00) 15.97181577 (0.063) 99.610 1,590.96
3-14-95 Contract Fee (1.00) 16.16440029 (0.062) 99.548 1,609.14
3-14-96 Contract Fee (1.00) 17.74484226 (0.056) 99.492 1,765.47
3-14-97 Contract Fee (1.00) 18.31427141 (0.055) 99.437 1,821.12
3-14-98 Contract Fee (1.00) 19.60681587 (0.051) 99.386 1,948.65
12-31-98 Value before Surr Chg 20.50196174 0.000 99.386 2,037.62
12-31-98 Contract Fee (1.00) 20.50196174 (0.049) 99.338 2,036.62
12-31-98 Surrender 0.00 20.50196174 0.000 99.338 2,036.62
Charge
Cumulative Total Returns without/with chrgs. 105.02% A 103.66% C
Avg. Annual Total Returns without/with chrgs. 7.60% B 7.52% D
Zero Coupon - 2005
3-14-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-14-90 Contract Fee (1.00) 10.38882453 (0.096) 99.904 1,037.88
3-14-91 Contract Fee (1.00) 11.53456820 (0.087) 99.817 1,151.35
3-14-92 Contract Fee (1.00) 12.62819047 (0.079) 99.738 1,259.51
3-14-93 Contract Fee (1.00) 16.36793990 (0.061) 99.677 1,631.50
3-14-94 Contract Fee (1.00) 16.86182251 (0.059) 99.617 1,679.73
3-14-95 Contract Fee (1.00) 17.12592868 (0.058) 99.559 1,705.04
3-14-96 Contract Fee (1.00) 19.37651757 (0.052) 99.507 1,928.11
3-14-97 Contract Fee (1.00) 20.04125698 (0.050) 99.458 1,993.25
3-14-98 Contract Fee (1.00) 22.73556936 (0.044) 99.414 2,260.22
12-31-98 Value before Surr Chg 24.78585655 0.000 99.414 2,464.05
12-31-98 Contract Fee (1.00) 24.78585655 (0.040) 99.373 2,463.05
12-31-98 Surrender 0.00 24.78585655 0.000 99.373 2,463.05
Charge
Cumulative Total Returns without/with chrgs. 147.86% A 146.31% C
Avg. Annual Total Returns without/with chrgs. 9.70% B 9.63% D
Zero Coupon - 2010
3-14-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-14-90 Contract Fee (1.00) 10.25922011 (0.097) 99.903 1,024.92
3-14-91 Contract Fee (1.00) 11.34740047 (0.088) 99.814 1,132.63
3-14-92 Contract Fee (1.00) 12.25923536 (0.082) 99.733 1,222.65
3-14-93 Contract Fee (1.00) 16.12714811 (0.062) 99.671 1,607.41
3-14-94 Contract Fee (1.00) 16.82866376 (0.059) 99.611 1,676.33
3-14-95 Contract Fee (1.00) 17.03620553 (0.059) 99.553 1,696.00
3-14-96 Contract Fee (1.00) 19.87163939 (0.050) 99.502 1,977.28
3-14-97 Contract Fee (1.00) 20.61421426 (0.049) 99.454 2,050.16
3-14-98 Contract Fee (1.00) 24.97939657 (0.040) 99.414 2,483.30
12-31-98 Value before Surr Chg 27.67407049 0.000 99.414 2,751.19
12-31-98 Contract Fee (1.00) 27.67407049 (0.036) 99.378 2,750.19
12-31-98 Surrender 0.00 27.67407049 0.000 99.378 2,750.19
Charge
Cumulative Total Returns without/with chrgs. 176.74% A 175.02% C
Avg. Annual Total Returns without/with chrgs. 10.94% B 10.87% D
Global Health Care Securities
5-1-98 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-98 Value before Surr Chg 10.60384781 0.000 100.000 1,060.38
12-31-98 Contract Fee (1.00) 10.60384781 (0.094) 99.906 1,059.38
12-31-98 Surrender (60.00) 10.60384781 (5.658) 94.247 999.38
Charge
Cumulative Total Returns without/with chrgs. 6.04% A -0.06% C
Avg. Annual Total Returns without/with chrgs. 9.17% B -0.09% D
Value Securities
5-1-98 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-98 Value before Surr Chg 7.71278940 0.000 100.000 771.28
12-31-98 Contract Fee (1.00) 7.71278940 (0.130) 99.870 770.28
12-31-98 Surrender (60.00) 7.71278940 (7.779) 92.091 710.28
Charge
Cumulative Total Returns without/with chrgs. -22.87% A -28.97% C
Avg. Annual Total Returns without/with chrgs. -32.19% B -40.06% D
<FN>
A = (Unit Value as of December 31, 1998 - Unit Value at Purchase)/Unit Value at Purchase
B = [(A+1)^(1/Years since Inception)]-1
C = (Accumulated Value as of December 31, 1998 - Accum. Value at Purch.)/Accum. Value at Purch.
D = [(C+1)^(1/Years since Inception)]-1
</FN>
</TABLE>
