File Nos.333-19699
811-05716
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ( )
Pre-Effective Amendment No. ( )
Post-Effective Amendment No. 8 (X)
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 ( )
Amendment No. 42 (X)
(Check appropriate box or boxes.)
PREFERRED LIFE VARIABLE ACCOUNT C
---------------------------------
(Exact Name of Registrant)
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
---------------------------------------------
(Name of Depositor)
152 West 57th Street, 18th Floor, New York, New York 10019
---------------------------------------------------- ---------
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (212) 586-7733
Name and Address of Agent for Service
- -------------------------------------
Eugene Long
Preferred Life Insurance Company of New York
152 West 57th Street, 18th Floor
New York, New York 10019
Copies to:
Judith A. Hasenauer
Blazzard, Grodd & Hasenauer, P.C.
P.O. Box 5108
Westport, CT 06881
(203) 226-7866
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b) of Rule 485
_X_ on May 1, 2000 pursuant to paragraph (b) of Rule 485
___ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
___ on (date) pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following:
___ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Registered:
Individual Deferred Variable Annuity Contracts
CROSS REFERENCE SHEET
(Required by Rule 495)
<TABLE>
<CAPTION>
<S> <C> <C>
Item No. Location
PART A
Item 1. Cover Page. Cover Page
Item 2. Definitions. Index of Terms
Item 3. Synopsis or Highlights Summary
Item 4. Condensed Financial Information Appendix
Item 5. General Description of Registrant,
Depositor, and Portfolio Companies Preferred Life,
The Separate
Account, Investment
Options
Item 6. Deductions Expenses
Item 7. General Description of Variable
Annuity Contracts The Variable and Fixed
Annuity Contract
Item 8. Annuity Period Annuity Payments
(The Payout Phase)
Item 9. Death Benefit Death Benefit
Item 10. Purchases and Contract Value Purchase
Item 11. Redemptions. Access to Your
Money
Item 12. Taxes Taxes
Item 13. Legal Proceedings None
Item 14. Table of Contents of the Statement of
Additional Information Table of Contents of
the Statement of
Additional Information
PART B
Item 15. Cover Page Cover Page
Item 16. Table of Contents Table of Contents
Item 17. General Information and History Insurance Company
Item 18. Services Not Applicable
Item 19. Purchase of Securities Being Offered Not Applicable
Item 20. Underwriters Distributor
Item 21. Calculation of Performance Data Calculation of
Performance Data
Item 22. Annuity Payments Annuity Provisions
Item 23. Financial Statements Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item so numbered, in Part C to this Registration Statement.
<PAGE>
EXPLANATORY NOTE
________________________________________________________________________________
This Registration Statement contains two prospectuses (Version A and Version B)
and two statements of additional information (Version A and Version B). The only
difference between the prospectuses is the underlying funding options. The only
difference between the statements of additional information is the performance
figures shown for the different underlying funding options. The prospectuses and
statements of additional information will be filed with the Commission pursuant
to Rule 497. The Registrant undertakes to update this Explanatory Note, as
necessary, each time a Post-Effective Amendment is filed.
________________________________________________________________________________
PART A
PART A - Version A
THE VALUEMARK(R) IV VARIABLE ANNUITY CONTRACT
issued by
PREFERRED LIFE VARIABLE ACCOUNT C
and
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
This prospectus describes the Valuemark IV Variable Annuity Contract with a
Fixed Account offered by Preferred Life Insurance Company of New York (Preferred
Life). All references to "we," "us" and "our" refer to Preferred Life.
The annuity offers the Variable Options listed below, and a Fixed Account of
Preferred Life. Each Variable Option invests in a Portfolio listed below. You
can select up to 10 investment choices (which includes any of the Variable
Options and the Fixed Account).
VARIABLE OPTIONS:
AIM VARIABLE INSURANCE FUNDS:
AIM V.I. Growth Fund
THE ALGER AMERICAN FUND:
Alger American Growth Portfolio
Alger American Leveraged AllCap Portfolio
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST#:
Franklin Aggressive Growth Securities Fund
Franklin Global Communications Securities Fund*
Franklin Global Health Care Securities Fund
Franklin Growth and Income Securities Fund*
Franklin High Income Fund
Franklin Income Securities Fund
Franklin Large Cap Growth Securities Fund*
Franklin Money Market Fund
Franklin Natural Resources Securities Fund
Franklin Real Estate Fund*
Franklin Rising Dividends Securities Fund*
Franklin S&P 500 Index Fund
Franklin Small Cap Fund
Franklin Technology Securities Fund
Franklin U.S. Government Fund*
Franklin Value Securities Fund
Franklin Zero Coupon Funds-- 2000, 2005 and 2010
Mutual Discovery Securities Fund
Mutual Shares Securities Fund
Templeton Asset Strategy Fund*
Templeton Developing Markets Securities Fund*
Templeton Global Income Securities Fund
Templeton Growth Securities Fund*
Templeton International Securities Fund*
Templeton International Smaller Companies Fund
Templeton Pacific Growth Securities Fund*
#Effective May 1, 2000, the funds of Templeton Variable Products Series Fund
were merged into similar funds of Franklin Templeton Variable Insurance Products
Trust.
USALLIANZ VARIABLE INSURANCE PRODUCTS TRUST:
USAllianz VIP Diversified Assets Fund
USAllianz VIP Fixed Income Fund
USAllianz VIP Growth Fund
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Fund name changed:
<TABLE>
<CAPTION>
CURRENT NAME PREVIOUS NAME
- ----------------------------------------------------------------------------------------------
<S> <C>
Franklin Global Communications Securities Fund Franklin Global Utilities Securities Fund
Franklin Growth and Income Securities Fund Franklin Growth and Income Fund
Franklin Large Cap Growth Securities Fund Franklin Capital Growth Fund
Franklin Real Estate Fund Franklin Real Estate Securities Fund
Franklin Rising Dividends Securities Fund Franklin Rising Dividends Fund
Franklin U.S. Government Fund Franklin U.S. Government Securities Fund
Templeton Asset Strategy Fund Templeton Global Asset Allocation Fund
Templeton Developing Markets Securities Fund Templeton Developing Markets Equity Fund
Templeton Growth Securities Fund Templeton Global Growth Fund
Templeton International Securities Fund Templeton International Equity Fund
Templeton Pacific Growth Securities Fund Templeton Pacific Growth Fund
</TABLE>
2
Please read this prospectus before investing and keep it for future reference.
It contains important information about the Valuemark IV Variable Annuity
Contract with a Fixed Account.
To learn more about the annuity offered by this prospectus, you can obtain a
copy of the Statement of Additional Information (SAI) dated May 1, 2000. 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 24 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 1-800-542-5427 or write us at: 152 West 57th
Street, 18th Floor, New York, New York 10019.
THE VALUEMARK IV VARIABLE ANNUITY CONTRACTS:
O ARE NOT BANK DEPOSITS
O ARE NOT FEDERALLY INSURED
O ARE NOT ENDORSED BY ANY BANK OR GOVERNMENT AGENCY
O ARE NOT GUARANTEED AND MAY BE SUBJECT TO LOSS OF PRINCIPAL
This prospectus is not an offering of the securities in any state, country, or
jurisdiction in which we are not authorized to sell the Contracts. You should
rely only on the information contained in this prospectus or that we have
referred you to. We have not authorized anyone to provide you with information
that is different.
Dated: May 1, 2000
<PAGE>
3 Variable Annuity Prospectus
TABLE OF CONTENTS
Index of Terms 4
Summary 5
Fee Table 6
1. The Valuemark IV
Variable Annuity Contract 10
Contract Owner 10
Joint Owner 10
Annuitant 10
Beneficiary 10
Assignment 10
2. Annuity Payments (The Payout Phase) 11
Annuity Options 11
3. Purchase 12
Purchase Payments 12
Automatic Investment Plan 12
Allocation of Purchase Payments 12
Free Look 12
Accumulation Units 12
4. Investment Options 13
Transfers 15
Dollar Cost Averaging Program 16
Flexible Rebalancing 16
Voting Privileges 16
Substitution 16
5. Expenses 17
Insurance Charges 17
Mortality and Expense Risk Charge 17
Administrative Charge 17
Contract Maintenance Charge 17
Contingent Deferred Sales Charge 17
Waiver of Contingent Deferred
Sales Charge 18
Reduction or Elimination of the
Contingent Deferred Sales Charge 18
Transfer Fee 18
Income Taxes 18
Portfolio Expenses 18
6. Taxes 18
Annuity Contracts in General 18
Qualified and Non-Qualified Contracts
Multiple Contracts 19
Withdrawals-- Non-Qualified Contracts 19
Withdrawals-- Qualified Contracts 19
Withdrawals-- Tax-Sheltered Annuities 20
Diversification 20
7. Access to Your Money 20
Systematic Withdrawal Program 21
Minimum Distribution Program 21
Suspension of Payments or Transfers 21
8. Performance 21
9. Death Benefit 22
Upon Your Death 22
Death of Annuitant 23
10. Other Information 23
Preferred Life 23
The Separate Account 23
Distribution 23
Administration 24
Financial Statements 24
Table of Contents of the
Statement of Additional Information 24
Appendix 25
<PAGE>
4
INDEX OF TERMS
- --------------------------------------------------------------------------------
This prospectus is written in plain English to make it as understandable for you
as possible. However, there are some technical terms used which are capitalized
in this prospectus. The page that is indicated below is where you will find the
definition for the word or term.
Page
Accumulation Phase 10
Accumulation Unit 13
Annuitant 10
Annuity Options 11
Annuity Payments 11
Annuity Unit 13
Beneficiary 10
Contract 10
Contract Owner 10
Fixed Account 10
Page
Income Date 11
Joint Owner 10
Non-Qualified 19
Payout Phase 10
Portfolios 10
Purchase Payment 12
Qualified 19
Tax Deferral 10
Variable Option 5
<PAGE>
Variable Annuity Prospectus
SUMMARY
- -------------------------------------------------------------------------------
The sections in this summary correspond to sections in this prospectus which
discuss the topics in more detail.
THE VARIABLE ANNUITY CONTRACT:
The annuity contract offered by Preferred Life provides a means for investing on
a tax-deferred basis in Variable Options and the Preferred Life Fixed Account
for retirement savings or other long-term investment purposes. The Contract
provides a guaranteed death benefit and annuity income options.
ANNUITY PAYMENTS:
If you want to receive regular income from your annuity, you can choose an
Annuity Option. You can choose whether to have payments come from our general
account, the available Variable Options or both. If you choose to have any part
of your payments come from the Variable Options, the dollar amount of your
payments may go up or down based on the performance of the Portfolios.
PURCHASE:
You can buy the Contract with $5,000 or more under most circumstances. You can
add $250 or more any time you like during the Accumulation Phase.
INVESTMENT OPTIONS:
You can put your money in the Variable Options and/or you can invest in the
Preferred Life Fixed Account. The investment returns on the Portfolios are not
guaranteed. You can make or lose money. You can make transfers between
investment choices.
EXPENSES:
The Contract has insurance features and investment features, and there are costs
related to each.
Each year, Preferred Life deducts a $30 contract maintenance charge from your
Contract. Preferred Life currently waives this charge if the value of your
Contract is at least $50,000.
Preferred Life deducts a mortality and expense risk charge which is equal, on an
annual basis, to 1.34% of the average daily value of the Contract invested in a
Variable Option during the Accumulation Phase (1.25% during the Payout Phase).
Preferred Life also deducts an administrative charge which is equal, on an
annual basis, to 0.15% of the value of the Contract invested in a Variable
Option.
If you take money out of the Contract, Preferred Life may assess a contingent
deferred sales charge against each Purchase Payment withdrawn. The contingent
deferred sales charge starts at 6% in the first year and declines to 0% after 7
years.
You can make 12 free transfers each year. After that, Preferred Life deducts
$25, or 2% of the amount transferred, whichever is less, for each additional
transfer.
There are also daily investment charges which range, on an annual basis, from
0.49% to 1.56% of the average daily value of the Portfolio, depending upon the
Portfolio.
TAXES:
Your earnings are not taxed until you take them out. If you take money out
during the Accumulation Phase, earnings come out first and are taxed as income.
If you are younger than 591/2 when you take money out, you may be charged a 10%
federal tax penalty.
ACCESS TO YOUR MONEY:
You can take money out of your Contract during the Accumulation Phase.
Withdrawals during the Accumulation Phase may be subject to a contingent
deferred sales charge. You may also have to pay income tax and a tax penalty on
any money you take out.
DEATH BENEFIT:
If you die before moving to the Payout Phase, the Beneficiary will receive a
death benefit.
FREE-LOOK:
You can cancel the Contract within 10 days after receiving it. Preferred Life
will refund the value of your Contract on the day it receives your request to
cancel the Contract. This may be more or less than your original payment. If you
have purchased the Contract as an individual retirement annuity, Preferred Life
will refund the Purchase Payment.
INQUIRIES:
If you have questions about your Contract or need more information, please
contact us at:
USAllianz Service Center
300 Berwyn Park
P.O. Box 3031
Berwyn, PA 19312-0031
1-800-624-0197
<PAGE>
6
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 currently counted.
CONTRACT MAINTENANCE CHARGE** $30 per Contract per year
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Charge*** 1.34%
Administrative Charge 0.15%
--------------------
Total Separate Account Annual Expenses 1.49%
* Each year after the first Contract year, you may make multiple partial
withdrawals of up to a total of 15% of the value of your Contract and no
contingent deferred sales charge will be assessed. See Section 7 -- "Access
to Your Money" for additional options.
** During the Accumulation Phase, the charge is waived if the value of your
Contract is at least $50,000. If you own more than one Valuemark IV Contract
(registered with the same social security number), we will determine the
total value of all your Contracts. If the total value of all your Contracts
is at least $50,000, the charge is waived. Currently, the charge is also
waived during the Payout Phase if the value of your Contract at the Income
Date is at least $50,000.
*** The Mortality and Expense Risk Charge is 1.25% during the Payout Phase.
<PAGE>
<TABLE>
<CAPTION>
7 Variable Annuity Prospectus
FUND ANNUAL EXPENSES:
(as a percentage of the Portfolio's average net assets for the most recent
fiscal year). See the accompanying Portfolio prospectuses for more information.
MANAGEMENT
AND PORTFOLIO 12B-1 TOTAL ANNUAL
ADMINISTRATION FEES1 FEES OTHER EXPENSES EXPENSES
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM V.I. Growth Fund .63% -- .10% .73%
Alger American Growth Portfolio .75% -- .04% .79%
Alger American Leveraged AllCap Portfolio2 .85% -- .08% .93%
Franklin Aggressive Growth Securities Fund3 .50% -- .22% .72%
Franklin Global Communications Securities Fund .48% -- .03% .51%
Franklin Global Health Care Securities Fund .60% -- .22% .82%
Franklin Growth and Income Securities Fund .47% -- .02% .49%
Franklin High Income Fund .51% -- .03% .54%
Franklin Income Securities Fund .48% -- .02% .50%
Franklin Large Cap Growth Securities Fund4 .75% -- .02% .77%
Franklin Money Market Fund .52% -- .01% .53%
Franklin Natural Resources Securities Fund .62% -- .04% .66%
Franklin Real Estate Fund .56% -- .02% .58%
Franklin Rising Dividends Securities Fund .73% -- .02% .75%
Franklin S&P 500 Index Fund5 .15% -- .38% .53%
Franklin Small Cap Fund6 .55% -- .27% .82%
Franklin Technology Securities Fund3 .55% -- .38% .93%
Franklin U.S. Government Fund .49% -- .02% .51%
Franklin Value Securities Fund .60% -- .21% .81%
Franklin Zero Coupon Fund - 2000 .63% -- .02% .65%
Franklin Zero Coupon Fund - 2005 .63% -- .02% .65%
Franklin Zero Coupon Fund - 2010 .63% -- .02% .65%
Mutual Discovery Securities Fund .80% -- .21 1.01%
Mutual Shares Securities Fund4 .60% -- .19% .79%
Templeton Asset Strategy Fund6 .60% -- .18% .78%
Templeton Developing Markets Securities Fund6 1.25% -- .31% 1.56%
Templeton Global Income Securities Fund4 .60% -- .05% .65%
Templeton Growth Securities Fund4 .83% -- .05% .88%
Templeton International Securities Fund6 .69% -- .19% .88%
Templeton International Smaller Companies Fund .85% -- .26% 1.11%
Templeton Pacific Growth Securities Fund 1.00% -- .08% 1.08%
USAllianz VIP Diversified Assets Fund5/7 .55% .25% .20% 1.00%
USAllianz VIP Fixed Income Fund5/7 .50% .25% .00% .75%
USAllianz VIP Growth Fund5/7 .65% .25% .00% .90%
<FN>
1. The Portfolio Administration Fee is a direct expense for the Franklin Global Health Care Securities Fund, the Franklin Small
Cap Fund, the Franklin Value Securities Fund, the Mutual Discovery Securities Fund, the Mutual Shares Securities Fund, the
Templeton Asset Strategy Fund, the Templeton Developing Markets Fund, the Templeton International Securities Fund and the
Templeton International Smaller Companies Fund. Other Portfolios of Franklin Templeton Variable Insurance Products Trust pay for
similar services indirectly through the Management Fee. See the Franklin Templeton Variable Insur- ance Products Trust prospectus
for further information regarding these fees.
2. Other expenses for the Alger American Leveraged AllCap Fund include 0.01% of interest expense.
3. The Franklin Aggressive Growth Securities Fund and the Franklin Technology Securities Fund commenced operations as of the date
of this prospectus. The expenses shown above for these portfolios are therefore estimated for the current fiscal year.
8
4. On 2/8/00, a merger and reorganization was approved that combined the fund with a similar fund of Templeton Variable Products
Series Fund, effective 5/1/00. The table shows total expenses based on the fund's assets as of 12/31/99, and not the assets of the
combined fund. However, if the table reflected combined assets, the fund's Management Fees, Other Expenses, and Total Fund
Operating Expenses after 5/1/00 would be estimated as: 0.75%, 0.02%, and 0.77% respectively for the Franklin Large Cap Growth
Securities Fund; 0.60%, 0.19%, and 0.79% respectively for the Mutual Shares Securities Fund; 0.80%, 0.05%, and 0.85% respectively
for the Templeton Growth Securities Fund; and .0.60%, 0.04%, and 0.64% respectively for the Templeton Global Income Securities
Fund.
5. The Franklin S&P 500 Index Fund, the USAllianz VIP Diversified Assets Fund, the USAllianz VIP Fixed Income Fund, and the
USAllianz VIP Growth Fund commenced operations on November 12, 1999. The expenses shown above for these portfolios are therefore
estimated for the fund's current fiscal year.
6. On 2/8/00, shareholders approved a merger and reorganization that combined the assets of the fund with a similar fund of the
Templeton Variable Prod- ucts Series Fund, effective 5/1/00. The shareholders of the fund had approved new management fees, which
apply to the combined fund effective 5/1/00. The table shows restated total expenses based on the new fees and assets of the fund
as of 12/31/99, and not the assets of the combined fund. However, if the table reflected both the new fees and the combined
assets, the fund's Management Fees, Other Expenses, and Total Fund Operating Expenses after 5/1/00 would be estimated as: 0.55%,
0.27%, and 0.82% respectively for the Franklin Small Cap Fund; 1.25%, 0.29%, and 1.54% respectively for the Templeton Developing
Markets Securities Fund; 0.60%, 0.14%, and 0.74% respectively for the Templeton Asset Strategy Fund; and 0.65%, 0.20%, and 0.85%
respectively for the Templeton International Securities Fund.
7. Certain expenses of the USAllianz VIP Funds have been assumed by the Adviser. Had those expenses not been assumed, total return
would have been lower and total fund expenses would have been 3.80% for the USAllianz VIP Diversified Assets Fund, 3.77% for the
USAllianz VIP Fixed Income Fund, and 3.90% for the Growth Fund.
</FN>
</TABLE>
<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. Premium taxes may apply.
o For additional information, see Section 5 -- "Expenses" and the accompanying
fund prospectuses.
You would pay the following expenses on a $1,000 investment, assuming a 5% annual return on your money if you surrender your
Contract at the end of each time period:
VARIABLE OPTION 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM V.I. Growth Fund $84 $123 $158 $265
Alger American Growth Portfolio $84 $125 $161 $272
Alger American Leveraged AllCap Portfolio $86 $129 $168 $286
Franklin Aggressive Growth Securities Fund* $83 $123 $157 $264
Franklin Global Communications Securities Fund $81 $117 $147 $243
Franklin Global Health Care Securities Fund $84 $126 $163 $275
Franklin Growth and Income Securities Fund $81 $116 $146 $241
Franklin High Income Fund $82 $118 $148 $246
Franklin Income Securities Fund $81 $116 $146 $242
Franklin Large Cap Growth Securities Fund $84 $125 $160 $270
Franklin Money Market Fund $82 $117 $148 $245
Franklin Natural Resources Securities Fund $83 $121 $154 $258
Franklin Real Estate Fund $82 $119 $150 $250
Franklin Rising Dividends Securities Fund $84 $124 $159 $267
Franklin S&P 500 Index Fund* $82 $117 $148 $245
Franklin Small Cap Fund $84 $126 $163 $275
Franklin Technology Securities Fund* $86 $129 $168 $286
Franklin U.S. Government Fund $81 $117 $147 $243
Franklin Value Securities Fund $84 $126 $162 $274
Franklin Zero Coupon Fund - 2000 $83 $121 $154 $257
Franklin Zero Coupon Fund - 2005 $83 $121 $154 $257
Franklin Zero Coupon Fund - 2010 $83 $121 $154 $257
Mutual Discovery Securities Fund $86 $132 $172 $294
Mutual Shares Securities Fund $84 $125 $161 $272
Templeton Asset Strategy Fund $84 $125 $161 $271
Templeton Developing Markets Securities Fund $92 $148 $199 $346
Templeton Global Income Securities Fund $82 $117 $148 $245
Variable Annuity Prospectus
- ---------------------------------------------------------------------------------------------------------------------------
VARIABLE OPTION 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------------------------------------------------------------------------
Templeton Growth Securities Fund $85 $128 $166 $281
Templeton International Securities Fund $85 $128 $166 $281
Templeton International Smaller Companies Fund $87 $135 $177 $303
Templeton Pacific Growth Securities Fund $87 $134 $176 $300
USAllianz VIP Diversified Assets Fund* $84 $124 $159 $267
USAllianz VIP Fixed Income Fund* $81 $116 $146 $242
USAllianz VIP Growth Fund* $83 $121 $154 $257
<FN>
*Estimated
</FN>
</TABLE>
<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:
VARIABLE OPTION 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM V.I. Growth Fund $24 $72 $124 $265
Alger American Growth Portfolio $24 $74 $127 $272
Alger American Leveraged AllCap Portfolio $26 $78 $134 $286
Franklin Aggressive Growth Securities Fund* $23 $72 $123 $264
Franklin Global Communications Securities Fund $21 $66 $113 $243
Franklin Global Health Care Securities Fund $24 $75 $129 $275
Franklin Growth and Income Securities Fund $21 $65 $112 $241
Franklin High Income Fund $22 $67 $114 $246
Franklin Income Securities Fund $21 $65 $112 $242
Franklin Large Cap Growth Securities Fund $24 $74 $126 $270
Franklin Money Market Fund $22 $66 $114 $245
Franklin Natural Resources Securities Fund $23 $70 $120 $258
Franklin Real Estate Fund $22 $68 $116 $250
Franklin Rising Dividends Securities Fund $24 $73 $125 $267
Franklin S&P 500 Index Fund* $22 $66 $114 $245
Franklin Small Cap Fund $24 $75 $129 $275
Franklin Technology Securities Fund* $26 $78 $134 $286
Franklin U.S. Government Fund $21 $66 $113 $243
Franklin Value Securities Fund $24 $75 $128 $274
Franklin Zero Coupon Fund - 2000 $23 $70 $120 $257
Franklin Zero Coupon Fund - 2005 $23 $70 $120 $257
Franklin Zero Coupon Fund - 2010 $23 $70 $120 $257
Mutual Discovery Securities Fund $26 $81 $138 $294
Mutual Shares Securities Fund $24 $74 $127 $272
Templeton Asset Strategy Fund $24 $74 $127 $271
Templeton Developing Markets Securities Fund $32 $97 $165 $346
Templeton Global Income Securities Fund $22 $66 $114 $245
Templeton Growth Securities Fund $25 $77 $132 $281
Templeton International Securities Fund $25 $77 $132 $281
Templeton International Smaller Companies Fund $27 $84 $143 $303
Templeton Pacific Growth Securities Fund $27 $83 $142 $300
USAllianz VIP Diversified Assets Fund* $24 $73 $125 $267
USAllianz VIP Fixed Income Fund* $21 $65 $112 $242
USAllianz VIP Growth Fund* $23 $70 $120 $257
<FN>
*Estimated
</FN>
</TABLE>
SEE THE APPENDIX FOR ACCUMULATION UNIT VALUES - CONDENSED FINANCIAL INFORMATION.
<PAGE>
10
1. THE VALUEMARK IV
VARIABLE ANNUITY CONTRACT
- --------------------------------------------------------------------------------
This prospectus describes a variable deferred annuity contract with a Fixed
Account offered by Preferred Life.
An annuity is a contract between you, the owner, and an insurance company (in
this case Preferred Life), where the insurance company promises to pay you (or
someone else you choose) an income, in the form of Annuity Payments, beginning
on a designated date that is at least two years in the future. Until you decide
to begin receiving Annuity Payments, your annuity is in the Accumulation Phase.
Once you begin receiving Annuity Payments, your Contract switches to the Payout
Phase.
The Contract benefits from Tax Deferral. Tax Deferral means that you are not
taxed on earnings or appreciation on the assets in your Contract until you take
money out of your Contract.
Your investment choices include Variable Options, and the Fixed Account of
Preferred Life. The Contract is called a variable annuity because you can choose
among the Variable Options and depending upon market conditions, you can make or
lose money in the Contract based on the investment performance of the
Portfolios. The Portfolios are designed to offer a better return than the Fixed
Account. However this is not guaranteed. 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 of the Contract also
depends in large part upon the investment performance of the Portfolios you
select for the Payout Phase.
The Contract also contains a Fixed Account. The Fixed Account offers an interest
rate that is guaranteed by Preferred Life for all deposits made within the
twelve month period. Your initial interest rate is set on the date when your
money is invested in the Fixed Account and remains effective for one year.
Initial interest rates are declared monthly. Preferred Life guarantees that the
interest credited to the Fixed Account will not be less than 3% per year. If you
select the Fixed Account, your money will be placed with the other general
assets of Preferred Life. Preferred Life may change the terms of the Fixed
Account in the future. Please contact Preferred Life for the most current terms.
If you select the Fixed Account, the amount of money you are able to accumulate
in your Contract during the Accumulation Phase depends upon the total interest
credited to your Contract. We will not make any changes to your Contract without
your permission except as may be required by law.
CONTRACT OWNER
You, as the Contract Owner, have all the rights under the Contract. The Contract
Owner is as designated at the time the Contract is issued, unless changed. You
may change Contract Owners at any time. This may be a taxable event. You should
consult with your tax adviser before doing this.
JOINT OWNER
The Contract can be owned by Joint Owners. Upon the death of either Joint Owner,
the surviving Joint Owner will be the designated Beneficiary. Any other
Beneficiary designation at the time the Contract was issued or as may have been
later changed will be treated as a contingent Beneficiary unless otherwise
indicated.
ANNUITANT
The Annuitant is the natural person on whose life we base Annuity Payments. You
name an Annuitant. You may change the Annuitant at any time before the Income
Date unless the Contract is owned by a non-individual (for example, a
corporation).
BENEFICIARY
The Beneficiary is the person(s) or entity you name to receive any death
benefit. The Beneficiary is named at the time the Contract is issued unless
changed at a later date. Unless an irrevocable Beneficiary has been named, you
can change the Beneficiary or contingent Beneficiary.
ASSIGNMENT
You can transfer ownership (assign) the Contract at any time during your
lifetime. Preferred Life will not be bound by the assignment until it receives
the written notice of the assignment. Preferred Life will not be liable for any
payment or other action it takes in accordance with the Contract before it
receives notice of the assignment. Any assignment made after the death benefit
has become payable can only be done with our consent. AN ASSIGNMENT MAY BE A
TAXABLE EVENT.
If the Contract is issued pursuant to a Qualified plan, there may be limitations
on your ability to assign the Contract.
11 Variable Annuity Prospectus
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. If the value of the Annuity Payments
made at the time of the Annuitant's death is less than the value applied to the
Annuity Option, then you will receive a refund as set forth in the Contract.
12
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 the 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 the 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 the 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 USAllianz
Service Center.
A change will be effective for payments received on or after we receive your
notice or instructions. Preferred Life reserves the right to limit the number of
Variable Options that you may invest in at one time. Currently, you may invest
in 10 investment choices at any one time (which includes any of the Variable
Options listed in Section 4 and the Preferred Life Fixed Account). We may change
this in the future. However, we will always allow you to invest in at least five
Variable Options.
Once we receive your Purchase Payment and the necessary information, we will
issue your Contract and allocate your first Purchase Payment within 2 business
days. If you do not give us all of the information we need, we will contact you
or your registered representative to get it. If for some reason we are unable to
complete this process within 5 business days, we will either send back your
money or get your permission to keep it until we get all of the necessary
information. If you make additional Purchase Payments, we will credit these
amounts to your Contract within one business day. Our business day closes when
the New York Stock Exchange closes, which is usually at 4:00 p.m. Eastern time.
FREE LOOK
If you change your mind about owning the Contract, you can cancel it within 10
days after receiving it. Return of the Contract by mail is effective on being
postmarked, properly addressed and postage prepaid. When you cancel the Contract
within this time period, Preferred Life will not assess a contingent deferred
sales charge. You will receive back whatever your Contract is worth on the day
we receive your request. If you have purchased the Contract as an IRA, we are
required to give you back your Purchase Payment if you decide to cancel your
Contract within 10 days after receiving it. If that is the case, we have the
right to allocate your initial Purchase Payment to the Franklin Money Market
Fund for 15 days after we receive it. At the end of that period, we will
re-allocate your money as you selected. Currently, however, we will directly
allocate your money to the Variable Options and/or the Fixed Account as you have
selected.
ACCUMULATION UNITS
The value of the portion of your Contract allocated to the Variable Options will
go up or down depending upon the investment performance of the Variable
Variable Annuity Prospectus
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 cur- rent period by the
value of a Portfolio for the previous period; and
2. multiplying it by one minus the daily amount of the insurance charges and any
charges for taxes. The value of an Accumulation Unit may go up or down from day
to day.
When you make a Purchase Payment, we credit your Contract with Accumulation
Units for any portion of your Purchase Payment allocated to a Variable Option.
The number of Accumulation Units credited is determined by dividing the amount
of the Purchase Payment allocated to a Variable Option by the value of the
Accumulation Unit.
We calculate the value of an Accumulation Unit after the New York Stock Exchange
closes each day and then credit your Contract.
EXAMPLE:
On Wednesday we receive an additional Purchase Payment of $3,000 from you. You
have told us you want this to go to the Franklin Growth and Income Securities
Fund. When the New York Stock Exchange closes on that Wednesday, we determine
that the value of an Accumulation Unit based on an investment in the Franklin
Growth and Income Securities Fund is $12.50. We then divide $3,000 by $12.50 and
credit your Contract on Wednesday night with 240 Accumulation Units.
4. INVESTMENT OPTIONS
- -------------------------------------------------------------------------------
The Contract offers Variable Options, which invest in Portfolios of AIM Variable
Insurance Funds, The Alger American Fund, Franklin Templeton Variable Insurance
Products Trust, and USAllianz Variable Insurance Products Trust. The Contract
also offers a Fixed Account of Preferred Life. Additional Portfolios may be
available in the future.
You should read the fund prospectuses (which are attached to this prospectus)
carefully before investing.
AIM Variable Insurance Funds, The Alger American Fund, Franklin Templeton
Variable Insurance Products Trust and USAllianz Variable Insurance Products
Trust are the funds underlying your Contract. Each Portfolio has its own
investment objective.
Franklin Templeton Variable Insurance Products Trust (formerly, Franklin
Valuemark Funds) issues two classes of shares which are described in the
attached prospectus for Franklin Templeton Variable Insurance Products Trust.
Only Class 1 shares are available in connection with your Contract. Effective
May 1, 2000, the funds of Templeton Variable Products Series Fund were merged
into similar funds of Franklin Templeton Variable Insurance Products Trust.
Investment advisers for each Portfolio are listed in the table below and are as
follows: A I M Advisors, Inc.; Allianz of America, Inc.; Fred Alger Management,
Inc.; Franklin Advisers, Inc.; Franklin Advisory Services, LLC; Franklin Mutual
Advisers, LLC; Templeton Asset Management Ltd.; Templeton Global Advisors
Limited; and Templeton Investment Counsel, Inc. Certain advisers have retained
one or more subadvisers to help them manage the Portfolios.
The investment objectives and policies of certain Portfolios are similar to the
investment objectives and policies of other mutual funds that certain of the
same investment advisers manage. Although the objectives and policies may be
similar, the investment results of the Portfolios may be higher or lower than
the results of such other mutual funds. The investment advisers cannot
guarantee, and make no representation, that the investment results of similar
funds will be comparable even though the Portfolios have the same investment
advisers.
A Portfolio's performance may be affected by risks specific to certain types of
investments, such as foreign securities, derivative investments, non-investment
grade debt securities, initial public offerings (IPOs) or companies with
relatively small market capitalizations. IPOs and other investment techniques
may have a magnified performance impact on a Portfolio with a small asset base.
A Portfolio may not experience similar performance as its assets grow.
14
The following is a list of the Portfolios available under the Contract and the
investment adviser for each Portfolio:
<TABLE>
<CAPTION>
INVESTMENT
AVAILABLE PORTFOLIOS ADVISERS
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
AIM VARIABLE INSURANCE FUNDS, INC.:
AIM V.I. Growth Fund A I M Advisors, Inc.
THE ALGER AMERICAN FUND:
Alger American Growth Portfolio Fred Alger Management, Inc.
Alger American Leveraged AllCap Portfolio Fred Alger Management, Inc.
(seeks long-term capital appreciation)
FRANKLIN TEMPLETON VARIABLE
INSURANCE PRODUCTS TRUST:
Franklin Aggressive Growth Securities Fund Franklin Advisers, Inc.
Franklin Global Communications Securities Fund* Franklin Advisers, Inc.
Franklin Global Health Care Securities Fund Franklin Advisers, Inc.
Franklin Growth and Income Securities Fund * Franklin Advisers, Inc.
Franklin High Income Fund Franklin Advisers, Inc.
Franklin Income Securities Fund Franklin Advisers, Inc.
Franklin Large Cap Growth Securities Fund* Franklin Advisers, Inc.
Franklin Money Market Fund Franklin Advisers, Inc.
Franklin Natural Resources Securities Fund Franklin Advisers, Inc.
Franklin Real Estate Fund* Franklin Advisers, Inc.
Franklin Rising Dividends Securities Fund* Franklin Advisory Services, LLC
Franklin S&P 500 Index Fund Franklin Advisers, Inc.
Franklin Small Cap Fund Franklin Advisers, Inc.
Franklin Technology Securities Fund Franklin Advisers, Inc.
Franklin U.S. Government Fund* Franklin Advisers, Inc.
Franklin Value Securities Fund Franklin Advisory Services, LLC
Franklin Zero Coupon Funds - 2000, 2005 and 2010 Franklin Advisers, Inc.
Mutual Discovery Securities Fund(capital appreciation) Franklin Mutual Advisers, LLC
Mutual Shares Securities Fund Franklin Mutual Advisers, LLC
(capital appreciation with income as a secondary goal)
Templeton Asset Strategy Fund* Templeton Investment Counsel, Inc.
Templeton Developing Markets Securities Fund* Templeton Asset Management Ltd.
Templeton Global Income Securities Fund Franklin Advisers, Inc.
Templeton Growth Securities Fund* Templeton Global Advisors Limited
Templeton International Securities Fund* Templeton Investment Counsel, Inc.
Templeton International Smaller Companies Fund Templeton Investment Counsel, Inc.
Templeton Pacific Growth Securities Fund* Franklin Advisers, Inc.
USALLIANZ VARIABLE
INSURANCE PRODUCTS TRUST:
USAllianz VIP Growth Allianz of America, Inc.
USAllianz VIP Diversified Assets Fund Allianz of America, Inc.
USAllianz VIP Fixed Income Fund Allianz of America, Inc.
</TABLE>
15 Variable Annuity Prospectus
<TABLE>
<CAPTION>
*The Portfolio name changed as of the effective date listed below:
CURRENT NAME PREVIOUS NAME EFFECTIVE DATE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Franklin Global Communications Securities Fund Franklin Global Utilities Securities Fund 11-15-1999
Franklin Growth and Income Securities Fund Franklin Growth and Income Fund 05-01-2000
Franklin Large Cap Growth Securities Fund Franklin Capital Growth Fund 12-15-1999
Franklin Real Estate Fund Franklin Real Estate Securities Fund 11-15-1999
Franklin Rising Dividends Securities Fund Franklin Rising Dividends Fund 11-15-1999
Franklin U.S. Government Fund Franklin U.S. Government Securities Fund 11-15-1999
Templeton Asset Strategy Fund Templeton Global Asset Allocation Fund 05-01-2000
Templeton Developing Markets Securities Fund Templeton Developing Markets Equity Fund 05-01-2000
Templeton Growth Securities Fund Templeton Global Growth Fund 05-01-2000
Templeton International Securities Fund Templeton International Equity Fund 05-01-2000
Templeton Pacific Growth Securities Fund Templeton Pacific Growth Fund 05-01-2000
</TABLE>
THE FRANKLIN ZERO COUPON FUND-2000 WILL MATURE DECEMBER 15, 2000. If you have
not made a selection prior to the maturity date of a Zero Coupon Fund, the
Contract Value held in the Franklin Zero Coupon Fund-2000 underlying your
Contract will be automatically transferred to the Franklin Money Market
Portfolio. We will notify you of a maturing Zero Coupon Fund in writing at least
30 days prior to the maturity. Included with the notification will be investment
options available at that time as well as the automatic Money Market option.
Shares of the funds may be offered in connection with certain variable annuity
contracts and variable life insurance policies of various insurance companies
which may or may not be affiliated with Preferred Life. Certain funds may also
be sold directly to qualified plans. The investment advisers believe that
offering their shares in this manner will not be disadvantageous to you.
Preferred Life may enter into certain arrangements under which it is reimbursed
by the funds' advisers, distributors and/or affiliates for the administrative
services which it provides to the Portfolios.
TRANSFERS
You can transfer money among the Variable Options and/or the Fixed Account.
Preferred Life currently allows you to make as many transfers as you want to
each year. Preferred Life may change this practice in the future. However, this
product is not designed for professional market timing organizations or other
persons using programmed, large, or frequent transfers. Such activity may be
disruptive to a Portfolio. We reserve the right to reject any specific Purchase
Payment allocation or transfer request from any person, if in the Portfolio
managers' judgment, a Portfolio would be unable to invest effectively in
accordance with its investment objectives and policies, or would otherwise
potentially be adversely affected.
Your Contract provides that you can make 12 transfers every year without charge.
We measure a year from the anniversary of the day we issued your Contract. You
can make a transfer to or from the Fixed Account and to or from any Variable
Option. If you make more than 12 transfers in a year, there is a transfer fee
deducted. The fee is $25 per transfer or, if less, 2% of the amount transferred.
The following applies to any transfer:
1) The minimum amount which you can transfer is $1,000 or your entire value in
the Variable Option or Fixed Account. This requirement is waived if the transfer
is in connection with the Dollar Cost Averag ing 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 Annu ity Option.
7) During the Payout Phase, you can make at least one transfer from a variable
Annuity Option to a fixed Annuity Option.
16
Preferred Life has reserved the right to modify the transfer provisions subject
to the guarantees described above.
You can make transfers by telephone by properly completing the telephone
transfer forms provided by Preferred Life. We may allow you to authorize someone
else to make transfers by telephone on your behalf. If you own the Contract with
a Joint Owner, unless Preferred Life is instructed otherwise, Preferred Life
will accept instructions from either one of you. Preferred Life will use
reasonable procedures to confirm that instructions given us by telephone are
genuine. If we do not use such procedures, we may be liable for any losses due
to unauthorized or fraudulent instructions. Preferred Life tape records all
telephone instructions.
DOLLAR COST AVERAGING PROGRAM
The Dollar Cost Averaging Program allows you to systematically transfer a set
amount of money each month or quarter from any one Variable Option or the Fixed
Account to up to eight of the other Variable Options.
The Variable Option(s) you transfer from may not be the Variable Option(s) you
transfer to in this program. By allocating amounts on a regularly scheduled
basis, as opposed to allocating the total amount at one particular time, you may
be less susceptible to the impact of market fluctuations. You may only
participate in this program during the Accumulation Phase.
You must participate in the program for at least six months (or two quarters)
and must transfer at least $500 each time (or $1,500 each quarter). Your
allocations can be in whole percentages or dollar amounts. You may elect this
program by properly completing the Dollar Cost Averaging forms printed by
Preferred Life.
All Dollar Cost Averaging transfers will be made on the 10th day of the month
unless that day is not a business day. If it is not, then the transfer will be
made the next business day.
Your participation in the program will end when any of the following occurs:
1) the number of desired transfers have been made;
2) you do not have enough money in the Variable Option(s) or the Fixed Account
to make the transfer (if less money is available, that amount will be dollar
cost averaged and the program will end);
3) you request to terminate the program (your request must be received by us by
the first of the month to terminate that month); or
4) the Contract is terminated.
If you participate in the Dollar Cost Averaging Program, the transfers made
under the program are not currently 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 currently taken into account in determining any transfer fee. The Fixed
Account is not permitted to be part of Flexible Rebalancing.
VOTING PRIVILEGES
Preferred Life is the legal owner of the Portfolio shares. However, when a
Portfolio solicits proxies in conjunction with a shareholder vote which affects
your investment, Preferred Life will obtain from you and other affected Contract
Owners instructions as to how to vote those shares. When we receive those
instructions, we will vote all of the shares we own in proportion to those
instructions. This will also include any shares that Preferred Life owns on its
own behalf. Should Preferred Life determine that it is no longer required to
comply with the above, we will vote the shares in our own right.
SUBSTITUTION
Preferred Life may substitute one of the Variable Options you have selected with
another Variable Option. We would not do this without the prior approval of the
Securities and Exchange Commission. We will give you notice of our intention to
do this. We may also limit fur-
Variable Annuity Prospectus
ther investment in a Variable Option if we deem the investment inappropriate.
5. EXPENSES
- --------------------------------------------------------------------------------
There are charges and other expenses associated with the Contract that will
reduce your investment return. These charges and expenses are:
INSURANCE CHARGES
Each day, Preferred Life makes a deduction for its insurance charges. Preferred
Life does this as part of its calculation of the value of the Accumulation Units
and the Annuity Units. The insurance charge has two parts:
1) the mortality and expense risk charge, and
2) the administrative charge.
MORTALITY AND EXPENSE RISK CHARGE. During the Accumulation Phase, this charge is
equal, on an annual basis, to 1.34% of the average daily value of the Contract
invested in a Variable Option. During the Payout Phase, the charge is equal, on
an annual basis, to 1.25% of the average daily value of the Contract invested in
a Variable Option. This charge compensates us for all the insurance benefits
provided by your Contract (for example, our contractual obligation to make
Annuity Payments, the death benefits, certain expenses related to the Contract,
and for assuming the risk (expense risk) that the current charges will be
insufficient in the future to cover the cost of administering the Contract). The
amount of the mortality and expense risk charge is less during the Payout Phase
because Preferred Life does not pay a death benefit separate from benefits under
the Annuity Option if you die during the Payout Phase.
ADMINISTRATIVE CHARGE. This charge is equal, on an annual basis, to .15% of the
average daily value of the Contract invested in a Variable Option. This charge,
together with the contract maintenance charge (which is explained below), is for
all the expenses associated with the administration of the Contract. Some of
these expenses include: preparation of the Contract, confirmations, annual
statements, maintenance of Contract records, personnel costs, legal and
accounting fees, filing fees, and computer and systems costs.
CONTRACT MAINTENANCE CHARGE
On each Contract anniversary, Preferred Life deducts $30 from your Contract as a
contract maintenance charge. The fee is assessed on the last day of each
Contract year. This charge is for administrative expenses (see above). This
charge can not be increased.
However, during the Accumulation Phase, if the value of your Contract is at
least $50,000 when the deduction for the charge is to be made, Preferred Life
will not deduct this charge. If you own more than one Valuemark IV Contract,
Preferred Life will determine the total value of all your Valuemark IV
Contracts. If the total value of all Contracts registered under the same social
security number is at least $50,000, Preferred Life will not assess the contract
maintenance charge. Currently, the charge is also waived during the Payout Phase
if the value of your Contract at the Income Date is at least $50,000. If the
Contract is owned by a non-natural person (e.g., a corporation), Preferred Life
will look to the Annuitant to determine if it will assess the charge.
If you make a complete withdrawal from your Contract, the contract maintenance
charge will also be deducted. During the Payout Phase, if the contract
maintenance charge is deducted, the charge will be collected monthly out of each
Annuity Payment.
CONTINGENT DEFERRED SALES CHARGE
Withdrawals may be subject to a contingent deferred sales charge. During the
Accumulation Phase, you can make withdrawals from your Contract. Preferred Life
keeps track of each Purchase Payment you make. The amount of the contingent
deferred sales charge depends upon how long Preferred Life has had your payment.
The charge is:
CONTINGENT DEFERRED
SALES CHARGE
YEARS SINCE (AS A PERCENTAGE OF
PURCHASE PAYMENT PURCHASE PAYMENTS)
- ------------------------------------------------------------------------
0-1 6%
1-2 6%
2-3 6%
3-4 5%
4-5 4%
5-6 3%
6-7 2%
7+ 0%
However, after Preferred Life has had a Purchase Payment for 7 full years, there
is no charge when you withdraw that Purchase Payment. For purposes of the
contingent deferred sales charge, Preferred Life treats withdrawals as coming
from the oldest Purchase Payments first. Preferred Life does not assess the
contingent
18
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. The free
withdrawal amount is not applicable to a full surrender. The free withdrawal
amount only applies in the event of a partial withdrawal.
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 transferred, if 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 currently will not count in determining the transfer fee.
INCOME TAXES
Preferred Life reserves the right to deduct from the Contract for any income
taxes which it may incur because of the Contract. Currently, Preferred Life is
not making any such deductions.
PORTFOLIO EXPENSES
There are deductions from the assets of the various Portfolios for operating
expenses (including management fees) which are described in the Fee Table in
this prospectus and the accompanying fund prospectuses.
6. TAXES
- -------------------------------------------------------------------------------
NOTE: PREFERRED LIFE HAS PREPARED THE FOLLOWING INFORMATION ON TAXES AS A
GENERAL DISCUSSION OF THE SUBJECT. IT IS NOT INTENDED AS TAX ADVICE. YOU SHOULD
CONSULT YOUR OWN TAX ADVISER ABOUT YOUR OWN CIRCUMSTANCES. PREFERRED LIFE HAS
INCLUDED ADDITIONAL INFORMATION REGARDING TAXES IN THE STATEMENT OF ADDITIONAL
INFORMATION.
ANNUITY CONTRACTS IN GENERAL
Annuity contracts are a means of setting aside money for future needs - usually
retirement. Congress recognized how important saving for retirement was and
provided special rules in the Internal Revenue Code (Code) for annuities.
Basically, these rules provide that you will not be taxed on any earnings on the
money held in your annuity Contract until you take the money out. This is
referred to as Tax Deferral. There are different rules regarding
19 Variable Annuity Prospectus
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).
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.
A Qualified Contract will not provide any necessary or additional tax deferral
if it is used to fund a Qualified plan that is tax deferred. However, the
contract has features and benefits other than tax deferral that may make it an
appropriate investment for a Qualified plan. You should consult your tax adviser
regarding these features and benefits prior to purchasing a 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
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 from your contract, the Code treats such a
withdrawal as first coming from earnings and then from your Purchase Payments.
You will be taxed on the amount of the withdrawal that is earnings. In most
cases, such withdrawn earnings are includible in income. 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.
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
If you make a withdrawal from your Qualified Contract, a portion of the
withdrawal is treated as taxable income. This portion depends on the ratio of
pre-tax Purchase Payments to the after-tax Purchase Payments in your Contract.
If all of your Purchase Payments were made with pre-tax money then the full
amount of any withdrawal is includible in taxable income. Special rules may
apply to withdrawals from certain types of Qualified Contracts.
The Code also provides that any amount received under a Qualified Contract,
which is included in income, may be subject to a penalty. The amount of the
penalty is equal to 10% of the amount that is includible in income. Some
withdrawals will be exempt from the penalty. They include any amounts:
20
1) paid on or after you reach age 591/2;
2) paid after you die;
3) paid if you become totally disabled (as that term is defined in the Code);
4) paid to you after leaving your employment in a series of substantially equal
periodic payments made annu- ally (or more frequently) under a lifetime annuity;
5) paid to you after you have attained age 55 and you have left your employment;
6) paid for certain allowable medical expenses (as defined in the Code);
7) paid pursuant to a qualified domestic relations order;
8) paid on account of an IRS levy upon the Qualified Contract;
9) paid from an IRA for medical insurance (as defined in the Code);
10) paid from an IRA for qualified higher education expenses; or
11) paid from an IRA for up to $10,000 for qualified first-time homebuyer
expenses (as defined in the Code).
The exceptions in 5) and 7) above do not apply to IRAs. The exception in 4)
above applies to IRAs but without the requirement of leaving employment.
We have provided a more complete discussion in the Statement of Additional
Information.
WITHDRAWALS -- TAX-SHELTERED ANNUITIES
The Code limits the withdrawal of amounts attributable to Purchase Payments made
under a salary reduction agreement by Contract Owners from Tax-Sheltered
Annuities. Withdrawals can only be made when a Contract Owner:
1) reaches age 591/2;
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 with-
Variable Annuity Prospectus
drawal 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 charges, contingent deferred sales charges and the expenses of the
Portfolios. Preferred Life may also advertise cumulative total return
information. Cumulative total return is determined the same way except that the
results are not annualized. Performance information for the underlying
Portfolios may also be advertised; see the fund prospectuses for more
information.
Certain Portfolios have been in existence for some time and have investment
performance history. In order to demonstrate how the actual investment
experience of the Portfolios may affect your Accumulation Unit values, Preferred
Life has prepared performance information. The performance is based on the
historical performance of the Portfolios, modified to reflect the charges and
22
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). If you die during the
Payout Phase, any benefit will be as provided for in the Annuity Option
selected. 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 USAllianz 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 USAllianz 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 fol- lowing 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: 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 USAllianz Service Center.
III. Additional Provisions
Variable Annuity Prospectus
If you have a Joint Owner, the age of the older Contract Owner will be used to
determine the guaranteed minimum death benefit. The guaranteed minimum death
benefit will be reduced by any amounts withdrawn after the date of death. If the
Contract is owned by a non- natural person, then all references to you mean the
Annuitant. If you have a Joint Owner, and the Joint Owner dies, the surviving
Owner will be the Beneficiary.
A Beneficiary may request that the death benefit be paid in one of the following
ways: (1) payment of the entire death benefit within 5 years of the date of
death; or (2) payment of the death benefit under an Annuity Option. The death
benefit payable under an Annuity Option must be paid over the Beneficiary's
lifetime or for a period not extending beyond the Beneficiary's life expectancy.
Payment must begin within one year of the date of death.(3) If the Beneficiary
is the spouse of the Contract Owner, he/she can choose to continue the Contract
in his/her own name at the then current value, or if greater, the death benefit
value. (4) If a lump sum payment is elected and all the necessary requirements,
including any required tax consent from the state of New York (when required),
are met, the payment will be made within 7 days. We may delay paying the death
benefit until we receive the tax consent (when required).
If you (or any Joint Owner) die during the Payout Phase and you are not the
Annuitant, any payments which are remaining under the Annuity Option selected
will continue at least as rapidly as they were being paid at your death. If you
die during the Payout Phase, the Beneficiary becomes the Contract Owner.
DEATH OF ANNUITANT
If the Annuitant, who is not a Contract Owner or Joint Owner, dies during the
Accumulation Phase, you can name a new Annuitant. If you do not name a new
Annuitant within 30 days of the death of the Annuitant, you will become the
Annuitant. However, if the Contract Owner is a non-natural person (e.g., a
corporation), then the death of the Annuitant will be treated as the death of
the Contract Owner, and a new Annuitant may not be named.
If the Annuitant dies after Annuity Payments have begun, the remaining amounts
payable, if any, will be as provided for in the Annuity Option selected. The
remaining amounts payable will be paid to the Contract Owner at least as rapidly
as they were being paid at the Annuitant's death.
10. OTHER INFORMATION
- -------------------------------------------------------------------------------
PREFERRED LIFE
Preferred Life Insurance Company of New York (Preferred Life), 152 West 57th
Street, 18th Floor, New York, NY 10019, was organized under the laws of the
state of New York. Preferred Life offers annuities and group life, group
accident and health insurance and variable annuity products. Preferred Life is
licensed to do business in six states, including New York 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.
THE SEPARATE ACCOUNT
Preferred Life established a separate account named Preferred Life Variable
Account C (Separate Account), to hold the assets that underlie the Contracts,
except assets you allocate to the Fixed Account. The Board of Directors of
Preferred Life adopted a resolution to establish the Separate Account under New
York insurance law on February 26, 1988. Preferred Life has registered the
Separate Account with the Securities and Exchange Commission as a unit
investment trust under the Investment Company Act of 1940. The Separate Account
is divided into Variable Options (also known as sub-accounts). Each Variable
Option invests in a Portfolio.
The assets of the Separate Account are held in Preferred Life's name on behalf
of the Separate Account and legally belong to Preferred Life. However, those
assets that underlie the Contracts, are not chargeable with liabilities arising
out of any other business Preferred Life may conduct. All the income, gains and
losses (realized or unrealized) resulting from these assets are credited to or
charged against the Contracts and not against any other contracts Preferred Life
may issue.
DISTRIBUTION
USAllianz Investor Services, LLC (formerly NALAC Financial Plans, LLC), 1750
Hennepin Avenue, Minneapolis, MN 55403, acts as the distributor of the
Contracts. USAllianz Investor Services, LLC, is an affiliate of Preferred Life.
Commissions will be paid to broker-dealers who sell the Contracts.
Broker-dealers will be paid commissions up to 7.0% of Purchase Payments. In
addition, Preferred Life may pay certain sellers for other services not directly
related to the sale of the Contracts (such as special marketing support
allowances). The New York Insurance
24
Department permits compensation based on the assets in your Contract. Preferred
Life may adopt a different compensation program based on the assets in your
Contract in addition to, or in lieu of, the present compensation program.
Commissions may be recovered from broker-dealers if a full or partial withdrawal
occurs within 12 months of a Purchase Payment or there is a recission of the
Contract within the Free-Look period.
ADMINISTRATION
Preferred Life has hired Delaware Valley Financial Services, Inc., 300 Berwyn
Park, Berwyn, Pennsylvania, to perform administrative services regarding the
Contracts. The administrative services include issuance of the Contracts and
maintenance of Contract Owner's records.
FINANCIAL STATEMENTS
The financial statements of Preferred Life and the Separate Account have been
included in the Statement of Additional Information.
TABLE OF CONTENTS
OF THE STATEMENT OF
ADDITIONAL INFORMATION
- ------------------------------------------------------------------------------
Insurance Company 2
Experts 2
Legal Opinions 2
Distributor 2
Reduction or Elimination of the
Contingent Deferred Sales Charge 2
Calculation of Performance Data 2
Federal Tax Status 6
Annuity Provisions 13
Mortality and Expense Risk Guarantee 14
Financial Statements 14
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.
<TABLE>
<CAPTION>
(NUMBER OF UNITS IN THOUSANDS)
PERIOD FROM
YEAR OR PERIOD INCEPTION
ENDED (8/17/98) TO
VARIABLE OPTIONS: DEC. 31, 1999 DEC. 31, 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
AIM V.I. GROWTH*
Unit value at beginning of period $10.000 NA
Unit value at end of period $11.083 NA
Number of units outstanding at end of period 0 NA
ALGER AMERICAN GROWTH*
Unit value at beginning of period $10.000 NA
Unit value at end of period $10.921 NA
Number of units outstanding at end of period 8 NA
ALGER AMERICAN LEVERAGED ALLCAP*
Unit value at beginning of period $10.000 NA
Unit value at end of period $12.159 NA
Number of units outstanding at end of period 0 NA
FRANKLIN GLOBAL COMMUNICATIONS SECURITIES
Unit value at beginning of period $28.082 $25.635
Unit value at end of period $38.572 $28.082
Number of units outstanding at end of period 21 2
FRANKLIN GLOBAL HEALTH CARE SECURITIES
Unit value at beginning of period $10.604 $10.000
Unit value at end of period $9.604 $10.604
Number of units outstanding at end of period 19 8
FRANKLIN GROWTH AND INCOME SECURITIES
Unit value at beginning of period $25.993 $24.354
Unit value at end of period $25.891 $25.993
Number of units outstanding at end of period 74 17
FRANKLIN HIGH INCOME
Unit value at beginning of period $21.020 $21.141
Unit value at end of period $20.695 $21.020
Number of units outstanding at end of period 63 25
25 Variable Annuity Prospectus
(NUMBER OF UNITS IN THOUSANDS)
PERIOD FROM
YEAR OR PERIOD INCEPTION
ENDED (8/17/98) TO
VARIABLE OPTIONS: DEC. 31, 1999 DEC. 31, 1998
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN INCOME SECURITIES
Unit value at beginning of period $24.898 $24.864
Unit value at end of period $24.084 $24.898
Number of units outstanding at end of period 56 14
FRANKLIN LARGE CAP GROWTH SECURITIES
Unit value at beginning of period $15.537 $13.110
Unit value at end of period $20.152 $15.537
Number of units outstanding at end of period 73 17
FRANKLIN MONEY MARKET
Unit value at beginning of period $14.260 $13.756
Unit value at end of period $14.717 $14.260
Number of units outstanding at end of period 103 12
FRANKLIN NATURAL RESOURCES SECURITIES
Unit value at beginning of period $8.430 $11.466
Unit value at end of period $10.983 $8.430
Number of units outstanding at end of period 12 7
FRANKLIN REAL ESTATE
Unit value at beginning of period $22.901 $27.944
Unit value at end of period $21.176 $22.901
Number of units outstanding at end of period 4 1
FRANKLIN RISING DIVIDENDS SECURITIES
Unit value at beginning of period $21.034 $19.968
Unit value at end of period $18.712 $21.034
Number of units outstanding at end of period 73 17
FRANKLIN SMALL CAP
Unit value at beginning of period $14.558 $14.923
Unit value at end of period $28.247 $14.558
Number of units outstanding at end of period 28 9
FRANKLIN S&P 500 INDEX*
Unit value at beginning of period $10.000 NA
Unit value at end of period $10.465 NA
Number of units outstanding at end of period 0 NA
FRANKLIN U.S. GOVERNMENT
Unit value at beginning of period $18.847 $17.805
Unit value at end of period $18.394 $18.847
Number of units outstanding at end of period 125 28
28
(NUMBER OF UNITS IN THOUSANDS)
PERIOD FROM
YEAR OR PERIOD INCEPTION
ENDED (8/17/98) TO
VARIABLE OPTIONS: DEC. 31, 1999 DEC. 31, 1998
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN VALUE SECURITIES
Unit value at beginning of period $7.713 $10.000
Unit value at end of period $7.724 $ 7.713
Number of units outstanding at end of period 54 22
FRANKLIN ZERO COUPON-2000
Unit value at beginning of period $20.502 $19.358
Unit value at end of period $20.819 $20.502
Number of units outstanding at end of period 14 2
FRANKLIN ZERO COUPON-2005
Unit value at beginning of period $24.786 $22.357
Unit value at end of period $22.983 $24.786
Number of units outstanding at end of period 4 2
FRANKLIN ZERO COUPON-2010
Unit value at beginning of period $27.674 $24.544
Unit value at end of period $23.929 $27.674
Number of units outstanding at end of period 7 3
MUTUAL DISCOVERY SECURITIES
Unit value at beginning of period $11.205 $11.971
Unit value at end of period $13.662 11.205
Number of units outstanding at end of period 38 17
MUTUAL SHARES SECURITIES
Unit value at beginning of period $11.814 $11.981
Unit value at end of period $13.199 $11.814
Number of units outstanding at end of period 144 38
(Number of units in thousands)
TEMPLETON ASSET STRATEGY
Unit value at beginning of period $13.543 $13.752
Unit value at end of period $14.347 $13.543
Number of units outstanding at end of period 4 1
TEMPLETON DEVELOPING MARKETS SECURITIES
Unit value at beginning of period $7.958 $10.305
Unit value at end of period $12.125 $7.958
Number of units outstanding at end of period 10 5
TEMPLETON GLOBAL INCOME SECURITIES
Unit value at beginning of period $17.746 $16.821
Unit value at end of period $16.472 $17.746
Number of units outstanding at end of period 6
28
(NUMBER OF UNITS IN THOUSANDS)
PERIOD FROM
YEAR OR PERIOD INCEPTION
ENDED (8/17/98) TO
VARIABLE OPTIONS: DEC. 31, 1999 DEC. 31, 1998
- ---------------------------------------------------------------------------------------------------------------------------
TEMPLETON GROWTH SECURITIES
Unit value at beginning of period $16.238 $15.124
Unit value at end of period $19.364 $16.238
Number of units outstanding at end of period 91 10
TEMPLETON INTERNATIONAL SECURITIES
Unit value at beginning of period $18.322 $17.617
Unit value at end of period $22.858 $18.322
Number of units outstanding at end of period 16 8
TEMPLETON INTERNATIONAL SMALLER COMPANIES
Unit value at beginning of period $9.342 $10.809
Unit value at end of period $11.403 $9.342
Number of units outstanding at end of period 3 3
TEMPLETON PACIFIC GROWTH SECURITIES
Unit value at beginning of period $8.028 $9.381
Unit value at end of period $10.838 $8.028
Number of units outstanding at end of period 8 6
USALLIANZ VIP DIVERSIFIED ASSETS*
Unit value at beginning of period $10.000 NA
Unit value at end of period $10.168 NA
Number of units outstanding at end of period 0 NA
USALLIANZ VIP FIXED INCOME*
Unit value at beginning of period $10.000 NA
Unit value at end of period $9.749 NA
Number of units outstanding at end of period 0 NA
USALLIANZ VIP GROWTH*
Unit value at beginning of period $10.000 NA
Unit value at end of period $10.731 NA
Number of units outstanding at end of period 0 NA
<FN>
*The AIM V.I. Growth, Alger American Growth, Alger American Leveraged AllCap,
Franklin S&P 500 Index, USAllianz VIP Diversified Assets, USAllianz VIP Fixed
Income and USAllianz VIP Growth Sub-Accounts commenced operations with the
Separate Account November 12, 1999. Unit Value at inceptions was $10.00.
There are no accumulation units shown for the Franklin Aggressive Growth
Securities Fund and the Franklin Technology Securities Fund because they
commenced operations as of the date of this prospectus and therefore had no
assets of December 31, 1999.
</FN>
</TABLE>
<PAGE>
PART A-VERSION B
THE VARIABLE ANNUITY CONTRACT
issued by
PREFERRED LIFE VARIABLE ACCOUNT C
and
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
This prospectus describes the Variable Annuity Contract with a Fixed Account
offered by Preferred Life Insurance Company of New York (Preferred Life). All
references to "we," "us" and "our" refer to Preferred Life.
The annuity offers the Variable Options, and a Fixed Account of Preferred Life.
Each Variable Option invests in a Portfolio listed below. You can select up to
10 investment choices (which includes any of the Variable Options and the Fixed
Account).
VARIABLE OPTIONS:
AIM VARIABLE INSURANCE FUNDS:
AIM V.I. Capital Appreciation Fund
AIM V.I. Growth Fund
AIM V.I. International Equity Fund
AIM V.I. Value Fund
THE ALGER AMERICAN FUND:
Alger American Growth Portfolio
Alger American Leveraged AllCap Portfolio
Alger American MidCap Growth Portfolio
Alger American Small Capitalization Portfolio
DAVIS VARIABLE ACCOUNT FUND, INC.:
Davis VA Financial Portfolio
Davis VA Real Estate Portfolio
Davis VA Value Portfolio
FRANKLIN TEMPLETON VARIABLE
INSURANCE PRODUCTS TRUST#:
Franklin Aggressive Growth Securities Fund
Franklin Global Communications Securities Fund
Franklin Global Health Care Securities Fund
Franklin Growth and Income Securities Fund
Franklin High Income Fund
Franklin Income Securities Fund
Franklin Large Cap Growth Securities Fund
Franklin Natural Resources Securities Fund
Franklin Rising Dividends Securities Fund
Franklin S&P 500 Index Fund
Franklin Small Cap Fund
Franklin Technology Securities Fund
Franklin U.S. Government Fund
Franklin Value Securities Fund
Mutual Discovery Securities Fund
Mutual Shares Securities Fund
Templeton Developing Markets Securities Fund
Templeton Growth Securities Fund
Templeton International Securities Fund
Templeton International Smaller Companies Fund
Templeton Pacific Growth Securities Fund
#Effective May 1, 2000, the funds of Templeton Variable Products Series Fund
were merged into similar funds of Franklin Templeton Variable Insurance Products
Trust.
JP MORGAN SERIES TRUST II:
J.P. Morgan International Opportunities Portfolio
J.P. Morgan U.S. Disciplined Equity Portfolio
OPPENHEIMER VARIABLE ACCOUNT FUNDS:
Oppenheimer Global Securities Fund/VA
Oppenheimer High Income Fund/VA
Oppenheimer Main Street Growth & Income Fund/VA
PIMCO VARIABLE INSURANCE TRUST:
PIMCO VIT High Yield Bond Portfolio
PIMCO VIT StocksPLUS Growth and Income Portfolio
PIMCO VIT Total Return Bond Portfolio
SELIGMAN PORTFOLIOS, INC.:
Seligman Global Technology Portfolio
Seligman Small-Cap Value Portfolio
USALLIANZ VARIABLE INSURANCE PRODUCTS TRUST:
USAllianz VIP Diversified Assets Fund
USAllianz VIP Fixed Income Fund
USAllianz VIP Global Opportunities Fund
USAllianz VIP Growth Fund
USAllianz VIP Money Market Fund
VAN KAMPEN LIFE INVESTMENT TRUST:
Van Kampen LIT Enterprise Portfolio
Van Kampen LIT Growth and Income Portfolio
The Securities and Exchange Commission has not approved or disapproved these
securities or determined if this prospectus is truthful or complete. Any
representatioin to the contrary is a criminal offense. Please read this
prospectus before investing and keep it for future reference. It contains
important information about the 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, 2000. 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 27 of this prospectus. The SEC maintains a Web site
(http://www.sec.gov) that contains the SAI, material incorporated by reference
and other information about companies that file electronically with the SEC. For
a free copy of the SAI, call us at (800) 542-5427 or write us at: 152 West 57th
Street, 18th Floor, New York, New York 10019.
The Variable Annuity Contracts:
o are not bank deposits
o are not federally insured
o are not endorsed by any bank or government agency
o are not guaranteed and may be subject to loss of principal
This prospectus is not an offering of the securities in any state, country, or
jurisdiction in which we are not authorized to sell the Contracts. You should
rely only on the information contained in this prospectus or that we have
referred you to. We have not authorized anyone to provide you with information
that is different.
Dated: May 1, 2000
<PAGE>
TABLE OF CONTENTS
Index of Terms 4
Summary 5
Fee Table 6
1. The Variable Annuity Contract 13
Contract Owner 13
Joint Owner 13
Annuitant 13
Beneficiary 13
Assignment 13
2. Annuity Payments
(The Payout Phase) 14
Annuity Options 14
3. Purchase 15
Purchase Payments 15
Automatic Investment Plan 15
Allocation of Purchase Payments 15
Free Look 15
Accumulation Units 16
4. Investment Options 16
Transfers 18
Dollar Cost Averaging Program 19
Flexible Re-balancing 19
Voting Privileges 19
Substitution 20
5. Expenses 20
Insurance Charges 20
Mortality and Expense Risk Charge 20
Administrative Charge 20
Contract Maintenance Charge 20
Contingent Deferred Sales Charge 20
Waiver of Contingent Deferred
Sales Charge 21
Reduction or Elimination of the
Contingent Deferred Sales Charge 21
Transfer Fee 21
Income Taxes 21
Portfolio Expenses 21
6. Taxes 21
Annuity Contracts in General 21
Qualified and Non-Qualified Contracts 22
Multiple Contracts 22
Withdrawals-- Non-Qualified Contracts 22
Withdrawals-- Qualified Contracts 22
Withdrawals-- Tax-Sheltered Annuities 23
Diversification 23
7. Access to Your Money 23
Systematic Withdrawal Program 24
Minimum Distribution Program 24
Suspension of Payments or Transfers 24
8. Performance 24
9. Death Benefit 25
Upon Your Death 25
Death of Annuitant 26
10. Other Information 26
Preferred Life 26
The Separate Account 26
Distribution 27
Administration 27
Financial Statements 27
Table of Contents of the Statement
of Additional Information 27
Appendix 28
<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 13
Accumulation Unit 16
Annuitant 13
Annuity Options 14
Annuity Payments 14
Annuity Unit 16
Beneficiary 13
Contract 13
Contract Owner 13
Fixed Account 13
Income Date 14
Joint Owner 13
Non-Qualified 22
Payout Phase 13
Portfolios 13
Purchase Payment 15
Qualified 22
Tax Deferral 13
Variable Option 5
<PAGE>
SUMMARY
The sections in this summary correspond to sections in this prospectus which
discuss the topics in more detail.
THE VARIABLE ANNUITY CONTRACT:
The annuity contract offered by Preferred Life provides a means for investing on
a tax-deferred basis in Variable Options and the Preferred Life Fixed Account
for retirement savings or other long-term investment purposes. The Contract
provides a guaranteed death benefit and annuity income options.
ANNUITY PAYMENTS:
If you want to receive regular income from your annuity, you can choose an
Annuity Option. You can choose whether to have payments come from our general
account, the available Variable Options or both. If you choose to have any part
of your payments come from the Variable Options, the dollar amount of your
payments may go up or down based on the performance of the Portfolios.
PURCHASE:
You can buy the Contract with $5,000 or more under most circumstances. You can
add $250 or more any time you like during the Accumulation Phase.
INVESTMENT OPTIONS:
You can put your money in the Variable Options and/or you can invest in the
Preferred Life Fixed Account. The investment returns on the Portfolios are not
guaranteed. You can make or lose money. You can make transfers between
investment choices.
EXPENSES:
The Contract has insurance features and investment features, and there are costs
related to each.
Each year, Preferred Life deducts a $30 contract maintenance charge from your
Contract. Preferred Life currently waives this charge if the value of your
Contract is at least $50,000.
Preferred Life deducts a mortality and expense risk charge which is equal, on an
annual basis, to 1.34% of the average daily value of the Contract invested in a
Variable Option during the Accumulation Phase (1.25% during the Payout Phase).
Preferred Life also deducts an administrative charge which is equal, on an
annual basis, to 0.15% of the value of the Contract invested in a Variable
Option.
If you take money out of the Contract, Preferred Life may assess a contingent
deferred sales charge against each Purchase Payment withdrawn. The contingent
deferred sales charge starts at 6% in the first year and declines to 0% after 7
years.
You can make 12 free transfers each year. After that, Preferred Life deducts
$25, or 2% of the amount transferred, whichever is less, for each additional
transfer.
There are also daily investment charges which range, on an annual basis, from
0.60% to 1.81% of the average daily value of the Portfolio, depending upon the
Portfolio.
TAXES:
Your earnings are not taxed until you take them out. If you take money out
during the Accumulation Phase, earnings come out first and are taxed as income.
If you are younger than 591/2 when you take money out, you may be charged a 10%
federal tax penalty.
ACCESS TO YOUR MONEY:
You can take money out of your Contract during the Accumulation Phase.
Withdrawals during the Accumulation Phase may be subject to a contingent
deferred sales charge. You may also have to pay income tax and a tax penalty on
any money you take out.
DEATH BENEFIT:
If you die before moving to the Payout Phase, the Beneficiary will receive a
death benefit.
FREE-LOOK:
You can cancel the Contract within 10 days after receiving it. Preferred Life
will refund the value of your Contract on the day it receives your request to
cancel the Contract. This may be more or less than your original payment. If you
have purchased the Contract as an individual retirement annuity, Preferred Life
will refund the Purchase Payment.
INQUIRIES:
If you have questions about your Contract or need more information, please
contact us at:
USAllianz Service Center
300 Berwyn Park
P.O. Box 3031
Berwyn, PA 19312-0031
1-800-624-0197
<PAGE>
Fee Table
- --------------------------------------------------------------------------------
The purpose of this Fee Table is to help you understand the costs of investing,
directly or indirectly, in the Variable Options under the Contract. It reflects
expenses of the Separate Account as well as the Portfolios.
CONTRACT OWNER TRANSACTION FEES
Contingent Deferred Sales Charge*
(as a percentage of purchase payments)
YEARS SINCE
PURCHASE PAYMENT CHARGE
--------------------------
0-1 6%
1-2 6%
2-3 6%
3-4 5%
4-5 4%
5-6 3%
6-7 2%
7 + 0%
Transfer Fee ................... First 12 transfers in a
Contract year are free.
Thereafter,
the fee is $25 (or 2% of the
amount transferred, if
less). Dollar Cost Averaging
transfers and Flexible
Rebalancing transfers are
not currently counted.
CONTRACT MAINTENANCE CHARGE**.................... $30 per Contract per year
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average daily account value)
Mortality and Expense Risk Charge*** 1.34%
Administrative Charge 0.15%
-----
Total Separate Account Annual Expenses 1.49%
* Each year after the first Contract year, you may make multiple partial
withdrawals of up to a total of 15% of the value of your Contract and no
contingent deferred sales charge will be assessed. See Section 7 - "Access
to Your Money" for additional options.
** During the Accumulation Phase, the charge is waived if the value of your
Contract is at least $50,000. If you own more than one Contract offered
under this Prospectus (registered with the same social security number), we
will determine the total value of all your Contracts. If the total value of
all your Contracts is at least $50,000, the charge is waived. Currently, the
charge is also waived during the Payout Phase if the value of your Contract
at the Income Date is at least $50,000.
*** The Mortality and Expense Risk Charge is 1.25% during the Payout Phase.
<PAGE>
<TABLE>
<CAPTION>
FUND ANNUAL EXPENSES
(as a percentage of a Portfolio's average daily net assets for the most recent fiscal year). See the accompanying Portfolio
prospectuses for more information.
Total Fund
Other Expenses Expenses
(after waivers/(after waivers/
Management 12b-1 reimbursements reimbursements
Variable Option Fees Fees as noted) as noted)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund. 62% -- .11% .73%
AIM V.I. Growth Fund .63% -- .10% .73%
AIM V.I. International Equity Fund .75% -- .22% .97%
AIM V.I. Value Fund .61% -- .15% .76%
Alger American Growth Portfolio .75% -- .04% .79%
Alger American Leveraged AllCap Portfolio1 .85% -- .08% .93%
Alger American MidCap Growth Portfolio .80% -- .05% .85%
Alger American Small Capitalization Portfolio .85% -- .05% .90%
Davis VA Financial Portfolio2 .75% -- .25% 1.00%
Davis VA Real Estate Portfolio2 .75% -- .25% 1.00%
Davis VA Value Portfolio2 .75% -- .25% 1.00%
Franklin Aggressive Growth Securities Fund, Class 23/4 .50% .25% .22% .97%
Franklin Global Communications Securities Fund, Class 24 .48% .25% .03% .76%
Franklin Global Health Care Securities Fund, Class 24/5 .60% .25% .22% 1.07%
Franklin Growth and Income Securities Fund, Class 24 .47% .25% .02% .74%
Franklin High Income Fund, Class 24 .51% .25% .03% .79%
Franklin Income Securities Fund, Class 24 .48% .25% .02% .75%
Franklin Large Cap Growth Securities Fund, Class 24/6 .75% .25% .02% 1.02%
Franklin Natural Resources Securities Fund, Class 24 .62% .25% .04% .91%
Franklin Rising Dividends Securities Fund, Class 24 .73% .25% .02% 1.00%
Franklin S&P 500 Index Fund, Class 24 .15% .25% .83% 1.23%
Franklin Small Cap Fund, Class 24/5/7 .55% .25% .27% 1.07%
Franklin Technology Securities Fund, Class 23/4 .55% .25% .38% 1.18%
Franklin U.S. Government Fund, Class 24 .49% .25% .02% .76%
Franklin Value Securities Fund, Class 24/5 .60% .25% .21% 1.06%
J.P. Morgan International Opportunities Portfolio8 .60% -- .60% 1.20%
J.P. Morgan U.S. Disciplined Equity Portfolio8 .35% -- .50% .85%
Mutual Discovery Securities Fund, Class 24/5 .80% .25% .21% 1.26%
Mutual Shares Securities Fund, Class 24/5/6 .60% .25% .19% 1.04%
Oppenheimer Global Securities Fund/VA .67% -- .02% .69%
Oppenheimer High Income Fund/VA .74% -- .01% .75%
Oppenheimer Main Street Growth & Income Fund/VA .73% -- .05% .78%
PIMCO VIT High Yield Bond Portfolio9 .25% -- .50% .75%
PIMCO VIT StocksPLUS Growth and Income Portfolio9 .25% -- .40% .65%
PIMCO VIT Total Return Bond Portfolio9 .25% -- .40% .65%
Seligman Global Technology Portfolio10 1.00% -- .40% 1.40%
Seligman Small-Cap Value Portfolio10 1.00% -- .00% 1.00%
Templeton Developing Markets Securities Fund, Class 2 4/5/7 1.25% .25% .31% 1.81%
Templeton Growth Securities Fund, Class 2 4/6 .83% .25% .05% 1.13%
Templeton International Securities Fund, Class 2 4/5/7 .69% .25% .19% 1.13%
Templeton International Smaller Companies Fund, Class 2 4/5 .85% .25% .26% 1.36%
Templeton Pacific Growth Securities Fund, Class 24 1.00% .25% .08% 1.33%
USAllianz VIP Diversified Assets Fund11 .55% .25% .20% 1.00%
USAllianz VIP Fixed Income Fund11 .50% .25% .00% .75%
USAllianz VIP Global Opportunities Fund11 .95% .25% .31% 1.51%
USAllianz VIP Growth Fund11 .65% .25% .00% .90%
USAllianz VIP Money Market Fund11 .35% .25% .30% .90%
Van Kampen LIT Enterprise Portfolio12 .48% -- .12% .60%
Van Kampen LIT Growth & Income Portfolio12 .43% -- .32% .75%
<FN>
1.The Alger American Leveraged AllCap Portfolio's "Other Expenses" includes 0.01% of interest expense.
2. Without reimbursement, other expenses and total operating expenses would have been 3.49% and 4.24%, respectively for the Davis
VA Financial Portfolio, 10.95% and 11.7%, respectively for the Davis VA Real Estate Portfolio, and 1.54% and 2.29%, respectively
for the Davis VA Value Portfolio.
3. The Franklin Aggressive Growth Securities Fund and the Franklin Technology Securities Fund commenced operations as of the date
of this prospectus. The expenses shown above for these portfolios are therefore estimated for the current fiscal year.
4. For the Portfolios of Franklin Templeton Variable Insurance Products Trust, Class 2 shares have a distribution plan which is
referred to as a rule 12b-1 plan. While the maximum amount payable under the fund's Class 2 rule 12b-1 plan is 0.35% per year of
the fund's average daily net assets, the Board of Trustees of Franklin Templeton Variable Insurance Products Trust has set the
current rate at 0.25% per year. See "Fund Account Policies" in the accompanying Franklin Templeton Variable Insurance Products
Trust prospectus for more information about the rule 12b-1 plan.
5. The Franklin Global Health Care Securities Fund, the Franklin Small Cap Fund, the Franklin Value Securities Fund, the Mutual
Discovery Securities Fund, the Mutual Shares Securities Fund, the Templeton Developing Markets Securities Fund, the Templeton
International Securities Fund, and the Templeton International Smaller Companies Fund incur a portfolio administration fee as a
direct expense of the Portfolio. Other Portfolios of Franklin Templeton Variable Insurance Products Trust pay for similar services
indirectly through the Manage- ment Fee.
6. On 2/8/00, a merger and reorganization was approved that combined the fund with a similar fund of Templeton Variable Products
Series Fund, effective 5/1/00. The table shows total expenses based on the fund's assets as of 12/31/99, and not the assets of the
combined fund. However, if the table reflected combined assets, the fund's Management Fees, Distribution and Service Fees, Other
Expenses, and Total Fund Operating Expenses after 5/1/00 would be estimated as: 0.75%, 0.25%, 0.02%, and 1.02% respectively for
the Franklin Large Cap Growth Securities Fund; 0.60%, 0.25%, 0.19%, and 1.04% respectively for the Mutual Shares Securities Fund;
and 0.80%, 0.25%, 0.05%, 1.10% respectively for the Templeton Growth Securities Fund.
7. On 2/8/00, a merger and reorganization was approved that combined the assets of the fund with a similar fund of the Templeton
Variable Products Series Fund, effective 5/1/00. The shareholders of that fund had approved new management fees, which apply to
the combined fund effective 5/1/00. The table shows restated total expenses based on the new fees and assets of the fund as of
12/31/99, and not the assets of the combined fund. However, if the table reflected both the new fees and the combined assets, the
fund's Management Fees, Distri- bution and Service Fees, Other Expenses, and Total Fund Operating Expenses after 5/1/00 would be
estimated as: 0.55%, 0.25%, 0.27%, and 1.07% respectively for the Franklin Small Cap Fund; 1.25%, 0.25%, 0.29%, and 1.79%
respectively for the Templeton Developing Markets Securities Fund; and 0.65%, 0.25%, 0.20%, and 1.10% respectively for the
Templeton International Securities Fund.
8. Without reimbursement, other expenses and total operating expenses would have been 1.38% and 1.98%, respectively for the J.P.
Morgan International Opportunities Portfolio and 0.52% and 0.87%, respectively for the J.P. Morgan U.S. Disciplined Equity
Portfolio.
9. "Other Expenses" reflect a 0.35% administrative fee for the PIMCO High Yield Bond Portfolio, a 0.10% administrative fee for the
PIMCO StocksPLUS Growth and Income Portfolio, and a 0.25% administrative fee and 0.04% representing organizational expenses and
pro rata Trustees' fees for the Total Return Bond Portfolio. PIMCO has contractually agreed to reduce total annual portfolio
operating expenses to the extent they would exceed, due to the payment of organizational expenses and Trustees' fees, 0.75%, 0.65%
and 0.65%, respectively, of average daily net assets for the PIMCO High Yield, StocksPLUS Growth and Income and Total Return
Portfolios. Without such reductions, Total Annual Expenses for the fiscal year ended December 31, 1999 would have been 0.75%,
0.65% and 0.69%, respectively. Under the Expense Limitation Agreement, PIMCO may recoup these waivers and reimbursements in future
periods, not exceeding three years, pro- vided total expenses, including such recoupment, do not exceed the annual expense limit.
10. J. & W. Seligman & Co. Incorporated ("Seligman") voluntarily agreed to reimburse expenses of Seligman Global Technology
Portfolio, other than the management fee, which exceed .40%, and to reimburse all expenses of Seligman Small-Cap Value Portfolio,
other than managment fees, which exceed 1.00%. Without reimbursement, other expenses and total operating expenses would have been
0.41% and 1.41%, respectively, for Seligman Global Technology Portfolio, and 0.41% and 1.41% respectively, for Seligman Small-Cap
Value Portfolio. There is no assurance that Seligman will con tinue this policy in the future.
11. Certain expenses of the USAllianz VIP Funds have been assumed by the Adviser. Had those expenses no been assumed, total return
would have been lower and total fund expenses would have been 3.80% for the Diversified Assets Fund, 3.77% for the Fixed Income
Fund, 2.59% for the Global Oppor- tunities Fund (estimated for 2000), 3.90% for the Growth Fund, and 1.91% for the Money Market
Fund (estimated for 2000). The USAllianz VIP Diversified Assets Fund, USAllianz VIP Fixed Income Fund and the USAllianz VIP Growth
Fund commenced operations on November 12, 1999, and the USAllianz VIP Global Opportunities Fund and the USAllianz VIP Money Market
Fund commenced operations on January 13, 2000. The expenses shown for these portfolios are therefore estimated for the current
fiscal year.
12. If certain expenses had not been assumed by the Adviser, total return would have been lower and total fund expenses would have
been 0.62% for the Van Kampen LIT Enterprise Portfolio and 0.92% for the Van Kampen LIT Growth and Income Portfolio.
</FN>
</TABLE>
EXAMPLES
The examples below should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.
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.
Premium taxes are not reflected in the tables. Premium taxes may apply.
For additional information, see Section 5 -- "Expenses" and the accompanying
fund prospectuses.
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on your money if you surrender your Contract at the end of each
time period:
<TABLE>
<CAPTION>
Variable Option 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund $84 $123 $158 $265
AIM V.I. Growth Fund 84 123 158 265
AIM V.I. International Equity Fund 86 $131 $170 $290
AIM V.I. Value Fund 84 124 159 268
Alger American Growth Portfolio 84 125 161 272
Alger American Leveraged AllCap Portfolio 86 129 168 286
Alger American MidCap Growth Portfolio 85 127 164 278
Alger American Small Capitalization Portfolio 85 129 167 283
Davis VA Financial Portfolio 86 132 172 293
Davis VA Real Estate Portfolio 86 132 172 293
Davis VA Value Portfolio 86 132 172 293
Franklin Aggressive Growth Securities Fund* 86 131 170 290
Franklin Global Communications Securities Fund 84 124 159 268
Franklin Global Health Care Securities Fund 87 134 175 300
Franklin Growth and Income Securities Fund 84 124 158 266
Franklin High Income Fund 84 125 161 272
Franklin Income Securities Fund 84 124 159 267
Franklin Large Cap Growth Securities Fund 86 132 173 295
Franklin Natural Resources Securities Fund 85 129 167 284
Franklin Rising Dividends Securities Fund 86 132 172 293
Franklin S&P 500 Index Fund* 89 138 183 315
Franklin Small Cap Fund 87 134 175 300
Franklin Technology Securities Fund* 88 137 180 310
Franklin U.S. Government Fund 84 124 159 268
Franklin Value Securities Fund 87 133 175 299
Mutual Discovery Securities Fund 89 139 184 318
Mutual Shares Securities Fund 87 133 174 297
J.P. Morgan International Opportunities Portfolio 88 138 181 312
J.P. Morgan U.S. Disiplined Equity Portfolio 85 127 164 278
Oppenheimer Global Securities Fund/VA 83 122 156 261
Oppenheimer High Income Fund/VA 84 124 159 267
Oppenheimer Main Street Growth & Income Fund/VA 84 125 161 271
PIMCO VIT High Yield Bond Portfolio 84 124 159 267
PIMCO VIT StocksPLUS Growth and Income Portfolio 83 121 154 257
PIMCO VIT Total Return Bond Portfolio 83 121 154 257
Seligman Global Technology Portfolio 90 143 191 331
Variable Option 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------------------------------------------
Seligman Small-Cap Value Portfolio $86 $132 $172 $293
Templeton Developing Markets Securities Fund 94 156 211 369
Templeton Growth Securities Fund 88 135 178 305
Templeton International Securities Fund 88 135 178 305
Templeton International Smaller Companies Fund 90 142 189 328
Templeton Pacific Growth Securities Fund 90 141 188 325
USAllianz VIP Diversified Assets Fund* 86 132 172 293
USAllianz VIP Fixed Income Fund* 84 124 159 267
USAllianz VIP Global Opportunities Fund* 91 147 197 342
USAllianz VIP Growth Fund* 85 129 167 283
USAllianz VIP Money Market Fund* 85 129 167 283
Van Kampen LIT Enterprise Portfolio 82 119 151 252
Van Kampen LIT Growth & Income Portfolio 84 124 159 267
<FN>
*Estimated
</FN>
</TABLE>
<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:
Variable Option 1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund $24 $72 $124 $265
AIM V.I. Growth Fund 24 72 124 265
AIM V.I. International Equity Fund 26 80 136 290
AIM V.I. Value Fund 24 73 125 268
Alger American Growth Portfolio 24 74 127 272
Alger American Leveraged All Cap Portfolio 26 78 134 286
Alger American MidCap Growth Portfolio 25 76 130 278
Alger American Small Capitalization Portfolio 25 78 133 283
Davis VA Financial Portfolio 26 81 138 293
Davis VA Real Estate Portfolio 26 81 138 293
Davis VA Value Portfolio 26 81 138 293
Franklin Aggressive Growth Securities Fund* 26 80 136 290
Franklin Global Communications Securities Fund 24 73 125 268
Franklin Global Health Care Securities Fund 27 83 141 300
Franklin Growth and Income Securities Fund 24 73 124 266
Franklin High Income Fund 24 74 127 272
Franklin Income Securities Fund 24 73 125 267
Variable Option 1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------------------------------------------------
Franklin Large Cap Growth Securities Fund $26 $81 $139 $295
Franklin Natural Resources Securities Fund 25 78 133 284
Franklin Rising Dividends Securities Fund 26 81 138 293
Franklin S&P 500 Index Fund* 29 87 149 315
Franklin Small Cap Fund 27 83 141 300
Franklin Technology Securities Fund* 28 86 146 310
Franklin U.S. Government Fund 24 73 125 268
Franklin Value Securities Fund 27 82 141 299
Mutual Discovery Securities Fund 29 88 150 318
Mutual Shares Securities Fund 27 82 140 297
J.P. Morgan International Opportunities Portfolio 28 87 147 312
J.P. Morgan U.S. Disiplined Equity Portfolio 25 76 130 278
Oppenheimer Global Securities Fund/VA 23 71 122 261
Oppenheimer High Income Fund/VA 24 73 125 267
Oppenheimer Main Street Growth & Income Fund/VA 24 74 127 271
PIMCO VIT High Yield Bond Portfolio 24 73 125 267
PIMCO VIT StocksPLUS Growth and Income Portfolio 23 70 120 257
PIMCO VIT Total Return Bond Portfolio 23 70 120 257
Seligman Global Technology Portfolio 30 92 157 331
Seligman Small-Cap Value Portfolio 26 81 138 293
Templeton Developing Markets Securities Fund 34 105 177 369
Templeton Growth Securities Fund 28 84 144 305
Templeton International Securities Fund 28 84 144 305
Templeton International Smaller Companies Fund 30 91 155 328
Templeton Pacific Growth Securities Fund 30 90 154 325
USAllianz VIP Diversified Assets Fund* 26 81 138 293
USAllianz VIP Fixed Income Fund* 24 73 125 267
USAllianz VIP Global Opportunities Fund* 31 96 163 342
USAllianz VIP Growth Fund* 25 78 133 283
USAllianz VIP Money Market Fund* 25 78 133 283
Van Kampen LIT Enterprise Portfolio 22 68 117 252
Van Kampen LIT Growth & Income Portfolio 24 73 125 267
<FN>
*Estimated
</FN>
</TABLE>
See the Appendix for Accumulation Unit Values - Condensed Financial Information.
1. THE VARIABLE ANNUITY CONTRACT
This prospectus describes a variable deferred annuity contract with a Fixed
Account offered by Preferred Life.
An annuity is a contract between you, the owner, and an insurance company (in
this case Preferred Life), where the insurance company promises to pay you (or
someone else you choose) an income, in the form of Annuity Payments, beginning
on a designated date that is at least two years in the future. Until you decide
to begin receiving Annuity Payments, your annuity is in the Accumulation Phase.
Once you begin receiving Annuity Payments, your Contract switches to the Payout
Phase.
The Contract benefits from Tax Deferral. Tax Deferral means that you are not
taxed on earnings or appreciation on the assets in your Contract until you take
money out of your Contract.
Your investment choices include Variable Options, and the Fixed Account of
Preferred Life. The Contract is called a variable annuity because you can choose
among the Variable Options and, depending upon market conditions, you can make
or lose money in the Contract based on the investment performance of the
Variable Options. The Variable Options are designed to offer a better return
than the Fixed Account. However this is not guaranteed. 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 Variable Option(s) you select.
The amount of the Annuity Payments you receive during the Payout Phase of the
Contract also depends in large part upon the investment performance of the
Variable Options 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 of (assign) the Contract at any time during your
lifetime. Preferred Life will not be bound by the assignment until it receives
the written notice of the assignment. Preferred Life will not be liable for any
payment or other action it takes in accordance with the Contract before it
receives notice of the assignment. Any assignment made after the death benefit
has become payable can only be done with our consent. An assignment may be a
taxable event.
If the Contract is issued pursuant to a Qualified plan, there may be limitations
on your ability to assign the Contract.
2. ANNUITY PAYMENTS (THE PAYOUT PHASE)
You can receive regular monthly income payments under your Contract. You can
choose the month and year in which those payments begin. We call that date the
Income Date. Your Income Date must be the first day of a calendar month and must
be at least 2 full years after you buy the Contract. You can also choose among
income plans. We call those Annuity Options.
We ask you to choose your Income Date when you purchase the Contract. You can
change it at any time before the Income Date with 30 days notice to us. Annuity
Payments must begin by the first day of the first calendar month following the
Annuitant's 90th birthday. You (or someone you designate) will receive the
Annuity Payments. You will receive tax reporting on those payments.
You may elect to receive your Annuity Payments as a variable payout, a fixed
payout, or a combination of both. Under a fixed payout, all of the Annuity
Payments will be the same dollar amount (equal installments). If you choose a
variable payout, you can select from the available Variable Options. If you do
not tell us otherwise, your Annuity Payments will be based on the investment
allocations that were in place on the Income Date.
If you choose to have any portion of your Annuity Payments based on the
investment performance of the Variable Option(s), the dollar amount of your
payment will depend upon three things:
1)the value of your Contract in the Variable Option(s) on the Income Date,
2)the 5% assumed investment rate used in the annuity table for the Contract, and
3)the performance of the Variable Option(s) you selected.
If the actual performance exceeds the 5% assumed investment rate, your Annuity
Payments will increase. Similarly, if the actual rate is less than 5%, your
Annuity Payments will decrease.
ANNUITY OPTIONS
You can choose one of the following Annuity Options or any other Annuity Option
you want and that Preferred Life agrees to provide. After Annuity Payments
begin, you cannot change the Annuity Option. If you do not choose an Annuity
Option prior to the Income Date, we will assume that you selected Option 2 which
provides a life annuity with 5 years of guaranteed payments.
OPTION 1. Life Annuity. Under this option, we will make monthly Annuity
Payments so long as the Annuitant is alive. After the
Annuitant dies, we stop making Annuity Payments.
OPTION 2. Life Annuity with 5, 10, 15 or 20 Year Payments Guaranteed. Under this
option, we will make monthly Annuity Payments so long as the Annuitant is alive.
However, if the Annuitant dies before the end of the selected guaranteed period,
we will continue to make Annuity Payments to you or any person you choose for
the rest of the guaranteed period. If you do not want to receive Annuity
Payments after the Annuitant's death, you can ask us for a single lump sum.
OPTION 3. Joint and Last Survivor Annuity. Under this option, we will make
monthly Annuity Payments during the joint lifetime of the Annuitant and the
joint Annuitant. When the Annuitant dies, if the joint Annuitant is still alive,
we will continue to make Annuity Payments so long as the joint Annuitant
continues to live. The amount of the Annuity Payments we will make to you can be
equal to 100%, 75% or 50% of the amount that was being paid when both Annuitants
were alive. The monthly Annuity Payments will end when the last surviving
Annuitant dies.
OPTION 4. Joint and Last Survivor Annuity with 5, 10, 15 or 20 Year Payments
Guaranteed. Under this option, we will make monthly Annuity Payments during the
joint lifetime of the Annuitant and the joint Annuitant. When the Annuitant
dies, if the joint Annuitant is still alive, we will continue to make Annuity
Payments, so long as the surviving Annuitant continues to live, at 100% of the
amount that would have been paid if they were both alive. If, when the last
death occurs, we have made Annuity Payments for less than the selected
guaranteed period, we will continue to make Annuity Payments to you or any
person you choose for rest of the guaranteed period. If you do not want to
receive Annuity Payments after the last Annuitant's death, you can ask us for a
single lump sum.
OPTION 5. Refund Life Annuity. Under this option, we will make monthly Annuity
Payments during the Annuitant's lifetime. If the value of the Annuity Payments
made at the time of the Annuitant's death 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 the 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 the AIP is $100. You
may stop the AIP at any time you want. We need to be notified by the first of
the month in order to stop or change the AIP that month. If the 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 USAllianz
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 options at any one time (which includes any of the Variable
Options listed in Section 4 and the Preferred Life Fixed Account). We may change
this in the future. However, we will always allow you to invest in at least five
Variable Options.
Once we receive your Purchase Payment and the necessary information, we will
issue your Contract and allocate your first Purchase Payment within 2 business
days. If you do not give us all of the information we need, we will contact you
or your registered representative to get it. If for some reason we are unable to
complete this process within 5 business days, we will either send back your
money or get your permission to keep it until we get all of the necessary
information. If you make additional Purchase Payments, we will credit these
amounts to your Contract within one business day. Our business day closes when
the New York Stock Exchange closes, which is usually at 4:00 p.m. Eastern time.
FREE LOOK
If you change your mind about owning the Contract, you can cancel it within 10
days after receiving it. Return of the Contract by mail is effective on being
postmarked, properly addressed and postage prepaid. When you cancel the Contract
within this time period, Preferred Life will not assess a contingent deferred
sales charge. You will receive back whatever your Contract is worth on the day
we receive your request. If you have purchased the Contract as an IRA, we are
required to give you back your Purchase Payment if you decide to cancel your
Contract within 10 days after receiving it. If that is the case, we have the
right to allocate your initial Purchase Payment to the USAllianz VIP Money
Market Fund for 15 days after we receive it. At the end of that period, we will
re-allocate your money as you selected. Currently, however, we will directly
allocate your money to the Variable Options and/or the Fixed Account as you have
selected.
ACCUMULATION UNITS
The value of the portion of your Contract allocated to the Variable Options will
go up or down depending upon the investment performance of the Variable
Option(s) you choose. The value of your Contract will also depend on the
expenses of the Contract. In order to keep track of the value of your Contract,
we use a measurement called an Accumulation Unit (which is like a share of a
mutual fund). During the Payout Phase of the Contract we call it an Annuity
Unit.
Every business day we determine the value of an Accumulation Unit for each
Variable Option by multiplying the Accumulation Unit value for the previous
period by a factor for the current period. The factor is determined by:
1.dividing the value of a Portfolio at the end of the current period by the
value of a Portfolio for the previous period; and
2.multiplying it by one minus the daily amount of the insurance charges and
any charges for taxes.
The value of an Accumulation Unit may go up or down from day to day.
When you make a Purchase Payment, we credit your Contract with Accumulation
Units for any portion of your Purchase Payment allocated to a Variable Option.
The number of Accumulation Units credited is determined by dividing the amount
of the Purchase Payment allocated to a Variable Option by the value of the
Accumulation Unit.
We calculate the value of an Accumulation Unit after the New York Stock Exchange
closes each day and then credit your Contract.
EXAMPLE:
On Wednesday we receive an additional Purchase Payment of $3,000 from you. You
have told us you want this to go to the Franklin Growth and Income Securities
Fund. When the New York Stock Exchange closes on that Wednesday, we determine
that the value of an Accumulation Unit based on an investment in the Franklin
Growth and Income Securities Fund is $12.50. We then divide $3,000 by $12.50 and
credit your Contract on Wednesday night with 240 Accumulation Units.
4. INVESTMENT OPTIONS
The Contract offers Variable Options. Each Variable Option invests in one of
the Portfolios listed below. Each Variable Option has
its own investment objective. The Contract also offers a Fixed
Account of Preferred Life. Additional Variable Options may be
available in the future.
You should read the fund prospectuses (which are attached to this prospectus)
carefully before investing.
Franklin Templeton Variable Insurance Products Trust (formerly, Franklin
Valuemark Funds) issues two classes of shares. Only Class 2 shares are available
in connection with your Contract. Class 2 shares have Rule 12b-1 plan expenses.
Effective May 1, 2000, the funds of Templeton Variable Products Series Fund were
merged into similar funds of Franklin Templeton Variable Insurance Products
Trust.
Investment advisers for each Portfolio are listed in the table below. Certain
advisers have retained one or more subadvisers to help them manage the
Portfolios.
The investment objectives and policies of certain Portfolios are similar to the
investment objectives and policies of other mutual funds that certain of the
same investment advisers manage. Although the objectives and policies may be
similar, the investment results of the Portfolios may be higher or lower than
the results of such other mutual funds. The investment advisers cannot
guarantee, and make no representation, that the investment results of similar
funds will be comparable even though the Portfolios have the same investment
advisers.
A Portfolio's performance may be affected by risks specific to certain types of
investments, such as foreign securities, derivative investments, non-investment
grade debt securities, initial public offerings (IPOs) or companies with
relatively small market capitalizations. IPOs and other investment techniques
may have a magnified performance impact on a Portfolio with a small asset base.
A Portfolio may not experience similar performance as its assets grow.
The following is a list of the Portfolios available under the Contract and
investment advisers for each Portfolio:
<TABLE>
<CAPTION>
Available Portfolios Investment Advisers
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
AIM VARIABLE INSURANCE FUNDS:
AIM V.I. Capital Appreciation Fund A I M Advisors, Inc.
AIM V.I. Growth Fund A I M Advisors, Inc.
AIM V.I. International Equity Fund A I M Advisors, Inc.
AIM V.I. Value Fund A I M Advisors, Inc.
THE ALGER AMERICAN FUND:
Alger American Growth Portfolio Fred Alger Management, Inc.
Alger American Leveraged AllCap Portfolio Fred Alger Management, Inc.
(seeks long term capital appreciation)
Alger American MidCap Growth Portfolio Fred Alger Management, Inc.
Alger American Small Capitalization Portfolio Fred Alger Management, Inc.
DAVIS VARIABLE ACCOUNT FUND, INC.:
Davis VA Financial Portfolio Davis Selected Advisers, LP
Davis VA Real Estate Portfolio Davis Selected Advisers, LP
Davis VA Value Portfolio Davis Selected Advisers, LP
FRANKLIN TEMPLETON VARIABLE INSURANCE
PRODUCTS TRUST:
Franklin Aggressive Growth Securities Fund Franklin Advisers, Inc.
Franklin Global Communications Securities Fund Franklin Advisers, Inc.
Franklin Global Health Care Securities Fund Franklin Advisers, Inc.
Franklin Growth and Income Securities Fund Franklin Advisers, Inc.
Franklin High Income Fund Franklin Advisers, Inc.
Franklin Income Securities Fund Franklin Advisers, Inc.
Franklin Large Cap Growth Securities Fund Franklin Advisers, Inc.
Franklin Natural Resources Securities Fund Franklin Advisers, Inc.
Franklin Rising Dividends Securities Fund Franklin Advisory Services, LLC
Franklin S&P 500 Index Fund Franklin Advisers, Inc.
Franklin Small Cap Fund Franklin Advisers, Inc.
Franklin Technology Securities Fund Franklin Advisers, Inc.
Franklin U.S. Government Fund Franklin Advisers, Inc.
Franklin Value Securities Fund Franklin Advisory Services, LLC
Mutual Discovery Securities Fund
(capital appreciation) Franklin Mutual Advisers, LLC
Mutual Shares Securities Fund Franklin Mutual Advisers, LLC
(capital appreciation with income as a secondary goal)
Templeton Developing Markets Securities Fund Templeton Asset Management Ltd.
Templeton Growth Securities Fund Templeton Global Advisors Limited
Templeton International Securities Fund Templeton Investment Counsel, Inc.
Templeton International Smaller Companies Fund Templeton Investment Counsel, Inc.
Templeton Pacific Growth Securities Fund Franklin Advisers, Inc.
JP MORGAN SERIES TRUST II:
J.P. Morgan International Opportunities Portfolio J.P. Morgan Investment Management Inc.
J.P. Morgan U.S. Disciplined Equity Portfolio J.P. Morgan Investment Management Inc.
OPPENHEIMER VARIABLE ACCOUNT FUNDS:
Oppenheimer Global Securities Fund/VA OppenheimerFunds, Inc.
Oppenheimer High Income Fund/VA OppenheimerFunds, Inc.
Oppenheimer Main Street Growth
& Income Fund/VA OppenheimerFunds, Inc.
PIMCO VARIABLE INSURANCE TRUST:
PIMCO VIT High Yield Bond Portfolio Pacific Investment Management Company
PIMCO VIT StocksPLUS Growth and Income Portfolio Pacific Investment Management Company
PIMCO VIT Total Return Bond Portfolio Pacific Investment Management Company
SELIGMAN PORTFOLIOS, INC.
Seligman Global Technology Portfolio J. & W. Seligman & Co. Incorporated
Seligman Small-Cap Value Portfolio J. & W. Seligman & Co. Incorporated
USALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
USAllianz VIP Diversified Assets Fund Allianz of America, Inc.
USAllianz VIP Fixed Income Fund Allianz of America, Inc.
USAllianz VIP Global Opportunities Fund Allianz of America, Inc.
USAllianz VIP Growth Fund Allianz of America, Inc.
USAllianz VIP Money Market Fund Allianz of America, Inc.
VAN KAMPEN LIFE INVESTMENT TRUST:
Van Kampen LIT Enterprise Portfolio Van Kampen Asset Management Inc.
(seeks capital appreciation)
Van Kampen LIT Growth and Income Portfolio Van Kampen Asset Management Inc.
</TABLE>
Shares of the Portfolios may be offered in connection with certain variable
annuity contracts and variable life insurance policies of various insurance
companies which may or may not be affiliated with Preferred Life. Certain
Portfolios may also be sold directly to qualified plans. The investment advisers
believe that offering their shares in this manner will not be disadvantageous to
you.
Preferred Life may enter into certain arrangements under which it is reimbursed
by the Portfolios' advisers, distributors and/or affiliates for the
administrative services which it provides to the Portfolios.
TRANSFERS
You can transfer money among the Variable Options and/or the Fixed Account.
Preferred Life currently allows you to make as many transfers as you want to
each year. Preferred Life may change this practice in the future. However, this
product is not designed for professional market timing organizations or other
persons using programmed, large, or frequent transfers. Such activity may be
disruptive to a Portfolio. We reserve the right to reject any specific Purchase
Payment allocation or transfer request from any person, if in the Portfolio
managers' judgment, a Portfolio would be unable to invest effectively in
accordance with its investment objectives and policies, or would otherwise
potentially be adversely affected.
Your Contract provides that you can make 12 transfers every year without charge.
We measure a year from the anniversary of the day we issued your Contract. You
can make a transfer to or from the Fixed Account and to or from any Variable
Option. If you make more than 12 transfers in a year, there is a transfer fee
deducted. The fee is $25 per transfer or, if less, 2% of the amount transferred.
The following applies to any transfer:
1) The minimum amount which you can transfer is $1,000 or your entire value in
the Variable Option or Fixed Account. This requirement is waived if the transfer
is in connection with the Dollar Cost Averag- ing 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)
and/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 ays prior to the date your
first Annuity Payment is due.
6)During the Payout Phase, you may not make a transfer from a fixed Annuity
Option to a variable Annuity Option.
7) During the Payout Phase, you can make at least one transfer from a variable
Annuity Option to a fixed Annuity Option.
Preferred Life has reserved the right to modify the transfer provisions subject
to the guarantees described above.
You can make transfers by telephone by properly completing the telephone
transfer forms provided by Preferred Life. We may allow you to authorize someone
else to make transfers by telephone on your behalf. If you own the Contract with
a Joint Owner, unless Preferred Life is instructed otherwise, Preferred Life
will accept instructions from either one of you. Preferred Life will use
reasonable procedures to confirm that instructions given us by telephone are
genuine. If we do not use such procedures, we may be liable for any losses due
to unauthorized or fraudulent instructions. Preferred Life tape records all
telephone instructions.
DOLLAR COST AVERAGING PROGRAM
The Dollar Cost Averaging Program allows you to systematically transfer a set
amount of money each month or quarter from any one Variable Option or the Fixed
Account to up to eight of the other Variable Options.
The Variable Option(s) you transfer from may not be the Variable Option(s) you
transfer to in this program. By allocating amounts on a regularly scheduled
basis, as opposed to allocating the total amount at one particular time, you may
be less susceptible to the impact of market fluctuations. You may only
participate in this program during the Accumulation Phase.
You must participate in the program for at least six months (or two quarters)
and must transfer at least $500 each time (or $1,500 each quarter). Your
allocations can be in whole percentages or dollar amounts. You may elect this
program by properly completing the Dollar Cost Averaging forms printed by
Preferred Life.
All Dollar Cost Averaging transfers will be made on the 10th day of the month
unless that day is not a business day. If it is not, then the transfer will be
made the next business day.
Your participation in the program will end when any of the following occurs:
1) the number of desired transfers have been made;
2) you do not have enough money in the Variable Option(s) or the Fixed Account
to make the transfer (if less money is available, that amount will be dollar
cost averaged and the program will end);
3)you request to terminate the program (your request must be received by us by
the first of the month to terminate that month); or
4) the Contract is terminated.
If you currently 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 RE-BALANCING
Once your money has been invested, the performance of the Variable Options may
cause your chosen allocation to shift. Flexible Re-balancing 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
Re-balancing 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 Re-balancing, the transfers made under the
program are not currently taken into account in determining any transfer fee.
The Fixed Account is not permitted to be part of Flexible Re-balancing.
VOTING PRIVILEGES
Preferred Life is the legal owner of the Portfolio shares. However, when a
Portfolio solicits proxies in conjunction with a shareholder vote which affects
your investment, Preferred Life will obtain from you and other affected Contract
Owners instructions as to how to vote those shares. When we receive those
instructions, we will vote all of the shares we own in proportion to those
instructions. This will also include any shares that Preferred Life owns on its
own behalf. Should Preferred Life determine that it is no longer required to
comply with the above, we will vote the shares in our own right.
SUBSTITUTION
Preferred Life may substitute one of the Variable Options you have selected with
another Variable Option. We would not do this without the prior approval of the
Securities and Exchange Commission. We will give you notice of our intention to
do this. We may also limit further investment in a Variable Option if we deem
the investment inappropriate.
5. EXPENSES
There are charges and other expenses associated with the Contract that will
reduce your investment return. These charges and expenses are:
INSURANCE CHARGES
Each day, Preferred Life makes a deduction for its insurance charges. Preferred
Life does this as part of its calculation of the value of the Accumulation Units
and the Annuity Units. The insurance charge has two parts:
1) the mortality and expense risk charge, and
2) the administrative charge.
Mortality and Expense Risk Charge. During the Accumulation Phase, this charge is
equal, on an annual basis, to 1.34% of the average daily value of the Contract
invested in a Variable Option. During the Payout Phase, the charge is equal, on
an annual basis, to 1.25% of the average daily value of the Contract invested in
a Variable Option. This charge compensates us for all the insurance benefits
provided by your Contract (for example, our contractual obligation to make
Annuity Payments, the death benefits, certain expenses related to the Contract,
and for assuming the risk (expense risk) that the current charges will be
insufficient in the future to cover the cost of administering the Contract). The
amount of the mortality and expense risk charge is less during the Payout Phase
because Preferred Life does not pay a death benefit separate from benefits under
the Annuity Option if you die during the Payout Phase.
Administrative Charge. This charge is equal, on an annual basis, to 0.15% of the
average daily value of the Contract invested in a Variable Option. This charge,
together with the contract maintenance charge (which is explained below), is for
all the expenses associated with the administration of the Contract. Some of
these expenses include: preparation of the Contract, confirmations, annual
statements, maintenance of Contract records, personnel costs, legal and
accounting fees, filing fees, and computer and systems costs.
CONTRACT MAINTENANCE CHARGE
On 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 Contract offered under
this prospectus, Preferred Life will determine the total value of all your
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 -- 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.
The free withdrawal amount is not applicable to a full surrender. The free
withdrawal amount only applies in the event of a partial withdrawal.
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 transferred, if 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 currently not count in determining the transfer fee.
INCOME TAXES
Preferred Life reserves the right to deduct from the Contract for any income
taxes which it may incur because of the Contract. Currently, Preferred Life is
not making any such deductions.
Portfolio EXPENSES
There are deductions from the assets of the various Portfolios for operating
expenses (including management fees) which are described in the Fee Table in
this prospectus and the accompanying fund prospectuses.
6. TAXES
NOTE: Preferred Life has prepared the following information on taxes as a
general discussion of the subject. It is not intended as tax advice. You should
consult your own tax adviser about your own circumstances. Preferred Life has
included additional information regarding taxes in the Statement of Additional
Information.
ANNUITY CONTRACTS IN GENERAL
Annuity contracts are a means of setting aside money for future needs -- usually
retirement. Congress recognized how important saving for retirement was and
provided special rules in the Internal Revenue Code (Code) for annuities.
Basically, these rules provide that you will not be taxed on any earnings on the
money held in your annuity Contract until you take the money out. This is
referred to as Tax Deferral. There are different rules regarding how you will be
taxed depending upon how you take the money out and the type of Contract --
Qualified or Non-Qualified (see following sections).
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.
A Qualified Contract will not provide any necessary or additional tax deferral
if it is used to fund a Qualified plan that is tax deferred. However, the
Contract has features and benefits other than tax deferral that may make it an
appropriate investment for a Qualified plan. You should consult your tax adviser
regarding these features and benefits prior to purchasing a 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
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 from your Contract, the Code treats such a
withdrawal as first coming from earnings and then from your Purchase Payments.
You will be taxed on the amount of the withdrawal that is earnings. In most
cases, such withdrawn earnings are includible in income. 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.
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
If you make a withdrawal from your Qualified Contract, a portion of the
withdrawal is treated as taxable income. This portion depends on the ratio of
pre-tax Purchase Payments to the after-tax Purchase Payments in your Contract.
If all of your Purchase Payments were made with pre-tax money then the full
amount of any withdrawal is includible in taxable income. Special rules may
apply to withdrawals from certain types of Qualified Contracts.
The Code also provides that any amount received under a Qualified Contract,
which is included in income, may be subject to a penalty. The amount of the
penalty is equal to 10% of the amount that is includible in income. Some
withdrawals will be exempt from the penalty. They include any amounts:
1) paid on or after you reach age 591/2;
2) paid after you die;
3) paid if you become totally disabled (as that term is defined in the
Code);
4) paid to you after leaving your employment in a series of substantially
equal periodic payments made annually (or more frequently) under a
lifetime annuity;
5) paid to you after you have attained age 55 and you have left your
employment;
6) paid for certain allowable medical expenses (as defined in the Code);
7) paid pursuant to a qualified domestic relations order;
8) paid on account of an IRS levy upon the Qualified Contract;
9) paid from an IRA for medical insurance (as defined in the Code);
10) paid from an IRA for qualified higher education expenses; or
11) paid from an IRA for up to $10,000 for qualified first-time
homebuyer expenses (as defined in the Code).
The exceptions in 5) and 7) above do not apply to IRAs. The exception in 4)
above applies to IRAs but without the requirement of leaving employment.
We have provided a more complete discussion in the Statement of Additional
Information.
WITHDRAWALS-- TAX-SHELTERED ANNUITIES
The Code limits the withdrawal of amounts attributable to Purchase Payments made
under a salary reduction agreement by Contract Owners from Tax-Sheltered
Annuities. Withdrawals can only be made when a Contract Owner:
1) reaches age 591/2;
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 charges, contingent deferred sales charges and the expenses of the
Portfolios. Preferred Life may also advertise cumulative total return
information. Cumulative total return is determined the same way except that the
results are not annualized. Performance information for the underlying
Portfolios may also be advertised; see the fund prospectuses for more
information.
Certain Portfolios have been in existence for some time and have investment
performance history. In order to demonstrate how the actual investment
experience of the Portfolios may affect your Accumulation Unit values, Preferred
Life has prepared performance information. The performance is based on the
historical performance of the Portfolios, modified to reflect the charges and
expenses of your Contract as if the Contract had been in existence for the time
periods shown. The inception dates of the Portfolios pre-date the inception
dates of the corresponding Variable Options. For periods starting prior to the
date the Variable Options invested in the Portfolio, the performance is based on
the historical performance of the corresponding Portfolio.
For the Franklin Templeton Variable Insurance Products Trust, the performance is
based on the Portfolio's Class 1 shares. Class 2 shares are relatively new and
effective July 1, 1999 currently have Rule 12b-1 Plan expenses of .25% per year
which will affect future performance. Prior to July 1, 1999 the Class 2 shares
had 12b-1 plan expenses of .30% per year. The information is based upon the
historical experience of the Portfolios' Class 1 shares and does not represent
past performance or predict future performance.
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). If you die during the
Payout Phase, any benefit will be as provided for in the Annuity Option
selected. 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 premium taxes owed. This amount
is determined as of the day we receive all claim proofs and payment election
forms at our USAllianz 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 USAllianz 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) Highest Anniversary Value
Where an Anniversary Value is equal to:
o value of the Contract on a 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: 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 USAllianz Service Center.
III. Additional Provisions
If you have a Joint Owner, the age of the older Contract Owner will be used to
determine the guaranteed minimum death benefit. The guaranteed minimum death
benefit will be reduced by any amounts withdrawn after the date of death. If the
Contract is owned by a non-natural person, then all references to you mean the
Annuitant. If you have a Joint Owner, and the Joint Owner dies, the surviving
Owner will be the Beneficiary.
A Beneficiary may request that the death benefit be paid in one of the following
ways: (1) payment of the entire death benefit within 5 years of the date of
death; or (2) payment of the death benefit under an Annuity Option. The death
benefit payable under an Annuity Option must be paid over the Beneficiary's
lifetime or for a period not extending beyond the Beneficiary's life expectancy.
Payment must begin within one year of the date of death. (3) If the Beneficiary
is the spouse of the Contract Owner, he/she can choose to continue the Contract
in his/her own name at the then current value, or if greater, the death benefit
value. (4) If a lump sum payment is elected and all the necessary requirements,
including any required tax consent from the state of New York (when required),
are met, the payment will be made within 7 days. We may delay paying the death
benefit until we receive the tax consent (when required).
If you (or any Joint Owner) die during the Payout Phase and you are not the
Annuitant, any payments which are remaining under the Annuity Option selected
will continue at least as rapidly as they were being paid at your death. If you
die during the Payout Phase, the Beneficiary becomes the Contract Owner.
DEATH OF ANNUITANT
If the Annuitant, who is not a Contract Owner or Joint Owner, dies during the
Accumulation Phase, you can name a new Annuitant. If you do not name a new
Annuitant within 30 days of the death of the Annuitant, you will become the
Annuitant. However, if the Contract Owner is a non-natural person (e.g., a
corporation), then the death of the Annuitant will be treated as the death of
the Contract Owner, and a new Annuitant may not be named.
If the Annuitant dies after Annuity Payments have begun, the remaining amounts
payable, if any, will be as provided for in the Annuity Option selected. The
remaining amounts payable will be paid to the Contract Owner at least as rapidly
as they were being paid at the Annuitant's death.
10. OTHER INFORMATION
PREFERRED LIFE
Preferred Life Insurance Company of New York (Preferred Life), 152 West 57th
Street, 18th Floor, New York, NY 10019, was organized under the laws of the
state of New York. Preferred Life offers annuities and group life, group
accident and health insurance and variable annuity products. Preferred Life is
licensed to do business in six states, including New York 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.
THE SEPARATE ACCOUNT
Preferred Life established a separate account named Preferred Life Variable
Account C (Separate Account), to hold the assets that underlie the Contracts,
except assets you allocate to the Fixed Account. The Board of Directors of
Preferred Life adopted a resolution to establish the Separate Account under New
York insurance law on February 26, 1988. Preferred Life has registered the
Separate Account with the Securities and Exchange Commission as a unit
investment trust under the Investment Company Act of 1940. The Separate Account
is divided into Variable Options (also known as sub-accounts). Each Variable
Option invests in a Portfolio.
The assets of the Separate Account are held in Preferred Life's name on behalf
of the Separate Account and legally belong to Preferred Life. However, those
assets that underlie the Contracts, are not chargeable with liabilities arising
out of any other business Preferred Life may conduct. All the income, gains and
losses (realized or unrealized) resulting from these assets are credited to or
charged against the Contracts and not against any other contracts Preferred Life
may issue.
DISTRIBUTION
USAllianz Investor Services, LLC (formerly NALAC Financial Plans, LLC), 1750
Hennepin Avenue, Minneapolis, MN 55403, acts as the distributor of the
Contracts. USAllianz Investor Services, LLC, is an affiliate of Preferred Life.
Commissions will be paid to broker-dealers who sell the Contracts.
Broker-dealers will be paid commissions up to 7.0% of Purchase Payments. In
addition, Preferred Life may pay certain sellers for other services not directly
related to the sale of the Contracts (such as special marketing support
allowances). The New York Insurance Department permits compensation based on the
assets in your Contract. Preferred Life may adopt a different compensation
program based on the assets in your Contract in addition to, or in lieu of, the
present compensation program. Commissions may be recovered from broker-dealers
if a full or partial withdrawal occurs within 12 months of a Purchase Payment or
there is a recission of the Contract within the Free-Look period.
ADMINISTRATION
Preferred Life has hired Delaware Valley Financial Services, Inc., 300 Berwyn
Park, Berwyn, Pennsylvania, to perform administrative services regarding the
Contracts. The administrative services include issuance of the Contracts and
maintenance of Contract Owner's records.
FINANCIAL STATEMENTS
The financial statements of Preferred Life and the Separate Account have been
included in the Statement of Additional Information.
TABLE OF CONTENTS
OF THE STATEMENT OF
ADDITIONAL INFORMATION
Insurance Company 2
Experts 2
Legal Opinions 2
Distributor 2
Reduction or Elimination of the
Contingent Deferred Sales Charge 2
Calculation of Performance Data 2
Federal Tax Status 8
Annuity Provisions 14
Mortality and Expense Risk Guarantee 15
Financial Statements 15
<PAGE>
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.
<TABLE>
<CAPTION>
(NUMBER OF UNITS IN THOUSANDS)
PERIOD FROM
YEAR OR PERIOD INCEPTION
ENDED (8/17/98) TO
VARIABLE OPTIONS: DEC. 31, 1999 DEC. 31, 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
AIM V.I. GROWTH*
Unit value at beginning of period $10.000 NA
Unit value at end of period $11.083 NA
Number of units outstanding at end of period 0 NA
ALGER AMERICAN GROWTH*
Unit value at beginning of period $10.000 NA
Unit value at end of period $10.921 NA
Number of units outstanding at end of period 8 NA
ALGER AMERICAN LEVERAGED ALLCAP*
Unit value at beginning of period $10.000 NA
Unit value at end of period $12.159 NA
Number of units outstanding at end of period 0 NA
USALLIANZ VIP DIVERSIFIED ASSETS*
Unit value at beginning of period $10.000 NA
Unit value at end of period $10.168 NA
Number of units outstanding at end of period 0 NA
USALLIANZ VIP FIXED INCOME*
Unit value at beginning of period $10.000 NA
Unit value at end of period $9.749 NA
Number of units outstanding at end of period 0 NA
USALLIANZ VIP GROWTH*
Unit value at beginning of period $10.000 NA
Unit value at end of period $10.731 NA
Number of units outstanding at end of period 0 NA
<FN>
*The AIM V.I. Growth, Alger American Growth, Alger American Leveraged AllCap,
USAllianz VIP Diversified Assets, USAllianz VIP Fixed Income and USAllianz VIP
Growth Sub-Accounts commenced operations with the Separate Account November
12, 1999. Unit Value at inception was $10.00.
Preferred Life has only provided Accumulation Unit values for the above
Sub-Accounts since the remaining Sub-Accounts being offered did not commence
operations with the Separate Account until the date of this prospectus.
</FN>
</TABLE>
PART B
PART B - VERSION A
STATEMENT OF ADDITIONAL INFORMATION
VALUEMARK IV
INDIVIDUAL FLEXIBLE PAYMENT
VARIABLE ANNUITY CONTRACTS
issued by
PREFERRED LIFE VARIABLE ACCOUNT C
and
PREFERRED LIFE INSURANCE COMPANY OF NEWYORK
MAY 1, 2000
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS FOR THE INDIVIDUAL FLEXIBLE PAYMENT
VARIABLE ANNUITY CONTRACTS WHICH ARE REFERRED TO HEREIN.
THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT A PROSPECTIVE INVESTOR
OUGHT TO KNOW BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS, CALL OR WRITE THE
INSURANCE COMPANY AT: 152 West 57th Street, 18th Floor, New York, NY 10019,
(800) 542-5427.
THIS STATEMENT OF ADDITIONAL INFORMATION AND THE PROSPECTUS ARE DATED MAY 1,
2000, 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 .............................. 7
Annuity Provisions .............................. 12
Mortality and Expense Risk Guarantee ............ 13
Financial Statements ............................ 13
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 in that it may be a reflection as to 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
1999, included in this Statement of Additional Information have been audited by
KPMG LLP independent auditors, as indicated in their reports included in this
Statement of Additional Information and are included herein in reliance upon
such reports and upon the authority of said firm as experts in accounting and
auditing.
LEGAL OPINIONS
- -------------------------------------------------------------------------------
Blazzard, Grodd & Hasenauer, P.C., Westport, Connecticut has provided advice on
certain matters relating to the federal securities and income tax laws in
connection with the Contracts.
DISTRIBUTOR
- -------------------------------------------------------------------------------
USAllianz Investor Services, LLC (formerly NALAC Financial Plans, LLC) an
affiliate of the Insurance Company, acts as the distributor. The offering is on
a continuous basis.
REDUCTION OR ELIMINATION OF THE
CONTINGENT DEFERRED SALES CHARGE
- -------------------------------------------------------------------------------
The amount of the contingent deferred sales charge on the Contracts may be
reduced or eliminated when sales of the Contracts are made to individuals or to
a group of individuals in a manner that results in savings of sales expenses.
The entitlement to a reduction of the contingent deferred sales charge will be
determined by the Insurance Company after examination of the following factors:
1) the size of the group; 2) the total amount of purchase payments expected to
be received from the group; 3) the nature of the group for which the Contracts
are purchased, and the persistency expected in that group; 4) the purpose for
which the Contracts are purchased and whether that purpose makes it likely that
expenses will be reduced; and 5) any other circumstances which the Insurance
Company believes to be relevant to determining whether reduced sales or
administrative expenses may be expected. None of the reductions in charges for
sales is contractually guaranteed.
The contingent deferred sales charge may be eliminated when the Contracts are
issued to an officer, director or employee of the Insurance Company or any of
its affiliates. In no event will any reduction or elimination of the contingent
deferred sales charge be permitted where the reduction or elimination will be
unfairly discriminatory to any person.
CALCULATION OF PERFORMANCE DATA
- -------------------------------------------------------------------------------
TOTAL RETURN
From time to time, the Insurance Company may advertise the performance data for
the Variable Options in sales literature, advertisements, personalized
hypothetical illustrations and Contract Owner communications. Such data will
show the percentage change in the value of an Accumulation Unit based on the
performance of a Portfolio over a stated period of time, usually a calendar
year, which is determined by dividing the increase (or decrease) in value for
that unit by the Accumulation Unit value at the beginning of the period.
Any such performance data will also include average annual total return figures
for one, five and ten year (or since inception) time periods indicated. Such
total return figures will reflect the deduction of a 1.34% mortality and expense
risk charge, a .15% administrative charge, the operating expenses of the
underlying Portfolio and any applicable contract maintenance charge and
contingent deferred sales charges. The contingent deferred sales charge and
contract maintenance charge deductions are calculated assuming a Contract is
surrendered at the end of the reporting period.
The hypothetical value of a Contract purchased for the time periods described
will be determined by using the actual Accumulation Unit values for an initial
$1,000 purchase payment, and deducting any applicable contract maintenance
charges and any applicable contingent deferred sales charge to arrive at the
ending hypothetical value. The average annual total return is then determined by
computing the fixed interest rate that a $1,000 purchase payment would have to
earn annually, compounded annually, to grow to the hypothetical value at the end
of the time periods described. The formula used in these calculations is:
P (1 + T)n = ERV
where:
P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years;
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the time periods used at the end of such time periods (or
fractional portion thereof).
The Insurance Company may also advertise performance data which will be
calculated in the same manner as described above but which will not reflect the
deduction of the contingent deferred sales charge and the contract maintenance
charge. The Insurance Company may also advertise cumulative and average total
return information over different periods of time. The Insurance Company may
also present performance information computed on a different basis.
Cumulative total return is calculated in a similar manner, except that the
results are not annualized. Each calculation assumes that no sales load is
deducted from the initial $1,000 payment at the time it is allocated to the
Portfolios and assumes that the income earned by the investment in the Portfolio
is reinvested.
Contract Owners should note that investment results will fluctuate over time,
and any presentation of total return for any period should not be considered as
a representation of what an investment may earn or what a Contract Owner's total
return may be in any future period.
YIELD
The Franklin Money Market Fund. The Insurance Company may advertise yield
information for the Franklin Money Market Fund. The Franklin Money Market Fund's
current yield may vary each day, depending upon, among other things, the average
maturity of the underlying Portfolio's investment securities and changes in
interest rates, operating expenses, the deduction of the Mortality and Expense
Risk Charge, the Administrative Charge and the Contract Maintenance Charge and,
in certain instances, the value of the underlying Portfolio's investment
securities. The fact that the Portfolio's current yield will fluctuate and that
the principal is not guaranteed should be taken into consideration when using
the Portfolio's current yield as a basis for comparison with savings accounts or
other fixed-yield investments. The yield at any particular time is not
indicative of what the yield may be at any other time.
The Franklin Money Market Fund's current yield is computed on a base period
return of a hypothetical Contract having a beginning balance of one Accumulation
Unit for a particular period of time (generally seven days). The return is
determined by dividing the net change (exclusive of any capital changes) in such
Accumulation Unit by its beginning value, and then multiplying it by 365/7 to
get the annualized current yield. The calculation of net change reflects the
value of additional shares purchased with the dividends paid by the Portfolio,
and the deduction of the mortality and expense risk charge, the administrative
charge and contract maintenance charge. The effective yield reflects the effects
of compounding and represents an annualization of the current return with all
dividends reinvested. (Effective yield = [(Base Period Return + 1)365/7] - 1.)
For the seven-day period ending on December 31, 1999, the Franklin Money Market
Sub-Account had a current yield of 4.21% and an effective yield of 4.29%. The
yield information assumes that the Sub-Account was invested in the Franklin
Money Market Fund for the time period shown.
Other Variable Options. The Insurance Company may also quote yield in sales
literature, advertisements, personalized hypothetical illustrations, and
Contract Owner communications for the other Variable Options. Each Variable
Option (other than the Franklin Money Market Fund) will publish standardized
total return information with any quotation of current yield.
The yield computation is determined by dividing the net investment income per
Accumulation Unit earned during the period (minus the deduction for the
mortality and expense risk charge, administrative charge and the Contract
maintenance charge) by the Accumulation Unit value on the last day of the period
and annualizing the resulting figure, according to the following formula:
6
Yield = 2 [(a-b) + 1) - 1]
-----
cd
where:
a = net investment income earned during the period by the Variable Option
attributable to shares owned by the Portfolio;
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
Variable Option. (other than the Franklin Money Market Fund).
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(R).
From time to time, evaluation of performance by independent sources may also be
used.
PERFORMANCE INFORMATION
In order to show how investment performance of the Variable Options affects
Accumulation Unit values, the following performance information was developed.
Effective May 1, 2000, the Templeton International Securities Fund (a fund of
Templeton Variable Series Fund) merged into the Templeton International Equity
Fund. The performance shown in the charts below reflects the historical
performance of the Templeton International Equity Fund. Effective May 1, 2000,
the Templeton Developing Markets Securities Fund (a fund of Templeton Variable
Series Fund) merged into the Templeton Developing Markets Equity Fund. The
performance shown in the charts below reflects the historical performance of the
Templeton Developing Markets Equity Fund. Effective May 1, 2000, the Templeton
Asset Strategy Fund (a fund of Templeton Variable Series Fund) merged into the
Templeton Global Asset Allocation Fund. The performance shown in the charts
below reflects the historical performance of the Templeton Global Asset
Allocation Fund.
The charts below show Accumulation Unit performance which assumes that the
Accumulation Units were invested in each of the Variable Options for the same
periods. The performance figures in Table 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 Variable
Options. Table 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 Variable Options and
assumes that you make a withdrawal at the end of the period (therefore the
contingent deferred sales charge is reflected). Past performance does not
guarantee future results.
<TABLE>
<CAPTION>
VALUEMARK IV
Table I: Total Return for the periods ended December 31, 1999
- ---------------------------------------------------------------------------------------------------------------------------
SUB-ACCOUNT
INCEPTION ONE THREE FIVE TEN SINCE
VARIABLE OPTION DATE YEAR YEARS YEARS YEARS INCEPTION
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Franklin Global Communications
Securities* 1/24/89 37.35% 23.40% 20.75% 12.39% 13.13%
Franklin Global Health Care Securities 5/1/98 -9.46% NA NA NA -2.41%
Franklin Growth and Income Securities* 1/24/89 -0.39% 10.19% 14.52% 9.79% 9.09%
Franklin High Income 1/24/89 -1.54% 2.47% 7.33% 7.53% 6.87%
Franklin Income Securities 1/24/89 -3.27% 3.77% 8.12% 8.38% 8.37%
Franklin Large Cap Growth Securities* 5/1/96 29.70% 21.46% NA NA 21.05%
Franklin Money Market 1/24/89 3.21% 3.52% 3.67% 3.31% 3.60%
Franklin Natural Resources Securities 1/24/89 30.29% -8.56% -4.61% -1.08% 0.86%
Franklin Real Estate* 1/24/89 -7.53% -3.41% 6.42% 7.41% 7.10%
Franklin Rising Dividends Securities* 1/27/92 -11.04% 7.09% 13.94% NA 8.22%
Franklin Small Cap 11/01/95 94.03% 29.86% NA NA 28.30%
Franklin U.S. Government* 3/14/89 -2.40% 3.62% 5.97% 5.85% 5.80%
Franklin Value Securities 5/1/98 0.15% NA NA NA -14.34%
Franklin Zero Coupon - 2000 3/14/89 1.54% 4.31% 6.36% 6.63% 7.02%
Franklin Zero Coupon - 2005 3/14/89 -7.27% 4.10% 7.49% 7.26% 8.01%
Franklin Zero Coupon - 2010 3/14/89 -13.53% 3.84% 8.59% 7.62% 8.41%%
Mutual Discovery Securities 11/08/96 21.93% 10.31% NA NA 10.43%
Mutual Shares Securities 11/08/96 11.73% 8.52% NA NA 9.23%
Templeton Asset Strategy* 5/1/95 5.94% 4.72% NA NA 8.03%
Templeton Developing Markets Securities* 3/15/94 52.35% 1.90% 5.12% NA 3.38%
Templeton Global Income Securities 1/24/89 -7.18% -0.38% 3.82% 4.31% 4.67%
Templeton Growth Securities* 3/15/94 19.25% 12.71% 13.69% NA 12.07%
Templeton International Securities* 1/27/92 24.76% 12.60% 13.51% NA 10.99%
Templeton International
Smaller Companies 5/01/96 22.07% 0.79% NA NA 3.64%
Templeton Pacific Growth Securities* 1/27/92 34.99% -10.00% -3.23% NA 1.02%
</TABLE>
<TABLE>
<CAPTION>
*The fund name changed since the last Statement of Additional Information update
as of the effective date listed below:
CURRENT NAME PREVIOUS NAME EFFECTIVE DATE
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Franklin Global Communications Securities FundFranklin Global Utilities Securities Fund 11-15-1999
Franklin Growth and Income Securities Fund Franklin Growth and Income Fund 05-01-2000
Franklin Large Cap Growth Securities Fund Franklin Capital Growth Fund 12-15-1999
Franklin Real Estate Fund Franklin Real Estate Securities Fund 11-15-1999
Franklin Rising Dividends Securities Fund Franklin Rising Dividends Fund 11-15-1999
Franklin U.S. Government Fund Franklin U.S. Government Securities Fund 11-15-1999
Templeton Asset Strategy Fund Templeton Global Asset Allocation Fund 05-01-2000
Templeton Developing Markets Securities Fund Templeton Developing Markets Equity Fund 05-01-2000
Templeton Growth Securities Fund Templeton Global Growth Fund 05-01-2000
Templeton International Securities Fund Templeton International Equity Fund 05-01-2000
Templeton Pacific Growth Securities Fund Templeton Pacific Growth Fund 05-01-2000
</TABLE>
There is no performance shown for the AIM V.I. Growth, Alger American Growth,
Alger American Leveraged AllCap, Franklin S&P 500 Index, USAllianz VIP
Diversified Assets, USAllianz VIP Fixed Income, and USAllianz VIP Growth
Sub-Accounts because they were first offered under the Contract on November 12,
1999.
The Franklin Aggressive Growth Securities and Franklin Technology Securities
Sub-Accounts commenced operations on May 1, 2000.
<TABLE>
<CAPTION>
Table II: Total Return for the periods ended December 31, 1999
- ---------------------------------------------------------------------------------------------------------------------------
SUB-ACCOUNT
INCEPTION ONE THREE FIVE TEN SINCE
VARIABLE OPTION DATE YEAR YEARS YEARS YEARS INCEPTION
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Franklin Global Communications
Securities* 1/24/89 31.25% 22.19% 20.36% 12.31% 13.07%
Franklin Global Health Care Securities 5/1/98 -15.56% NA NA NA -5.68%
Franklin Growth and Income Securities* 1/24/89 -6.49% 8.69% 14.05% 9.72% 9.01%
Franklin High Income 1/24/89 -7.64% 0.72% 6.73% 7.46% 6.80%
Franklin Income Securities 1/24/89 -9.37% 2.07% 7.53% 8.31% 8.30%
Franklin Large Cap Growth Securities* 5/1/96 23.60% 20.20% NA NA 20.26%
Franklin Money Market 1/24/89 -2.89% 1.81% 2.98% 3.22% 3.51%
Franklin Natural Resources Securities 1/24/89 24.19% -10.77% -5.56% -1.18% 0.77%
Franklin Real Estate* 1/24/89 -13.63% -5.37% 5.81% 7.34% 7.03%
Franklin Rising Dividends Securities* 1/27/92 -17.14% 5.50% 13.47% NA 8.14%
Franklin Small Cap 11/01/95 87.93% 28.74% NA NA 27.89%
Franklin U.S. Government* 3/14/89 -8.50% 1.91% 5.34% 5.77% 5.73%
Franklin Value Securities 5/1/98 -5.95% NA NA NA -17.91%
Franklin Zero Coupon - 2000 3/14/89 -4.56% 2.62% 5.74% 6.56% 6.95%
Franklin Zero Coupon - 2005 3/14/89 -13.37% 2.41% 6.90% 7.19% 7.94%
Franklin Zero Coupon - 2010 3/14/89 -19.63% 2.15% 8.02% 7.55% 8.34%
Mutual Discovery Securities 11/08/96 15.83% 8.80% NA NA 9.21%
Mutual Shares Securities 11/08/96 5.63% 6.96% NA NA 7.98%
Templeton Asset Strategy* 5/1/95 -0.16% 3.04% NA NA 7.39%
Templeton Developing Markets Securities* 3/15/94 46.25% 0.11% 4.45% NA 2.89%
Templeton Global Income Securities 1/24/89 -13.28% -2.22% 3.15% 4.23% 4.59%
Templeton Growth Securities* 3/15/94 13.15% 11.26% 13.20% NA 11.73%
Templeton International Securities* 1/27/92 18.66% 11.15% 13.02% NA 10.91%
Templeton International
Smaller Companies 5/01/96 15.97% -1.03% NA NA 2.47%
Templeton Pacific Growth Securities* 1/27/92 28.89% -12.30% -4.13% NA 0.93%
</TABLE>
<TABLE>
<CAPTION>
*The fund name changed since the last Statement of Additional Information update
as of the effective date listed below:
CURRENT NAME PREVIOUS NAME EFFECTIVE DATE
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Franklin Global Communications Securities FundFranklin Global Utilities Securities Fund 11-15-1999
Franklin Growth and Income Securities Fund Franklin Growth and Income Fund 05-01-2000
Franklin Large Cap Growth Securities Fund Franklin Capital Growth Fund 12-15-1999
Franklin Real Estate Fund Franklin Real Estate Securities Fund 11-15-1999
Franklin Rising Dividends Securities Fund Franklin Rising Dividends Fund 11-15-1999
Franklin U.S. Government Fund Franklin U.S. Government Securities Fund 11-15-1999
Templeton Asset Strategy Fund Templeton Global Asset Allocation Fund 05-01-2000
Templeton Developing Markets Securities Fund Templeton Developing Markets Equity Fund 05-01-2000
Templeton Growth Securities Fund Templeton Global Growth Fund 05-01-2000
Templeton International Securities Fund Templeton International Equity Fund 05-01-2000
Templeton Pacific Growth Securities Fund Templeton Pacific Growth Fund 05-01-2000
</TABLE>
There is no performance shown for the AIM V.I. Growth, Alger American Growth,
Alger American Leveraged AllCap, Franklin S&P 500 Index, USAllianz VIP
Diversified Assets, USAllianz VIP Fixed Income, and USAllianz VIP Growth
Sub-Accounts because they were first offered under the Contract on November 12,
1999.
The Franklin Aggressive Growth Securities and Franklin Technology Securities
Sub-Accounts commenced operations on May 1, 2000.
FEDERAL TAX STATUS
- --------------------------------------------------------------------------------
NOTE: THE FOLLOWING DESCRIPTION IS BASED UPON THE INSURANCE COMPANY'S
UNDERSTANDING OF CURRENT FEDERAL INCOME TAX LAW APPLICABLE TO ANNUITIES IN
GENERAL. THE INSURANCE COMPANY CANNOT PREDICT THE PROBABILITY THAT ANY CHANGES
IN SUCH LAWS WILL BE MADE. PURCHASERS ARE CAUTIONED TO SEEK COMPETENT TAX ADVICE
REGARDING THE POSSIBILITY OF SUCH CHANGES. THE INSURANCE COMPANY DOES NOT
GUARANTEE THE TAX STATUS OF THE CONTRACTS. PURCHASERS BEAR THE COMPLETE RISK
THAT THE CONTRACTS MAY NOT BE TREATED AS "ANNUITY CONTRACTS" UNDER FEDERAL
INCOME TAX LAWS. IT SHOULD BE FURTHER UNDERSTOOD THAT THE FOLLOWING DISCUSSION
IS NOT EXHAUSTIVE AND THAT SPECIAL RULES NOT DESCRIBED HEREIN MAY BE APPLICABLE
IN CERTAIN SITUATIONS. MOREOVER, NO ATTEMPT HAS BEEN MADE TO CONSIDER ANY
APPLICABLE STATE OR OTHER TAX LAWS.
GENERAL
Section 72 of the Internal Revenue Code of 1986, as amended (the "Code") governs
taxation of annuities in general. A Contract Owner is not taxed on increases in
the value of a Contract until distribution occurs, either in the form of a lump
sum payment or as annuity payments under the Annuity Option elected. For a lump
sum payment received as a total surrender (total redemption) or death benefit,
the recipient is taxed on the portion of the payment that exceeds the cost basis
of the Contract. For Non-Qualified Contracts, this cost basis is generally the
purchase payments, while for Qualified Contracts there may be no cost basis. The
taxable portion of the lump sum payment is taxed at ordinary income tax rates.
For annuity payments, a portion of each payment in excess of an exclusion amount
is includible in taxable income. The exclusion amount for payments based on a
fixed annuity option is determined by multiplying the payment by the ratio that
the cost basis of the Contract (adjusted for any period certain or refund
feature) bears to the expected return under the Contract. The exclusion amount
for payments based on a variable annuity option is determined by dividing the
cost basis of the Contract (adjusted for any period certain or refund guarantee)
by the number of years over which the annuity is expected to be paid. Payments
received after the investment in the Contract has been recovered (i.e. when the
total of the excludible amounts equal the investment in the Contract) are fully
taxable. The taxable portion is taxed at ordinary income rates. For certain
types of Qualified Plans there may be no cost basis in the Contract within the
meaning of Section 72 of the Code. Contract Owners, annuitants and beneficiaries
under the Contracts should seek competent financial advice about the tax
consequences of any distributions.
The Insurance Company is taxed as a life insurance company under the Code. For
federal income tax purposes, the Separate Account is not a separate entity from
the Insurance Company, and its operations form a part of the Insurance Company.
DIVERSIFICATION
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not adequately
diversified in accordance with regulations prescribed by the United States
Treasury Department ("Treasury Department"). Disqualification of the Contract as
an annuity contract would result in imposition of federal income tax to the
Contract Owner with respect to earnings allocable to the Contract prior to the
receipt of payments under the Contract. The Code contains a safe harbor
provision which provides that annuity contracts such as the Contracts meet the
diversification requirements if, as of the end of each quarter, the underlying
assets meet the diversification standards for a regulated investment company and
no more than fifty-five percent (55%) of the total assets consist of cash, cash
items, U.S. government securities and securities of other regulated investment
companies.
On March 2, 1989, the Treasury Department issued regulations (Treas. Reg.
1.817-5) which established diversification requirements for the investment
portfolios underlying variable contracts such as the Contracts. The regulations
amplify the diversification requirements for variable contracts set forth in the
Code and provide an alternative to the safe harbor provision described above.
Under the regulations, an investment portfolio will be deemed adequately
diversified if: (1) no more than 55% of the value of the total assets of the
portfolio is represented by any one investment; (2) no more than 70% of the
value of the total assets of the portfolio is represented by any two
investments; (3) no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and (4) no more than 90% of
the value of the total assets of the portfolio is represented by any four
investments.
The Code provides that for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable contracts
by Section 817(h) of the Code have been met, "each United States government
agency or instrumentality shall be treated as a separate issuer."
The Insurance Company intends that all Portfolios underlying the Contracts will
be managed by the investment advisers in such a manner as to comply with these
diversification requirements.
The Treasury Department has indicated that the diversification Regulations do
not provide guidance regarding the circumstances in which Contract Owner control
of the investments of the Separate Account will cause the Contract Owner to be
treated as the owner of the assets of the Separate Account, thereby resulting in
the loss of favorable tax treatment for the Contract. At this time it cannot be
determined whether additional guidance will be provided and what standards may
be contained in such guidance.
The amount of Contract Owner control which may be exercised under the Contract
is different in some respects from the situations addressed in published rulings
issued by the Internal Revenue Service in which it was held that the policy
owner was not the owner of the assets of the separate account. It is unknown
whether these differences, such as the Contract Owner's ability to transfer
among investment choices or the number and type of investment choices available,
would cause the Contract Owner to be considered as the owner of the assets of
the Separate Account resulting in the imposition of federal income tax to the
Contract Owner with respect to earnings allocable to the Contract prior to
receipt of payments under the Contract.
In the event any forthcoming guidance or ruling is considered to set forth a new
position, such guidance or ruling will generally be applied only prospectively.
However, if such ruling or guidance was not considered to set forth a new
position, it may be applied retroactively resulting in the Contract Owner being
retroactively determined to be the owner of the assets of the Separate Account.
Due to the uncertainty in this area, the Insurance Company reserves the right to
modify the Contract in an attempt to maintain favorable tax treatment.
MULTIPLE CONTRACTS
The Code provides that multiple non-qualified annuity contracts which are issued
within a calendar year period to the same contract owner by one company or its
affiliates are treated as one annuity contract for purposes of determining the
tax consequences of any distribution. Such treatment may result in adverse tax
consequences, including more rapid taxation of the distributed amounts from such
combination of contracts. For purposes of this rule, contracts received in a
Section 1035 exchange will be considered issued in the year of the exchange.
Contract Owners should consult a tax adviser prior to purchasing more than one
non-qualified annuity contract in any calendar year period.
CONTRACTS OWNED BY OTHER
THAN NATURAL PERSONS
Under Section 72(u) of the Code, the investment earnings on purchase payments
for the Contracts will be taxed currently to the Contract Owner if the Owner is
a non-natural person, e.g., a corporation or certain other entities. Such
Contracts generally will not be treated as annuities for federal income tax
purposes. However, this treatment is not applied to Contracts held by a trust or
other entity as an agent for a natural person nor to Contracts held by qualified
plans. Purchasers should consult their own tax counsel or other tax adviser
before purchasing a Contract to be owned by a non-natural person.
TAX TREATMENT OF ASSIGNMENTS
An assignment or pledge of a Contract may be a taxable event. Contract Owners
should therefore consult competent tax advisers should they wish to assign or
pledge their Contracts.
DEATH BENEFITS
Any death benefits paid under the Contract are taxable to the beneficiary. The
rules governing the taxation of payments from an annuity contract, as discussed
above, generally apply to the payment of death benefits and depend on whether
the death benefits are paid as a lump sum or as annuity payments. Estate taxes
may also apply.
INCOME TAX WITHHOLDING
All distributions or the portion thereof which is includible in the gross income
of the Contract Owner are subject to federal income tax withholding. Generally,
amounts are withheld from periodic payments at the same rate as wages and at the
rate of 10% from non-periodic payments. However, the Contract Owner, in most
cases, may elect not to have taxes withheld or to have withholding done at a
different rate.
Certain distributions from retirement plans qualified under Section 401 or
Section 403(b) of the Code, which are not directly rolled over to another
eligible retirement plan or individual retirement account or individual
retirement annuity, are subject to a mandatory 20% withholding for federal
income tax. The 20% withholding requirement generally does not apply to: (a) a
series of substantially equal payments made at least annually for the life or
life expectancy of the participant or joint and last survivor expectancy of the
participant and a designated beneficiary, or for a specified period of 10 years
or more; or (b) distributions which are required minimum distributions; or (c)
the portion of the distributions not includible in gross income (i.e. returns of
after-tax contributions); or (d) hardship withdrawals. Participants should
consult their own tax counsel or other tax adviser regarding withholding
requirements.
TAX TREATMENT OF WITHDRAWALS -
NON-QUALIFIED CONTRACTS
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the contract value exceeds the aggregate purchase
payments made, any amount withdrawn will be treated as coming first from the
earnings and then, only after the income portion is exhausted, as coming from
the principal. Withdrawn earnings are includible in gross income. It further
provides that a ten percent (10%) penalty will apply to the income portion of
any distribution. However, the penalty is not imposed on amounts received: (a)
after the taxpayer reaches age 59 1/2; (b) after the death of the Contract
Owner; (c) if the taxpayer is totally disabled (for this purpose disability is
as defined in Section 72(m)(7) of the Code); (d) in a series of substantially
equal periodic payments made not less frequently than annually for the life (or
life expectancy) of the taxpayer or for the joint lives (or joint life
expectancies) of the taxpayer and his beneficiary; (e) under an immediate
annuity; or (f) which are allocable to purchase payments made prior to August
14, 1982.
With respect to (d) above, if the series of substantially equal periodic
payments is modified before the later of your attaining age 59 1/2 or 5 years
from the date of the first periodic payment, then the tax for the year of the
modification is increased by an amount equal to the tax which would have been
imposed (the 10% penalty tax) but for the exception, plus interest for the tax
years in which the exception was used.
The above information does not apply to Qualified Contracts. However, separate
tax withdrawal penalties and restrictions may apply to such Qualified Contracts.
(See "Tax Treatment of Withdrawals - Qualified Contracts.")
QUALIFIED PLANS
The Contracts offered are designed to be suitable for use under various types of
Qualified Plans. Because of the minimum purchase payment requirements, these
Contracts may not be appropriate for some periodic payment retirement plans.
Taxation of participants in each Qualified Plan varies with the type of plan and
terms and conditions of each specific plan. Contract Owners, annuitants and
beneficiaries are cautioned that benefits under a Qualified Plan may be subject
to the terms and conditions of the plan regardless of the terms and conditions
of the Contracts issued pursuant to the plan. Some retirement plans are subject
to distribution and other requirements that are not incorporated into the
Insurance Company's administrative procedures. The Company is not bound by the
terms and conditions of such plans to the extent such terms conflict with the
terms of a Contract, unless the Company specifically consents to be bound.
Contract Owners, participants and beneficiaries are responsible for determining
that contributions, distributions and other transactions with respect to the
Contracts comply with applicable law.
A Qualified Contract will not provide any necessary or additional tax deferral
if it is used to fund a Qualified Plan that is tax deferred. However, the
Contract has features and benefits other than tax deferral that may make it an
appropriate investment for a Qualified Plan. 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 59 1/2, on the individual's death or disability, or
as a qualified first-time home purchase, subject to a $10,000 lifetime maximum,
for the individual, a spouse, child, grandchild, or ancestor. Any distribution
which is not a qualified distribution is taxable to the extent of earnings in
the distribution. Distributions are treated as made from contributions first and
therefore no distributions are taxable until distributions exceed the amount of
contributions to the Roth IRA. The 10% penalty tax and the regular IRA
exceptions to the 10% penalty tax apply to taxable distributions from a Roth
IRA.
Amounts may be rolled over from one Roth IRA to another Roth IRA. Furthermore,
an individual may make a rollover contribution from a non-Roth IRA to a Roth
IRA, unless the individual has adjusted gross income over $100,000 or the
individual is a married taxpayer filing a separate return. The individual must
pay tax on any portion of the IRA being rolled over that represents income or a
previously deductible IRA contribution. However, for rollovers in 1998, the
individual may pay that tax ratably over the four taxable year periods beginning
with tax year 1998. Purchasers of Contracts to be qualified as a Roth IRA should
obtain competent tax advice as to the tax treatment and suitability of such an
investment.
C. PENSION AND PROFIT-SHARING PLANS
Sections 401(a) and 401(k) of the Code permit employers, including self-
employed individuals, to establish various types of retirement plans for
employees. These retirement plans may permit the purchase of the Contracts to
provide benefits under the Plan. Contributions to the Plan for the benefit of
employees will not be includible in the gross income of the employee until
distributed from the Plan. The tax consequences to participants may vary,
depending upon the particular Plan design. However, the Code places limitations
and restrictions on all Plans, including on such items as: amount of allowable
contributions; form, manner and timing of distributions; transferability of
benefits; vesting and nonforfeitability of interests; nondiscrimination in
eligibility and participation; and the tax treatment of distributions and
withdrawals. Participant loans are not allowed under the Contracts purchased in
connection with these Plans. (See "Tax Treatment of Withdrawals-Qualified
Contracts.") Purchasers of Contracts for use with Pension or Profit-Sharing
Plans should obtain competent tax advice as to the tax treatment and suitability
of such an investment.
TAX TREATMENT OF WITHDRAWALS -
QUALIFIED CONTRACTS
In the case of a withdrawal under a Qualified Contract, a ratable portion of the
amount received is taxable, generally based on the ratio of the individual's
cost basis to the individual's total accrued benefit under the retirement plan.
Special tax rules may be available for certain distributions from a Qualified
Contract. Section 72(t) of the Code imposes a 10% penalty tax on the taxable
portion of any distribution from qualified retirement plans, including Contracts
issued and qualified under Code Sections 401 (Pension and Profit-Sharing Plans),
403(b) (Tax-Sheltered Annuities) and 408 and 408A (Individual Retirement
Annuities). To the extent amounts are not includible in gross income because
they have been properly rolled over to an IRA or to another eligible Qualified
Plan, no tax penalty will be imposed. The tax penalty will not apply to the
following distributions: (a) if distribution is made on or after the date on
which the Contract Owner or Annuitant (as applicable) reaches age 59 1/2; (b)
distributions following the death or disability of the Contract Owner or
Annuitant (as applicable) (for this purpose disability is as defined in Section
72(m)(7) of the Code); (c) after separation from service, distributions that are
part of substantially equal periodic payments made not less frequently than
annually for the life (or life expectancy) of the Contract Owner or Annuitant
(as applicable) or the joint lives (or joint life expectancies) of such Contract
Owner or Annuitant (as applicable) and his designated beneficiary; (d)
distributions to a Contract Owner or Annuitant (as applicable) who has separated
from service after he has attained age 55; (e) distributions made to the
Contract Owner or Annuitant (as applicable) to the extent such distributions do
not exceed the amount allowable as a deduction under Code Section 213 to the
Contract Owner or Annuitant (as applicable) for amounts paid during the taxable
year for medical care; (f) distributions made to an alternate payee pursuant to
a qualified domestic relations order; (g) distributions made on account of an
IRS levy upon the Qualified Contract; (h) 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); (i) 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 (j) distributions from an
Individual Retirement Annuity made to the Owner or Annuitant (as applicable)
which are qualified first-time home buyer distributions (as defined in Section
72(t)(8) of the Code). The exceptions stated in items (d) and (f) above do not
apply in the case of an Individual Retirement Annuity. The exception stated in
item (c) applies to an Individual Retirement Annuity without the requirement
that there be a separation from service.
With respect to (c) above, if the series of substantially equal periodic
payments is modified before the later of your attaining age 59 1/2 or 5 years
from the date of the first periodic payment, then the tax for the year of the
modification is increased by an amount equal to the tax which would have been
imposed (the 10% penalty tax) but for the exception, plus interest for the tax
years in which the exception was used.
Generally, distributions from a Qualified Plan must commence no later than April
1 of the calendar year following the later of: (a) the year in which the
employee attains age 70 1/2 or (b) the calendar year in which the employee
retires. The date set forth in (b) does not apply to an Individual Retirement
Annuity. Required distributions must be over a period not exceeding the life
expectancy of the individual or the joint lives or life expectancies of the
individual and his or her designated beneficiary. If the required minimum
distributions are not made, a 50% penalty tax is imposed as to the amount not
distributed.
TAX-SHELTERED ANNUITIES -
WITHDRAWAL LIMITATIONS
The Code limits the withdrawal of amounts attributable to contributions made
pursuant to a salary reduction agreement (as defined in Section 403(b)(11) of
the Code) to circumstances only when the Contract Owner: (1) attains age 59 1/2;
(2) separates from service; (3) dies; (4) becomes disabled (within the meaning
of Section 72(m)(7) of the Code); or (5) in the case of hardship. However,
withdrawals for hardship are restricted to the portion of the Contract Owner's
Contract Value which represents contributions by the Contract Owner and does not
include any investment results. The limitations on withdrawals became effective
on January 1, 1989, and apply only to salary reduction contributions made after
December 31, 1988, and to income attributable to such contributions and to
income attributable to amounts held as of December 31, 1988. The limitations on
withdrawals do not affect rollovers and transfers between certain Qualified
Plans. Contract Owners should consult their own tax counsel or other tax adviser
regarding any distributions.
ANNUITY PROVISIONS
- --------------------------------------------------------------------------------
FIXED ANNUITY PAYOUT
A fixed annuity is an annuity with payments which are guaranteed as to dollar
amount by the Insurance Company and do not vary with the investment experience
of a Portfolio. The Fixed Account value on the day immediately preceding the
Income Date will be used to determine the Fixed Annuity monthly payment. The
monthly Annuity Payment will be based upon the Contract Value at the time of
annuitization, the Annuity Option selected, the age of the annuitant and any
joint annuitant and the sex of the annuitant and joint annuitant where allowed.
VARIABLE ANNUITY PAYOUT
A variable annuity is an annuity with payments which:
(1) are not predetermined as to dollar amount; and
(2) will vary in amount with the net investment results of the applicable
Portfolio(s).
ANNUITY UNIT VALUE
On the Income Date, a fixed number of Annuity Units will be purchased as
follows:
The first Annuity Payment is equal to the Adjusted Contract Value, divided first
by $1,000 and then multiplied by the appropriate Annuity Payment amount for each
$1,000 of value for the Annuity Option selected. In each Portfolio the fixed
number of Annuity Units is determined by dividing the amount of the initial
Annuity Payment determined for each Portfolio by the Annuity Unit value on the
Income Date. Thereafter, the number of Annuity Units in each Portfolio remains
unchanged unless the Contract Owner elects to transfer between Portfolios. All
calculations will appropriately reflect the Annuity Payment frequency selected.
On each subsequent Annuity Payment date, the total Annuity Payment is the sum of
the Annuity Payments for each Portfolio. The Annuity Payment in each Portfolio
is determined by multiplying the number of Annuity Units then allocated to such
Portfolio by the Annuity Unit value for that Portfolio.
On each subsequent Valuation Date, the value of an Annuity Unit is determined in
the following way:
First: The Net Investment Factor is determined as described in the Prospectus
under "Purchase - Accumulation Units."
Second: The value of an Annuity Unit for a Valuation Period is equal to:
a. the value of the Annuity Unit for the immediately preceding Valuation Period.
b. multiplied by the Net Investment Factor for the current Valuation Period;
c. divided by the Assumed Net Investment Factor (see below) for the Valuation
Period.
The Assumed Net Investment Factor is equal to one plus the Assumed Investment
Return which is used in determining the basis for the purchase of an Annuity,
adjusted to reflect the particular Valuation Period. The Assumed Investment
Return that the Insurance Company will use is 5%. However, the Insurance Company
may agree to use a different value.
MORTALITY AND EXPENSE RISK GUARANTEE
- --------------------------------------------------------------------------------
The Insurance Company guarantees that the dollar amount of each Annuity Payment
after the first Annuity Payment will not be affected by variations in mortality
and expense experience.
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The audited financial statements of the Insurance Company as of and for the year
ended December 31, 1999, 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, 1999, are also included herein.
PREFERRED LIFE VARIABLE ACCOUNT C
of
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements
December 31, 1999
<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, 1999, 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
AIM Variable Insurance Funds, Inc., The Alger American Fund, Franklin Templeton
Variable Insurance Products Trust, and USAllianz Variable Insurance Products
Trust. 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, 1999, 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 LLP
Minneapolis, Minnesota
February 4, 2000
<PAGE>
<TABLE>
<CAPTION>
Variable Life Prospectus
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
FINANCIAL STATEMENTS
Statements of Assets and Liabilities
December 31, 1999
(In thousands)
ALGER ALGER FRANKLIN GLOBAL FRANKLIN FRANKLIN FRANKLIN
AIM AMERICAN AMERICAN COMMUNICATIONS GLOBAL HEALTH GROWTH AND HIGH
VI GROWTH GROWTH LEVERAGED ALLCAP SECURITIES CARE SECURITIES INCOME INCOME
FUND FUND FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
AIM VI Growth Fund,
12 shares, cost $389 $401 - - - - - -
Alger American Growth Fund,
7 shares, cost $459 - 479 - - - - -
Alger American Leveraged AllCap Fund,
4 shares, cost $221 - - 225 - - - -
Franklin Global Communications Securities Fund,
3,303 shares, cost $56,564 - - - 82,114 - - -
Franklin Global Health Care Securities Fund,
66 shares, cost $612 - - - - 652 - -
Franklin Growth and Income Fund,
4,791 shares, cost $79,903 - - - - - 85,186 -
Franklin High Income Fund,
2,839 shares, cost $36,092 - - - - - - 27,996
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets 401 479 225 82,114 652 85,186 27,996
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities:
Accrued mortality and expense risk charges
- Valuemark II - - - (23) 3 3 3
Accrued mortality and expense risk charges
- Valuemark IV - - - 5 2 5 5
Accrued administrative charges - Valuemark II - - - (3) - 1 -
Accrued administrative charges - Valuemark IV - - - 1 - 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities - - - (20) 5 10 9
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets $401 479 225 82,134 647 85,176 27,987
- ------------------------------------------------------------------------------------------------------------------------------------
Contract owners' equity:
Contracts in accumulation period - Valuemark II 397 391 225 81,263 450 83,242 26,674
Contracts in accumulation period - Valuemark IV 4 88 - 792 197 1,929 1,313
Contracts in annuity payment period (note 2) - - - 79 - 5 -
- ------------------------------------------------------------------------------------------------------------------------------------
Total contract owners' equity $401 479 225 82,134 647 85,176 27,987
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Variable Life Prospectus
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
FINANCIAL STATEMENTS
Statements of Assets and Liabilities (cont.)
December 31, 1999
(In thousands)
FRANKLIN FRANKLIN LARGE FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
INCOME CAP GROWTH MONEY NATURAL RESOURCES REAL RISING DIVIDENDS S&P 500
SECURITIES SECURITIES MARKET SECURITIES ESTATE SECURITIES INDEX
FUND FUND FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Income Securities Fund,
3,816 shares, cost $59,166 $56,057 - - - - - -
Franklin Large Cap Growth Securities Fund,
1,341 shares, cost $20,060 - 28,266 - - - - -
Franklin Money Market Fund,
25,200 shares, cost $25,200 - - 25,200 - - - -
Franklin Natural Resources Securities Fund,
285 shares, cost $3,684 - - - 3,120 - - -
Franklin Real Estate Fund,
674 shares, cost $12,103 - - - - 10,053 - -
Franklin Rising Dividends Securities Fund,
3,159 shares, cost $43,788 - - - - - 42,990 -
Franklin S&P 500 Index Fund,
46 shares, cost $477 - - - - - - 487
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets 56,057 28,266 25,200 3,120 10,053 42,990 487
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities:
Accrued mortality and expense risk charges
- Valuemark II 4 3 2 3 2 4 1
Accrued mortality and expense risk charges
- Valuemark IV 5 5 5 2 1 5 -
Accrued administrative charges - Valuemark II 1 - - - - 1 -
Accrued administrative charges - Valuemark IV 1 1 1 - - 1 -
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 11 9 8 5 3 11 1
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets $56,046 28,257 25,192 3,115 10,050 42,979 486
- ------------------------------------------------------------------------------------------------------------------------------------
Contract owners' equity:
Contracts in accumulation period - Valuemark II 54,683 26,784 23,673 2,983 9,946 41,590 486
Contracts in accumulation period - Valuemark IV 1,318 1,473 1,519 132 104 1,353 -
Contracts in annuity payment period (note 2) 45 - - - - 36 -
- ------------------------------------------------------------------------------------------------------------------------------------
Total contract owners' equity $56,046 28,257 25,192 3,115 10,050 42,979 486
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Variable Life Prospectus
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
FINANCIAL STATEMENTS (CONTINUED)
Statements of Assets and Liabilities (cont.)
December 31, 1999
(In thousands)
FRANKLIN FRANKLIN MUTUAL
FRANKLIN U.S. VALUE FRANKLIN FRANKLIN FRANKLIN DISCOVERY
SMALL CAP GOVERNMENT SECURITIES ZERO COUPON ZERO COUPON ZERO COUPON SECURITIES
FUND FUND FUND FUND - 2000 FUND - 2005 FUND - 2010 FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Small Cap Fund,
854 shares, cost $12,635 $22,945 - - - - - -
Franklin U.S. Government Fund,
4,546 shares, cost $60,110 - 53,550 - - - - -
Franklin Value Securities Fund,
85 shares, cost $653 - - 674 - - - -
Franklin Zero Coupon Fund - 2000
890 shares, cost $12,651 - - - 11,186 - - -
Franklin Zero Coupon Fund - 2005
420 shares, cost $6,589 - - - - 6,098 - -
Franklin Zero Coupon Fund - 2010
349 shares, cost $5,685 - - - - - 4,932 -
Mutual Discovery Securities Fund
854 shares, cost $10,083 - - - - - - 11,587
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets 22,945 53,550 674 11,186 6,098 4,932 11,587
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities:
Accrued mortality and expense risk charges
- Valuemark II 3 3 1 3 3 4 2
Accrued mortality and expense risk charges
- Valuemark IV 5 5 5 3 1 2 5
Accrued administrative charges - Valuemark II - 1 - - - - -
Accrued administrative charges - Valuemark IV 1 1 1 - - - 1
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 9 10 7 6 4 6 8
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets $22,936 53,540 667 11,180 6,094 4,926 11,579
- ------------------------------------------------------------------------------------------------------------------------------------
Contract owners' equity:
Contracts in accumulation period
- Valuemark II 22,163 51,251 261 10,887 6,008 4,745 11,073
Contracts in accumulation period
- Valuemark IV 773 2,289 406 293 86 181 506
Contracts in annuity payment period (note 2) - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Total contract owners' equity $22,936 53,540 667 11,180 6,094 4,926 11,579
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
4
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
FINANCIAL STATEMENTS (CONTINUED)
Statements of Assets and Liabilities (cont.)
December 31, 1999
(In thousands)
TEMPLETON
MUTUAL TEMPLETON TEMPLETON TEMPLETON TEMPLETON TEMPLETON INTERNATIONAL
SHARES DEVELOPING GLOBAL ASSET GLOBAL GLOBAL INCOME INTERNATIONAL SMALLER
SECURITIES MARKETS EQUITY ALLOCATION GROWTH SECURITIES EQUITY COMPANIES
FUND FUND FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Mutual Shares Securities Fund,
2,023 shares, cost $23,843 $26,768 - - - - - -
Templeton Developing Markets Equity Fund,
728 shares, cost $7,353 - 7,632 - - - - -
Templeton Global Asset Allocation Fund,
284 shares, cost $3,485 - - 3,355 - - - -
Templeton Global Growth Fund,
2,430 shares, cost $31,938 - - - 37,987 - - -
Templeton Global Income Securities Fund,
824 shares, cost $10,459 - - - - 9,127 - -
Templeton International Equity Fund,
2,628 shares, cost $37,268 - - - - - 47,173 -
Templeton International Smaller Companies Fund,
109 shares, cost $1,211 - - - - - - 1,206
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets 26,768 7,632 3,355 37,987 9,127 47,173 1,206
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities:
Accrued mortality and expense risk charges
- Valuemark II 2 2 3 2 3 2 3
Accrued mortality and expense risk charges
- Valuemark IV 5 1 1 5 1 5 1
Accrued administrative charges
- Valuemark II - - - - - 1 -
Accrued administrative charges
- Valuemark IV 1 - - 1 - 1 -
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 8 3 4 8 4 9 4
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets $26,760 7,629 3,351 37,979 9,123 47,164 1,202
- ------------------------------------------------------------------------------------------------------------------------------------
Contract owners' equity:
Contracts in accumulation period
- Valuemark II 24,866 7,494 3,294 36,188 9,013 46,821 1,155
Contracts in accumulation period
- Valuemark IV 1,894 135 57 1,791 110 343 47
Contracts in annuity payment period (note 2) - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Total contract owners' equity $26,760 7,629 3,351 37,979 9,123 47,164 1,202
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Variable Life Prospectus 5
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
FINANCIAL STATEMENTS (CONTINUED)
Statements of Assets and Liabilities (cont.)
December 31, 1999
(In thousands)
USALLIANZ USALLIANZ
TEMPLETON VIP DIVERSIFIED VIP FIXED USALLIANZ TOTAL
PACIFIC GROWTH ASSETS INCOME VIP GROWTH ALL
FUND FUND FUND FUND FUNDS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investments at net asset value:
Templeton Pacific Growth Fund,
715 shares, cost $7,735 $7,286 - - -
USAllianz VIP Diversified Assets Fund,
0 shares, cost $2 - 2 - -
USAllianz VIP Fixed Income Fund,
0 shares, cost $0 - - - -
USAllianz VIP Growth Fund,
0 shares, cost $0 - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets 7,286 2 - - 614,734
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities:
Accrued mortality and expense risk charges - Valuemark II 3 - - - 44
Accrued mortality and expense risk charges - Valuemark IV 1 - - - 86
Accrued administrative charges - Valuemark II - - - - 2
Accrued administrative charges - Valuemark IV - - - - 14
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 4 - - - 146
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets $7,282 2 - - 614,588
- ------------------------------------------------------------------------------------------------------------------------------------
Contract owners' equity:
Contracts in accumulation period - Valuemark II 7,191 2 - - 595,199
Contracts in accumulation period - Valuemark IV 82 - - - 19,215
Contracts in annuity payment period (note 2) 9 - - - 174
- ------------------------------------------------------------------------------------------------------------------------------------
Total contract owners' equity $7,282 2 - - 614,588
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
6
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, 1999
(In thousands)
ALGER FRANKLIN GLOBAL FRANKLIN FRANKLIN
AIM VI ALGER AMERICAN COMMUNICATIONS GLOBAL HEALTH GROWTH AND FRANKLIN
GROWTH AMERICAN GROWTH LEVERAGED ALLCAP SECURITIES CARE SECURITIES INCOME HIGH INCOME
FUND FUND FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $1 - - 2,766 2 3,782 7,537
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges
- Valuemark II - - - 905 6 1,243 406
Mortality and expense risk charges
- Valuemark IV - - - 5 2 18 14
Administrative charges - Valuemark II - - - 109 1 149 49
Administrative charges - Valuemark IV - - - 1 - 2 2
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses - - - 1,020 9 1,412 471
- ------------------------------------------------------------------------------------------------------------------------------------
Investment income (loss), net 1 - - 1,746 (7) 2,370 7,066
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions on
mutual funds 9 - - 6,699 - 10,544 1,093
Realized gains (losses) on sales of
investments, net - - 9 4,362 (69) 5,107 (1,077)
- ------------------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on investments, net 9 - 9 11,061 (69) 15,651 16
- ------------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) on investments 13 20 4 10,895 6 (17,772) (7,480)
- ------------------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments,
net 22 20 13 21,956 (63) (2,121) (7,464)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from
operations $23 20 13 23,702 (70) 249 (398)
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Variable Life Prospectus 7
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, 1999
(In thousands)
FRANKLIN FRANKLIN LARGE FRANKLIN NATURAL FRANKLIN FRANKLIN FRANKLIN
INCOME CAP GROWTH FRANKLIN RESOURCES REAL RISING DIVIDENDS S&P 500
SECURITIES SECURITIES MONEY MARKET SECURITIES ESTATE SECURITIES INDEX
FUND FUND FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $5,787 103 1,288 49 1,091 882 -
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges - Valuemark II 847 281 340 41 158 671 -
Mortality and expense risk charges - Valuemark IV 14 14 9 2 1 13 -
Administrative charges - Valuemark II 102 34 41 5 19 81 -
Administrative charges - Valuemark IV 2 2 1 - - 1 -
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses 965 331 391 48 178 766 -
- ------------------------------------------------------------------------------------------------------------------------------------
Investment income (loss), net 4,822 (228) 897 1 913 116 -
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions on mutual
funds 2,074 - - - 1,511 8,832 -
Realized gains (losses) on sales of investments,
net 847 1,016 - (770) (77) 3,058 -
- ------------------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on investments, net 2,921 1,016 - (770) 1,434 11,890 -
- ------------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) on investments (9,842) 5,588 - 1,633 (3,300) (18,289) 10
- ------------------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments,
net (6,921) 6,604 - 863 (1,866) (6,399) 10
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from
operations $(2,099) 6,376 897 864 (953) (6,283) 10
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
8
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, 1999
(In thousands)
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN MUTUAL
FRANKLIN U.S. VALUE ZERO COUPON ZERO COUPON ZERO COUPON DISCOVERY
SMALL CAP GOVERNMENT SECURITIES - 2000 - 2005 - 2010 SECURITIES
FUND FUND FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $68 8,634 1 1,969 859 716 332
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges - Valuemark II 186 770 3 162 92 76 140
Mortality and expense risk charges - Valuemark IV 7 20 4 3 1 2 5
Administrative charges - Valuemark II 22 92 - 19 11 9 17
Administrative charges - Valuemark IV 1 2 - - - - 1
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses 216 884 7 184 104 87 163
- ------------------------------------------------------------------------------------------------------------------------------------
Investment income (loss), net (148) 7,750 (6) 1,785 755 629 169
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions
on mutual funds 10 - - 288 44 176 -
Realized gains (losses) on sales
of investments, net 478 (66) 4 (65) 106 43 40
- ------------------------------------------------------------------------------------------------------------------------------------
Realized gains (losses)
on investments, net 488 (66) 4 223 150 219 40
- ------------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) on investments 10,634 (9,210) 8 (1,804) (1,492) (1,784) 2,050
- ------------------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses)
and unrealized appreciation
(depreciation) on investments, net 11,122 (9,276) 12 (1,581) (1,342) (1,565) 2,090
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations $10,974 (1,526) 6 204 (587) (936) 2,259
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Variable Life Prospectus 9
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, 1999
(In thousands)
TEMPLETON
MUTUAL TEMPLETON TEMPLETON TEMPLETON TEMPLETON INTERNATIONAL
SHARES DEVELOPING GLOBAL ASSET TEMPLETON GLOBAL INCOME INTERNATIONAL SMALLER
SECURITIES MARKETS EQUITY ALLOCATION GLOBAL GROWTH SECURITIES EQUITY COMPANIES
FUND FUND FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $700 137 266 809 942 2,804 32
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges
- Valuemark II 324 84 48 443 144 605 14
Mortality and expense risk charges
- Valuemark IV 17 1 1 13 1 4 1
Administrative charges - Valuemark II 39 10 6 53 17 73 2
Administrative charges - Valuemark IV 2 - - 1 - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses 382 95 55 510 162 682 17
- ------------------------------------------------------------------------------------------------------------------------------------
Investment income (loss), net 318 42 211 299 780 2,122 15
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions
on mutual funds - - 266 3,913 - 1,450 -
Realized gains (losses) on sales
of investments, net 546 (656) (30) 1,046 (290) 2,715 (47)
- ------------------------------------------------------------------------------------------------------------------------------------
Realized gains (losses)
on investments, net 546 (656) 236 4,959 (290) 4,165 (47)
- ------------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) on investments 2,130 3,346 (253) 1,167 (1,395) 4,247 245
- ------------------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses)
and unrealized appreciation
(depreciation) on investments, net 2,676 2,690 (17) 6,126 (1,685) 8,412 198
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations $2,994 2,732 194 6,425 (905) 10,534 213
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
10
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, 1999
(In thousands)
USALLIANZ USALLIANZ
TEMPLETON VIP DIVERSIFIED VIP FIXED USALLIANZ TOTAL
PACIFIC GROWTH ASSETS INCOME VIP GROWTH ALL
FUND FUND FUND FUND FUNDS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $71 - - - 41,628
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges - Valuemark II 90 - - - 8,079
Mortality and expense risk charges - Valuemark IV 1 - - - 173
Administrative charges - Valuemark II 11 - - - 971
Administrative charges - Valuemark IV - - - - 18
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses 102 - - - 9,241
- ------------------------------------------------------------------------------------------------------------------------------------
Investment income (loss), net (31) - - - 32,387
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions
on mutual funds - - - - 36,909
Realized gains (losses) on sales
of investments, net (2,409) - - (2) 13,819
- ------------------------------------------------------------------------------------------------------------------------------------
Realized gains (losses)
on investments, net (2,409) - - (2) 50,728
- ------------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) on investments 4,586 - - - (26,039)
- ------------------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses)
and unrealized appreciation
(depreciation) on investments, net 2,177 - - (2) 24,689
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations $2,146 - - (2) 57,076
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Variable Life Prospectus 11
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, 1999 and 1998 (In thousands)
FRANKLIN GLOBAL
AIM VI ALGER AMERICAN ALGER AMERICAN COMMUNICATIONS
GROWTH FUND GROWTH FUND LEVERAGED ALLCAP FUND SECURITIES FUND
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $1 - - - - - 1,746 2,287
Realized gains (losses) on investments, net 9 - - - 9 - 11,061 9,083
Net change in unrealized appreciation
(depreciation) on investments 13 - 20 - 4 - 10,895 (3,678)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations 23 - 20 - 13 - 23,702 7,692
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions - Valuemark II (note 4):
Purchase payments - - - - - - 218 1,613
Transfers between funds 396 - 394 - 212 - (724) (1,689)
Surrenders and terminations (22) - (22) - - - (22,559)(22,589)
Rescissions - - - - - - (8) (109)
Other transactions (note 2) - - - - - - 403 64
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark II 374 - 372 - 212 - (22,670)(22,710)
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions - Valuemark IV (note 4):
Purchase payments - - - - - - 504 44
Transfers between funds 4 - 87 - - - 131 11
Surrenders and terminations - - - - - - (64) -
Rescissions - - - - - - (3) -
Other transactions (note 2) - - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark IV 4 - 87 - - - 568 55
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 401 - 479 - 225 - 1,600 (14,963)
Net assets at beginning of year - - - - - - 80,534 95,497
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $401 - 479 - 225 - 82,134 80,534
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
12
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, 1999 and 1998
(In thousands)
FRANKLIN GLOBAL HEALTH CARE FRANKLIN GROWTH AND FRANKLIN HIGH FRANKLIN INCOME
SECURITIES FUND INCOME FUND INCOME FUND SECURITIES FUND
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $(7) - 2,370 2,168 7,066 3,336 4,822 5,905
Realized gains (losses) on investments,
net (69) 1 15,651 13,649 16 314 2,921 3,814
Net change in unrealized appreciation
(depreciation) on investments 6 35 (17,772) (8,207) (7,480) (3,777) (9,842) (9,694)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations (70) 36 249 7,610 (398) (127) (2,099) 25
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions - Valuemark II (note 4):
Purchase payments 8 1 579 7,159 129 5,061 307 5,484
Transfers between funds 376 250 (752) 2,872 (2,280) (862) (4,554) (3,061)
Surrenders and terminations (158) - (29,750)(26,820) (8,653) (11,159) (21,120)(20,428)
Rescissions - - - (167) (6) (67) - (109)
Other transactions (note 2) - - 436 253 51 13 190 29
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark II 226 251 (29,487)(16,703) (10,759) (7,014) (25,177)(18,085)
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions - Valuemark IV (note 4):
Purchase payments 348 77 601 347 366 412 558 257
Transfers between funds (212) 4 983 92 506 91 485 94
Surrenders and terminations (13) - (88) (1) (52) (1) (37) -
Rescissions - - - (1) - - - -
Other transactions (note 2) - - 4 - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark IV 123 81 1,500 437 820 502 1,006 351
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 279 368 (27,738) (8,656) (10,337) (6,639) (26,270)(17,709)
Net assets at beginning of year 368 - 112,914 121,570 38,324 44,963 82,316 100,025
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $647 368 85,176 112,914 27,987 38,324 56,046 82,316
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Variable Life Prospectus 13
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, 1999 and 1998
(In thousands)
FRANKLIN LARGE CAP FRANKLIN FRANKLIN NATURAL RESOURCES FRANKLIN
GROWTH SECURITIES FUND MONEY MARKET FUND SECURITIES FUND REAL ESTATE FUND
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ (228) (125) 897 1,127 1 4 913 609
Realized gains (losses) on investments,
net 1,016 287 - - (770) (613) 1,434 1,784
Net change in unrealized appreciation
(depreciation) on investments 5,588 1,864 - - 1,633 (747) (3,300) (6,791)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations 6,376 2,026 897 1,127 864 (1,356) (953) (4,398)
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions - Valuemark II (note 4):
Purchase payments 360 2,983 393 9,399 12 685 34 1,188
Transfers between funds 11,623 4,392 4,341 6,983 (210) (306) (2,005) (1,790)
Surrenders and terminations (7,116) (1,877) (13,569)(15,831) (1,193) (787) (3,480) (5,162)
Rescissions - (17) (39) (392) - - - (20)
Other transactions (note 2) 5 180 484 22 (1) 1 2 (10)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark II 4,872 5,661 (8,390) 181 (1,392) (407) (5,449) (5,794)
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions - Valuemark IV (note 4):
Purchase payments 656 206 92 269 61 56 53 30
Transfers between funds 338 32 1,256 (104) (8) - 24 5
Surrenders and terminations (50) - (17) - (2) - - -
Rescissions (27) - - - - - - -
Other transactions (note 2) - - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark IV 917 238 1,331 165 51 56 77 35
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 12,165 7,925 (6,162) 1,473 (477) (1,707) (6,325)(10,157)
Net assets at beginning of year 16,092 8,167 31,354 29,881 3,592 5,299 16,375 26,532
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $28,257 16,092 25,192 31,354 3,115 3,592 10,050 16,375
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
14
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, 1999 and 1998
(In thousands)
FRANKLIN RISING FRANKLIN FRANKLIN FRANKLIN
DIVIDENDS SECURITIES FUND S&P 500 INDEX FUND SMALL CAP FUND U.S. GOVERNMENT FUND
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 116 (213) - - (148) (199) 7,750 4,461
Realized gains (losses) on investments,
net 11,890 12,765 - - 488 935 (66) 895
Net change in unrealized appreciation
depreciation) on investments (18,289) (9,268) 10 - 10,634 (1,359) (9,210) (812)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations (6,283) 3,284 10 - 10,974 (623) (1,526) 4,544
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions - Valuemark II (note 4):
Purchase payments 304 7,196 - 100 2,596 406 3,571
Transfers between funds (3,108) 2,318 521 962 1,577 (1,792) (301)
Surrenders and terminations (16,637) (15,723) (45) (4,320) (2,847) (17,946)(22,669)
Rescissions - (104) - - (25) (2) (118)
Other transactions (note 2) 11 230 - 10 91 88 31
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark II (19,430) (6,083) 476 - (3,248) 1,392 (19,246)(19,486)
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions - Valuemark IV (note 4):
Purchase payments 778 269 - 627 106 498 492
Transfers between funds 419 58 - (297) 6 1,403 41
Surrenders and terminations (74) - - (22) (1) (97) -
Rescissions (3) - - - - (21) (3)
Other transactions (note 2) 3 - - - - 4 -
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark IV 1,123 327 - - 308 111 1,787 530
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (24,590) (2,472) 486 - 8,034 880 (18,985)(14,412)
Net assets at beginning of year 67,569 70,041 - - 14,902 14,022 72,525 86,937
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $42,979 67,569 486 - 22,936 14,902 53,540 72,525
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Variable Life Prospectus 15
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, 1999 and 1998
(In thousands)
FRANKLIN VALUE FRANKLIN ZERO COUPON- FRANKLIN ZERO COUPON- FRANKLIN ZERO COUPON-
SECURITIES FUND 2000 FUND 2005 FUND 2010 FUND
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ (6) - 1,785 1,120 755 390 629 327
Realized gains (losses) on investments, net 4 2 223 502 150 315 219 535
Net change in unrealized appreciation
(depreciation) on investments 8 14 (1,804) (584) (1,492) 146 (1,784) 23
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations 6 16 204 1,038 (587) 851 (936) 885
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions - Valuemark II (note 4):
Purchase payments 7 21 35 345 40 1,287 55 873
Transfers between funds 116 115 (565) (941) (466) 727 (572) 381
Surrenders and terminations (9) - (3,878) (6,689) (1,788) (1,750) (1,422) (1,759)
Rescissions - - - (10) - (180) - (7)
Other transactions (note 2) - - 152 (7) 65 31 9 (4)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark II 114 136 (4,256) (7,302) (2,149) 115 (1,930) (516)
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions - Valuemark IV (note 4):
Purchase payments 72 124 34 27 37 47 157 92
Transfers between funds 183 34 208 25 9 4 (40) -
Surrenders and terminations (18) - (2) - (5) - (8) -
Rescissions - - - - - - - -
Other transactions (note 2) - - - - - - 2 -
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark IV 237 158 240 52 41 51 111 92
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 357 310 (3,812) (6,212) (2,695) 1,017 (2,755) 461
Net assets at beginning of year 310 - 14,992 21,204 8,789 7,772 7,681 7,220
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $667 310 11,180 14,992 6,094 8,789 4,926 7,681
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
16
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, 1999 and 1998
(In thousands)
MUTUAL DISCOVERY MUTUAL SHARES TEMPLETON DEVELOPING TEMPLETON GLOBAL
SECURITIES FUND SECURITIES FUND MARKETS EQUITY FUND ASSET ALLOCATION FUND
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 169 (3) 318 (83) 42 161 211 114
Realized gains (losses) on investments,
net 40 64 546 303 (656) (440) 236 370
Net change in unrealized appreciation
(depreciation) on investments 2,050 (1,320) 2,130 (929) 3,346 (2,104) (253) (572)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations 2,259 (1,259) 2,994 (709) 2,732 (2,383) 194 (88)
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions - Valuemark II (note 4):
Purchase payments 72 3,318 193 6,717 49 560 39 667
Transfers between funds (869) 1,746 424 4,383 170 (2,638) (552) (1,307)
Surrenders and terminations (2,956) (2,175) (5,418) (5,431) (1,407) (1,536) (733) (791)
Rescissions - (57) (4) (84) - (5) - (13)
Other transactions (note 2) (4) 18 (7) 84 1 (3) 31 -
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark II (3,757) 2,850 (4,812) 5,669 (1,187) (3,622) (1,215) (1,444)
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions - Valuemark IV (note 4):
Purchase payments 113 153 906 311 185 41 15 13
Transfers between funds 142 18 490 107 (94) - 25 2
Surrenders and terminations (10) - (54) - (35) - (5) -
Rescissions - - - - - - - -
Other transactions (note 2) - - - - - - 4 -
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark IV 245 171 1,342 418 56 41 39 15
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (1,253) 1,762 (476) 5,378 1,601 (5,964) (982) (1,517)
Net assets at beginning of year 12,832 11,070 27,236 21,858 6,028 11,992 4,333 5,850
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $11,579 12,832 26,760 27,236 7,629 6,028 3,351 4,333
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Variable Life Prospectus 17
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, 1999 and 1998
(In thousands)
TEMPLETON GLOBAL TEMPLETON GLOBAL INCOME TEMPLETON INTERNATIONAL TEMPLETON INTERNATIONAL
GROWTH FUND SECURITIES FUND EQUITY FUND SMALLER COMPANIES FUND
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 299 476 780 955 2,122 1,102 15 15
Realized gains (losses) on investments,
net 4,959 4,755 (290) (2) 4,165 7,567 (47) (33)
Net change in unrealized appreciation
(depreciation) on investments 1,167 (2,835) (1,395) (103) 4,247 (5,800) 245 (190)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations 6,425 2,396 (905) 850 10,534 2,869 213 (208)
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions - Valuemark II (note 4):
Purchase payments 164 3,461 31 547 145 1,430 4 103
Transfers between funds 33 (2,518) (679) (1,413) (2,577) (7,532) 99 (348)
Surrenders and terminations (6,764) (6,107) (3,553) (4,077) (15,456) (14,571) (217) (357)
Rescissions - (56) - (15) (2) (58) - -
Other transactions (note 2) 13 (20) 18 25 67 82 (1) 1
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark II (6,554) (5,240) (4,183) (4,933) (17,823) (20,649) (115) (601)
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions - Valuemark IV (note 4):
Purchase payments 642 81 58 41 136 127 132 31
Transfers between funds 805 85 15 4 10 8 (127) 2
Surrenders and terminations (18) - (1) - (4) - - -
Rescissions (9) - - - (9) - - -
Other transactions (note 2) 2 - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark IV 1,422 166 72 45 133 135 5 33
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 1,293 (2,678) (5,016) (4,038) (7,156) (17,645) 103 (776)
Net assets at beginning of year 36,686 39,364 14,139 18,177 54,320 71,965 1,099 1,875
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $37,979 36,686 9,123 14,139 47,164 54,320 1,202 1,099
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
18
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, 1999 and 1998
(In thousands)
TEMPLETON PACIFIC USALLIANZ VIP USALLIANZ VIP USALLIANZ VIP
GROWTH FUND DIVERSIFIED ASSETS FUND FIXED INCOME FUND GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ (31) 254 - - - - - -
Realized gains (losses) on investments,
net (2,409) (3,085) - - - - (2) -
Net change in unrealized appreciation
(depreciation) on investments 4,586 987 - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations 2,146 (1,844) - - - - (2) -
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions - Valuemark II
(note 4):
Purchase payments 102 182 - - - - - -
Transfers between funds 479 (1,806) 2 - 22 - 2 -
Surrenders and terminations (2,143) (1,677) - - (22) - - -
Rescissions - (5) - - - - - -
Other transactions (note 2) 5 (5) - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark II (1,557) (3,311) 2 - - - 2 -
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions - Valuemark IV
(note 4):
Purchase payments 8 44 - - - - - -
Transfers between funds 6 (3) - - - - - -
Surrenders and terminations - - - - - - - -
Rescissions - - - - - - - -
Other transactions (note 2) - - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark IV 14 41 - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 603 (5,114) 2 - - - - -
Net assets at beginning of year 6,679 11,793 - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $7,282 6,679 2 - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Variable Life Prospectus 19
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, 1999 and 1998
(In thousands)
TOTAL ALL FUNDS
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 32,387 24,188
Realized gains (losses) on investments, net 50,728 53,767
Net change in unrealized appreciation
(depreciation) on investments (26,039) (55,701)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations 57,076 22,254
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions - Valuemark II (note 4):
Purchase payments 3,786 66,447
Transfers between funds (1,533) (768)
Surrenders and terminations (192,356) (192,812)
Rescissions (61) (1,618)
Other transactions (note 2) 2,028 1,106
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark II (188,136) (127,645)
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions - Valuemark IV (note 4):
Purchase payments 7,637 3,697
Transfers between funds 6,751 616
Surrenders and terminations (676) (3)
Rescissions (72) (4)
Other transactions (note 2) 19 -
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark IV 13,659 4,306
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (117,401) (101,085)
Net assets at beginning of year 731,989 833,074
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $614,588 731,989
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
20
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
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 select portfolios of AIM Variable Insurance Funds, Inc., The Alger
American Fund, Franklin Templeton Variable Insurance Products Trust (formerly,
Franklin Valuemark Funds), and USAllianz Variable Insurance Products Trust, in
accordance with the selection made by the contract owner. The investment
advisers for each portfolio are listed in the following table.
Portfolio Investment Adviser
- ------------------------------------------------------------------------------------------
<S> <C>
AIM VI Growth Fund AIM Advisors, Inc.
Alger American Growth Fund Fred Alger Management, Inc.
Alger American Leveraged AllCap Fund Fred Alger Management, Inc.
Franklin Global Communications Securities Fund Franklin Advisers, Inc.
Franklin Global Health Care Securities Fund Franklin Advisers, Inc.
Franklin Growth and Income Fund Franklin Advisers, Inc.
Franklin High Income Fund Franklin Advisers, Inc.
Franklin Income Securities Fund Franklin Advisers, Inc.
Franklin Large Cap Growth Securities Fund Franklin Advisers, Inc.
Franklin Money Market Fund Franklin Advisers, Inc.
Franklin Natural Resources Securities Fund Franklin Advisers, Inc.
Franklin Real Estate Fund Franklin Advisers, Inc.
Franklin Rising Dividends Securities Fund Franklin Advisory Services, LLC
Franklin S&P 500 Index Fund Franklin Advisers, Inc.
Franklin Small Cap Fund Franklin Advisers, Inc.
Franklin U.S. Government Fund Franklin Advisers, Inc.
Franklin Value Securities Fund Franklin Advisory Services, LLC
Franklin Zero Coupon - 2000 Fund Franklin Advisers, Inc.
Franklin Zero Coupon - 2005 Fund Franklin Advisers, Inc.
Franklin Zero Coupon - 2010 Fund Franklin Advisers, Inc.
Mutual Discovery Securities Fund Franklin Mutual Advisers, LLC
Mutual Shares Securities Fund Franklin Mutual Advisers, LLC
Templeton Developing Markets Equity Fund Templeton Asset Management Ltd.
Templeton Global Asset Allocation Fund Templeton Global Advisors Limited
Templeton Global Growth Fund Templeton Global Advisors Limited
Templeton Global Income Securities Fund Franklin Advisers, Inc.
Templeton International Equity Fund Franklin Advisers, Inc.
Templeton International Smaller Companies Fund Templeton Investment Counsel, Inc.
Templeton Pacific Growth Fund Franklin Advisers, Inc.
USAllianz VIP Diversified Assets Fund Allianz of America, Inc.
USAllianz VIP Fixed Income Fund Allianz of America, Inc.
USAllianz VIP Growth Fund Allianz of America, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Variable Life Prospectus 21
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
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 AIM Variable Insurance Funds, Inc., The Alger American
Fund, Franklin Templeton Variable Insurance Products Trust, and the USAllianz
Variable Insurance Products Trust.
Realized investment gains include realized gain distributions received from the
respective portfolios and gains on the sale of portfolio shares as determined by
the average cost method. Realized gain distributions are reinvested in the
respective portfolios. Dividend distributions received from the portfolios are
reinvested in additional shares of the portfolios and are recorded as income to
the Variable Account on the ex-dividend date.
A Flexible Fixed Account investment option and a Dollar Cost Averaging Fixed
Account investment option are available to deferred annuity contract owners.
These accounts are comprised of equity and fixed income investments which are
part of the general assets of Preferred Life. The liabilities of the Fixed
Accounts are part of the general obligations of Preferred Life and are not
included in the Variable Account. The guaranteed minimum rate of return on the
Fixed Accounts is 3%.
The Franklin Global Health Care Securities Fund and Franklin Value Securities
Fund were added as available investment options on August 17, 1998. On November
12, 1999, the AIM VI Growth Fund, Alger American Growth Fund, Alger American
Leveraged AllCap Fund, Franklin S&P 500 Index Fund, USAllianz VIP Diversified
Assets Fund, USAllianz VIP Fixed Income Fund, and USAllianz VIP Growth Fund were
added as available investment options.
During the year ended December 31, 1999, several portfolios changed their name
as summarized, with the effective date of the change, in the following table.
Current Portfolio Prior Portfolio Name Effective Date
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Franklin Global Communications Securities Fund Franklin Global Utilities Securities Fund November 15, 1999
Franklin Real Estate Fund Franklin Real Estate Securities Fund November 15, 1999
Franklin Rising Dividends Securities Fund Franklin Rising Dividends Fund November 15, 1999
Franklin U.S. Government Fund Franklin U.S. Government Securities Fund November 15, 1999
Franklin Large Cap Growth Securities Fund Franklin Capital Growth Fund December 15, 1999
</TABLE>
CONTRACTS IN ANNUITY PAYMENT PERIOD
Annuity reserves are computed for currently payable contracts according to the
1983 Individual Annuity Mortality Table, using an assumed investment return
(AIR) equal to the AIR of the specific contracts, either 3% or 5%. Charges to
annuity reserves for mortality and risk expense are reimbursed to Preferred Life
if the reserves required are less than originally estimated. If additional
reserves are required, Preferred Life reimburses the account.
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.
<PAGE>
22
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
<TABLE>
<CAPTION>
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, 1999 and 1998
were $443,591 and $487,077, respectively. These contract charges are reflected
in the Statements of Changes in Net Assets as other transactions.
A contingent deferred sales charge is deducted from the contract value at the
time of a surrender. This charge applies only to a surrender of purchase
payments received within five years of the date of surrender for Valuemark II
contracts and within seven years of the date of surrender for Valuemark IV
contracts. The amount of the contingent deferred sales charge is shown below.
Years Since Contingent Deferred Sales Charge
Payment Valuemark II Valuemark IV
- -----------------------------------------------------------
<S> <C> <C>
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%
Total contingent deferred sales charges paid by the contract owners during the
years ended December 31, 1999 and 1998 were $961,794 and $941,938, respectively.
</TABLE>
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.
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 during years ended December 31, 1999 and 1998 were $4,250
and $1,945, respectively. Transfer charges are reflected in the Statement of
Changes in Net Assets as other transactions. Net transfers from the Fixed
Accounts were $5,218,108 for the year ended December 31, 1999. 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.
A rescission is defined as a contract that is returned to the company and
canceled within the free-look period, generally within 10 days.
3. FEDERAL INCOME TAXES
Operations of the Variable Account form a part of, and are taxed with,
operations of Preferred Life, which is taxed as a life insurance company under
the Internal Revenue Code.
Preferred Life does not expect to incur any federal income taxes in the
operation of the Variable Account. If, in the future, Preferred Life determines
that the Variable Account may incur federal income taxes, it may then assess a
charge against the Variable Account for such taxes.
<PAGE>
<TABLE>
<CAPTION>
Variable Life Prospectus 23
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
4. CONTRACT TRANSACTIONS - ACCUMULATION UNIT ACTIVITY (IN THOUSANDS)
Transactions in units for each fund for the years ended December 31, 1999 and
1998 were as follows:
ALGER FRANKLIN FRANKLIN
ALGER AMERICAN GLOBAL GLOBAL FRANKLIN FRANKLIN FRANKLIN LARGE
AIM AMERICAN LEVERAGED COMMUNICATIONS HEALTH GROWTH & FRANKLIN INCOME CAP GROWTH
VI GROWTH GROWTH ALLCAP SECURITIES CARE SECURITIES INCOME HIGH INCOME SECURITIES SECURITIES
FUND FUND FUND FUND FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
VALUEMARK II
Accumulation units outstanding
at December 31, 1997 - - - 3,699 - 4,952 2,110 3,991 622
Contract transactions:
Purchase payments - - - 61 - 281 233 219 215
Transfers between funds - - - (64) 26 110 (37) (125) 303
Surrenders and terminations - - - (851) - (1,058) (521) (819) (135)
Rescissions - - - (4) - (6) (3) (4) (1)
Other transactions - - - 2 - 10 1 1 12
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
accumulation units resulting
from contract transactions - - - (856) 26 (663) (327) (728) 394
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding
at December 31, 1998 - - - 2,843 26 4,289 1,783 3,263 1,016
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions:
Purchase payments - - - 8 1 22 6 12 22
Transfers between funds 38 38 18 (26) 37 (31) (106) (185) 710
Surrenders and terminations (2) (2) - (750) (17) (1,112) (409) (850) (423)
Rescissions - - - - - - - - -
Other transactions - - - 13 - 16 2 8 -
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
accumulation units resulting
from contract transactions 36 36 18 (755) 21 (1,105) (507) (1,015) 309
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding
at December 31, 1999 36 36 18 2,088 47 3,184 1,276 2,248 1,325
- ------------------------------------------------------------------------------------------------------------------------------------
VALUEMARK IV
Accumulation units outstanding
at December 31, 1997 - - - - - - - - -
Contract transactions:
Purchase payments - - - 2 8 14 21 11 15
Transfers between funds - - - - - 3 4 3 2
Surrenders and terminations - - - - - - - - -
Rescissions - - - - - - - - -
Other transactions - - - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
accumulation units resulting
from contract transactions - - - 2 8 17 25 14 17
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding
at December 31, 1998 - - - 2 8 17 25 14 17
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions:
Purchase payments - - - 17 38 23 17 23 40
Transfers between funds - 8 - 4 (25) 37 24 20 21
Surrenders and terminations - - - (2) (2) (3) (3) (1) (3)
Rescissions - - - - - - - - (2)
Other transactions - - - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
<PAGE>
Net increase (decrease) in
accumulation units resulting
from contract transactions - 8 - 19 11 57 38 42 56
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding at
December 31, 1999 - 8 - 21 19 74 63 56 73
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
24
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
4. CONTRACT TRANSACTIONS - ACCUMULATION UNIT ACTIVITY (IN THOUSANDS) (CONTINUED)
FRANKLIN FRANKLIN FRANKLIN
FRANKLIN NATURAL FRANKLIN RISING FRANKLIN FRANKLIN FRANKLIN ZERO
MONEY RESOURCES REAL DIVIDENDS S&P 500 FRANKLIN U.S. VALUE COUPON
MARKET SECURITIES ESTATE SECURITIES INDEX SMALL CAP GOVERNMENT SECURITIES -2000
FUND FUND FUND FUND FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
VALUEMARK II
Accumulation units outstanding
at December 31, 1997 2,155 458 942 3,489 - 938 4,844 - 1,087
Contract transactions:
Purchase payments 657 66 44 345 - 171 194 3 17
Transfers between funds 505 (33) (73) 103 - 96 (20) 16 (47)
Surrenders and terminations (1,123) (76) (204) (767) - (198) (1,227) - (334)
Rescissions (28) - (1) (5) - (2) (6) - -
Other transactions 2 - - 11 - 7 2 - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract transactions 13 (43) (234) (313) - 74 (1,057) 19 (364)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding
at December 31, 1998 2,168 415 708 3,176 - 1,012 3,787 19 723
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions:
Purchase payments 26 1 1 15 - 6 22 1 2
Transfers between funds 299 (28) (90) (157) 51 27 (96) 16 (27)
Surrenders and terminations (930) (120) (153) (828) (4) (263) (957) (1) (186)
Rescissions (3) - - - - - - - -
Other transactions 33 - - 1 - 1 5 - 7
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract transactions (575) (147) (242) (969) 47 (229) (1,026) 16 (204)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding at
December 31, 1999 1,593 268 466 2,207 47 783 2,761 35 519
- ------------------------------------------------------------------------------------------------------------------------------------
VALUEMARK IV
Accumulation units outstanding
at December 31, 1997 - - - - - - - - -
Contract transactions:
Purchase payments 19 7 1 14 - 9 26 17 1
Transfers between funds (7) - - 3 - - 2 5 1
Surrenders and terminations - - - - - - - - -
Rescissions - - - - - - - - -
Other transactions - - - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract transactions 12 7 1 17 - 9 28 22 2
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding
at December 31, 1998 12 7 1 17 - 9 28 22 2
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions:
Purchase payments 6 6 2 39 - 38 27 10 2
Transfers between funds 86 (1) 1 21 - (18) 76 24 10
Surrenders and terminations (1) - - (4) - (1) (5) (2) -
Rescissions - - - - - - (1) - -
Other transactions - - - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract transactions 91 5 3 56 - 19 97 32 12
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding at
December 31, 1999 103 12 4 73 - 28 125 54 14
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Variable Life Prospectus 25
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
4. CONTRACT TRANSACTIONS - ACCUMULATION UNIT ACTIVITY (IN THOUSANDS) (CONTINUED)
FRANKLIN FRANKLIN MUTUAL MUTUAL TEMPLETON TEMPLETON TEMPLETON TEMPLETON TEMPLETON
ZERO COUPON ZERO COUPON DISCOVERY SHARES DEVELOPING GLOBAL ASSET GLOBAL GLOBAL INCOME INTERNATIONAL
- 2005 - 2010 SECURITIES SECURITIES 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, 1997 345 292 924 1,823 1,160 424 2,594 1,072 4,063
Contract transactions:
Purchase payments 55 34 261 541 59 47 213 32 76
Transfers between funds 30 13 128 349 (295) (94) (177) (82) (429)
Surrenders and terminations(74) (67) (184) (450) (174) (58) (387) (235) (773)
Rescissions (8) - (4) (6) (1) (1) (3) (1) (3)
Other transactions 1 - 2 7 - - (1) 1 4
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease
in accumulation units
resulting from contract
transactions 4 (20) 203 441 (411) (106) (355) (285) (1,125)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units
outstanding at
December 31, 1998 349 272 1,127 2,264 749 318 2,239 787 2,938
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions:
Purchase payments 2 2 6 15 5 3 9 2 8
Transfers between funds (20) (22) (76) 28 9 (41) - (39) (136)
Surrenders and terminations(75) (55) (247) (427) (148) (54) (390) (209) (780)
Rescissions - - - - - - - - -
Other transactions 3 - - (1) - 2 1 1 4
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in accumulation units
resulting from contract
transactions (90) (75) (317) (385) (134) (90) (380) (245) (904)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units
outstanding at
December 31, 1999 259 197 810 1,879 615 228 1,859 542 2,034
- ------------------------------------------------------------------------------------------------------------------------------------
VALUEMARK IV
Accumulation units
outstanding at
December 31, 1997 - - - - - - - - -
Contract transactions:
Purchase payments 2 3 15 29 5 1 5 2 8
Transfers between funds - - 2 9 - - 5 - -
Surrenders and terminations - - - - - - - - -
Rescissions - - - - - - - - -
Other transactions - - - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in accumulation units
resulting from contract
transactions 2 3 17 38 5 1 10 2 8
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units
outstanding at
December 31, 1998 2 3 17 38 5 1 10 2 8
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions:
Purchase payments 2 6 10 71 18 1 37 3 7
Transfers between funds - (2) 12 39 (9) 2 46 1 1
Surrenders and terminations - - (1) (4) (4) - (1) - -
Rescissions - - - - - - (1) - -
Other transactions - - - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in accumulation units
resulting from contract
transactions 2 4 21 106 5 3 81 4 8
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units
outstanding at
December 31, 1999 4 7 38 144 10 4 91 6 16
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
26
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
4. CONTRACT TRANSACTIONS - ACCUMULATION UNIT ACTIVITY (IN THOUSANDS) (CONTINUED)
TEMPLETON
INTERNATIONAL TEMPLETON USALLIANZ USALLIANZ
SMALLER PACIFIC VIP DIVERSIFIED VIP FIXED USALLIANZ TOTAL
COMPANIES GROWTH ASSETS INCOME VIP GROWTH ALL
FUND FUND FUND FUND FUND FUNDS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> C>
VALUEMARK II
Accumulation units outstanding at December 31, 1997 173 1,251 - - - 43,408
Contract transactions:
Purchase payments 9 21 - - - 3,854
Transfers between funds (35) (232) - - - (64)
Surrenders and terminations (33) (217) - - - (9,965)
Rescissions - (1) - - - (88)
Other transactions - (1) - - - 61
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract transactions (59) (430) - - - (6,202)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding at December 31, 1998 114 821 - - - 37,206
- ------------------------------------------------------------------------------------------------------------------------------------
Purchase payments - 10 - - - 207
Transfers between funds 8 52 - 2 - 253
Surrenders and terminations (21) (225) - (2) - (9,640)
Rescissions - - - - - (3)
Other transactions - 1 - - - 97
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract transactions (13) (162) - - - (9,086)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding at
December 31, 1999 101 659 - - - 28,120
- ------------------------------------------------------------------------------------------------------------------------------------
VALUEMARK IV
Accumulation units outstanding at December 31, 1997 - - - - - -
Contract transactions:
Purchase payments 3 6 - - - 244
Transfers between funds - - - - - 32
Surrenders and terminations - - - - - -
Rescissions - - - - - -
Other transactions - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract transactions 3 6 - - - 276
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding at December 31, 1998 3 6 - - - 276
- ------------------------------------------------------------------------------------------------------------------------------------
Purchase payments 12 1 - - - 456
Transfers between funds (12) 1 - - - 367
Surrenders and terminations - - - - - (37)
Rescissions - - - - - (4)
Other transactions - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract transactions - 2 - - - 782
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding at
December 31, 1999 3 8 - - - 1,058
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Variable Life Prospectus 27
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
5. UNIT VALUES
A summary of accumulation unit values and accumulation units outstanding for
variable annuity contracts and the expense ratios, including expenses of the
underlying funds, for each of the five years in the period ended December 31,
1999 follows.
VALUEMARK II VALUEMARK IV
- ------------------------------------------------------------------------------------------------------------------------------------
RATIO OF RATIO OF
ACCUMULATION EXPENSES ACCUMULATION EXPENSES
UNITS OUTSTANDING ACCUMULATION NET ASSETS TO AVERAGE UNITS OUTSTANDING ACCUMULATION NET ASSETS TO AVERAGE
(IN THOUSANDS UNIT VALUE (IN THOUSANDS) NET ASSETS* (IN THOUSANDS) UNIT VALUE (IN THOUSANDS)NET ASSETS*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AIM VI GROWTH FUND
December 31,
19991 36 $11.084 $397 2.13+% - $11.083 $4 2.22+%
ALGER AMERICAN GROWTH FUND
December 31,
19991 36 10.922 391 2.19+ 8 10.921 88 2.28+
ALGER AMERICAN LEVERAGED
ALLCAP FUND
December 31,
19991 18 12.160 225 2.33+ - - - 2.42+
FRANKLIN GLOBAL
COMMUNICATIONS
SECURITIES FUND
December 31,
1999 2,088 38.917 81,263 1.91 21 38.572 792 2.00
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 - - - -
FRANKLIN GLOBAL HEALTH
CARE SECURITIES FUND
December 31,
1999 47 9.615 450 2.22 19 9.601 197 2.31
19983 26 10.610 275 2.24+ 8 10.604 93 2.33+
FRANKLIN GROWTH AND
INCOME FUND
December 31,
1999 3,184 26.147 83,242 1.89 74 25.891 1,929 1.98
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 - - - -
FRANKLIN HIGH INCOME FUND
December 31,
1999 1,276 20.900 26,674 1.94 63 20.695 1,313 2.03
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 - - - -
FRANKLIN INCOME SECURITIES
FUND
December 31,
1999 2,248 24.323 54,683 1.90 56 24.084 1,318 1.99
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 - - - -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
28
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
5. UNIT VALUES (CONTINUED)
VALUEMARK II VALUEMARK IV
- ------------------------------------------------------------------------------------------------------------------------------------
RATIO OF RATIO OF
ACCUMULATION EXPENSES ACCUMULATION EXPENSES
UNITS OUTSTANDING ACCUMULATION NET ASSETS TO AVERAGE UNITS OUTSTANDING ACCUMULATION NET ASSETS TO AVERAGE
(IN THOUSANDS UNIT VALUE (IN THOUSANDS) NET ASSETS* (IN THOUSANDS) UNIT VALUE (IN THOUSANDS)NET ASSETS*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FRANKLIN LARGE CAP GROWTH
SECURITIES FUND
December 31,
1999 1,325 $20.218 $26,784 2.17% 73 $20.152 $1,473 2.26%
1998 1,016 15.574 15,825 2.17 17 15.537 267 2.26
1997 622 13.130 8,167 2.17 - - - -
19962 225 11.254 2,529 2.17+ - - - -
FRANKLIN MONEY MARKET FUND
December 31,
1999 1,593 14.860 23,673 1.93 103 14.717 1,519 2.02
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 - - - -
FRANKLIN NATURAL RESOURCES
SECURITIES FUND
December 31,
1999 268 11.092 2,983 2.06 12 10.983 132 2.15
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 - - - -
FRANKLIN REAL ESTATE FUND
December 31,
1999 466 21.386 9,946 1.98 4 21.176 104 2.07
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 - - - -
FRANKLIN RISING DIVIDENDS
SECURITIES FUND
December 31,
1999 2,207 18.846 41,590 2.15 73 18.712 1,353 2.24
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 - - - -
FRANKLIN S&P 500 INDEX FUND
December 31,
19991 47 10.467 486 1.95+ - - - 2.04+
FRANKLIN SMALL CAP FUND
December 31,
1999 783 28.353 22,163 2.17 28 28.247 773 2.26
1998 1,012 14.600 14,771 2.17 9 14.558 131 2.26
1997 938 14.952 14,022 2.17 - - - -
19962 416 12.913 5,369 2.17+ - - - -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Variable Life Prospectus 29
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
5. UNIT VALUES (CONTINUED)
VALUEMARK II VALUEMARK IV
- ------------------------------------------------------------------------------------------------------------------------------------
RATIO OF RATIO OF
ACCUMULATION EXPENSES ACCUMULATION EXPENSES
UNITS OUTSTANDING ACCUMULATION NET ASSETS TO AVERAGE UNITS OUTSTANDING ACCUMULATION NET ASSETS TO AVERAGE
(IN THOUSANDS UNIT VALUE (IN THOUSANDS) NET ASSETS* (IN THOUSANDS) UNIT VALUE (IN THOUSANDS)NET ASSETS*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FRANKLIN U.S. GOVERNMENT
FUND
December 31,
1999 2,761 $18.574 $51,251 1.91% 125 $18.394 $2,289 2.00%
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 - - - -
FRANKLIN VALUE SECURITIES
FUND
December 31,
1999 35 7.736 261 2.21 54 7.724 406 2.30
19983 19 7.717 143 2.52+ 22 7.713 167 2.61+
FRANKLIN ZERO COUPON FUND
- 2000
December 31,
1999 519 21.023 10,887 2.05 14 20.819 293 2.14
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 - - - -
FRANKLIN ZERO COUPON FUND
- 2005
December 31,
1999 259 23.205 6,008 2.05 4 22.983 86 2.14
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 - - - -
FRANKLIN ZERO COUPON FUND
- 2010
December 31,
1999 197 24.164 4,745 2.05 7 23.929 181 2.14
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 - - - -
MUTUAL DISCOVERY SECURITIES
FUND
December 31,
1999 810 13.701 11,073 2.41 38 13.662 506 2.50
1998 1,127 11.226 12,646 2.40 17 11.205 186 2.49
1997 924 11.983 11,070 2.46 - - - -
19964 27 10.180 278 2.77+ - - - -
MUTUAL SHARES SECURITIES
FUND
December 31,
1999 1,879 13.237 24,866 2.19 144 13.199 1,894 2.28
1998 2,264 11.837 26,789 2.17 38 11.814 447 2.26
1997 1,823 11.993 21,858 2.20 - - - -
19964 43 10.330 442 2.40+ - - - -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
30
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
5. UNIT VALUES (CONTINUED)
VALUEMARK II VALUEMARK IV
- ------------------------------------------------------------------------------------------------------------------------------------
RATIO OF RATIO OF
ACCUMULATION EXPENSES ACCUMULATION EXPENSES
UNITS OUTSTANDING ACCUMULATION NET ASSETS TO AVERAGE UNITS OUTSTANDING ACCUMULATION NET ASSETS TO AVERAGE
(IN THOUSANDS UNIT VALUE (IN THOUSANDS) NET ASSETS* (IN THOUSANDS) UNIT VALUE (IN THOUSANDS)NET ASSETS*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TEMPLETON DEVELOPING
MARKETS EQUITY FUND
December 31,
1999 615 $12.188 $7,494 2.79% 10 $12.125 $135 2.88%
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 - - - -
TEMPLETON GLOBAL ASSET
ALLOCATION FUND
December 31,
1999 228 14.408 3,294 2.22 4 14.347 57 2.31
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,
1999 1,859 19.466 36,188 2.28 91 19.364 1,791 2.37
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 - - - -
TEMPLETON GLOBAL INCOME
SECURITIES FUND
December 31,
1999 542 16.635 9,013 2.05 6 16.472 110 2.14
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 - - - -
TEMPLETON INTERNATIONAL
EQUITY FUND
December 31,
1999 2,034 23.022 46,821 2.30 16 22.858 343 2.39
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 - - - -
TEMPLETON INTERNATIONAL
SMALLER COMPANIES FUND
December 31,
1999 101 11.441 1,155 2.51 3 11.403 47 2.60
1998 114 9.364 1,065 2.50 3 9.342 34 2.59
1997 173 10.825 1,875 2.46 - - - -
19962 65 11.145 722 2.18+ - - - -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Variable Life Prospectus 31
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
5. UNIT VALUES (CONTINUED)
VALUEMARK II VALUEMARK IV
- ------------------------------------------------------------------------------------------------------------------------------------
RATIO OF RATIO OF
ACCUMULATION EXPENSES ACCUMULATION EXPENSES
UNITS OUTSTANDING ACCUMULATION NET ASSETS TO AVERAGE UNITS OUTSTANDING ACCUMULATION NET ASSETS TO AVERAGE
(IN THOUSANDS UNIT VALUE (IN THOUSANDS) NET ASSETS* (IN THOUSANDS) UNIT VALUE (IN THOUSANDS)NET ASSETS*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TEMPLETON PACIFIC
GROWTH FUND
December 31,
1999 659 $10.915 $7,191 2.48% 8 $10.838 $82 2.57%
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 - - - -
USALLIANZ VIP DIVERSIFIED
ASSETS FUND
December 31,
19991 - 10.170 2 2.40+ - - - 2.49+
USALLIANZ VIP FIXED
INCOME FUND
December 31,
19991 - - - 2.15+ - - - 2.24+
USALLIANZ VIP GROWTH
FUND
December 31,
19991 - - - 2.30+ - - - 2.39+
<FN>
* For the year ended December 31, including the effect of the expenses of the
underlying funds. + Annualized. 1 Period from November 12, 1999 (fund
commencement) to December 31, 1999. 2 Period from June 10, 1996 (fund
commencement) to December 31, 1996. 3 Period from August 17, 1998 (fund
commencement) to December 31, 1998. 4 Period from December 2, 1996 (fund
commencement) to December 31, 1996. 5 Period from August 4, 1995 (fund
commencement) to December 31, 1995.
</FN>
</TABLE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Financial Statements
December 31, 1999 and 1998
<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, 1999 and 1998, and the related statements
of income, comprehensive (loss) income, stockholder's equity and cash flows for
each of the years in the three-year period ended December 31, 1999. 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, 1999 and 1998, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
KPMG LLP
February 7, 2000
<PAGE>
<TABLE>
<CAPTION>
Variable Life Prospectus 1
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
BALANCE SHEETS
December 31, 1999 and 1998
(in thousands except share data)
ASSETS 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investments:
Fixed maturities, at market $ 47,988 38,784
Equity securities, at market 2,380 1,752
Certificates of deposit and short-term securities 1,947 10,069
Policy loans 3 0
- ---------------------------------------------------------------------------------------------------------------------
Total investments 52,318 50,605
Cash 2,785 6,135
Receivables 3,364 3,595
Reinsurance recoverables:
Recoverable on future benefit reserves 846 156
Recoverable on unpaid claims 9,815 9,545
Receivable on paid claims 2,989 1,935
Deferred acquisition costs 22,751 33,387
Other assets 1,824 4,805
- ---------------------------------------------------------------------------------------------------------------------
Assets, exclusive of separate account assets 96,692 110,163
Separate account assets 614,649 732,046
- ---------------------------------------------------------------------------------------------------------------------
Total assets $ 711,341 842,209
------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
2
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
BALANCE SHEETS (CONTINUED)
December 31, 1999 and 1998
(in thousands except share data)
1999 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Future benefit reserves:
Life $ 2,771 1,827
Annuity 6,546 7,716
Policy and contract claims 25,990 27,278
Unearned premiums 652 913
Other policyholder funds 336 3,551
Reinsurance payable 2,148 1,497
Deferred income taxes 6,853 9,977
Accrued expenses and other liabilities 745 3,894
Commissions due and accrued 737 622
Payable to parent 2,598 3,403
- ---------------------------------------------------------------------------------------------------------------------
Liabilities, exclusive of separate account liabilities 49,376 60,678
Separate account liabilities 614,649 732,046
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities 664,025 792,724
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 31,115 31,052
Accumulated other comprehensive (loss) income (1,299) 933
- ---------------------------------------------------------------------------------------------------------------------
Total stockholder's equity 47,316 49,485
Commitments and contingencies (notes 6 and 11)
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity $ 711,341 842,209
------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Variable Life Prospectus 3
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF INCOME
Years Ended December 31, 1999, 1998 and 1997
(in thousands)
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Life insurance premiums $ 4,486 7,115 8,866
Annuity considerations 11,011 12,643 12,791
Accident and health premiums 23,803 21,148 22,114
- ---------------------------------------------------------------------------------------------------------------------
Total premiums and considerations 39,300 40,906 43,771
Premiums ceded 12,357 11,427 12,939
- ---------------------------------------------------------------------------------------------------------------------
Net premiums and considerations 26,943 29,479 30,832
Investment income, net 2,739 2,021 1,626
Realized investment gains (losses) 58 1,003 (1)
Other income 110 62 93
- ---------------------------------------------------------------------------------------------------------------------
Total revenue 29,850 32,565 32,550
- ---------------------------------------------------------------------------------------------------------------------
Benefits and expenses:
Life insurance benefits 1,039 3,508 5,074
Annuity benefits 382 351 323
Accident and health insurance benefits 19,462 10,579 14,709
- ---------------------------------------------------------------------------------------------------------------------
Total benefits 20,883 14,438 20,106
Benefit recoveries 11,242 5,770 9,200
- ---------------------------------------------------------------------------------------------------------------------
Net benefits 9,641 8,668 10,906
Commissions and other agent compensation 4,590 7,091 8,295
General and administrative expenses 4,089 4,148 4,018
Taxes, licenses and fees 840 187 654
Change in deferred acquisition costs, net 10,636 4,060 798
- ---------------------------------------------------------------------------------------------------------------------
Total benefits and expenses 29,796 24,154 24,671
- ---------------------------------------------------------------------------------------------------------------------
Income from operations before income taxes 54 8,411 7,879
- ---------------------------------------------------------------------------------------------------------------------
Income tax (benefit) expense:
Current 1,913 3,126 1,573
Deferred (1,922) (312) 1,029
- ---------------------------------------------------------------------------------------------------------------------
Total income tax (benefit) expense (9) 2,814 2,602
- ---------------------------------------------------------------------------------------------------------------------
Net income $ 63 5,597 5,277
-----------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
4
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
Years Ended December 31, 1999, 1998 and 1997
(in thousands)
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 63 5,597 5,277
- ---------------------------------------------------------------------------------------------------------------------
Other comprehensive (loss) income:
Unrealized (losses) gains on fixed maturities and equity securities:
Unrealized holding (losses) gains arising during the period net
of tax (benefit) expense of $(1,182) in 1999, $468 in 1998,
and $403 in 1997 (2,194) 869 749
Less: Reclassification adjustment for realized gains (losses)
included in net income, net of tax expense of $21 in 1999,
$351 in 1998, and $0 in 1997 38 652 (1)
- ---------------------------------------------------------------------------------------------------------------------
Total other comprehensive (loss) income (2,232) 217 750
- ---------------------------------------------------------------------------------------------------------------------
Total comprehensive (loss) income $ (2,169) 5,814 6,027
-----------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Variable Life Prospectus 5
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF STOCKHOLDER'S EQUITY
Years Ended December 31, 1999, 1998 and 1997
(in thousands)
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<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 31,052 25,455 20,178
Net income 63 5,597 5,277
- ---------------------------------------------------------------------------------------------------------------------
Balance at end of year 31,115 31,052 25,455
- ---------------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive (loss) income:
Balance at beginning of year 933 716 (34)
Net unrealized (loss) gain during the year,
net of deferred federal income taxes (2,232) 217 750
- ---------------------------------------------------------------------------------------------------------------------
Balance at end of year (1,299) 933 716
- ---------------------------------------------------------------------------------------------------------------------
Total stockholder's equity $ 47,316 49,485 43,671
-----------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999, 1998 and 1997
(in thousands)
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows (used in) provided by operating activities:
Net income $ 63 5,597 5,277
- ---------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Realized (gains) losses on investments (58) (1,003) 1
Deferred federal income tax (benefit) expense (1,922) (312) 1,029
Charges to policy account balances (610) 0 0
Interest credited to policyholder account balances 374 42 0
Change in:
Receivables and other assets 1,198 5,149 (4,283)
Deferred acquisition costs 10,636 4,060 798
Future benefit reserves (4,465) 829 452
Policy and contract claims (1,288) (3,480) 847
Unearned premiums (261) (677) (297)
Other policyholder funds (3,215) 2,321 551
Reinsurance payable 651 (619) (17)
Accrued expenses and other liabilities (3,149) 783 649
Commissions due and accrued 115 (308) 108
Due to parent (805) 221 2,080
Depreciation and amortization 228 (275) (110)
- ---------------------------------------------------------------------------------------------------------------------
Total adjustments (2,571) 6,731 1,808
- ---------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities (2,508) 12,328 7,085
- ---------------------------------------------------------------------------------------------------------------------
Cash flows used in investing activities:
Purchase of fixed maturities (21,938) (28,065) (8,680)
Purchase of equity securities (1,343) (2,105) 0
Sale of fixed maturities 8,735 20,414 81
Sale of equity securities 1,103 553 0
Other investments, net 8,126 (8,987) 1,859
- ---------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (5,317) (18,190) (6,740)
- ---------------------------------------------------------------------------------------------------------------------
Cash flows provided by financing activities:
Policyholders' deposits to account balances 4,583 6,676 0
Policyholders' withdrawals from account balances (108) 0 0
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 4,475 6,676 0
- ---------------------------------------------------------------------------------------------------------------------
Net change in cash (3,350) 814 345
Cash at beginning of year 6,135 5,321 4,976
- ---------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 2,785 6,135 5,321
-----------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
Variable Life Prospectus 7
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 Aktiengesellschaft Holding (Allianz AG),
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 1999 revenue and consideration volume, 12%,
41% and 47% 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.
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 1999, 1998 and
1997 were $11,687, $8,763, and $10,147, respectively.
<PAGE>
8
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 or 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.
Short term investments, which include certificates of deposit, are carried at
amortized cost which approximates market.
Realized gains and losses are computed based on the specific identification
method.
As of December 31, 1999 and 1998, investments with a carrying value of $1,611
and $1,711, respectively, were pledged to the New York Superintendent of
Insurance as required by statutory regulation.
The market values of invested assets are deemed by management to approximate
their estimated fair 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.
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.
<PAGE>
Variable Life Prospectus 9
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTING CHANGES
In 1999, the Company adopted Statement of Position (SOP) 97-3, Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments. No
adjustments were made to the financial statements upon adoption of this
statement.
ACCOUNTING PRONOUNCEMENTS TO BE ADOPTED In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. The statement establishes accounting and reporting standards
for derivative financial instruments and other similar financial instruments and
for hedging activities. In June 1999, SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities - Deferral of Effective Date of FASB
Statement No. 133 was issued. This statement defers the effective date to fiscal
years beginning after June 15, 2000. The Company will adopt these statements on
January 1, 2001. The impact of adoption of SFAS No. 133 on the financial
position of the Company has not been determined.
RECLASSIFICATIONS
Certain 1998 balances have been reclassified to conform to the 1999
presentation.
(2) INVESTMENTS
Investments at December 31, 1999 consist of:
<TABLE>
AMOUNT
AMORTIZED ESTIMATED SHOWN ON
COST FAIR BALANCE
OR COST VALUE SHEET
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities:
U.S. Government $ 37,183 35,397 35,397
Foreign government 500 471 471
Corporate securities 12,520 11,829 11,829
Public utilities 304 291 291
- ---------------------------------------------------------------------------------------------------------------------
Total fixed maturities $ 50,507 47,988 47,988
- ---------------------------------------------------------------------------------------------------------------------
Equity securities:
Common stocks:
Banks, trusts and insurance companies 89 78 78
Industrial and miscellaneous 1,771 2,302 2,302
- ---------------------------------------------------------------------------------------------------------------------
Total equity securities $ 1,860 2,380 2,380
- ---------------------------------------------------------------------------------------------------------------------
Other investments:
Short-term securities 1,947 XXXXXXX 1,947
Policy loans 3 XXXXXXX 3
- ---------------------------------------------------------------------------------------------------------------------
Total investments $ 54,317 XXXXXXX 52,318
-----------------------------------------------
</TABLE>
<PAGE>
10
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(2) INVESTMENTS (CONTINUED)
At December 31, 1999 and 1998, the amortized cost, gross unrealized gains, gross
unrealized losses and estimated fair values of securities are as follows:
<TABLE>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999:
U.S. Government $ 37,183 141 1,927 35,397
Foreign government 500 0 29 471
Corporate securities 12,520 0 691 11,829
Public utilities 304 0 13 291
- ---------------------------------------------------------------------------------------------------------------------
Total fixed maturities 50,507 141 2,660 47,988
Equity securities 1,860 772 252 2,380
- ---------------------------------------------------------------------------------------------------------------------
Total $ 52,367 913 2,912 50,368
- ---------------------------------------------------------------------------------------------------------------------
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
--------------------------------------------------------------
</TABLE>
The change in unrealized gains or losses on fixed maturities was $(3,721), $100,
and $1,155 for the years ended December 31, 1999, 1998 and 1997, respectively.
The change in unrealized gains from equity securities was $286 and $234 for the
years ended December 31, 1999 and 1998, respectively.
The amortized cost and estimated fair value of fixed maturities at December 31,
1999, 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 $ 23,516 22,774
Due after five years through ten years 17,359 16,101
Due after ten years 9,632 9,113
- ---------------------------------------------------------------------------------------------------------------------
Totals $ 50,507 47,988
------------------------------
</TABLE>
<PAGE>
Variable Life Prospectus 11
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(2) INVESTMENTS (CONTINUED)
Proceeds from sales of investments in available-for-sale securities during 1999,
1998 and 1997 were $9,838, $20,967, and $81, respectively. Gross gains of $219,
$1,080, and $0 and gross losses of $161, $77, and $0 were realized on sales of
available-for-sale securities in 1999, 1998 and 1997, respectively.
Major categories of net investment income for the respective years ended
December 31 are:
<TABLE>
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest:
Fixed maturities $ 2,515 1,592 1,494
Short-term investments 289 393 168
Dividends:
Equity securities 19 12 0
Other (9) 52 11
- ---------------------------------------------------------------------------------------------------------------------
Total investment income 2,814 2,049 1,673
Investment expenses 75 28 47
- ---------------------------------------------------------------------------------------------------------------------
Net investment income $ 2,739 2,021 1,626
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(3) SUMMARY TABLE OF FAIR VALUE DISCLOSURES
<TABLE>
1999 1998
- ---------------------------------------------------------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------- ----- ------- -----
<S> <C> <C> <C> <C>
Financial assets:
Fixed maturities, at market
U.S. Government $ 35,397 35,397 31,739 31,739
Foreign government 471 471 496 496
Corporate securities 11,829 11,829 5,263 5,263
Mortgage backed securities 0 0 972 972
Public utilities 291 291 314 314
Equity securities 2,380 2,380 1,752 1,752
Certificates of deposit and other short term securities 1,947 1,947 10,069 10,069
Receivables 3,364 3,364 3,595 3,595
Separate accounts assets 614,649 614,649 732,046 732,046
Financial liabilities:
- ---------------------------------------------------------------------------------------------------------------------
Separate account liabilities 614,649 609,915 732,046 723,593
--------------------------------------------------------------
</TABLE>
See Note 1 "Summary of Significant Accounting Policies" for description of the
methods and significant assumptions used to estimate fair values.
<PAGE>
12
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(4) RECEIVABLES
Receivables at December 31 consist of the following:
<TABLE>
1999 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Premiums due $ 2,456 2,747
Reinsurance commission receivable 44 115
Other 864 733
- ---------------------------------------------------------------------------------------------------------------------
Total receivables $ 3,364 3,595
------------------------------
</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 $516, $838, and $662 in 1999, 1998 and 1997,
respectively, is summarized as follows:
<TABLE>
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, net of reinsurance
recoverables of $6,540, $7,643, and $7,476 $15,650 17,804 16,126
Incurred related to:
Current year 11,823 11,203 11,440
Prior years (2,752) (4,946) (3,199)
- ---------------------------------------------------------------------------------------------------------------------
Total incurred 9,071 6,257 8,241
- ---------------------------------------------------------------------------------------------------------------------
Paid related to:
Current year 2,725 3,697 1,686
Prior years 6,506 4,714 4,877
- ---------------------------------------------------------------------------------------------------------------------
Total paid 9,231 8,411 6,563
- ---------------------------------------------------------------------------------------------------------------------
Balance at December 31, net of reinsurance
recoverables of $8,006, $6,540 and $7,643 $15,490 15,650 17,804
-------------------------------------------
</TABLE>
In 1999, 1998 and 1997, the provision for prior year claims and claim adjustment
expenses decreased due to lower than anticipated losses related to prior years.
In 1998, the Company experienced positive development in its HMO reinsurance
business which further decreased the provision for prior year claims.
<PAGE>
Variable Life Prospectus 13
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(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 recoverables at December 31, 1999 and 1998 are
recoverables on paid claims, unpaid claims and future benefit reserves from
Allianz Life of $1,884 and $3,043, 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.
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, 1999:
Life insurance in force $ 1,095,552 0 159,143 936,409 0.0%
- ---------------------------------------------------------------------------------------------------------------------
Premiums:
Life insurance 4,486 0 1,173 3,313 0.0%
Annuities 11,011 0 0 11,011 0.0%
Accident and health insurance 17,074 6,729 11,184 12,619 53.3%
- ---------------------------------------------------------------------------------------------------------------------
Total premiums 32,571 6,729 12,357 26,943 25.0%
- ---------------------------------------------------------------------------------------------------------------------
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%
------------------------------------------------------------------------------
</TABLE>
<PAGE>
14
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(6) REINSURANCE (CONTINUED)
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:
<TABLE>
ASSUMED CEDED
- ---------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life insurance in force $ 0 0 0 1,670 1,992 2,032
- ---------------------------------------------------------------------------------------------------------------------
Premiums:
Life insurance $ 0 0 0 50 10 44
Accident and health insurance 1,892 1,575 1,566 628 635 841
- ---------------------------------------------------------------------------------------------------------------------
Total premiums $ 1,892 1,575 1,566 678 645 885
-------------------------------------------------------------------------
</TABLE>
(7) INCOME TAXES
INCOME TAX EXPENSE
Total income tax expenses for the years ended December 31 are as follows:
<TABLE>
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense attributable to operations:
Current tax expense $ 1,913 3,126 1,573
Deferred tax (benefit) expense (1,922) (312) 1,029
- ---------------------------------------------------------------------------------------------------------------------
Total income tax (benefit) expense attributable to operations (9) 2,814 2,602
Income tax effect on equity:
Attributable to unrealized gains and losses for the year (1,202) 116 404
- ---------------------------------------------------------------------------------------------------------------------
Total income tax effect on equity $ (1,211) 2,930 3,006
-----------------------------------------------
</TABLE>
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:
<TABLE>
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense computed at the statutory rate $ 19 2,943 2,758
Other (28) (129) (156)
- ---------------------------------------------------------------------------------------------------------------------
Income tax (benefit) expense as reported $ (9) 2,814 2,602
-----------------------------------------------
</TABLE>
<PAGE>
Variable Life Prospectus 15
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(7) INCOME TAXES (CONTINUED)
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, 1999 and 1998 are as
follows:
<TABLE>
1999 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Future benefit reserves $ 533 1,821
Unrealized losses on investments 700 0
- ---------------------------------------------------------------------------------------------------------------------
Total deferred tax assets 1,233 1,821
- ---------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Deferred acquisition costs 5,637 9,003
Unrealized gains on investments 0 502
Other 2,449 2,293
- ---------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 8,086 11,798
- ---------------------------------------------------------------------------------------------------------------------
Net deferred tax liability $ 6,853 9,977
------------------------------
</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.
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. Income taxes paid (recovered) by the Company were $3,149,
($1,998) and $0 in 1999, 1998 and 1997, respectively. The Company's liability
for current taxes was $1,968 and $3,047 as of December 31, 1999 and 1998,
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 $1,496, $1,941, and $1,463 in 1999, 1998 and
1997, respectively, for related administrative expenses incurred. The Company's
liability to Allianz Life for incurred but unpaid service fees as of December
31, 1999 and 1998 was $630 and $356, 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 $35, $18, and $15 in 1999, 1998 and 1997, respectively, for
investment advisory fees. The Company had no incurred but unpaid fees to AZOA as
of December 31, 1999 and 1998.
<PAGE>
16
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(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 $60, $30, and $37 in 1999, 1998 and 1997, 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 75% of eligible employees' contributions up
to a maximum of 6% of a participant's compensation. The plan can also declare a
profit sharing allocation of up to 5.0% of base pay at year-end based upon the
profitability of AZOA. 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
$35, $18, and $59 in 1999, 1998 and 1997, 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. The NAIC has completed a project to codify statutory accounting
practices, the result of which will constitute the primary source of
"prescribed" statutory accounting practices. Accordingly, that project, which is
currently in the process of state adoption and expected to be effective January
1, 2001, 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. The Company has not quantified the effects of adopting the
NAIC codification on their statutory financial statements.
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:
<TABLE>
STOCKHOLDER'S EQUITY NET INCOME
- ---------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Statutory basis $ 38,136 32,866 5,351 6,891 4,292
Adjustments:
Change in reserve basis (5,680) (9,216) 3,536 2,147 2,424
Deferred acquisition costs 22,751 33,387 (10,636) (4,060) (798)
Deferred taxes (6,853) (9,977) 1,922 312 (1,029)
Nonadmitted assets 39 75 0 0 0
Interest maintenance reserve 513 569 (56) 657 (19)
Asset valuation reserve 667 283 0 0 0
Liability for unauthorized reinsurers 261 239 0 0 0
Unrealized (losses) gains on investments (2,519) 1,202 0 0 0
Other 1 57 (54) (350) 407
- ---------------------------------------------------------------------------------------------------------------------
As reported in the accompanying
financial statements $ 47,316 49,485 63 5,597 5,277
------------------------------------------------------------------------------
</TABLE>
<PAGE>
Variable Life Prospectus 17
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(10) STATUTORY FINANCIAL DATA AND DIVIDEND RESTRICTIONS (CONTINUED)
The Company is required to meet minimum capital and surplus requirements. At
December 31, 1999 and 1998, 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 1999, 1998 and 1997.
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>
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, 1999 and 1998.
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.
(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.
<PAGE>
18
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(12) SUPPLEMENTARY INSURANCE INFORMATION
The following table summarizes certain financial information by line of business
for 1999, 1998 and 1997:
<TABLE>
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
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1999:
Life insurance $ 25 2,771 156 1,499 3,313 192 411 32 923
Annuities 22,644 6,546 0 479 11,011 904 381 10,562 2,423
Accident and health insurance 82 0 496 24,012 12,619 1,643 8,849 42 6,173
- ------------------------------------------------------------------------------------------------------------------------------------
$ 22,751 9,317 652 25,990 26,943 2,739 9,641 10,636 9,519
- ------------------------------------------------------------------------------------------------------------------------------------
1998:
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
---------------------------------------------------------------------------------------------------
</TABLE>
(a) See note 1 for aggregate gross amortization.
<PAGE>
PART B - VERSION B
STATEMENT OF ADDITIONAL INFORMATION
USALLIANZ ADVANTAGE
INDIVIDUAL FLEXIBLE PAYMENT
VARIABLE ANNUITY CONTRACTS
issued by
PREFERRED LIFE VARIABLE ACCOUNT C
and
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
May 1, 2000
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS FOR THE INDIVIDUAL FLEXIBLE PAYMENT
VARIABLE ANNUITY CONTRACTS WHICH ARE REFERRED TO HEREIN.
THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT A PROSPECTIVE INVESTOR
OUGHT TO KNOW BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS, CALL OR WRITE THE
INSURANCE COMPANY AT: 152 West 57th Street, 18th Floor, New York, NY 10019,
(800) 542-5427.
THIS STATEMENT OF ADDITIONAL INFORMATION AND THE PROSPECTUS ARE DATED MAY 1,
2000, 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 .............................. 7
Annuity Provisions .............................. 12
Mortality and Expense Risk Guarantee ............ 13
Financial Statements ............................ 13
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 in that it may be a reflection as to 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
1999, included in this Statement of Additional Information have been audited by
KPMG LLP independent auditors, as indicated in their reports included in this
Statement of Additional Information and are included herein in reliance upon
such reports and upon the authority of said firm as experts in accounting and
auditing.
LEGAL OPINIONS
- -------------------------------------------------------------------------------
Blazzard, Grodd & Hasenauer, P.C., Westport, Connecticut has provided advice on
certain matters relating to the federal securities and income tax laws in
connection with the Contracts.
DISTRIBUTOR
- -------------------------------------------------------------------------------
USAllianz Investor Services, LLC (formerly NALAC Financial Plans, LLC) an
affiliate of the Insurance Company, acts as the distributor. The offering is on
a continuous basis.
REDUCTION OR ELIMINATION OF THE
CONTINGENT DEFERRED SALES CHARGE
- -------------------------------------------------------------------------------
The amount of the contingent deferred sales charge on the Contracts may be
reduced or eliminated when sales of the Contracts are made to individuals or to
a group of individuals in a manner that results in savings of sales expenses.
The entitlement to a reduction of the contingent deferred sales charge will be
determined by the Insurance Company after examination of the following factors:
1) the size of the group; 2) the total amount of Purchase Payments expected to
be received from the group; 3) the nature of the group for which the Contracts
are purchased, and the persistency expected in that group; 4) the purpose for
which the Contracts are purchased and whether that purpose makes it likely that
expenses will be reduced; and 5) any other circumstances which the Insurance
Company believes to be relevant to determining whether reduced sales or
administrative expenses may be expected. None of the reductions in charges for
sales is contractually guaranteed.
The contingent deferred sales charge may be eliminated when the Contracts are
issued to an officer, director or employee of the Insurance Company or any of
its affiliates. In no event will any reduction or elimination of the contingent
deferred sales charge be permitted where the reduction or elimination will be
unfairly discriminatory to any person.
CALCULATION OF PERFORMANCE DATA
- --------------------------------------------------------------------------------
TOTAL RETURN
From time to time, The Insurance Company may advertise the performance data for
the Variable Options in sales literature, advertisements, personalized
hypothetical illustrations and Contract Owner communications. Such data will
show the percentage change in the value of an Accumulation Unit based on the
performance of a Portfolio over a stated period of time, usually a calendar
year, which is determined by dividing the increase (or decrease) in value for
that unit by the Accumulation Unit value at the beginning of the period.
Any such performance data will also include average annual total return figures
for one, five and ten year (or since inception) time periods indicated. Such
total return figures will reflect the deduction of a 1.34% mortality and expense
risk charge, a .15% administrative charge, the operating expenses of the
underlying Portfolio and any applicable contract maintenance charge and
contingent deferred sales charges. The contingent deferred sales charge and
contract maintenance charge deductions are calculated assuming a Contract is
surrendered at the end of the reporting period. The hypothetical value of a
Contract purchased for the time periods described will be determined by using
the actual Accumulation Unit values for an initial $1,000 purchase payment, and
deducting any applicable contract maintenance charges and any applicable
contingent deferred sales charge to arrive at the ending hypothetical value. The
average annual total return is then determined by computing the fixed interest
rate that a $1,000 purchase payment would have to earn annually, compounded
annually, to grow to the hypothetical value at the end of the time periods
described. The formula used in these calculations is:
P (1 + T)n = ERV
where:
P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years;
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the time periods used at the end of such time periods (or
fractional portion thereof).
The Insurance Company may also advertise performance data which will be
calculated in the same manner as described above but which will not reflect the
deduction of the contingent deferred sales charge and the contract maintenance
charge. The Insurance Company may also advertise cumulative and average total
return information over different periods of time. The Insurance Company may
also present performance information computed on a different basis.
Cumulative total return is calculated in a similar manner, except that the
results are not annualized. Each calculation assumes that no sales load is
deducted from the initial $1,000 payment at the time it is allocated to the
Portfolios and assumes that the income earned by the investment in the Portfolio
is reinvested.
Contract Owners should note that investment results will fluctuate over time,
and any presentation of total return for any period should not be considered as
a representation of what an investment may earn or what a Contract Owner's total
return may be in any future period.
YIELD
The USAllianz VIP Money Market Fund. The Insurance Company may advertise yield
information for the USAllianz VIP Money Market Fund. The USAllianz VIP 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 USAllianz VIP 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.)
As of December 31, 1999, the USAllianz VIP Money Market Fund had not yet
commenced operations. Therefore, the current and effective yield for the
seven-day period ending on December 31, 1999 is not available.
Other Variable Options. The Insurance Company may also quote yield in sales
literature, advertisements, personalized hypothetical illustrations, and
Contract Owner communications for the other Variable Options. Each Variable
Option (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:
6
Yield = 2 [(a-b + 1) - 1]
cd
where:
a = net investment income earned during the period by the Variable Option
attributable to shares owned by the Portfolio;
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
Variable Option (other than the USAllianz VIP Money Market Fund).
PERFORMANCE RANKING
Total return may be compared to relevant indices, including U. S. domestic and
international indices and data from Lipper
Analytical Services, Inc., Standard & Poor's Indices, or VARDS.
From time to time, evaluation of performance by independent sources may also be
used.
PERFORMANCE INFORMATION
In order to show how investment performance of the Portfolios affects
Accumulation Unit values, the following performance information was developed.
The Portfolios of Franklin Templeton Variable Insurance Products Trust available
under this Contract issue Class 2 shares and have a distribution plan which is
referred to as a rule 12b-1 plan. Class 2 shares have Rule 12b-1 plan expenses
currently equal to 0.25% per year, which will affect future performance. Fund
performance for Class 2 shares reflects a "blended" figure combining (a) for
periods prior to Class 2's inception on 1/6/99, historical results of Class 1
shares and (b) for periods after 1/6/99, class 2's results reflecting an
additional 12b-1 fee expense which also affects future performance.
Effective May 1, 2000, the Templeton International Securities Fund (a fund of
Templeton Variable Series Fund) merged into the Templeton International Equity
Fund. The performance shown in the charts below reflects the historical
performance of the Templeton International Equity Fund. Effective May 1, 2000,
the Templeton Developing Markets Securities Fund (a fund of Templeton Variable
Series Fund) merged into the Templeton Developing Markets Equity Fund. The
performance shown in the charts below reflects the historical performance of the
Templeton Developing Markets Equity Fund.
The charts below show Accumulation Unit performance which assumes that the
Accumulation Units were invested in each of the Portfolios for the same periods.
The performance figures in Table 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.
Table 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>
USALLIANZ ADVANTAGE
Table I: Total Return for the periods ended December 31, 1999 HYPOTHETICAL
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio
Inception One Three Five Ten Since
Variable Option Date Year Years Years Years Inception
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AIM V.I. Capital Appreciation 5/5/93 42.49% 23.26% 23.73% NA 20.51%
AIM V.I. Growth 5/5/93 33.24% 30.06% 27.72% NA 21.10%
AIM V.I. International Equity 5/5/93 52.77% 22.34% 20.12% NA 17.06%
AIM V.I. Value 5/5/93 28.00% 26.71% 25.35% NA 21.24%
Alger American Growth 1/9/89 31.77% 33.54% 29.00% 21.07% 21.27%
Alger American Leveraged AllCap 1/25/95 75.43% 47.61% 29.00% NA 44.28%
Alger American MidCap Growth 5/3/93 29.90% 23.63% 24.27% NA 22.88%
Alger American Small Capitalization 9/21/88 41.30% 20.85% 20.83% 16.47% 19.07%
Davis VA Financial* 7/1/99 NA NA NA NA -7.86%
Davis VA Real Estate* 7/1/99 NA NA NA NA -11.46%
Davis VA Value* 7/1/99 NA NA NA NA 1.87%
Franklin Global Communications Securities 1/24/89 37.35% 23.40% 20.75% 12.39% 13.13%
Franklin Global Health Care Securities 5/1/98 -9.46% NA NA NA -2.41%
Franklin Growth and Income Securities 1/24/89 -0.39% 10.19% 14.52% 9.79% 9.09%
Franklin High Income 1/24/89 -1.54% 2.47% 7.33% 7.53% 6.87%
Franklin Income Securities 1/24/89 -3.27% 3.77% 8.12% 8.38% 8.37%
Franklin Large Cap Growth Securities 5/1/96 29.70% 21.46% NA NA 21.05%
Franklin Natural Resources Securities 1/24/89 30.29% -8.56% -4.61% -1.08% 0.86%
Franklin Rising Dividends Securities 1/27/92 -11.04% 7.09% 13.94% NA 8.22%
Franklin Small Cap 11/01/95 94.03% 29.86% NA NA 28.30%
Franklin U.S. Government 3/14/89 -2.40% 3.62% 5.97% 5.85% 5.80%
Franklin Value Securities 5/1/98 0.15% NA NA NA -14.34%
JP Morgan International Opportunities 1/3/95 34.67% 13.00% NA NA 12.24%
JP Morgan US Disciplined Equity 1/3/95 16.78% 21.00% NA NA 22.79%
Mutual Discovery Securities 11/08/96 21.93% 10.31% NA NA 10.43%
Mutual Shares Securities 11/08/96 11.73% 8.52% NA NA 9.23%
Oppenheimer Global Securities/VA 11/12/90 56.14% 28.40% 19.87% NA 15.05%
Oppenheimer High Income/VA 4/30/86 2.75% 3.93% 8.61% 10.98% 10.00%
Oppenheimer Main Street Growth & Income/VA 7/5/95 19.91% 17.31% NA NA 23.91%
PIMCO VIT High Yield Bond 4/30/98 0.68% NA NA NA 0.88%
PIMCO VIT Stocks PLUS Growth & Income 12/31/97 9.17% NA NA NA 18.30%
PIMCO VIT Total Return Bond 12/31/97 -2.60% NA NA NA 2.09%
Seligman Global Technology 5/01/96 115.57% 50.68% NA NA 41.00%
Seligman Small-Cap Value 5/01/98 33.26% NA NA NA 5.59%
Templeton Developing Markets Securities 3/15/94 52.35% 1.90% 5.12% NA 3.38%
Templeton Growth Securities 3/15/94 19.25% 12.71% 13.69% NA 12.07%
Templeton International Securities 1/27/92 24.76% 12.60% 13.51% NA 10.99%
Templeton International Smaller Companies 5/01/96 22.07% 0.79% NA NA 3.64%
Templeton Pacific Growth Securities 1/27/92 34.99% -10.00% -3.23% NA 1.02%
Van Kampen LIT Enterprise 4/7/86 23.99% 24.35% 25.48% 15.09% 12.22%
Van Kampen LIT Growth & Income 12/23/96 5.07% 14.75% NA NA 14.51%
<FN>
*For funds which have existed less than one year, non-standard cumulative total
returns since inception are shown.
The USAllianz VIP Global Opportunities Fund and the USAllianz VIP Money Market
Fund commenced operations on January 13, 2000. The Franklin Aggressive Growth
Securities and Franklin Technology Securities Sub-Accounts commenced operations
on May 1, 2000.
There is no performance shown for the Franklin S&P 500 Index, USAllianz VIP
Diversified Assets, USAllianz VIP Fixed Income, and USAllianz VIP Growth
Sub-Accounts because they were first offered under the Contract on November 12,
1999.
</FN>
</TABLE>
<TABLE>
<CAPTION>
USALLIANZ ADVANTAGE HYPOTHETICAL
Table II: Total Return for the periods ended December 31, 1999: With Contingent Deferred Sales Charge and Other
Charges
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio
Inception One Three Five Ten Since
Variable Option Date Year Years Years Years Inception
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AIM V.I. Capital Appreciation 5/5/93 37.29% 22.04% 23.37% NA 20.35%
AIM V.I. Growth 5/5/93 28.04% 28.96% 27.40% NA 20.94%
AIM V.I. International Equity 5/5/93 47.57% 21.09% 19.72% NA 16.87%
AIM V.I. Value 5/5/93 22.80% 25.56% 25.00% NA 21.08%
Alger American Growth 1/9/89 26.57% 32.50% 28.69% 21.01% 21.22%
Alger American Leveraged AllCap 1/25/95 70.23% 46.74% 28.69% NA 44.06%
Alger American MidCap Growth 5/3/93 24.70% 22.41% 23.92% NA 22.73%
Alger American Small Capitalization 9/21/88 36.10% 19.58% 20.44% 16.41% 19.02%
Davis VA Financial* 7/1/99 NA NA NA NA -13.06%
Davis VA Real Estate* 7/1/99 NA NA NA NA -16.66%
Davis VA Value* 7/1/99 NA NA NA NA -3.33%
Franklin Global Communications Securities 1/24/89 32.15% 22.19% 20.36% 12.31% 13.07%
Franklin Global Health Care Securities 5/1/98 -14.66% NA NA NA -5.68%
Franklin Growth and Income Securities 1/24/89 -5.59% 8.69% 14.05% 9.72% 9.01%
Franklin High Income 1/24/89 -6.74% 0.72% 6.73% 7.46% 6.80%
Franklin Income Securities 1/24/89 -8.47% 2.07% 7.53% 8.31% 8.30%
Franklin Large Cap Growth Securities 5/1/96 24.50% 20.20% NA NA 20.26%
Franklin Natural Resources Securities 1/24/89 25.09% -10.77% -5.56% -1.18% 0.77%
Franklin Rising Dividends Securities 1/27/92 -16.24% 5.50% 13.47% NA 8.14%
Franklin Small Cap 11/01/95 88.83% 28.74% NA NA 27.84%
Franklin U.S. Government 3/14/89 -7.60% 1.91% 5.34% 5.77% 5.73%
Franklin Value Securities 5/1/98 -5.05% NA NA NA -17.91%
JP Morgan International Opportunities 1/3/95 29.47% 11.55% NA NA 11.72%
JP Morgan US Disciplined Equity 1/3/95 11.58% 19.74% NA NA 22.42%
Mutual Discovery Securities 11/08/96 16.73% 8.80% NA NA 9.24%
Mutual Shares Securities 11/08/96 6.53% 6.96% NA NA 8.01%
Oppenheimer Global Securities/VA 11/12/90 50.94% 27.28% 19.45% NA 14.98%
Oppenheimer High Income/VA 4/30/86 -2.45% 2.23% 8.04% 10.93% 9.94%
Oppenheimer Main Street Growth & Income/VA 7/5/95 14.71% 15.98% NA NA 23.49%
PIMCO VIT High Yield Bond 4/30/98 -4.52% NA NA NA -2.31%
PIMCO VIT Stocks PLUS Growth & Income 12/31/97 3.97% NA NA NA 16.03%
PIMCO VIT Total Return Bond 12/31/97 -7.80% NA NA NA -0.54%
Seligman Global Technology 5/01/96 110.37% 49.84% NA NA 40.43%
Seligman Small-Cap Value 5/01/98 28.06% NA NA NA 2.50%
Templeton Developing Markets Securities 3/15/94 47.15% 0.11% 4.45% NA 2.89%
Templeton Growth Securities 3/15/94 14.05% 11.26% 13.20% NA 11.73%
Templeton International Securities 1/27/92 19.56% 11.15% 13.02% NA 10.91%
Templeton International Smaller Companies 5/01/96 16.87% -1.03% NA NA 2.47%
Templeton Pacific Growth Securities 1/27/92 29.79% -12.30% -4.13% NA 0.93%
Van Kampen LIT Enterprise 4/7/86 18.79% 23.16% 25.14% 15.02% 12.14%
Van Kampen LIT Growth & Income 12/23/96 -0.13% 13.36% NA NA 13.34%
<FN>
*For funds which have existed less than one year, non-standard cumulative total
returns since inception are shown.
The USAllianz VIP Global Opportunities Fund and the USAllianz VIP Money Market
Fund commenced operations on January 13, 2000. The Franklin Aggressive Growth
Securities and Franklin Technology Securities Sub-Accounts commenced operations
on May 1, 2000.
There is no performance shown for the Franklin S&P 500 Index, USAllianz VIP
Diversified Assets, USAllianz VIP Fixed Income, and USAllianz VIP Growth
Sub-Accounts because they were first offered under the Contract on November 12,
1999..
</FN>
</TABLE>
You should note that investment results will fluctuate over time, and any
presentation of total return for any period should not be considered as a
representation of what an investment may earn or what your total return may be
in any future period.
FEDERAL TAX STATUS
- --------------------------------------------------------------------------------
NOTE: THE FOLLOWING DESCRIPTION IS BASED UPON THE INSURANCE COMPANY'S
UNDERSTANDING OF CURRENT FEDERAL INCOME TAX LAW APPLICABLE TO ANNUITIES IN
GENERAL. THE INSURANCE COMPANY CANNOT PREDICT THE PROBABILITY THAT ANY CHANGES
IN SUCH LAWS WILL BE MADE. PURCHASERS ARE CAUTIONED TO SEEK COMPETENT TAX ADVICE
REGARDING THE POSSIBILITY OF SUCH CHANGES. THE INSURANCE COMPANY DOES NOT
GUARANTEE THE TAX STATUS OF THE CONTRACTS. PURCHASERS BEAR THE COMPLETE RISK
THAT THE CONTRACTS MAY NOT BE TREATED AS "ANNUITY CONTRACTS" UNDER FEDERAL
INCOME TAX LAWS. IT SHOULD BE FURTHER UNDERSTOOD THAT THE FOLLOWING DISCUSSION
IS NOT EXHAUSTIVE AND THAT SPECIAL RULES NOT DESCRIBED HEREIN MAY BE APPLICABLE
IN CERTAIN SITUATIONS. MOREOVER, NO ATTEMPT HAS BEEN MADE TO CONSIDER ANY
APPLICABLE STATE OR OTHER TAX LAWS. GENERAL
Section 72 of the Internal Revenue Code of 1986, as amended (the "Code") governs
taxation of annuities in general. A Contract Owner is not taxed on increases in
the value of a Contract until distribution occurs, either in the form of a lump
sum payment or as Annuity Payments under the Annuity Option elected. For a lump
sum payment received as a total surrender (total redemption) or death benefit,
the recipient is taxed on the portion of the payment that exceeds the cost basis
of the Contract. For Non-Qualified Contracts, this cost basis is generally the
Purchase Payments, while for Qualified Contracts there may be no cost basis. The
taxable portion of the lump sum payment is taxed at ordinary income tax rates.
For Annuity Payments, a portion of each payment in excess of an exclusion amount
is includible in taxable income. The exclusion amount for payments based on a
fixed Annuity Option is determined by multiplying the payment by the ratio that
the cost basis of the Contract (adjusted for any period certain or refund
feature) bears to the expected return under the Contract. The exclusion amount
for payments based on a variable Annuity Option is determined by dividing the
cost basis of the Contract (adjusted for any period certain or refund guarantee)
by the number of years over which the annuity is expected to be paid. Payments
received after the investment in the Contract has been recovered (i.e. when the
total of the excludible amounts equal the investment in the Contract) are fully
taxable. The taxable portion is taxed at ordinary income rates. For certain
types of Qualified Plans there may be no cost basis in the Contract within the
meaning of Section 72 of the Code. Contract Owners, Annuitants and Beneficiaries
under the Contracts should seek competent financial advice about the tax
consequences of any distributions.
The Insurance Company is taxed as a life insurance company under the Code. For
federal income tax purposes, the Separate Account is not a separate entity from
the Insurance Company, and its operations form a part of the Insurance Company.
DIVERSIFICATION
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not adequately
diversified in accordance with regulations prescribed by the United States
Treasury Department ("Treasury Department"). Disqualification of the Contract as
an annuity contract would result in imposition of federal income tax to the
Contract Owner with respect to earnings allocable to the Contract prior to the
receipt of payments under the Contract. The Code contains a safe harbor
provision which provides that annuity contracts such as the Contracts meet the
diversification requirements if, as of the end of each quarter, the underlying
assets meet the diversification standards for a regulated investment company and
no more than fifty-five percent (55%) of the total assets consist of cash, cash
items, U.S. government securities and securities of other regulated investment
companies.
On March 2, 1989, the Treasury Department issued regulations (Treas. Reg.
1.817-5) which established diversification requirements for the investment
portfolios underlying variable contracts such as the Contracts. The regulations
amplify the diversification requirements for variable contracts set forth in the
Code and provide an alternative to the safe harbor provision described above.
Under the regulations, an investment portfolio will be deemed adequately
diversified if: (1) no more than 55% of the value of the total assets of the
portfolio is represented by any one investment; (2) no more than 70% of the
value of the total assets of the portfolio is represented by any two
investments; (3) no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and (4) no more than 90% of
the value of the total assets of the portfolio is represented by any four
investments.
The Code provides that for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable contracts
by Section 817(h) of the Code have been met, "each United States government
agency or instrumentality shall be treated as a separate issuer."
The Insurance Company intends that all Portfolios underlying the Contracts will
be managed by the investment advisers in such a manner as to comply with these
diversification requirements.
The Treasury Department has indicated that the diversification Regulations do
not provide guidance regarding the circumstances in which Contract Owner control
of the investments of the Separate Account will cause the Contract Owner to be
treated as the owner of the assets of the Separate Account, thereby resulting in
the loss of favorable tax treatment for the Contract. At this time it cannot be
determined whether additional guidance will be provided and what standards may
be contained in such guidance.
The amount of Contract Owner control which may be exercised under the Contract
is different in some respects from the situations addressed in published rulings
issued by the Internal Revenue Service in which it was held that the policy
Owner was not the owner of the assets of the separate account. It is unknown
whether these differences, such as the Contract Owner's ability to transfer
among investment choices or the number and type of investment choices available,
would cause the Contract Owner to be considered as the owner of the assets of
the Separate Account resulting in the imposition of federal income tax to the
Contract Owner with respect to earnings allocable to the Contract prior to
receipt of payments under the Contract.
In the event any forthcoming guidance or ruling is considered to set forth a new
position, such guidance or ruling will generally be applied only prospectively.
However, if such ruling or guidance was not considered to set forth a new
position, it may be applied retroactively resulting in the Contract Owner being
retroactively determined to be the owner of the assets of the Separate Account.
Due to the uncertainty in this area, the Insurance Company reserves the right to
modify the Contract in an attempt to maintain favorable tax treatment.
MULTIPLE CONTRACTS
The Code provides that multiple non-qualified annuity contracts which are issued
within a calendar year period to the same contract owner by one company or its
affiliates are treated as one annuity contract for purposes of determining the
tax consequences of any distribution. Such treatment may result in adverse tax
consequences, including more rapid taxation of the distributed amounts from such
combination of contracts. For purposes of this rule, contracts received in a
Section 1035 exchange will be considered issued in the year of the exchange.
Contract Owners should consult a tax adviser prior to purchasing more than one
non-qualified annuity contract in any calendar year period.
CONTRACTS OWNED BY OTHER
THAN NATURAL PERSONS
Under Section 72(u) of the Code, the investment earnings on purchase payments
for the Contracts will be taxed currently to the Contract Owner if the Owner is
a non-natural person, e.g., a corporation or certain other entities. Such
Contracts generally will not be treated as annuities for federal income tax
purposes. However, this treatment is not applied to Contracts held by a trust or
other entity as an agent for a natural person nor to Contracts held by qualified
plans. Purchasers should consult their own tax counsel or other tax adviser
before purchasing a Contract to be owned by a non-natural person.
TAX TREATMENT OF ASSIGNMENTS
An assignment or pledge of a Contract may be a taxable event. Contract Owners
should therefore consult competent tax advisers should they wish to assign or
pledge their Contracts.
DEATH BENEFITS
Any death benefits paid under the Contract are taxable to the beneficiary. The
rules governing the taxation of payments from an annuity contract, as discussed
above, generally apply to the payment of death benefits and depend on whether
the death benefits are paid as a lump sum or as annuity payments. Estate taxes
may also apply.
INCOME TAX WITHHOLDING
All distributions or the portion thereof which is includible in the gross income
of the Contract Owner are subject to federal income tax withholding. Generally,
amounts are withheld from periodic payments at the same rate as wages and at the
rate of 10% from non-periodic payments. However, the Contract Owner, in most
cases, may elect not to have taxes withheld or to have withholding done at a
different rate.
Certain distributions from retirement plans qualified under Section 401 or
Section 403(b) of the Code, which are not directly rolled over to another
eligible retirement plan or individual retirement account or individual
retirement annuity, are subject to a mandatory 20% withholding for federal
income tax. The 20% withholding requirement generally does not apply to: (a) a
series of substantially equal payments made at least annually for the life or
life expectancy of the participant or joint and last survivor expectancy of the
participant and a designated beneficiary, or for a specified period of 10 years
or more; or (b) distributions which are required minimum distributions; or (c)
the portion of the distributions not includible in gross income (i.e. returns of
after-tax contributions); or (d) hardship withdrawals. Participants should
consult their own tax counsel or other tax adviser regarding withholding
requirements.
TAX TREATMENT OF WITHDRAWALS -
NON-QUALIFIED CONTRACTS
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the contract value exceeds the aggregate purchase
payments made, any amount withdrawn will be treated as coming first from the
earnings and then, only after the income portion is exhausted, as coming from
the principal. Withdrawn earnings are includible in gross income. It further
provides that a ten percent (10%) penalty will apply to the income portion of
any distribution. However, the penalty is not imposed on amounts received: (a)
after the taxpayer reaches age 59 1/2; (b) after the death of the Contract
Owner; (c) if the taxpayer is totally disabled (for this purpose disability is
as defined in Section 72(m)(7) of the Code); (d) in a series of substantially
equal periodic payments made not less frequently than annually for the life (or
life expectancy) of the taxpayer or for the joint lives (or joint life
expectancies) of the taxpayer and his beneficiary; (e) under an immediate
annuity; or (f) which are allocable to purchase payments made prior to August
14, 1982.
With respect to (d) above, if the series of substantially equal periodic
payments is modified before the later of your attaining age 59 1/2 or 5 years
from the date of the first periodic payment, then the tax for the year of the
modification is increased by an amount equal to the tax which would have been
imposed (the 10% penalty tax) but for the exception, plus interest for the tax
years in which the exception was used.
The above information does not apply to Qualified Contracts. However, separate
tax withdrawal penalties and restrictions may apply to such Qualified Contracts.
(See "Tax Treatment of Withdrawals - Qualified Contracts.")
QUALIFIED PLANS
The Contracts offered are designed to be suitable for use under various types of
Qualified Plans. Because of the minimum Purchase Payment requirements, these
Contracts may not be appropriate for some periodic payment retirement plans.
Taxation of participants in each Qualified Plan varies with the type of plan and
terms and conditions of each specific plan. Contract Owners, Annuitants and
Beneficiaries are cautioned that benefits under a Qualified Plan may be subject
to the terms and conditions of the plan regardless of the terms and conditions
of the Contracts issued pursuant to the plan. Some retirement plans are subject
to distribution and other requirements that are not incorporated into the
Insurance Company's administrative procedures. The Company is not bound by the
terms and conditions of such plans to the extent such terms conflict with the
terms of a Contract, unless the Company specifically consents to be bound.
Contract Owners, participants and Beneficiaries are responsible for determining
that contributions, distributions and other transactions with respect to the
Contracts comply with applicable law.
A Qualified Contract will not provide any necessary or additional tax deferral
if it is used to fund a Qualified plan that is tax deferred. However, the
Contract has features and benefits other than tax deferral that may make it an
appropriate investment for a Qualified plan. 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 59 1/2 , on the individual's death or disability, or
as a qualified first-time home purchase, subject to a $10,000 lifetime maximum,
for the individual, a spouse, child, grandchild, or ancestor. Any distribution
which is not a qualified distribution is taxable to the extent of earnings in
the distribution. Distributions are treated as made from contributions first and
therefore no distributions are taxable until distributions exceed the amount of
contributions to the Roth IRA. The 10% penalty tax and the regular IRA
exceptions to the 10% penalty tax apply to taxable distributions from a Roth
IRA.
Amounts may be rolled over from one Roth IRA to another Roth IRA. Furthermore,
an individual may make a rollover contribution from a non-Roth IRA to a Roth
IRA, unless the individual has adjusted gross income over $100,000 or the
individual is a married taxpayer filing a separate return. The individual must
pay tax on any portion of the IRA being rolled over that represents income or a
previously deductible IRA contribution. However, for rollovers in 1998, the
individual may pay that tax ratably over the four taxable year periods beginning
with tax year 1998.
Purchasers of Contracts to be qualified as a Roth IRA should obtain competent
tax advice as to the tax treatment and suitability of such an investment.
C. PENSION AND PROFIT-SHARING PLANS
Sections 401(a) and 401(k) of the Code permit employers, including self-
employed individuals, to establish various types of retirement plans for
employees. These retirement plans may permit the purchase of the Contracts to
provide benefits under the Plan. Contributions to the Plan for the benefit of
employees will not be includible in the gross income of the employee until
distributed from the Plan. The tax consequences to participants may vary,
depending upon the particular Plan design. However, the Code places limitations
and restrictions on all Plans, including on such items as: amount of allowable
contributions; form, manner and timing of distributions; transferability of
benefits; vesting and nonforfeitability of interests; nondiscrimination in
eligibility and participation; and the tax treatment of distributions and
withdrawals. Participant loans are not allowed under the Contracts purchased in
connection with these Plans. (See "Tax Treatment of Withdrawals-Qualified
Contracts.") Purchasers of Contracts for use with Pension or Profit-Sharing
Plans should obtain competent tax advice as to the tax treatment and suitability
of such an investment.
TAX TREATMENT OF WITHDRAWALS -
QUALIFIED CONTRACTS
In the case of a withdrawal under a Qualified Contract, a ratable portion of the
amount received is taxable, generally based on the ratio of the individual's
cost basis to the individual's total accrued benefit under the retirement plan.
Special tax rules may be available for certain distributions from a Qualified
Contract. Section 72(t) of the Code imposes a 10% penalty tax on the taxable
portion of any distribution from qualified retirement plans, including Contracts
issued and qualified under Code Sections 401 (Pension and Profit-Sharing Plans),
403(b) (Tax-Sheltered Annuities) and 408 and 408A (Individual Retirement
Annuities). To the extent amounts are not includible in gross income because
they have been properly rolled over to an IRA or to another eligible Qualified
Plan, no tax penalty will be imposed. The tax penalty will not apply to the
following distributions: (a) if distribution is made on or after the date on
which the Contract Owner or Annuitant (as applicable) reaches age 59 1/2; (b)
distributions following the death or disability of the Contract Owner or
Annuitant (as applicable) (for this purpose disability is as defined in Section
72(m)(7) of the Code); (c) after separation from service, distributions that are
part of substantially equal periodic payments made not less frequently than
annually for the life (or life expectancy) of the Contract Owner or Annuitant
(as applicable) or the joint lives (or joint life expectancies) of such Contract
Owner or Annuitant (as applicable) and his designated beneficiary; (d)
distributions to a Contract Owner or Annuitant (as applicable) who has separated
from service after he has attained age 55; (e) distributions made to the
Contract Owner or Annuitant (as applicable) to the extent such distributions do
not exceed the amount allowable as a deduction under Code Section 213 to the
Contract Owner or Annuitant (as applicable) for amounts paid during the taxable
year for medical care; (f) distributions made to an alternate payee pursuant to
a qualified domestic relations order; (g) distributions made on account of an
IRS levy upon the Qualified Contract (h) 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); (i) 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 (j) distributions from an
Individual Retirement Annuity made to the Owner or Annuitant (as applicable)
which are qualified first-time home buyer distributions (as defined in Section
72(t)(8) of the Code). The exceptions stated in items (d) and (f) above do not
apply in the case of an Individual Retirement Annuity. The exception stated in
item (c) applies to an Individual Retirement Annuity without the requirement
that there be a separation from service.
With respect to (c) above, if the series of substantially equal periodic
payments is modified before the later of your attaining age 59 1/2 or 5 years
from the date of the first periodic payment, then the tax for the year of the
modification is increased by an amount equal to the tax which would have been
imposed (the 10% penalty tax) but for the exception, plus interest for the tax
years in which the exception was used.
Generally, distributions from a Qualified Plan must commence no later than April
1 of the calendar year following the later of: (a) the year in which the
employee attains age 70 1/2 or (b) the calendar year in which the employee
retires. The date set forth in (b) does not apply to an Individual Retirement
Annuity. Required distributions must be over a period not exceeding the life
expectancy of the individual or the joint lives or life expectancies of the
individual and his or her designated beneficiary. If the required minimum
distributions are not made, a 50% penalty tax is imposed as to the amount not
distributed.
TAX-SHELTERED ANNUITIES -
WITHDRAWAL LIMITATIONS
The Code limits the withdrawal of amounts attributable to contributions made
pursuant to a salary reduction agreement (as defined in Section 403(b)(11) of
the Code) to circumstances only when the Contract Owner: (1) attains age 59 1/2;
(2) separates from service; (3) dies; (4) becomes disabled (within the meaning
of Section 72(m)(7) of the Code); or (5) in the case of hardship. However,
withdrawals for hardship are restricted to the portion of the Contract Owner's
Contract Value which represents contributions by the Contract Owner and does not
include any investment results. The limitations on withdrawals became effective
on January 1, 1989 and apply only to salary reduction contributions made after
December 31, 1988, and to income attributable to such contributions and to
income attributable to amounts held as of December 31, 1988. The limitations on
withdrawals do not affect rollovers and transfers between certain Qualified
Plans. Contract Owners should consult their own tax counsel or other tax adviser
regarding any distributions.
ANNUITY PROVISIONS
- --------------------------------------------------------------------------------
FIXED ANNUITY PAYOUT
A fixed annuity is an annuity with payments which are guaranteed as to dollar
amount by the Insurance Company and do not vary with the investment experience
of a Portfolio. The Fixed Account value on the day immediately preceding the
Income Date will be used to determine the Fixed Annuity monthly payment. The
monthly Annuity Payment will be based upon the Contract Value at the time of
annuitization, the Annuity Option selected, the age of the annuitant and any
joint annuitant and the sex of the annuitant and joint annuitant where allowed.
VARIABLE ANNUITY PAYOUT
A variable annuity is an annuity with payments which:
(1) are not predetermined as to dollar amount; and
(2) will vary in amount with the net investment results of the applicable
Portfolio(s).
ANNUITY UNIT VALUE
On the Income Date, a fixed number of Annuity Units will be purchased as
follows:
The first Annuity Payment is equal to the Adjusted Contract Value, divided first
by $1,000 and then multiplied by the appropriate Annuity Payment amount for each
$1,000 of value for the Annuity Option selected. In each Portfolio the fixed
number of Annuity Units is determined by dividing the amount of the initial
Annuity Payment determined for each Portfolio by the Annuity Unit value on the
Income Date. Thereafter, the number of Annuity Units in each Portfolio remains
unchanged unless the Contract Owner elects to transfer between Portfolios. All
calculations will appropriately reflect the Annuity Payment frequency selected.
On each subsequent Annuity Payment date, the total Annuity Payment is the sum of
the Annuity Payments for each Portfolio. The Annuity Payment in each Portfolio
is determined by multiplying the number of Annuity Units then allocated to such
Portfolio by the Annuity Unit value for that Portfolio.
On each subsequent Valuation Date, the value of an Annuity Unit is determined in
the following way:
First: The Net Investment Factor is determined as described in the Prospectus
under "Purchase - Accumulation Units."
Second: The value of an Annuity Unit for a Valuation Period is equal to:
a. the value of the Annuity Unit for the immediately preceding Valuation Period.
b. multiplied by the Net Investment Factor for the current Valuation Period;
c. divided by the Assumed Net Investment Factor (see below) for the Valuation
Period.
The Assumed Net Investment Factor is equal to one plus the Assumed Investment
Return which is used in determining the basis for the purchase of an Annuity,
adjusted to reflect the particular Valuation Period. The Assumed Investment
Return that the Insurance Company will use is 5%. However, the Insurance Company
may agree to use a different value.
MORTALITY AND EXPENSE RISK GUARANTEE
- --------------------------------------------------------------------------------
The Insurance Company guarantees that the dollar amount of each Annuity Payment
after the first Annuity Payment will not be affected by variations in mortality
and expense experience.
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The audited financial statements of the Insurance Company as of and for the year
ended December 31, 1999, 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, 1999 are also included herein.
PREFERRED LIFE VARIABLE ACCOUNT C
of
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Financial Statements
December 31, 1999
<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, 1999, 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
AIM Variable Insurance Funds, Inc., The Alger American Fund, Franklin Templeton
Variable Insurance Products Trust, and USAllianz Variable Insurance Products
Trust. 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, 1999, 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 LLP
Minneapolis, Minnesota
February 4, 2000
<PAGE>
<TABLE>
<CAPTION>
Variable Life Prospectus
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
FINANCIAL STATEMENTS
Statements of Assets and Liabilities
December 31, 1999
(In thousands)
ALGER ALGER FRANKLIN GLOBAL FRANKLIN FRANKLIN FRANKLIN
AIM AMERICAN AMERICAN COMMUNICATIONS GLOBAL HEALTH GROWTH AND HIGH
VI GROWTH GROWTH LEVERAGED ALLCAP SECURITIES CARE SECURITIES INCOME INCOME
FUND FUND FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
AIM VI Growth Fund,
12 shares, cost $389 $401 - - - - - -
Alger American Growth Fund,
7 shares, cost $459 - 479 - - - - -
Alger American Leveraged AllCap Fund,
4 shares, cost $221 - - 225 - - - -
Franklin Global Communications Securities Fund,
3,303 shares, cost $56,564 - - - 82,114 - - -
Franklin Global Health Care Securities Fund,
66 shares, cost $612 - - - - 652 - -
Franklin Growth and Income Fund,
4,791 shares, cost $79,903 - - - - - 85,186 -
Franklin High Income Fund,
2,839 shares, cost $36,092 - - - - - - 27,996
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets 401 479 225 82,114 652 85,186 27,996
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities:
Accrued mortality and expense risk charges
- Valuemark II - - - (23) 3 3 3
Accrued mortality and expense risk charges
- Valuemark IV - - - 5 2 5 5
Accrued administrative charges - Valuemark II - - - (3) - 1 -
Accrued administrative charges - Valuemark IV - - - 1 - 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities - - - (20) 5 10 9
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets $401 479 225 82,134 647 85,176 27,987
- ------------------------------------------------------------------------------------------------------------------------------------
Contract owners' equity:
Contracts in accumulation period - Valuemark II 397 391 225 81,263 450 83,242 26,674
Contracts in accumulation period - Valuemark IV 4 88 - 792 197 1,929 1,313
Contracts in annuity payment period (note 2) - - - 79 - 5 -
- ------------------------------------------------------------------------------------------------------------------------------------
Total contract owners' equity $401 479 225 82,134 647 85,176 27,987
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Variable Life Prospectus
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
FINANCIAL STATEMENTS
Statements of Assets and Liabilities (cont.)
December 31, 1999
(In thousands)
FRANKLIN FRANKLIN LARGE FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
INCOME CAP GROWTH MONEY NATURAL RESOURCES REAL RISING DIVIDENDS S&P 500
SECURITIES SECURITIES MARKET SECURITIES ESTATE SECURITIES INDEX
FUND FUND FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Income Securities Fund,
3,816 shares, cost $59,166 $56,057 - - - - - -
Franklin Large Cap Growth Securities Fund,
1,341 shares, cost $20,060 - 28,266 - - - - -
Franklin Money Market Fund,
25,200 shares, cost $25,200 - - 25,200 - - - -
Franklin Natural Resources Securities Fund,
285 shares, cost $3,684 - - - 3,120 - - -
Franklin Real Estate Fund,
674 shares, cost $12,103 - - - - 10,053 - -
Franklin Rising Dividends Securities Fund,
3,159 shares, cost $43,788 - - - - - 42,990 -
Franklin S&P 500 Index Fund,
46 shares, cost $477 - - - - - - 487
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets 56,057 28,266 25,200 3,120 10,053 42,990 487
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities:
Accrued mortality and expense risk charges
- Valuemark II 4 3 2 3 2 4 1
Accrued mortality and expense risk charges
- Valuemark IV 5 5 5 2 1 5 -
Accrued administrative charges - Valuemark II 1 - - - - 1 -
Accrued administrative charges - Valuemark IV 1 1 1 - - 1 -
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 11 9 8 5 3 11 1
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets $56,046 28,257 25,192 3,115 10,050 42,979 486
- ------------------------------------------------------------------------------------------------------------------------------------
Contract owners' equity:
Contracts in accumulation period - Valuemark II 54,683 26,784 23,673 2,983 9,946 41,590 486
Contracts in accumulation period - Valuemark IV 1,318 1,473 1,519 132 104 1,353 -
Contracts in annuity payment period (note 2) 45 - - - - 36 -
- ------------------------------------------------------------------------------------------------------------------------------------
Total contract owners' equity $56,046 28,257 25,192 3,115 10,050 42,979 486
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Variable Life Prospectus
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
FINANCIAL STATEMENTS (CONTINUED)
Statements of Assets and Liabilities (cont.)
December 31, 1999
(In thousands)
FRANKLIN FRANKLIN MUTUAL
FRANKLIN U.S. VALUE FRANKLIN FRANKLIN FRANKLIN DISCOVERY
SMALL CAP GOVERNMENT SECURITIES ZERO COUPON ZERO COUPON ZERO COUPON SECURITIES
FUND FUND FUND FUND - 2000 FUND - 2005 FUND - 2010 FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Small Cap Fund,
854 shares, cost $12,635 $22,945 - - - - - -
Franklin U.S. Government Fund,
4,546 shares, cost $60,110 - 53,550 - - - - -
Franklin Value Securities Fund,
85 shares, cost $653 - - 674 - - - -
Franklin Zero Coupon Fund - 2000
890 shares, cost $12,651 - - - 11,186 - - -
Franklin Zero Coupon Fund - 2005
420 shares, cost $6,589 - - - - 6,098 - -
Franklin Zero Coupon Fund - 2010
349 shares, cost $5,685 - - - - - 4,932 -
Mutual Discovery Securities Fund
854 shares, cost $10,083 - - - - - - 11,587
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets 22,945 53,550 674 11,186 6,098 4,932 11,587
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities:
Accrued mortality and expense risk charges
- Valuemark II 3 3 1 3 3 4 2
Accrued mortality and expense risk charges
- Valuemark IV 5 5 5 3 1 2 5
Accrued administrative charges - Valuemark II - 1 - - - - -
Accrued administrative charges - Valuemark IV 1 1 1 - - - 1
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 9 10 7 6 4 6 8
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets $22,936 53,540 667 11,180 6,094 4,926 11,579
- ------------------------------------------------------------------------------------------------------------------------------------
Contract owners' equity:
Contracts in accumulation period
- Valuemark II 22,163 51,251 261 10,887 6,008 4,745 11,073
Contracts in accumulation period
- Valuemark IV 773 2,289 406 293 86 181 506
Contracts in annuity payment period (note 2) - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Total contract owners' equity $22,936 53,540 667 11,180 6,094 4,926 11,579
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
4
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
FINANCIAL STATEMENTS (CONTINUED)
Statements of Assets and Liabilities (cont.)
December 31, 1999
(In thousands)
TEMPLETON
MUTUAL TEMPLETON TEMPLETON TEMPLETON TEMPLETON TEMPLETON INTERNATIONAL
SHARES DEVELOPING GLOBAL ASSET GLOBAL GLOBAL INCOME INTERNATIONAL SMALLER
SECURITIES MARKETS EQUITY ALLOCATION GROWTH SECURITIES EQUITY COMPANIES
FUND FUND FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Mutual Shares Securities Fund,
2,023 shares, cost $23,843 $26,768 - - - - - -
Templeton Developing Markets Equity Fund,
728 shares, cost $7,353 - 7,632 - - - - -
Templeton Global Asset Allocation Fund,
284 shares, cost $3,485 - - 3,355 - - - -
Templeton Global Growth Fund,
2,430 shares, cost $31,938 - - - 37,987 - - -
Templeton Global Income Securities Fund,
824 shares, cost $10,459 - - - - 9,127 - -
Templeton International Equity Fund,
2,628 shares, cost $37,268 - - - - - 47,173 -
Templeton International Smaller Companies Fund,
109 shares, cost $1,211 - - - - - - 1,206
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets 26,768 7,632 3,355 37,987 9,127 47,173 1,206
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities:
Accrued mortality and expense risk charges
- Valuemark II 2 2 3 2 3 2 3
Accrued mortality and expense risk charges
- Valuemark IV 5 1 1 5 1 5 1
Accrued administrative charges
- Valuemark II - - - - - 1 -
Accrued administrative charges
- Valuemark IV 1 - - 1 - 1 -
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 8 3 4 8 4 9 4
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets $26,760 7,629 3,351 37,979 9,123 47,164 1,202
- ------------------------------------------------------------------------------------------------------------------------------------
Contract owners' equity:
Contracts in accumulation period
- Valuemark II 24,866 7,494 3,294 36,188 9,013 46,821 1,155
Contracts in accumulation period
- Valuemark IV 1,894 135 57 1,791 110 343 47
Contracts in annuity payment period (note 2) - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Total contract owners' equity $26,760 7,629 3,351 37,979 9,123 47,164 1,202
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Variable Life Prospectus 5
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
FINANCIAL STATEMENTS (CONTINUED)
Statements of Assets and Liabilities (cont.)
December 31, 1999
(In thousands)
USALLIANZ USALLIANZ
TEMPLETON VIP DIVERSIFIED VIP FIXED USALLIANZ TOTAL
PACIFIC GROWTH ASSETS INCOME VIP GROWTH ALL
FUND FUND FUND FUND FUNDS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investments at net asset value:
Templeton Pacific Growth Fund,
715 shares, cost $7,735 $7,286 - - -
USAllianz VIP Diversified Assets Fund,
0 shares, cost $2 - 2 - -
USAllianz VIP Fixed Income Fund,
0 shares, cost $0 - - - -
USAllianz VIP Growth Fund,
0 shares, cost $0 - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets 7,286 2 - - 614,734
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities:
Accrued mortality and expense risk charges - Valuemark II 3 - - - 44
Accrued mortality and expense risk charges - Valuemark IV 1 - - - 86
Accrued administrative charges - Valuemark II - - - - 2
Accrued administrative charges - Valuemark IV - - - - 14
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 4 - - - 146
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets $7,282 2 - - 614,588
- ------------------------------------------------------------------------------------------------------------------------------------
Contract owners' equity:
Contracts in accumulation period - Valuemark II 7,191 2 - - 595,199
Contracts in accumulation period - Valuemark IV 82 - - - 19,215
Contracts in annuity payment period (note 2) 9 - - - 174
- ------------------------------------------------------------------------------------------------------------------------------------
Total contract owners' equity $7,282 2 - - 614,588
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
6
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, 1999
(In thousands)
ALGER FRANKLIN GLOBAL FRANKLIN FRANKLIN
AIM VI ALGER AMERICAN COMMUNICATIONS GLOBAL HEALTH GROWTH AND FRANKLIN
GROWTH AMERICAN GROWTH LEVERAGED ALLCAP SECURITIES CARE SECURITIES INCOME HIGH INCOME
FUND FUND FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $1 - - 2,766 2 3,782 7,537
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges
- Valuemark II - - - 905 6 1,243 406
Mortality and expense risk charges
- Valuemark IV - - - 5 2 18 14
Administrative charges - Valuemark II - - - 109 1 149 49
Administrative charges - Valuemark IV - - - 1 - 2 2
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses - - - 1,020 9 1,412 471
- ------------------------------------------------------------------------------------------------------------------------------------
Investment income (loss), net 1 - - 1,746 (7) 2,370 7,066
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions on
mutual funds 9 - - 6,699 - 10,544 1,093
Realized gains (losses) on sales of
investments, net - - 9 4,362 (69) 5,107 (1,077)
- ------------------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on investments, net 9 - 9 11,061 (69) 15,651 16
- ------------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) on investments 13 20 4 10,895 6 (17,772) (7,480)
- ------------------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments,
net 22 20 13 21,956 (63) (2,121) (7,464)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from
operations $23 20 13 23,702 (70) 249 (398)
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Variable Life Prospectus 7
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, 1999
(In thousands)
FRANKLIN FRANKLIN LARGE FRANKLIN NATURAL FRANKLIN FRANKLIN FRANKLIN
INCOME CAP GROWTH FRANKLIN RESOURCES REAL RISING DIVIDENDS S&P 500
SECURITIES SECURITIES MONEY MARKET SECURITIES ESTATE SECURITIES INDEX
FUND FUND FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $5,787 103 1,288 49 1,091 882 -
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges - Valuemark II 847 281 340 41 158 671 -
Mortality and expense risk charges - Valuemark IV 14 14 9 2 1 13 -
Administrative charges - Valuemark II 102 34 41 5 19 81 -
Administrative charges - Valuemark IV 2 2 1 - - 1 -
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses 965 331 391 48 178 766 -
- ------------------------------------------------------------------------------------------------------------------------------------
Investment income (loss), net 4,822 (228) 897 1 913 116 -
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions on mutual
funds 2,074 - - - 1,511 8,832 -
Realized gains (losses) on sales of investments,
net 847 1,016 - (770) (77) 3,058 -
- ------------------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on investments, net 2,921 1,016 - (770) 1,434 11,890 -
- ------------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) on investments (9,842) 5,588 - 1,633 (3,300) (18,289) 10
- ------------------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments,
net (6,921) 6,604 - 863 (1,866) (6,399) 10
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from
operations $(2,099) 6,376 897 864 (953) (6,283) 10
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
8
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, 1999
(In thousands)
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN MUTUAL
FRANKLIN U.S. VALUE ZERO COUPON ZERO COUPON ZERO COUPON DISCOVERY
SMALL CAP GOVERNMENT SECURITIES - 2000 - 2005 - 2010 SECURITIES
FUND FUND FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $68 8,634 1 1,969 859 716 332
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges - Valuemark II 186 770 3 162 92 76 140
Mortality and expense risk charges - Valuemark IV 7 20 4 3 1 2 5
Administrative charges - Valuemark II 22 92 - 19 11 9 17
Administrative charges - Valuemark IV 1 2 - - - - 1
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses 216 884 7 184 104 87 163
- ------------------------------------------------------------------------------------------------------------------------------------
Investment income (loss), net (148) 7,750 (6) 1,785 755 629 169
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions
on mutual funds 10 - - 288 44 176 -
Realized gains (losses) on sales
of investments, net 478 (66) 4 (65) 106 43 40
- ------------------------------------------------------------------------------------------------------------------------------------
Realized gains (losses)
on investments, net 488 (66) 4 223 150 219 40
- ------------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) on investments 10,634 (9,210) 8 (1,804) (1,492) (1,784) 2,050
- ------------------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses)
and unrealized appreciation
(depreciation) on investments, net 11,122 (9,276) 12 (1,581) (1,342) (1,565) 2,090
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations $10,974 (1,526) 6 204 (587) (936) 2,259
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Variable Life Prospectus 9
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, 1999
(In thousands)
TEMPLETON
MUTUAL TEMPLETON TEMPLETON TEMPLETON TEMPLETON INTERNATIONAL
SHARES DEVELOPING GLOBAL ASSET TEMPLETON GLOBAL INCOME INTERNATIONAL SMALLER
SECURITIES MARKETS EQUITY ALLOCATION GLOBAL GROWTH SECURITIES EQUITY COMPANIES
FUND FUND FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $700 137 266 809 942 2,804 32
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges
- Valuemark II 324 84 48 443 144 605 14
Mortality and expense risk charges
- Valuemark IV 17 1 1 13 1 4 1
Administrative charges - Valuemark II 39 10 6 53 17 73 2
Administrative charges - Valuemark IV 2 - - 1 - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses 382 95 55 510 162 682 17
- ------------------------------------------------------------------------------------------------------------------------------------
Investment income (loss), net 318 42 211 299 780 2,122 15
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions
on mutual funds - - 266 3,913 - 1,450 -
Realized gains (losses) on sales
of investments, net 546 (656) (30) 1,046 (290) 2,715 (47)
- ------------------------------------------------------------------------------------------------------------------------------------
Realized gains (losses)
on investments, net 546 (656) 236 4,959 (290) 4,165 (47)
- ------------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) on investments 2,130 3,346 (253) 1,167 (1,395) 4,247 245
- ------------------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses)
and unrealized appreciation
(depreciation) on investments, net 2,676 2,690 (17) 6,126 (1,685) 8,412 198
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations $2,994 2,732 194 6,425 (905) 10,534 213
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
10
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, 1999
(In thousands)
USALLIANZ USALLIANZ
TEMPLETON VIP DIVERSIFIED VIP FIXED USALLIANZ TOTAL
PACIFIC GROWTH ASSETS INCOME VIP GROWTH ALL
FUND FUND FUND FUND FUNDS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $71 - - - 41,628
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges - Valuemark II 90 - - - 8,079
Mortality and expense risk charges - Valuemark IV 1 - - - 173
Administrative charges - Valuemark II 11 - - - 971
Administrative charges - Valuemark IV - - - - 18
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses 102 - - - 9,241
- ------------------------------------------------------------------------------------------------------------------------------------
Investment income (loss), net (31) - - - 32,387
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions
on mutual funds - - - - 36,909
Realized gains (losses) on sales
of investments, net (2,409) - - (2) 13,819
- ------------------------------------------------------------------------------------------------------------------------------------
Realized gains (losses)
on investments, net (2,409) - - (2) 50,728
- ------------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) on investments 4,586 - - - (26,039)
- ------------------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses)
and unrealized appreciation
(depreciation) on investments, net 2,177 - - (2) 24,689
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations $2,146 - - (2) 57,076
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Variable Life Prospectus 11
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, 1999 and 1998 (In thousands)
FRANKLIN GLOBAL
AIM VI ALGER AMERICAN ALGER AMERICAN COMMUNICATIONS
GROWTH FUND GROWTH FUND LEVERAGED ALLCAP FUND SECURITIES FUND
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $1 - - - - - 1,746 2,287
Realized gains (losses) on investments, net 9 - - - 9 - 11,061 9,083
Net change in unrealized appreciation
(depreciation) on investments 13 - 20 - 4 - 10,895 (3,678)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations 23 - 20 - 13 - 23,702 7,692
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions - Valuemark II (note 4):
Purchase payments - - - - - - 218 1,613
Transfers between funds 396 - 394 - 212 - (724) (1,689)
Surrenders and terminations (22) - (22) - - - (22,559)(22,589)
Rescissions - - - - - - (8) (109)
Other transactions (note 2) - - - - - - 403 64
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark II 374 - 372 - 212 - (22,670)(22,710)
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions - Valuemark IV (note 4):
Purchase payments - - - - - - 504 44
Transfers between funds 4 - 87 - - - 131 11
Surrenders and terminations - - - - - - (64) -
Rescissions - - - - - - (3) -
Other transactions (note 2) - - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark IV 4 - 87 - - - 568 55
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 401 - 479 - 225 - 1,600 (14,963)
Net assets at beginning of year - - - - - - 80,534 95,497
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $401 - 479 - 225 - 82,134 80,534
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
12
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, 1999 and 1998
(In thousands)
FRANKLIN GLOBAL HEALTH CARE FRANKLIN GROWTH AND FRANKLIN HIGH FRANKLIN INCOME
SECURITIES FUND INCOME FUND INCOME FUND SECURITIES FUND
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $(7) - 2,370 2,168 7,066 3,336 4,822 5,905
Realized gains (losses) on investments,
net (69) 1 15,651 13,649 16 314 2,921 3,814
Net change in unrealized appreciation
(depreciation) on investments 6 35 (17,772) (8,207) (7,480) (3,777) (9,842) (9,694)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations (70) 36 249 7,610 (398) (127) (2,099) 25
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions - Valuemark II (note 4):
Purchase payments 8 1 579 7,159 129 5,061 307 5,484
Transfers between funds 376 250 (752) 2,872 (2,280) (862) (4,554) (3,061)
Surrenders and terminations (158) - (29,750)(26,820) (8,653) (11,159) (21,120)(20,428)
Rescissions - - - (167) (6) (67) - (109)
Other transactions (note 2) - - 436 253 51 13 190 29
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark II 226 251 (29,487)(16,703) (10,759) (7,014) (25,177)(18,085)
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions - Valuemark IV (note 4):
Purchase payments 348 77 601 347 366 412 558 257
Transfers between funds (212) 4 983 92 506 91 485 94
Surrenders and terminations (13) - (88) (1) (52) (1) (37) -
Rescissions - - - (1) - - - -
Other transactions (note 2) - - 4 - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark IV 123 81 1,500 437 820 502 1,006 351
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 279 368 (27,738) (8,656) (10,337) (6,639) (26,270)(17,709)
Net assets at beginning of year 368 - 112,914 121,570 38,324 44,963 82,316 100,025
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $647 368 85,176 112,914 27,987 38,324 56,046 82,316
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Variable Life Prospectus 13
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, 1999 and 1998
(In thousands)
FRANKLIN LARGE CAP FRANKLIN FRANKLIN NATURAL RESOURCES FRANKLIN
GROWTH SECURITIES FUND MONEY MARKET FUND SECURITIES FUND REAL ESTATE FUND
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ (228) (125) 897 1,127 1 4 913 609
Realized gains (losses) on investments,
net 1,016 287 - - (770) (613) 1,434 1,784
Net change in unrealized appreciation
(depreciation) on investments 5,588 1,864 - - 1,633 (747) (3,300) (6,791)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations 6,376 2,026 897 1,127 864 (1,356) (953) (4,398)
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions - Valuemark II (note 4):
Purchase payments 360 2,983 393 9,399 12 685 34 1,188
Transfers between funds 11,623 4,392 4,341 6,983 (210) (306) (2,005) (1,790)
Surrenders and terminations (7,116) (1,877) (13,569)(15,831) (1,193) (787) (3,480) (5,162)
Rescissions - (17) (39) (392) - - - (20)
Other transactions (note 2) 5 180 484 22 (1) 1 2 (10)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark II 4,872 5,661 (8,390) 181 (1,392) (407) (5,449) (5,794)
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions - Valuemark IV (note 4):
Purchase payments 656 206 92 269 61 56 53 30
Transfers between funds 338 32 1,256 (104) (8) - 24 5
Surrenders and terminations (50) - (17) - (2) - - -
Rescissions (27) - - - - - - -
Other transactions (note 2) - - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark IV 917 238 1,331 165 51 56 77 35
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 12,165 7,925 (6,162) 1,473 (477) (1,707) (6,325)(10,157)
Net assets at beginning of year 16,092 8,167 31,354 29,881 3,592 5,299 16,375 26,532
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $28,257 16,092 25,192 31,354 3,115 3,592 10,050 16,375
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
14
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, 1999 and 1998
(In thousands)
FRANKLIN RISING FRANKLIN FRANKLIN FRANKLIN
DIVIDENDS SECURITIES FUND S&P 500 INDEX FUND SMALL CAP FUND U.S. GOVERNMENT FUND
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 116 (213) - - (148) (199) 7,750 4,461
Realized gains (losses) on investments,
net 11,890 12,765 - - 488 935 (66) 895
Net change in unrealized appreciation
depreciation) on investments (18,289) (9,268) 10 - 10,634 (1,359) (9,210) (812)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations (6,283) 3,284 10 - 10,974 (623) (1,526) 4,544
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions - Valuemark II (note 4):
Purchase payments 304 7,196 - 100 2,596 406 3,571
Transfers between funds (3,108) 2,318 521 962 1,577 (1,792) (301)
Surrenders and terminations (16,637) (15,723) (45) (4,320) (2,847) (17,946)(22,669)
Rescissions - (104) - - (25) (2) (118)
Other transactions (note 2) 11 230 - 10 91 88 31
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark II (19,430) (6,083) 476 - (3,248) 1,392 (19,246)(19,486)
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions - Valuemark IV (note 4):
Purchase payments 778 269 - 627 106 498 492
Transfers between funds 419 58 - (297) 6 1,403 41
Surrenders and terminations (74) - - (22) (1) (97) -
Rescissions (3) - - - - (21) (3)
Other transactions (note 2) 3 - - - - 4 -
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark IV 1,123 327 - - 308 111 1,787 530
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (24,590) (2,472) 486 - 8,034 880 (18,985)(14,412)
Net assets at beginning of year 67,569 70,041 - - 14,902 14,022 72,525 86,937
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $42,979 67,569 486 - 22,936 14,902 53,540 72,525
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Variable Life Prospectus 15
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, 1999 and 1998
(In thousands)
FRANKLIN VALUE FRANKLIN ZERO COUPON- FRANKLIN ZERO COUPON- FRANKLIN ZERO COUPON-
SECURITIES FUND 2000 FUND 2005 FUND 2010 FUND
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ (6) - 1,785 1,120 755 390 629 327
Realized gains (losses) on investments, net 4 2 223 502 150 315 219 535
Net change in unrealized appreciation
(depreciation) on investments 8 14 (1,804) (584) (1,492) 146 (1,784) 23
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations 6 16 204 1,038 (587) 851 (936) 885
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions - Valuemark II (note 4):
Purchase payments 7 21 35 345 40 1,287 55 873
Transfers between funds 116 115 (565) (941) (466) 727 (572) 381
Surrenders and terminations (9) - (3,878) (6,689) (1,788) (1,750) (1,422) (1,759)
Rescissions - - - (10) - (180) - (7)
Other transactions (note 2) - - 152 (7) 65 31 9 (4)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark II 114 136 (4,256) (7,302) (2,149) 115 (1,930) (516)
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions - Valuemark IV (note 4):
Purchase payments 72 124 34 27 37 47 157 92
Transfers between funds 183 34 208 25 9 4 (40) -
Surrenders and terminations (18) - (2) - (5) - (8) -
Rescissions - - - - - - - -
Other transactions (note 2) - - - - - - 2 -
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark IV 237 158 240 52 41 51 111 92
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 357 310 (3,812) (6,212) (2,695) 1,017 (2,755) 461
Net assets at beginning of year 310 - 14,992 21,204 8,789 7,772 7,681 7,220
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $667 310 11,180 14,992 6,094 8,789 4,926 7,681
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
16
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, 1999 and 1998
(In thousands)
MUTUAL DISCOVERY MUTUAL SHARES TEMPLETON DEVELOPING TEMPLETON GLOBAL
SECURITIES FUND SECURITIES FUND MARKETS EQUITY FUND ASSET ALLOCATION FUND
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 169 (3) 318 (83) 42 161 211 114
Realized gains (losses) on investments,
net 40 64 546 303 (656) (440) 236 370
Net change in unrealized appreciation
(depreciation) on investments 2,050 (1,320) 2,130 (929) 3,346 (2,104) (253) (572)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations 2,259 (1,259) 2,994 (709) 2,732 (2,383) 194 (88)
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions - Valuemark II (note 4):
Purchase payments 72 3,318 193 6,717 49 560 39 667
Transfers between funds (869) 1,746 424 4,383 170 (2,638) (552) (1,307)
Surrenders and terminations (2,956) (2,175) (5,418) (5,431) (1,407) (1,536) (733) (791)
Rescissions - (57) (4) (84) - (5) - (13)
Other transactions (note 2) (4) 18 (7) 84 1 (3) 31 -
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark II (3,757) 2,850 (4,812) 5,669 (1,187) (3,622) (1,215) (1,444)
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions - Valuemark IV (note 4):
Purchase payments 113 153 906 311 185 41 15 13
Transfers between funds 142 18 490 107 (94) - 25 2
Surrenders and terminations (10) - (54) - (35) - (5) -
Rescissions - - - - - - - -
Other transactions (note 2) - - - - - - 4 -
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark IV 245 171 1,342 418 56 41 39 15
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (1,253) 1,762 (476) 5,378 1,601 (5,964) (982) (1,517)
Net assets at beginning of year 12,832 11,070 27,236 21,858 6,028 11,992 4,333 5,850
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $11,579 12,832 26,760 27,236 7,629 6,028 3,351 4,333
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Variable Life Prospectus 17
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, 1999 and 1998
(In thousands)
TEMPLETON GLOBAL TEMPLETON GLOBAL INCOME TEMPLETON INTERNATIONAL TEMPLETON INTERNATIONAL
GROWTH FUND SECURITIES FUND EQUITY FUND SMALLER COMPANIES FUND
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 299 476 780 955 2,122 1,102 15 15
Realized gains (losses) on investments,
net 4,959 4,755 (290) (2) 4,165 7,567 (47) (33)
Net change in unrealized appreciation
(depreciation) on investments 1,167 (2,835) (1,395) (103) 4,247 (5,800) 245 (190)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations 6,425 2,396 (905) 850 10,534 2,869 213 (208)
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions - Valuemark II (note 4):
Purchase payments 164 3,461 31 547 145 1,430 4 103
Transfers between funds 33 (2,518) (679) (1,413) (2,577) (7,532) 99 (348)
Surrenders and terminations (6,764) (6,107) (3,553) (4,077) (15,456) (14,571) (217) (357)
Rescissions - (56) - (15) (2) (58) - -
Other transactions (note 2) 13 (20) 18 25 67 82 (1) 1
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark II (6,554) (5,240) (4,183) (4,933) (17,823) (20,649) (115) (601)
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions - Valuemark IV (note 4):
Purchase payments 642 81 58 41 136 127 132 31
Transfers between funds 805 85 15 4 10 8 (127) 2
Surrenders and terminations (18) - (1) - (4) - - -
Rescissions (9) - - - (9) - - -
Other transactions (note 2) 2 - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark IV 1,422 166 72 45 133 135 5 33
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 1,293 (2,678) (5,016) (4,038) (7,156) (17,645) 103 (776)
Net assets at beginning of year 36,686 39,364 14,139 18,177 54,320 71,965 1,099 1,875
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $37,979 36,686 9,123 14,139 47,164 54,320 1,202 1,099
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
18
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, 1999 and 1998
(In thousands)
TEMPLETON PACIFIC USALLIANZ VIP USALLIANZ VIP USALLIANZ VIP
GROWTH FUND DIVERSIFIED ASSETS FUND FIXED INCOME FUND GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ (31) 254 - - - - - -
Realized gains (losses) on investments,
net (2,409) (3,085) - - - - (2) -
Net change in unrealized appreciation
(depreciation) on investments 4,586 987 - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations 2,146 (1,844) - - - - (2) -
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions - Valuemark II
(note 4):
Purchase payments 102 182 - - - - - -
Transfers between funds 479 (1,806) 2 - 22 - 2 -
Surrenders and terminations (2,143) (1,677) - - (22) - - -
Rescissions - (5) - - - - - -
Other transactions (note 2) 5 (5) - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark II (1,557) (3,311) 2 - - - 2 -
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions - Valuemark IV
(note 4):
Purchase payments 8 44 - - - - - -
Transfers between funds 6 (3) - - - - - -
Surrenders and terminations - - - - - - - -
Rescissions - - - - - - - -
Other transactions (note 2) - - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark IV 14 41 - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 603 (5,114) 2 - - - - -
Net assets at beginning of year 6,679 11,793 - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $7,282 6,679 2 - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Variable Life Prospectus 19
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, 1999 and 1998
(In thousands)
TOTAL ALL FUNDS
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 32,387 24,188
Realized gains (losses) on investments, net 50,728 53,767
Net change in unrealized appreciation
(depreciation) on investments (26,039) (55,701)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations 57,076 22,254
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions - Valuemark II (note 4):
Purchase payments 3,786 66,447
Transfers between funds (1,533) (768)
Surrenders and terminations (192,356) (192,812)
Rescissions (61) (1,618)
Other transactions (note 2) 2,028 1,106
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark II (188,136) (127,645)
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions - Valuemark IV (note 4):
Purchase payments 7,637 3,697
Transfers between funds 6,751 616
Surrenders and terminations (676) (3)
Rescissions (72) (4)
Other transactions (note 2) 19 -
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark IV 13,659 4,306
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (117,401) (101,085)
Net assets at beginning of year 731,989 833,074
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $614,588 731,989
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
20
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
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 select portfolios of AIM Variable Insurance Funds, Inc., The Alger
American Fund, Franklin Templeton Variable Insurance Products Trust (formerly,
Franklin Valuemark Funds), and USAllianz Variable Insurance Products Trust, in
accordance with the selection made by the contract owner. The investment
advisers for each portfolio are listed in the following table.
Portfolio Investment Adviser
- ------------------------------------------------------------------------------------------
<S> <C>
AIM VI Growth Fund AIM Advisors, Inc.
Alger American Growth Fund Fred Alger Management, Inc.
Alger American Leveraged AllCap Fund Fred Alger Management, Inc.
Franklin Global Communications Securities Fund Franklin Advisers, Inc.
Franklin Global Health Care Securities Fund Franklin Advisers, Inc.
Franklin Growth and Income Fund Franklin Advisers, Inc.
Franklin High Income Fund Franklin Advisers, Inc.
Franklin Income Securities Fund Franklin Advisers, Inc.
Franklin Large Cap Growth Securities Fund Franklin Advisers, Inc.
Franklin Money Market Fund Franklin Advisers, Inc.
Franklin Natural Resources Securities Fund Franklin Advisers, Inc.
Franklin Real Estate Fund Franklin Advisers, Inc.
Franklin Rising Dividends Securities Fund Franklin Advisory Services, LLC
Franklin S&P 500 Index Fund Franklin Advisers, Inc.
Franklin Small Cap Fund Franklin Advisers, Inc.
Franklin U.S. Government Fund Franklin Advisers, Inc.
Franklin Value Securities Fund Franklin Advisory Services, LLC
Franklin Zero Coupon - 2000 Fund Franklin Advisers, Inc.
Franklin Zero Coupon - 2005 Fund Franklin Advisers, Inc.
Franklin Zero Coupon - 2010 Fund Franklin Advisers, Inc.
Mutual Discovery Securities Fund Franklin Mutual Advisers, LLC
Mutual Shares Securities Fund Franklin Mutual Advisers, LLC
Templeton Developing Markets Equity Fund Templeton Asset Management Ltd.
Templeton Global Asset Allocation Fund Templeton Global Advisors Limited
Templeton Global Growth Fund Templeton Global Advisors Limited
Templeton Global Income Securities Fund Franklin Advisers, Inc.
Templeton International Equity Fund Franklin Advisers, Inc.
Templeton International Smaller Companies Fund Templeton Investment Counsel, Inc.
Templeton Pacific Growth Fund Franklin Advisers, Inc.
USAllianz VIP Diversified Assets Fund Allianz of America, Inc.
USAllianz VIP Fixed Income Fund Allianz of America, Inc.
USAllianz VIP Growth Fund Allianz of America, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Variable Life Prospectus 21
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
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 AIM Variable Insurance Funds, Inc., The Alger American
Fund, Franklin Templeton Variable Insurance Products Trust, and the USAllianz
Variable Insurance Products Trust.
Realized investment gains include realized gain distributions received from the
respective portfolios and gains on the sale of portfolio shares as determined by
the average cost method. Realized gain distributions are reinvested in the
respective portfolios. Dividend distributions received from the portfolios are
reinvested in additional shares of the portfolios and are recorded as income to
the Variable Account on the ex-dividend date.
A Flexible Fixed Account investment option and a Dollar Cost Averaging Fixed
Account investment option are available to deferred annuity contract owners.
These accounts are comprised of equity and fixed income investments which are
part of the general assets of Preferred Life. The liabilities of the Fixed
Accounts are part of the general obligations of Preferred Life and are not
included in the Variable Account. The guaranteed minimum rate of return on the
Fixed Accounts is 3%.
The Franklin Global Health Care Securities Fund and Franklin Value Securities
Fund were added as available investment options on August 17, 1998. On November
12, 1999, the AIM VI Growth Fund, Alger American Growth Fund, Alger American
Leveraged AllCap Fund, Franklin S&P 500 Index Fund, USAllianz VIP Diversified
Assets Fund, USAllianz VIP Fixed Income Fund, and USAllianz VIP Growth Fund were
added as available investment options.
During the year ended December 31, 1999, several portfolios changed their name
as summarized, with the effective date of the change, in the following table.
Current Portfolio Prior Portfolio Name Effective Date
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Franklin Global Communications Securities Fund Franklin Global Utilities Securities Fund November 15, 1999
Franklin Real Estate Fund Franklin Real Estate Securities Fund November 15, 1999
Franklin Rising Dividends Securities Fund Franklin Rising Dividends Fund November 15, 1999
Franklin U.S. Government Fund Franklin U.S. Government Securities Fund November 15, 1999
Franklin Large Cap Growth Securities Fund Franklin Capital Growth Fund December 15, 1999
</TABLE>
CONTRACTS IN ANNUITY PAYMENT PERIOD
Annuity reserves are computed for currently payable contracts according to the
1983 Individual Annuity Mortality Table, using an assumed investment return
(AIR) equal to the AIR of the specific contracts, either 3% or 5%. Charges to
annuity reserves for mortality and risk expense are reimbursed to Preferred Life
if the reserves required are less than originally estimated. If additional
reserves are required, Preferred Life reimburses the account.
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.
<PAGE>
22
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
<TABLE>
<CAPTION>
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, 1999 and 1998
were $443,591 and $487,077, respectively. These contract charges are reflected
in the Statements of Changes in Net Assets as other transactions.
A contingent deferred sales charge is deducted from the contract value at the
time of a surrender. This charge applies only to a surrender of purchase
payments received within five years of the date of surrender for Valuemark II
contracts and within seven years of the date of surrender for Valuemark IV
contracts. The amount of the contingent deferred sales charge is shown below.
Years Since Contingent Deferred Sales Charge
Payment Valuemark II Valuemark IV
- -----------------------------------------------------------
<S> <C> <C>
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%
Total contingent deferred sales charges paid by the contract owners during the
years ended December 31, 1999 and 1998 were $961,794 and $941,938, respectively.
</TABLE>
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.
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 during years ended December 31, 1999 and 1998 were $4,250
and $1,945, respectively. Transfer charges are reflected in the Statement of
Changes in Net Assets as other transactions. Net transfers from the Fixed
Accounts were $5,218,108 for the year ended December 31, 1999. 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.
A rescission is defined as a contract that is returned to the company and
canceled within the free-look period, generally within 10 days.
3. FEDERAL INCOME TAXES
Operations of the Variable Account form a part of, and are taxed with,
operations of Preferred Life, which is taxed as a life insurance company under
the Internal Revenue Code.
Preferred Life does not expect to incur any federal income taxes in the
operation of the Variable Account. If, in the future, Preferred Life determines
that the Variable Account may incur federal income taxes, it may then assess a
charge against the Variable Account for such taxes.
<PAGE>
<TABLE>
<CAPTION>
Variable Life Prospectus 23
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
4. CONTRACT TRANSACTIONS - ACCUMULATION UNIT ACTIVITY (IN THOUSANDS)
Transactions in units for each fund for the years ended December 31, 1999 and
1998 were as follows:
ALGER FRANKLIN FRANKLIN
ALGER AMERICAN GLOBAL GLOBAL FRANKLIN FRANKLIN FRANKLIN LARGE
AIM AMERICAN LEVERAGED COMMUNICATIONS HEALTH GROWTH & FRANKLIN INCOME CAP GROWTH
VI GROWTH GROWTH ALLCAP SECURITIES CARE SECURITIES INCOME HIGH INCOME SECURITIES SECURITIES
FUND FUND FUND FUND FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
VALUEMARK II
Accumulation units outstanding
at December 31, 1997 - - - 3,699 - 4,952 2,110 3,991 622
Contract transactions:
Purchase payments - - - 61 - 281 233 219 215
Transfers between funds - - - (64) 26 110 (37) (125) 303
Surrenders and terminations - - - (851) - (1,058) (521) (819) (135)
Rescissions - - - (4) - (6) (3) (4) (1)
Other transactions - - - 2 - 10 1 1 12
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
accumulation units resulting
from contract transactions - - - (856) 26 (663) (327) (728) 394
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding
at December 31, 1998 - - - 2,843 26 4,289 1,783 3,263 1,016
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions:
Purchase payments - - - 8 1 22 6 12 22
Transfers between funds 38 38 18 (26) 37 (31) (106) (185) 710
Surrenders and terminations (2) (2) - (750) (17) (1,112) (409) (850) (423)
Rescissions - - - - - - - - -
Other transactions - - - 13 - 16 2 8 -
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
accumulation units resulting
from contract transactions 36 36 18 (755) 21 (1,105) (507) (1,015) 309
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding
at December 31, 1999 36 36 18 2,088 47 3,184 1,276 2,248 1,325
- ------------------------------------------------------------------------------------------------------------------------------------
VALUEMARK IV
Accumulation units outstanding
at December 31, 1997 - - - - - - - - -
Contract transactions:
Purchase payments - - - 2 8 14 21 11 15
Transfers between funds - - - - - 3 4 3 2
Surrenders and terminations - - - - - - - - -
Rescissions - - - - - - - - -
Other transactions - - - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
accumulation units resulting
from contract transactions - - - 2 8 17 25 14 17
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding
at December 31, 1998 - - - 2 8 17 25 14 17
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions:
Purchase payments - - - 17 38 23 17 23 40
Transfers between funds - 8 - 4 (25) 37 24 20 21
Surrenders and terminations - - - (2) (2) (3) (3) (1) (3)
Rescissions - - - - - - - - (2)
Other transactions - - - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
<PAGE>
Net increase (decrease) in
accumulation units resulting
from contract transactions - 8 - 19 11 57 38 42 56
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding at
December 31, 1999 - 8 - 21 19 74 63 56 73
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
24
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
4. CONTRACT TRANSACTIONS - ACCUMULATION UNIT ACTIVITY (IN THOUSANDS) (CONTINUED)
FRANKLIN FRANKLIN FRANKLIN
FRANKLIN NATURAL FRANKLIN RISING FRANKLIN FRANKLIN FRANKLIN ZERO
MONEY RESOURCES REAL DIVIDENDS S&P 500 FRANKLIN U.S. VALUE COUPON
MARKET SECURITIES ESTATE SECURITIES INDEX SMALL CAP GOVERNMENT SECURITIES -2000
FUND FUND FUND FUND FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
VALUEMARK II
Accumulation units outstanding
at December 31, 1997 2,155 458 942 3,489 - 938 4,844 - 1,087
Contract transactions:
Purchase payments 657 66 44 345 - 171 194 3 17
Transfers between funds 505 (33) (73) 103 - 96 (20) 16 (47)
Surrenders and terminations (1,123) (76) (204) (767) - (198) (1,227) - (334)
Rescissions (28) - (1) (5) - (2) (6) - -
Other transactions 2 - - 11 - 7 2 - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract transactions 13 (43) (234) (313) - 74 (1,057) 19 (364)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding
at December 31, 1998 2,168 415 708 3,176 - 1,012 3,787 19 723
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions:
Purchase payments 26 1 1 15 - 6 22 1 2
Transfers between funds 299 (28) (90) (157) 51 27 (96) 16 (27)
Surrenders and terminations (930) (120) (153) (828) (4) (263) (957) (1) (186)
Rescissions (3) - - - - - - - -
Other transactions 33 - - 1 - 1 5 - 7
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract transactions (575) (147) (242) (969) 47 (229) (1,026) 16 (204)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding at
December 31, 1999 1,593 268 466 2,207 47 783 2,761 35 519
- ------------------------------------------------------------------------------------------------------------------------------------
VALUEMARK IV
Accumulation units outstanding
at December 31, 1997 - - - - - - - - -
Contract transactions:
Purchase payments 19 7 1 14 - 9 26 17 1
Transfers between funds (7) - - 3 - - 2 5 1
Surrenders and terminations - - - - - - - - -
Rescissions - - - - - - - - -
Other transactions - - - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract transactions 12 7 1 17 - 9 28 22 2
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding
at December 31, 1998 12 7 1 17 - 9 28 22 2
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions:
Purchase payments 6 6 2 39 - 38 27 10 2
Transfers between funds 86 (1) 1 21 - (18) 76 24 10
Surrenders and terminations (1) - - (4) - (1) (5) (2) -
Rescissions - - - - - - (1) - -
Other transactions - - - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract transactions 91 5 3 56 - 19 97 32 12
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding at
December 31, 1999 103 12 4 73 - 28 125 54 14
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Variable Life Prospectus 25
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
4. CONTRACT TRANSACTIONS - ACCUMULATION UNIT ACTIVITY (IN THOUSANDS) (CONTINUED)
FRANKLIN FRANKLIN MUTUAL MUTUAL TEMPLETON TEMPLETON TEMPLETON TEMPLETON TEMPLETON
ZERO COUPON ZERO COUPON DISCOVERY SHARES DEVELOPING GLOBAL ASSET GLOBAL GLOBAL INCOME INTERNATIONAL
- 2005 - 2010 SECURITIES SECURITIES 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, 1997 345 292 924 1,823 1,160 424 2,594 1,072 4,063
Contract transactions:
Purchase payments 55 34 261 541 59 47 213 32 76
Transfers between funds 30 13 128 349 (295) (94) (177) (82) (429)
Surrenders and terminations(74) (67) (184) (450) (174) (58) (387) (235) (773)
Rescissions (8) - (4) (6) (1) (1) (3) (1) (3)
Other transactions 1 - 2 7 - - (1) 1 4
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease
in accumulation units
resulting from contract
transactions 4 (20) 203 441 (411) (106) (355) (285) (1,125)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units
outstanding at
December 31, 1998 349 272 1,127 2,264 749 318 2,239 787 2,938
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions:
Purchase payments 2 2 6 15 5 3 9 2 8
Transfers between funds (20) (22) (76) 28 9 (41) - (39) (136)
Surrenders and terminations(75) (55) (247) (427) (148) (54) (390) (209) (780)
Rescissions - - - - - - - - -
Other transactions 3 - - (1) - 2 1 1 4
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in accumulation units
resulting from contract
transactions (90) (75) (317) (385) (134) (90) (380) (245) (904)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units
outstanding at
December 31, 1999 259 197 810 1,879 615 228 1,859 542 2,034
- ------------------------------------------------------------------------------------------------------------------------------------
VALUEMARK IV
Accumulation units
outstanding at
December 31, 1997 - - - - - - - - -
Contract transactions:
Purchase payments 2 3 15 29 5 1 5 2 8
Transfers between funds - - 2 9 - - 5 - -
Surrenders and terminations - - - - - - - - -
Rescissions - - - - - - - - -
Other transactions - - - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in accumulation units
resulting from contract
transactions 2 3 17 38 5 1 10 2 8
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units
outstanding at
December 31, 1998 2 3 17 38 5 1 10 2 8
- ------------------------------------------------------------------------------------------------------------------------------------
Contract transactions:
Purchase payments 2 6 10 71 18 1 37 3 7
Transfers between funds - (2) 12 39 (9) 2 46 1 1
Surrenders and terminations - - (1) (4) (4) - (1) - -
Rescissions - - - - - - (1) - -
Other transactions - - - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in accumulation units
resulting from contract
transactions 2 4 21 106 5 3 81 4 8
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units
outstanding at
December 31, 1999 4 7 38 144 10 4 91 6 16
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
26
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
4. CONTRACT TRANSACTIONS - ACCUMULATION UNIT ACTIVITY (IN THOUSANDS) (CONTINUED)
TEMPLETON
INTERNATIONAL TEMPLETON USALLIANZ USALLIANZ
SMALLER PACIFIC VIP DIVERSIFIED VIP FIXED USALLIANZ TOTAL
COMPANIES GROWTH ASSETS INCOME VIP GROWTH ALL
FUND FUND FUND FUND FUND FUNDS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> C>
VALUEMARK II
Accumulation units outstanding at December 31, 1997 173 1,251 - - - 43,408
Contract transactions:
Purchase payments 9 21 - - - 3,854
Transfers between funds (35) (232) - - - (64)
Surrenders and terminations (33) (217) - - - (9,965)
Rescissions - (1) - - - (88)
Other transactions - (1) - - - 61
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract transactions (59) (430) - - - (6,202)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding at December 31, 1998 114 821 - - - 37,206
- ------------------------------------------------------------------------------------------------------------------------------------
Purchase payments - 10 - - - 207
Transfers between funds 8 52 - 2 - 253
Surrenders and terminations (21) (225) - (2) - (9,640)
Rescissions - - - - - (3)
Other transactions - 1 - - - 97
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract transactions (13) (162) - - - (9,086)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding at
December 31, 1999 101 659 - - - 28,120
- ------------------------------------------------------------------------------------------------------------------------------------
VALUEMARK IV
Accumulation units outstanding at December 31, 1997 - - - - - -
Contract transactions:
Purchase payments 3 6 - - - 244
Transfers between funds - - - - - 32
Surrenders and terminations - - - - - -
Rescissions - - - - - -
Other transactions - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract transactions 3 6 - - - 276
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding at December 31, 1998 3 6 - - - 276
- ------------------------------------------------------------------------------------------------------------------------------------
Purchase payments 12 1 - - - 456
Transfers between funds (12) 1 - - - 367
Surrenders and terminations - - - - - (37)
Rescissions - - - - - (4)
Other transactions - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract transactions - 2 - - - 782
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding at
December 31, 1999 3 8 - - - 1,058
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Variable Life Prospectus 27
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
5. UNIT VALUES
A summary of accumulation unit values and accumulation units outstanding for
variable annuity contracts and the expense ratios, including expenses of the
underlying funds, for each of the five years in the period ended December 31,
1999 follows.
VALUEMARK II VALUEMARK IV
- ------------------------------------------------------------------------------------------------------------------------------------
RATIO OF RATIO OF
ACCUMULATION EXPENSES ACCUMULATION EXPENSES
UNITS OUTSTANDING ACCUMULATION NET ASSETS TO AVERAGE UNITS OUTSTANDING ACCUMULATION NET ASSETS TO AVERAGE
(IN THOUSANDS UNIT VALUE (IN THOUSANDS) NET ASSETS* (IN THOUSANDS) UNIT VALUE (IN THOUSANDS)NET ASSETS*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AIM VI GROWTH FUND
December 31,
19991 36 $11.084 $397 2.13+% - $11.083 $4 2.22+%
ALGER AMERICAN GROWTH FUND
December 31,
19991 36 10.922 391 2.19+ 8 10.921 88 2.28+
ALGER AMERICAN LEVERAGED
ALLCAP FUND
December 31,
19991 18 12.160 225 2.33+ - - - 2.42+
FRANKLIN GLOBAL
COMMUNICATIONS
SECURITIES FUND
December 31,
1999 2,088 38.917 81,263 1.91 21 38.572 792 2.00
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 - - - -
FRANKLIN GLOBAL HEALTH
CARE SECURITIES FUND
December 31,
1999 47 9.615 450 2.22 19 9.601 197 2.31
19983 26 10.610 275 2.24+ 8 10.604 93 2.33+
FRANKLIN GROWTH AND
INCOME FUND
December 31,
1999 3,184 26.147 83,242 1.89 74 25.891 1,929 1.98
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 - - - -
FRANKLIN HIGH INCOME FUND
December 31,
1999 1,276 20.900 26,674 1.94 63 20.695 1,313 2.03
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 - - - -
FRANKLIN INCOME SECURITIES
FUND
December 31,
1999 2,248 24.323 54,683 1.90 56 24.084 1,318 1.99
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 - - - -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
28
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
5. UNIT VALUES (CONTINUED)
VALUEMARK II VALUEMARK IV
- ------------------------------------------------------------------------------------------------------------------------------------
RATIO OF RATIO OF
ACCUMULATION EXPENSES ACCUMULATION EXPENSES
UNITS OUTSTANDING ACCUMULATION NET ASSETS TO AVERAGE UNITS OUTSTANDING ACCUMULATION NET ASSETS TO AVERAGE
(IN THOUSANDS UNIT VALUE (IN THOUSANDS) NET ASSETS* (IN THOUSANDS) UNIT VALUE (IN THOUSANDS)NET ASSETS*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FRANKLIN LARGE CAP GROWTH
SECURITIES FUND
December 31,
1999 1,325 $20.218 $26,784 2.17% 73 $20.152 $1,473 2.26%
1998 1,016 15.574 15,825 2.17 17 15.537 267 2.26
1997 622 13.130 8,167 2.17 - - - -
19962 225 11.254 2,529 2.17+ - - - -
FRANKLIN MONEY MARKET FUND
December 31,
1999 1,593 14.860 23,673 1.93 103 14.717 1,519 2.02
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 - - - -
FRANKLIN NATURAL RESOURCES
SECURITIES FUND
December 31,
1999 268 11.092 2,983 2.06 12 10.983 132 2.15
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 - - - -
FRANKLIN REAL ESTATE FUND
December 31,
1999 466 21.386 9,946 1.98 4 21.176 104 2.07
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 - - - -
FRANKLIN RISING DIVIDENDS
SECURITIES FUND
December 31,
1999 2,207 18.846 41,590 2.15 73 18.712 1,353 2.24
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 - - - -
FRANKLIN S&P 500 INDEX FUND
December 31,
19991 47 10.467 486 1.95+ - - - 2.04+
FRANKLIN SMALL CAP FUND
December 31,
1999 783 28.353 22,163 2.17 28 28.247 773 2.26
1998 1,012 14.600 14,771 2.17 9 14.558 131 2.26
1997 938 14.952 14,022 2.17 - - - -
19962 416 12.913 5,369 2.17+ - - - -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Variable Life Prospectus 29
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
5. UNIT VALUES (CONTINUED)
VALUEMARK II VALUEMARK IV
- ------------------------------------------------------------------------------------------------------------------------------------
RATIO OF RATIO OF
ACCUMULATION EXPENSES ACCUMULATION EXPENSES
UNITS OUTSTANDING ACCUMULATION NET ASSETS TO AVERAGE UNITS OUTSTANDING ACCUMULATION NET ASSETS TO AVERAGE
(IN THOUSANDS UNIT VALUE (IN THOUSANDS) NET ASSETS* (IN THOUSANDS) UNIT VALUE (IN THOUSANDS)NET ASSETS*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FRANKLIN U.S. GOVERNMENT
FUND
December 31,
1999 2,761 $18.574 $51,251 1.91% 125 $18.394 $2,289 2.00%
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 - - - -
FRANKLIN VALUE SECURITIES
FUND
December 31,
1999 35 7.736 261 2.21 54 7.724 406 2.30
19983 19 7.717 143 2.52+ 22 7.713 167 2.61+
FRANKLIN ZERO COUPON FUND
- 2000
December 31,
1999 519 21.023 10,887 2.05 14 20.819 293 2.14
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 - - - -
FRANKLIN ZERO COUPON FUND
- 2005
December 31,
1999 259 23.205 6,008 2.05 4 22.983 86 2.14
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 - - - -
FRANKLIN ZERO COUPON FUND
- 2010
December 31,
1999 197 24.164 4,745 2.05 7 23.929 181 2.14
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 - - - -
MUTUAL DISCOVERY SECURITIES
FUND
December 31,
1999 810 13.701 11,073 2.41 38 13.662 506 2.50
1998 1,127 11.226 12,646 2.40 17 11.205 186 2.49
1997 924 11.983 11,070 2.46 - - - -
19964 27 10.180 278 2.77+ - - - -
MUTUAL SHARES SECURITIES
FUND
December 31,
1999 1,879 13.237 24,866 2.19 144 13.199 1,894 2.28
1998 2,264 11.837 26,789 2.17 38 11.814 447 2.26
1997 1,823 11.993 21,858 2.20 - - - -
19964 43 10.330 442 2.40+ - - - -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
30
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
5. UNIT VALUES (CONTINUED)
VALUEMARK II VALUEMARK IV
- ------------------------------------------------------------------------------------------------------------------------------------
RATIO OF RATIO OF
ACCUMULATION EXPENSES ACCUMULATION EXPENSES
UNITS OUTSTANDING ACCUMULATION NET ASSETS TO AVERAGE UNITS OUTSTANDING ACCUMULATION NET ASSETS TO AVERAGE
(IN THOUSANDS UNIT VALUE (IN THOUSANDS) NET ASSETS* (IN THOUSANDS) UNIT VALUE (IN THOUSANDS)NET ASSETS*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TEMPLETON DEVELOPING
MARKETS EQUITY FUND
December 31,
1999 615 $12.188 $7,494 2.79% 10 $12.125 $135 2.88%
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 - - - -
TEMPLETON GLOBAL ASSET
ALLOCATION FUND
December 31,
1999 228 14.408 3,294 2.22 4 14.347 57 2.31
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,
1999 1,859 19.466 36,188 2.28 91 19.364 1,791 2.37
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 - - - -
TEMPLETON GLOBAL INCOME
SECURITIES FUND
December 31,
1999 542 16.635 9,013 2.05 6 16.472 110 2.14
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 - - - -
TEMPLETON INTERNATIONAL
EQUITY FUND
December 31,
1999 2,034 23.022 46,821 2.30 16 22.858 343 2.39
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 - - - -
TEMPLETON INTERNATIONAL
SMALLER COMPANIES FUND
December 31,
1999 101 11.441 1,155 2.51 3 11.403 47 2.60
1998 114 9.364 1,065 2.50 3 9.342 34 2.59
1997 173 10.825 1,875 2.46 - - - -
19962 65 11.145 722 2.18+ - - - -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Variable Life Prospectus 31
PREFERRED LIFE VARIABLE ACCOUNT C
OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
5. UNIT VALUES (CONTINUED)
VALUEMARK II VALUEMARK IV
- ------------------------------------------------------------------------------------------------------------------------------------
RATIO OF RATIO OF
ACCUMULATION EXPENSES ACCUMULATION EXPENSES
UNITS OUTSTANDING ACCUMULATION NET ASSETS TO AVERAGE UNITS OUTSTANDING ACCUMULATION NET ASSETS TO AVERAGE
(IN THOUSANDS UNIT VALUE (IN THOUSANDS) NET ASSETS* (IN THOUSANDS) UNIT VALUE (IN THOUSANDS)NET ASSETS*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TEMPLETON PACIFIC
GROWTH FUND
December 31,
1999 659 $10.915 $7,191 2.48% 8 $10.838 $82 2.57%
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 - - - -
USALLIANZ VIP DIVERSIFIED
ASSETS FUND
December 31,
19991 - 10.170 2 2.40+ - - - 2.49+
USALLIANZ VIP FIXED
INCOME FUND
December 31,
19991 - - - 2.15+ - - - 2.24+
USALLIANZ VIP GROWTH
FUND
December 31,
19991 - - - 2.30+ - - - 2.39+
<FN>
* For the year ended December 31, including the effect of the expenses of the
underlying funds. + Annualized. 1 Period from November 12, 1999 (fund
commencement) to December 31, 1999. 2 Period from June 10, 1996 (fund
commencement) to December 31, 1996. 3 Period from August 17, 1998 (fund
commencement) to December 31, 1998. 4 Period from December 2, 1996 (fund
commencement) to December 31, 1996. 5 Period from August 4, 1995 (fund
commencement) to December 31, 1995.
</FN>
</TABLE>
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
Financial Statements
December 31, 1999 and 1998
<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, 1999 and 1998, and the related statements
of income, comprehensive (loss) income, stockholder's equity and cash flows for
each of the years in the three-year period ended December 31, 1999. 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, 1999 and 1998, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
KPMG LLP
February 7, 2000
<PAGE>
<TABLE>
<CAPTION>
Variable Life Prospectus 1
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
BALANCE SHEETS
December 31, 1999 and 1998
(in thousands except share data)
ASSETS 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investments:
Fixed maturities, at market $ 47,988 38,784
Equity securities, at market 2,380 1,752
Certificates of deposit and short-term securities 1,947 10,069
Policy loans 3 0
- ---------------------------------------------------------------------------------------------------------------------
Total investments 52,318 50,605
Cash 2,785 6,135
Receivables 3,364 3,595
Reinsurance recoverables:
Recoverable on future benefit reserves 846 156
Recoverable on unpaid claims 9,815 9,545
Receivable on paid claims 2,989 1,935
Deferred acquisition costs 22,751 33,387
Other assets 1,824 4,805
- ---------------------------------------------------------------------------------------------------------------------
Assets, exclusive of separate account assets 96,692 110,163
Separate account assets 614,649 732,046
- ---------------------------------------------------------------------------------------------------------------------
Total assets $ 711,341 842,209
------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
2
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
BALANCE SHEETS (CONTINUED)
December 31, 1999 and 1998
(in thousands except share data)
1999 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Future benefit reserves:
Life $ 2,771 1,827
Annuity 6,546 7,716
Policy and contract claims 25,990 27,278
Unearned premiums 652 913
Other policyholder funds 336 3,551
Reinsurance payable 2,148 1,497
Deferred income taxes 6,853 9,977
Accrued expenses and other liabilities 745 3,894
Commissions due and accrued 737 622
Payable to parent 2,598 3,403
- ---------------------------------------------------------------------------------------------------------------------
Liabilities, exclusive of separate account liabilities 49,376 60,678
Separate account liabilities 614,649 732,046
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities 664,025 792,724
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 31,115 31,052
Accumulated other comprehensive (loss) income (1,299) 933
- ---------------------------------------------------------------------------------------------------------------------
Total stockholder's equity 47,316 49,485
Commitments and contingencies (notes 6 and 11)
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity $ 711,341 842,209
------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Variable Life Prospectus 3
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF INCOME
Years Ended December 31, 1999, 1998 and 1997
(in thousands)
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Life insurance premiums $ 4,486 7,115 8,866
Annuity considerations 11,011 12,643 12,791
Accident and health premiums 23,803 21,148 22,114
- ---------------------------------------------------------------------------------------------------------------------
Total premiums and considerations 39,300 40,906 43,771
Premiums ceded 12,357 11,427 12,939
- ---------------------------------------------------------------------------------------------------------------------
Net premiums and considerations 26,943 29,479 30,832
Investment income, net 2,739 2,021 1,626
Realized investment gains (losses) 58 1,003 (1)
Other income 110 62 93
- ---------------------------------------------------------------------------------------------------------------------
Total revenue 29,850 32,565 32,550
- ---------------------------------------------------------------------------------------------------------------------
Benefits and expenses:
Life insurance benefits 1,039 3,508 5,074
Annuity benefits 382 351 323
Accident and health insurance benefits 19,462 10,579 14,709
- ---------------------------------------------------------------------------------------------------------------------
Total benefits 20,883 14,438 20,106
Benefit recoveries 11,242 5,770 9,200
- ---------------------------------------------------------------------------------------------------------------------
Net benefits 9,641 8,668 10,906
Commissions and other agent compensation 4,590 7,091 8,295
General and administrative expenses 4,089 4,148 4,018
Taxes, licenses and fees 840 187 654
Change in deferred acquisition costs, net 10,636 4,060 798
- ---------------------------------------------------------------------------------------------------------------------
Total benefits and expenses 29,796 24,154 24,671
- ---------------------------------------------------------------------------------------------------------------------
Income from operations before income taxes 54 8,411 7,879
- ---------------------------------------------------------------------------------------------------------------------
Income tax (benefit) expense:
Current 1,913 3,126 1,573
Deferred (1,922) (312) 1,029
- ---------------------------------------------------------------------------------------------------------------------
Total income tax (benefit) expense (9) 2,814 2,602
- ---------------------------------------------------------------------------------------------------------------------
Net income $ 63 5,597 5,277
-----------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
4
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
Years Ended December 31, 1999, 1998 and 1997
(in thousands)
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 63 5,597 5,277
- ---------------------------------------------------------------------------------------------------------------------
Other comprehensive (loss) income:
Unrealized (losses) gains on fixed maturities and equity securities:
Unrealized holding (losses) gains arising during the period net
of tax (benefit) expense of $(1,182) in 1999, $468 in 1998,
and $403 in 1997 (2,194) 869 749
Less: Reclassification adjustment for realized gains (losses)
included in net income, net of tax expense of $21 in 1999,
$351 in 1998, and $0 in 1997 38 652 (1)
- ---------------------------------------------------------------------------------------------------------------------
Total other comprehensive (loss) income (2,232) 217 750
- ---------------------------------------------------------------------------------------------------------------------
Total comprehensive (loss) income $ (2,169) 5,814 6,027
-----------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Variable Life Prospectus 5
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF STOCKHOLDER'S EQUITY
Years Ended December 31, 1999, 1998 and 1997
(in thousands)
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<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 31,052 25,455 20,178
Net income 63 5,597 5,277
- ---------------------------------------------------------------------------------------------------------------------
Balance at end of year 31,115 31,052 25,455
- ---------------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive (loss) income:
Balance at beginning of year 933 716 (34)
Net unrealized (loss) gain during the year,
net of deferred federal income taxes (2,232) 217 750
- ---------------------------------------------------------------------------------------------------------------------
Balance at end of year (1,299) 933 716
- ---------------------------------------------------------------------------------------------------------------------
Total stockholder's equity $ 47,316 49,485 43,671
-----------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999, 1998 and 1997
(in thousands)
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows (used in) provided by operating activities:
Net income $ 63 5,597 5,277
- ---------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Realized (gains) losses on investments (58) (1,003) 1
Deferred federal income tax (benefit) expense (1,922) (312) 1,029
Charges to policy account balances (610) 0 0
Interest credited to policyholder account balances 374 42 0
Change in:
Receivables and other assets 1,198 5,149 (4,283)
Deferred acquisition costs 10,636 4,060 798
Future benefit reserves (4,465) 829 452
Policy and contract claims (1,288) (3,480) 847
Unearned premiums (261) (677) (297)
Other policyholder funds (3,215) 2,321 551
Reinsurance payable 651 (619) (17)
Accrued expenses and other liabilities (3,149) 783 649
Commissions due and accrued 115 (308) 108
Due to parent (805) 221 2,080
Depreciation and amortization 228 (275) (110)
- ---------------------------------------------------------------------------------------------------------------------
Total adjustments (2,571) 6,731 1,808
- ---------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities (2,508) 12,328 7,085
- ---------------------------------------------------------------------------------------------------------------------
Cash flows used in investing activities:
Purchase of fixed maturities (21,938) (28,065) (8,680)
Purchase of equity securities (1,343) (2,105) 0
Sale of fixed maturities 8,735 20,414 81
Sale of equity securities 1,103 553 0
Other investments, net 8,126 (8,987) 1,859
- ---------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (5,317) (18,190) (6,740)
- ---------------------------------------------------------------------------------------------------------------------
Cash flows provided by financing activities:
Policyholders' deposits to account balances 4,583 6,676 0
Policyholders' withdrawals from account balances (108) 0 0
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 4,475 6,676 0
- ---------------------------------------------------------------------------------------------------------------------
Net change in cash (3,350) 814 345
Cash at beginning of year 6,135 5,321 4,976
- ---------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 2,785 6,135 5,321
-----------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
Variable Life Prospectus 7
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 Aktiengesellschaft Holding (Allianz AG),
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 1999 revenue and consideration volume, 12%,
41% and 47% 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.
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 1999, 1998 and
1997 were $11,687, $8,763, and $10,147, respectively.
<PAGE>
8
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 or 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.
Short term investments, which include certificates of deposit, are carried at
amortized cost which approximates market.
Realized gains and losses are computed based on the specific identification
method.
As of December 31, 1999 and 1998, investments with a carrying value of $1,611
and $1,711, respectively, were pledged to the New York Superintendent of
Insurance as required by statutory regulation.
The market values of invested assets are deemed by management to approximate
their estimated fair 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.
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.
<PAGE>
Variable Life Prospectus 9
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTING CHANGES
In 1999, the Company adopted Statement of Position (SOP) 97-3, Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments. No
adjustments were made to the financial statements upon adoption of this
statement.
ACCOUNTING PRONOUNCEMENTS TO BE ADOPTED In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. The statement establishes accounting and reporting standards
for derivative financial instruments and other similar financial instruments and
for hedging activities. In June 1999, SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities - Deferral of Effective Date of FASB
Statement No. 133 was issued. This statement defers the effective date to fiscal
years beginning after June 15, 2000. The Company will adopt these statements on
January 1, 2001. The impact of adoption of SFAS No. 133 on the financial
position of the Company has not been determined.
RECLASSIFICATIONS
Certain 1998 balances have been reclassified to conform to the 1999
presentation.
(2) INVESTMENTS
Investments at December 31, 1999 consist of:
<TABLE>
AMOUNT
AMORTIZED ESTIMATED SHOWN ON
COST FAIR BALANCE
OR COST VALUE SHEET
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities:
U.S. Government $ 37,183 35,397 35,397
Foreign government 500 471 471
Corporate securities 12,520 11,829 11,829
Public utilities 304 291 291
- ---------------------------------------------------------------------------------------------------------------------
Total fixed maturities $ 50,507 47,988 47,988
- ---------------------------------------------------------------------------------------------------------------------
Equity securities:
Common stocks:
Banks, trusts and insurance companies 89 78 78
Industrial and miscellaneous 1,771 2,302 2,302
- ---------------------------------------------------------------------------------------------------------------------
Total equity securities $ 1,860 2,380 2,380
- ---------------------------------------------------------------------------------------------------------------------
Other investments:
Short-term securities 1,947 XXXXXXX 1,947
Policy loans 3 XXXXXXX 3
- ---------------------------------------------------------------------------------------------------------------------
Total investments $ 54,317 XXXXXXX 52,318
-----------------------------------------------
</TABLE>
<PAGE>
10
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(2) INVESTMENTS (CONTINUED)
At December 31, 1999 and 1998, the amortized cost, gross unrealized gains, gross
unrealized losses and estimated fair values of securities are as follows:
<TABLE>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999:
U.S. Government $ 37,183 141 1,927 35,397
Foreign government 500 0 29 471
Corporate securities 12,520 0 691 11,829
Public utilities 304 0 13 291
- ---------------------------------------------------------------------------------------------------------------------
Total fixed maturities 50,507 141 2,660 47,988
Equity securities 1,860 772 252 2,380
- ---------------------------------------------------------------------------------------------------------------------
Total $ 52,367 913 2,912 50,368
- ---------------------------------------------------------------------------------------------------------------------
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
--------------------------------------------------------------
</TABLE>
The change in unrealized gains or losses on fixed maturities was $(3,721), $100,
and $1,155 for the years ended December 31, 1999, 1998 and 1997, respectively.
The change in unrealized gains from equity securities was $286 and $234 for the
years ended December 31, 1999 and 1998, respectively.
The amortized cost and estimated fair value of fixed maturities at December 31,
1999, 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 $ 23,516 22,774
Due after five years through ten years 17,359 16,101
Due after ten years 9,632 9,113
- ---------------------------------------------------------------------------------------------------------------------
Totals $ 50,507 47,988
------------------------------
</TABLE>
<PAGE>
Variable Life Prospectus 11
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(2) INVESTMENTS (CONTINUED)
Proceeds from sales of investments in available-for-sale securities during 1999,
1998 and 1997 were $9,838, $20,967, and $81, respectively. Gross gains of $219,
$1,080, and $0 and gross losses of $161, $77, and $0 were realized on sales of
available-for-sale securities in 1999, 1998 and 1997, respectively.
Major categories of net investment income for the respective years ended
December 31 are:
<TABLE>
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest:
Fixed maturities $ 2,515 1,592 1,494
Short-term investments 289 393 168
Dividends:
Equity securities 19 12 0
Other (9) 52 11
- ---------------------------------------------------------------------------------------------------------------------
Total investment income 2,814 2,049 1,673
Investment expenses 75 28 47
- ---------------------------------------------------------------------------------------------------------------------
Net investment income $ 2,739 2,021 1,626
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(3) SUMMARY TABLE OF FAIR VALUE DISCLOSURES
<TABLE>
1999 1998
- ---------------------------------------------------------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------- ----- ------- -----
<S> <C> <C> <C> <C>
Financial assets:
Fixed maturities, at market
U.S. Government $ 35,397 35,397 31,739 31,739
Foreign government 471 471 496 496
Corporate securities 11,829 11,829 5,263 5,263
Mortgage backed securities 0 0 972 972
Public utilities 291 291 314 314
Equity securities 2,380 2,380 1,752 1,752
Certificates of deposit and other short term securities 1,947 1,947 10,069 10,069
Receivables 3,364 3,364 3,595 3,595
Separate accounts assets 614,649 614,649 732,046 732,046
Financial liabilities:
- ---------------------------------------------------------------------------------------------------------------------
Separate account liabilities 614,649 609,915 732,046 723,593
--------------------------------------------------------------
</TABLE>
See Note 1 "Summary of Significant Accounting Policies" for description of the
methods and significant assumptions used to estimate fair values.
<PAGE>
12
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(4) RECEIVABLES
Receivables at December 31 consist of the following:
<TABLE>
1999 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Premiums due $ 2,456 2,747
Reinsurance commission receivable 44 115
Other 864 733
- ---------------------------------------------------------------------------------------------------------------------
Total receivables $ 3,364 3,595
------------------------------
</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 $516, $838, and $662 in 1999, 1998 and 1997,
respectively, is summarized as follows:
<TABLE>
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, net of reinsurance
recoverables of $6,540, $7,643, and $7,476 $15,650 17,804 16,126
Incurred related to:
Current year 11,823 11,203 11,440
Prior years (2,752) (4,946) (3,199)
- ---------------------------------------------------------------------------------------------------------------------
Total incurred 9,071 6,257 8,241
- ---------------------------------------------------------------------------------------------------------------------
Paid related to:
Current year 2,725 3,697 1,686
Prior years 6,506 4,714 4,877
- ---------------------------------------------------------------------------------------------------------------------
Total paid 9,231 8,411 6,563
- ---------------------------------------------------------------------------------------------------------------------
Balance at December 31, net of reinsurance
recoverables of $8,006, $6,540 and $7,643 $15,490 15,650 17,804
-------------------------------------------
</TABLE>
In 1999, 1998 and 1997, the provision for prior year claims and claim adjustment
expenses decreased due to lower than anticipated losses related to prior years.
In 1998, the Company experienced positive development in its HMO reinsurance
business which further decreased the provision for prior year claims.
<PAGE>
Variable Life Prospectus 13
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(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 recoverables at December 31, 1999 and 1998 are
recoverables on paid claims, unpaid claims and future benefit reserves from
Allianz Life of $1,884 and $3,043, 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.
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, 1999:
Life insurance in force $ 1,095,552 0 159,143 936,409 0.0%
- ---------------------------------------------------------------------------------------------------------------------
Premiums:
Life insurance 4,486 0 1,173 3,313 0.0%
Annuities 11,011 0 0 11,011 0.0%
Accident and health insurance 17,074 6,729 11,184 12,619 53.3%
- ---------------------------------------------------------------------------------------------------------------------
Total premiums 32,571 6,729 12,357 26,943 25.0%
- ---------------------------------------------------------------------------------------------------------------------
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%
------------------------------------------------------------------------------
</TABLE>
<PAGE>
14
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(6) REINSURANCE (CONTINUED)
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:
<TABLE>
ASSUMED CEDED
- ---------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life insurance in force $ 0 0 0 1,670 1,992 2,032
- ---------------------------------------------------------------------------------------------------------------------
Premiums:
Life insurance $ 0 0 0 50 10 44
Accident and health insurance 1,892 1,575 1,566 628 635 841
- ---------------------------------------------------------------------------------------------------------------------
Total premiums $ 1,892 1,575 1,566 678 645 885
-------------------------------------------------------------------------
</TABLE>
(7) INCOME TAXES
INCOME TAX EXPENSE
Total income tax expenses for the years ended December 31 are as follows:
<TABLE>
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense attributable to operations:
Current tax expense $ 1,913 3,126 1,573
Deferred tax (benefit) expense (1,922) (312) 1,029
- ---------------------------------------------------------------------------------------------------------------------
Total income tax (benefit) expense attributable to operations (9) 2,814 2,602
Income tax effect on equity:
Attributable to unrealized gains and losses for the year (1,202) 116 404
- ---------------------------------------------------------------------------------------------------------------------
Total income tax effect on equity $ (1,211) 2,930 3,006
-----------------------------------------------
</TABLE>
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:
<TABLE>
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense computed at the statutory rate $ 19 2,943 2,758
Other (28) (129) (156)
- ---------------------------------------------------------------------------------------------------------------------
Income tax (benefit) expense as reported $ (9) 2,814 2,602
-----------------------------------------------
</TABLE>
<PAGE>
Variable Life Prospectus 15
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(7) INCOME TAXES (CONTINUED)
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, 1999 and 1998 are as
follows:
<TABLE>
1999 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Future benefit reserves $ 533 1,821
Unrealized losses on investments 700 0
- ---------------------------------------------------------------------------------------------------------------------
Total deferred tax assets 1,233 1,821
- ---------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Deferred acquisition costs 5,637 9,003
Unrealized gains on investments 0 502
Other 2,449 2,293
- ---------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 8,086 11,798
- ---------------------------------------------------------------------------------------------------------------------
Net deferred tax liability $ 6,853 9,977
------------------------------
</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.
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. Income taxes paid (recovered) by the Company were $3,149,
($1,998) and $0 in 1999, 1998 and 1997, respectively. The Company's liability
for current taxes was $1,968 and $3,047 as of December 31, 1999 and 1998,
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 $1,496, $1,941, and $1,463 in 1999, 1998 and
1997, respectively, for related administrative expenses incurred. The Company's
liability to Allianz Life for incurred but unpaid service fees as of December
31, 1999 and 1998 was $630 and $356, 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 $35, $18, and $15 in 1999, 1998 and 1997, respectively, for
investment advisory fees. The Company had no incurred but unpaid fees to AZOA as
of December 31, 1999 and 1998.
<PAGE>
16
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(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 $60, $30, and $37 in 1999, 1998 and 1997, 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 75% of eligible employees' contributions up
to a maximum of 6% of a participant's compensation. The plan can also declare a
profit sharing allocation of up to 5.0% of base pay at year-end based upon the
profitability of AZOA. 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
$35, $18, and $59 in 1999, 1998 and 1997, 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. The NAIC has completed a project to codify statutory accounting
practices, the result of which will constitute the primary source of
"prescribed" statutory accounting practices. Accordingly, that project, which is
currently in the process of state adoption and expected to be effective January
1, 2001, 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. The Company has not quantified the effects of adopting the
NAIC codification on their statutory financial statements.
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:
<TABLE>
STOCKHOLDER'S EQUITY NET INCOME
- ---------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Statutory basis $ 38,136 32,866 5,351 6,891 4,292
Adjustments:
Change in reserve basis (5,680) (9,216) 3,536 2,147 2,424
Deferred acquisition costs 22,751 33,387 (10,636) (4,060) (798)
Deferred taxes (6,853) (9,977) 1,922 312 (1,029)
Nonadmitted assets 39 75 0 0 0
Interest maintenance reserve 513 569 (56) 657 (19)
Asset valuation reserve 667 283 0 0 0
Liability for unauthorized reinsurers 261 239 0 0 0
Unrealized (losses) gains on investments (2,519) 1,202 0 0 0
Other 1 57 (54) (350) 407
- ---------------------------------------------------------------------------------------------------------------------
As reported in the accompanying
financial statements $ 47,316 49,485 63 5,597 5,277
------------------------------------------------------------------------------
</TABLE>
<PAGE>
Variable Life Prospectus 17
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(10) STATUTORY FINANCIAL DATA AND DIVIDEND RESTRICTIONS (CONTINUED)
The Company is required to meet minimum capital and surplus requirements. At
December 31, 1999 and 1998, 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 1999, 1998 and 1997.
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>
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, 1999 and 1998.
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.
(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.
<PAGE>
18
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(12) SUPPLEMENTARY INSURANCE INFORMATION
The following table summarizes certain financial information by line of business
for 1999, 1998 and 1997:
<TABLE>
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
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1999:
Life insurance $ 25 2,771 156 1,499 3,313 192 411 32 923
Annuities 22,644 6,546 0 479 11,011 904 381 10,562 2,423
Accident and health insurance 82 0 496 24,012 12,619 1,643 8,849 42 6,173
- ------------------------------------------------------------------------------------------------------------------------------------
$ 22,751 9,317 652 25,990 26,943 2,739 9,641 10,636 9,519
- ------------------------------------------------------------------------------------------------------------------------------------
1998:
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
---------------------------------------------------------------------------------------------------
</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. Consolidated Balance Sheets as of December 31, 1999 and 1998.
3. Consolidated Statements of Income for the years ended December
31, 1999, 1998 and 1997.
4. Consolidated Statements of Stockholder's Equity for the years
ended December 31, 1999, 1998 and 1997.
5. Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.
6. Notes to Consolidated Financial Statements - December 31, 1999,
1998 and 1997.
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, 1999.
3. Statements of Operations for the year ended December 31, 1999.
4. Statements of Changes in Net Assets for the years ended
December 31, 1999 and 1998.
5. Notes to Financial Statements - December 31, 1999.
b. Exhibits
1. Resolution of Board of Directors of the Company authorizing the
establishment of the Variable Account (1)
2. Not Applicable
3.a. Principal Underwriter Agreement (2)
3.b. General Agency Agreement
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.a. Form of Fund Participation Agreement between Franklin Valuemark
Funds and North American Life and Casualty Company.(1)
8.b. Form of Fund Participation Agreement between AIM Variable
Insurance Funds, Inc., Preferred Life Insurance Company of New York
and NALAC Financial Plans LLC.(4)
8.c. Form of Fund Participation Agreement between Alger American Fund,
Preferred Life Insurance Company of New York and Fred Alger and
Company.(4)
8.d. Form of Fund Participation Agreement between USAllianz Variable
Insurance Products Trust, Preferred Life Insurance Company of New
York and BISYS Fund Services Limited Partnership.(4)
8.e. Form of Fund Participation Agreement between Davis Variable Account
Fund, Inc, Davis Distributors, LLC and Preferred Life Insurance
Company of New Yor.
8.f. Form of Fund Participation Agreement between Van Kampen Life
Investment Trust, Van Kampen Asset Management, Inc., and Preferred
Life Insurance Company of New York.
8.g. Form of Fund Participation Agreement between Preferred Life
Insurance Company of New York and J.P. Morgan Series Trust II.
8.h. Form of Fund Participation Agreement between Oppenheimer Variable
Account Funds, Oppenheimer Funds, Inc. and Preferred Life Insurance
Company of New York.
8.i. Form of Fund Participation Agreement between Preferred Life
Insurance Company of New York, PIMCO Variable Insurance Trust, and
PIMCO Funds Distributors, LLC.
8.j. Form of Fund Participation Agreement between Seligman Portfolios,
Inc. and Preferred Life Insurance Company of New York.
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
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.
(4) Incorporated by reference to Registrant's N-4 filing (File Nos.333-19699
and 811-05716) as electronically filed on November 12, 1999.
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>
Edward J. Bonach Chairman of the Board, President
1750 Hennepin Avenue & Chief Financial Officer
Minneapolis, MN 55403
Dennis Marion Director
500 Valley Road
Wayne, NJ 07470
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
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
Kevin Walker Treasurer
300 S Hwy 169
Minneapolis, MN 55426
Stephen Blaske Actuary
1750 Hennepin Ave
Minneapolis, MN 55403
Margery G. Hughes Director
1750 Hennepin Ave
Mpls, MN 55403
Christopher H. Pinkerton Director
1750 Hennepin Ave
Mpls, MN 55403
Mark Zesbaugh Director
1750 Hennepin Ave
Mpls, MN 55403
Charles Kavitsky Director
300 S Hwy 169
Mpls, MN 55426
Michael T. Westermeyer Secretary & Director
1750 Hennepin Ave
Mpls, MN 55403
</TABLE>
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR
OR REGISTRANT
The Insurance Company organizational chart in included as Exhibit 14.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of February 29, 2000 there were 191 qualified Contract Owners and 252
non-qualified Contract Owners with Contracts in the Separate Account.
ITEM 28. INDEMNIFICATION
The Bylaws of the Company provide that:
Each person (and the heirs, executors, and administrators of such person) made
or threatened to be made a party to any action, civil or criminal, by reason
of being or having been a Director, officer, or employee of the corporation
(or by reason of serving any other organization at the request of the
corporation) shall be indemnified to the extent permitted by the laws of the
State of New York, and in the manner prescribed therein.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted for directors and officers or controlling persons of the
Company pursuant to the foregoing, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
ITEM 29. PRINCIPAL UNDERWRITERS
a. USAllianz Investor Services, LLC (formerly NALAC Financial Plans,
LLC) is the principal underwriter for the Contracts. It also is the
principal underwriter for:
Allianz Life Variable Account A
Allianz Life Variable Account B
b. The following are the officers(managers) and directors(Board of
Governors) of USAllianz Investor Services, LLC:
<TABLE>
<CAPTION>
Name & Principal Positions and Offices
Business Address with Underwriter
- ---------------------- ----------------------
<S> <C>
Christopher H.Pinkerton President and Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Thomas B. Clifford Vice President and Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Michael T. Westermeyer Vice President, Secretary
1750 Hennepin Avenue & Director
Minneapolis, MN 55403
Catherine L. Mielke Compliance Officer
1750 Hennepin Avenue
Minneapolis, MN 55403
Michael M. Ahles Vice President & Treasurer
1750 Hennepin Avenue
Minneapolis, MN 55403
Lawrance C. Skibo Executive Vice President
1750 Hennepin Avenue
Minneapolis, MN 55403
Catherine Q. Farley Vice President
1750 Hennepin Avenue
Minneapolis, MN 55403
Brian A. Jeffs Regional Vice President
1750 Hennepin Avenue
Minneapolis, MN 55403
Robert S. James Director
1750 Hennepin Avenue
Minneapolis, MN 55403
</TABLE>
c. Not Applicable
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Thomas Clifford, whose address is 1750 Hennepin Avenue, Minneapolis, Minnesota,
55403 and Delaware Valley Financial Services, USAllianz Service Center, 300
Berwyn Park, Berwyn, Pennsylvania 19312, maintain physical possession of the
accounts, books or documents of the Variable Account required to be maintained
by Section 31(a) of the Investment Company Act of 1940, as amended, and the
rules promulgated thereunder.
ITEM 31. MANAGEMENT SERVICES
Not Applicable
ITEM 32. UNDERTAKINGS
a. Registrant hereby undertakes to file a post-effective amendment to
this registration statement as frequently as is necessary to ensure that the
audited financial statements in the registration statement are never more than
sixteen (16) months old for so long as payment under the variable annuity
contracts may be accepted.
b. Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
postcard or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement of Additional
Information.
c. Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form promptly upon written or oral request.
d. Preferred Life Insurance Company of New York ("Company") hereby
represents that the fees and charges deducted under the Contract described in
the Prospectus, in the aggregate, are reasonable in relation to the services
rendered, the expenses to be incurred and the risks assumed by the Company.
REPRESENTATIONS
The Company hereby represents that it is relying upon a No-Action Letter
issued to the American Council of Life Insurance, dated November 28, 1988
(Commission ref. IP-6-88), and that the following provisions have been
complied with:
1. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration statement, including the
prospectus, used in connection with the offer of the contract;
2. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in connection with
the offer of the contract;
3. Instruct sales representatives who solicit participants to purchase
the contract specifically to bring the redemption restrictions imposed by
Section 403(b)(11) to the attention of the potential participants;
4. Obtain from each plan participant who purchases a Section 403(b)
annuity contract, prior to or at the time of such purchase, a signed statement
acknowledging the participant's understanding of (1) the restrictions on
redemption imposed by Section 403(b)(11), and (2) other investment
alternatives available under the employer's Section 403(b) arrangement to
which the participant may elect to transfer his contract value.
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, as amended, the Registrant certifies that it meets the requirements of
Securities Act Rule 485(b) for effectiveness of this Registration Statement and
has caused this Registration Statement to be signed on its behalf in the City of
Minneapolis and State of Minnesota, on this 17th day of April, 2000.
<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>
Edward J. Bonach* Chairman of the Board
Edward J. Bonach President & Chief Financial 04-17-00
Officer
Robert S. James* Director
Robert S. James 04-17-00
Dennis Marion* Director
Dennis Marion 04-17-00
Eugene T. Wilkinson* Director
Eugene T. Wilkinson 04-17-00
Eugene Long* Director
Eugene Long 04-17-00
Reinhard W. Obermueller*Director
Reinhard W. Obermueller 04-17-00
Stephen R. Herbert* Director
Stephen R. Herbert 04-17-00
Jack F. Rockett* Director
Jack F. Rockett 04-17-00
___________________ Director
Margery Hughes ________
___________________ Director
Christopher Pinkerton ________
___________________ Director
Mark Zesbaugh ________
___________________ Director
Charles Kavitsky ________
___________________ Treasurer
Kevin Walker ________
</TABLE>
* By /S/ Michael T. Westermeyer
--------------------------
Attorney-in-Fact
Secretary and Director
EXHIBITS
TO
POST-EFFECTIVE AMENDMENT NO. 8
TO
FORM N-4
(FILE NOS. 333-19699 AND 811-05716)
PREFERRED LIFE VARIABLE ACCOUNT C
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
INDEX TO EXHIBITS
EXHIBIT
99.3.b General Agency Agreement
99.B8.e Form of Fund Participation Agreement-Davis
99.B8.f Form of Fund Participation Agreement-Van Kampen
99.B8.g Form of Fund Participation Agreement-J.P. Morgan
99.B8.h Form of Fund Participation Agreement-Oppenheimer
99.B8.i Form of Fund Participation Agreement-PIMCO
99.B8.j Form of Fund Participation Agreement-Seligman
99.B9 Opinion and Consent of Counsel
99.B10 Independent Auditors' Consent
99.B13 Calculation of Performance Data
99.B14 Company Organizational Chart
GENERAL AGENCY AGREEMENT
AGREEMENT between ____________________________________________________
(Broker/Dealer) and ________________________________________________ (Life Agent
or Agency) hereinafter taken together and referred to as "General Agent" and
USAllianz Investor Services, LLC ("USAZ").
WITNESSETH:
WHEREAS, General Agent is itself, or is affiliated with an entity which is
registered as a broker-dealer with the Securities and Exchange Commission (the
"SEC") and which is a member of the National Association of Securities Dealers,
Inc. (the "NASD") and is also duly licensed as a life insurance a gency under
the insurance laws of the various states in which it operates; and
WHEREAS, USAZ has been authorized by Allianz Life Insurance Company Of North
America and Preferred Life Insurance Company Of New York (hereinafter
collectively referred to as "Life Company" to obtain and appoint general agents
of Life Company to solicit for and sell those certain variable insurance
policies (the "Policies") which are described on the Commission Schedule which
is attached hereto and incorporated herein; and
WHEREAS, the parties desire General Agent to solicit for and sell the Policies;
NOW, THEREFORE, in consideration of the premises and the mutual covenants and
undertakings herein set forth, the parties hereby agree as follows:
1.APPOINTMENT
General Agent is hereby appointed as a general agent of Life Company for the
sale of the Policies in those states where General Agent is duly licensed to do
so and in those states where Life Company is authorized to sell such Products.
General Agent shall have no exclusive territory for the sale of the Policies.
USAZ shall inform General Agent of those jurisdictions in which the Policies may
be lawfully sold.
2.AUTHORITY TO SOLICIT AND SELL
General Agent shall have the authority, pursuant to the rules and regulations of
Life Company and USAZ to solicit sales of the Policies, obtain completed
applications therefor and accept premiums paid thereon. All applications for the
Policies shall be on forms duly authorized by Life Company in acc ordance with
the insurance laws and regulations of the various states in which such Policies
are sold. All such applications and premiums shall be promptly remitted to USAZ
or to Life Company in accordance with the rules and regulations of USAZ and Life
Company applicable to such transactions. Premiu ms are received in fiduciary
capacity by General Agent for USAZ or Life Company and remittance shall not
exceed 30 days.
No solicitation for a Policy shall be made by any person associated with General
Agent unless and until such person has been duly appointed as an agent of Life
Company in accordance with applicable insurance laws and regulations. General
Agent is not authorized to solicit for the sale of the Polici es in any
jurisdiction where such product is not duly authorized to be sold.
3.AUTHORITY TO RECOMMEND APPOINTMENT OF AGENTS
General Agent is authorized to recommend to USAZ those persons associated with
General Agent who are to be appointed as agents of Life Company and who are to
be authorized to solicit for the sale of the Policies in accordance herewith.
USAZ shall have absolute discretion to accept or reject such reco mmendation for
the appointment of any such person as an agent for the sale of the Policies.USAZ
shall also have the absolute right to terminate any such person as an agent of
Life Company.
4.TRAINING, COMPLIANCE AND LICENSING
General Agent shall have the sole responsibility for the training and
supervision of all persons appointed as agents hereunder. General Agent and all
persons associated with General Agent shall, in the solicitation and sale of the
Policies, comply with all written procedures, rules and regulations of USAZ or
Life Company applicable thereto. General Agent and all persons associated with
General Agent shall use only those sales, advertising and promotional materials
which have been approved in writing by USAZ.
General Agent shall have the responsibility for compliance with all laws, rules
and regulations applicable to the solicitation and sale of the Policies by
General Agent and by all persons associated with General Agent. General Agent
shall indemnify and hold USAZ and Life Company harmless from any li ability
(including but not limited to costs of defense and attorney's fees) arising from
any act or omission of General Agent or of any affiliate of General Agent, or of
any officer, director, employee of General Agent or of sales persons associated
with General Agent.
General Agent, its affiliates, its officers, directors, employees, and sales
personnel, shall obtain and maintain all licenses, registrations, and
appointments required by any law, regulation, or other requirement of the SEC,
the NASD, or of any jurisdiction where the Policies are to be sold.
5.COMPENSATION
General Agent shall receive commissions on premiums on all Policies issued as a
result of applications obtained by it and accepted by Life Company. Commissions
payable hereunder are specified in the Commission Schedule which is attached
hereto and incorporated herein. Such Commission Schedule may b e amended or
modified at any time by USAZ without notice. Any such amendment or modification
shall apply only to applications for Policies which are obtained by General
Agent after the date of such modification or amendment.
In the event an application or premium payment is rejected by USAZ or Life
Company or if a premium is refunded to a purchaser and General Agent has
received compensation on the amount so rejected or refunded, General Agent shall
promptly repay such compensation to USAZ.Also, repayment of commission may apply
to surrenders within twelve months of premium payment. Such commission
repayments are specified in the Commission Schedule. If such repayment is not
promptly made, USAZ may, at its option, deduct such amount from any future
payments due General Agent or may otherwise institute proceedings against
General Agent to recover such amounts.
6.AFFILIATED ENTITY
In the event General Agent utilizes an affiliated entity to satisfy
broker-dealer requirements pursuant to permission granted by a no-action letter
issued by the SEC, such affiliated broker-dealer shall countersign this
Agreement and shall be duly bound hereby.
7.ENTIRE AGREEMENT
This Agreement is the complete and exclusive statement of the agreement between
the parties as to the subject matter hereof which supersedes all proposals or
agreements, oral or written, and all other communications or letters of intent
between the parties related to the subject matter of this Agre ement.
8.MODIFICATION OF AGREEMENT
This Agreement can only be modified by a written agreement duly signed by the
persons authorized to sign agreements on behalf of the parties. Variance from
the terms or conditions of this Agreement or any order or other written
notifications will be of no effect.
9.SEPARABILITY OF PROVISIONS
If any provision or provisions of this Agreement shall be held to be invalid,
illegal, or unenforceable, the validity, legality, and enforceability of the
remaining provisions shall not in any way be affected or be impaired thereby.
10.ASSIGNMENT
This Agreement and the rights, duties, and obligations of the parties hereto
shall not be assignable by either party hereto without the prior written consent
of the other, and any purported assignment shall be void.
11.WAIVER
No waiver by either party of any default by the other in the performance of any
promise, term, or condition of this Agreement shall be construed to be a waiver
by such party of any other or subsequent default in performance of the same or
any other covenant, promise, term, or condition hereof. No p rior transactions
or dealings between the parties shall be deemed to establish any custom or usage
waiving or modifying any provision hereof.
12.NOTIFICATION OF CLAIMS, DEMANDS, OR ACTIONS
Each party hereto shall promptly notify the other in writing of any claims,
demands, or actions having any bearing on this Agreement.
13.PERFORMANCE IN ACCORDANCE WITH LAW
Each party agrees to perform its obligation hereunder in accordance with all
applicable laws, rules, and regulations now or hereafter in effect.
14.BINDING AGREEMENT
This Agreement shall be binding upon and inure to the benefit of the parties
hereto, their successors, and permitted assigns.
15.ACTS BEYOND THE CONTROL OF THE PARTIES
No liability shall result to either party, nor shall either party be deemed to
be in default hereunder, as a result of delay in its performance or from its
non-performance hereunder caused by circumstances beyond its control, including
but not limited to: act of God, act of war, riot, epidemic, fir e, flood, or
other disaster, or act of government. Nevertheless, the party shall be required
to be diligent in attempting to remove such cause or causes.
16.RELATIONSHIP OF THE PARTIES
Each of the parties will act as an independent contractor under the terms of
this Agreement and neither is now, or in the future, an agent, or a legal
representative of the other for any purposes. Neither party has any right or
authority to supervise or control the activities of the other party's e mployees
in connection with the performance of this Agreement or to assign or create any
application of any kind, express, or implied, on behalf of the other party or to
bind it in any way, to accept any services of process upon it or to receive any
notice of any nature whatsoever on its behalf.
17.ARBITRATION
Any controversy relating to this Agreement shall be determined by arbitration in
the City of Minneapolis, Minnesota, in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. All parties agree to
be bound by the results of this arbitration; judgment upon the aware so rendered
may be entered and enforced in any court of competent jurisdiction.
18.TERMINATION This agreement shall automatically terminate upon breach by
either party or any of the terms and conditions hereof, or upon the dissolution,
bankruptcy, or insolvency of either party. This Agreement may be terminated by
either party at any time upon written notice. Termination shall not affect Ge
neral Agent's right to any compensation earned on premiums received and accepted
by Life Company prior to the effective date of such termination.
19.GOVERNING LAW
This Agreement shall be governed by and interpreted in accordance with the laws
of the State of Minnesota.
20.CAPTIONS
Captions contained in this Agreement are for reference purposes only and do not
constitute part of this Agreement.
21.NOTICE
All notices which are required to be given or submitted pursuant to this
Agreement shall be in writing and shall be deemed given when deposited with the
United States Postal Service, postage prepaid, registered or certified mail,
return receipt requested, to the last address of record of the party being
notified which is maintained by the other party in the ordinary course of
business.
IN WITNESS WHEREOF, the parties have executed this Agreement in Minneapolis,
Minnesota on _______________________, _____.
GENERAL AGENT:
-------------------------------------------
Name of Broker Dealer
By ________________________________________
-------------------------------------------
Print Name and Title
-------------------------------------------
Name of Life Agent of Agency
By ________________________________________
-------------------------------------------
Name and Title
USAllianz Investor Services, LLC
1750 Hennepin Avenue
Minneapolis, MN 55403-2195
By _____________________________
- --------------------------------
Name and Title
PARTICIPATION AGREEMENT
Among
DAVIS VARIABLE ACCOUNT FUND, INC.
DAVIS DISTRIBUTORS, LLC.
and
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
THIS AGREEMENT, made and entered into this 1st day of November, 1999,
by and among PREFERRED LIFE INSURANCE COMPANY OF NEW YORK (hereinafter the
"Insurance Company"), a Delaware corporation, on its own behalf and on behalf of
each segregated asset account of the Insurance Company set forth on Schedule A
hereto as may be amended from time to time (each such account hereinafter
referred to as the "Account"), DAVIS VARIABLE ACCOUNT FUND, INC., a Maryland
Corporation (the "Company") and Davis Distributors, LLC, a Delaware Limited
Liability Company ("Davis Distributors").
WHEREAS, the Company engages in business as an open-end management
investment company and is available to act as the investment vehicle for
variable annuity and life insurance contracts to be offered by separate accounts
of insurance companies which have entered into participation agreements
substantially similar to this Agreement ("Participating Insurance Companies")
and for qualified retirement and pension plans ("Qualified Plans"); and
WHEREAS, the beneficial interest in the Company is divided into several
series of shares, each designated a "Fund" and representing the interest in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Company has obtained, or warrants and agrees that prior to
any issuance or sale of shares it will obtain an order from the Securities and
Exchange Commission (the "SEC"), granting Participating Insurance Companies and
their separate accounts exemptions from the provisions of Sections 9(a), 13(a),
15(a), and 15(b) of the Investment Company Act of 1940, as amended, (the "1940
Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent
necessary to permit shares of the Company to be sold to and held by Qualified
Plans and by variable annuity and variable life insurance separate accounts of
Participating Insurance Companies that may or may not be affiliated with one
another (the "Mixed and Shared Funding Exemptive Order"); and
WHEREAS, the Company has registered, or warrants and agrees that prior
to any issuance or sale of its shares it will register as an open-end management
investment company under the 1940 Act and the offering of its shares has been
registered, or warrants and agrees that prior to any issuance or sale its shares
will be registered under the Securities Act of 1933, as amended (hereinafter the
"1933 Act"); and
WHEREAS, Davis Distributors is duly registered as a broker-dealer under
the Securities Exchange Act of 1934, as amended, (the "1934 Act"), and is a
member in good standing of the National Association of Securities Dealers, Inc.
(the "NASD"); and
WHEREAS, Davis Distributors is a wholly owned subsidiary of Davis
Selected Advisers, L.P. which is duly registered as an investment adviser under
the Investment Advisers Act of 1940, as amended, and any applicable state
securities law; and
WHEREAS, the Insurance Company has registered under the 1933 Act, or
will register under the 1933 Act, certain variable annuity or variable life
insurance contracts identified on Schedule B to this Agreement, as amended from
time to time hereafter by mutual written agreement of all the parties hereto
(the "Contracts"); and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the board of directors of the
Insurance Company on the date shown for that Account on Schedule A hereto, to
set aside and invest assets attributable to the Contracts; and
WHEREAS, the Insurance Company has registered or will register each
Account as a unit investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Insurance Company intends to purchase shares in the Funds
listed on Schedule C to this Agreement as amended from time to time, at net
asset value on behalf of each Account to fund the Contracts;
NOW, THEREFORE, in consideration of their mutual promises, the
Insurance Company, the Company and Davis Distributors agree as follows:
ARTICLE I. SALE OF COMPANY SHARES
1.1. Davis Distributors agrees to sell to the Insurance Company those
shares of the Company which each Account orders, executing such orders on a
daily basis at the net asset value next computed after receipt by the Company or
its designee of the order for the shares of the Company. For purposes of this
Section 1.1, the Insurance Company, or its designee, shall be the designee of
the Company for receipt of such orders from the Accounts and receipt by such
designee shall constitute receipt by the Company; provided that the Company
receives notice of such order by 10:00 a.m., Eastern Time, on the next following
Business Day. In this Agreement, "Business Day" shall mean any day on which the
New York Stock Exchange is open for trading and on which the Company calculates
its net asset value pursuant to the rules of the SEC.
1.2. The Company agrees to make its shares available for purchase at
the applicable net asset value per share by the Insurance Company and its
Accounts on those days on which the Company calculates its Funds' net asset
values pursuant to rules of the SEC and the Company shall use reasonable efforts
to calculate its Funds' net asset values on each day on which the New York Stock
Exchange is open for trading. Notwithstanding the foregoing, the directors of
the Company may refuse to sell shares of any Fund to any person, or suspend or
terminate the offering of shares of any Fund if such action is required by law
or by regulatory authorities having jurisdiction or is, in the sole discretion
of the directors of the Company acting in good faith and in light of their
fiduciary duties under federal and any applicable state laws, necessary in the
best interests of the shareholders of that Fund.
1.3. The Company agrees that shares of the Company will be sold only to
Accounts of Participating Insurance Companies and to Qualified Plans. No shares
of any Fund will be sold to the general public.
1.4. The Company will not sell its shares to any insurance company or
separate account unless an agreement containing provisions substantially the
same as Sections 2.4, 3.4, 3.5, and Article VII of this Agreement is in effect
to govern such sales.
1.5. The Company agrees to redeem, on the Insurance Company's request,
any full or fractional shares of the Company held by the Account, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Company or its designee of the request for redemption. However, if one or
more Funds has determined to settle redemption transactions for all of its
shareholders on a delayed basis (more than one business day, but in no event
more than three Business Days, after the date on which the redemption order is
received, unless otherwise permitted by an order of the SEC under Section 22(e)
of the 1940 Act), the Company shall be permitted to delay sending redemption
proceeds to the Insurance Company by the same number of days that the Company is
delaying sending redemption proceeds to the other shareholders of the Fund. For
purposes of this Section 1.5, the Insurance Company shall be the designee of the
Company for receipt of requests for redemption from each Account and receipt by
that designee shall constitute receipt by the Company; provided that the Company
receives notice of the request for redemption by 10:00 a.m., Eastern Time, on
the next following Business Day.
1.6. The Insurance Company agrees to purchase and redeem the shares of
each Fund listed on Schedule C to this Agreement, as amended from time to time,
and offered by the then-current prospectus of the Company in accordance with the
provisions of that prospectus.
1.7. Each purchase, redemption and exchange order placed by the
Insurance Company shall be placed separately for each Fund and shall not be
netted with respect to any Fund. However, with respect to payment of the
purchase price by the Insurance Company and of redemption proceeds by the
Company, the Insurance Company and the Company shall net purchase and redemption
orders with respect to each Fund and shall transmit one net payment for all of
the Funds. Payment shall be in federal funds transmitted by wire. In the event
of net purchase, the Insurance Company shall pay for the Funds' shares by 3:00
p.m. Eastern time on the next Business Day after an order to purchase shares is
made in accordance with the provisions of Section 1.1 hereof. For the purpose of
Sections 2.9 and 2.10, upon receipt by the Company of the wired federal funds,
such funds shall cease to be the responsibility of the Insurance Company and
shall become the responsibility of the Company. In the event of net redemption,
the Company shall pay the redemption proceeds by 3:30 p.m. Eastern time on the
next Business Day after an order to redeem the shares is made in accordance with
the provisions of Section 1.5 hereof. However, payment may be postponed under
unusual circumstances, such as when normal trading is not taking place on the
New York Stock Exchange, an emergency as defined by the SEC exists, or as
permitted by the SEC.
1.8. Issuance and transfer of the Company's shares will be by book
entry only. Stock certificates will not be issued to the Insurance Company or
any Account. Shares ordered from the Company will be recorded in an appropriate
title for each Account or the appropriate subaccount of each Account.
1.9. The Company shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Insurance Company of any income,
dividends or capital gain distributions payable on the Funds' shares. The
Insurance Company hereby elects to receive all income dividends and capital gain
distributions payable on a Fund's shares in additional shares of that Fund. The
Insurance Company reserves the right to revoke this election and to receive all
such income dividends and capital gain distributions in cash. The Company shall
notify the Insurance Company of the number of shares issued as payment of
dividends and distributions.
1.10. The Company shall make the net asset value per share for each
Fund available to the Insurance Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make those per-share net asset values available by 7:00 p.m.,
Eastern Time. In the event that the Company is unable to meet the 7:00 p.m.
Eastern time stated herein, it shall provide additional time for the Insurance
Company to place orders for the purchase and redemption of shares. Such
additional time shall be equal to the additional time which the Company takes to
make the net asset value available to the Insurance Company. In accordance with
Section 8.3(a)(iii) hereof, if the Company provides materially incorrect share
net asset value information, the Company may make an adjustment to the number of
shares purchased or redeemed for the Account to reflect the correct net asset
value per share. Any material error in the calculation or reporting of net asset
value per share, dividend or capital gains information shall be reported to the
Insurance Company promptly upon discovery.
ARTICLE II. REPRESENTATIONS, WARRANTIES AND AGREEMENTS
2.1. The Insurance Company represents, warrants and agrees that the
offerings of the Contracts are, or will be, registered under the 1933 Act; that
the Contracts will be issued and sold in compliance in all material respects
with all applicable federal and state laws and that the sale of the Contracts
shall comply in all material respects with applicable state insurance
suitability requirements. The Insurance Company further represents and warrants
that it is an insurance company duly organized and in good standing under
applicable law and that it has legally and validly established the Account prior
to any issuance or sale thereof as a segregated asset account under Delaware
insurance law and has registered, or warrants and agrees that prior to any
issuance or sale of the Contracts it will register, the Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts.
2.2. The Company warrants and agrees that Company shares sold pursuant
to this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sale in compliance with the laws of the State of Maryland and all
applicable federal securities laws and that the Company is and shall remain
registered under the 1940 Act. The Company warrants and agrees that it shall
amend the registration statement for its shares under the 1933 Act and the 1940
Act from time to time as required in order to effect the continuous offering of
its shares. The Company shall register and qualify the shares for sale in
accordance with the laws of the various states only if and to the extent deemed
advisable by the Company or Davis Distributors.
2.3. The Company represents and warrants that each Fund is currently,
or will elect at the earliest opportunity to be, qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), and warrants and agrees that it will make all reasonable
efforts to maintain each Fund's qualification (under Subchapter M or any
successor or similar provision) and that it will notify the Insurance Company
immediately upon having a reasonable basis for believing that any Fund has
ceased to so qualify or might not so qualify in the future.
2.4. The Insurance Company represents and warrants that the Contracts
are currently treated as annuity or life insurance contracts under applicable
provisions of the Code and warrants and agrees that it will make every effort to
maintain such treatment and that it will notify the Company and Davis
Distributors immediately upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be so treated in
the future.
2.5. The Company may elect to make payments to finance distribution
expenses pursuant to Rule 12b-1 under the 1940 Act. To the extent that it
decides to finance distribution expenses pursuant to Rule 12b-1, the Company
undertakes to have a board of directors, a majority of whom are not interested
persons of the Company, formulate and approve any plan under Rule 12b-1 to
finance distribution expenses.
2.6. The Company makes no representation or warranty as to whether any
aspect of its operations (including, but not limited to, fees and expenses and
investment policies) complies or will comply with the insurance laws or
regulations of the various states.
2.7. The Company represents and warrants that it is lawfully organized
and validly existing under the laws of the State of Maryland and represents,
warrants and agrees that it does and will comply in all material respects with
the 1940 Act and the laws of the State of Maryland.
2.8. Davis Distributors represents that it is and warrants that it
shall remain duly registered as a broker-dealer under all applicable federal and
state securities laws and agrees that it shall perform its obligations for the
Company in compliance in all material respects with the laws of the State of New
Mexico and any applicable state and federal securities laws.
2.9. The Company and Davis Distributors represent and warrant that all
of their officers, employees, investment advisers, investment sub-advisers, and
other individuals or entities described in Rule 17g-1 under the 1940 Act dealing
with the money and/or securities of the Company are, and shall continue to be at
all times, covered by a blanket fidelity bond or similar coverage for the
benefit of the Company in an amount not less than the minimum coverage required
currently by Rule 17g-1 under the 1940 Act or related provisions as may be
promulgated from time to time. That fidelity bond shall include coverage for
larceny and embezzlement and shall be issued by a reputable bonding company.
2.10. The Insurance Company represents and warrants that all of its
officers, employees, investment advisers, and other individuals or entities
dealing with the money and/or securities of the Company are and shall continue
to be at all times covered by a blanket fidelity bond or similar coverage for
the benefit of the Company, in an amount not less than $1 million. The aforesaid
bond shall include coverage for larceny and embezzlement and shall be issued by
a reputable bonding company.
2.11. Each party represents that it will use its best efforts to ensure
that the systems that would materially affect the performance of this Agreement
will be fully tested and year 2000 compliant prior to December 31, 1999 and they
will function without material disruption of such party's ability to perform
this Agreement in the year 2000 and beyond.
ARTICLE III. DISCLOSURE DOCUMENTS AND VOTING
3.1. Davis Distributors shall provide the Insurance Company (at the
Insurance Company's expense) with as many copies of the current prospectus for
each Fund listed on Schedule C herein as the Insurance Company may reasonably
request for distribution to prospective purchasers of contracts. Davis
Distributors shall also provide the Insurance Company (free of charge) with as
many copies of the current prospectus for each Fund listed on Schedule C herein
as the Insurance Company may reasonably request for distribution to existing
Contract owners whose Contracts are funded by shares of such Fund(s). If
requested by the Insurance Company in lieu thereof, the Company shall provide
such documentation (including a final copy of the new prospectus as set in type
at the Company's expense) and other assistance as is reasonably necessary in
order for the Insurance Company once each year (or more frequently if the
prospectus for the Company is amended) to have the prospectus for the Contracts
and the Company's prospectus printed together in one document (at the Insurance
Company's expense).
3.2. The Company's prospectus shall state that the Statement of
Additional Information for the Company (the "SAI") is available from the
Company, and Davis Distributors (or the Company), at its expense, shall print
and provide the SAI free of charge to the Insurance Company and to any owner of
a Contract or prospective owner who requests the SAI.
3.3. The Company, at its expense, shall provide the Insurance Company
with copies of its proxy material, reports to shareholders and other
communications to shareholders in such quantity as the Insurance Company shall
reasonably require for distributing to Contract owners.
3.4. If and to the extent required by law, the Insurance Company
shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Company shares of each Fund in accordance with instructions
received from Contract owners; and (iii) vote Company shares for which no
instructions have been received in the same proportion as Company shares of that
Fund for which instructions have been received;
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners. The
Insurance Company reserves the right to vote Company shares held in any
segregated asset account in its own right, to the extent permitted by law.
Participating Insurance Companies shall be responsible for assuring that each of
their separate accounts participating in the Company calculates voting
privileges in a manner consistent with the standards set forth on Schedule D
attached hereto and incorporated herein by this reference, which standards will
also be provided to the other Participating Insurance Companies. The Insurance
Company shall fulfill its obligation under, and abide by the terms and
conditions of, the Mixed and Shared Funding Exemptive Order.
3.5. The Company will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular the Company will either
provide for annual meetings (except insofar as the SEC may interpret Section 16
of the 1940 Act not to require such meetings) or, as the Company currently
intends, comply with Section 16(c) of the 1940 Act as well as with Sections
16(a) and, if and when applicable, 16(b). Further, the Company will act in
accordance with the SEC's interpretation of the requirements of Section 16(a)
with respect to periodic elections of directors and with whatever rules the SEC
may promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Insurance Company shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material in which the Company, Davis Selected Advisers, L.P.,
or Davis Distributors is named, at least five Business Days prior to its use. No
such material shall be used if the Company or its designee reasonably objects to
such use within five Business Days after receipt of such material.
4.2. The Insurance Company shall not give any information or make any
representations or statements on behalf of the Company or concerning the Company
in connection with the sale of the Contracts other than the information or
representations contained in the Company's registration statement, prospectus or
SAI, as that registration statement, prospectus or SAI may be amended or
supplemented from time to time, or in reports or proxy statements for the
Company, or in sales literature or other promotional material approved by the
Company or its designee or by Davis Distributors, except with the permission of
the Company or Davis Distributors.
4.3. The Company, Davis Distributors, or its designee shall furnish, or
shall cause to be furnished, to the Insurance Company or its designee, each
piece of sales literature or other promotional material in which the Insurance
Company or the Account is named at least five Business Days prior to its use. No
such material shall be used if the Insurance Company or its designee reasonably
objects to such use within five Business Days after receipt of that material.
4.4. The Company and Davis Distributors shall not give any information
or make any representations on behalf of the Insurance Company or concerning the
Insurance Company, any Account, or the Contracts other than the information or
representations contained in a registration statement, prospectus or statement
of additional information for the Contracts, as that registration statement,
prospectus or statement of additional information may be amended or supplemented
from time to time, or in published reports for any Account which are in the
public domain or approved by the Insurance Company for distribution to Contract
owners, or in sales literature or other promotional material approved by the
Insurance Company or its designee, except with the permission of the Insurance
Company.
4.5. The Company will provide to the Insurance Company at least one
complete copy of each registration statement, prospectus, statement of
additional information, report, proxy statement, piece of sales literature or
other promotional material, application for exemption, request for no-action
letter, and any amendment to any of the above, that relate to the Company or its
shares, contemporaneously with the filing of the document with the SEC, the
NASD, or other regulatory authorities.
4.6. The Insurance Company will provide to the Company at least one
complete copy of each registration statement, prospectus, statement of
additional information, report, solicitation for voting instructions, piece of
sales literature and other promotional material, application for exemption,
request for no-action letter, and any amendment to any of the above, that
relates to the Contracts or the Account, contemporaneously with the filing of
the document with the SEC, the NASD, or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements,
newspaper, magazine, or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion pictures, or other
public media, sales literature (I.E., any written communication distributed or
made generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, shareholder
newsletters, seminar texts, reprints or excerpts of any other advertisement,
sales literature, or published article), educational or training materials or
other communications distributed or made generally available to some or all
agents or employees, and registration statements, prospectuses, statements of
additional information, shareholder reports, and proxy materials.
4.8. At the request of any party to this Agreement, each other party
will make available to the other party's independent auditors and/or
representative of the appropriate regulatory agencies, all records, data and
access to operating procedures that may be reasonably requested.
ARTICLE V. FEES AND EXPENSES
5.1. The Company and Davis Distributors shall pay no fee or other
compensation to the Insurance Company under this agreement, except as set forth
in Section 5.4.
5.2. All expenses incident to performance by the Company under this
Agreement shall be paid by the Company. The Company shall see to it that any
offering of its shares is registered and that all of its shares are authorized
for issuance in accordance with applicable federal law and, if and to the extent
deemed advisable by the Company or Davis Distributors, in accordance with
applicable state laws prior to their sale. The Company shall bear the cost of
registration and qualification of the Company's shares, preparation and filing
of the Company's prospectus and registration statement, proxy materials and
reports, setting the prospectus in type, setting in type and printing the proxy
materials and reports to shareholders, the preparation of all statements and
notices required by any federal or state law, and all taxes on the issuance or
transfer of the Company's shares.
5.3. The Insurance Company shall bear the expenses of printing and
distributing to Contract owners the Contract prospectuses and of distributing to
Contract owners the Company's prospectus, proxy materials and reports.
5.4. The Insurance Company bears the responsibility and correlative
expense for administrative and support services for Contract owners. Davis
Distributors recognizes the Insurance Company, on behalf of each Account, as the
sole shareholder of shares of the Company issued under this Agreement. From time
to time, Davis Distributors may pay amounts from its past profits to the
Insurance Company for providing certain administrative services for the Company
or for providing other services that relate to the Company. In consideration of
the savings resulting from such arrangement, and to compensate the Insurance
Company for its costs, Davis Distributors agrees to pay to the Insurance Company
an amount equal to 25 basis points (0.25%) per annum of the average aggregate
amount invested by the Insurance Company in the Company under this Agreement.
Such payments will be made monthly. The parties agree that such payments are for
administrative services and investor support services, and do not constitute
payment for investment advisory, distribution or other services. Payment of such
amounts by Davis Distributors shall not increase the fees paid by the Company or
its shareholders.
ARTICLE VI. DIVERSIFICATION
6.1. The Company represents and warrants that it will comply with
Section 817(h) of the Code and Treasury Regulation 1.817-5 relating to the
diversification requirements for variable annuity, endowment, modified endowment
or life insurance contracts and any amendments or other modifications to that
Section or Regulation at all times necessary to satisfy those requirements.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The directors of the Company will monitor each Fund for the
existence of any material irreconcilable conflict between the interests of the
variable Contract owners of all separate accounts investing in the Company and
the participants of all Qualified Plans investing in the Company. An
irreconcilable material conflict may arise for a variety of reasons, including:
(a) an action by any state insurance regulatory authority; (b) a change in
applicable federal or state insurance, tax, or securities laws or regulations,
or a public ruling, private letter ruling, no-action or interpretive letter, or
any similar action by insurance, tax, or securities regulatory authorities; (c)
an administrative or judicial decision in any relevant proceeding; (d) the
manner in which the investments of any Fund are being managed; (e) a difference
in voting instructions given by variable annuity contract and variable life
insurance contract owners; or (f) a decision by a Participating Insurance
Company to disregard the voting instructions of variable contract owners. The
directors of the Company shall promptly inform the Insurance Company if they
determine that an irreconcilable material conflict exists and the implications
thereof. The directors of the Company shall have sole authority to determine
whether an irreconcilable material conflict exists and their determination shall
be binding upon the Insurance Company.
7.2. The Insurance Company and Davis Distributors each will report
promptly any potential or existing conflicts of which it is aware to the
directors of the Company. The Insurance Company and Davis Distributors each will
assist the directors of the Company in carrying out their responsibilities under
the Mixed and Shared Funding Exemptive Order, by providing the directors of the
Company with all information reasonably necessary for them to consider any
issues raised. This includes, but is not limited to, an obligation by the
Insurance Company to inform the directors of the Company whenever Contract owner
voting instructions are to be disregarded. These responsibilities shall be
carried out by the Insurance Company with a view only to the interests of the
Contract owners and by Davis Distributors with a view only to the interests of
Contract owners and Qualified Plan participants.
7.3. If it is determined by a majority of the directors of the Company,
or a majority of the directors who are not interested persons of the Company,
any of its Funds, or Davis Distributors (the "Independent Directors"), that a
material irreconcilable conflict exists, the Insurance Company and/or other
Participating Insurance Companies or Qualified Plans that have executed
participation agreements shall, at their expense and to the extent reasonably
practicable (as determined by a majority of the Independent Directors), take
whatever steps are necessary to remedy or eliminate the irreconcilable material
conflict, up to and including: (1) withdrawing the assets attributable to some
or all of the separate accounts from the Company or any Fund and reinvesting
those assets in a different investment medium, including (but not limited to)
another Fund of the Company, or submitting the question whether such segregation
should be implemented to a vote of all affected variable contract owners and, as
appropriate, segregating the assets of any appropriate group (E.G., annuity
contract owners, life insurance contract owners, or variable contract owners of
one or more Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected variable contract owners the option of
making such a change; and (2) establishing a new registered management
investment company or managed separate account and obtaining any necessary
approvals or orders of the SEC in connection therewith.
7.4. If a material irreconcilable conflict arises because of a decision
by the Insurance Company to disregard Contract owner voting instructions and
that decision represents a minority position or would preclude a majority vote,
the Insurance Company may be required, at the Company's election, to withdraw
the affected Account's investment in the Company and terminate this Agreement
with respect to that Account; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the Independent
Directors. Any such withdrawal and termination must take place within six (6)
months after the Company gives written notice that this provision is being
implemented, and, until the end of that six month period, the Company shall
continue to accept and implement orders by the Insurance Company for the
purchase (and redemption) of shares of the Company.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Insurance Company
conflicts with the majority of other state regulators, then the Insurance
Company will withdraw the affected Account's investment in the Company and
terminate this Agreement with respect to that Account within six months after
the directors of the Company inform the Insurance Company in writing that they
have determined that the state insurance regulator's decision has created an
irreconcilable material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the Independent
Directors. Until the end of the foregoing six month period, the Company shall
continue to accept and implement orders by the Insurance Company for the
purchase (and redemption) of shares of the Company.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the Independent Directors shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Company be required to establish a new funding medium for the
Contracts. The Insurance Company shall not be required by Section 7.3 to
establish a new funding medium for the Contracts if an offer to do so has been
declined by vote of a majority of Contract owners materially adversely affected
by the irreconcilable material conflict. In the event that the directors of the
Company determine that any proposed action does not adequately remedy any
irreconcilable material conflict, then the Insurance Company will withdraw the
Account's investment in the Company and terminate this Agreement within six (6)
months after the directors of the Company inform the Insurance Company in
writing of the foregoing determination, provided, however, that the withdrawal
and termination shall be limited to the extent required by the material
irreconcilable conflict, as determined by a majority of the Independent
Directors.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Mixed and Shared Funding Exemptive Order) on terms
and conditions materially different from those contained in the Mixed and Shared
Funding Exemptive Order, then (a) the Company and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary to comply
with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the
extent those rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3,
7.4, and 7.5 of this Agreement shall continue in effect only to the extent that
terms and conditions substantially identical to those Sections are contained in
the Rule(s) as so amended or adopted.
<PAGE>
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE INSURANCE COMPANY
8.1(A). The Insurance Company agrees to indemnify and hold harmless the
Company and each director, officer, employee or agent of the Company, and each
person, if any, who controls the Company within the meaning of Section 15 of the
1933 Act (collectively, the "Indemnified Parties" for purposes of this Section
8.1) against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Insurance Company) or
litigation (including legal and other expenses), to which the Indemnified
Parties may become subject under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale, acquisition,
or redemption of the Company's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
registration statement, prospectus or statement of additional
information for the Contracts or contained in the Contracts or
sales literature for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with
information furnished in writing to the Insurance Company by or
on behalf of the Company for use in the registration statement,
prospectus or statement of additional information for the
Contracts or in the Contracts or sales literature (or any
amendment or supplement to any of the foregoing) or otherwise for
use in connection with the sale of the Contracts or shares of the
Company;
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus, statement of additional
information or sales literature of the Company not supplied by
the Insurance Company, or persons under its control) or wrongful
conduct of the Insurance Company or persons under its control,
with respect to the sale or distribution of the Contracts or
Company Shares;
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, statement of additional information or
sales literature of the Company or any amendment thereof or
supplement thereto or the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading if such a
statement or omission was made in reliance upon information
furnished in writing to the Company by or on behalf of the
Insurance Company;
(iv) arise as a result of any failure by the Insurance Company to
provide the services and furnish the materials under the terms of
this Agreement; or
(v) arise out of or result from any material breach of any
representation, warranty or agreement made by the Insurance
Company in this Agreement or arise out of or result from any
other material breach of this Agreement by the Insurance Company,
as limited by and in accordance with the provisions of Sections 8.1(b) and 8.1
(c) hereof.
8.1(B). The Insurance Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified Party that
may arise from that Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of that Indemnified Party's duties or by reason of
that Indemnified Party's reckless disregard of obligations or duties under this
Agreement or to the Company, whichever is applicable.
8.1(C). The Insurance Company shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless that Indemnified Party shall have notified the Insurance Company in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon that
Indemnified Party (or after the Indemnified Party shall have received notice of
such service on any designated agent). Notwithstanding the foregoing, the
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Insurance Company of its obligations hereunder except to the extent
that the Insurance Company has been prejudiced by such failure to give notice.
In addition, any failure by the Indemnified Party to notify the Insurance
Company of any such claim shall not relieve the Insurance Company from any
liability which it may have to the Indemnified Party against whom the action is
brought otherwise than on account of this indemnification provision. In case any
such action is brought against the Indemnified Parties, the Insurance Company
shall be entitled to participate, at its own expense, in the defense of the
action. The Insurance Company also shall be entitled to assume the defense
thereof, with counsel satisfactory to the party named in the action; provided,
however, that if the Indemnified Party shall have reasonably concluded that
there may be defenses available to it which are different from or additional to
those available to the Insurance Company, the Insurance Company shall not have
the right to assume said defense, but shall pay the costs and expenses thereof
(except that in no event shall the Insurance Company be liable for the fees and
expenses of more than one counsel for Indemnified Parties in connection with any
one action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances). After notice from
the Insurance Company to the Indemnified Party of the Insurance Company's
election to assume the defense thereof, and in the absence of such a reasonable
conclusion that there may be different or additional defenses available to the
Indemnified Party, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Insurance Company will not be liable
to that party under this Agreement for any legal or other expenses subsequently
incurred by the party independently in connection with the defense thereof other
than reasonable costs of investigation.
8.1(D). The Indemnified Parties will promptly notify the Insurance
Company of the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Company's shares or the Contracts or
the operation of the Company.
8.2. INDEMNIFICATION BY DAVIS DISTRIBUTORS
8.2(A). Davis Distributors agrees to indemnify and hold harmless the
Insurance Company and each of its directors, officers, employees or agents, and
each person, if any, who controls the Insurance Company within the meaning of
Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes
of this Section 8.2) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of Davis
Distributors) or litigation (including legal and other expenses) to which the
Indemnified Parties may become subject under any statute, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale, acquisition
or redemption of the Company's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement, prospectus, statement of additional
information or sales literature of the Company (or any amendment
or supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state therein
a material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified
Party if the statement or omission or alleged statement or
omission was made in reliance upon and in conformity with
information furnished in writing to Davis Distributors or the
Company by or on behalf of the Insurance Company for use in the
registration statement, prospectus, or statement of additional
information for the Company or in sales literature (or any
amendment or supplement to any of the foregoing) or otherwise for
use in connection with the sale of the Contracts or Company
shares;
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus, statement of additional
information or sales literature for the Contracts not supplied by
Davis Distributors or persons under its control) or wrongful
conduct of the Company, Davis Distributors or persons under their
control, with respect to the sale or distribution of the
Contracts or shares of the Company;
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, statement of additional information or
sales literature covering the Contracts, or any amendment thereof
or supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statement or statements therein not
misleading, if such statement or omission was made in reliance
upon information furnished in writing to the Insurance Company by
or on behalf of the Company;
(iv) arise as a result of any failure by the Company to provide
the services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in good
faith or otherwise, to comply with the diversification
requirements specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation, warranty or agreement made by Davis Distributors
in this Agreement or arise out of or result from any other
material breach of this Agreement by Davis Distributors;
as limited by and in accordance with the provisions of Sections 8.2(b) and 8.2
(c) hereof.
8.2(B). Davis Distributors shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified Party that
may arise from the Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of the Indemnified Party's duties or by reason of
the Indemnified Party's reckless disregard of obligations and duties under this
Agreement or to the Insurance Company or the Account, whichever is applicable.
8.2(C). Davis Distributors shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless the Indemnified Party shall have notified Davis Distributors in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon the
Indemnified Party (or after the Indemnified Party shall have received notice of
such service on any designated agent). Notwithstanding the foregoing, the
failure of any Indemnified Party to give notice as provided herein shall not
relieve Davis Distributors of its obligations hereunder except to the extent
that Davis Distributors has been prejudiced by such failure to give notice. In
addition, any failure by the Indemnified Party to notify Davis Distributors of
any such claim shall not relieve Davis Distributors from any liability which it
may have to the Indemnified Party against whom such action is brought otherwise
than on account of this indemnification provision. In case any such action is
brought against the Indemnified Parties, Davis Distributors will be entitled to
participate, at its own expense, in the defense thereof. Davis Distributors also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action; provided, however, that if the Indemnified Party
shall have reasonably concluded that there may be defenses available to it which
are different from or additional to those available to Davis Distributors, Davis
Distributors shall not have the right to assume said defense, but shall pay the
costs and expenses thereof (except that in no event shall Davis Distributors be
liable for the fees and expenses of more than one counsel for Indemnified
Parties in connection with any one action or separate but similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances). After notice from Davis Distributors to the Indemnified Party of
Davis Distributors' election to assume the defense thereof, and in the absence
of such a reasonable conclusion that there may be different or additional
defenses available to the Indemnified Party, the Indemnified Party shall bear
the fees and expenses of any additional counsel retained by it, and Davis
Distributors will not be liable to that party under this Agreement for any legal
or other expenses subsequently incurred by that party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(D). The Insurance Company agrees to notify Davis Distributors
promptly of the commencement of any litigation or proceedings against it or any
of its officers or directors in connection with the issuance or sale of the
Contracts or the operation of the Account.
8.3 INDEMNIFICATION BY THE COMPANY
8.3(A). The Company agrees to indemnify and hold harmless the Insurance
Company, and each of its directors, officers, employees and agents, and each
person, if any, who controls the Insurance Company within the meaning of Section
15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this
Section 8.3) against any and all losses, claims, damages, liabilities (including
legal and other expenses) to which the Indemnified Parties may become subject
under any statute, at common law or otherwise, insofar as those losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
result from the gross negligence, bad faith or willful misconduct of any
director(s) of the Company, are related to the operations of the Company or:
(i) arise as a result of any failure by the Company to provide
the services and furnish the materials under the terms of this
Agreement (including a failure to comply with the diversification
requirements specified in Article VI of this Agreement);
(ii) arise out of or result from any material breach of any
representation, warranty or agreement made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company; or
(iii) arise out of or result from the materially incorrect or
untimely calculation or reporting of the daily net asset value
per share or dividend or capital gain distribution rate for any
Fund. With respect to net asset value information, the Company
will make a determination , in accordance with SEC guidelines, as
to whether an error has occurred. Any correction of pricing
errors shall be accomplished using the least costly corrective
action, as agreed to by the Company in writing. In no event shall
the Company be required to reimburse for pricing errors caused by
conditions beyond the control of the Company or its agent,
including, but not limited to, Acts of God, fires, electrical or
phone outages.
as limited by, and in accordance with the provisions of, Sections 8.3(b) and
8.3(c) hereof.
8.3(B). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party that may arise from the
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of the Indemnified Party's duties or by reason of the Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Insurance Company, the Company, Davis Distributors or the Account, whichever
is applicable.
8.3(C). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless the
Indemnified Party shall have notified the Company in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon the Indemnified Party (or after
the Indemnified Party shall have received notice of such service on any
designated agent). Notwithstanding the foregoing, the failure of any Indemnified
Party to give notice as provided herein shall not relieve the Company of its
obligations hereunder except to the extent that the Company has been prejudiced
by such failure to give notice. In addition, any failure by the Indemnified
Party to notify the Company of any such claim shall not relieve the Company from
any liability which it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this indemnification provision.
In case any such action is brought against the Indemnified Parties, the Company
will be entitled to participate, at its own expense, in the defense thereof. The
Company also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action; provided, however, that if the
Indemnified Party shall have reasonably concluded that there may be defenses
available to it which are different from or additional to those available to the
Company, the Company shall not have the right to assume said defense, but shall
pay the costs and expenses thereof (except that in no event shall the Company be
liable for the fees and expenses of more than one counsel for Indemnified
Parties in connection with any one action or separate but similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances). After notice from the Company to the Indemnified Party of the
Company's election to assume the defense thereof, and in the absence of such a
reasonable conclusion that there may be different or additional defenses
available to the Indemnified Party, the Indemnified Party shall bear the fees
and expenses of any additional counsel retained by it, and the Company will not
be liable to that party under this Agreement for any legal or other expenses
subsequently incurred by that party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.3(D). The Insurance Company and Davis Distributors agree promptly to
notify the Company of the commencement of any litigation or proceedings against
it or any of its respective officers or directors in connection with this
Agreement, the issuance or sale of the Contracts, the operation of the Account,
or the sale or acquisition of shares of the Company.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and provisions hereof
interpreted under and in accordance with the laws of the State of New York.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934, and 1940 Acts, and the rules and regulations and rulings thereunder,
including any exemptions from those statutes, rules and regulations the SEC may
grant (including, but not limited to, the Mixed and Shared Funding Exemptive
Order) and the terms hereof shall be interpreted and construed in accordance
therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party upon six months' advance written
notice to the other parties; or
(b) at the option of the Insurance Company to the extent that
shares of Funds are not reasonably available to meet the
requirements of the Contracts as determined by the Insurance
Company, provided, however, that such a termination shall apply
only to the Fund(s) not reasonably available. Prompt written
notice of the election to terminate for such cause shall be
furnished by the Insurance Company to the Company and Davis
Distributors; or
(c) at the option of the Company or Davis Distributors, in the
event that formal administrative proceedings are instituted
against the Insurance Company by the NASD, the SEC, an insurance
commissioner or any other regulatory body regarding the Insurance
Company's duties under this Agreement or related to the sale of
the Contracts, the operation of any Account, or the purchase of
the Company's shares, provided, however, that the Company
determines in its sole judgment exercised in good faith, that any
such administrative proceedings will have a material adverse
effect upon the ability of the Insurance Company to perform its
obligations under this Agreement; or
(d) at the option of the Insurance Company in the event that
formal administrative proceedings are instituted against the
Company or Davis Distributors by the NASD, the SEC, or any state
securities or insurance department or any other regulatory body,
provided, however, that the Insurance Company determines in its
sole judgement exercised in good faith, that any such
administrative proceedings will have a material adverse effect
upon the ability of the Company or Davis Distributors to perform
its obligations under this Agreement; or
(e) with respect to any Account, upon requisite vote of the
Contract owners having an interest in that Account (or any
subaccount) to substitute the shares of another investment
company for the corresponding Fund shares in accordance with the
terms of the Contracts for which those Fund shares had been
selected to serve as the underlying investment media. The
Insurance Company will give at least 30 days' prior written
notice to the Company of the date of any proposed vote to replace
the Company's shares; or
(f) at the option of the Insurance Company, in the event any of
the Company's shares are not registered, issued or sold in
accordance with applicable state and/or federal law or exemptions
therefrom, or such law precludes the use of those shares as the
underlying investment media of the Contracts issued or to be
issued by the Insurance Company; or
(g) at the option of the Insurance Company, if the Company ceases
to qualify as a regulated investment company under Subchapter M
of the Code or under any successor or similar provision, or if
the Insurance Company reasonably believes that the Company may
fail to so qualify; or
(h) at the option of the Insurance Company, if the Company fails
to meet the diversification requirements specified in Article VI
hereof; or
(i) at the option of either the Company or Davis Distributors, if
(1) the Company or Davis Distributors, respectively, shall
determine, in their sole judgment reasonably exercised in good
faith, that the Insurance Company has suffered a material adverse
change in its business or financial condition or is the subject
of material adverse publicity and that material adverse change or
material adverse publicity will have a material adverse impact
upon the business and operations of either the Company or Davis
Distributors, (2) the Company or Davis Distributors shall notify
the Insurance Company in writing of that determination and its
intent to terminate this Agreement, and (3) after considering the
actions taken by the Insurance Company and any other changes in
circumstances since the giving of such a notice, the
determination of the Company or Davis Distributors shall continue
to apply on the sixtieth (60th) day following the giving of that
notice, which sixtieth day shall be the effective date of
termination; or
(j) at the option of the Insurance Company, if (1) the Insurance
Company shall determine, in its sole judgment reasonably
exercised in good faith, that either the Company or Davis
Distributors has suffered a material adverse change in its
business or financial condition or is the subject of material
adverse publicity and that material adverse change or material
adverse publicity will have a material adverse impact upon the
business and operations of the Insurance Company, (2) the
Insurance Company shall notify the Company and Davis Distributors
in writing of the determination and its intent to terminate the
Agreement, and (3) after considering the actions taken by the
Company and/or Davis Distributors and any other changes in
circumstances since the giving of such a notice, the
determination shall continue to apply on the sixtieth (60th) day
following the giving of the notice, which sixtieth day shall be
the effective date of termination.
10.2. It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 10.1(a) may be exercised for any
reason or for no reason.
10.3. No termination of this Agreement shall be effective unless
and until the party terminating this Agreement gives prior written notice to
all other parties to this Agreement of its intent to terminate,
which notice shall set forth the basis for the termination. Furthermore,
(a) in the event that any termination is based upon the
provisions of Article VII, or the provision of Section 10.1(a),
10.1(i) or 10.1(j) of this Agreement, the prior written notice
shall be given in advance of the effective date of termination as
required by those provisions; and
(b) in the event that any termination is based upon the
provisions of Section 10.1(c) or 10.1(d) of this Agreement, the
prior written notice shall be given at least ninety (90) days
before the effective date of termination; provided that any party
may terminate this Agreement immediately with respect to any Fund
if such party reasonably determines that continuing to perform
under this Agreement would violate any state or federal law.
10.4. Notwithstanding any termination of this Agreement, subject to
Section 1.2 of this Agreement and for so long as the Company continues to exist,
the Company and Davis Distributors shall at the option of the Insurance Company,
continue to make available additional shares of the Company pursuant to the
terms and conditions of this Agreement, for all Contracts in effect on the
effective date of termination of this Agreement ("Existing Contracts").
Specifically, without limitation, the owners of the Existing Contracts shall be
permitted to reallocate investments from any other investment option to any
Fund, redeem investments in the Company and/or invest in the Company upon the
making of additional purchase payments under the Existing Contracts. The parties
agree that this Section 10.4 shall not apply to any terminations under Article
VII and the effect of Article VII terminations shall be governed by Article VII
of this Agreement.
10.5. The Insurance Company shall not redeem Company shares
attributable to the Contracts (as opposed to Company shares attributable to the
Insurance Company's assets held in the Account) except (i) as necessary to
implement Contract-owner-initiated transactions, or (ii) as required by state
and/or federal laws or regulations or judicial or other legal precedent of
general application (a "Legally Required Redemption"). Upon request, the
Insurance Company will promptly furnish to the Company and Davis Distributors
the opinion of counsel for the Insurance Company (which counsel shall be
reasonably satisfactory to the Company and Davis Distributors) to the effect
that any redemption pursuant to clause (ii) above is a Legally Required
Redemption.
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of that other party set forth
below or at such other address as the other party may from time to time specify
in writing.
If to the Company:
124 East Marcy Street
Santa Fe, New Mexico 87501
Attention: Thomas Tays, Vice President
If to the Insurance Company:
Preferred Life Insurance Company of New York
152 West 57th Street
18th Floor
New York, New York 10019
Attention: Eugene K. Long
If to Davis Distributors:
124 East Marcy Street
Santa Fe, New Mexico 87501
Attention: Thomas Tays, Vice President
ARTICLE XII. MISCELLANEOUS
12.1. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party unless and until that information may come into the public
domain.
12.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.3. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.4. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.5. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit those authorities
reasonable access to its books and records in connection with any lawful
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
12.6. The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
12.7. This Agreement shall be binding upon and inure to the benefit of
the parties and their respective successors and assigns; provided, that no party
may assign this Agreement without the prior written consent of the others.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative as of the date specified below.
PREFERRED LIFE INSURANCE COMPANY
OF NEW YORK
By its authorized officer,
By: /s/ Michael T. Westermeyer
_______________________________
Title: Secretary
Date: 11-4-99
_____________________
DAVIS VARIABLE ACCOUNT FUND
("Company")
By its authorized officer,
By: /s/ Kenneth Eich
________________________________
Title: Vice President
Date: 11/6/99
_______________________
DAVIS DISTRIBUTORS, LLC
("Davis Distributors")
By its authorized officer,
By: /s/ Kenneth Eich
_________________________________
Title: President
Date: 11/6/99
_______________________
SCHEDULE A
ACCOUNTS
NAME OF ACCOUNT
Preferred Life Variable Account C
SCHEDULE B
CONTRACTS
Preferred Life Variable Account C
USAllianz Alterity
SCHEDULE C
TO
PARTICIPATION AGREEMENT
NAME OF FUND
Davis Financial Portfolio
Davis Real Estate Portfolio
Davis Value Portfolio
Dated: November 1, 1999
SCHEDULE D
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding
responsibilities for the handling of proxies relating to the Company by Davis
Distributors, the Company and the Insurance Company. The defined terms herein
shall have the meanings assigned in the Participation Agreement except that the
term "Insurance Company" shall also include the department or third party
assigned by the Insurance Company to perform the steps delineated below.
1. The number of proxy proposals is given to the Insurance Company by
Davis Distributors as early as possible before the date set by the
Company for the shareholder meeting to facilitate the establishment of
tabulation procedures. At this time Davis Distributors will inform the
Insurance Company of the Record, Mailing and Meeting dates. This will
be done verbally, with confirmation following promptly in writing,
approximately two months before meeting.
2. Promptly after the Record Date, the Insurance Company will perform a
"tape run", or other activity, which will generate the names, addresses
and number of units which are attributed to each
contract-owner/policyholder (the "Customer") as of the Record Date.
Allowance should be made for account adjustments made after this date
that could affect the status of the Customers' accounts of the Record
Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Insurance Company will use its best efforts to call in
the number of Customers to Davis Distributors, as soon as possible, but no later
than one week after the Record Date.
3. The text and format for the Voting Instruction Cards ("Cards" or
"Card") is provided to the Insurance Company by the Company. The
Insurance Company, at its expense, shall produce and personalize the
Voting Instruction cards. Davis Distributors must approve the Card
before it is printed. Allow approximately 2-4 business days for
printing information on the Cards. Information commonly found on the
Cards includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e.individual Card number for use in tracking and
verification of votes
(already on Cards as printed by the Company).
(This and related steps may occur later in the chronological process
due to possible uncertainties relating to the proposals.)
4. During this time, Davis Distributors will develop, produce, and the
Company will pay for the Notice of Proxy and the Proxy Statement (one
document). Printed and folded notices and statements will be sent to
Insurance Company for insertion into envelopes (envelopes and return
envelopes are provided and paid for by the Insurance Company). Contents
of envelope sent to customers by Insurance Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. Return envelope (postage pre-paid by Insurance
Company) addressed to the Insurance
Company or its tabulation agent
d. "Urge buckslip" - optional, but
recommended. (This is a small, single sheet of paper
that requests Contract owners to vote as quickly as
possible and that their vote is important. One copy
will be supplied by the Company.)
e. Cover letter - optional, supplied by Insurance
Company and reviewed and approved in advance by Davis
Distributors.
5. The above contents should be received by the Insurance Company
approximately 3-5 business days before mail date, and in no event later
than 3 business days before mail date. Individual in charge at
Insurance Company reviews and approves the contents of the mailing
package to ensure correctness and completeness. Copy of this approval
sent to Davis Distributors.
6. Package mailed by the Insurance Company.
* The Company must allow at least a 15-day solicitation time
to the Insurance Company as the shareowner. (A 5-week period
is recommended.) Solicitation time is calculated as calendar
days from (but not including) the meeting, counting backwards.
7. Collection and tabulation of Cards begins. Tabulation usually takes
place in another department or another vendor depending on process
used. An often-used procedure is to sort cards on arrival by proposal
into vote categories of all yes, no, or mixed replies, and to begin
data entry.
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal procedure.
8. If Cards are mutilated, or for any reason are illegible or are not
signed properly, they are sent back to the Customer with an explanatory
letter, a new Card and return envelope. The mutilated or illegible Card
is disregarded and considered to be not received for purposes of vote
tabulation. Such mutilated or illegible Cards are "hand verified,"
I.E., examined as to why they did not complete the system. Any
questions on those Cards are usually remedied individually.
9. There are various control procedures used to ensure proper tabulation
of votes and accuracy of that tabulation. The most prevalent is to sort
the Cards as they first arrive into categories depending upon their
vote; an estimate of how the vote is progressing may then be
calculated. If the initial estimates and the actual vote do not
coincide, then an internal audit of that vote should occur. This may
entail a recount.
10. The actual tabulation of votes is done in units and then converted to
shares. (It is very important that the Company receives the tabulations
stated in terms of a percentage and the number of shares.)
Davis Distributors must review and approve tabulation format.
11. Final tabulation in shares is verbally given by the Insurance Company
to Davis Distributors on the day of the meeting not later than 1:00
p.m. Eastern time. Davis Distributors may request an earlier deadline
if required to calculate the vote in time for the meeting.
12. A Certificate of Mailing and Authorization to Vote Shares will be
required from the Insurance Company as well as an original copy of the
final vote. Davis Distributors will provide a standard form for each
Certification.
13. The Insurance Company will be required to box and archive the Cards
received from the Customers. In the event that any vote is challenged
or if otherwise necessary for legal, regulatory, or accounting
purposes, Davis Distributors will be permitted reasonable access to
such Cards.
14. All approvals and "signing-off" may be done orally, but must always be
followed up in writing. For this purpose, signatures transmitted by
facsimile will be acceptable.
PARTICIPATION AGREEMENT
AMONG
VAN KAMPEN LIFE INVESTMENT TRUST,
VAN KAMPEN FUNDS INC.,
VAN KAMPEN ASSET MANAGEMENT INC.,
AND
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
DATED AS OF
NOVEMBER 1, 1999
TABLE OF CONTENTS
Page
ARTICLE I. Fund Shares 4
ARTICLE II Representations and Warranties 6
ARTICLE III. Prospectuses, Reports to Shareholders
and Proxy Statements; Voting 7
ARTICLE IV. Sales Material and Information 9
ARTICLE V Reserved 10
ARTICLE VI. Diversification 10
ARTICLE VII. Potential Conflicts 10
ARTICLE VIII. Indemnification 12
ARTICLE IX. Applicable Law 16
ARTICLE X. Termination 16
ARTICLE XI. Notices 18
ARTICLE XII. Foreign Tax Credits 19
ARTICLE XIII. Miscellaneous 19
SCHEDULE A Separate Accounts and Contracts 22
SCHEDULE B Participating Life Investment Trust
Portfolios 23
SCHEDULE C Proxy Voting Procedures 24
PARTICIPATION AGREEMENT
Among
VAN KAMPEN LIFE INVESTMENT TRUST,
VAN KAMPEN FUNDS INC.,
VAN KAMPEN ASSET MANAGEMENT INC.,
and
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
THIS AGREEMENT, made and entered into as of the 1st day of November,
1999 by and among PREFERRED LIFE INSURANCE COMPANY OF NEW YORK (hereinafter the
"Company"), a New York corporation, on its own behalf and on behalf of each
separate account of the Company set forth on Schedule A hereto as may be amended
from time to time (each such account hereinafter referred to as the "Account"),
and VAN KAMPEN LIFE INVESTMENT TRUST (hereinafter the "Fund"), a Delaware
business trust, VAN KAMPEN FUNDS INC. (hereinafter the "Underwriter"), a
Delaware corporation, and VAN KAMPEN ASSET MANAGEMENT INC. (hereinafter the
"Adviser"), a Delaware corporation.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established by insurance companies for individual and group
life insurance policies and annuity contracts with variable accumulation and/or
pay-out provisions (hereinafter referred to individually and/or collectively as
"Variable Insurance Products"); and
WHEREAS, insurance companies desiring to utilize the Fund as an
investment vehicle under their Variable Insurance Products are required to enter
into participation agreements with the Fund and the Underwriter (the
"Participating Insurance Companies"); and
WHEREAS, shares of the Fund are divided into several series of shares,
each representing the interest in a particular managed portfolio of securities
and other assets, any one or more of which may be made available for Variable
Insurance Products of Participating Insurance Companies; and
WHEREAS, the Fund intends to offer shares of the series set forth on
Schedule B (each such series hereinafter referred to as a "Portfolio") as may be
amended from time to time by mutual agreement of the parties hereto, under this
Agreement to the Accounts of the Company; and
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission, dated September 19, 1990 (File No. 812-7552), granting
Participating Insurance Companies and Variable Insurance Product separate
accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended (hereinafter the "1940
Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent
necessary to permit shares of the Fund to be sold to and held by Variable
Annuity Product separate accounts of both affiliated and unaffiliated life
insurance companies (hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment adviser under
the Investment Advisers Act of 1940, as amended, and any applicable state
securities laws; and
WHEREAS, the Adviser is the investment adviser of the Portfolios of the
Fund; and
WHEREAS, the Underwriter is registered as a broker/dealer under the
Securities Exchange Act of 1934, as amended (hereinafter the "1934 Act"), is a
member in good standing of the National Association of Securities Dealers, Inc.
(hereinafter "NASD") and serves as principal underwriter of the shares of the
Fund; and
WHEREAS, the Company has registered or will register certain Variable
Insurance Products under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution or under authority of the Board of
Directors of the Company, on the date shown for such Account on Schedule A
hereto, to set aside and invest assets attributable to the aforesaid Variable
Insurance Products; and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid Variable Insurance Products and
the Underwriter is authorized to sell such shares to each such Account at net
asset value.
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund, the Underwriter and the Adviser agree as follows:
ARTICLE I. Fund Shares
1.1. The Fund and the Underwriter agree to make available for purchase
by the Company shares of the Portfolios and shall execute orders placed for each
Account on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of such order. For purposes of this Section 1.1, the
Company shall be the designee of the Fund and Underwriter for receipt of such
orders from each Account and receipt by such designee shall constitute receipt
by the Fund; provided that the Fund receives notice of such order by 10:00 a.m.
Houston time on the next following Business Day. Notwithstanding the foregoing,
the Company shall use its best efforts to provide the Fund with notice of such
orders by 9:15 a.m. Houston time on the next following Business Day. "Business
Day" shall mean any day on which the New York Stock Exchange is open for trading
and on which the Fund calculates its net asset value pursuant to the rules of
the Securities and Exchange Commission, as set forth in the Fund's prospectus
and statement of additional information. Notwithstanding the foregoing, the
Board of Trustees of the Fund (hereinafter the "Board") may refuse to permit the
Fund to sell shares of any Portfolio to any person, or suspend or terminate the
offering of shares of any Portfolio if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole discretion of the
Board acting in good faith and in light of their fiduciary duties under federal
and any applicable state laws, necessary in the best interests of the
shareholders of such Portfolio.
1.2. The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies for their Variable Insurance
Products. No shares of any Portfolio will be sold to the general public.
1.3. The Fund will not make its shares available for purchase by any
insurance company or separate account unless an agreement containing provisions
which afford the Company substantially the same protections currently provided
by Sections 2.1, 2.4, 2.9, 3.4 and Article VII of this Agreement is in effect to
govern such sales.
1.4. The Fund and the Underwriter agree to redeem for cash, on the
Company's request, any full or fractional shares of the Fund held by the
Company, executing such requests on a daily basis at the net asset value next
computed after receipt by the Fund or its designee of the request for
redemption. For purposes of this Section 1.4, the Company shall be the designee
of the Fund for receipt of requests for redemption from each Account and receipt
by such designee shall constitute receipt by the Fund; provided that the
Underwriter receives notice of such request for redemption on the next following
Business Day in accordance with the timing rules described in Section 1.1.
1.5. The Company agrees that purchases and redemptions of Portfolio
shares offered by the then current prospectus of the Fund shall be made in
accordance with the provisions of such prospectus. The Accounts of the Company,
under which amounts may be invested in the Fund are listed on Schedule A
attached hereto and incorporated herein by reference, as such Schedule A may be
amended from time to time by mutual written agreement of all of the parties
hereto. The Company will give the Fund and the Underwriter sixty (60) days
written notice of its intention to make available in the future, as a funding
vehicle under the Contracts, any other investment company.
1.6. The Company will place separate orders to purchase or redeem
shares of each Portfolio. Each order shall describe the net amount of shares and
dollar amount of each Portfolio to be purchased or redeemed. In the event of net
purchases, the Company shall pay for Portfolio shares on the next Business Day
after an order to purchase Portfolio shares is made in accordance with the
provisions of Section 1.1 hereof. Payment shall be in federal funds transmitted
by wire. In the event of net redemptions, the Portfolio shall pay the redemption
proceeds in federal funds transmitted by wire on the next Business Day after an
order to redeem Portfolio shares is made in accordance with the provisions of
Section 1.4 hereof. Notwithstanding the foregoing, if the payment of redemption
proceeds on the next Business Day would require the Portfolio to dispose of
Portfolio securities or otherwise incur substantial additional costs, and if the
Portfolio has determined to settle redemption transactions for all shareholders
on a delayed basis, proceeds shall be wired to the Company within seven (7) days
and the Portfolio shall notify in writing the person designated by the Company
as the recipient for such notice of such delay by 3:00 p.m. Houston time on the
same Business Day that the Company transmits the redemption order to the
Portfolio.
1.7. Issuance and transfer of the Fund's shares will be by book entry
only. Share certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.8. The Underwriter shall use its best efforts to furnish same day
notice by 6:00 p.m. Houston time (by wire or telephone, followed by written
confirmation) to the Company of any dividends or capital gain distributions
payable on the Fund's shares. The Company hereby elects to receive all such
dividends and capital gain distributions as are payable on the Portfolio shares
in additional shares of that Portfolio. The Company reserves the right to revoke
this election and to receive all such dividends and capital gain distributions
in cash. The Fund shall notify the Company of the number of shares so issued as
payment of such dividends and distributions.
1.9. The Underwriter shall make the net asset value per share of each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available by 6:00 p.m.
Houston time. In the event that Underwriter is unable to meet the 6:00 p.m. time
stated immediately above, then Underwriter shall provide the Company with
additional time to notify Underwriter of purchase or redemption orders pursuant
to Sections 1.1 and 1.4, respectively, above. Such additional time shall be
equal to the additional time that Underwriter takes to make the net asset values
available to the Company; provided, however, that notification must be made by
10:00 a.m. Houston time on the Business Day such order is to be executed,
regardless of when net asset value is made available.
1.10. If Underwriter provides materially incorrect share net asset
value information through no fault of the Company, the Company shall be entitled
to an adjustment with respect to the Fund shares purchased or redeemed to
reflect the correct net asset value per share. The determination of the
materiality of any net asset value pricing error shall be based on the SEC's
recommended guidelines regarding such errors. The correction of any such errors
shall be made at the Company level pursuant to the SEC's recommended guidelines.
Any material error in the calculation or reporting of net asset value per share,
dividend or capital gain information shall be reported promptly upon discovery
to the Company.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the interests of the
Accounts (the "Contracts") are or will be registered and will maintain the
registration under the 1933 Act and the regulations thereunder to the extent
required by the 1933 Act; that the Contracts will be issued and sold in
compliance with all applicable federal and state laws and regulations. The
Company further represents and warrants that it is an insurance company duly
organized and in good standing under applicable law and that it has legally and
validly established each Account prior to any issuance or sale thereof as a
segregated asset account under the New York Insurance Code and the regulations
thereunder and has registered or, prior to any issuance or sale of the
Contracts, will register and will maintain the registration of each Account as a
unit investment trust in accordance with and to the extent required by the
provisions of the 1940 Act and the regulations thereunder to serve as a
segregated investment account for the Contracts. The Company shall amend its
registration statement for its contracts under the 1933 Act and the 1940 Act
from time to time as required in order to effect the continuous offering of its
Contracts.
2.2. The Fund and the Underwriter represent and warrant that Fund
shares sold pursuant to this Agreement shall be registered under the 1933 Act
and the regulations thereunder to the extent required by the 1933 Act, duly
authorized for issuance in accordance with the laws of the State of Delaware and
sold in compliance with all applicable federal and state securities laws and
regulations and that the Fund is and shall remain registered under the 1940 Act
and the regulations thereunder to the extent required by the 1940 Act. The Fund
shall amend the registration statement for its shares under the 1933 Act and the
1940 Act from time to time as required in order to effect the continuous
offering of its shares. The Fund shall register and qualify the shares for sale
in accordance with the laws of the various states only if and to the extent
deemed advisable by the Fund.
2.3. The Fund and the Adviser represent and warrant that the Fund is
currently qualified as a Regulated Investment Company under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code") and that each will make
every effort to maintain such qualification (under Subchapter M or any successor
or similar provision) and that each will notify the Company immediately upon
having a reasonable basis for believing that the Fund has ceased to so qualify
or that the Fund might not so qualify in the future.
2.4. The Company represents that each Account is and will continue to
be a "segregated account" under applicable provisions of the Code and that each
Contract is and will be treated as a "variable contract" under applicable
provisions of the Code and that it will make every effort to maintain such
treatment and that it will notify the Fund immediately upon having a reasonable
basis for believing that the Account or Contract has ceased to be so treated or
that they might not be so treated in the future.
2.5. The Fund represents that to the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, the Fund
undertakes to have a board of directors, a majority of whom are not interested
persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states.
2.7. The Fund and the Adviser represent and warrant that the Fund is
duly organized and validly existing under the laws of the State of Delaware and
that the Fund does and will comply in all material respects with the 1940 Act.
2.8. The Underwriter represents and warrants that it is and shall
remain duly registered under all applicable federal and state laws and
regulations and that it will perform its obligations for the Fund and the
Company in compliance with the laws and regulations of its state of domicile and
any applicable state and federal laws and regulations.
2.9. The Company represents and warrants that all of its trustees,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage, in an amount equal to the greater of $5 million or any
amount required by applicable federal or state law or regulation. The aforesaid
includes coverage for larceny and embezzlement is issued by a reputable bonding
company. The Company agrees to make all reasonable efforts to see that this bond
or another bond containing these provisions is always in effect, and agrees to
notify the Fund and the Underwriter in the event that such coverage no longer
applies.
ARTICLE III. Prospectuses, Reports to Shareholders and Proxy
Statements; Voting
3.1. The Fund shall provide the Company with as many printed copies of
the Fund's current prospectus and statement of additional information as the
Company may reasonably request. If requested by the Company in lieu of providing
printed copies the Fund shall provide camera-ready film or computer diskettes
containing the Fund's prospectus and statement of additional information, and
such other assistance as is reasonably necessary in order for the Company once
each year (or more frequently if the prospectus and/or statement of additional
information for the Fund is amended during the year) to have the prospectus for
the Contracts and the Fund's prospectus printed together in one document or
separately. The Company may elect to print the Fund's prospectus and/or its
statement of additional information in combination with other fund companies'
prospectuses and statements of additional information.
3.2(a). Except as otherwise provided in this Section 3.2., all expenses
of preparing, setting in type and printing and distributing Fund prospectuses
and statements of additional information shall be the expense of the Company.
For prospectuses and statements of additional information provided by the
Company to its existing owners of Contracts in order to update disclosure as
required by the 1933 Act and/or the 1940 Act, the cost of setting in type,
printing and distributing shall be borne by the Fund. If the Company chooses to
receive camera-ready film or computer diskettes in lieu of receiving printed
copies of the Fund's prospectus and/or statement of additional information, the
Fund shall bear the cost of typesetting to provide the Fund's prospectus and/or
statement of additional information to the Company in the format in which the
Fund is accustomed to formatting prospectuses and statements of additional
information, respectively, and the Company shall bear the expense of adjusting
or changing the format to conform with any of its prospectuses and/or statements
of additional information. In such event, the Fund will reimburse the Company in
an amount equal to the product of x and y where x is the number of such
prospectuses distributed to owners of the Contracts, and y is the Fund's per
unit cost of printing the Fund's prospectuses. The same procedures shall be
followed with respect to the Fund's statement of additional information. The
Fund shall not pay any costs of typesetting, printing and distributing the
Fund's prospectus and/or statement of additional information to prospective
Contract owners.
3.2(b). The Fund, at its expense, shall provide the Company with copies
of its proxy statements, reports to shareholders, and other communications
(except for prospectuses and statements of additional information, which are
covered in Section 3.2(a) above) to shareholders in such quantity as the Company
shall reasonably require for distributing to Contract owners. The Fund shall not
pay any costs of distributing such proxy-related material, reports to
shareholders, and other communications to prospective Contract owners.
3.2(c). The Company agrees to provide the Fund or its designee with
such information as may be reasonably requested by the Fund to assure that the
Fund's expenses do not include the cost of typesetting, printing or distributing
any of the foregoing documents other than those actually distributed to existing
Contract owners.
3.2(d) The Fund shall pay no fee or other compensation to the Company
under this Agreement, except that if the Fund or any Portfolio adopts and
implements a plan pursuant to Rule 12b-1 to finance distribution expenses, then
the Underwriter may make payments to the Company or to the underwriter for the
Contracts if and in amounts agreed to by the Underwriter in writing.
3.2(e) All expenses, including expenses to be borne by the Fund
pursuant to Section 3.2 hereof, incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares.
3.3. The Fund's statement of additional information shall be obtainable
from the Fund, the Underwriter, the Company or such other person as the Fund may
designate.
3.4. If and to the extent required by law the Company shall distribute
all proxy material furnished by the Fund to Contract Owners to whom voting
privileges are required to be extended and shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
(iii) vote Fund shares for which no instructions have been
received in the same proportion as Fund shares of
such Portfolio for which instructions have been
received,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund shares
held in any segregated asset account in its own right, to the extent permitted
by law. The Fund and the Company shall follow the procedures, and shall have the
corresponding responsibilities, for the handling of proxy and voting instruction
solicitations, as set forth in Schedule C attached hereto and incorporated
herein by reference. Participating Insurance Companies shall be responsible for
ensuring that each of their separate accounts participating in the Fund
calculates voting privileges in a manner consistent with the standards set forth
on Schedule C, which standards will also be provided to the other Participating
Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings (except insofar as the Securities and Exchange Commission may
interpret Section 16 not to require such meetings) or comply with Section 16(c)
of the 1940 Act (although the Fund is not one of the trusts described in Section
16(c) of that Act) as well as with Sections 16(a) and, if and when applicable,
16(b). Further, the Fund will act in accordance with the Securities and Exchange
Commission's interpretation of the requirements of Section 16(a) with respect to
periodic elections of directors and with whatever rules the Commission may
promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund, the Underwriter or their designee, each piece of sales literature or other
promotional material prepared by the Company or any person contracting with the
Company in which the Fund, the Adviser or the Underwriter is named, at least ten
Business Days prior to its use. No such material shall be used if the Fund, the
Adviser, the Underwriter or their designee reasonably objects to such use within
ten Business Days after receipt of such material.
4.2. Neither the Company nor any person contracting with the Company
shall give any information or make any representations or statements on behalf
of the Fund or concerning the Fund in connection with the sale of the Contracts
other than the information or representations contained in the registration
statement or Fund prospectus, as such registration statement or Fund prospectus
may be amended or supplemented from time to time, or in reports to shareholders
or proxy statements for the Fund, or in sales literature or other promotional
material approved by the Fund or its designee, except with the permission of the
Fund or its designee.
4.3. The Fund shall furnish, or shall cause to be furnished, to the
Company or its designee, each piece of sales literature or other promotional
material prepared by the Fund in which the Company or its Accounts, are named at
least ten Business Days prior to its use. No such material shall be used if the
Company or its designee reasonably objects to such use within ten Business Days
after receipt of such material.
4.4. Neither the Fund nor the Underwriter shall give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts, other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement or prospectus may be amended or supplemented from time to
time, or in published reports or solicitations for voting instruction for each
Account which are in the public domain or approved by the Company for
distribution to Contract owners, or in sales literature or other promotional
material approved by the Company or its designee, except with the permission of
the Company.
4.5. The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the Securities and Exchange Commission or
other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the investment
in an Account or Contract, contemporaneously with the filing of such document
with the Securities and Exchange Commission or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following: advertisements (such as material published, or designed for use in, a
newspaper, magazine, or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion pictures, or other
public media), sales literature (i.e., any written communication distributed or
made generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, seminar texts,
reprints or excerpts of any other advertisement, sales literature, or published
article), educational or training materials or other communications distributed
or made generally available to some or all agents or employees, and registration
statements, prospectuses, statements of additional information, shareholder
reports, and proxy materials.
ARTICLE V. [RESERVED]
ARTICLE VI. Diversification
6.1. The Fund will use its best efforts to at all times comply with
Section 817(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations. In the event the Fund ceases to so qualify, it will take all
reasonable steps (a) to notify Company of such event and (b) to adequately
diversify the Fund so as to achieve compliance within the grace period afforded
by Regulation 817-5.
ARTICLE VII. Potential Conflicts
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract owners and variable life insurance contract owners;
or (f) a decision by a Participating Insurance Company to disregard the voting
instructions of contract owners. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications thereof.
7.2. The Company will report any potential or existing material
irreconcilable conflict of which it is aware to the Board. The Company will
assist the Board in carrying out its responsibilities under the Shared Funding
Exemptive Order, by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. This includes, but is not
limited to, an obligation by the Company to inform the Board whenever contract
owner voting instructions are disregarded.
7.3. If it is determined by a majority of the Board, or a majority of
its disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance policy
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account. No charge
or penalty will be imposed as a result of such withdrawal. The Company agrees
that it bears the responsibility to take remedial action in the event of a Board
determination of an irreconcilable material conflict and the cost of such
remedial action, and these responsibilities will be carried out with a view only
to the interests of Contract owners.
7.4. If a material irreconcilable conflict arises because of a decision
by the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
(at the Company's expense); provided, however that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board. No charge or penalty will be imposed as a result of such
withdrawal. The Company agrees that it bears the responsibility to take remedial
action in the event of a Board determination of an irreconcilable material
conflict and the cost of such remedial action, and these responsibilities will
be carried out with a view only to the interests of Contract owners.
7.5. For purposes of Sections 7.3 through 7.4 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 through 7.4 to
establish a new funding medium for the Contracts if an offer to do so has been
declined by vote of a majority of Contract owners materially adversely affected
by the irreconcilable material conflict.
7.6. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Shared Funding
Exemptive Order, then the Fund and/or the Participating Insurance Companies, as
appropriate, shall take such steps as may be necessary to comply with Rules 6e-2
and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules are
applicable.
7.7 Each of the Company and the Adviser shall at least annually submit
to the Board such reports, materials or data as the Board may reasonably request
so that the Board may fully carry out the obligations imposed upon them by the
provisions hereof and in the Shared Funding Exemptive Order, and said reports,
materials and data shall be submitted more frequently if deemed appropriate by
the Board. All reports received by the Board of potential or existing conflicts,
and all Board action with regard to determining the existence of a conflict,
notifying Participating Insurance Companies of a conflict, and determining
whether any proposed action adequately remedies a conflict, shall be properly
recorded in the minutes of the Board or other appropriate records, and such
minutes or other records shall be made available to the Securities and Exchange
Commission upon request.
ARTICLE VIII. Indemnification
8.1. Indemnification By The Company
8.1(a). The Company agrees to indemnify and hold harmless the Fund, the
Underwriter and each member of their respective Board and officers and each
person, if any, who controls the Fund within the meaning of Section 15 of the
1933 Act (collectively, the "Indemnified Parties" for purposes of this Section
8.1) against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Company) or litigation
(including legal and other expenses), to which the Indemnified Parties may
become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of the
Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
registration statement or prospectus for the Contracts or
contained in the Contracts or sales literature for the Contracts
(or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to the Company by or
on behalf of the Fund for use in the registration statement or
prospectus for the Contracts or in the Contracts or sales
literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature of the
Fund not supplied by the Company, or persons under its control
and other than statements or representations authorized by the
Fund or the Underwriter) or unlawful conduct of the Company or
persons under its control, with respect to the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of or as a result of any untrue statement or
alleged untrue statement of a material fact contained in a
registration statement, prospectus, or sales literature of the
Fund or any amendment thereof or supplement thereto, or the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement
or statements therein not misleading, if such a statement or
omission was made in reliance upon and in conformity with
information furnished to the Fund by or on behalf of the Company;
or
(iv) arise as a result of any failure by the Company to provide
the services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to participate,
at its own expense, in the defense thereof. The Company also shall be entitled
to assume the defense thereof, with counsel satisfactory to the party named in
the action. After notice from the Company to such party of the Company's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Company will
not be liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
this Agreement, the issuance or sale of the Fund shares or the Contracts, or the
operation of the Fund.
8.2. Indemnification by Underwriter
8.2(a). The Underwriter agrees, with respect to each Portfolio that it
distributes, to indemnify and hold harmless the Company and each of its
directors and officers and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 8.2) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Underwriter) or litigation (including legal and other expenses),
to which the Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or settlements are
related to the sale or acquisition of the Fund's shares that it distributes or
the Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or prospectus or sales literature of the
Fund (or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to the Fund or the
Underwriter by or on behalf of the Company for use in the
registration statement or prospectus for the Fund or in sales
literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Portfolio shares;
or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature for the
Contracts not supplied by the Fund, the Underwriter or persons
under their respective control and other than statements or
representations authorized by the Company) or unlawful conduct of
the Fund or Underwriter or persons under their control, with
respect to the sale or distribution of the Contracts or Portfolio
shares; or
(iii) arise out of or as a result of any untrue statement or
alleged untrue statement of a material fact contained in a
registration statement, prospectus, or sales literature covering
the Contracts, or any amendment thereof or supplement thereto, or
the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement
or statements therein not misleading, if such statement or
omission was made in reliance upon and in conformity with
information furnished to the Company by or on behalf of the Fund
or the Underwriter; or
(iv) arise as a result of any failure by the Fund or the
Underwriter to provide the services and furnish the materials
under the terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Underwriter; as limited by and in
accordance with the provisions of Section 8.2(b) and 8.2(c)
hereof.
8.2(b). The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement.
8.2(c). The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with this Agreement, the issuance or sale of the
Contracts or the operation of each Account.
8.3. Indemnification by the Adviser
8.3(a). The Adviser agrees to indemnify and hold harmless the Company
and its directors and officers and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act (hereinafter collectively, the
"Indemnified Parties" and individually, "Indemnified Party," for purposes of
this Section 8.3) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Adviser)
or litigation (including legal and other expenses), to which the Indemnified
Parties may become subject under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the operations of the
Adviser or the Fund and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or prospectus or sales literature of the
Fund (or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to the Adviser, the
Fund or the Underwriter by or on behalf of the Company for use in
the registration statement or prospectus for the Fund or in sales
literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Portfolio shares;
or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature for the
Contracts not supplied by the Fund, the Adviser or persons under
its control and other than statements or representations
authorized by the Company) or unlawful conduct of the Fund, the
Adviser or persons under their control, with respect to the sale
or distribution of the Contracts or Portfolio shares; or
(iii) arise out of or as a result of any untrue statement or
alleged untrue statement of a material fact contained in a
registration statement, prospectus, or sales literature covering
the Contracts, or any amendment thereof or supplement thereto, or
the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement
or statements therein not misleading, if such statement or
omission was made in reliance upon information furnished To the
Company by or on behalf of the Fund or the Adviser; or
(iv) arise as a result of any failure by the Adviser to provide
the services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Fund or the Adviser in
this Agreement or arise out of or result from any other material
breach of this Agreement by the Fund or the Adviser, including
without limitation any failure by the Fund to comply with the
conditions of Article VI hereof.
8.3(b). The Adviser shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement.
8.3(c). The Adviser shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Adviser in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Adviser of any
such claim shall not relieve the Adviser from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Adviser will be entitled to participate, at
its own expense, in the defense thereof. The Adviser also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Adviser to such party of the Adviser's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Adviser will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.3(d). The Company agrees to promptly notify the Adviser of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with this Agreement, the issuance or sale of the
Contracts, with respect to the operation of each Account, or the sale or
acquisition of shares of the Adviser.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Illinois.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant (including, but not limited to, the
Shared Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
ARTICLE X. Termination
10.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason upon
six-months advance written notice delivered to the other
parties; or
(b) termination by the Company by written notice to the Fund,
the Adviser and the Underwriter with respect to any Portfolio
based upon the Company's determination that shares of such
Portfolio are not reasonably available to meet the
requirements of the Contracts. Reasonable advance notice of
election to terminate shall be furnished by the Company, said
termination to be effective ten (10) days after receipt of
notice unless the Fund makes available a sufficient number of
shares to reasonably meet the requirements of the Account
within said ten (10) day period; or
(c) termination by the Company by written notice to the Fund,
the Adviser and the Underwriter with respect to any Portfolio
in the event any of the Portfolio's shares are not registered,
issued or sold in accordance with applicable state and/or
federal law or such law precludes the use of such shares as
the underlying investment medium of the Contracts issued or to
be issued by the Company. The terminating party shall give
prompt notice to the other parties of its decision to
terminate; or
(d) termination by the Company by written notice to the Fund,
the Adviser and the Underwriter with respect to any Portfolio
in the event that such Portfolio ceases to qualify as a
Regulated Investment Company under Subchapter M of the Code or
under any successor or similar provision; or
(e) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio in the event
that such Portfolio fails to meet the diversification
requirements specified in Article VI hereof; or
(f) termination by either the Fund, the Adviser or the
Underwriter by written notice to the Company, if either one or
more of the Fund, the Adviser or the Underwriter, shall
determine, in its or their sole judgment exercised in good
faith, that the Company and/or their affiliated companies has
suffered a material adverse change in its business,
operations, financial condition or prospects since the date of
this Agreement or is the subject of material adverse
publicity, provided that the Fund, the Adviser or the
Underwriter will give the Company sixty (60) days' advance
written notice of such determination of its intent to
terminate this Agreement, and provided further that after
consideration of the actions taken by the Company and any
other changes in circumstances since the giving of such
notice, the determination of the Fund, the Adviser or the
Underwriter shall continue to apply on the 60th day since
giving of such notice, then such 60th day shall be the
effective date of termination; or
(g) termination by the Company by written notice to the Fund,
the Adviser and the Underwriter, if the Company shall
determine, in its sole judgment exercised in good faith, that
either the Fund, the Adviser or the Underwriter has suffered a
material adverse change in its business, operations, financial
condition or prospects since the date of this Agreement or is
the subject of material adverse publicity, provided that the
Company will give the Fund, the Adviser and the Underwriter
sixty (60) days' advance written notice of such determination
of its intent to terminate this Agreement, and provided
further that after consideration of the actions taken by the
Fund, the Adviser or the Underwriter and any other changes in
circumstances since the giving of such notice, the
determination of the Company shall continue to apply on the
60th day since giving of such notice, then such 60th day shall
be the effective date of termination; or
(h) termination by the Fund, the Adviser or the Underwriter by
written notice to the Company, if the Company gives the Fund,
the Adviser and the Underwriter the written notice specified
in Section 1.5 hereof and at the time such notice was given
there was no notice of termination outstanding under any other
provision of this Agreement; provided, however any termination
under this Section 10.1(h) shall be effective sixty (60) days
after the notice specified in Section 1.5 was given; or
(i) termination by any party upon the other party's breach of
any representation in Section 2 or any material provision of
this Agreement, which breach has not been cured to the
satisfaction of the terminating party within ten (10) days
after written notice of such breach is delivered to the Fund
or the Company, as the case may be; or
(j) termination by the Fund, Adviser or Underwriter by written
notice to the Company in the event an Account or Contract is
not registered or sold in accordance with applicable federal
or state law or regulation, or the Company fails to provide
pass-through voting privileges as specified in Section 3.4.
10.2. Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund shall at the option of the Company, continue to make
available additional shares of the Fund pursuant to the terms and conditions of
this Agreement, for all Contracts in effect on the effective date of termination
of this Agreement (hereinafter referred to as "Existing Contracts") unless such
further sale of Fund shares is proscribed by law, regulation or applicable
regulatory body, or unless the Fund determines that liquidation of the Fund
following termination of this Agreement is in the best interests of the Fund and
its shareholders. Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to direct reallocation of investments in the Fund,
redemption of investments in the Fund and/or investment in the Fund upon the
making of additional purchase payments under the Existing Contracts. The parties
agree that this Section 10.2 shall not apply to any terminations under Article
VII and the effect of such Article VII terminations shall be governed by Article
VII of this Agreement.
10.3. The Company shall not redeem Fund shares attributable to the
Contracts (as distinct from Fund shares attributable to the Company's assets
held in the Account) except (i) as necessary to implement Contract Owner
initiated or approved transactions, or (ii) as required by state and/or federal
laws or regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act. Upon
request, the Company will promptly furnish to the Fund and the Underwriter the
opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Fund and the Underwriter) to the effect that any redemption
pursuant to clause (ii) above is a Legally Required Redemption. Furthermore,
except in cases where permitted under the terms of the Contracts, the Company
shall not prevent Contract Owners from allocating payments to a Portfolio that
was otherwise available under the Contracts without first giving the Fund or the
Adviser 90 days notice of its intention to do so.
ARTICLE XI. Notices
11.1 Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
Van Kampen Life Investment Trust
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Attention: Ronald A. Nyberg
If to Underwriter:
Van Kampen Funds Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Attention: Ronald A. Nyberg
If to Adviser:
Van Kampen Asset Management Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Attention: Ronald A. Nyberg
If to the Company:
Preferred Life Insurance Company of New York
152 West 57th Street, 18th Floor
New York, New York 10019
Attention: Eugene Long
ARTICLE XII. Foreign Tax Credits
12.1. The Fund and Adviser agree to consult in advance with the Company
concerning whether any series of the Fund qualifies to provide a foreign tax
credit pursuant to Section 853 of the Code.
ARTICLE XIII. Miscellaneous
13.1. All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Board, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund. Each of the
Company, Adviser and Underwriter acknowledges and agrees that, as provided by
Article 8, Section 8.1, of the Fund's Agreement and Declaration of Trust, the
shareholders, trustees, officers, employees and other agents of the Fund and its
Portfolios shall not personally be bound by or liable for matters set forth
hereunder, nor shall resort be had to their private property for the
satisfaction of any obligation or claim hereunder. A Certificate of Trust
referring to the Fund's Agreement and Declaration of Trust is on file with the
Secretary of State of Delaware.
13.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
13.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
13.5. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
13.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Securities and Exchange Commission, the National Association of Securities
Dealers and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
13.7. The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations at law or in equity, which the parties hereto are entitled to under
state and federal laws.
13.8. This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Adviser may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company under common
control with the Adviser if such assignee is duly licensed and registered to
perform the obligations of the Adviser under this Agreement.
13.9. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared
under statutory accounting principles) and annual
report (prepared under generally accepted accounting
principles ("GAAP"), if any), as soon as practical
and in any event within 90 days after the end of each
fiscal year;
(b) the Company's June 30th quarterly
statements (statutory), as soon as practical and in
any event within 45 days following such period;
(c) any financial statement, proxy
statement, notice or report of the Company sent to
stockholders and/or policyholders, as soon as
practical after the delivery thereof to stockholders;
(d) any registration statement (without
exhibits) and financial reports of the Company filed
with the Securities and Exchange Commission or any
state insurance regulator, as soon as practical after
the filing thereof;
(e) any other public report submitted to the
Company by independent accountants in connection with
any annual, interim or special audit made by them of
the books of the Company, as soon as practical after
the receipt thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative as of the date specified above.
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK on behalf of itself and each of its
Accounts named in Schedule A hereto, as amended from time to time
By: /s/ Michael T. Westermeyer
________________________________________________
Secretary
VAN KAMPEN LIFE INVESTMENT TRUST
By: /s/ Dennis J McDonell
_______________________________________________
Dennis J. McDonnell
Executive Vice President
VAN KAMPEN FUNDS INC.
By: /s/ Patrick Woelfel
________________________________________________
Patrick Woelfel
Senior Vice President
VAN KAMPEN ASSET MANAGEMENT INC.
By: /s/ Dennis J McDonnell
________________________________________________
Dennis J. McDonnell
President
SCHEDULE A
SEPARATE ACCOUNTS AND CONTRACTS
Name of Separate Account and Form Numbers and Names of Contracts
Date Established by Board of Directors Funded by Separate Account
Variable Account C US Allianz Advantage
Established: May 26, 1988
<PAGE>
SCHEDULE B
PARTICIPATING LIFE INVESTMENT TRUST PORTFOLIOS
Enterprise Portfolio
Growth and Income Portfolio
<PAGE>
SCHEDULE C
PROXY VOTING PROCEDURES
The following is a list of procedures and corresponding responsibilities for the
handling of proxies and voting instructions relating to the Fund. The defined
terms herein shall have the meanings assigned in the Participation Agreement
except that the term "Company" shall also include the department or third party
assigned by the Company to perform the steps delineated below.
1. The proxy proposals are given to the Company by the Fund as early as
possible before the date set by the Fund for the shareholder meeting to
enable the Company to consider and prepare for the solicitation of
voting instructions from owners of the Contracts and to facilitate the
establishment of tabulation procedures. At this time the Fund will
inform the Company of the Record, Mailing and Meeting dates. This will
be done verbally approximately two months before meeting.
2. Promptly after the Record Date, the Company will perform a "tape run,"
or other activity, which will generate the names, address and number of
units which are attributed to each contractowner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in
the number of Customers to the Fund, as soon as possible, but no later
than two weeks after the Record Date.
3. The Fund's Annual Report must be sent to each Customer by the Company
either before or together with the Customers' receipt of voting
instruction solicitation material. The Fund will provide the last
Annual Report to the Company pursuant to the terms of Section 3.3 of
the Agreement to which this Schedule relates.
4. The text and format for the Voting Instruction Cards ("Cards" or
"Card") is provided to the Company by the Fund. The Company, at its
expense, shall produce and personalize the Voting Instruction Cards.
The Fund or its affiliate must approve the Card before it is printed.
Allow approximately 2-4 business days for printing information on the
Cards. Information commonly found on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. fund or account number
d. coding to state number of units (or equivalent shares)
e. individual Card number for use in tracking and
verification of votes (already on Cards as printed by the
Fund).
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
5. During this time, the Fund will develop, produce, and the Fund will pay
for the Notice of Proxy and the Proxy Statement (one document). Printed
and folded notices and statements will be sent to Company for insertion
into envelopes (envelopes and return envelopes are provided and paid
for by the Company). Contents of envelope sent to Customers by the
Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to the
Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a
small, single sheet of paper that
requests Customers to vote as quickly as possible and that
their vote is important. One copy will be supplied by the
Fund.)
e. cover letter - optional, supplied by Company and reviewed and
approved in advance by the Fund.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness
and completeness. Copy of this approval sent to the Fund.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the
Company as the shareowner. (A 5-week period is recommended.)
Solicitation time is calculated as calendar days from (but not
including,) the meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes
place in another department or another vendor depending on process
used. An often used procedure is to sort Cards on arrival by proposal
into vote categories of all yes, no, or mixed replies, and to begin
data entry.
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal procedure
and has not been required by the Fund in the past.
9. Signatures on Card checked against legal name on account registration which
was printed on the Card.
Note: For example, if the account registration is under "John A.
Smith, Trustee," then that is the exact legal name to be printed on
the Card and is the signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not
signed properly, they are sent back to Customer with an explanatory
letter and a new Card and return envelope. The mutilated or illegible
Card is disregarded and considered to be not received for purposes of
vote tabulation. Any Cards that have been "kicked out" (e.g.,
mutilated, illegible) of the procedure are "hand verified," (i.e.,
examined as to why they did not complete the system). Any questions on
those Cards are usually remedied individually.
11. There are various control procedures used to ensure proper tabulation
of votes and accuracy of that tabulation. The most prevalent is to sort
the Cards as they first arrive into categories depending upon their
vote; an estimate of how the vote is progressing may then be
calculated. If the initial estimates and the actual vote do not
coincide, then an internal audit of that vote should occur. This may
entail a recount.
12. The actual tabulation of votes is done in units (or equivalent shares)
which is then converted to shares. (It is very important that the fund
receives the tabulations stated in terms of a percentage and the number
of shares.) The Fund must review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to the Fund
on the morning of the meeting not later than 10:00 A.M. Houston time.
The Fund may request an earlier deadline if reasonable and if required
to calculate the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final
vote. The Fund will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from
the Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, the Fund will
be permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
FUND PARTICIPATION AGREEMENT
This Agreement is entered into as of the 1st day of November, 1999, between
Preferred Life Insurance Company of New York ("Insurance Company"), a life
insurance company organized under the laws of the State of New York, and J.P.
Morgan Series Trust II ("Fund"), a business trust organized under the laws of
Delaware, with respect to the Fund's portfolio or portfolios set forth on
Schedule 1 hereto, as such Schedule may be revised from time to time (the
"Series"; if there are more than one Series to which this Agreement applies, the
provisions herein shall apply severally to each such Series).
ARTICLE I 1.
DEFINITIONS
1.1. "Act" shall mean the Investment Company Act of 1940, as amended.
1.2. "Board" shall mean the Board of Trustees of the Fund having the
responsibility for management and control of the Fund.
1.3. "Business Day" shall mean any day for which the Fund calculates net
asset value per share as described in the Fund's Prospectus.
1.4. "Commission" shall mean the Securities and Exchange Commission.
1.5. "Contract" shall mean a variable annuity or variable life insurance
contract that uses the Fund as an underlying investment medium.
Individuals who participate under a group Contract are "Participants".
1.6. "Contractholder" shall mean any entity that is a party to a Contract
with a Participating Company.
1.7. "Disinterested Board Members" shall mean those members of the Board
that are not deemed to be "interested persons" of the Fund, as defined
by the Act.
1.8. "Participating Companies" shall mean any insurance company (including
Insurance Company), which offers variable annuity and/or variable life
insurance contracts to the public and which has entered into an
agreement with the Fund for the purpose of making Fund shares
available to serve as the underlying investment medium for the
aforesaid Contracts.
1.9. "Plans" shall mean qualified pension and retirement benefit plans.
1.10. "Prospectus" shall mean the Fund's current prospectus and statement of
additional information, as most recently filed with the Commission,
with respect to the Series.
1.11. "Separate Account" shall mean the Insurance Company's Separate Account
listed on Schedule II, a separate account established by Insurance
Company in accordance laws of the State of New York.
1.12. "Software Program" shall mean the software program used by the Fund
for providing Fund and account balance information including net asset
value per share.
1.13. "Insurance Company's General Account(s)" shall mean the general
account(s) of Insurance Company and its affiliates which invest in the
Fund.
ARTICLE II 2.
REPRESENTATIONS
2.1 Insurance Company represents and warrants that (a) it is an insurance
company duly organized and in good standing under applicable law; (b)
it has legally and validly established the Separate Account pursuant to
the New York State Insurance Code for the purpose of offering to the
public certain individual variable annuity contracts; (c) it has
registered the Separate Account as a unit investment trust under the
Act to serve as the segregated investment account for the Contracts;
(d) each Separate Account is eligible to invest in shares of the Fund
without such investment disqualifying the Fund as an investment medium
for insurance company separate accounts supporting variable annuity
contracts or variable life insurance contracts; and (e) each Separate
Account shall comply with all applicable legal requirements.
2.2 Insurance Company represents and warrants that (a) the Contracts will
be described in a registration statement filed under the Securities Act
of 1933, as amended ("1933 Act"); (b) the Contracts will be issued and
sold in compliance in all material respects with all applicable federal
and state laws; and (c) the sale of the Contracts shall comply in all
material respects with state insurance law requirements. Insurance
Company agrees to inform the Fund promptly of any investment
restrictions imposed by state insurance law and applicable to the Fund.
2.3 Insurance Company represents and warrants that the income, gains and
losses, whether or not realized, from assets allocated to the Separate
Account are, in accordance with the applicable Contracts, to be
credited to or charged against such Separate Account without regard to
other income, gains or losses from assets allocated to any other
accounts of Insurance Company. Insurance Company represents and
warrants that the assets of the Separate Account are and will be kept
separate from Insurance Company's General Account and any other
separate accounts Insurance Company may have, and will not be charged
with liabilities from any business that Insurance Company may conduct
or the liabilities of any companies affiliated with Insurance Company.
2.4 Fund represents and warrants that the Fund is registered with the
Commission under the Act as an open-end management investment company
and possesses, and shall maintain, all legal and regulatory licenses,
approvals, consents and/or exemptions required for the Fund to operate
and offer its shares as an underlying investment medium for
Participating Companies. The Fund has established five portfolios and
may in the future establish other portfolios.
2.5 Fund represents and warrants that it is currently qualified as a
Regulated Investment Company under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"), and that it will make every
effort to maintain such qualification (under Subchapter M or any
successor or similar provision) and that it will notify Insurance
Company immediately upon having a reasonable basis for believing that
it has ceased to so qualify or that it might not so qualify in the
future.
2.6 Insurance Company represents and warrants that the Contracts are
currently, and at the time of issuance will be, treated as life
insurance policies or annuity contracts, whichever is appropriate,
under applicable provisions of the Code, and that it will make every
effort to maintain such treatment and that it will notify the Fund and
its investment adviser immediately upon having a reasonable basis for
believing that the Contracts have ceased to be so treated or that they
might not be so treated in the future. Insurance Company agrees that
any prospectus offering a Contract that is a "modified endowment
contract," as that term is defined in Section 7702A of the Code, will
identify such Contract as a modified endowment contract (or policy).
2.7 Fund represents and warrants that the Fund's assets shall be managed
and invested in a manner that complies with the requirements of Section
817(h) of the Code.
2.8 Insurance Company agrees that the Fund shall be permitted (subject to
the other terms of this Agreement) to make Series' shares available to
other Participating Companies and contractholders and to Plans.
2.9 Fund represents and warrants that any of its trustees, officers,
employees, investment advisers, and other individuals/entities who deal
with the money and/or securities of the Fund are and shall continue to
be at all times covered by a blanket fidelity bond or similar coverage
for the benefit of the Fund in an amount not less than that required by
Rule 17g-1 under the Act. The aforesaid Bond shall include coverage for
larceny and embezzlement and shall be issued by a reputable bonding
company.
2.10 Insurance Company represents and warrants that all of its employees and
agents who deal with the money and/or securities of the Fund are and
shall continue to be at all times covered by a blanket fidelity bond or
similar coverage in an amount not less than the coverage required to be
maintained by the Fund. The aforesaid Bond shall include coverage for
larceny and embezzlement and shall be issued by a reputable bonding
company.
2.11 Insurance Company agrees that the Fund's investment adviser shall be
deemed a third party beneficiary under this Agreement and may enforce
any and all rights conferred by virtue of this Agreement.
ARTICLE III 3.
FUND SHARES
3.1 The Contracts funded through the Separate Account will provide for the
investment of certain amounts in the Series'
shares
3.2 Fund agrees to make the shares of its Series available for purchase at
the then applicable net asset value per share by Insurance Company and
the Separate Account on each Business Day pursuant to rules of the
Commission. Notwithstanding the foregoing, the Fund may refuse to sell
the shares of any Series to any person, or suspend or terminate the
offering of the shares of any Series if such action is required by law
or by regulatory authorities having jurisdiction or is, in the sole
discretion of the Board, acting in good faith and in light of its
fiduciary duties under federal and any applicable state laws, necessary
and in the best interests of the shareholders of such Series.
3.3 Fund agrees that shares of the Fund will be sold only to Participating
Companies and their separate accounts and to the general accounts of
those Participating Companies and their affiliates and to Plans. No
shares of any Series will be sold to the general public.
3.4 Fund shall use its best efforts to provide closing net asset value,
dividend and capital gain information for each Series available on a
per-share and Series basis to Insurance Company by 7:00 p.m. Eastern
Time on each Business Day. Any material errors in the calculation of
net asset value, dividend and capital gain information shall be
reported immediately upon discovery to Insurance Company. Non-material
errors will be corrected in the next Business Day's net asset value per
share for the Series in question.
3.5 At the end of each Business Day, Insurance Company will use the
information described in Sections 3.2 and 3.4 to calculate the Separate
Account unit values for the day. Using this unit value, Insurance
Company will process the day's Separate Account transactions received
by it by the close of trading on the floor of the New York Stock
Exchange (currently 4:00 p.m. Eastern time) to determine the net dollar
amount of Series shares which will be purchased or redeemed at that
day's closing net asset value per share for such Series. The net
purchase or redemption orders will be transmitted to the Fund by
Insurance Company by 8:30 a.m. Eastern Time on the Business Day next
following Insurance Company's receipt of that information. Subject to
Sections 3.6 and 3.8, all purchase and redemption orders for Insurance
Company's General Accounts shall be effected at the net asset value per
share of the relevant Series next calculated after receipt of the order
by the Fund or its Transfer Agent.
3.6 Fund appoints Insurance Company as its agent for the limited purpose of
accepting orders for the purchase and redemption of shares of each
Series for the Separate Account. Fund will execute orders for any
Series at the applicable net asset value per share determined as of the
close of trading on the day of receipt of such orders by Insurance
Company acting as agent ("effective trade date"), provided that the
Fund receives notice of such orders by 8:30 a.m. Eastern Time on the
next following Business Day and, if such orders request the purchase of
Series shares, the conditions specified in Section 3.8, as applicable,
are satisfied. A redemption or purchase request for any Series that
does not satisfy the conditions specified above and in Section 3.8, as
applicable, will be effected at the net asset value computed for such
Series on the Business Day immediately preceding the next following
Business Day upon which such conditions have been satisfied.
3.7 Insurance Company will make its best efforts to notify Fund in advance
of any unusually large purchase or redemption orders.
3.8 If Insurance Company's order requests the purchase of Series shares,
Insurance Company will pay for such purchases by wiring Federal Funds
to Fund or its designated custodial account on the day the order is
transmitted. Insurance Company shall make all reasonable efforts to
transmit to the Fund payment in Federal Funds by the close of the
Federal Reserve wire system on the Business Day the Fund receives the
notice of the order pursuant to Section 3.5. Fund will execute such
orders at the applicable net asset value per share determined as of the
close of trading on the effective trade date if Fund receives payment
in Federal Funds by the close of the Federal Reserve wire system on the
Business Day the Fund receives the notice of the order pursuant to
Section 3.5. If payment in Federal Funds for any purchase is not
received on such Business Day, Insurance Company shall promptly upon
the Fund's request, reimburse the Fund for any charges, costs, fees,
interest or other expenses incurred by the Fund in connection with any
advances to, or borrowings or overdrafts by, the Fund, or any similar
expenses incurred by the Fund, as a result of portfolio transactions
effected by the Fund based upon such purchase request. If Insurance
Company's order requests the redemption of Series shares valued at or
greater than $1 million dollars, the Fund may wire such amount to
Insurance Company within seven days of the order.
3.9 Fund has the obligation to ensure that Series shares are registered
with applicable federal agencies at all times.
3.10 Fund will confirm each purchase or redemption order made by Insurance
Company. Transfer of Series shares will be by book entry only. No share
certificates will be issued to Insurance Company. Insurance Company
will record shares ordered from Fund in an appropriate title for the
corresponding account.
3.11 Fund shall credit Insurance Company with the appropriate number of shares.
3.12 On each ex-dividend date of the Fund or, if not a Business Day, on the
first Business Day thereafter, Fund shall communicate to Insurance
Company the amount of dividend and capital gain, if any, per share of
each Series. All dividends and capital gains of any Series shall be
automatically reinvested in additional shares of the relevant Series at
the applicable net asset value per share of such Series on the payable
date. Fund shall, on the day after the payable date or, if not a
Business Day, on the first Business Day thereafter, notify Insurance
Company of the number of shares so issued.
ARTICLE IV 4.
STATEMENTS AND REPORTS
4.1 Fund shall provide monthly statements of account as of the end of each
month for all of Insurance Company's accounts by the fifteenth (15th)
Business Day of the following month.
4.2 Fund shall distribute to Insurance Company copies of the Fund's
Prospectuses, proxy materials, notices, periodic reports and other
printed materials (which the Fund customarily provides to its
shareholders) in quantities as Insurance Company may reasonably request
for distribution to each Contractholder and Participant.
4.3 Fund will provide to Insurance Company at least one complete copy of
all registration statements, Prospectuses, reports, proxy statements,
sales literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to any
of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the Commission or other
regulatory authorities.
4.4 Insurance Company will provide to the Fund at least one copy of all
registration statements, Prospectuses, reports, proxy statements, sales
literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to any
of the above, that relate to the Contracts or the Separate Account,
contemporaneously with the filing of such document with the Commission.
ARTICLE V 5.
EXPENSES
5.1 The charge to the Fund for all expenses and costs of the Series,
including but not limited to management fees, administrative expenses
and legal and regulatory costs, will be made in the determination of
the relevant Series' daily net asset value per share so as to
accumulate to an annual charge at the rate set forth in the Fund's
Prospectus. Excluded from the expense limitation described herein shall
be brokerage commissions and transaction fees and extraordinary
expenses.
5.2 Except as provided in this Article V and, in particular in the next
sentence, Insurance Company shall not be required to pay directly any
expenses of the Fund or expenses relating to the distribution of its
shares.
Insurance Company shall pay the following expenses or costs:
a. Such amount of the production expenses of any Fund materials,
including the cost of printing the Fund's Prospectus, or
marketing materials for prospective Insurance Company
Contractholders and Participants as the Fund's investment
adviser and Insurance Company shall agree from time to time.
b. Distribution expenses of any Fund materials or marketing
materials for prospective Insurance Company Contractholders
and Participants.
c. Distribution expenses of Fund materials or marketing materials
for Insurance Company Contractholders and Participants.
Except as provided herein, all other Fund expenses shall not be borne
by Insurance Company.
ARTICLE VI
EXEMPTIVE RELIEF
6.1 Insurance Company has reviewed a copy of the order dated December 1996
of the Securities and Exchange Commission under Section 6(c) of the Act
and, in particular, has reviewed the conditions to the relief set forth
in the related Notice. As set forth therein, Insurance Company agrees
to report any potential or existing conflicts promptly to the Board,
and in particular whenever contract voting instructions are
disregarded, and recognizes that it will be responsible for assisting
the Board in carrying out its responsibilities under such application.
Insurance Company agrees to carry out such responsibilities with a view
to the interests of existing Contractholders.
6.2 If a majority of the Board, or a majority of Disinterested Board
Members, determines that a material irreconcilable conflict exists with
regard to Contractholder investments in the Fund, the Board shall give
prompt notice to all Participating Companies. If the Board determines
that Insurance Company is responsible for causing or creating said
conflict, Insurance Company shall at its sole cost and expense, and to
the extent reasonably practicable (as determined by a majority of the
Disinterested Board Members), take such action as is necessary to
remedy or eliminate the irreconcilable material conflict. Such
necessary action may include, but shall not be limited to:
a. Withdrawing the assets allocable to the Separate Account from
the Series and reinvesting such assets in a different investment
medium, or submitting the question of whether such segregation
should be implemented to a vote of all affected Contractholders;
and/or
b. Establishing a new registered management investment company.
6.3 If a material irreconcilable conflict arises as a result of a decision
by Insurance Company to disregard Contractholder voting instructions
and said decision represents a minority position or would preclude a
majority vote by all Contractholders having an interest in the Fund,
Insurance Company may be required, at the Board's election, to withdraw
the Separate Account's investment in the Fund.
6.4 For the purpose of this Article, a majority of the Disinterested Board
Members shall determine whether or not any proposed action adequately
remedies any irreconcilable material conflict, but in no event will the
Fund be required to bear the expense of establishing a new funding
medium for any Contract. Insurance Company shall not be required by
this Article to establish a new funding medium for any Contract if an
offer to do so has been declined by vote of a majority of the
Contractholders materially adversely affected by the irreconcilable
material conflict.
6.5 No action by Insurance Company taken or omitted, and no action by the
Separate Account or the Fund taken or omitted as a result of any act or
failure to act by Insurance Company pursuant to this Article VI shall
relieve Insurance Company of its obligations under, or otherwise affect
the operation of, Article V.
ARTICLE VII 7.
VOTING OF FUND SHARES
7.1 Fund shall provide Insurance Company with copies at no cost to
Insurance Company, of the Fund's proxy material, reports to
shareholders and other communications to shareholders in such quantity
as Insurance Company shall reasonably require for distributing to
Contractholders or Participants.
Insurance Company shall:
(a) solicit voting instructions from Contractholders or Participants on a
timely basis and in accordance with applicable law;
(b) vote the Series shares in accordance with instructions receive
from Contractholders or Participants; and
(c) vote Series shares for which no instructions have been
received in the same proportion as Series shares for which
instructions have been received.
Insurance Company agrees at all times to votes its General Account
shares in the same proportion as Series shares for which instructions
have been received from Contractholders or Participants. Insurance
Company further agrees to be responsible for assuring that voting
Series shares for the Separate Account is conducted in a manner
consistent with other Participating Companies.
7.2 Insurance Company agrees that it shall not, without the prior written
consent of the Fund and its investment adviser, solicit, induce or
encourage Contractholders to (a) change or supplement the Fund's
current investment adviser or (b) change, modify, substitute, add to or
delete the Fund from the current investment media for the Contracts.
ARTICLE VIII 8.
MARKETING AND REPRESENTATIONS
8.1 The Fund or its underwriter shall periodically furnish Insurance
Company with the following documents, in quantities as Insurance
Company may reasonably request:
a. Current Prospectus and any supplements thereto;
b. other marketing materials.
Expenses for the production of such documents shall be borne by
Insurance Company in accordance with Section 5.2 of this Agreement.
8.2 Insurance Company shall designate certain persons or entities which
shall have the requisite licenses to solicit applications for the sale
of Contracts. No representation is made as to the number or amount of
Contracts that are to be sold by Insurance Company. Insurance Company
shall make reasonable efforts to market the Contracts and shall comply
with all applicable federal and state laws in connection therewith.
8.3 Insurance Company shall furnish, or shall cause to be furnished, to the
Fund, each piece of sales literature or other promotional material in
which the Fund, its investment adviser or the administrator is named,
at least fifteen Business Days prior to its use. No such material shall
be used unless the Fund approves such material. Such approval (if
given) must be in writing and shall be presumed not given if not
received within ten Business Days after receipt of such material. The
Fund shall use all reasonable efforts to respond within ten days of
receipt.
8.4 Insurance Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the
Fund or any Series in connection with the sale of the Contracts other
than the information or representations contained in the registration
statement or Prospectus, as may be amended or supplemented from time to
time, or in reports or proxy statements for the Fund, or in sales
literature or other promotional material approved by the Fund.
8.5 Fund shall furnish, or shall cause to be furnished, to Insurance
Company, each piece of the Fund's sales literature or other promotional
material in which Insurance Company or the Separate Account is named,
at least fifteen Business Days prior to its use. No such material shall
be used unless Insurance Company approves such material. Such approval
(if given) must be in writing and shall be presumed not given if not
received within ten Business Days after receipt of such material.
Insurance Company shall use all reasonable efforts to respond within
ten days of receipt.
8.6 Fund shall not, in connection with the sale of Series shares, give any
information or make any representations on behalf of Insurance Company
or concerning Insurance Company, the Separate Account, or the Contracts
other than the information or representations contained in a
registration statement or prospectus for the Contracts, as may be
amended or supplemented from time to time, or in published reports for
the Separate Account which are in the public domain or approved by
Insurance Company for distribution to Contractholders or Participants,
or in sales literature or other promotional material approved by
Insurance Company.
8.7 For purposes of this Agreement, the phrase "sales literature or other
promotional material" or words of similar import include, without
limitation, advertisements (such as material published, or designed for
use, in a newspaper, magazine or other periodical, radio, television,
telephone or tape recording, videotape display, signs or billboards,
motion pictures or other public media), sales literature (such as any
written communication distributed or made generally available to
customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, or reprints or
excerpts of any other advertisement, sales literature, or published
article), educational or training materials or other communications
distributed or made generally available to some or all agents or
employees, registration statements, prospectuses, statements of
additional information, shareholder reports and proxy materials, and
any other material constituting sales literature or advertising under
National Association of Securities Dealers, Inc. rules, the Act or the
1933 Act.
ARTICLE IX 9.
INDEMNIFICATION
9.1 Insurance Company agrees to indemnify and hold harmless the Fund, its
investment adviser, any sub-investment adviser of a Series, and their
affiliates, and each of their directors, trustees, officers, employees,
agents and each person, if any, who controls or is associated with any
of the foregoing entities or persons within the meaning of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of Section 9.1),
against any and all losses, claims, damages or liabilities joint or
several (including any investigative, legal and other expenses
reasonably incurred in connection with, and any amounts paid in
settlement of, any action, suit or proceeding or any claim asserted)
for which the Indemnified Parties may become subject, under the 1933
Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect to thereof) (i) arise out of or are
based upon any untrue statement or alleged untrue statement of any
material fact contained in information furnished by Insurance Company
for use in the registration statement or Prospectus or sales literature
or advertisements of the Fund or with respect to the Separate Account
or Contracts, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading;
(ii) arise out of or as a result of conduct, statements or
representations (other than statements or representations contained in
the Prospectus and sales literature or advertisements of the Fund) of
Insurance Company or its agents, with respect to the sale and
distribution of Contracts for which Series shares are an underlying
investment; (iii) arise out of the wrongful conduct of Insurance
Company or persons under its control with respect to the sale or
distribution of the Contracts or Series shares; (iv) arise out of
Insurance Company's incorrect calculation and/or untimely reporting of
net purchase or redemption orders; or (v) arise out of any breach by
Insurance Company of a material term of this Agreement or as a result
of any failure by Insurance Company to provide the services and furnish
the materials or to make any payments provided for in this Agreement.
Insurance Company will reimburse any Indemnified Party in connection
with investigating or defending any such loss, claim, damage, liability
or action; provided, however, that with respect to clauses (i) and (ii)
above Insurance Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or
is based upon any untrue statement or omission or alleged omission made
in such registration statement, prospectus, sales literature, or
advertisement in conformity with written information furnished to
Insurance Company by the Fund specifically for use therein; and
provided, further, that Insurance Company shall not be liable for
special, consequential or incidental damages. This indemnity agreement
will be in addition to any liability which Insurance Company may
otherwise have.
9.2 The Fund agrees to indemnify and hold harmless Insurance Company and
each of its directors, officers, employees, agents and each person, if
any, who controls Insurance Company within the meaning of the 1933 Act
against any losses, claims, damages or liabilities to which Insurance
Company or any such director, officer, employee, agent or controlling
person may become subject, under the 1933 Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect
thereof) (1) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or Prospectus or sales literature or
advertisements of the Fund; (2) arise out of or are based upon the
omission to state in the registration statement or Prospectus or sales
literature or advertisements of the Fund any material fact required to
be stated therein or necessary to make the statements therein not
misleading; or (3) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the
registration statement or Prospectus or sales literature or
advertisements with respect to the Separate Account or the Contracts
and such statements were based on information provided to Insurance
Company by the Fund; and the Fund will reimburse any legal or other
expenses reasonably incurred by Insurance Company or any such director,
officer, employee, agent or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Fund will not be liable in any such
case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or omission or
alleged omission made in such Registration Statement, Prospectus, sales
literature or advertisements in conformity with written information
furnished to the Fund by Insurance Company specifically for use
therein; and provided, further, that the Fund shall not be liable for
special, consequential or incidental damages. This indemnity agreement
will be in addition to any liability which the Fund may otherwise have.
9.3 The Fund shall indemnify and hold Insurance Company harmless against
any and all liability, loss, damages, costs or expenses which Insurance
Company may incur, suffer or be required to pay due to the Fund's (1)
incorrect calculation of the daily net asset value, dividend rate or
capital gain distribution rate of a Series; (2) incorrect reporting of
the daily net asset value, dividend rate or capital gain distribution
rate; and (3) untimely reporting of the net asset value, dividend rate
or capital gain distribution rate; provided that the Fund shall have no
obligation to indemnify and hold harmless Insurance Company if the
incorrect calculation or incorrect or untimely reporting was the result
of incorrect information furnished by Insurance Company or information
furnished untimely by Insurance Company or otherwise as a result of or
relating to a breach of this Agreement by Insurance Company; and
provided, further, that the Fund shall not be liable for special,
consequential or incidental damages.
9.4 Promptly after receipt by an indemnified party under this Article of
notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying
party under this Article, notify the indemnifying party of the
commencement thereof. The omission to so notify the indemnifying party
will not relieve the indemnifying party from any liability under this
Article IX, except to the extent that the omission results in a failure
of actual notice to the indemnifying party and such indemnifying party
is damaged solely as a result of the failure to give such notice. In
case any such action is brought against any indemnified party, and it
notified the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the
extent that it may wish, assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party, and to the extent
that the indemnifying party has given notice to such effect to the
indemnified party and is performing its obligations under this Article,
the indemnifying party shall not be liable for any legal or other
expenses subsequently incurred by such indemnified party in connection
with the defense thereof, other than reasonable costs of investigation.
Notwithstanding the foregoing, in any such proceeding, any indemnified
party shall have the right to retain its own counsel, but the fees and
expenses of such counsel shall be at the expense of such indemnified
party unless (i) the indemnifying party and the indemnified party shall
have mutually agreed to the retention of such counsel or (ii) the named
parties to any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and
representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between
them. The indemnifying party shall not be liable for any settlement of
any proceeding effected without its written consent.
A successor by law of the parties to this Agreement shall be entitled
to the benefits of the indemnification contained in this Article IX.
9.5 Insurance Company shall indemnify and hold the Fund, its investment
adviser and any sub-investment adviser of a Series harmless against any
tax liability incurred by the Fund under Section 851 of the Code
arising from purchases or redemptions by Insurance Company's General
Accounts or the account of its affiliates.
ARTICLE X 10.
COMMENCEMENT AND TERMINATION
10.1 This Agreement shall be effective as of the date hereof and shall
continue in force until terminated in accordance with the provisions
herein.
10.2 This Agreement shall terminate without penalty as to one or more Series
at the option of the terminating party:
a. At the option of Insurance Company or the Fund at any time from the
date hereof upon 180 days' notice, unless a
shorter time is agreed to by the parties;
b. At the option of Insurance Company, if shares of any Series
are not reasonably available to meet the requirements of the
Contracts as determined by Insurance Company. Prompt notice of
election to terminate shall be furnished by Insurance Company,
said termination to be effective ten days after receipt of
notice unless the Fund makes available a sufficient number of
shares to meet the requirements of the Contracts within said
ten-day period;
c. At the option of Insurance Company, upon the institution of
formal proceedings against the Fund by the Commission,
National Association of Securities Dealers or any other
regulatory body, the expected or anticipated ruling, judgment
or outcome of which would, in Insurance Company's reasonable
judgment, materially impair the Fund's ability to meet and
perform the Fund's obligations and duties hereunder. Prompt
notice of election to terminate shall be furnished by
Insurance Company with said termination to be effective upon
receipt of notice;
d. At the option of the Fund, upon the institution of formal
proceedings against Insurance Company by the Commission,
National Association of Securities Dealers or any other
regulatory body, the expected or anticipated ruling, judgment
or outcome of which would, in the Fund's reasonable judgment,
materially impair Insurance Company's ability to meet and
perform Insurance Company's obligations and duties hereunder.
Prompt notice of election to terminate shall be furnished by
the Fund with said termination to be effective upon receipt of
notice;
e. At the option of the Fund, if the Fund shall determine, in its
sole judgment reasonably exercised in good faith, that
Insurance Company has suffered a material adverse change in
its business or financial condition or is the subject of
material adverse publicity and such material adverse change
or material adverse publicity is likely to have a material
adverse impact upon the business and operation of the Fund
or its investment adviser, the Fund shall notify Insurance
Company in writing of such determination and its intent to
terminate this Agreement, and after considering the actions
taken by Insurance Company and any other changes in
circumstances since the giving of such notice, such
determination of the Fund shall continue to apply on the
sixtieth (60th) day following the giving of such notice,
which sixtieth day shall be the effective date of termination;
f. Upon termination of the Investment Advisory Agreement between
the Fund and its investment adviser or its successors unless
Insurance Company specifically approves the selection of a new
Fund investment adviser. The Fund shall promptly furnish
notice of such termination to Insurance Company;
g. In the event the Fund's shares are not registered, issued or
sold in accordance with applicable federal law, or such law
precludes the use of such shares as the underlying investment
medium of Contracts issued or to be issued by Insurance
Company. Termination shall be effective immediately upon such
occurrence without notice;
h. At the option of the Fund upon a determination by the Board in
good faith that it is no longer advisable and in the best
interests of shareholders for the Fund to continue to operate
pursuant to this Agreement. Termination pursuant to this
Subsection (h) shall be effective upon notice by the Fund to
Insurance Company of such termination;
i. At the option of the Fund if the Contracts cease to qualify as
annuity contracts or life insurance policies, as applicable,
under the Code, or if the Fund reasonably believes that the
Contracts may fail to so qualify;
j. At the option of either party to this Agreement, upon another
party's breach of any material provision of this Agreement;
k. At the option of the Fund, if the Contracts are not
registered, issued or sold in accordance with applicable
federal and/or state law; or
l. Upon assignment of this Agreement, unless made with the written consent of
the non-assigning party.
Any such termination pursuant to Section 10.2a, 10.2d, 10.2e, 10.2f or
10.2k herein shall not affect the operation of Article V of this
Agreement. Any termination of this Agreement shall not affect the
operation of Article IX of this Agreement.
10.3 Notwithstanding any termination of this Agreement pursuant to Section
10.2 hereof, the Fund and its investment adviser may, at the option of
the Fund, continue to make available additional Series shares for so
long as the Fund desires pursuant to the terms and conditions of this
Agreement as provided below, for all Contracts in effect on the
effective date of termination of this Agreement (hereinafter referred
to as "Existing Contracts"). Specifically, without limitation, if the
Fund so elects to make additional Series shares available, the owners
of the Existing Contracts or Insurance Company, whichever shall have
legal authority to do so, shall be permitted to reallocate investments
in the Series, redeem investments in the Fund and/or invest in the Fund
upon the making of additional purchase payments under the Existing
Contracts. In the event of a termination of this Agreement pursuant to
Section 10.2 hereof, the Fund, as promptly as is practicable under the
circumstances, shall notify Insurance Company whether the Fund will
continue to make Series shares available after such termination. If
Series shares continue to be made available after such termination, the
provisions of this Agreement shall remain in effect and thereafter
either the Fund or Insurance Company may terminate the Agreement, as so
continued pursuant to this Section 10.3, upon prior written notice to
the other party, such notice to be for a period that is reasonable
under the circumstances but, if given by the Fund, need not be for more
than six months.
ARTICLE XI 11.
AMENDMENTS
11.1 Any other changes in the terms of this Agreement shall be made by
agreement in writing between Insurance Company and Fund.
ARTICLE XII 12.
NOTICE
12.1 Each notice required by this Agreement shall be given by certified
mail, return receipt requested, to the appropriate parties at the
following addresses:
Insurance Company:
Preferred Life Insurance Company of New York
152 West 57th Street, 18th Floor
New York, NY
Att: Eugene K. Long
Fund:
J.P. Morgan Series Trust II
c/o Morgan Guaranty Trust Company
522 Fifth Avenue
New York, New York 10036
Attention: Kathleen H. Tripp
Notice shall be deemed to be given on the date of receipt by the
addresses as evidenced by the return receipt.
ARTICLE XIII 13.
MISCELLANEOUS
13.1 This Agreement has been executed on behalf of the Fund by the
undersigned officer of the Fund in his capacity as an officer of the
Fund. The obligations of this Agreement shall only be binding upon the
assets and property of the Fund and shall not be binding upon any
Trustee, officer or shareholder of the Fund individually.
ARTICLE XIV 14.
LAW
14.1 This Agreement shall be construed in accordance with the internal
laws of the State of New York, without giving effect to principles of
conflict of laws.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be duly
executed and attested as of the date first above written.
PREFERRED INSURANCE COMPANY OF NEW YORK
By: /s/ Michael T. Westermeyer
_______________________________
Michael T. Westermeyer
Its: Secretary
_______________________________
J.P.MORGAN SERIES TRUST II
By: /s/ Stephanie Pierce
________________________________
Stephanie Pierce
Its: Vice President
________________________________
SCHEDULE 1
Name of Series
J.P. Morgan International Opportunities Portfolio
J.P. Morgan U.S. Disciplined Equity Portfolio
SCHEDULE II
PREFERRED LIFE VARIABLE ACCOUNT C
PARTICIPATION AGREEMENT
Among
OPPENHEIMER VARIABLE ACCOUNT FUNDS,
OPPENHEIMERFUNDS, INC.
and
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
THIS AGREEMENT (the "Agreement"), made and entered into as of
the 1st day of December, 1999 by and among Preferred Life Insurance Company of
New York (hereinafter the "Company"), on its own behalf and on behalf of each
separate account of the Company named in Schedule 1 to this Agreement, as may be
amended from time to time by mutual consent (hereinafter collectively the
"Accounts"), Oppenheimer Variable Account Funds (hereinafter the "Fund") and
OppenheimerFunds, Inc. (hereinafter the "Adviser").
WHEREAS, the Fund is an open-end management investment company
and is available to act as the investment vehicle for separate accounts now in
existence or to be established at any date hereafter for variable life insurance
policies, variable annuity contracts and other tax-deferred products
(collectively, the "Variable Insurance Products") offered by insurance companies
(hereinafter "Participating Insurance Companies");
WHEREAS, the beneficial interest in the Fund is divided into
several series of shares, each designated a "Portfolio", and each representing
the interests in a particular managed pool of securities and other assets;
WHEREAS, the Fund has obtained an order from the Securities
and Exchange Commission, dated July 16, 1986 (File No. 812-6324) granting
Participating Insurance Companies and variable annuity and variable life
insurance separate accounts exemptions from the provisions of sections 9(a),
13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter the "1940 Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15)
thereunder, to the extent necessary to permit shares of the Fund to be sold to
and held by variable annuity and variable life insurance separate accounts of
both affiliated and unaffiliated life insurance company (hereinafter the "Mixed
and Shared Funding Exemptive Order")
WHEREAS, the Fund is registered as an open-end management
investment company under the 1940 Act and its shares are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act");
WHEREAS, the Adviser is duly registered as an investment
adviser under the federal Investment Advisers Act of 1940;
WHEREAS, the Company has registered or will register certain
variable annuity and/or life insurance contracts under the 1933 Act (hereinafter
"Contracts") (unless an exemption from registration is available);
WHEREAS, the Accounts are or will be duly organized, validly
existing segregated asset accounts, established by resolution of the Board of
Directors of the Company, to set aside and invest assets attributable to the
aforesaid variable contracts (the Contract(s) and the Account(s) covered by the
Agreement are specified in Schedule 1 attached hereto, as may be modified by
mutual consent from time to time);
WHEREAS, the Company has registered or will register the
Accounts as unit investment trusts under the 1940 Act (unless an exemption from
registration is available);
WHEREAS, to the extent permitted by applicable insurance laws
and regulations, the Company intends to purchase shares in the Portfolios (the
Portfolios covered by this Agreement are specified in Schedule 2 attached hereto
as may be modified by mutual consent from time to time), on behalf of the
Accounts to fund the Contracts named in Schedule 1, as may be amended from time
to time by mutual consent, and the Fund is authorized to sell such shares to
unit investment trusts such as the Accounts at net asset value; and
NOW, THEREFORE, in consideration of their mutual promises, the
Fund, the Adviser and the Company agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Fund agrees to sell to the Company those shares of
the Fund which the Company orders on behalf of the Account, executing such
orders on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the order for the shares of the Fund. For purposes
of this Section 1.1, the Company shall be the designee of the Fund for receipt
of such orders from each Account and receipt by such designee shall constitute
receipt by the Fund; provided that the Fund receives written (or facsimile)
notice of such order by 9:30 a.m. New York time on the next following Business
Day. "Business Day" shall mean any day on which the New York Stock Exchange is
open for trading and on which the Fund calculates its net asset value pursuant
to the rules of the SEC.
1.2. The Company shall pay for Fund shares by 2 p.m. New York
time on the next Business Day after it places an order to purchase Fund shares
in accordance with Section 1.1 hereof. Payment shall be in federal funds
transmitted by wire or by a credit for any shares redeemed.
1.3. The Fund agrees to make Fund shares available for
purchase at the applicable net asset value per share by the Company for its
separate Account listed in Schedule 1 on those days on which the Fund calculates
its net asset value pursuant to rules of the SEC; provided, however, that the
Board of Trustees of the Fund (hereinafter the "Trustees") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Trustees,
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, in the best interests of the shareholders of any
Portfolio.
1.4. The Fund agrees to redeem, upon the Company's request,
any full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.4, the Company shall be the designee of the Fund for receipt of
requests for redemption and receipt by such designee shall constitute receipt by
the Fund; provided that the Fund receives written (or facsimile) notice of such
request for redemption by 9:30 a.m. New York time on the next following Business
Day. Payment shall be made within the time period specified in the Fund's
prospectus or statement of additional information, in federal funds transmitted
by wire to the Company's account as designated by the Company in writing from
time to time.
1.5. The Company shall pay for the Fund shares on the next
Business Day after an order to purchase shares is made in accordance with the
provisions of Section 1.4 hereof. Payment shall be in federal funds transmitted
by wire pursuant to the instructions of the Fund's treasurer or by a credit for
any shares redeemed.
1.6. The Company agrees to purchase and redeem the shares of
the Portfolios named in Schedule 2 offered by the then current prospectus and
statement of additional information of the Fund in accordance with the
provisions of such prospectus and statement of additional information. The
Company shall not permit any person other than a Contract owner to give
instructions to the Company which would require the Company to redeem or
exchange shares of the Fund.
1.7. If the Fund provides materially incorrect share net asset
value information, the number of shares purchased or redeemed shall be adjusted
to reflect the correct net asset value per share. Any material error in the
calculation or reporting of net asset value per share, dividend or capital gain
information shall be reported promptly upon discovery to the Company.
ARTICLE II. Sales Material, Prospectuses and Other Reports
2.1. The Company shall furnish, or shall cause to be
furnished, to the Fund or its designee, each piece of sales literature or other
promotional material in which the Fund or the Adviser is named, at least ten
Business Days prior to its use. No such material shall be used if the Fund or
its designee reasonably object to such use within ten Business Days after
receipt of such material. "Business Day" shall mean any day in which the New
York Stock Exchange is open for trading and in which the Fund calculates its net
asset value pursuant to the rules of the Securities and Exchange Commission.
2.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sale literature or other promotional material approved by the Fund or its
designee, except with the permission of the Fund.
2.3. For purposes of this Article II, the phrase "sales
literature or other promotional material" means advertisements (such as material
published, or designed for use in, a newspaper, magazine, or other periodical,
radio, television, telephone or tape recording, videotape display, signs or
billboard or electronic media), and sales literature (such as brochures,
circulars, market letters and form letters), distributed or made generally
available to customers or the public.
2.4. The Fund shall provide a copy of its current prospectus
within a reasonable period of its filing date, and provide other assistance as
is reasonably necessary in order for the Company once each year (or more
frequently if the prospectus for the Fund is supplemented or amended) to have
the prospectus for the Contracts and the Fund's prospectus printed together in
one document (such printing to be at the Company's expense). The Adviser shall
be permitted to review and approve the typeset form of the Fund's Prospectus
prior to such printing.
2.5. The Fund or the Adviser shall provide the Company with
either: (i) a copy of the Fund's proxy material, reports to shareholders, other
information relating to the Fund necessary to prepare financial reports, and
other communications to shareholders for printing and distribution to Contract
owners at the Company's expense, or (ii) camera ready and/or printed copies, if
appropriate, of such material for distribution to Contract owners at the
Company's expense, within a reasonable period of the filing date for definitive
copies of such material. The Adviser shall be permitted to review and approve
the typeset form of such proxy material, shareholder reports and communications
prior to such printing provided such materials have been provided within a
reasonable period.
ARTICLE III. Fees and Expenses
3.1. The Fund and Adviser shall pay no fee or other
compensation to the Company under this agreement, and the Company shall pay no
fee or other compensation to the Fund or Adviser, except as provided herein.
3.2. All expenses incident to performance by each party of its
respective duties under this Agreement shall be paid by that party. The Fund
shall see to it that all its shares are registered and authorized for issuance
in accordance with applicable federal law and, if and to the extent advisable by
the Fund, in accordance with applicable state laws prior to their sale. The Fund
shall bear the expenses for the cost of registration and qualification of the
Fund's shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, and the preparation of all statements
and notices required by any federal or state law.
3.3. The Company shall bear the expenses of typesetting,
printing and distributing the Fund's prospectus, proxy materials and reports to
owners of Contracts issued by the Company.
3.4. In the
event the Fund adds one or more additional Portfolios and the parties desire to
make such Portfolios available to the respective Contract owners as an
underlying investment medium, a new Schedule 1 or an amendment to this Agreement
shall be executed by the parties authorizing the issuance of shares of the new
Portfolios to the particular Account. The amendment may also provide for the
sharing of expenses for the establishment of new Portfolios among Participating
Insurance Companies desiring to invest in such Portfolios and the provision of
funds as the initial investment in the new Portfolios.
ARTICLE IV. Potential Conflicts
4.1. The Board of Trustees of the Fund (the "Board") will
monitor the Fund for the existence of any material irreconcilable conflict
between the interests of the Contract owners of all separate accounts investing
in the Fund. An irreconcilable material conflict may arise for a variety of
reasons, including: (a) an action by any state insurance regulatory authority;
(b) a change in applicable federal or state insurance, tax, or securities laws
or regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of any Portfolio
are being managed; (e) a difference in voting instructions given by variable
annuity contract and variable life insurance contract owners; or (f) a decision
by an insurer to disregard the voting instructions of Contract owners. The Board
shall promptly inform the Company if it determines that an irreconcilable
material conflict exists and the implications thereof.
4.2. The Company has reviewed a copy of the Mixed and Shared
Funding Exemptive Order, and in particular, has reviewed the conditions to the
requested relief set forth therein. The Company agrees to be bound by the
responsibilities of a participating insurance company as set forth in the Mixed
and Shared Funding Exemptive Order, including without limitation the requirement
that the Company report any potential or existing conflicts of which it is aware
to the Board. The Company will assist the Board in carrying out its
responsibilities in monitoring such conflicts under the Mixed and Shared Funding
Exemptive Order, by providing the Board in a timely manner with all information
reasonably necessary for the Board to consider any issues raised. This includes,
but is not limited to, an obligation by the Company to inform the Board whenever
Contract owner voting instructions are disregarded and by confirming in writing,
at the Fund's request, that the Company are unaware of any such potential or
existing material irreconcilable conflicts.
4.3. If it is determined by a majority of the Board, or a
majority of its disinterested Trustees, that a material irreconcilable conflict
exists, the Company shall, at its expense and to the extent reasonably
practicable (as determined by a majority of the disinterested trustees), take
whatever steps are necessary to remedy or eliminate the irreconcilable material
conflict, up to and including: (1) withdrawing the assets allocable to some or
all of the separate accounts from the Fund or any Portfolio and reinvesting such
assets in a different investment medium, including (but not limited to) another
Portfolio of the Fund, or submitting the question whether such segregation
should be implemented to a vote of all affected Contract owners and, as
appropriate, segregating the assets of any appropriate group (i.e., annuity
contract owners, life insurance contract owners, or variable contract owners of
one or more Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected Contract owners the option of making
such a change; and (2) establishing a new registered management investment
company or managed separate account.
4.4. If a material irreconcilable conflict arises because of a
decision by the Company to disregard Contract owner voting instructions and that
decision could conflict with the majority of Contract owner instructions, the
Company may be required, at the Fund's election, to withdraw the Account's
investment in the Fund and terminate this Agreement; provided, however, that
such withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
disinterested members of the Board. Any such withdrawal and termination must
take place within six (6) months after the Fund gives written notice that this
provision is being implemented, and until the end of the six month period the
Fund shall continue to accept and implement orders by the Company for the
purchase and redemption of shares of the Fund.
4.5. If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to the Company
conflicts with the majority of other state regulators, then the Company will
withdraw the Account's investment in the Fund and terminate this Agreement
within six months after the Board informs the Company in writing that it has
determined that such decision has created an irreconcilable material conflict;
provided, however, that such withdrawal and termination shall be limited to the
extent required by the foregoing material irreconcilable conflict as determined
by a majority of the disinterested members of the Board. Until the end of the
foregoing six month period, the Fund shall continue to accept and implement
orders by the Company for the purchase and redemption of shares of the Fund,
subject to applicable regulatory limitation.
4.6. For purposes of Sections 4.3 through 4.6 of this
Agreement, a majority of the disinterested members of the Board shall determine
whether any proposed action adequately remedies any irreconcilable material
conflict, but in no event will the Fund be required to establish a new funding
medium for the Contracts. The Company shall not be required by Section 4.3 to
establish a new funding medium for Contracts if an offer to do so has been
declined by vote of a majority of Contract owners materially adversely affected
by the irreconcilable material conflict. In the event that the Board determines
that any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the particular Account's investment in
the Fund and terminate this Agreement within six (6) months after the Board
informs the Company in writing of the foregoing determination, provided,
however, that such withdrawal and termination shall be limited to the extent
required by any such material irreconcilable conflict as determined by a
majority of the disinterested members of the Board.
ARTICLE V. Applicable Law
5.1. This Agreement shall be construed and the provisions
hereof interpreted under and in accordance with the laws of the State of New
York.
5.2. This Agreement shall be subject to the provisions of the
1933, 1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant (including, but not limited to, the
Mixed and Shared Funding Exemptive Order) and the terms hereof shall be
interpreted and construed in accordance therewith.
ARTICLE VI. Termination
6.1 This Agreement shall terminate with respect to some or all
Portfolios:
(a) at the option of any party upon six month's advance
written notice to the other parties;
(b) at the option of the Company to the
extent that shares of Portfolios are not
reasonably available to meet the requirements of its Contracts or are not
appropriate funding vehicles for the Contracts, as determined by the Company
reasonably and in good faith. Prompt notice of the election to terminate for
such cause and an explanation of such cause shall be furnished by the Company;
or
(c) as provided in Article IV
6.2. It is understood and agreed that the right of any party
hereto to terminate this Agreement pursuant to Section 6.1(a) may be exercised
for cause or for no cause.
ARTICLE VII. Notices
Any notice shall be sufficiently given when sent by registered
or certified mail to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify to
the other party.
If to the Fund:
Oppenheimer Variable Account Funds
6803 S. Tucson Way
Englewood, Colorado 80112
Attn: Brian W. Wixted, Treasurer
If to the Adviser:
OppenheimerFunds, Inc.
2 World Trade Center
New York, NY 10048-0203
Attn: Andrew J. Donohue, General Counsel
If to the Company:
Preferred Life Insurance Company of New York
152 West 57th Street
18th Floor
New York, NY 10019
Attn: Eugene Long
ARTICLE VIII. Miscellaneous
8.1. Subject to the requirements of legal process and
regulatory authority, each party hereto shall treat as confidential the names
and addresses of the owners of the Contracts and all information reasonably
identified as confidential in writing by any other party hereto and, except as
permitted by this Agreement, shall not disclose, disseminate or utilize such
names and addresses and other confidential information without the express
written consent of the affected party until such time as it may come into the
public domain.
8.2. The captions in this Agreement are included for
convenience of reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
8.3. This Agreement may be executed simultaneously in two or
more counterparts, each of which taken together shall constitute one and the
same instrument.
8.4. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
8.5. Each party hereto shall cooperate with, and promptly
notify each other party and all appropriate governmental authorities (including
without limitation the Securities and Exchange Commission, the National
Association of Securities Dealers, Inc. and state insurance regulators) and
shall permit such authorities reasonable access to its books and records in
connection with any investigation or inquiry relating to this Agreement or the
transactions contemplated hereby.
8.6. The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
8.7. It is understood by the parties that this
Agreement is not an exclusive arrangement in any respect.
8.8. The Company and the Adviser each understand and agree that
the obligations of the Fund under this Agreement are not binding upon any
shareholder of the Fund personally, but bind only the Fund and the Fund's
property; the Company and the Adviser each represent that it has notice of the
provisions of the Declaration of Trust of the Fund disclaiming shareholder
liability for acts or obligations of the Fund.
8.9. This Agreement shall not be assigned by any party hereto
without the prior written consent of all the parties.
8.10. This Agreement sets forth the entire agreement between
the parties and supercedes all prior communications, agreements and
understandings, oral or written, between the parties regarding the subject
matter hereof. The agreement by and among the Company, Allianz Life Insurance
Company of North America, the Fund and the Adviser, dated November 15, 1999, is
hereby replaced in its entirety by this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed as of the date specified
below.
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
By: /s/ Michael T. Westermeyer
__________________________________
Michael T. Westemeyer
Title: Secretary
_______________________________
Date: Dec 6, 1999
________________________________
OPPENHEIMER VARIABLE ACCOUNT
FUNDS
By: /s/ Andrew J Donohue
__________________________________
Title: Vice President and Secretary
_______________________________
Date: December 2, 1999
________________________________
OPPENHEIMERFUNDS, INC.
By: Andrew J. Donohue
__________________________________
Title: Executive Vice President
__________________________________
Date: December 2, 1999
________________________________
SCHEDULE 1
Separate Accounts Contracts
Preferred Life Insurance Company of New York U.S. Allianz Alterity
Variable Account C
<PAGE>
SCHEDULE 2
Portfolios of Oppenheimer Variable Account Funds:
Oppenheimer Main Street Growth & Income Fund/VA
Oppenheimer Global Securities Fund/VA
Oppenheimer High Income Fund/VA
PARTICIPATION AGREEMENT
AMONG
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
PIMCO VARIABLE INSURANCE TRUST,
AND
PIMCO FUNDS DISTRIBUTORS LLC
THIS AGREEMENT, dated as of the 1st day of December 1999 by and among
Preferred Life Insurance Company of New York, (the "Company"), a New York life
insurance company, on its own behalf and on behalf of each segregated asset
account of the Company set forth on Schedule A hereto as may be amended from
time to time (each account hereinafter referred to as the "Account"), PIMCO
Variable Insurance Trust (the "Fund"), a Delaware business trust, and PIMCO
Funds Distributors LLC (the "Underwriter"), a Delaware limited liability
company.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance and variable annuity
contracts (the "Variable Insurance Products") to be offered by insurance
companies which have entered into participation agreements with the Fund and
Underwriter ("Participating Insurance Companies");
WHEREAS, the shares of beneficial interest of the Fund are divided into
several series of shares, each designated a "Portfolio" and representing the
interest in a particular managed portfolio of securities and other assets;
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission (the "SEC") granting Participating Insurance Companies and
variable annuity and variable life insurance separate accounts exemptions from
the provisions of sections 9(a), 13(a), 15(a), and 15(b) of the Investment
Company Act of 1940, as amended, (the "1940 Act") and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder, if and to the extent necessary to permit shares of
the Fund to be sold to and held by variable annuity and variable life insurance
separate accounts of both affiliated and unaffiliated life insurance companies
(the "Mixed and Shared Funding Exemptive Order");
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolios are registered under the
Securities Act of 1933, as amended (the "1933 Act");
WHEREAS, Pacific Investment Management Company (the "Adviser"), which
serves as investment adviser to the Fund, is duly registered as an investment
adviser under the federal Investment Advisers Act of 1940, as amended;
WHEREAS, the Company has issued or will issue certain variable life
insurance and/or variable annuity contracts supported wholly or partially by the
Account (the "Contracts"), and said Contracts are listed in Schedule A hereto,
as it may be amended from time to time by mutual written agreement;
WHEREAS, the Account is duly established and maintained as a segregated
asset account, duly established by the Company, on the date shown for such
Account on Schedule A hereto, to set aside and invest assets attributable to the
aforesaid Contracts;
WHEREAS, the Underwriter, which serves as distributor to the Fund, is
registered as a broker dealer with the SEC under the Securities Exchange Act of
1934, as amended (the "1934 Act"), and is a member in good standing of the
National Association of Securities Dealers, Inc. (the "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement (the "Designated Portfolios") on behalf of the Account to fund the
aforesaid Contracts, and the Underwriter is authorized to sell such shares to
the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
The Fund has granted to the Underwriter exclusive authority to
distribute the Fund's shares, and has agreed to instruct, and has so instructed,
the Underwriter to make available to the Company for purchase on behalf of the
Account Fund shares of those Designated Portfolios selected by the Underwriter.
Pursuant to such authority and instructions, and subject to Article X hereof,
the Underwriter agrees to make available to the Company for purchase on behalf
of the Account, shares of those Designated Portfolios listed on Schedule A to
this Agreement, such purchases to be effected at net asset value in accordance
with Section 1.3 of this Agreement. Notwithstanding the foregoing, (i) Fund
series (other than those listed on Schedule A) in existence now or that may be
established in the future will be made available to the Company only as the
Underwriter may so provide, and (ii) the Board of Trustees of the Fund (the
"Board") may suspend or terminate the offering of Fund shares of any Designated
Portfolio or class thereof, if such action is required by law or by regulatory
authorities having jurisdiction or if, in the sole discretion of the Board
acting in good faith and in light of its fiduciary duties under federal and any
applicable state laws, suspension or termination is necessary in the best
interests of the shareholders of such Designated Portfolio.
1.2. The Fund shall redeem, at the Company's request, any full or fractional
Designated Portfolio shares held by the Company on behalf of the Account, such
redemptions to be effected at net asset value in accordance with Section 1.3 of
this Agreement. Notwithstanding the foregoing, (i) the Company shall not redeem
Fund shares attributable to Contract owners except in the circumstances
permitted in Section 10.3 of this Agreement, and (ii) the Fund may delay
redemption of Fund shares of any Designated Portfolio to the extent permitted by
the 1940 Act, and any rules, regulations or orders thereunder.
1.3. Purchase and Redemption Procedures
(a) The Fund hereby appoints the Company as an agent of the Fund for the
limited purpose of receiving purchase and redemption requests on
behalf of the Account (but not with respect to any Fund shares that
may be held in the general account of the Company) for shares of those
Designated Portfolios made available hereunder, based on allocations
of amounts to the Account or subaccounts thereof under the Contracts
and other transactions relating to the Contracts or the Account.
Receipt of any such request (or relevant transactional information
therefor) on any day the New York Stock Exchange is open for trading
and on which the Fund calculates its net asset value pursuant to the
rules of the SEC (a "Business Day") by the Company as such limited
agent of the Fund prior to the time that the Fund ordinarily
calculates its net asset value as described from time to time in the
Fund Prospectus (which as of the date of execution of this Agreement
is 4:00 p.m. Eastern Time) shall constitute receipt by the Fund on
that same Business Day, provided that the Fund receives notice of such
request by 9:00 a.m. Eastern Time on the next following Business Day.
(b) The Company shall pay for shares of each Designated Portfolio on the
same day that it notifies the Fund of a purchase request for such
shares. Payment for Designated Portfolio shares shall be made in
federal funds transmitted to the Fund by wire to be received by the
Fund by 4:00 p.m. Eastern Time on the day the Fund is notified of the
purchase request for Designated Portfolio shares (unless the Fund
determines and so advises the Company that sufficient proceeds are
available from redemption of shares of other Designated Portfolios
effected pursuant to redemption requests tendered by the Company on
behalf of the Account). If federal funds are not received on time,
such funds will be invested, and Designated Portfolio shares purchased
thereby will be issued, as soon as practicable and the Company shall
promptly, upon the Fund's request, reimburse the Fund for any charges,
costs, fees, interest or other expenses incurred by the Fund in
connection with any advances to, or borrowing or overdrafts by, the
Fund, or any similar expenses incurred by the Fund, as a result of
portfolio transactions effected by the Fund based upon such purchase
request. Upon receipt of federal funds so wired, such funds shall
cease to be the responsibility of the Company and shall become the
responsibility of the Fund.
(c) Payment for Designated Portfolio shares redeemed by the Account or the
Company shall be made in federal funds transmitted by wire to the
Company or any other designated person on the next Business Day after
the Fund is properly notified of the redemption order of such shares
(unless redemption proceeds are to be applied to the purchase of
shares of other Designated Portfolios in accordance with Section
1.3(b) of this Agreement), except that the Fund reserves the right to
redeem Designated Portfolio shares in assets other than cash and to
delay payment of redemption proceeds to the extent permitted under
Section 22(e) of the 1940 Act and any Rules thereunder, and in
accordance with the procedures and policies of the Fund as described
in the then current prospectus. The Fund shall not bear any
responsibility whatsoever for the proper disbursement or crediting of
redemption proceeds by the Company; the Company alone shall be
responsible for such action.
(d) Any purchase or redemption request for Designated Portfolio shares held
or to be held in the Company's general account shall be effected at the
net asset value per share next determined after the Fund's receipt of
such request, provided that, in the case of a purchase request, payment
for Fund shares so requested is received by the Fund in federal funds
prior to close of business for determination of such value, as defined
from time to time in the Fund Prospectus.
1.4. The Fund shall use its best efforts to make the net asset value per share
for each Designated Portfolio available to the Company by 7:00 p.m. Eastern Time
each Business Day, and in any event, as soon as reasonably practicable after the
net asset value per share for such Designated Portfolio is calculated, and shall
calculate such net asset value in accordance with the Fund's Prospectus. Neither
the Fund, any Designated Portfolio, the Underwriter, nor any of their affiliates
shall be liable for any information provided to the Company pursuant to this
Agreement which information is based on incorrect information supplied by the
Company or any other Participating Insurance Company to the Fund or the
Underwriter. If the Trust provides materially incorrect share net asset value
information, the number of shares purchased or redeemed shall be adjusted to
reflect the correct net asset value per shares. Any material error in the
calculation or reporting of net asset value per share, dividend or capital gain
information shall be reported promptly upon discovery to the Company.
1.5. The Fund shall furnish notice (by wire or telephone followed by written
confirmation) to the Company as soon as reasonably practicable of any income
dividends or capital gain distributions payable on any Designated Portfolio
shares. The Company, on its behalf and on behalf of the Account, hereby elects
to receive all such dividends and distributions as are payable on any Designated
Portfolio shares in the form of additional shares of that Designated Portfolio.
The Company reserves the right, on its behalf and on behalf of the Account, to
revoke this election and to receive all such dividends and capital gain
distributions in cash. The Fund shall notify the Company promptly of the number
of Designated Portfolio shares so issued as payment of such dividends and
distributions.
1.6. Issuance and transfer of Fund shares shall be by book entry only. Stock
certificates will not be issued to the Company or the Account. Purchase and
redemption orders for Fund shares shall be recorded in an appropriate ledger for
the Account or the appropriate subaccount of the Account.
1.7. (a) The parties hereto acknowledge that the arrangement contemplated by
this Agreement is not exclusive; the Fund's shares may be sold to other
insurance companies (subject to Section 1.8 hereof) and the cash value of the
Contracts may be invested in other investment companies, provided, however, that
until this Agreement is terminated pursuant to Article X, the Company shall
promote the Designated Portfolios on the same basis as other funding vehicles
available under the Contracts. Funding vehicles other than those listed on
Schedule A to this Agreement may be available for the investment of the cash
value of the Contracts, provided, however, (i) any such vehicle or series
thereof, has investment objectives or policies that are substantially different
from the investment objectives and policies of the Designated Portfolios
available hereunder; (ii) the Company gives the Fund and the Underwriter 45 days
written notice of its intention to make such other investment vehicle available
as a funding vehicle for the Contracts; and (iii) unless such other investment
company was available as a Funding vehicle for the Contracts prior to the date
of this Agreement and the Company has so informed the Fund and the Underwriter
prior to their signing this Agreement, the Fund or Underwriter consents in
writing to the use of such other vehicle, such consent not to be unreasonably
withheld.
The Company shall not, without prior notice to the
Underwriter (unless otherwise required by
applicable law), take any action to operate the Account as a management
investment company under the 1940 Act.
(c) The Company shall not, without prior notice to the Underwriter (unless
otherwise required by applicable law), induce Contract owners to change or
modify the Fund or change the Fund's distributor or investment adviser.
(d) The Company shall not, without prior
notice to the Fund, induce Contract owners to
vote on any matter submitted for consideration by the shareholders of the Fund
in a manner other than as recommended by the Board of Trustees of the Fund.
1.8. The Underwriter and the Fund shall sell Fund shares only to Participating
Insurance Companies and their separate accounts and to persons or plans
("Qualified Persons") that communicate to the Underwriter and the Fund that they
qualify to purchase shares of the Fund under Section 817(h) of the Internal
Revenue Code of 1986, as amended (the "Code") and the regulations thereunder
without impairing the ability of the Account to consider the portfolio
investments of the Fund as constituting investments of the Account for the
purpose of satisfying the diversification requirements of Section 817(h). The
Underwriter and the Fund shall not sell Fund shares to any insurance company or
separate account unless an agreement complying with Article VI of this Agreement
is in effect to govern such sales, to the extent required. The Company hereby
represents and warrants that it and the Account are Qualified Persons. The Fund
reserves the right to cease offering shares of any Designated Portfolio in the
discretion of the Fund.
ARTICLE II. Representations and Warranties
The Company represents and warrants that the Contracts (a)
are, or prior to issuance will be, registered under the 1933 Act, or (b) are not
registered because they are properly exempt from registration under the 1933 Act
or will be offered exclusively in transactions that are properly exempt from
registration under the 1933 Act. The Company further represents and warrants
that the Contracts will be issued and sold in compliance in all material
respects with all applicable federal securities and state securities and
insurance laws and that the sale of the Contracts shall comply in all material
respects with state insurance suitability requirements. The Company further
represents and warrants that it is an insurance company duly organized and in
good standing under applicable law, that it has legally and validly established
the Account prior to any issuance or sale thereof as a segregated asset account
under New York insurance laws, and that it (a) has registered or, prior to any
issuance or sale of the Contracts, will register the Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts, or alternatively (b) has not
registered the Account in proper reliance upon an exclusion from registration
under the 1940 Act. The Company shall register and qualify the Contracts or
interests therein as securities in accordance with the laws of the various
states only if and to the extent deemed advisable by the Company.
2.2. The Fund represents and warrants that Fund shares sold pursuant to this
Agreement shall be registered under the 1933 Act, duly authorized for issuance
and sold in compliance with applicable state and federal securities laws and
that the Fund is and shall remain registered under the 1940 Act. The Fund shall
amend the registration statement for its shares under the 1933 Act and the 1940
Act from time to time as required in order to effect the continuous offering of
its shares. The Fund shall register and qualify the shares for sale in
accordance with the laws of the various states only if and to the extent deemed
advisable by the Fund or the Underwriter.
2.3. The Fund may make payments to finance distribution expenses pursuant to
Rule 12b-1 under the 1940 Act. Prior to financing distribution expenses pursuant
to Rule 12b-1, the Fund will have the Board, a majority of whom are not
interested persons of the Fund, formulate and approve a plan pursuant to Rule
12b-1 under the 1940 Act to finance distribution expenses.
2.4. The Fund makes no representations as to whether any aspect of its
operations, including, but not limited to, investment policies, fees and
expenses, complies with the insurance and other applicable laws of the various
states.
2.5. The Fund represents and warrants that it is lawfully organized and validly
existing under the laws of the State of Delaware and that it does and will
comply in all material respects with the 1940 Act.
2.6. The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents and warrants that it will sell and distribute the
Fund shares in accordance with any applicable state and federal securities laws.
2.7. The Fund and the Underwriter represent and warrant that all of their
trustees/directors, officers, employees, investment advisers, and other
individuals or entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimum coverage as required currently by Rule 17g-1 of the 1940 Act or related
provisions as may be promulgated from time to time. The aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company.
2.8. The Company represents and warrants that all of its directors, officers,
employees, and other individuals/entities employed or controlled by the Company
dealing with the money and/or securities of the Account are covered by a blanket
fidelity bond or similar coverage for the benefit of the Account, in an amount
not less than $5 million. The aforesaid bond includes coverage for larceny and
embezzlement and is issued by a reputable bonding company. The Company agrees to
hold for the benefit of the Fund and to pay to the Fund any amounts lost from
larceny, embezzlement or other events covered by the aforesaid bond to the
extent such amounts properly belong to the Fund pursuant to the terms of this
Agreement. The Company agrees to make all reasonable efforts to see that this
bond or another bond containing these provisions is always in effect, and agrees
to notify the Fund and the Underwriter in the event that such coverage no longer
applies.
ARTICLE III. Prospectuses and Proxy Statements; Voting
The Underwriter shall provide the Company with as many copies
of the Fund's current prospectus (describing only the Designated Portfolios
listed on Schedule A) or, to the extent permitted, the Fund's profiles as the
Company may reasonably request. The Company shall bear the expense of printing
copies of the current prospectus and profiles for the Contracts that will be
distributed to existing Contract owners, and the Company shall bear the expense
of printing copies of the Fund's prospectus and profiles that are used in
connection with offering the Contracts issued by the Company. If requested by
the Company in lieu thereof, the Fund shall provide such documentation
(including a final copy of the new prospectus on diskette at the Fund's expense)
and other assistance as is reasonably necessary in order for the Company once
each year (or more frequently if the prospectus for the Fund is amended) to have
the prospectus for the Contracts and the Fund's prospectus or profile printed
together in one document (such printing to be at the Company's expense).
3.2. The Fund's prospectus shall state that the current Statement of Additional
Information ("SAI") for the Fund is available, and the Underwriter (or the
Fund), at its expense, shall provide a reasonable number of copies of such SAI
free of charge to the Company for itself and for any owner of a Contract who
requests such SAI.
3.3. The Fund shall provide the Company with information regarding the Fund's
expenses, which information may include a table of fees and related narrative
disclosure for use in any prospectus or other descriptive document relating to a
Contract. The Company agrees that it will use such information in the form
provided. The Company shall provide prior written notice of any proposed
modification of such information, which notice will describe in detail the
manner in which the Company proposes to modify the information, and agrees that
it may not modify such information in any way without the prior consent of the
Fund.
3.4. The Fund, at its expense, shall provide the Company with copies of its
proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners.
3.5. The Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions received from Contract
owners; and
(iii) vote Fund shares for which no instructions have been received in the
same proportion as Fund shares of such portfolio for which instructions
have been received,
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners or to the
extent otherwise required by law. The Company will vote Fund shares held in any
segregated asset account in the same proportion as Fund shares of such portfolio
for which voting instructions have been received from Contract owners, to the
extent permitted by law.
3.6. Participating Insurance Companies shall be responsible for assuring that
each of their separate accounts participating in a Designated Portfolio
calculates voting privileges as required by the Shared Funding Exemptive Order
and consistent with any reasonable standards that the Fund may adopt and provide
in writing.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished, to the Fund or
its designee, each piece of sales literature or other promotional material that
the Company develops and in which the Fund (or a Designated Portfolio thereof)
or the Adviser or the Underwriter is named. No such material shall be used until
approved by the Fund or its designee, and the Fund will use its best efforts for
it or its designee to review such sales literature or promotional material
within ten Business Days after receipt of such material. The Fund or its
designee reserves the right to reasonably object to the continued use of any
such sales literature or other promotional material in which the Fund (or a
Designated Portfolio thereof) or the Adviser or the Underwriter is named, and no
such material shall be used if the Fund or its designee so object.
4.2. The Company shall not give any information or make any representations or
statements on behalf of the Fund or concerning the Fund or the Adviser or the
Underwriter in connection with the sale of the Contracts other than the
information or representations contained in the registration statement or
prospectus or SAI for the Fund shares, as such registration statement and
prospectus or SAI may be amended or supplemented from time to time, or in
reports or proxy statements for the Fund, or in sales literature or other
promotional material approved by the Fund or its designee or by the Underwriter,
except with the permission of the Fund or the Underwriter or the designee of
either.
4.3. The Fund and the Underwriter, or their designee, shall furnish, or cause to
be furnished, to the Company, each piece of sales literature or other
promotional material that it develops and in which the Company, and/or its
Account, is named. No such material shall be used until approved by the Company,
and the Company will use its best efforts to review such sales literature or
promotional material within ten Business Days after receipt of such material.
The Company reserves the right to reasonably object to the continued use of any
such sales literature or other promotional material in which the Company and/or
its Account is named, and no such material shall be used if the Company so
objects.
4.4. The Fund and the Underwriter shall not give any information or make any
representations on behalf of the Company or concerning the Company, the Account,
or the Contracts other than the information or representations contained in a
registration statement, prospectus (which shall include an offering memorandum,
if any, if the Contracts issued by the Company or interests therein are not
registered under the 1933 Act), or SAI for the Contracts, as such registration
statement, prospectus, or SAI may be amended or supplemented from time to time,
or in published reports for the Account which are in the public domain or
approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, SAIs, reports, proxy statements, sales
literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments to any of the above, that
relate to the Fund or its shares, promptly after the filing of such document(s)
with the SEC or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses (which shall include an offering
memorandum, if any, if the Contracts issued by the Company or interests therein
are not registered under the 1933 Act), SAIs, reports, solicitations for voting
instructions, sales literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to any of the
above, that relate to the Contracts or the Account, promptly after the filing of
such document(s) with the SEC or other regulatory authorities. The Company shall
provide to the Fund and the Underwriter any complaints received from the
Contract owners pertaining to the Fund or the Designated Portfolio.
4.7. The Fund will provide the Company with as much notice as is reasonably
practicable of any proxy solicitation for any Designated Portfolio, and of any
material change in the Fund's registration statement, particularly any change
resulting in a change to the registration statement or prospectus for any
Account. The Fund will work with the Company so as to enable the Company to
solicit proxies from Contract owners, or to make changes to its prospectus or
registration statement, in an orderly manner. The Fund will make reasonable
efforts to attempt to have changes affecting Contract prospectuses become
effective simultaneously with the annual updates for such prospectuses.
4.8. For purposes of this Article IV, the phrase "sales literature and other
promotional materials" includes, but is not limited to, any of the following
that refer to the Fund or any affiliate of the Fund: advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, or other public media), sales literature
(i.e., any written communication distributed or made generally available to
customers or the public, including brochures, circulars, reports, market
letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and registration statements, prospectuses,
SAIs, shareholder reports, proxy materials, and any other communications
distributed or made generally available with regard to the Fund.
ARTICLE V. Fees and Expenses
The Fund and the Underwriter shall pay no fee or other
compensation to the Company under this Agreement, except that if the Fund or any
Portfolio adopts and implements a plan pursuant to Rule 12b-1 to finance
distribution expenses, then the Fund or Underwriter may make payments to the
Company or to the underwriter for the Contracts if and in amounts agreed to by
the Underwriter in writing, and such payments will be made out of existing fees
otherwise payable to the Underwriter, past profits of the Underwriter, or other
resources available to the Underwriter. Currently, no such payments are
contemplated.
5.2. All expenses incident to performance by the Fund under this Agreement shall
be paid by the Fund. The Fund shall see to it that all its shares are registered
and authorized for issuance in accordance with applicable federal law and, if
and to the extent deemed advisable by the Fund, in accordance with applicable
state laws prior to their sale. The Fund shall bear the expenses for the cost of
registration and qualification of the Fund's shares, preparation and filing of
the Fund's prospectus and registration statement, proxy materials and reports,
setting the prospectus in type, setting in type and printing the proxy materials
and reports to shareholders (including the costs of printing a prospectus that
constitutes an annual report), the preparation of all statements and notices
required by any federal or state law, and all taxes on the issuance or transfer
of the Fund's shares.
5.3. The Company shall bear the expenses of distributing the Fund's prospectus
to owners of Contracts issued by the Company and of distributing the Fund's
proxy materials and reports to such Contract owners.
ARTICLE VI. Diversification and Qualification
The Fund represents and warrants that it will invest its
assets in such a manner as to ensure that the Contracts will be treated as
annuity or life insurance contracts, whichever is appropriate, under the Code
and the regulations issued thereunder (or any successor provisions). Without
limiting the scope of the foregoing, each Designated Portfolio has complied and
will continue to comply with Section 817(h) of the Code and Treasury Regulation
ss.1.817-5, and any Treasury interpretations thereof, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts, and any amendments or other modifications or successor provisions to
such Section or Regulations. In the event of a breach of this Article VI by the
Fund, it will take all reasonable steps (a) to notify the Company of such breach
and (b) to adequately diversify the Fund so as to achieve compliance within the
grace period afforded by Regulation 1.817-5.
6.2. The Fund represents and warrants that it is or will be qualified as a
Regulated Investment Company under Subchapter M of the Code, and that it will
make every effort to maintain such qualification (under Subchapter M or any
successor or similar provisions) and that it will notify the Company immediately
upon having a reasonable basis for believing that it has ceased to so qualify or
that it might not so qualify in the future.
6.3. The Company represents and warrants that the Contracts are currently, and
at the time of issuance shall be, treated as life insurance or annuity insurance
contracts, under applicable provisions of the Code, and that it will make every
effort to maintain such treatment, and that it will notify the Fund and the
Underwriter immediately upon having a reasonable basis for believing the
Contracts have ceased to be so treated or that they might not be so treated in
the future. The Company agrees that any prospectus offering a contract that is a
"modified endowment contract" as that term is defined in Section 7702A of the
Code (or any successor or similar provision), shall identify such contract as a
modified endowment contract.
ARTICLE VII. Potential Conflicts
The following provisions shall apply only upon issuance of the Mixed and Shared
Funding Order and the sale of shares of the Fund to variable life insurance
separate accounts, and then only to the extent required under the 1940 Act.
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the Contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract and variable life insurance contract owners; or (f)
a decision by an insurer to disregard the voting instructions of contract
owners. The Board shall promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of which it is
aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Mixed and Shared Funding Exemptive Order, by
providing the Board with all information reasonably necessary for the Board to
consider any issues raised. This includes, but is not limited to, an obligation
by the Company to inform the Board whenever Contract owner voting instructions
are disregarded.
7.3. If it is determined by a majority of the Board, or a majority of its
disinterested members, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested Board members), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a decision by the
Company to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the Account's investment in
the Fund and terminate this Agreement with respect to each Account; provided,
however, that such withdrawal and termination shall be limited to the extent
required by the foregoing material irreconcilable conflict as determined by a
majority of the disinterested members of the Board. Any such withdrawal and
termination must take place within six (6) months after the Fund gives written
notice that this provision is being implemented, and until the end of that six
month period the Fund shall continue to accept and implement orders by the
Company for the purchase (and redemption) of shares of the Fund.
7.5. If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with the
majority of other state regulators, then the Company will withdraw the affected
Account's investment in the Fund and terminate this Agreement with respect to
such Account within six months after the Board informs the Company in writing
that it has determined that such decision has created an irreconcilable material
conflict; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the Board. Until the
end of the foregoing six month period, the Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.6. For purposes of Section 7.3 through 7.6 of this Agreement, a majority of
the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 to establish a new funding
medium for the Contract if an offer to do so has been declined by vote of a
majority of Contract owners materially adversely affected by the irreconcilable
material conflict. In the event that the Board determines that any proposed
action does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw the Account's investment in the Fund and terminate this
Agreement within six (6) months after the Board informs the Company in writing
of the foregoing determination; provided, however, that such withdrawal and
termination shall be limited to the extent required by any such material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board.
7.7. If and to the extent the Mixed and Shared Funding Exemption Order or any
amendment thereto contains terms and conditions different from Sections 3.4,
3.5, 3.6, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement, then the Fund and/or
the Participating Insurance Companies, as appropriate, shall take such steps as
may be necessary to comply with the Mixed and Shared Funding Exemptive Order,
and Sections 3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4 and 7.5 of this Agreement shall
continue in effect only to the extent that terms and conditions substantially
identical to such Sections are contained in the Mixed and Shared Funding
Exemptive Order or any amendment thereto. If and to the extent that Rule 6e-2
and Rule 6e-3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive
relief from any provision of the 1940 Act or the rules promulgated thereunder
with respect to mixed or shared funding (as defined in the Mixed and Shared
Funding Exemptive Order) on terms and conditions materially different from those
contained in the Mixed and Shared Funding Exemptive Order, then (a) the Fund
and/or the Participating Insurance Companies, as appropriate, shall take such
steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and
Rule 6e-3, as adopted, to the extent such rules are applicable; and (b) Sections
3.5, 3.6, 7.1., 7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue in
effect only to the extent that terms and conditions substantially identical to
such Sections are contained in such Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
Indemnification By the Company
8.1(a). The Company agrees to indemnify and hold harmless the Fund and the
Underwriter and
each of its trustees/directors and officers, and each person, if any, who
controls the Fund or Underwriter within the meaning of Section 15 of the 1933
Act or who is under common control with the Underwriter (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Company) or litigation (including legal and other
expenses), to which the Indemnified Parties may become subject under any statute
or regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements:
(i) arise out of or are based upon any untrue statement or alleged untrue
statements of any material fact contained in the registration
statement, prospectus (which shall include a written description of a
Contract that is not registered under the 1933 Act), or SAI for the
Contracts or contained in the Contracts or sales literature for the
Contracts (or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that
this agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with information
furnished to the Company by or on behalf of the Fund for use in the
registration statement, prospectus or SAI for the Contracts or in the
Contracts or sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or Fund
shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration
statement, prospectus, SAI, or sales literature of the Fund not
supplied by the Company or persons under its control) or wrongful
conduct of the Company or its agents or persons under the Company's
authorization or control, with respect to the sale or distribution of
the Contracts or Fund Shares; or
(iii)arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, SAI,
or sales literature of the Fund or any amendment thereof or supplement
thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading if such a statement or omission was
made in reliance upon information furnished to the Fund by or on
behalf of the Company; or
(iv) arise as a result of any material failure by the Company to provide
the services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in good faith
or otherwise, to comply with the qualification requirements specified
in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any representation
and/or warranty made by the Company in this Agreement or arise out of
or result from any other material breach of this Agreement by the
Company; or
(vi) as limited by and in accordance with the provisions of Sections 8.1(b)
and 8.1(c) hereof.
8.1(b). The Company shall not be liable under this
indemnification provision with respect to
any losses, claims, damages, liabilities or litigation to which an Indemnified
Party would otherwise be subject by reason of such Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of its obligations or duties under this Agreement.
8.1(c). The Company shall not be liable under
this indemnification provision with respect to
any claim made against an Indemnified Party unless such Indemnified Party shall
have notified the Company in writing within a reasonable time after the summons
or other first legal process giving information of the nature of the claim shall
have been served upon such Indemnified Party (or after such Indemnified Party
shall have received notice of such service on any designated agent), but failure
to notify the Company of any such claim shall not relieve the Company from any
liability which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification provision. In case any
such action is brought against an Indemnified Party, the Company shall be
entitled to participate, at its own expense, in the defense of such action. The
Company also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from the Company to
such party of the Company's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Company will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
8.1(d). The Indemnified Parties will promptly
notify the Company of the commencement of any
litigation or proceedings against them in connection with the issuance or sale
of the Fund shares or the Contracts or the operation of the Fund.
8.2. Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify
and hold harmless the Company and each of its
directors and officers and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 8.2) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Underwriter) or litigation (including legal and other expenses)
to which the Indemnified Parties may become subject under any statute or
regulation, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or settlements:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement
or prospectus or SAI or sales literature of the Fund (or any amendment
or supplement to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the Underwriter
or Fund by or on behalf of the Company for use in the registration
statement, prospectus or SAI for the Fund or in sales literature (or
any amendment or supplement) or otherwise for use in connection with
the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration
statement, prospectus, SAI or sales literature for the Contracts not
supplied by the Underwriter or persons under its control) or wrongful
conduct of the Fund or Underwriter or persons under their control,
with respect to the sale or distribution of the Contracts or Fund
shares; or
(iii)arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, SAI
or sales literature covering the Contracts, or any amendment thereof
or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statement or statements therein not misleading, if such
statement or omission was made in reliance upon information furnished
to the Company by or on behalf of the Fund or the Underwriter; or
(iv) arise as a result of any failure by the Fund or the Underwriter to
provide the services and furnish the materials under the terms of this
Agreement (including a failure of the Fund, whether unintentional or
in good faith or otherwise, to comply with the diversification and
other qualification requirements specified in Article VI of this
Agreement); or
(v) arise out of or result from any material breach of any representation
and/or warranty made by the Underwriter in this Agreement or arise out
of or result from any other material breach of this Agreement by the
Underwriter;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under
this indemnification provision with respect
to any losses, claims, damages, liabilities or litigation to which an
Indemnified Party would otherwise be subject by reason of such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
or such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to the
Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under
this indemnification provision with respect
to any claim made against an Indemnified Party unless such Indemnified Party
shall have notified the Underwriter in writing within a reasonable time after
the summons or other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify the Underwriter of any such claim shall not
relieve the Underwriter from any liability which it may have to the Indemnified
Party against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Party, the Underwriter will be entitled to participate, at its own
expense, in the defense thereof. The Underwriter also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Underwriter to such party of the Underwriter's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Underwriter
will not be liable to such party under this Agreement for any legal or other
expenses subsequently incurred by such party independently in connection with
the defense thereof other than reasonable costs of investigation.
The Company agrees promptly to notify the
Underwriter of the commencement of any litigation or
proceedings against it or any of its officers or directors in connection with
the issuance or sale of the Contracts or the operation of the Account.
8.3. Indemnification By the Fund
8.3(a). The Fund agrees to indemnify and hold
harmless the Company and each of its directors
and officers and each person, if any, who controls the Company within the
meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties"
for purposes of this Section 8.3) against any and all losses, claims, expenses,
damages, liabilities (including amounts paid in settlement with the written
consent of the Fund) or litigation (including legal and other expenses) to which
the Indemnified Parties may be required to pay or may become subject under any
statute or regulation, at common law or otherwise, insofar as such losses,
claims, expenses, damages, liabilities or expenses (or actions in respect
thereof) or settlements, are related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide the services
and furnish the materials under the terms of this Agreement (including
a failure, whether unintentional or in good faith or otherwise, to
comply with the diversification and other qualification requirements
specified in Article VI of this Agreement); or
(ii) arise out of or result from any material breach of any representation
and/or warranty made by the Fund in this Agreement or arise out of or
result from any other material breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this
indemnification provision with respect to any
losses, claims, damages, liabilities or litigation to which an Indemnified Party
would otherwise be subject by reason of such Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations and duties under this Agreement or to the Company, the
Fund, the Underwriter or the Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this
indemnification provision with respect to any
claim made against an Indemnified Party unless such Indemnified Party shall have
notified the Fund in writing within a reasonable time after the summons or other
first legal process giving information of the nature of the claim shall have
been served upon such Indemnified Party (or after such Indemnified Party shall
have received notice of such service on any designated agent), but failure to
notify the Fund of any such claim shall not relieve the Fund from any liability
which it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against the Indemnified Parties, the Fund will be entitled to
participate, at its own expense, in the defense thereof. The Fund also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Fund to such party of the Fund's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Fund will
not be liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree
promptly to notify the Fund of the commencement
of any litigation or proceeding against it or any of its respective officers or
directors in connection with the Agreement, the issuance or sale of the
Contracts, the operation of the Account, or the sale or acquisition of shares of
the Fund.
ARTICLE IX. Applicable Law
This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of California.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934 and
1940 Acts, and the rules and regulations and rulings thereunder, including such
exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, any Mixed and Shared Funding Exemptive Order)
and the terms hereof shall be interpreted and construed in accordance therewith.
If, in the future, the Mixed and Shared Funding Exemptive Order should no longer
be necessary under applicable law, then Article VII shall no longer apply.
ARTICLE X. Termination
This Agreement shall continue in full force and effect until
the first to occur of:
(a) termination by any party, for any reason with respect
to some or all Designated Portfolios, by six (6)
months advance written notice delivered to the other
parties; or
(b) termination by the Company by written notice to the
Fund and the Underwriter based upon the Company's
determination that shares of the Fund are not
reasonably available to meet the requirements of the
Contracts; or
(c) termination by the Company by written notice to the
Fund and the Underwriter in the event any of the
Designated Portfolio's shares are not registered,
issued or sold in accordance with applicable state
and/or federal law or such law precludes the use of
such shares as the underlying investment media of the
Contracts issued or to be issued by the Company; or
(d) termination by the Fund or Underwriter in the event
that formal administrative proceedings are instituted
against the Company by the NASD, the SEC, the
Insurance Commissioner or like official of any state
or any other regulatory body regarding the Company's
duties under this Agreement or related to the sale of
the Contracts, the operation of any Account, or the
purchase of the Fund's shares; provided, however,
that the Fund or Underwriter determines in its sole
judgment exercised in good faith, that any such
administrative proceedings will have a material
adverse effect upon the ability of the Company to
perform its obligations under this Agreement; or
(e) termination by the Company in the event that formal
administrative proceedings are instituted against the
Fund or Underwriter by the NASD, the SEC, or any
state securities or insurance department or any other
regulatory body; provided, however, that the Company
determines in its sole judgment exercised in good
faith, that any such administrative proceedings will
have a material adverse effect upon the ability of
the Fund or Underwriter to perform its obligations
under this Agreement; or
(f) termination by the Company by written notice to the
Fund and the Underwriter with respect to any
Designated Portfolio in the event that such Portfolio
ceases to qualify as a Regulated Investment Company
under Subchapter M or fails to comply with the
Section 817(h) diversification requirements specified
in Article VI hereof, or if the Company reasonably
believes that such Portfolio may fail to so qualify
or comply; or
(g) termination by the Fund or Underwriter by written
notice to the Company in the event that the Contracts
fail to meet the qualifications specified in Article
VI hereof; or
(h) termination by either the Fund or the Underwriter by
written notice to the Company, if either one or both
of the Fund or the Underwriter respectively, shall
determine, in their sole judgment exercised in good
faith, that the Company has suffered a material
adverse change in its business, operations, financial
condition, or prospects since the date of this
Agreement or is the subject of material adverse
publicity; or
(i) termination by the Company by written notice to the
Fund and the Underwriter, if the Company shall
determine, in its sole judgment exercised in good
faith, that the Fund, Adviser, or the Underwriter has
suffered a material adverse change in its business,
operations, financial condition or prospects since
the date of this Agreement or is the subject of
material adverse publicity; or
(j) termination by the Fund or the Underwriter by written
notice to the Company, if the Company gives the Fund
and the Underwriter the written notice specified in
Section 1.7(a)(ii) hereof and at the time such notice
was given there was no notice of termination
outstanding under any other provision of this
Agreement; provided, however, any termination under
this Section 10.1(j) shall be effective forty-five
days after the notice specified in Section 1.7(a)(ii)
was given; or
(k) termination by the Company upon any substitution of
the shares of another investment company or series
thereof for shares of a Designated Portfolio of the
Fund in accordance with the terms of the Contracts,
provided that the Company has given at least 45 days
prior written notice to the Fund and Underwriter of
the date of substitution; or
(l) termination by any party in the event that the Fund's
Board of Trustees determines that a material
irreconcilable conflict exists as provided in Article
VII.
10.2. Notwithstanding any termination of this Agreement, the Fund and the
Underwriter shall, at the option of the Company, continue to make available
additional shares of the Fund pursuant to the terms and conditions of this
Agreement, for all Contracts in effect on the effective date of termination of
this Agreement (hereinafter referred to as "Existing Contracts"), unless the
Underwriter requests that the Company seek an order pursuant to Section 26(b) of
the 1940 Act to permit the substitution of other securities for the shares of
the Designated Portfolios. The Underwriter agrees to split the cost of seeking
such an order, and the Company agrees that it shall reasonably cooperate with
the Underwriter and seek such an order upon request. Specifically, the owners of
the Existing Contracts may be permitted to reallocate investments in the Fund,
redeem investments in the Fund and/or invest in the Fund upon the making of
additional purchase payments under the Existing Contracts (subject to any such
election by the Underwriter). The parties agree that this Section 10.2 shall not
apply to any terminations under Article VII and the effect of such Article VII
terminations shall be governed by Article VII of this Agreement. The parties
further agree that this Section 10.2 shall not apply to any terminations under
Section 10.1(g) of this Agreement.
10.3. The Company shall not redeem Fund shares attributable to the Contracts (as
opposed to Fund shares attributable to the Company's assets held in the Account)
except (i) as necessary to implement Contract owner initiated or approved
transactions, (ii) as required by state and/or federal laws or regulations or
judicial or other legal precedent of general application (hereinafter referred
to as a "Legally Required Redemption"), (iii) upon 45 days prior written notice
to the Fund and Underwriter, as permitted by an order of the SEC pursuant to
Section 26(b) of the 1940 Act, but only if a substitution of other securities
for the shares of the Designated Portfolios is consistent with the terms of the
Contracts, or (iv) as permitted under the terms of the Contract. Upon request,
the Company will promptly furnish to the Fund and the Underwriter reasonable
assurance that any redemption pursuant to clause (ii) above is a Legally
Required Redemption. Furthermore, except in cases where permitted under the
terms of the Contacts, the Company shall not prevent Contract owners from
allocating payments to a Portfolio that was otherwise available under the
Contracts without first giving the Fund or the Underwriter 45 days notice of its
intention to do so.
10.4. Notwithstanding any termination of this Agreement, each party's obligation
under Article VIII to indemnify the other parties shall survive.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent
by registered or certified mail to the other
party at the address of such party set forth below or at such other address as
such party may from time to time specify in writing to the other party.
If to the Fund: PIMCO Variable Insurance Trust
840 Newport Center Drive, Suite 300
Newport Beach, CA 92660
If to the Company: Preferred Life Insurance Company of New York
152 West 57th Street, 18th Floor
New York, NY 10019
If to Underwriter: PIMCO Funds Distributors LLC
2187 Atlantic Street
Stamford, CT 06902
ARTICLE XII. Miscellaneous
All persons dealing with the Fund must look solely to the
property of the Fund, and in the case of a series company, the respective
Designated Portfolios listed on Schedule A hereto as though each such Designated
Portfolio had separately contracted with the Company and the Underwriter for the
enforcement of any claims against the Fund. The parties agree that neither the
Board, officers, agents or shareholders of the Fund assume any personal
liability or responsibility for obligations entered into by or on behalf of the
Fund.
12.2. Subject to the requirements of legal process and regulatory authority,
each party hereto shall treat as confidential the names and addresses of the
owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party until such time as such information has come into the
public domain.
12.3. The captions in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or otherwise
affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together shall constitute one and the same instrument.
12.5. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
12.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the New York Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the variable annuity
operations of the Company are being conducted in a manner consistent with the
New York variable annuity laws and regulations and any other applicable law or
regulations.
12.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies, and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.8. This Agreement or any of the rights and obligations hereunder may not be
assigned by any party without the prior written consent of all parties hereto.
12.9. The Company shall furnish, or shall cause to be furnished, to the Fund or
its designee copies of the following reports:
(a) the Company's annual statement (prepared under
statutory accounting principles) and annual report
(prepared under generally accepted accounting
principles) filed with any state or federal
regulatory body or otherwise made available to the
public, as soon as practicable and in any event
within 90 days after the end of each fiscal year; and
(b) any registration statement (without exhibits) and
financial reports of the Company filed with the
Securities and Exchange Commission or any state
insurance regulatory, as soon as practicable after
the filing thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK:
By its authorized officer
By: /s/ Michael T. Westermeyer
Name: Michael T. Westermeyer
Title: Secretary
Date: 11-18-99
PIMCO VARIABLE INSURANCE TRUST
By its authorized officer
By: /s/ Brent R. Harris
Name: Brent R. Harris
Title: Chairman
Date: 12/9/99
PIMCO FUNDS DISTRIBUTORS LLC
By its authorized officer
By: /s/Newton B. Schott, Jr
Name: Newton B. Schott, Jr.
Title: Executive Vice President
Date: 11/30/99
Schedule A
PIMCO VARIABLE INSURANCE TRUST PORTFOLIOS:
1. PIMCO StocksPLUS Growth and Income Portfolio
2. PIMCO Total Return Bond Portfolio
3. PIMCO High Yield Bond Portfolio
SEGREGATED ASSET ACCOUNTS:
Variable Account C
Dated _________________, 199___.
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT is made this 1st day of Dec, 1999, between Seligman
Portfolios, Inc., an open-end management investment company organized as a
Maryland Corporation (the "Fund"), and Preferred Life Insurance Company of New
York, a life insurance company organized under the laws of the State of New York
(the "Company"), on its own behalf and on behalf of each segregated asset
account of the Company set forth on Schedule A, as may be amended from time to
time (the "Account").
W I T N E S S E T H :
WHEREAS, the Fund is a registered open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and has filed a currently effective registration statement to offer and sell of
its shares under the Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, the Fund desires to act as an investment vehicle for separate
accounts established for variable life insurance policies and variable annuity
contracts to be offered by insurance companies that have entered into
participation agreements with the Fund (the "Participating Insurance
Companies"); and
WHEREAS, the shares of the Fund are divided into several series of
shares, each series representing an interest in a particular managed portfolio
of securities and other assets (the "Portfolios"); and
WHEREAS, the Fund has applied for an order from the Securities and
Exchange Commission ("SEC") granting Participating Insurance Companies (as
defined in the Fund's application for such order) and their separate accounts
exemptions from the provisions of sections 9(a), 13(a), 15(a) and 15(b) of the
1940 Act, and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent
necessary to permit shares of the Fund to be sold to and held by variable
annuity and variable life insurance separate accounts of both affiliated and
unaffiliated life insurance companies and certain qualified pension and
retirement plans (the "Exemptive Order"); and
WHEREAS, the Company has registered or will register certain variable
life insurance policies and/or variable annuity contracts under the 1933 Act
(the "Contracts"); and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act; and
WHEREAS, the Company desires to utilize shares of one or more
Portfolios as an investment vehicle of the Accounts;
NOW THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereto agree as follows:
ARTICLE I.
Sale of Fund Shares
1.1. The Fund shall make shares of its Portfolios available to the Accounts at
the net asset value next computed after receipt of such purchase order by the
Fund (or its agent), as established in accordance with the provisions of the
then current prospectus of the Fund. Shares of a particular Portfolio of the
Fund shall be ordered in such quantities and at such times as determined by the
Company to be necessary to meet the requirements of the Contracts. The Directors
of the Fund (the "Directors") may refuse to sell shares of any Portfolio to any
person, or suspend or terminate the offering of shares of any Portfolio if such
action is required by law or by regulatory authorities having jurisdiction or
is, in the sole discretion of the Directors acting in good faith and in light of
their fiduciary duties under federal and any applicable state laws, necessary in
the best interests of the shareholders of such Portfolio.
1.2. The Fund will redeem any full or fractional shares of any Portfolio when
requested by the Company on behalf of an Account at the net asset value next
computed after receipt by the Fund (or its agent) of the request for redemption,
as established in accordance with the provisions of the then current prospectus
of the Fund. The Fund shall make payment for such shares in the manner
established from time to time by the Fund, but in no event shall payment be
delayed for a greater period than is permitted by the 1940 Act.
1.3. For the purposes of Sections 1.1 and 1.2, the Fund hereby appoints the
Company as its agent for the limited purpose of receiving and accepting purchase
and redemption orders resulting from investment in and payments under the
Contracts. Receipt by the Company shall constitute receipt by the Fund provided
that (i) such orders are received by the Company in good order prior to the time
the net asset value of each Portfolio is priced in accordance with its
prospectus and (ii) the Fund receives notice of such orders by 10:00 a.m. New
York time on the next following Business Day. "Business Day" shall mean any day
on which the New York Stock Exchange is open for trading and on which the Fund
calculates its net asset value pursuant to the rules of the SEC.
1.4. Purchase orders that are transmitted to the Fund in accordance with Section
1.3 shall be paid for on the same Business Day that the Fund receives notice of
the order. Payments shall be made in federal funds transmitted by wire.
1.5. Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to the Company or the Account. Shares
ordered from the Fund will be recorded in the appropriate title for each Account
or the appropriate subaccount of each Account.
1.6. The Fund shall furnish prompt notice to the Company of any income dividends
or capital gain distributions payable on the Fund's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on a Portfolio's shares in additional shares of that Portfolio. The
Fund shall notify the Company of the number of shares so issued as payment of
such dividends and distributions.
1.7. The Fund shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated and shall us its best efforts to
make such net asset value per share available by 6 p.m. New York time.
1.8. The Fund agrees that its shares will be sold only to Participating
Insurance Companies and their separate accounts and to certain qualified pension
and retirement plans to the extent permitted by the Exemptive Order. No shares
of any Portfolio will be sold directly to the general public. The Company agrees
that Fund shares will be used only for the purposes of funding the Contracts and
Accounts listed in Schedule A, as amended from time to time.
1.9. The Fund and the Company agree that they shall amend any provision of this
Agreement to the extent that it is inconsistent with any condition imposed by
the SEC in the Exemptive Order.
1.10. If the Fund provides materially incorrect share net asset value
information, the number of shares purchased or redeemed shall be adjusted to
reflect the correct net asset value per share. Any material error in the
calculation or reporting of net asset value per share, dividend or capital gain
information shall be reported promptly upon discovery to the Company.
ARTICLE II.
Obligations of the Parties
2.1. The Fund shall prepare and be responsible for filing with the SEC and any
state regulators requiring such filing all shareholder reports, notices, proxy
materials (or similar materials such as voting instruction solicitation
materials), prospectuses and statements of additional information of the Fund.
The Fund shall bear the cost of registration and qualification of its shares,
preparation and filing of the documents listed in this section 2.1 and all taxes
to which an issuer is subject on the issuance and transfer of its shares.
2.2. At the option of the Company, the Fund shall either (i) provide the Company
(at the Company's expense) with as many copies of the Fund's current prospectus,
annual reports, semi-annual report and other shareholder communications,
including any amendments or supplements to any of the foregoing, as the Company
shall reasonably request; or (ii) provide the Company with a camera ready copy
of such documents in a form suitable for printing. The Fund shall provide the
Company with a copy of its statement of additional information in a form
suitable for duplication by the Company. The Fund (at its expense) shall provide
the Company with copies of any Fund-sponsored proxy materials in such quantity
as the Company shall reasonably require for distribution to Contract owners.
2.3. The Company shall bear the costs of printing and distributing the Fund's
prospectus, statement of additional information, shareholder reports and other
shareholder communications to owners of and applicants for policies for which
the Fund is serving or is to serve as an investment vehicle. The Company shall
bear the costs of distributing proxy materials (or similar materials such as
voting solicitation instructions) to Contract owners. The Company assumes sole
responsibility for ensuring that such materials are delivered to Contract owners
in accordance with applicable federal and state securities laws.
2.4 The Company agrees and acknowledges that the Fund's manager, J. &
W. Seligman & Co. Incorporated ("Seligman"), is the sole owner of the name and
mark "Seligman" and that all use of any designation comprised in whole or part
of Seligman (a "Seligman Mark") under this Agreement shall inure to the benefit
of Seligman. Except as provided in section 2.5, the Company shall not use any
Seligman Mark on its own behalf or on behalf of the Accounts or Contracts in any
registration statement, advertisement, sales literature or other materials
relating to the Accounts or Contracts without the prior written consent of
Seligman. Upon termination of this Agreement for any reason, the Company shall
cease all use of any Seligman Mark(s) as soon as reasonably practicable.
2.5. The Company shall furnish, or cause to be furnished, to the Fund or its
designee, a copy of each Contract prospectus or statement of additional
information in which the Fund or Seligman is named prior to the filing of such
document with the SEC. The Company shall furnish, or shall cause to be
furnished, to the Fund or its designee, each piece of advertising, sales
literature or other promotional material in which the Fund or Seligman is named,
at least fifteen Business Days prior to its use. No such material shall be used
if the Fund or its designee reasonably objects to such use within fifteen
Business Days after receipt of such material.
2.6. The Company shall not give any information or make any representations or
statements on behalf of the Fund or concerning the Fund or Seligman in
connection with the sale of the Contracts other than information or
representations contained in and accurately derived from the registration
statement or prospectus for the Fund shares (as such registration statement and
prospectus may be amended or supplemented from time to time), reports of the
Fund, Fund-sponsored proxy statements, or in any advertisements, sales
literature or other promotional material approved by the Fund or its designee,
except as required by legal process or regulatory authorities or with the
written permission of the Fund or its designee.
2.7. The Fund shall not give any information or make any
representations or statements on behalf of the Company, or concerning the
Company, the Accounts or the Contracts other than information or representations
contained in and accurately derived from the registration statement or
prospectus for the Contracts (as such registration statement and prospectus may
be amended or supplemented from time to time), or in materials approved by the
Company for distribution including advertisements, sales literature or other
promotional materials, except as required by legal process or regulatory
authorities or with the written permission of the Company.
2.8. So long as, and to the extent that the SEC interprets the 1940 Act
to require pass-through voting privileges for variable policyowners, the Company
will provide pass-through voting privileges to owners of policies whose cash
values are invested, through the Accounts, in shares of the Fund. The Fund shall
require all Participating Insurance Companies to calculate voting privileges in
the same manner and the Company shall be responsible for assuring that the
Accounts calculate voting privileges in the manner established by the Fund. With
respect to each Account, the Company will vote shares of the Fund held by the
Account and for which no timely voting instructions for policyowners are
received as well as shares it owns that are held by that Account, in the same
proportion as those shares for which voting instructions are received. The
Company and its agents will in no way recommend or oppose or interfere with the
solicitation of proxies for Fund shares held by Contract owners without the
prior written consent of the Fund, which consent may be withheld in the Fund's
sole discretion.
2.9 The Company shall establish and disclose to Contract owners a
reasonable policy designed to discourage frequent and disruptive purchases and
redemptions of Fund shares by Contract owners and shall cooperate with the Fund
to minimize the impact on the Fund of such transactions.
ARTICLE III.
Representations and Warranties
3.1. The Company represents and warrants that it is an insurance
company duly organized and in good standing under the laws of the State of New
York and that it has legally and validly established each Account as a
segregated asset account under such law on the date set forth in Schedule A.
3.2. The Company represents and warrants that it has registered or,
prior to any issuance or sale of the Contracts, will register each Account as a
unit investment trust in accordance with the provisions of the 1940 Act to serve
as a segregated investment account for the Contracts.
3.3. The Company represents that it has full power and authority under
applicable law and has taken all actions necessary, to enter into this
Agreement. The Company represents and warrants that the Contracts will be
registered under the 1933 Act prior to any issuance or sale of the Contracts;
the Contracts will be issued and sold in compliance in all material respects
with all applicable federal and state laws; and the sale of the Contracts shall
comply in all material respects with state insurance suitability requirements.
3.4. The Fund represents and warrants that it is duly organized and
validly existing under the laws of the State of Maryland.
3.5. The Fund represents and warrants that the Fund shares offered and
sold pursuant to this Agreement will be registered under the 1933 Act and the
Fund shall be registered under the 1940 Act prior to any issuance or sale of
such shares. The Fund shall amend its registration statement under the 1933 Act
and the 1940 Act from time to time as required in order to effect the continuous
offering of its shares. The Fund shall make notice or other filings in
accordance with the laws of the various states only if and to the extent deemed
necessary by the Fund.
3.6 The Fund represents and warrants that the investments of each Portfolio will
comply with the diversification requirements set forth in Section 817(h) of the
Internal Revenue Code of 1986, as amended, and the rules and regulations
thereunder.
3.7 The Fund represents and warrants that it has full power and
authority under applicable law and has taken all actions necessary, to enter
into this Agreement.
ARTICLE IV.
Potential Conflicts
4.1. The parties acknowledge that the Fund's shares may be made
available for investment to other Participating Insurance Companies and
qualified pension and retirement plans ("Qualified Plans"). In such event, the
Directors will monitor the Fund for the existence of any material irreconcilable
conflict between the interests of the contract owners of all Participating
Insurance Companies and of Qualified Plans. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Directors shall promptly inform the Company
if they determine that an irreconcilable material conflict exists and the
implications thereof.
4.2. The Company agrees to promptly report any potential or existing
conflicts of which it is aware to the Directors. The Company will assist the
Directors in carrying out their responsibilities under the Exemptive Order by
providing the Directors with all information reasonably necessary for the
Directors to consider any issues raised including, but not limited to,
information as to a decision by the Company to disregard Contact owner voting
instructions.
4.3 If it is determined by a majority of the Directors, or a majority
of its disinterested Directors, that a material irreconcilable conflict exists
that affects the interests of Contract owners, the Company shall, in cooperation
with other Participating Insurance Companies whose contract owners are also
affected, at its expense and to the extent reasonably practicable (as determined
by the Directors) take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, which steps could include: (i) withdrawing the
assets allocable to some or all of the Accounts from the Fund or any Portfolio
and reinvesting such assets in a different investment medium, including (but not
limited to) another Portfolio of the Fund, or submitting the question of whether
or not such segregation should be implemented to a vote of all affected Contract
owners and, as appropriate, segregating the assets of any appropriate group
(i.e., variable annuity contract owners or variable, life insurance contract
owners that votes in favor of such segregation, or offering to the affected
Contract owners the option of making such a change; and (ii) establishing a new
registered management investment company or managed separate account.
4.4. If a material irreconcilable conflict arises because of a decision
by the Company to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account if
requested by the Fund's Directors, terminate this Agreement with respect to such
Account within six months after the Directors inform the Company in writing that
it has determined that such decision has created a material irreconcilable
conflict; provided, however that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested Directors. Until the end of
such six month period, the Fund shall continue to accept and implement orders by
the Company for the purchase and redemption of shares of the Fund.
4.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and, if requested by the Fund's
Directors, terminate this Agreement with respect to such Account within six
months after the Directors inform the Company in writing that it has determined
that such decision has created an irreconcilable material conflict; provided,
however, that such withdrawal and termination shall be limited to the extent
required by the foregoing material irreconcilable conflict as determined by a
majority of the disinterested Directors. Until the end of such six month period,
the Fund shall continue to accept and implement orders by the Company for the
purchase and redemption of shares of the Fund.
4.6. For purposes of Sections 4.3 through 4.6 of this Agreement, a
majority of the disinterested Directors shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Company be required to establish a new funding medium for the Contracts
if an offer to do so has been declined by vote of a majority of Contract owners
materially adversely affected by the irreconcilable material conflict. In the
event that the Directors determine that any proposed action does not adequately
remedy any irreconcilable material conflict, then the Company will withdraw the
Account's investment in the Fund and terminate this Agreement within six (6)
months after the Directors inform the Company in writing of the foregoing
determination; provided, however, that such withdrawal and termination shall be
limited to the extent required by any such material irreconcilable conflict as
determined by a majority of the disinterested Directors.
4.7. The Company shall at least annually submit to the Directors such
reports, materials or data as the Directors may reasonable request so that the
Directors may fully carry out the duties imposed upon them by the Exemptive
Order, and said reports, materials and data shall be submitted more frequently
if deemed appropriate by the Directors.
4.8. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Exemptive Order) on terms and conditions materially
different from those contained in the Exemptive Order, then the Fund and/or the
Participating Insurance Companies, as appropriate, shall take such steps as may
be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3,
as adopted, to the extent such rules are applicable.
ARTICLE V.
Indemnification
5.1. Indemnification By the Company. The Company agrees to indemnify
and hold harmless the Fund and each of its Directors, officers, employees and
agents and each person, if any, who controls the Fund within the meaning of
Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes
of this Article V) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Company)
or expenses (including the reasonable costs of investigating or defending any
alleged loss, claim, damage, liability or expense and reasonable legal counsel
fees incurred in connection therewith) (collectively, "Losses"), to which the
Indemnified Parties may become subject under any statute or regulation, or at
common law or otherwise, insofar as such Losses:
(a) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in a
registration statement or prospectus for the Contracts or in the
Contracts themselves or in any advertising, sales literature or other
promotional literature generated or approved by the Company on behalf
of the Contracts or Accounts (or any amendment or supplement to any of
the foregoing) (collectively, "Company Documents" for the purposes of
this Article V), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this indemnity shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement or
omission was made in reliance upon and was accurately derived from
written information furnished to the Company by or on behalf of the
Fund for use in Company Documents or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
(b) arise out of or result from statements or representations
(other than statements or representations contained in and accurately
derived from Fund Documents as defined in Section 5.2(a)) or wrongful
conduct of the Company or persons under its control, or subject to its
authorization or supervisions with respect to the sale or acquisition
of the Contracts or Fund shares; or
(c) arise out of or result from any untrue statement or
alleged untrue statement of a material fact contained in Fund Documents
as defined in Section 5.2(a) or the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading if such
statement or omission was made in reliance upon and accurately derived
from written information furnished to the Fund by or on behalf of the
Company; or
(d) arise out of or result from any failure by the Company to
provide the services or furnish the materials required under the terms
of this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or
arise out of or result from any other material breach of this Agreement
by the Company.
5.2 Indemnification By the Fund. The Fund agrees to indemnify and hold
harmless the Company and each of its directors, officers, employees and agents
and each person, if any, who controls the Company within the meaning of Section
15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this
Article V) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Fund) or expenses
(including the reasonable costs of investigating or defending any alleged loss,
claim, damage, liability or expense and reasonable legal counsel fees incurred
in connection therewith) (collectively, "Losses"), to which the Indemnified
Parties may become subject under any statute or regulation, or at common law or
otherwise, insofar as such Losses:
(a) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
registration statement or prospectus for the Fund (or any amendment or
supplement thereto), (collectively, "Fund Documents" for the purposes
of this Article V), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, provided that this indemnity shall not apply as to any
Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and was accurately
derived from written information furnished to the Fund by or on behalf
of the Company for use in Fund Documents or otherwise for use in
connection with the sale of the Contracts or Fund shares; or
(b) arise out of or result from statements or representations
(other than statements or representations contained in and accurately
derived from Company Documents) or wrongful conduct of the Fund or
persons under its control, or subject to its authorization or
supervision with respect to the sale or acquisition of the Contracts or
Fund shares; or
(c) arise out of or result from any untrue statement or
alleged untrue statement of a material fact contained in Company
Documents or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statement therein not misleading if such statement or omission was made
in reliance upon and accurately derived from written information
furnished to the Company by or on behalf of the Fund; or
(d) arise out of or result from any failure by the Fund to
provide the services or furnish the materials required under the terms
of this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement or
arise out of or result from any other material breach of this Agreement
by the Fund.
5.3. Neither the Company nor the Fund shall be liable under the
indemnification provisions of sections 5.1 or 5.2, as applicable, with respect
to any Losses incurred or assessed against an Indemnified Party that arise from
such Indemnified Party's willful misfeasance, bad faith or gross negligence in
the performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations or duties under this
Agreement.
5.4. Neither the Company nor the Fund shall be liable under the
indemnification provisions of sections 5.1 or 5.2, as applicable, with respect
to any claim made against any Indemnified Party unless such Indemnified Party
shall have notified the other party in writing within a reasonable time after
the summons, or other first written notification, giving information of the
nature of the claim shall have been served upon or otherwise received by such
Indemnified Party (or after such Indemnified Party shall have received notice of
service upon or other notification to any designated agent), but failure to
notify the party against whom indemnification is sought of any such claim shall
not relieve that party from any liability which it may have to the Indemnified
Party in the absence of sections 5.1 and 5.2.
5.5. In case any such action is brought against the Indemnified
Parties, the indemnifying party shall be entitled to participate, at its own
expense, in the defense of such action. The indemnifying party also shall be
entitled to assume the defense thereof, with counsel reasonably satisfactory to
the party named in the action. After notice from the indemnifying party to the
Indemnified Party of an election to assume such defense, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the indemnifying party will not be liable to the Indemnified Party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
ARTICLE VI.
Termination
6.1. This Agreement may be terminated by either party for any reason by
sixty (60) days advance written notice delivered to the other party.
6.2. Notwithstanding any termination of this Agreement, the Fund shall,
at the option of the Company, continue to make available additional shares of
the Fund (or any Portfolio) pursuant to the terms and conditions of this
Agreement for all Contracts in effect on the effective date of termination of
this Agreement, provided that the Company continues to pay the costs set forth
in section 2.3.
6.3. The provisions of Article V shall survive the termination of this
Agreement, and the provisions of Article IV and Section 2.8 shall survive the
termination of this Agreement as long as shares of the Fund are held on behalf
of the Contract owners in accordance with section 6.2.
ARTICLE VII.
Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
100 Park Avenue
New York, New York 10017
Attention: General Counsel, Law & Regulation
If to the Company:
Preferred Life Insurance Company of New York
152 West 57th Street
18th Floor
New York, NY 10019
Attention: Eugene Long
ARTICLE VIII.
Miscellaneous
8.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
8.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
8.3 If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
8.4 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of State of New York. Each
party hereto unconditionally submits to the jurisdiction of any New York state
court or federal court of the United States sitting in New York City, and any
appellate court thereof, in any action or proceeding arising out of or relating
to this Agreement.
8.5 The parties to this Agreement acknowledge and agree that all
liabilities of the Fund arising, directly or indirectly, under this Agreement,
of any and every nature whatsoever, shall be satisfied solely out of the assets
of the Fund and that no Director, officer, agent or holder of shares of
beneficial interest of the Fund shall be personally liable for any such
liabilities.
8.6. Each party shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
National Association of Securities Dealers and state insurance regulators) and
shall permit such authorities reasonable access to its books and records in
connection with any investigation or inquiry relating to this Agreement or the
transactions contemplated hereby.
8.7. The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
8.8. The parties to this Agreement acknowledge and agree that this
Agreement shall not be exclusive in any respect.
8.9. Neither this Agreement nor any rights or obligations hereunder may
be assigned by either party without the prior written approval of the other
party.
8.10 No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties.
8.11 This Agreement constitutes the entire contract between the parties
relating to the subject matter hereof and supersedes any and all previous
agreements and understandings, oral or written, relating to the subject matter
hereof.
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Participation Agreement as of the date and year first
above written.
- -------------------------------------------------------------- ----------------
Seligman Portfolios, Inc. Preferred Life Insurance Company
of New York
By: /s/ Brian Zino By: /s/ Michael T. Westermeyer
______________________________ ______________________________
Name: Brian Zino Name: Michael T. Westermeyer
____________________________ ____________________________
Title:President Title: Secretary
_____________________________ _____________________________
- -------------------------------------------------------------- ----------------
<
A-1
Schedule A
Separate Accounts and Associated Contracts
Names of Separate Account and Contracts Funded
Date Established by Board of Directors By Separate Account
Preferred Life - Variable US Allianz Advantage
Account C
(2-26-88)
Blazzard, Grodd & Hasenauer, P.C.
943 Post Road East
Westport, CT 06880
(203) 226-7866
April 6, 2000
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 Post-Effective Amendment to 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 Statements of Additional Information which form a part of the
Registration Statement.
Sincerely,
BLAZZARD, GRODD, & HASENAUER, P.C.
By: /s/ LYNN KORMAN STONE
- ----------------------------------
Lynn Korman Stone
KPMG LLP
4200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
Independent Auditors' Consent
The Board of Directors of Preferred Life Insurance Company of New York
and Contract Owners of Preferred Life Variable Account C:
We consent to the use of our report, dated February 4, 2000, on the financial
statements of Preferred Life Variable Account C and our report dated February 7,
2000, 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".
Our report dated February 7, 2000 on the consolidated financial statements of
Allianz Life Insurance Company of North America and subsidiaries refers to a
change in the method of calculating deferred acquisition costs and future
benefit reserves for two-tiered annuities.
/s/ KPMG LLP
KPMG LLP
Minneapolis, Minnesota
April 21, 2000
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK IV
PREFERRED LIFE VARIABLE ACCOUNT C
CUMULATIVE AND AVERAGE ANNUAL TOTAL RETURN CALCULATIONS
ORIGINAL PURCHASE AS OF DECEMBER 31, 1998
VALUATION DATE AS OF DECEMBER 31, 1999
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
---- ----------- ------ ---------- ------ ----- -----
Capital Growth
<S> <C> <C> <C> <C> <C> <C>
12-31-98 Purchase $1,000.00 $15.53680530 64.363 64.363 $1,000.00
12-31-99 Contract Fee (1.00) $20.15175796 (0.050) 64.314 1,296.03
12-31-99 Value before Surr Chg $20.15175796 0.000 64.314 1,296.03
12-31-99 Surrender Charge (60.00) $20.15175796 (2.977) 61.336 1,236.03
Cumulative and Average Annual Total Returns
without/with charges 29.70% A 23.60% B
Growth and Income
12-31-98 Purchase $1,000.00 $25.99287759 38.472 38.472 $1,000.00
12-31-99 Contract Fee (1.00) $25.89127963 (0.039) 38.433 995.09
12-31-99 Value before Surr Chg $25.89127963 0.000 38.433 995.09
12-31-99 Surrender Charge (60.00) $25.89127963 (2.317) 36.116 935.09
Cumulative and Average Annual Total Returns
without/with charges -0.39% A -6.49% B
High Income
12-31-98 Purchase $1,000.00 $21.01959301 47.575 47.575 $1,000.00
12-31-99 Contract Fee (1.00) $20.69510047 (0.048) 47.526 983.56
12-31-99 Value before Surr Chg $20.69510047 0.000 47.526 983.56
12-31-99 Surrender Charge (60.00) $20.69510047 (2.899) 44.627 923.56
Cumulative and Average Annual Total Returns
without/with charges -1.54% A -7.64% B
Income Securities
12-31-98 Purchase $1,000.00 $24.89795747 40.164 40.164 $1,000.00
12-31-99 Contract Fee (1.00) $24.08442690 (0.042) 40.122 966.33
12-31-99 Value before Surr Chg $24.08442690 0.000 40.122 966.33
12-31-99 Surrender Charge (60.00) $24.08442690 (2.491) 37.631 906.33
Cumulative and Average Annual Total Returns
without/with charges -3.27% A -9.37% B
Money Market
12-31-98 Purchase $1,000.00 $14.25958767 70.128 70.128 $1,000.00
12-31-99 Contract Fee (1.00) $14.71699526 (0.068) 70.060 1,031.08
12-31-99 Value before Surr Chg $14.71699526 0.000 70.060 1,031.08
12-31-99 Surrender Charge (60.00) $14.71699526 (4.077) 65.983 971.08
Cumulative and Average Annual Total Returns
without/with charges 3.21% A -2.89% B
Mutual Discovery Securities
12-31-98 Purchase $1,000.00 $11.20464895 89.249 89.249 $1,000.00
12-31-99 Contract Fee (1.00) $13.66196995 (0.073) 89.175 1,218.31
12-31-99 Value before Surr Chg $13.66196995 0.000 89.175 1,218.31
12-31-99 Surrender Charge (60.00) $13.66196995 (4.392) 84.784 1,158.31
Cumulative and Average Annual Total Returns
without/with charges 21.93% A 15.83% B
Mutual Shares Securities
12-31-98 Purchase $1,000.00 $11.81402865 84.645 84.645 $1,000.00
12-31-99 Contract Fee (1.00) $13.19948692 (0.076) 84.569 1,116.27
12-31-99 Value before Surr Chg $13.19948692 0.000 84.569 1,116.27
12-31-99 Surrender Charge (60.00) $13.19948692 (4.546) 80.024 1,056.27
Cumulative and Average Annual Total Returns
without/with charges 11.73% A 5.63% B
Natural Resources Securities
12-31-98 Purchase $1,000.00 $8.42970932 118.628 118.628 $1,000.00
12-31-99 Contract Fee (1.00) $10.98301490 (0.091) 118.537 1,301.89
12-31-99 Value before Surr Chg $10.98301490 0.000 118.537 1,301.89
12-31-99 Surrender Charge (60.00) $10.98301490 (5.463) 113.074 1,241.89
Cumulative and Average Annual Total Returns
without/with charges 30.29% A 24.19% B
Real Estate Securities
12-31-98 Purchase $1,000.00 $22.90097471 43.666 43.666 $1,000.00
12-31-99 Contract Fee (1.00) $21.17644498 (0.047) 43.619 923.70
12-31-99 Value before Surr Chg $21.17644498 0.000 43.619 923.70
12-31-99 Surrender Charge (60.00) $21.17644498 (2.833) 40.786 863.70
Cumulative and Average Annual Total Returns
without/with charges -7.53% A -13.63% B
Rising Dividends
12-31-98 Purchase $1,000.00 $21.03405907 47.542 47.542 $1,000.00
12-31-99 Contract Fee (1.00) $18.71235633 (0.053) 47.489 888.62
12-31-99 Value before Surr Chg $18.71235633 0.000 47.489 888.62
12-31-99 Surrender Charge (60.00) $18.71235633 (3.206) 44.282 828.62
Cumulative and Average Annual Total Returns
without/with charges -11.04% A -17.14% B
Small Cap
12-31-98 Purchase $1,000.00 $14.55802199 68.691 68.691 $1,000.00
12-31-99 Contract Fee (1.00) $28.24659725 (0.035) 68.655 1,939.28
12-31-99 Value before Surr Chg $28.24659725 0.000 68.655 1,939.28
12-31-99 Surrender Charge (60.00) $28.24659725 (2.124) 66.531 1,879.28
Cumulative and Average Annual Total Returns
without/with charges 94.03% A 87.93% B
Templeton Developing Markets Equity
12-31-98 Purchase $1,000.00 $7.95817952 125.657 125.657 $1,000.00
12-31-99 Contract Fee (1.00) $12.12450336 (0.082) 125.574 1,522.53
12-31-99 Value before Surr Chg $12.12450336 0.000 125.574 1,522.53
12-31-99 Surrender Charge (60.00) $12.12450336 (4.949) 120.626 1,462.53
Cumulative and Average Annual Total Returns
without/with charges 52.35% A 46.25% B
Templeton Global Asset Allocation
12-31-98 Purchase $1,000.00 $13.54330315 73.837 73.837 $1,000.00
12-31-99 Contract Fee (1.00) $14.34717725 (0.070) 73.768 1,058.36
12-31-99 Value before Surr Chg $14.34717725 0.000 73.768 1,058.36
12-31-99 Surrender Charge (60.00) $14.34717725 (4.182) 69.586 998.36
Cumulative and Average Annual Total Returns
without/with charges 5.94% A -0.16% B
Templeton Global Growth
12-31-98 Purchase $1,000.00 $16.23822650 61.583 61.583 $1,000.00
12-31-99 Contract Fee (1.00) $19.36424346 (0.052) 61.531 1,191.51
12-31-99 Value before Surr Chg $19.36424346 0.000 61.531 1,191.51
12-31-99 Surrender Charge (60.00) $19.36424346 (3.098) 58.433 1,131.51
Cumulative and Average Annual Total Returns
without/with charges 19.25% A 13.15% B
Templeton Global Income Securities
12-31-98 Purchase $1,000.00 $17.74568378 56.352 56.352 $1,000.00
12-31-99 Contract Fee (1.00) $16.47175055 (0.061) 56.291 927.21
12-31-99 Value before Surr Chg $16.47175055 0.000 56.291 927.21
12-31-99 Surrender Charge (60.00) $16.47175055 (3.643) 52.648 867.21
Cumulative and Average Annual Total Returns
without/with charges -7.18% A -13.28% B
Templeton International Equity
12-31-98 Purchase $1,000.00 $18.32204431 54.579 54.579 $1,000.00
12-31-99 Contract Fee (1.00) $22.85845398 (0.044) 54.535 1,246.59
12-31-99 Value before Surr Chg $22.85845398 0.000 54.535 1,246.59
12-31-99 Surrender Charge (60.00) $22.85845398 (2.625) 51.910 1,186.59
Cumulative and Average Annual Total Returns
without/with charges 24.76% A 18.66% B
Templeton International Smaller Companies
12-31-98 Purchase $1,000.00 $9.34197461 107.044 107.044 $1,000.00
12-31-99 Contract Fee (1.00) $11.40338804 (0.088) 106.956 1,219.66
12-31-99 Value before Surr Chg $11.40338804 0.000 106.956 1,219.66
12-31-99 Surrender Charge (60.00) $11.40338804 (5.262) 101.694 1,159.66
Cumulative and Average Annual Total Returns
without/with charges 22.07% A 15.97% B
Templeton Pacific Growth
12-31-98 Purchase $1,000.00 $8.02829857 124.559 124.559 $1,000.00
12-31-99 Contract Fee (1.00) $10.83777752 (0.092) 124.467 1,348.95
12-31-99 Value before Surr Chg $10.83777752 0.000 124.467 1,348.95
12-31-99 Surrender Charge (60.00) $10.83777752 (5.536) 118.931 1,288.95
Cumulative and Average Annual Total Returns
without/with charges 34.99% A 28.89% B
U.S. Government Securities
12-31-98 Purchase $1,000.00 $18.84665157 53.060 53.060 $1,000.00
12-31-99 Contract Fee (1.00) $18.39356716 (0.054) 53.005 974.96
12-31-99 Value before Surr Chg $18.39356716 0.000 53.005 974.96
12-31-99 Surrender Charge (60.00) $18.39356716 (3.262) 49.743 914.96
Cumulative and Average Annual Total Returns
without/with charges -2.40% A -8.50% B
Franklin Global Communications Securities
12-31-98 Purchase $1,000.00 $28.08202457 35.610 35.610 $1,000.00
12-31-99 Contract Fee (1.00) $38.57166130 (0.026) 35.584 1,372.54
12-31-99 Value before Surr Chg $38.57166130 0.000 35.584 1,372.54
12-31-99 Surrender Charge (60.00) $38.57166130 (1.556) 34.028 1,312.54
Cumulative and Average Annual Total Returns
without/with charges 37.35% A 31.25% B
Zero Coupon - 2000
12-31-98 Purchase $1,000.00 $20.50196174 48.776 48.776 $1,000.00
12-31-99 Contract Fee (1.00) $20.81856477 (0.048) 48.728 1,014.44
12-31-99 Value before Surr Chg $20.81856477 0.000 48.728 1,014.44
12-31-99 Surrender Charge (60.00) $20.81856477 (2.882) 45.846 954.44
Cumulative and Average Annual Total Returns
without/with charges 1.54% A -4.56% B
Zero Coupon - 2005
12-31-98 Purchase $1,000.00 $24.78585655 40.346 40.346 $1,000.00
12-31-99 Contract Fee (1.00) $22.98336230 (0.044) 40.302 926.28
12-31-99 Value before Surr Chg $22.98336230 0.000 40.302 926.28
12-31-99 Surrender Charge (60.00) $22.98336230 (2.611) 37.691 866.28
Cumulative and Average Annual Total Returns
without/with charges -7.27% A -13.37% B
Zero Coupon - 2010
12-31-98 Purchase $1,000.00 $27.67407049 36.135 36.135 $1,000.00
12-31-99 Contract Fee (1.00) $23.92886562 (0.042) 36.093 863.67
12-31-99 Value before Surr Chg $23.92886562 0.000 36.093 863.67
12-31-99 Surrender Charge (60.00) $23.92886562 (2.507) 33.586 803.67
Cumulative and Average Annual Total Returns
without/with charges -13.53% A -19.63% B
Global Health Care Securities
12-31-98 Purchase $1,000.00 $10.60384781 94.305 94.305 $1,000.00
12-31-99 Contract Fee (1.00) $9.60095883 (0.104) 94.201 904.42
12-31-99 Value before Surr Chg $9.60095883 0.000 94.201 904.42
12-31-99 Surrender Charge (60.00) $9.60095883 (6.249) 87.952 844.42
Cumulative and Average Annual Total Returns
without/with charges -9.46% A -15.56% B
Value Securities
12-31-98 Purchase $1,000.00 $7.71278940 129.655 129.655 $1,000.00
12-31-99 Contract Fee (1.00) $7.72414690 (0.129) 129.525 1,000.47
12-31-99 Value before Surr Chg $7.72414690 0.000 129.525 1,000.47
12-31-99 Surrender Charge (60.00) $7.72414690 (7.768) 121.757 940.47
Cumulative and Average Annual Total Returns
without/with charges 0.15% A -5.95% B
<FN>
A = (Unit Value as of December 31, 1999 - Unit Value at Purchase)/Unit Value at
Purchase B = (Accumulated Value as of December 31, 1999 - Accum. Value at
Purch.)/Accum. Value at Purch.
</FN>
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK IV
PREFERRED LIFE VARIABLE ACCOUNT C
CUMULATIVE AND AVERAGE ANNUAL TOTAL RETURN CALCULATIONS
ORIGINAL PURCHASE AS OF DECEMBER 31, 1996
VALUATION DATE AS OF DECEMBER 31, 1999
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
---- ----------- ------ ---------- ------ ----- -----
Capital Growth
<S> <C> <C> <C> <C> <C> <C>
12-31-96 Purchase $1,000.00 $11.24740541 88.909 88.909 $1,000.00
12-31-97 Contract Fee (1.00) $13.10996126 (0.076) 88.833 1,164.60
12-31-98 Contract Fee (1.00) $15.53680530 (0.064) 88.769 1,379.18
12-31-99 Contract Fee (1.00) $20.15175796 (0.050) 88.719 1,787.85
12-31-99 Value before Surr Chg $20.15175796 0.000 88.719 1,787.85
12-31-99 Surrender Charge (51.00) $20.15175796 (2.531) 86.188 1,736.85
Cumulative Total Returns without/with chrgs. 79.17% 73.68%
Avg. Annual Total Returns without/with chrgs. 21.46% 20.20%
Growth and Income
12-31-96 Purchase $1,000.00 $19.35081369 51.677 51.677 $1,000.00
12-31-97 Contract Fee (1.00) $24.35403985 (0.041) 51.636 1,257.55
12-31-98 Contract Fee (1.00) $25.99287759 (0.038) 51.598 1,341.18
12-31-99 Contract Fee (1.00) $25.89127963 (0.039) 51.559 1,334.94
12-31-99 Value before Surr Chg $25.89127963 0.000 51.559 1,334.94
12-31-99 Surrender Charge (51.00) $25.89127963 (1.970) 49.589 1,283.94
Cumulative Total Returns without/with chrgs. 33.80% A 28.39% C
Avg. Annual Total Returns without/with chrgs. 10.19% B 8.69% D
High Income
12-31-96 Purchase $1,000.00 $19.23682686 51.984 51.984 $1,000.00
12-31-97 Contract Fee (1.00) $21.14081079 (0.047) 51.936 1,097.98
12-31-98 Contract Fee (1.00) $21.01959301 (0.048) 51.889 1,090.68
12-31-99 Contract Fee (1.00) $20.69510047 (0.048) 51.840 1,072.84
12-31-99 Value before Surr Chg $20.69510047 0.000 51.840 1,072.84
12-31-99 Surrender Charge (51.00) $20.69510047 (2.464) 49.376 1,021.84
Cumulative Total Returns without/with chrgs. 7.58% A 2.18% C
Avg. Annual Total Returns without/with chrgs. 2.47% B 0.72% D
Income Securities
12-31-96 Purchase $1,000.00 $21.55369456 46.396 46.396 $1,000.00
12-31-97 Contract Fee (1.00) $24.86373833 (0.040) 46.356 1,152.57
12-31-98 Contract Fee (1.00) $24.89795747 (0.040) 46.315 1,153.16
12-31-99 Contract Fee (1.00) $24.08442690 (0.042) 46.274 1,114.48
12-31-99 Value before Surr Chg $24.08442690 0.000 46.274 1,114.48
12-31-99 Surrender Charge (51.00) $24.08442690 (2.118) 44.156 1,063.48
Cumulative Total Returns without/with chrgs. 11.74% A 6.35% C
Avg. Annual Total Returns without/with chrgs. 3.77% B 2.07% D
Money Market
12-31-96 Purchase $1,000.00 $13.26609762 75.380 75.380 $1,000.00
12-31-97 Contract Fee (1.00) $13.75569800 (0.073) 75.307 1,035.91
12-31-98 Contract Fee (1.00) $14.25958767 (0.070) 75.237 1,072.85
12-31-99 Contract Fee (1.00) $14.71699526 (0.068) 75.169 1,106.27
12-31-99 Value before Surr Chg $14.71699526 0.000 75.169 1,106.27
12-31-99 Surrender Charge (51.00) $14.71699526 (3.465) 71.704 1,055.27
Cumulative Total Returns without/with chrgs. 10.94% A 5.53% C
Avg. Annual Total Returns without/with chrgs. 3.52% B 1.81% D
Mutual Discovery Securities
12-31-96 Purchase $1,000.00 $10.17920124 98.240 98.240 $1,000.00
12-31-97 Contract Fee (1.00) $11.97090670 (0.084) 98.156 1,175.02
12-31-98 Contract Fee (1.00) $11.20464895 (0.089) 98.067 1,098.80
12-31-99 Contract Fee (1.00) $13.66196995 (0.073) 97.994 1,338.79
12-31-99 Value before Surr Chg $13.66196995 0.000 97.994 1,338.79
12-31-99 Surrender Charge (51.00) $13.66196995 (3.733) 94.261 1,287.79
Cumulative Total Returns without/with chrgs. 34.21% 28.78%
Avg. Annual Total Returns without/with chrgs. 10.31% 8.80%
Mutual Shares Securities
12-31-96 Purchase $1,000.00 $10.32889538 96.816 96.816 $1,000.00
12-31-97 Contract Fee (1.00) $11.98070033 (0.083) 96.732 1,158.92
12-31-98 Contract Fee (1.00) $11.81402865 (0.085) 96.648 1,141.80
12-31-99 Contract Fee (1.00) $13.19948692 (0.076) 96.572 1,274.70
12-31-99 Value before Surr Chg $13.19948692 0.000 96.572 1,274.70
12-31-99 Surrender Charge (51.00) $13.19948692 (3.864) 92.708 1,223.70
Cumulative Total Returns without/with chrgs. 27.79% 22.37%
Avg. Annual Total Returns without/with chrgs. 8.52% 6.96%
Natural Resources Securities
12-31-96 Purchase $1,000.00 $14.36439436 69.617 69.617 $1,000.00
12-31-97 Contract Fee (1.00) $11.46649607 (0.087) 69.529 797.26
12-31-98 Contract Fee (1.00) $8.42970932 (0.119) 69.411 585.11
12-31-99 Contract Fee (1.00) $10.98301490 (0.091) 69.320 761.34
12-31-99 Value before Surr Chg $10.98301490 0.000 69.320 761.34
12-31-99 Surrender Charge (51.00) $10.98301490 (4.644) 64.676 710.34
Cumulative Total Returns without/with chrgs. -23.54% A -28.97% C
Avg. Annual Total Returns without/with chrgs. -8.56% B -10.77% D
Real Estate Securities
12-31-96 Purchase $1,000.00 $23.49916899 42.555 42.555 $1,000.00
12-31-97 Contract Fee (1.00) $27.94367614 (0.036) 42.519 1,188.13
12-31-98 Contract Fee (1.00) $22.90097471 (0.044) 42.475 972.72
12-31-99 Contract Fee (1.00) $21.17644498 (0.047) 42.428 898.47
12-31-99 Value before Surr Chg $21.17644498 0.000 42.428 898.47
12-31-99 Surrender Charge (51.00) $21.17644498 (2.408) 40.020 847.47
Cumulative Total Returns without/with chrgs. -9.88% A -15.25% C
Avg. Annual Total Returns without/with chrgs. -3.41% B -5.37% D
Rising Dividends
12-31-96 Purchase $1,000.00 $15.23536682 65.637 65.637 $1,000.00
12-31-97 Contract Fee (1.00) $19.96761178 (0.050) 65.587 1,309.61
12-31-98 Contract Fee (1.00) $21.03405907 (0.048) 65.539 1,378.55
12-31-99 Contract Fee (1.00) $18.71235633 (0.053) 65.486 1,225.39
12-31-99 Value before Surr Chg $18.71235633 0.000 65.486 1,225.39
12-31-99 Surrender Charge (51.00) $18.71235633 (2.725) 62.760 1,174.39
Cumulative Total Returns without/with chrgs. 22.82% A 17.44% C
Avg. Annual Total Returns without/with chrgs. 7.09% B 5.50% D
Small Cap
12-31-96 Purchase $1,000.00 $12.89918829 77.524 77.524 $1,000.00
12-31-97 Contract Fee (1.00) $14.92280844 (0.067) 77.457 1,155.88
12-31-98 Contract Fee (1.00) $14.55802199 (0.069) 77.389 1,126.62
12-31-99 Contract Fee (1.00) $28.24659725 (0.035) 77.353 2,184.96
12-31-99 Value before Surr Chg $28.24659725 0.000 77.353 2,184.96
12-31-99 Surrender Charge (51.00) $28.24659725 (1.806) 75.548 2,133.96
Cumulative Total Returns without/with charges 118.98% 113.40%
Average Annual Total Returns without/with charges 29.86% 28.74%
Templeton Developing Markets Equity
12-31-96 Purchase $1,000.00 $11.45833113 87.273 87.273 $1,000.00
12-31-97 Contract Fee (1.00) $10.30480726 (0.097) 87.176 898.33
12-31-98 Contract Fee (1.00) $7.95817952 (0.126) 87.050 692.76
12-31-99 Contract Fee (1.00) $12.12450336 (0.082) 86.968 1,054.44
12-31-99 Value before Surr Chg $12.12450336 0.000 86.968 1,054.44
12-31-99 Surrender Charge (51.00) $12.12450336 (4.206) 82.761 1,003.44
Cumulative Total Returns without/with chrgs. 5.81% A 0.34% C
Avg. Annual Total Returns without/with chrgs. 1.90% B 0.11% D
Templeton Global Asset Allocation
12-31-96 Purchase $1,000.00 $12.49492743 80.032 80.032 $1,000.00
12-31-97 Contract Fee (1.00) $13.75214238 (0.073) 79.960 1,099.62
12-31-98 Contract Fee (1.00) $13.54330315 (0.074) 79.886 1,081.92
12-31-99 Contract Fee (1.00) $14.34717725 (0.070) 79.816 1,145.14
12-31-99 Value before Surr Chg $14.34717725 0.000 79.816 1,145.14
12-31-99 Surrender Charge (51.00) $14.34717725 (3.555) 76.262 1,094.14
Cumulative Total Returns without/with chrgs. 14.82% A 9.41% C
Avg. Annual Total Returns without/with chrgs. 4.72% B 3.04% D
Templeton Global Growth
12-31-96 Purchase $1,000.00 $13.52541005 73.935 73.935 $1,000.00
12-31-97 Contract Fee (1.00) $15.12444656 (0.066) 73.869 1,117.22
12-31-98 Contract Fee (1.00) $16.23822650 (0.062) 73.807 1,198.50
12-31-99 Contract Fee (1.00) $19.36424346 (0.052) 73.756 1,428.22
12-31-99 Value before Surr Chg $19.36424346 0.000 73.756 1,428.22
12-31-99 Surrender Charge (51.00) $19.36424346 (2.634) 71.122 1,377.22
Cumulative Total Returns without/with chrgs. 43.17% A 37.72% C
Avg. Annual Total Returns without/with chrgs. 12.71% B 11.26% D
Templeton Global Income Securities
12-31-96 Purchase $1,000.00 $16.66103106 60.020 60.020 $1,000.00
12-31-97 Contract Fee (1.00) $16.82084400 (0.059) 59.961 1,008.59
12-31-98 Contract Fee (1.00) $17.74568378 (0.056) 59.904 1,063.05
12-31-99 Contract Fee (1.00) $16.47175055 (0.061) 59.844 985.73
12-31-99 Value before Surr Chg $16.47175055 0.000 59.844 985.73
12-31-99 Surrender Charge (51.00) $16.47175055 (3.096) 56.748 934.73
Cumulative Total Returns without/with chrgs. -1.14% A -6.53% C
Avg. Annual Total Returns without/with chrgs. -0.38% B -2.22% D
Templeton International Equity
12-31-96 Purchase $1,000.00 $16.01035857 62.460 62.460 $1,000.00
12-31-97 Contract Fee (1.00) $17.61715343 (0.057) 62.403 1,099.36
12-31-98 Contract Fee (1.00) $18.32204431 (0.055) 62.348 1,142.35
12-31-99 Contract Fee (1.00) $22.85845398 (0.044) 62.304 1,424.18
12-31-99 Value before Surr Chg $22.85845398 0.000 62.304 1,424.18
12-31-99 Surrender Charge (51.00) $22.85845398 (2.231) 60.073 1,373.18
Cumulative Total Returns without/with chrgs. 42.77% A 37.32% C
Avg. Annual Total Returns without/with chrgs. 12.60% B 11.15% D
Templeton International Smaller Companies
12-31-96 Purchase $1,000.00 $11.13849568 89.779 89.779 $1,000.00
12-31-97 Contract Fee (1.00) $10.80891898 (0.093) 89.686 969.41
12-31-98 Contract Fee (1.00) $9.34197461 (0.107) 89.579 836.85
12-31-99 Contract Fee (1.00) $11.40338804 (0.088) 89.491 1,020.51
12-31-99 Value before Surr Chg $11.40338804 0.000 89.491 1,020.51
12-31-99 Surrender Charge (51.00) $11.40338804 (4.472) 85.019 969.51
Cumulative Total Returns without/with chrgs. 2.38% -3.05%
Avg. Annual Total Returns without/with chrgs. 0.79% -1.03%
Templeton Pacific Growth
12-31-96 Purchase $1,000.00 $14.86560901 67.269 67.269 $1,000.00
12-31-97 Contract Fee (1.00) $9.38089631 (0.107) 67.163 630.05
12-31-98 Contract Fee (1.00) $8.02829857 (0.125) 67.038 538.20
12-31-99 Contract Fee (1.00) $10.83777752 (0.092) 66.946 725.55
12-31-99 Value before Surr Chg $10.83777752 0.000 66.946 725.55
12-31-99 Surrender Charge (51.00) $10.83777752 (4.706) 62.240 674.55
Cumulative Total Returns without/with chrgs. -27.09% A -32.55% C
Avg. Annual Total Returns without/with chrgs. -10.00% B -12.30% D
U.S. Government Securities
12-31-96 Purchase $1,000.00 $16.53304452 60.485 60.485 $1,000.00
12-31-97 Contract Fee (1.00) $17.80492179 (0.056) 60.429 1,075.93
12-31-98 Contract Fee (1.00) $18.84665157 (0.053) 60.376 1,137.88
12-31-99 Contract Fee (1.00) $18.39356716 (0.054) 60.321 1,109.52
12-31-99 Value before Surr Chg $18.39356716 0.000 60.321 1,109.52
12-31-99 Surrender Charge (51.00) $18.39356716 (2.773) 57.549 1,058.52
Cumulative Total Returns without/with chrgs. 11.25% A 5.85% C
Avg. Annual Total Returns without/with chrgs. 3.62% B 1.91% D
Franklin Global Communications Securities
12-31-96 Purchase $1,000.00 $20.52658248 48.717 48.717 $1,000.00
12-31-97 Contract Fee (1.00) $25.63546176 (0.039) 48.678 1,247.89
12-31-98 Contract Fee (1.00) $28.08202457 (0.036) 48.643 1,365.99
12-31-99 Contract Fee (1.00) $38.57166130 (0.026) 48.617 1,875.23
12-31-99 Value before Surr Chg $38.57166130 0.000 48.617 1,875.23
12-31-99 Surrender Charge (51.00) $38.57166130 (1.322) 47.295 1,824.23
Cumulative Total Returns without/with chrgs. 87.91% A 82.42% C
Avg. Annual Total Returns without/with chrgs. 23.40% B 22.19% D
Zero Coupon - 2000
12-31-96 Purchase $1,000.00 $18.34477774 54.511 54.511 $1,000.00
12-31-97 Contract Fee (1.00) $19.35767222 (0.052) 54.460 1,054.21
12-31-98 Contract Fee (1.00) $20.50196174 (0.049) 54.411 1,115.53
12-31-99 Contract Fee (1.00) $20.81856477 (0.048) 54.363 1,131.76
12-31-99 Value before Surr Chg $20.81856477 0.000 54.363 1,131.76
12-31-99 Surrender Charge (51.00) $20.81856477 (2.450) 51.913 1,080.76
Cumulative Total Returns without/with chrgs. 13.48% A 8.08% C
Avg. Annual Total Returns without/with chrgs. 4.31% B 2.62% D
Zero Coupon - 2005
12-31-96 Purchase $1,000.00 $20.37523353 49.079 49.079 $1,000.00
12-31-97 Contract Fee (1.00) $22.35667212 (0.045) 49.034 1,096.25
12-31-98 Contract Fee (1.00) $24.78585655 (0.040) 48.994 1,214.36
12-31-99 Contract Fee (1.00) $22.98336230 (0.044) 48.951 1,125.05
12-31-99 Value before Surr Chg $22.98336230 0.000 48.951 1,125.05
12-31-99 Surrender Charge (51.00) $22.98336230 (2.219) 46.732 1,074.05
Cumulative Total Returns without/with chrgs. 12.80% A 7.40% C
Avg. Annual Total Returns without/with chrgs. 4.10% B 2.41% D
Zero Coupon - 2010
12-31-96 Purchase $1,000.00 $21.37105221 46.792 46.792 $1,000.00
12-31-97 Contract Fee (1.00) $24.54360878 (0.041) 46.752 1,147.45
12-31-98 Contract Fee (1.00) $27.67407049 (0.036) 46.715 1,292.80
12-31-99 Contract Fee (1.00) $23.92886562 (0.042) 46.674 1,116.85
12-31-99 Value before Surr Chg $23.92886562 0.000 46.674 1,116.85
12-31-99 Surrender Charge (51.00) $23.92886562 (2.131) 44.542 1,065.85
Cumulative Total Returns without/with chrgs. 11.97% A 6.58% C
Avg. Annual Total Returns without/with chrgs. 3.84% B 2.15% D
<FN>
A = (Unit Value as of December 31, 1999 - Unit Value at Purchase)/Unit Value at
Purchase B = [(A+1)^(1/3 Years)]-1 C = (Accumulated Value as of December 31,
1999 - Accum. Value at Purch.)/Accum. Value at Purch.
D = [(C+1)^(1/3 Years)]-1
</FN>
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK IV
PREFERRED LIFE VARIABLE ACCOUNT C
CUMULATIVE AND AVERAGE ANNUAL TOTAL RETURN CALCULATIONS
ORIGINAL PURCHASE AS OF DECEMBER 31, 1994
VALUATION DATE AS OF DECEMBER 31, 1999
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
---- ----------- ------ ---------- ------ ----- -----
Growth and Income
<S> <C> <C> <C> <C> <C> <C>
12-31-94 Purchase $1,000.00 $13.14423327 76.079 76.079 $1,000.00
12-31-95 Contract Fee (1.00) $17.20200155 (0.058) 76.021 1,307.71
12-31-96 Contract Fee (1.00) $19.35081369 (0.052) 75.969 1,470.07
12-31-97 Contract Fee (1.00) $24.35403985 (0.041) 75.928 1,849.16
12-31-98 Contract Fee (1.00) $25.99287759 (0.038) 75.890 1,972.59
12-31-99 Contract Fee (1.00) $25.89127963 (0.039) 75.851 1,963.88
12-31-99 Value before Surr Chg $25.89127963 0.000 75.851 1,963.88
12-31-99 Surrender Charge (34.00) $25.89127963 (1.313) 74.538 1,929.88
Cumulative Total Returns without/with chrgs. 96.98% A 92.99% C
Avg. Annual Total Returns without/with chrgs. 14.52% B 14.05% D
High Income
12-31-94 Purchase $1,000.00 $14.52977464 68.824 68.824 $1,000.00
12-31-95 Contract Fee (1.00) $17.14451419 (0.058) 68.766 1,178.96
12-31-96 Contract Fee (1.00) $19.23682686 (0.052) 68.714 1,321.84
12-31-97 Contract Fee (1.00) $21.14081079 (0.047) 68.667 1,451.67
12-31-98 Contract Fee (1.00) $21.01959301 (0.048) 68.619 1,442.34
12-31-99 Contract Fee (1.00) $20.69510047 (0.048) 68.571 1,419.08
12-31-99 Value before Surr Chg $20.69510047 0.000 68.571 1,419.08
12-31-99 Surrender Charge (34.00) $20.69510047 (1.643) 66.928 1,385.08
Cumulative Total Returns without/with chrgs. 42.43% A 38.51% C
Avg. Annual Total Returns without/with chrgs. 7.33% B 6.73% D
Income Securities
12-31-94 Purchase $1,000.00 $16.30439562 61.333 61.333 $1,000.00
12-31-95 Contract Fee (1.00) $19.66228575 (0.051) 61.282 1,204.95
12-31-96 Contract Fee (1.00) $21.55369456 (0.046) 61.236 1,319.86
12-31-97 Contract Fee (1.00) $24.86373833 (0.040) 61.196 1,521.55
12-31-98 Contract Fee (1.00) $24.89795747 (0.040) 61.156 1,522.65
12-31-99 Contract Fee (1.00) $24.08442690 (0.042) 61.114 1,471.90
12-31-99 Value before Surr Chg $24.08442690 0.000 61.114 1,471.90
12-31-99 Surrender Charge (34.00) $24.08442690 (1.412) 59.702 1,437.90
Cumulative Total Returns without/with chrgs. 47.72% A 43.79% C
Avg. Annual Total Returns without/with chrgs. 8.12% B 7.53% D
Money Market
12-31-94 Purchase $1,000.00 $12.29002320 81.367 81.367 $1,000.00
12-31-95 Contract Fee (1.00) $12.80529257 (0.078) 81.289 1,040.93
12-31-96 Contract Fee (1.00) $13.26609762 (0.075) 81.213 1,077.38
12-31-97 Contract Fee (1.00) $13.75569800 (0.073) 81.141 1,116.15
12-31-98 Contract Fee (1.00) $14.25958767 (0.070) 81.071 1,156.03
12-31-99 Contract Fee (1.00) $14.71699526 (0.068) 81.003 1,192.11
12-31-99 Value before Surr Chg $14.71699526 0.000 81.003 1,192.11
12-31-99 Surrender Charge (34.00) $14.71699526 (2.310) 78.692 1,158.11
Cumulative Total Returns without/with chrgs. 19.75% A 15.81% C
Avg. Annual Total Returns without/with chrgs. 3.67% B 2.98% D
Natural Resources Securities
12-31-94 Purchase $1,000.00 $13.90432727 71.920 71.920 $1,000.00
12-31-95 Contract Fee (1.00) $14.02092182 (0.071) 71.849 1,007.39
12-31-96 Contract Fee (1.00) $14.36439436 (0.070) 71.779 1,031.06
12-31-97 Contract Fee (1.00) $11.46649607 (0.087) 71.692 822.05
12-31-98 Contract Fee (1.00) $8.42970932 (0.119) 71.573 603.34
12-31-99 Contract Fee (1.00) $10.98301490 (0.091) 71.482 785.09
12-31-99 Value before Surr Chg $10.98301490 0.000 71.482 785.09
12-31-99 Surrender Charge (34.00) $10.98301490 (3.096) 68.387 751.09
Cumulative Total Returns without/with chrgs. -21.01% A -24.89% C
Avg. Annual Total Returns without/with chrgs. -4.61% B -5.56% D
Real Estate Securities
12-31-94 Purchase $1,000.00 $15.51100005 64.470 64.470 $1,000.00
12-31-95 Contract Fee (1.00) $17.96041830 (0.056) 64.415 1,156.91
12-31-96 Contract Fee (1.00) $23.49916899 (0.043) 64.372 1,512.69
12-31-97 Contract Fee (1.00) $27.94367614 (0.036) 64.336 1,797.79
12-31-98 Contract Fee (1.00) $22.90097471 (0.044) 64.293 1,472.37
12-31-99 Contract Fee (1.00) $21.17644498 (0.047) 64.245 1,360.49
12-31-99 Value before Surr Chg $21.17644498 0.000 64.245 1,360.49
12-31-99 Surrender Charge (34.00) $21.17644498 (1.606) 62.640 1,326.49
Cumulative Total Returns without/with chrgs. 36.53% A 32.65% C
Avg. Annual Total Returns without/with chrgs. 6.42% B 5.81% D
Rising Dividends
12-31-94 Purchase $1,000.00 $9.74313966 102.636 102.636 $1,000.00
12-31-95 Contract Fee (1.00) $12.45442887 (0.080) 102.556 $1,277.28
12-31-96 Contract Fee (1.00) $15.23536682 (0.066) 102.490 $1,561.48
12-31-97 Contract Fee (1.00) $19.96761178 (0.050) 102.440 2,045.49
12-31-98 Contract Fee (1.00) $21.03405907 (0.048) 102.393 2,153.74
12-31-99 Contract Fee (1.00) $18.71235633 (0.053) 102.339 1,915.01
12-31-99 Value before Surr Chg $18.71235633 0.000 102.339 1,915.01
12-31-99 Surrender Charge (34.00) $18.71235633 (1.817) 100.522 1,881.01
Cumulative Total Returns without/with chrgs. 92.06% A 88.10% C
Avg. Annual Total Rtns. without/with chrgs. 13.94% B 13.47% D
Templeton Developing Markets Equity
12-31-94 Purchase $1,000.00 $9.44748810 105.848 105.848 $1,000.00
12-31-95 Contract Fee (1.00) $9.56626187 (0.105) 105.744 1,011.57
12-31-96 Contract Fee (1.00) $11.45833113 (0.087) 105.656 1,210.65
12-31-97 Contract Fee (1.00) $10.30480726 (0.097) 105.559 1,087.77
12-31-98 Contract Fee (1.00) $7.95817952 (0.126) 105.434 839.06
12-31-99 Contract Fee (1.00) $12.12450336 (0.082) 105.351 1,277.33
12-31-99 Value before Surr Chg $12.12450336 0.000 105.351 1,277.33
12-31-99 Surrender Charge (34.00) $12.12450336 (2.804) 102.547 1,243.33
Cumulative Total Returns without/with chrgs. 28.34% 24.33%
Avg. Annual Total Rtns. without/with chrgs. 5.12% 4.45%
Templeton Global Growth
12-31-94 Purchase $1,000.00 $10.19356357 98.101 98.101 $1,000.00
12-31-95 Contract Fee (1.00) $11.32067650 (0.088) 98.013 1,109.57
12-31-96 Contract Fee (1.00) $13.52541005 (0.074) 97.939 1,324.66
12-31-97 Contract Fee (1.00) $15.12444656 (0.066) 97.873 1,480.27
12-31-98 Contract Fee (1.00) $16.23822650 (0.062) 97.811 1,588.28
12-31-99 Contract Fee (1.00) $19.36424346 (0.052) 97.760 1,893.04
12-31-99 Value before Surr Chg $19.36424346 0.000 97.760 1,893.04
12-31-99 Surrender Charge (34.00) $19.36424346 (1.756) 96.004 1,859.04
Cumulative Total Returns without/with chrgs. 89.97% 85.90%
Avg. Annual Total Rtns. without/with chrgs. 13.69% 13.20%
Templeton Global Income Securities
12-31-94 Purchase $1,000.00 $13.65317533 73.243 73.243 $1,000.00
12-31-95 Contract Fee (1.00) $15.42592706 (0.065) 73.178 1,128.84
12-31-96 Contract Fee (1.00) $16.66103106 (0.060) 73.118 1,218.22
12-31-97 Contract Fee (1.00) $16.82084400 (0.059) 73.059 1,228.91
12-31-98 Contract Fee (1.00) $17.74568378 (0.056) 73.002 1,295.48
12-31-99 Contract Fee (1.00) $16.47175055 (0.061) 72.942 1,201.48
12-31-99 Value before Surr Chg $16.47175055 0.000 72.942 1,201.48
12-31-99 Surrender Charge (34.00) $16.47175055 (2.064) 70.878 1,167.48
Cumulative Total Returns without/with chrgs. 20.64% A 16.75% C
Avg. Annual Total Returns without/with chrgs. 3.82% B 3.15% D
Templeton International Equity
12-31-94 Purchase $1,000.00 $12.12945216 82.444 82.444 $1,000.00
12-31-95 Contract Fee (1.00) $13.21605786 (0.076) 82.368 1,088.58
12-31-96 Contract Fee (1.00) $16.01035857 (0.062) 82.306 1,317.75
12-31-97 Contract Fee (1.00) $17.61715343 (0.057) 82.249 1,448.99
12-31-98 Contract Fee (1.00) $18.32204431 (0.055) 82.194 1,505.97
12-31-99 Contract Fee (1.00) $22.85845398 (0.044) 82.151 1,877.84
12-31-99 Value before Surr Chg $22.85845398 0.000 82.151 1,877.84
12-31-99 Surrender Charge (34.00) $22.85845398 (1.487) 80.663 1,843.84
Cumulative Total Returns without/with chrgs. 88.45% A 84.38% C
Avg. Annual Total Rtns. without/with chrgs. 13.51% B 13.02% D
Templeton Pacific Growth
12-31-94 Purchase $1,000.00 $12.76818771 78.320 78.320 $1,000.00
12-31-95 Contract Fee (1.00) $13.58246157 (0.074) 78.246 1,062.77
12-31-96 Contract Fee (1.00) $14.86560901 (0.067) 78.179 1,162.17
12-31-97 Contract Fee (1.00) $9.38089631 (0.107) 78.072 732.39
12-31-98 Contract Fee (1.00) $8.02829857 (0.125) 77.948 625.79
12-31-99 Contract Fee (1.00) $10.83777752 (0.092) 77.855 843.78
12-31-99 Value before Surr Chg $10.83777752 0.000 77.855 843.78
12-31-99 Surrender Charge (34.00) $10.83777752 (3.137) 74.718 809.78
Cumulative Total Returns without/with chrgs. -15.12% A -19.02% C
Avg. Annual Total Rtns. without/with chrgs. -3.23% B -4.13% D
U.S. Government Securities
12-31-94 Purchase $1,000.00 $13.76239537 72.662 72.662 $1,000.00
12-31-95 Contract Fee (1.00) $16.19773372 (0.062) 72.600 1,175.96
12-31-96 Contract Fee (1.00) $16.53304452 (0.060) 72.540 1,199.30
12-31-97 Contract Fee (1.00) $17.80492179 (0.056) 72.483 1,290.56
12-31-98 Contract Fee (1.00) $18.84665157 (0.053) 72.430 1,365.07
12-31-99 Contract Fee (1.00) $18.39356716 (0.054) 72.376 1,331.25
12-31-99 Value before Surr Chg $18.39356716 0.000 72.376 1,331.25
12-31-99 Surrender Charge (34.00) $18.39356716 (1.848) 70.527 1,297.25
Cumulative Total Returns without/with chrgs. 33.65% A 29.73% C
Avg. Annual Total Returns without/with chrgs. 5.97% B 5.34% D
Franklin Global Communications Securities
12-31-94 Purchase $1,000.00 $15.02348951 66.562 66.562 $1,000.00
12-31-95 Contract Fee (1.00) $19.44283491 (0.051) 66.511 1,293.16
12-31-96 Contract Fee (1.00) $20.52658248 (0.049) 66.462 1,364.24
12-31-97 Contract Fee (1.00) $25.63546176 (0.039) 66.423 1,702.79
12-31-98 Contract Fee (1.00) $28.08202457 (0.036) 66.388 1,864.30
12-31-99 Contract Fee (1.00) $38.57166130 (0.026) 66.362 2,559.68
12-31-99 Value before Surr Chg $38.57166130 0.000 66.362 2,559.68
12-31-99 Surrender Charge (34.00) $38.57166130 (0.881) 65.480 2,525.68
Cumulative Total Returns without/with chrgs. 156.74% A 152.57% C
Avg. Annual Total Returns without/with chrgs. 20.75% B 20.36% D
Zero Coupon - 2000
12-31-94 Purchase $1,000.00 $15.29260574 65.391 65.391 $1,000.00
12-31-95 Contract Fee (1.00) $18.18141100 (0.055) 65.336 1,187.90
12-31-96 Contract Fee (1.00) $18.34477774 (0.055) 65.282 1,197.58
12-31-97 Contract Fee (1.00) $19.35767222 (0.052) 65.230 1,262.70
12-31-98 Contract Fee (1.00) $20.50196174 (0.049) 65.181 1,336.34
12-31-99 Contract Fee (1.00) $20.81856477 (0.048) 65.133 1,355.98
12-31-99 Value before Surr Chg $20.81856477 0.000 65.133 1,355.98
12-31-99 Surrender Charge (34.00) $20.81856477 (1.633) 63.500 1,321.98
Cumulative Total Returns without/with chrgs. 36.13% A 32.20% C
Avg. Annual Total Returns without/with chrgs. 6.36% B 5.74% D
Zero Coupon - 2005
12-31-94 Purchase $1,000.00 $16.01393970 62.446 62.446 $1,000.00
12-31-95 Contract Fee (1.00) $20.78832859 (0.048) 62.397 1,297.14
12-31-96 Contract Fee (1.00) $20.37523353 (0.049) 62.348 1,270.36
12-31-97 Contract Fee (1.00) $22.35667212 (0.045) 62.304 1,392.90
12-31-98 Contract Fee (1.00) $24.78585655 (0.040) 62.263 1,543.25
12-31-99 Contract Fee (1.00) $22.98336230 (0.044) 62.220 1,430.02
12-31-99 Value before Surr Chg $22.98336230 0.000 62.220 1,430.02
12-31-99 Surrender Charge (34.00) $22.98336230 (1.479) 60.740 1,396.02
Cumulative Total Returns without/with chrgs. 43.52% A 39.60% C
Avg. Annual Total Returns without/with chrgs. 7.49% B 6.90% D
Zero Coupon - 2010
12-31-94 Purchase $1,000.00 $15.84633119 63.106 63.106 $1,000.00
12-31-95 Contract Fee (1.00) $22.29375904 (0.045) 63.061 1,405.87
12-31-96 Contract Fee (1.00) $21.37105221 (0.047) 63.014 1,346.68
12-31-97 Contract Fee (1.00) $24.54360878 (0.041) 62.974 1,545.60
12-31-98 Contract Fee (1.00) $27.67407049 (0.036) 62.938 1,741.74
12-31-99 Contract Fee (1.00) $23.92886562 (0.042) 62.896 1,505.02
12-31-99 Value before Surr Chg $23.92886562 0.000 62.896 1,505.02
12-31-99 Surrender Charge (34.00) $23.92886562 (1.421) 61.475 1,471.02
Cumulative Total Returns without/with chrgs. 51.01% A 47.10% C
Avg. Annual Total Returns without/with chrgs. 8.59% B 8.02% D
<FN>
A = (Unit Value as of December 31, 1999 - Unit Value at Purchase)/Unit Value at
Purchase B = [(A+1)^(1/5 Years)]-1 C = (Accumulated Value as of December 31,
1999 - Accum. Value at Purch.)/Accum. Value at Purch.
D = [(C+1)^(1/5 Years)]-1
</FN>
</TABLE>
<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, 1999
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
---- ----------- ------ ---------- ------ ----- -----
Capital Growth
<S> <C> <C> <C> <C> <C> <C>
6-10-96 Purchase $1,000.00 $10.21330860 97.911 97.911 $1,000.00
6-10-97 Contract Fee (1.00) $12.10814546 (0.083) 97.829 $1,184.53
6-10-98 Contract Fee (1.00) $14.34395396 (0.070) 97.759 $1,402.25
6-10-99 Contract Fee (1.00) $16.27012675 (0.061) 97.698 $1,589.55
12-31-99 Contract Fee (1.00) $20.15175796 (0.050) 97.648 $1,967.78
12-31-99 Value before Surr Chg $20.15175796 0.000 97.648 $1,967.78
12-31-99 Surrender Charge (42.50) $20.15175796 (2.109) 95.539 $1,925.28
Cumulative Total Returns without/with chgs. 97.31% A 92.53%
Avg. Annual Total Returns without/with chgs. 21.04% B 20.21%
Growth and Income
9-6-91 Purchase $1,000.00 $11.03498115 90.621 90.621 $1,000.00
9-6-92 Contract Fee (1.00) $11.68405189 (0.086) 90.535 1,057.82
9-6-93 Contract Fee (1.00) $13.02733580 (0.077) 90.459 1,178.43
9-6-94 Contract Fee (1.00) $13.57991412 (0.074) 90.385 1,227.42
9-6-95 Contract Fee (1.00) $15.59838491 (0.064) 90.321 1,408.86
9-6-96 Contract Fee (1.00) $17.62580267 (0.057) 90.264 1,590.98
9-6-97 Contract Fee (1.00) $22.85168903 (0.044) 90.220 2,061.69
9-6-98 Contract Fee (1.00) $22.73172433 (0.044) 90.176 2,049.86
9-6-99 Contract Fee (1.00) $26.89534192 (0.037) 90.139 2,424.32
12-31-99 Value before Surr Chg $25.89127963 0.000 90.139 2,333.82
12-31-99 Contract Fee (1.00) $25.89127963 (0.039) 90.101 2,332.82
12-31-99 Surrender Charge 0.00 $25.89127963 0.000 90.101 2,332.82
Cumulative Total Returns without/with chgs. 134.63% A 133.28%
Avg. Annual Total Returns without/with chgs. 10.79% B 10.71%
High Income
9-6-91 Purchase $1,000.00 $11.01696490 90.769 90.769 $1,000.00
9-6-92 Contract Fee (1.00) $12.97853864 (0.077) 90.692 1,177.05
9-6-93 Contract Fee (1.00) $14.37619321 (0.070) 90.622 1,302.81
9-6-94 Contract Fee (1.00) $14.50250083 (0.069) 90.554 1,313.25
9-6-95 Contract Fee (1.00) $16.63184519 (0.060) 90.493 1,505.07
9-6-96 Contract Fee (1.00) $18.12695561 (0.055) 90.438 1,639.37
9-6-97 Contract Fee (1.00) $20.56627907 (0.049) 90.390 1,858.98
9-6-98 Contract Fee (1.00) $20.21453956 (0.049) 90.340 1,826.18
9-6-99 Contract Fee (1.00) $20.74646797 (0.048) 90.292 1,873.24
12-31-99 Value before Surr Chg $20.69510047 0.000 90.292 1,868.60
12-31-99 Contract Fee (1.00) $20.69510047 (0.048) 90.244 1,867.60
12-31-99 Surrender Charge 0.00 $20.69510047 0.000 90.244 1,867.60
Cumulative Total Returns without/with chgs. 87.85% A 86.76%
Avg. Annual Total Returns without/with chgs. 7.87% B 7.79%
Income Securities
9-6-91 Purchase $1,000.00 $12.78102140 78.241 78.241 $1,000.00
9-6-92 Contract Fee (1.00) $15.17072333 (0.066) 78.175 1,185.97
9-6-93 Contract Fee (1.00) $17.13535821 (0.058) 78.117 1,338.56
9-6-94 Contract Fee (1.00) $16.83901281 (0.059) 78.057 1,314.41
9-6-95 Contract Fee (1.00) $18.57859966 (0.054) 78.004 1,449.20
9-6-96 Contract Fee (1.00) $20.19633212 (0.050) 77.954 1,574.39
9-6-97 Contract Fee (1.00) $23.33720796 (0.043) 77.911 1,818.23
9-6-98 Contract Fee (1.00) $23.09598384 (0.043) 77.868 1,798.43
9-6-99 Contract Fee (1.00) $24.94308692 (0.040) 77.828 1,941.26
12-31-99 Value before Surr Chg $24.08442690 0.000 77.828 1,874.44
12-31-99 Contract Fee (1.00) $24.08442690 (0.042) 77.786 1,873.44
12-31-99 Surrender Charge 0.00 $24.08442690 0.000 77.786 1,873.44
Cumulative Total Returns without/with chgs. 88.44% A 87.34%
Avg. Annual Total Returns without/with chgs. 7.91% B 7.83%
Money Market
9-6-91 Purchase $1,000.00 $11.59769158 86.224 86.224 $1,000.00
9-6-92 Contract Fee (1.00) $11.84986728 (0.084) 86.140 1,020.74
9-6-93 Contract Fee (1.00) $11.97250973 (0.084) 86.056 1,030.31
9-6-94 Contract Fee (1.00) $12.16330239 (0.082) 85.974 1,045.73
9-6-95 Contract Fee (1.00) $12.64650524 (0.079) 85.895 1,086.27
9-6-96 Contract Fee (1.00) $13.11835446 (0.076) 85.819 1,125.80
9-6-97 Contract Fee (1.00) $13.59329622 (0.074) 85.745 1,165.56
9-6-98 Contract Fee (1.00) $14.10135416 (0.071) 85.674 1,208.12
9-6-99 Contract Fee (1.00) $14.54898458 (0.069) 85.605 1,245.47
12-31-99 Value before Surr Chg $14.71699526 0.000 85.605 1,259.85
12-31-99 Contract Fee (1.00) $14.71699526 (0.068) 85.537 1,258.85
12-31-99 Surrender Charge 0.00 $14.71699526 0.000 85.537 1,258.85
Cumulative Total Returns without/with chgs. 26.90% A 25.89%
Avg. Annual Total Returns without/with chgs. 2.90% B 2.80%
Mutual Discovery Securities
12-2-96 Purchase $1,000.00 $10.12131933 98.801 98.801 $1,000.00
12-2-97 Contract Fee (1.00) $11.92599887 (0.084) 98.717 1,177.30
12-2-98 Contract Fee (1.00) $10.92977325 (0.091) 98.626 1,077.96
12-2-99 Contract Fee (1.00) $12.92217618 (0.077) 98.549 1,273.46
12-31-99 Contract Fee (1.00) $13.66196995 (0.073) 98.475 1,345.37
12-31-99 Value before Surr Chg $13.66196995 0.000 98.475 1,345.37
12-31-99 Surrender Charge (42.50) $13.66196995 (3.111) 95.365 1,302.87
Cumulative Total Returns without/with chgs. 34.98% A 30.29%
Avg. Annual Total Returns without/with chgs. 10.23% B 8.97%
Mutual Shares Securities
12-2-96 Purchase $1,000.00 $10.11132790 98.899 98.899 $1,000.00
12-2-97 Contract Fee (1.00) $11.83732409 (0.084) 98.814 1,169.70
12-2-98 Contract Fee (1.00) $11.60056139 (0.086) 98.728 1,145.30
12-2-99 Contract Fee (1.00) $12.94542647 (0.077) 98.651 1,277.08
12-31-99 Value before Surr Chg $13.19948692 0.000 98.651 1,302.14
12-31-99 Contract Fee (1.00) $13.19948692 (0.076) 98.575 1,301.14
12-31-99 Surrender Charge (42.50) $13.19948692 (3.220) 95.355 1,258.64
Cumulative Total Returns without/with chgs. 30.54% A 25.86%
Avg. Annual Total Returns without/with chgs. 9.04% B 7.76%
Natural Resources Securities
9-6-91 Purchase $1,000.00 $10.40829495 96.077 96.077 $1,000.00
9-6-92 Contract Fee (1.00) $10.54535676 (0.095) 95.982 1,012.17
9-6-93 Contract Fee (1.00) $12.30811624 (0.081) 95.901 1,180.36
9-6-94 Contract Fee (1.00) $14.65386903 (0.068) 95.833 1,404.32
9-6-95 Contract Fee (1.00) $14.34644239 (0.070) 95.763 1,373.86
9-6-96 Contract Fee (1.00) $15.32135888 (0.065) 95.698 1,466.22
9-6-97 Contract Fee (1.00) $13.47023754 (0.074) 95.624 1,288.07
9-6-98 Contract Fee (1.00) $7.69303459 (0.130) 95.494 734.64
9-6-99 Contract Fee (1.00) $11.25864388 (0.089) 95.405 1,074.13
12-31-99 Value before Surr Chg $10.98301490 0.000 95.405 1,047.83
12-31-99 Contract Fee (1.00) $10.98301490 (0.091) 95.314 1,046.83
12-31-99 Surrender Charge 0.00 $10.98301490 0.000 95.314 1,046.83
Cumulative Total Returns without/with chgs. 5.52% A 4.68%
Avg. Annual Total Returns without/with chgs. 0.65% B 0.55%
Real Estate Securities
9-6-91 Purchase $1,000.00 $10.76208779 92.919 92.919 $1,000.00
9-6-92 Contract Fee (1.00) $12.08697235 (0.083) 92.836 1,122.11
9-6-93 Contract Fee (1.00) $15.49802565 (0.065) 92.772 1,437.78
9-6-94 Contract Fee (1.00) $15.53309598 (0.064) 92.707 1,440.03
9-6-95 Contract Fee (1.00) $16.87236284 (0.059) 92.648 1,563.19
9-6-96 Contract Fee (1.00) $19.79715451 (0.051) 92.597 1,833.16
9-6-97 Contract Fee (1.00) $25.98262212 (0.038) 92.559 2,404.92
9-6-98 Contract Fee (1.00) $21.78766273 (0.046) 92.513 2,015.64
9-6-99 Contract Fee (1.00) $22.34925402 (0.045) 92.468 2,066.60
12-31-99 Value before Surr Chg $21.17644498 0.000 92.468 1,958.15
12-31-99 Contract Fee (1.00) $21.17644498 (0.047) 92.421 1,957.15
12-31-99 Surrender Charge 0.00 $21.17644498 0.000 92.421 1,957.15
Cumulative Total Returns without/with chgs. 96.77% A 95.71%
Avg. Annual Total Returns without/with chgs. 8.47% B 8.40%
Rising Dividends
3-10-92 Purchase $1,000.00 $9.99136998 100.086 100.086 $1,000.00
3-10-93 Contract Fee (1.00) $10.76889430 (0.093) 99.994 1,076.82
3-10-94 Contract Fee (1.00) $10.04696846 (0.100) 99.894 1,003.63
3-10-95 Contract Fee (1.00) $10.29026656 (0.097) 99.797 1,026.94
3-10-96 Contract Fee (1.00) $12.80146166 (0.078) 99.719 1,276.54
3-10-97 Contract Fee (1.00) $16.37634391 (0.061) 99.658 1,632.03
3-10-98 Contract Fee (1.00) $21.61120307 (0.046) 99.611 2,152.72
3-10-99 Contract Fee (1.00) $19.45765886 (0.051) 99.560 1,937.20
12-31-99 Value before Surr Chg $18.71235633 0.000 99.560 1,863.00
12-31-99 Contract Fee (1.00) $18.71235633 (0.053) 99.507 1,862.00
12-31-99 Surrender Charge 0.00 $18.71235633 0.000 99.507 1,862.00
Cumulative Total Returns without/with chgs. 87.29% A 86.20%
Avg. Annual Total Returns without/with chgs. 8.36% B 8.28%
Small Cap
6-10-96 Purchase $1,000.00 $12.51035979 79.934 79.934 $1,000.00
6-10-97 Contract Fee (1.00) $13.40687894 (0.075) 79.859 1,070.66
6-10-98 Contract Fee (1.00) $15.27817282 (0.065) 79.794 1,219.10
6-10-99 Contract Fee (1.00) $16.04384535 (0.062) 79.731 1,279.20
12-31-99 Value before Surr Chg $28.24659725 0.000 79.731 2,252.14
12-31-99 Contract Fee (1.00) $28.24659725 (0.035) 79.696 2,251.14
12-31-99 Surrender Charge (42.50) $28.24659725 (1.505) 78.191 2,208.64
Cumulative Total Returns without/with chgs. 125.79% A 120.86%
Avg. Annual Total Returns without/with chgs. 25.71% B 24.94%
Templeton Developing Markets Equity
4-25-94 Purchase $1,000.00 $9.99325960 100.067 100.067 $1,000.00
4-25-95 Contract Fee (1.00) $9.56022487 (0.105) 99.963 955.67
4-25-96 Contract Fee (1.00) $10.82470628 (0.092) 99.870 1,081.07
4-25-97 Contract Fee (1.00) $12.48707352 (0.080) 99.790 1,246.09
4-25-98 Contract Fee (1.00) $10.97464949 (0.091) 99.699 1,094.16
4-25-99 Contract Fee (1.00) $9.89334260 (0.101) 99.598 985.36
12-31-99 Value before Surr Chg $12.12450336 0.000 99.598 1,207.58
12-31-99 Contract Fee (1.00) $12.12450336 (0.082) 99.516 1,206.58
12-31-99 Surrender Charge (25.50) $12.12450336 (2.103) 97.413 1,181.08
Cumulative Total Returns without/with chgs. 21.33% A 18.11%
Avg. Annual Total Returns without/with chgs. 3.46% B 2.97%
Templeton Global Asset Allocation
8-4-95 Purchase $1,000.00 $10.31918481 96.907 96.907 $1,000.00
8-4-96 Contract Fee (1.00) $11.31397104 (0.088) 96.818 1,095.40
8-4-97 Contract Fee (1.00) $14.16883874 (0.071) 96.748 1,370.81
8-4-98 Contract Fee (1.00) $13.84102387 (0.072) 96.676 1,338.09
8-4-99 Contract Fee (1.00) $13.93990154 (0.072) 96.604 1,346.65
12-31-99 Value before Surr Chg $14.34717725 0.000 96.604 1,385.99
12-31-99 Contract Fee (1.00) $14.34717725 (0.070) 96.534 1,384.99
12-31-99 Surrender Charge (34.00) $14.34717725 (2.370) 94.164 1,350.99
Cumulative Total Returns without/with chgs. 39.03% A 35.10%
Avg. Annual Total Returns without/with chgs. 7.76% B 7.06%
Templeton Global Growth
4-25-94 Purchase $1,000.00 $9.98327632 100.168 100.168 $1,000.00
4-25-95 Contract Fee (1.00) $10.44550831 (0.096) 100.072 1,045.30
4-25-96 Contract Fee (1.00) $12.28263557 (0.081) 99.990 1,228.15
4-25-97 Contract Fee (1.00) $13.71569405 (0.073) 99.917 1,370.44
4-25-98 Contract Fee (1.00) $17.13472791 (0.058) 99.859 1,711.06
4-25-99 Contract Fee (1.00) $17.66274499 (0.057) 99.802 1,762.79
12-31-99 Value before Surr Chg $19.36424346 0.000 99.802 1,932.60
12-31-99 Contract Fee (1.00) $19.36424346 (0.052) 99.751 1,931.60
12-31-99 Surrender Charge (25.50) $19.36424346 (1.317) 98.434 1,906.10
Cumulative Total Returns without/with chgs. 93.97% A 90.61%
Avg. Annual Total Returns without/with chgs. 12.35% B 12.01%
Templeton Global Income Securities
9-6-91 Purchase $1,000.00 $12.26703630 81.519 81.519 $1,000.00
9-6-92 Contract Fee (1.00) $13.36492131 (0.075) 81.444 1,088.50
9-6-93 Contract Fee (1.00) $14.11636918 (0.071) 81.374 1,148.70
9-6-94 Contract Fee (1.00) $13.66115856 (0.073) 81.300 1,110.66
9-6-95 Contract Fee (1.00) $14.57676236 (0.069) 81.232 1,184.10
9-6-96 Contract Fee (1.00) $15.73226849 (0.064) 81.168 1,276.96
9-6-97 Contract Fee (1.00) $16.66681804 (0.060) 81.108 1,351.82
9-6-98 Contract Fee (1.00) $16.51514998 (0.061) 81.048 1,338.51
9-6-99 Contract Fee (1.00) $16.59735834 (0.060) 80.987 1,344.18
12-31-99 Value before Surr Chg $16.47175055 0.000 80.987 1,334.01
12-31-99 Contract Fee (1.00) $16.47175055 (0.061) 80.927 1,333.01
12-31-99 Surrender Charge 0.00 $16.47175055 0.000 80.927 1,333.01
Cumulative Total Returns without/with chgs. 34.28% A 33.30%
Avg. Annual Total Returns without/with chgs. 3.60% B 3.51%
Templeton International Equity
3-10-92 Purchase $1,000.00 $9.99136998 100.086 100.086 $1,000.00
3-10-93 Contract Fee (1.00) $9.69594231 (0.103) 99.983 969.43
3-10-94 Contract Fee (1.00) $12.79335276 (0.078) 99.905 1,278.12
3-10-95 Contract Fee (1.00) $11.71778252 (0.085) 99.820 1,169.67
3-10-96 Contract Fee (1.00) $13.89068784 (0.072) 99.748 1,385.56
3-10-97 Contract Fee (1.00) $16.78167350 (0.060) 99.688 1,672.93
3-10-98 Contract Fee (1.00) $18.85356437 (0.053) 99.635 1,878.48
3-10-99 Contract Fee (1.00) $18.14101219 (0.055) 99.580 1,806.48
12-31-99 Value before Surr Chg $22.85845398 0.000 99.580 2,276.24
12-31-99 Contract Fee (1.00) $22.85845398 (0.044) 99.536 2,275.24
12-31-99 Surrender Charge 0.00 $22.85845398 0.000 99.536 2,275.24
Cumulative Total Returns without/with chgs. 128.78% A 127.52%
Avg. Annual Total Returns without/with chgs. 11.17% B 11.09%
Templeton International Smaller Companies
6-10-96 Purchase $1,000.00 $10.17337387 98.296 98.296 $1,000.00
6-10-97 Contract Fee (1.00) $11.57700016 (0.086) 98.209 1,136.97
6-10-98 Contract Fee (1.00) $11.30327288 (0.088) 98.121 1,109.09
6-10-99 Contract Fee (1.00) $10.67289110 (0.094) 98.027 1,046.23
12-31-99 Value before Surr Chg $11.40338804 0.000 98.027 1,117.84
12-31-99 Contract Fee (1.00) $11.40338804 (0.088) 97.940 1,116.84
12-31-99 Surrender Charge (42.50) $11.40338804 (3.727) 94.213 1,074.34
Cumulative Total Returns without/with chgs. 12.09% A 7.43%
Avg. Annual Total Returns without/with chgs. 3.26% B 2.04%
Templeton Pacific Growth
3-10-92 Purchase $1,000.00 $9.99136998 100.086 100.086 $1,000.00
3-10-93 Contract Fee (1.00) $10.26687089 (0.097) 99.989 1,026.57
3-10-94 Contract Fee (1.00) $13.65479551 (0.073) 99.916 1,364.33
3-10-95 Contract Fee (1.00) $12.18363349 (0.082) 99.834 1,216.34
3-10-96 Contract Fee (1.00) $14.54657966 (0.069) 99.765 1,451.24
3-10-97 Contract Fee (1.00) $14.56267035 (0.069) 99.696 1,451.84
3-10-98 Contract Fee (1.00) $9.39483025 (0.106) 99.590 935.63
3-10-99 Contract Fee (1.00) $7.72855406 (0.129) 99.460 768.69
12-31-99 Value before Surr Chg $10.83777752 0.000 99.460 1,077.93
12-31-99 Contract Fee (1.00) $10.83777752 (0.092) 99.368 1,076.93
12-31-99 Surrender Charge 0.00 $10.83777752 0.000 99.368 1,076.93
Cumulative Total Returns without/with chgs. 8.47% A 7.69%
Avg. Annual Total Returns without/with chgs. 1.05% B 0.95%
U.S. Government Securities
9-6-91 Purchase $1,000.00 $12.00883191 83.272 83.272 $1,000.00
9-6-92 Contract Fee (1.00) $13.53277011 (0.074) 83.198 1,125.90
9-6-93 Contract Fee (1.00) $14.73731504 (0.068) 83.130 1,225.12
9-6-94 Contract Fee (1.00) $13.94815901 (0.072) 83.059 1,158.51
9-6-95 Contract Fee (1.00) $15.57586493 (0.064) 82.994 1,292.71
9-6-96 Contract Fee (1.00) $15.84692420 (0.063) 82.931 1,314.21
9-6-97 Contract Fee (1.00) $17.23470902 (0.058) 82.873 1,428.30
9-6-98 Contract Fee (1.00) $18.61044177 (0.054) 82.820 1,541.31
9-6-99 Contract Fee (1.00) $18.36259092 (0.054) 82.765 1,519.78
12-31-99 Value before Surr Chg $18.39356716 0.000 82.765 1,522.35
12-31-99 Contract Fee (1.00) $18.39356716 (0.054) 82.711 1,521.35
12-31-99 Surrender Charge 0.00 $18.39356716 0.000 82.711 1,521.35
Cumulative Total Returns without/with chgs. 53.17% A 52.13%
Avg. Annual Total Returns without/with chgs. 5.26% B 5.17%
Franklin Global Communications Securities
9-6-91 Purchase $1,000.00 $13.20333633 75.738 75.738 $1,000.00
9-6-92 Contract Fee (1.00) $15.49659434 (0.065) 75.674 1,172.69
9-6-93 Contract Fee (1.00) $18.16497690 (0.055) 75.619 1,373.61
9-6-94 Contract Fee (1.00) $14.81156270 (0.068) 75.551 1,119.03
9-6-95 Contract Fee (1.00) $16.99089769 (0.059) 75.492 1,282.69
9-6-96 Contract Fee (1.00) $19.26269593 (0.052) 75.441 1,453.19
9-6-97 Contract Fee (1.00) $22.00786569 (0.045) 75.395 1,659.29
9-6-98 Contract Fee (1.00) $24.25556304 (0.041) 75.354 1,827.75
9-6-99 Contract Fee (1.00) $29.73224598 (0.034) 75.320 2,239.44
12-31-99 Value before Surr Chg $38.57166130 0.000 75.320 2,905.23
12-31-99 Contract Fee (1.00) $38.57166130 (0.026) 75.294 2,904.23
12-31-99 Surrender Charge 0.00 $38.57166130 0.000 75.294 2,904.23
Cumulative Total Returns without/with chgs. 192.14% A 190.42%
Avg. Annual Total Returns without/with chgs. 13.75% B 13.67%
Zero Coupon - 2000
9-6-91 Purchase $1,000.00 $12.24597744 81.659 81.659 $1,000.00
9-6-92 Contract Fee (1.00) $14.62528229 (0.068) 81.591 1,193.29
9-6-93 Contract Fee (1.00) $16.95328563 (0.059) 81.532 1,382.24
9-6-94 Contract Fee (1.00) $15.64645109 (0.064) 81.468 1,274.69
9-6-95 Contract Fee (1.00) $17.40690860 (0.057) 81.411 1,417.11
9-6-96 Contract Fee (1.00) $17.66740110 (0.057) 81.354 1,437.32
9-6-97 Contract Fee (1.00) $18.89793156 (0.053) 81.301 1,536.43
9-6-98 Contract Fee (1.00) $20.18365656 (0.050) 81.252 1,639.96
9-6-99 Contract Fee (1.00) $20.66034906 (0.048) 81.203 1,677.69
12-31-99 Value before Surr Chg $20.81856477 0.000 81.203 1,690.54
12-31-99 Contract Fee (1.00) $20.81856477 (0.048) 81.155 1,689.54
12-31-99 Surrender Charge 0.00 $20.81856477 0.000 81.155 1,689.54
Cumulative Total Returns without/with chgs. 70.00% A 68.95%
Avg. Annual Total Returns without/with chgs. 6.58% B 6.50%
Zero Coupon - 2005
9-6-91 Purchase $1,000.00 $12.34294505 81.018 81.018 $1,000.00
9-6-92 Contract Fee (1.00) $14.82102144 (0.067) 80.950 1,199.77
9-6-93 Contract Fee (1.00) $18.53333536 (0.054) 80.897 1,499.28
9-6-94 Contract Fee (1.00) $16.24130359 (0.062) 80.835 1,312.86
9-6-95 Contract Fee (1.00) $19.17890651 (0.052) 80.783 1,549.33
9-6-96 Contract Fee (1.00) $19.06958996 (0.052) 80.730 1,539.49
9-6-97 Contract Fee (1.00) $21.09349035 (0.047) 80.683 1,701.89
9-6-98 Contract Fee (1.00) $24.10530811 (0.041) 80.641 1,943.89
9-6-99 Contract Fee (1.00) $23.28509603 (0.043) 80.599 1,876.74
12-31-99 Value before Surr Chg $22.98336230 0.000 80.599 1,852.43
12-31-99 Contract Fee (1.00) $22.98336230 (0.044) 80.555 1,851.43
12-31-99 Surrender Charge 0.00 $22.98336230 0.000 80.555 1,851.43
Cumulative Total Returns without/with chgs. 86.21% A 85.14%
Avg. Annual Total Returns without/with chgs. 7.76% B 7.68%
Zero Coupon - 2010
9-6-91 Purchase $1,000.00 $11.98587854 83.432 83.432 $1,000.00
9-6-92 Contract Fee (1.00) $14.35947156 (0.070) 83.362 1,197.03
9-6-93 Contract Fee (1.00) $18.97557813 (0.053) 83.309 1,580.84
9-6-94 Contract Fee (1.00) $15.79824932 (0.063) 83.246 1,315.14
9-6-95 Contract Fee (1.00) $19.77806044 (0.051) 83.195 1,645.44
9-6-96 Contract Fee (1.00) $19.33710914 (0.052) 83.144 1,607.76
9-6-97 Contract Fee (1.00) $22.28214313 (0.045) 83.099 1,851.62
9-6-98 Contract Fee (1.00) $27.16542546 (0.037) 83.062 2,256.41
9-6-99 Contract Fee (1.00) $24.79912197 (0.040) 83.022 2,058.86
12-31-99 Value before Surr Chg $23.92886562 0.000 83.022 1,986.61
12-31-99 Contract Fee (1.00) $23.92886562 (0.042) 82.980 1,985.61
12-31-99 Surrender Charge 0.00 $23.92886562 0.000 82.980 1,985.61
Cumulative Total Returns without/with chgs. 99.64% A 98.56%
Avg. Annual Total Returns without/with chgs. 8.66% B 8.59%
Global Health Care Securities
8-17-98 Purchase $1,000.00 $9.34869112 106.967 106.967 $1,000.00
8-17-99 Contract Fee (1.00) $8.73026223 (0.115) 106.852 $932.85
12-31-99 Value before Surr Chg $9.60095883 0.000 106.852 $1,025.88
12-31-99 Contract Fee (1.00) $9.60095883 (0.104) 106.748 $1,024.88
12-31-99 Surrender Charge (51.00) $9.60095883 (5.312) 101.436 $973.88
Cumulative Total Returns without/with chgs. 2.70% A -2.61%
Avg. Annual Total Returns without/with chgs. 1.96% B -1.91%
Value Securities
8-17-98 Purchase $1,000.00 $7.91502603 126.342 126.342 $1,000.00
8-17-99 Contract Fee (1.00) $8.20958327 (0.122) 126.220 $1,036.21
12-31-99 Value before Surr Chg $7.72414690 0.000 126.220 $974.94
12-31-99 Contract Fee (1.00) $7.72414690 (0.129) 126.091 $973.94
12-31-99 Surrender Charge (51.00) $7.72414690 (6.603) 119.488 $922.94
Cumulative Total Returns without/with chgs. -2.41% A -7.71%
Avg. Annual Total Returns without/with chgs. -1.76% B -5.67%
<FN>
A = (Unit Value as of December 31, 1999 - Unit Value at Purchase)/Unit Value at
Purchase B = [(A+1)^(1/Years since Inception)]-1 C = (Accumulated Value as of
December 31, 1999 - Accum. Value at Purch.)/Accum. Value at Purch.
D = [(C+1)^(1/Years since Inception)]-1
</FN>
</TABLE>
<TABLE>
<CAPTION>
ADVANTAGE
PREFERRED LIFE VARIABLE ACCOUNT C
CUMULATIVE AND AVERAGE ANNUAL TOTAL RETURN CALCULATIONS - HYPOTHETICAL
ORIGINAL PURCHASE AS OF DECEMBER 31, 1998
VALUATION DATE AS OF DECEMBER 31, 1999
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
---- ----------- ------ ---------- ------ ----- -----
AIM VI Capital Appreciation Fund
<S> <C> <C> <C> <C> <C> <C>
12-31-98 Purchase $1,000.00 $24.31797713 41.122 41.122 $1,000.00
12-31-99 Contract Fee (1.00) $34.64979889 (0.029) 41.093 1,423.86
12-31-99 Value before Surr Chg $34.64979889 0.000 41.093 1,423.86
12-31-99 Surrender Charge (51.00) $34.64979889 (1.472) 39.621 1,372.86
Cumulative and Average Annual Total Returns
without/with charges 42.49% A 37.29% B
AIM VI Growth
12-31-98 Purchase $1,000.00 $26.85990321 37.230 37.230 $1,000.00
12-31-99 Contract Fee (1.00) $35.78747555 (0.028) 37.202 1,331.38
12-31-99 Value before Surr Chg $35.78747555 0.000 37.202 1,331.38
12-31-99 Surrender Charge (51.00) $35.78747555 (1.425) 35.777 1,280.38
Cumulative and Average Annual Total Returns
without/with charges 33.24% A 28.04% B
AIM VI International Equity Fund
12-31-98 Purchase $1,000.00 $18.68689152 53.513 53.513 $1,000.00
12-31-99 Contract Fee (1.00) $28.54739618 (0.035) 53.478 1,526.67
12-31-99 Value before Surr Chg $28.54739618 0.000 53.478 1,526.67
12-31-99 Surrender Charge (51.00) $28.54739618 (1.787) 51.692 1,475.67
Cumulative and Average Annual Total Returns
without/with charges 52.77% A 47.57% B
AIM VI Value Fund
12-31-98 Purchase $1,000.00 $28.17440888 35.493 35.493 $1,000.00
12-31-99 Contract Fee (1.00) $36.06193316 (0.028) 35.465 1,278.95
12-31-99 Value before Surr Chg $36.06193316 0.000 35.465 1,278.95
12-31-99 Surrender Charge (51.00) $36.06193316 (1.414) 34.051 1,227.95
Cumulative and Average Annual Total Returns
without/with charges 28.00% A 22.80% B
Alger American Growth
12-31-98 Purchase $1,000.00 $63.07984192 15.853 15.853 $1,000.00
12-31-99 Contract Fee (1.00) $83.11733273 (0.012) 15.841 1,316.65
12-31-99 Value before Surr Chg $83.11733273 0.000 15.841 1,316.65
12-31-99 Surrender Charge (51.00) $83.11733273 (0.614) 15.227 1,265.65
Cumulative and Average Annual Total Returns
without/with charges 31.77% A 26.57% B
Alger American Leveraged AllCap
12-31-98 Purchase $1,000.00 $34.78746623 28.746 28.746 $1,000.00
12-31-99 Contract Fee (1.00) $61.02671473 (0.016) 28.730 1,753.27
12-31-99 Value before Surr Chg $61.02671473 0.000 28.730 1,753.27
12-31-99 Surrender Charge (51.00) $61.02671473 (0.836) 27.894 1,702.27
Cumulative and Average Annual Total Returns
without/with charges 75.43% A 70.23% B
Alger American MidCap Growth
12-31-98 Purchase $1,000.00 $30.39225189 32.903 32.903 $1,000.00
12-31-99 Contract Fee (1.00) $39.47884854 (0.025) 32.878 1,297.98
12-31-99 Value before Surr Chg $39.47884854 0.000 32.878 1,297.98
12-31-99 Surrender Charge (51.00) $39.47884854 (1.292) 31.586 1,246.98
Cumulative and Average Annual Total Returns
without/with charges 29.90% A 24.70% B
Alger American Small Capitalization
12-31-98 Purchase $1,000.00 $50.69817664 19.725 19.725 $1,000.00
12-31-99 Contract Fee (1.00) $71.63435796 (0.014) 19.711 1,411.96
12-31-99 Value before Surr Chg $71.63435796 0.000 19.711 1,411.96
12-31-99 Surrender Charge (51.00) $71.63435796 (0.712) 18.999 1,360.96
Cumulative and Average Annual Total Returns
without/with charges 41.30% A 36.10% B
Franklin Growth & Income
12-31-98 Purchase $1,000.00 $25.99287759 38.472 38.472 $1,000.00
12-31-99 Contract Fee (1.00) $25.89127963 (0.039) 38.433 995.09
12-31-99 Value before Surr Chg $25.89127963 0.000 38.433 995.09
12-31-99 Surrender Charge (51.00) $25.89127963 (1.970) 36.464 944.09
Cumulative and Average Annual Total Returns
without/with charges -0.39% A -5.59% B
Franklin Rising Dividends Securities
12-31-98 Purchase $1,000.00 $21.03405907 47.542 47.542 $1,000.00
12-31-99 Contract Fee (1.00) $18.71235633 (0.053) 47.489 888.62
12-31-99 Value before Surr Chg $18.71235633 0.000 47.489 888.62
12-31-99 Surrender Charge (51.00) $18.71235633 (2.725) 44.763 837.62
Cumulative and Average Annual Total Returns
without/with charges -11.04% A -16.24% B
Franklin Small Cap
12-31-98 Purchase $1,000.00 $14.55802199 68.691 68.691 $1,000.00
12-31-99 Contract Fee (1.00) $28.24659725 (0.035) 68.655 1,939.28
12-31-99 Value before Surr Chg $28.24659725 0.000 68.655 1,939.28
12-31-99 Surrender Charge (51.00) $28.24659725 (1.806) 66.850 1,888.28
Cumulative and Average Annual Total Returns
without/with charges 94.03% A 88.83% B
Franklin U.S. Government
12-31-98 Purchase $1,000.00 $18.84665157 53.060 53.060 $1,000.00
12-31-99 Contract Fee (1.00) $18.39356716 (0.054) 53.005 974.96
12-31-99 Value before Surr Chg $18.39356716 0.000 53.005 974.96
12-31-99 Surrender Charge (51.00) $18.39356716 (2.773) 50.233 923.96
Cumulative and Average Annual Total Returns
without/with charges -2.40% A -7.60% B
JP Morgan International Opportunitities
12-31-98 Purchase $1,000.00 $13.21789713 75.655 75.655 $1,000.00
12-31-99 Contract Fee (1.00) $17.79989532 (0.056) 75.599 1,345.65
12-31-99 Value before Surr Chg $17.79989532 0.000 75.599 1,345.65
12-31-99 Surrender Charge (51.00) $17.79989532 (2.865) 72.734 1,294.65
Cumulative and Average Annual Total Returns
without/with charges 34.67% A 29.47% B
JP Morgan US Disciplined Equity
12-31-98 Purchase $1,000.00 $23.87761763 41.880 41.880 $1,000.00
12-31-99 Contract Fee (1.00) $27.88350216 (0.036) 41.844 1,166.77
12-31-99 Value before Surr Chg $27.88350216 0.000 41.844 1,166.77
12-31-99 Surrender Charge (51.00) $27.88350216 (1.829) 40.015 1,115.77
Cumulative and Average Annual Total Returns
without/with charges 16.78% A 11.58% B
Mutual Discovery Securities
12-31-98 Purchase $1,000.00 $11.20464895 89.249 89.249 $1,000.00
12-31-99 Contract Fee (1.00) $13.66196995 (0.073) 89.175 1,218.31
12-31-99 Value before Surr Chg $13.66196995 0.000 89.175 1,218.31
12-31-99 Surrender Charge (51.00) $13.66196995 (3.733) 85.442 1,167.31
Cumulative and Average Annual Total Returns
without/with charges 21.93% A 16.73% B
Mutual Shares Securities
12-31-98 Purchase $1,000.00 $11.81402865 84.645 84.645 $1,000.00
12-31-99 Contract Fee (1.00) $13.19948692 (0.076) 84.569 1,116.27
12-31-99 Value before Surr Chg $13.19948692 0.000 84.569 1,116.27
12-31-99 Surrender Charge (51.00) $13.19948692 (3.864) 80.706 1,065.27
Cumulative and Average Annual Total Returns
without/with charges 11.73% A 6.53% B
Oppenheimer VA Global Securities
12-31-98 Purchase $1,000.00 $23.07375794 43.339 43.339 $1,000.00
12-31-99 Contract Fee (1.00) $36.02720000 (0.028) 43.312 1,560.39
12-31-99 Value before Surr Chg $36.02720000 0.000 43.312 1,560.39
12-31-99 Surrender Charge (51.00) $36.02720000 (1.416) 41.896 1,509.39
Cumulative and Average Annual Total Returns
without/with charges 56.14% A 50.94% B
Oppenheimer VA High Income
12-31-98 Purchase $1,000.00 $35.83443551 27.906 27.906 $1,000.00
12-31-99 Contract Fee (1.00) $36.81827013 (0.027) 27.879 1,026.46
12-31-99 Value before Surr Chg $36.81827013 0.000 27.879 1,026.46
12-31-99 Surrender Charge (51.00) $36.81827013 (1.385) 26.494 975.46
Cumulative and Average Annual Total Returns
without/with charges 2.75% A -2.45% B
Oppenheimer VA Main Street Growth & Income
12-31-98 Purchase $1,000.00 $21.85428942 45.758 45.758 $1,000.00
12-31-99 Contract Fee (1.00) $26.20497498 (0.038) 45.719 1,198.08
12-31-99 Value before Surr Chg $26.20497498 0.000 45.719 1,198.08
12-31-99 Surrender Charge (51.00) $26.20497498 (1.946) 43.773 1,147.08
Cumulative and Average Annual Total Returns
without/with charges 19.91% A 14.71% B
PIMCO VIT High Yield Bond
12-31-98 Purchase $1,000.00 $10.07833662 99.223 99.223 $1,000.00
12-31-99 Contract Fee (1.00) $10.14692720 (0.099) 99.124 1,005.81
12-31-99 Value before Surr Chg $10.14692720 0.000 99.124 1,005.81
12-31-99 Surrender Charge (51.00) $10.14692720 (5.026) 94.098 954.81
Cumulative and Average Annual Total Returns
without/with charges 0.68% A -4.52% B
PIMCO VIT Stocks PLUS Growth & Income
12-31-98 Purchase $1,000.00 $12.81862487 78.011 78.011 $1,000.00
12-31-99 Contract Fee (1.00) $13.99426583 (0.071) 77.940 1,090.71
12-31-99 Value before Surr Chg $13.99426583 0.000 77.940 1,090.71
12-31-99 Surrender Charge (51.00) $13.99426583 (3.644) 74.296 1,039.71
Cumulative and Average Annual Total Returns
without/with charges 9.17% A 3.97% B
PIMCO VIT Total Return Bond
12-31-98 Purchase $1,000.00 $10.70076399 93.451 93.451 $1,000.00
12-31-99 Contract Fee (1.00) $10.42236944 (0.096) 93.355 972.98
12-31-99 Value before Surr Chg $10.42236944 0.000 93.355 972.98
12-31-99 Surrender Charge (51.00) $10.42236944 (4.893) 88.462 921.98
Cumulative and Average Annual Total Returns
without/with charges -2.60% A -7.80% B
Seligman Henderson Global Technology
12-31-98 Purchase $1,000.00 $16.34448389 61.183 61.183 $1,000.00
12-31-99 Contract Fee (1.00) $35.23345326 (0.028) 61.154 2,154.68
12-31-99 Value before Surr Chg $35.23345326 0.000 61.154 2,154.68
12-31-99 Surrender Charge (51.00) $35.23345326 (1.447) 59.707 2,103.68
Cumulative and Average Annual Total Returns
without/with charges 115.57% A 110.37% B
Seligman Small Cap Value
12-31-98 Purchase $1,000.00 $8.21754424 121.691 121.691 $1,000.00
12-31-99 Contract Fee (1.00) $10.95072315 (0.091) 121.600 1,331.60
12-31-99 Value before Surr Chg $10.95072315 0.000 121.600 1,331.60
12-31-99 Surrender Charge (51.00) $10.95072315 (4.657) 116.942 1,280.60
Cumulative and Average Annual Total Returns
without/with charges 33.26% A 28.06% B
Templeton Developing Markets Equity
12-31-98 Purchase $1,000.00 $7.95817952 125.657 125.657 $1,000.00
12-31-99 Contract Fee (1.00) $12.12450336 (0.082) 125.574 1,522.53
12-31-99 Value before Surr Chg $12.12450336 0.000 125.574 1,522.53
12-31-99 Surrender Charge (51.00) $12.12450336 (4.206) 121.368 1,471.53
Cumulative and Average Annual Total Returns
without/with charges 52.35% A 47.15% B
Templeton Global Growth
12-31-98 Purchase $1,000.00 $16.23822650 61.583 61.583 $1,000.00
12-31-99 Contract Fee (1.00) $19.36424346 (0.052) 61.531 1,191.51
12-31-99 Value before Surr Chg $19.36424346 0.000 61.531 1,191.51
12-31-99 Surrender Charge (51.00) $19.36424346 (2.634) 58.898 1,140.51
Cumulative and Average Annual Total Returns
without/with charges 19.25% A 14.05% B
Templeton Pacific Growth
12-31-98 Purchase $1,000.00 $8.02829857 124.559 124.559 $1,000.00
12-31-99 Contract Fee (1.00) $10.83777752 (0.092) 124.467 1,348.95
12-31-99 Value before Surr Chg $10.83777752 0.000 124.467 1,348.95
12-31-99 Surrender Charge (51.00) $10.83777752 (4.706) 119.761 1,297.95
Cumulative and Average Annual Total Returns
without/with charges 34.99% A 29.79% B
Van Kampen LIT Enterprise
12-31-98 Purchase $1,000.00 $39.31172857 25.438 25.438 $1,000.00
12-31-99 Contract Fee (1.00) $48.74135508 (0.021) 25.417 1,238.87
12-31-99 Value before Surr Chg $48.74135508 0.000 25.417 1,238.87
12-31-99 Surrender Charge (51.00) $48.74135508 (1.046) 24.371 1,187.87
Cumulative and Average Annual Total Returns
without/with charges 23.99% A 18.79% B
Van Kampen LIT Growth & Income
12-31-98 Purchase $1,000.00 $14.33185127 69.775 69.775 $1,000.00
12-31-99 Contract Fee (1.00) $15.05879695 (0.066) 69.708 1,049.72
12-31-99 Value before Surr Chg $15.05879695 0.000 69.708 1,049.72
12-31-99 Surrender Charge (51.00) $15.05879695 (3.387) 66.322 998.72
Cumulative and Average Annual Total Returns
without/with charges 5.07% A -0.13% B
Franklin Global Communications Securities Fund
12-31-98 Purchase $1,000.00 $28.08202457 35.610 35.610 $1,000.00
12-31-99 Contract Fee (1.00) $38.57166130 (0.026) 35.584 1,372.54
12-31-99 Value before Surr Chg $38.57166130 0.000 35.584 1,372.54
12-31-99 Surrender Charge (51.00) $38.57166130 (1.322) 34.262 1,321.54
Cumulative and Average Annual Total Returns
without/with charges 37.35% A 32.15% B
Franklin Global Health Care Securities Fund
12-31-98 Purchase $1,000.00 $10.60384781 94.305 94.305 $1,000.00
12-31-99 Contract Fee (1.00) $9.60095883 (0.104) 94.201 904.42
12-31-99 Value before Surr Chg $9.60095883 0.000 94.201 904.42
12-31-99 Surrender Charge (51.00) $9.60095883 (5.312) 88.889 853.42
Cumulative and Average Annual Total Returns
without/with charges -9.46% A -14.66% B
Franklin High Income Fund
12-31-98 Purchase $1,000.00 $21.01959301 47.575 47.575 $1,000.00
12-31-99 Contract Fee (1.00) $20.69510047 (0.048) 47.526 983.56
12-31-99 Value before Surr Chg $20.69510047 0.000 47.526 983.56
12-31-99 Surrender Charge (51.00) $20.69510047 (2.464) 45.062 932.56
Cumulative and Average Annual Total Returns
without/with charges -1.54% A -6.74% B
Franklin Income Securities Fund
12-31-98 Purchase $1,000.00 $24.89795747 40.164 40.164 $1,000.00
12-31-99 Contract Fee (1.00) $24.08442690 (0.042) 40.122 966.33
12-31-99 Value before Surr Chg $24.08442690 0.000 40.122 966.33
12-31-99 Surrender Charge (51.00) $24.08442690 (2.118) 38.005 915.33
Cumulative and Average Annual Total Returns
without/with charges -3.27% A -8.47% B
Franklin Large Cap Growth Securities Fund
12-31-98 Purchase $1,000.00 $15.53680530 64.363 64.363 $1,000.00
12-31-99 Contract Fee (1.00) $20.15175796 (0.050) 64.314 1,296.03
12-31-99 Value before Surr Chg $20.15175796 0.000 64.314 1,296.03
12-31-99 Surrender Charge (51.00) $20.15175796 (2.531) 61.783 1,245.03
Cumulative and Average Annual Total Returns
without/with charges 29.70% A 24.50% B
Franklin Natural Resources Securities Fund
12-31-98 Purchase $1,000.00 $8.42970932 118.628 118.628 $1,000.00
12-31-99 Contract Fee (1.00) $10.98301490 (0.091) 118.537 1,301.89
12-31-99 Value before Surr Chg $10.98301490 0.000 118.537 1,301.89
12-31-99 Surrender Charge (51.00) $10.98301490 (4.644) 113.893 1,250.89
Cumulative and Average Annual Total Returns
without/with charges 30.29% A 25.09% B
Franklin Value Securities Fund
12-31-98 Purchase $1,000.00 $7.71278940 129.655 129.655 $1,000.00
12-31-99 Contract Fee (1.00) $7.72414690 (0.129) 129.525 1,000.47
12-31-99 Value before Surr Chg $7.72414690 0.000 129.525 1,000.47
12-31-99 Surrender Charge (51.00) $7.72414690 (6.603) 122.923 949.47
Cumulative and Average Annual Total Returns
without/with charges 0.15% A -5.05% B
Templeton International Securities Fund
12-31-98 Purchase $1,000.00 $18.32204431 54.579 54.579 $1,000.00
12-31-99 Contract Fee (1.00) $22.85845398 (0.044) 54.535 1,246.59
12-31-99 Value before Surr Chg $22.85845398 0.000 54.535 1,246.59
12-31-99 Surrender Charge (51.00) $22.85845398 (2.231) 52.304 1,195.59
Cumulative and Average Annual Total Returns
without/with charges 24.76% A 19.56% B
Templeton International Smaller Companies Fund
12-31-98 Purchase $1,000.00 $9.34197461 107.044 107.044 $1,000.00
12-31-99 Contract Fee (1.00) $11.40338804 (0.088) 106.956 1,219.66
12-31-99 Value before Surr Chg $11.40338804 0.000 106.956 1,219.66
12-31-99 Surrender Charge (51.00) $11.40338804 (4.472) 102.484 1,168.66
Cumulative and Average Annual Total Returns
without/with charges 22.07% A 16.87% B
<FN>
A = (Unit Value as of December 31, 1999 - Unit Value at Purchase)/Unit Value at
Purchase B = (Accumulated Value as of December 31, 1999 - Accum. Value at
Purch.)/Accum. Value at Purch.
</FN>
</TABLE>
<TABLE>
<CAPTION>
ADVANTAGE
PREFERRED LIFE VARIABLE ACCOUNT C
CUMULATIVE AND AVERAGE ANNUAL TOTAL RETURN CALCULATIONS - HYPOTHETICAL
ORIGINAL PURCHASE AS OF DECEMBER 31, 1996
VALUATION DATE AS OF DECEMBER 31, 1999
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
---- ----------- ------ ---------- ------ ----- -----
AIM VI Capital Appreciation
<S> <C> <C> <C> <C> <C> <C>
12-31-96 Purchase $1,000.00 $18.50433464 54.041 54.041 $1,000.00
12-31-97 Contract Fee (1.00) $20.68642579 (0.048) 53.993 1,116.92
12-31-98 Contract Fee (1.00) $24.31797713 (0.041) 53.952 1,312.00
12-31-99 Contract Fee (1.00) $34.64979889 (0.029) 53.923 1,868.42
12-31-99 Value before Surr Chg $34.64979889 0.000 53.923 1,868.42
12-31-99 Surrender Charge (51.00) $34.64979889 (1.472) 52.451 1,817.42
Cumulative Total Returns without/with chrgs. 87.25% A 81.74%
Avg. Annual Total Returns without/with chrgs. 23.26% B 22.04%
AIM VI Growth
12-31-96 Purchase $1,000.00 $16.26816553 61.470 61.470 $1,000.00
12-31-97 Contract Fee (1.00) $20.32600349 (0.049) 61.421 1,248.43
12-31-98 Contract Fee (1.00) $26.85990321 (0.037) 61.383 1,648.75
12-31-99 Contract Fee (1.00) $35.78747555 (0.028) 61.355 2,195.75
12-31-99 Value before Surr Chg $35.78747555 0.000 61.355 2,195.75
12-31-99 Surrender Charge (51.00) $35.78747555 (1.425) 59.930 2,144.75
Cumulative Total Returns without/with chrgs. 119.98% A 114.48%
Avg. Annual Total Returns without/with chrgs. 30.06% B 28.96%
AIM VI International Equity
12-31-96 Purchase $1,000.00 $15.59192863 64.136 64.136 $1,000.00
12-31-97 Contract Fee (1.00) $16.42557742 (0.061) 64.075 1,052.47
12-31-98 Contract Fee (1.00) $18.68689152 (0.054) 64.021 1,196.36
12-31-99 Contract Fee (1.00) $28.54739618 (0.035) 63.986 1,826.64
12-31-99 Value before Surr Chg $28.54739618 0.000 63.986 1,826.64
12-31-99 Surrender Charge (51.00) $28.54739618 (1.787) 62.200 1,775.64
Cumulative Total Returns without/with chrgs. 83.09% A 77.56%
Avg. Annual Total Returns without/with chrgs. 22.34% B 21.09%
AIM VI Value
12-31-96 Purchase $1,000.00 $17.72681230 56.412 56.412 $1,000.00
12-31-97 Contract Fee (1.00) $21.60351124 (0.046) 56.365 1,217.69
12-31-98 Contract Fee (1.00) $28.17440888 (0.035) 56.330 1,587.06
12-31-99 Contract Fee (1.00) $36.06193316 (0.028) 56.302 2,030.37
12-31-99 Value before Surr Chg $36.06193316 0.000 56.302 2,030.37
12-31-99 Surrender Charge (51.00) $36.06193316 (1.414) 54.888 1,979.37
Cumulative Total Returns without/with chrgs. 103.43% A 97.94%
Avg. Annual Total Returns without/with chrgs. 26.71% B 25.56%
Alger American Growth
12-31-96 Purchase $1,000.00 $34.90290928 28.651 28.651 $1,000.00
12-31-97 Contract Fee (1.00) $43.24043544 (0.023) 28.628 1,237.88
12-31-98 Contract Fee (1.00) $63.07984192 (0.016) 28.612 1,804.84
12-31-99 Contract Fee (1.00) $83.11733273 (0.012) 28.600 2,377.15
12-31-99 Value before Surr Chg $83.11733273 0.000 28.600 2,377.15
12-31-99 Surrender Charge (51.00) $83.11733273 (0.614) 27.986 2,326.15
Cumulative Total Returns without/with chrgs. 138.14% A 132.61%
Avg. Annual Total Returns without/with chrgs. 33.54% B 32.50%
Alger American Leveraged AllCap
12-31-96 Purchase $1,000.00 $18.97374993 52.704 52.704 $1,000.00
12-31-97 Contract Fee (1.00) $22.37188650 (0.045) 52.660 1,178.10
12-31-98 Contract Fee (1.00) $34.78746623 (0.029) 52.631 1,830.90
12-31-99 Contract Fee (1.00) $61.02671473 (0.016) 52.615 3,210.89
12-31-99 Value before Surr Chg $61.02671473 0.000 52.615 3,210.89
12-31-99 Surrender Charge (51.00) $61.02671473 (0.836) 51.779 3,159.89
Cumulative Total Returns without/with chrgs. 221.64% A 215.99%
Avg. Annual Total Returns without/with chrgs. 47.61% B 46.74%
Alger American MidCap Growth
12-31-96 Purchase $1,000.00 $20.89502523 47.858 47.858 $1,000.00
12-31-97 Contract Fee (1.00) $23.67508080 (0.042) 47.816 1,132.05
12-31-98 Contract Fee (1.00) $30.39225189 (0.033) 47.783 1,452.24
12-31-99 Contract Fee (1.00) $39.47884854 (0.025) 47.758 1,885.42
12-31-99 Value before Surr Chg $39.47884854 0.000 47.758 1,885.42
12-31-99 Surrender Charge (51.00) $39.47884854 (1.292) 46.466 1,834.42
Cumulative Total Returns without/with chrgs. 88.94% A 83.44%
Avg. Annual Total Returns without/with chrgs. 23.63% B 22.41%
Alger American Small Capitalization
12-31-96 Purchase $1,000.00 $40.58702383 24.638 24.638 $1,000.00
12-31-97 Contract Fee (1.00) $44.54194368 (0.022) 24.616 1,096.44
12-31-98 Contract Fee (1.00) $50.69817664 (0.020) 24.596 1,246.98
12-31-99 Contract Fee (1.00) $71.63435796 (0.014) 24.582 1,760.94
12-31-99 Value before Surr Chg $71.63435796 0.000 24.582 1,760.94
12-31-99 Surrender Charge (51.00) $71.63435796 (0.712) 23.870 1,709.94
Cumulative Total Returns without/with chrgs. 76.50% A 70.99%
Avg. Annual Total Returns without/with chrgs. 20.85% B 19.58%
Franklin Growth & Income
12-31-96 Purchase $1,000.00 $19.35081369 51.677 51.677 $1,000.00
12-31-97 Contract Fee (1.00) $24.35403985 (0.041) 51.636 1,257.55
12-31-98 Contract Fee (1.00) $25.99287759 (0.038) 51.598 1,341.18
12-31-99 Contract Fee (1.00) $25.89127963 (0.039) 51.559 1,334.94
12-31-99 Value before Surr Chg $25.89127963 0.000 51.559 1,334.94
12-31-99 Surrender Charge (51.00) $25.89127963 (1.970) 49.589 1,283.94
Cumulative Total Returns without/with chrgs. 33.80% A 28.39%
Avg. Annual Total Returns without/with chrgs. 10.19% B 8.69%
Franklin Rising Dividends Securities
12-31-96 Purchase $1,000.00 $15.23536682 65.637 65.637 $1,000.00
12-31-97 Contract Fee (1.00) $19.96761178 (0.050) 65.587 1,309.61
12-31-98 Contract Fee (1.00) $21.03405907 (0.048) 65.539 1,378.55
12-31-99 Contract Fee (1.00) $18.71235633 (0.053) 65.486 1,225.39
12-31-99 Value before Surr Chg $18.71235633 0.000 65.486 1,225.39
12-31-99 Surrender Charge (51.00) $18.71235633 (2.725) 62.760 1,174.39
Cumulative Total Returns without/with chrgs. 22.82% A 17.44%
Avg. Annual Total Returns without/with chrgs. 7.09% B 5.50%
Franklin Small Cap
12-31-96 Purchase $1,000.00 $12.89918829 77.524 77.524 $1,000.00
12-31-97 Contract Fee (1.00) $14.92280844 (0.067) 77.457 1,155.88
12-31-98 Contract Fee (1.00) $14.55802199 (0.069) 77.389 1,126.62
12-31-99 Contract Fee (1.00) $28.24659725 (0.035) 77.353 2,184.96
12-31-99 Value before Surr Chg $28.24659725 0.000 77.353 2,184.96
12-31-99 Surrender Charge (51.00) $28.24659725 (1.806) 75.548 2,133.96
Cumulative Total Returns without/with chrgs. 118.98% A 113.40%
Avg. Annual Total Returns without/with chrgs. 29.86% B 28.74%
Franklin U.S. Government
12-31-96 Purchase $1,000.00 $16.53304452 60.485 60.485 $1,000.00
12-31-97 Contract Fee (1.00) $17.80492179 (0.056) 60.429 1,075.93
12-31-98 Contract Fee (1.00) $18.84665157 (0.053) 60.376 1,137.88
12-31-99 Contract Fee (1.00) $18.39356716 (0.054) 60.321 1,109.52
12-31-99 Value before Surr Chg $18.39356716 0.000 60.321 1,109.52
12-31-99 Surrender Charge (51.00) $18.39356716 (2.773) 57.549 1,058.52
Cumulative Total Returns without/with chrgs. 11.25% A 5.85%
Avg. Annual Total Returns without/with chrgs. 3.62% B 1.91%
JP Morgan International Opportunities
12-31-96 Purchase $1,000.00 $12.33657960 81.060 81.060 $1,000.00
12-31-97 Contract Fee (1.00) $12.81605801 (0.078) 80.982 1,037.87
12-31-98 Contract Fee (1.00) $13.21789713 (0.076) 80.906 1,069.41
12-31-99 Contract Fee (1.00) $17.79989532 (0.056) 80.850 1,439.12
12-31-99 Value before Surr Chg $17.79989532 0.000 80.850 1,439.12
12-31-99 Surrender Charge (51.00) $17.79989532 (2.865) 77.985 1,388.12
Cumulative Total Returns without/with chrgs. 44.29% A 38.81%
Avg. Annual Total Returns without/with chrgs. 13.00% B 11.55%
JP Morgan US Disciplined Equity
12-31-96 Purchase $1,000.00 $15.74141119 63.527 63.527 $1,000.00
12-31-97 Contract Fee (1.00) $19.64701523 (0.051) 63.476 1,247.11
12-31-98 Contract Fee (1.00) $23.87761763 (0.042) 63.434 1,514.65
12-31-99 Contract Fee (1.00) $27.88350216 (0.036) 63.398 1,767.76
12-31-99 Value before Surr Chg $27.88350216 0.000 63.398 1,767.76
12-31-99 Surrender Charge (51.00) $27.88350216 (1.829) 61.569 1,716.76
Cumulative Total Returns without/with chrgs. 77.13% A 71.68%
Avg. Annual Total Returns without/with chrgs. 21.00% B 19.74%
Mutual Discovery Securities
12-31-96 Purchase $1,000.00 $10.17920124 98.240 98.240 $1,000.00
12-31-97 Contract Fee (1.00) $11.97090670 (0.084) 98.156 1,175.02
12-31-98 Contract Fee (1.00) $11.20464895 (0.089) 98.067 1,098.80
12-31-99 Contract Fee (1.00) $13.66196995 (0.073) 97.994 1,338.79
12-31-99 Value before Surr Chg $13.66196995 0.000 97.994 1,338.79
12-31-99 Surrender Charge (51.00) $13.66196995 (3.733) 94.261 1,287.79
Cumulative Total Returns without/with chrgs. 34.21% A 28.78%
Avg. Annual Total Returns without/with chrgs. 10.31% B 8.80%
Mutual Shares Securities
12-31-96 Purchase $1,000.00 $10.32889538 96.816 96.816 $1,000.00
12-31-97 Contract Fee (1.00) $11.98070033 (0.083) 96.732 1,158.92
12-31-98 Contract Fee (1.00) $11.81402865 (0.085) 96.648 1,141.80
12-31-99 Contract Fee (1.00) $13.19948692 (0.076) 96.572 1,274.70
12-31-99 Value before Surr Chg $13.19948692 0.000 96.572 1,274.70
12-31-99 Surrender Charge (51.00) $13.19948692 (3.864) 92.708 1,223.70
Cumulative Total Returns without/with chrgs. 27.79% A 22.37%
Avg. Annual Total Returns without/with chrgs. 8.52% B 6.96%
Oppenheimer VA Global Securities
12-31-96 Purchase $1,000.00 $17.01734798 58.764 58.764 $1,000.00
12-31-97 Contract Fee (1.00) $20.52518594 (0.049) 58.715 1,205.13
12-31-98 Contract Fee (1.00) $23.07375794 (0.043) 58.672 1,353.77
12-31-99 Contract Fee (1.00) $36.02720000 (0.028) 58.644 2,112.77
12-31-99 Value before Surr Chg $36.02720000 0.000 58.644 2,112.77
12-31-99 Surrender Charge (51.00) $36.02720000 (1.416) 57.228 2,061.77
Cumulative Total Returns without/with chrgs. 111.71% A 106.18%
Avg. Annual Total Returns without/with chrgs. 28.40% B 27.28%
Oppenheimer VA High Income
12-31-96 Purchase $1,000.00 $32.80001507 30.488 30.488 $1,000.00
12-31-97 Contract Fee (1.00) $36.26210352 (0.028) 30.460 1,104.55
12-31-98 Contract Fee (1.00) $35.83443551 (0.028) 30.432 1,090.52
12-31-99 Contract Fee (1.00) $36.81827013 (0.027) 30.405 1,119.46
12-31-99 Value before Surr Chg $36.81827013 0.000 30.405 1,119.46
12-31-99 Surrender Charge (51.00) $36.81827013 (1.385) 29.020 1,068.46
Cumulative Total Returns without/with chrgs. 12.25% A 6.85%
Avg. Annual Total Returns without/with chrgs. 3.93% B 2.23%
Oppenheimer VA Main Street Growth & Income
12-31-96 Purchase $1,000.00 $16.23240398 61.605 61.605 $1,000.00
12-31-97 Contract Fee (1.00) $21.18627094 (0.047) 61.558 1,304.18
12-31-98 Contract Fee (1.00) $21.85428942 (0.046) 61.512 1,344.31
12-31-99 Contract Fee (1.00) $26.20497498 (0.038) 61.474 1,610.93
12-31-99 Value before Surr Chg $26.20497498 0.000 61.474 1,610.93
12-31-99 Surrender Charge (51.00) $26.20497498 (1.946) 59.528 1,559.93
Cumulative Total Returns without/with chrgs. 61.44% A 55.99%
Avg. Annual Total Returns without/with chrgs. 17.31% B 15.98%
Seligman Henderson Global Technology
12-31-96 Purchase $1,000.00 $10.29827269 97.104 97.104 $1,000.00
12-31-97 Contract Fee (1.00) $12.12711746 (0.082) 97.021 1,176.59
12-31-98 Contract Fee (1.00) $16.34448389 (0.061) 96.960 1,584.76
12-31-99 Contract Fee (1.00) $35.23345326 (0.028) 96.932 3,415.24
12-31-99 Value before Surr Chg $35.23345326 0.000 96.932 3,415.24
12-31-99 Surrender Charge (51.00) $35.23345326 (1.447) 95.484 3,364.24
Cumulative Total Returns without/with chrgs. 242.13% A 236.42%
Avg. Annual Total Returns without/with chrgs. 50.68% B 49.84%
Templeton Developing Markets Equity
12-31-96 Purchase $1,000.00 $11.45833113 87.273 87.273 $1,000.00
12-31-97 Contract Fee (1.00) $10.30480726 (0.097) 87.176 898.33
12-31-98 Contract Fee (1.00) $7.95817952 (0.126) 87.050 692.76
12-31-99 Contract Fee (1.00) $12.12450336 (0.082) 86.968 1,054.44
12-31-99 Value before Surr Chg $12.12450336 0.000 86.968 1,054.44
12-31-99 Surrender Charge (51.00) $12.12450336 (4.206) 82.761 1,003.44
Cumulative Total Returns without/with chrgs. 5.81% A 0.34%
Avg. Annual Total Returns without/with chrgs. 1.90% B 0.11%
Templeton Global Growth
12-31-96 Purchase $1,000.00 $13.52541005 73.935 73.935 $1,000.00
12-31-97 Contract Fee (1.00) $15.12444656 (0.066) 73.869 1,117.22
12-31-98 Contract Fee (1.00) $16.23822650 (0.062) 73.807 1,198.50
12-31-99 Contract Fee (1.00) $19.36424346 (0.052) 73.756 1,428.22
12-31-99 Value before Surr Chg $19.36424346 0.000 73.756 1,428.22
12-31-99 Surrender Charge (51.00) $19.36424346 (2.634) 71.122 1,377.22
Cumulative Total Returns without/with chrgs. 43.17% A 37.72%
Avg. Annual Total Returns without/with chrgs. 12.71% B 11.26%
Templeton Pacific Growth
12-31-96 Purchase $1,000.00 $14.86560901 67.269 67.269 $1,000.00
12-31-97 Contract Fee (1.00) $9.38089631 (0.107) 67.163 630.05
12-31-98 Contract Fee (1.00) $8.02829857 (0.125) 67.038 538.20
12-31-99 Contract Fee (1.00) $10.83777752 (0.092) 66.946 725.55
12-31-99 Value before Surr Chg $10.83777752 0.000 66.946 725.55
12-31-99 Surrender Charge (51.00) $10.83777752 (4.706) 62.240 674.55
Cumulative Total Returns without/with chrgs. -27.09% A -32.55%
Avg. Annual Total Returns without/with chrgs. -10.00% B -12.30%
Van Kampen LIT Enterprise
12-31-96 Purchase $1,000.00 $25.34833189 39.450 39.450 $1,000.00
12-31-97 Contract Fee (1.00) $31.91066906 (0.031) 39.419 1,257.89
12-31-98 Contract Fee (1.00) $39.31172857 (0.025) 39.394 1,548.63
12-31-99 Contract Fee (1.00) $48.74135508 (0.021) 39.373 1,919.10
12-31-99 Value before Surr Chg $48.74135508 0.000 39.373 1,919.10
12-31-99 Surrender Charge (51.00) $48.74135508 (1.046) 38.327 1,868.10
Cumulative Total Returns without/with chrgs. 92.29% A 86.81%
Avg. Annual Total Returns without/with chrgs. 24.35% B 23.16%
Van Kampen LIT Growth & Income
12-31-96 Purchase $1,000.00 $9.96633705 100.338 100.338 $1,000.00
12-31-97 Contract Fee (1.00) $12.16152367 (0.082) 100.256 1,219.26
12-31-98 Contract Fee (1.00) $14.33185127 (0.070) 100.186 1,435.85
12-31-99 Contract Fee (1.00) $15.05879695 (0.066) 100.119 1,507.68
12-31-99 Value before Surr Chg $15.05879695 0.000 100.119 1,507.68
12-31-99 Surrender Charge (51.00) $15.05879695 (3.387) 96.733 1,456.68
Cumulative Total Returns without/with chrgs. 51.10% A 45.67%
Avg. Annual Total Returns without/with chrgs. 14.75% B 13.36%
Franklin Global Communications Securities Fund
12-31-96 Purchase $1,000.00 $20.52658248 48.717 48.717 $1,000.00
12-31-97 Contract Fee (1.00) $25.63546176 (0.039) 48.678 1,247.89
12-31-98 Contract Fee (1.00) $28.08202457 (0.036) 48.643 1,365.99
12-31-99 Contract Fee (1.00) $38.57166130 (0.026) 48.617 1,875.23
12-31-99 Value before Surr Chg $38.57166130 0.000 48.617 1,875.23
12-31-99 Surrender Charge (51.00) $38.57166130 (1.322) 47.295 1,824.23
Cumulative Total Returns without/with chrgs. 87.91% A 82.42%
Avg. Annual Total Returns without/with chrgs. 23.40% B 22.19%
Franklin High Income Fund
12-31-96 Purchase $1,000.00 $19.23682686 51.984 51.984 $1,000.00
12-31-97 Contract Fee (1.00) $21.14081079 (0.047) 51.936 1,097.98
12-31-98 Contract Fee (1.00) $21.01959301 (0.048) 51.889 1,090.68
12-31-99 Contract Fee (1.00) $20.69510047 (0.048) 51.840 1,072.84
12-31-99 Value before Surr Chg $20.69510047 0.000 51.840 1,072.84
12-31-99 Surrender Charge (51.00) $20.69510047 (2.464) 49.376 1,021.84
Cumulative Total Returns without/with chrgs. 7.58% A 2.18%
Avg. Annual Total Returns without/with chrgs. 2.47% B 0.72%
Franklin Income Securities Fund
12-31-96 Purchase $1,000.00 $21.55369456 46.396 46.396 $1,000.00
12-31-97 Contract Fee (1.00) $24.86373833 (0.040) 46.356 1,152.57
12-31-98 Contract Fee (1.00) $24.89795747 (0.040) 46.315 1,153.16
12-31-99 Contract Fee (1.00) $24.08442690 (0.042) 46.274 1,114.48
12-31-99 Value before Surr Chg $24.08442690 0.000 46.274 1,114.48
12-31-99 Surrender Charge (51.00) $24.08442690 (2.118) 44.156 1,063.48
Cumulative Total Returns without/with chrgs. 11.74% A 6.35%
Avg. Annual Total Returns without/with chrgs. 3.77% B 2.07%
Franklin Large Cap Growth Securities Fund
12-31-96 Purchase $1,000.00 $11.24740541 88.909 88.909 $1,000.00
12-31-97 Contract Fee (1.00) $13.10996126 (0.076) 88.833 1,164.60
12-31-98 Contract Fee (1.00) $15.53680530 (0.064) 88.769 1,379.18
12-31-99 Contract Fee (1.00) $20.15175796 (0.050) 88.719 1,787.85
12-31-99 Value before Surr Chg $20.15175796 0.000 88.719 1,787.85
12-31-99 Surrender Charge (51.00) $20.15175796 (2.531) 86.188 1,736.85
Cumulative Total Returns without/with chrgs. 79.17% A 73.68%
Avg. Annual Total Returns without/with chrgs. 21.46% B 20.20%
Franklin Natural Resources Securities Fund
12-31-96 Purchase $1,000.00 $14.36439436 69.617 69.617 $1,000.00
12-31-97 Contract Fee (1.00) $11.46649607 (0.087) 69.529 797.26
12-31-98 Contract Fee (1.00) $8.42970932 (0.119) 69.411 585.11
12-31-99 Contract Fee (1.00) $10.98301490 (0.091) 69.320 761.34
12-31-99 Value before Surr Chg $10.98301490 0.000 69.320 761.34
12-31-99 Surrender Charge (51.00) $10.98301490 (4.644) 64.676 710.34
Cumulative Total Returns without/with chrgs. -23.54% A -28.97%
Avg. Annual Total Returns without/with chrgs. -8.56% B -10.77%
Templeton International Securities Fund
12-31-96 Purchase $1,000.00 $16.01035857 62.460 62.460 $1,000.00
12-31-97 Contract Fee (1.00) $17.61715343 (0.057) 62.403 1,099.36
12-31-98 Contract Fee (1.00) $18.32204431 (0.055) 62.348 1,142.35
12-31-99 Contract Fee (1.00) $22.85845398 (0.044) 62.304 1,424.18
12-31-99 Value before Surr Chg $22.85845398 0.000 62.304 1,424.18
12-31-99 Surrender Charge (51.00) $22.85845398 (2.231) 60.073 1,373.18
Cumulative Total Returns without/with chrgs. 42.77% A 37.32%
Avg. Annual Total Returns without/with chrgs. 12.60% B 11.15%
Templeton International Smaller Companies Fund
12-31-96 Purchase $1,000.00 $11.13849568 89.779 89.779 $1,000.00
12-31-97 Contract Fee (1.00) $10.80891898 (0.093) 89.686 969.41
12-31-98 Contract Fee (1.00) $9.34197461 (0.107) 89.579 836.85
12-31-99 Contract Fee (1.00) $11.40338804 (0.088) 89.491 1,020.51
12-31-99 Value before Surr Chg $11.40338804 0.000 89.491 1,020.51
12-31-99 Surrender Charge (51.00) $11.40338804 (4.472) 85.019 969.51
Cumulative Total Returns without/with chrgs. 2.38% A -3.05%
Avg. Annual Total Returns without/with chrgs. 0.79% B -1.03%
<FN>
A = (Unit Value as of December 31, 1999 - Unit Value at Purchase)/Unit Value at
Purchase B = [(A+1)^(1/3 Years)]-1 C = (Accumulated Value as of December 31,
1999 - Accum. Value at Purch.)/Accum. Value at Purch.
D = [(C+1)^(1/3 Years)]-1
</FN>
</TABLE>
<TABLE>
<CAPTION>
ADVANTAGE
PREFERRED LIFE VARIABLE ACCOUNT C
CUMULATIVE AND AVERAGE ANNUAL TOTAL RETURN CALCULATIONS - HYPOTHETICAL
ORIGINAL PURCHASE AS OF DECEMBER 31, 1994
VALUATION DATE AS OF DECEMBER 31, 1999
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
---- ----------- ------ ---------- ------ ----- -----
AIM VI Capital Appreciation
<S> <C> <C> <C> <C> <C> <C>
12-31-94 Purchase $1,000.00 $11.94924705 83.687 83.687 $1,000.00
12-31-95 Contract Fee (1.00) $15.97060042 (0.063) 83.625 $1,335.54
12-31-96 Contract Fee (1.00) $18.50433464 (0.054) 83.571 $1,546.42
12-31-97 Contract Fee (1.00) $20.68642579 (0.048) 83.522 1,727.78
12-31-98 Contract Fee (1.00) $24.31797713 (0.041) 83.481 2,030.09
12-31-99 Contract Fee (1.00) $34.64979889 (0.029) 83.452 2,891.61
12-31-99 Value before Surr Chg $34.64979889 0.000 83.452 2,891.61
12-31-99 Surrender Charge (34.00) $34.64979889 (0.981) 82.471 2,857.61
Cumulative Total Returns without/with chrgs. 189.97% A 185.76% C
Avg. Annual Total Returns without/with chrgs. 23.73% B 23.37% D
AIM VI Growth
12-31-94 Purchase $1,000.00 $10.52908006 94.975 94.975 $1,000.00
12-31-95 Contract Fee (1.00) $13.97665641 (0.072) 94.904 $1,326.43
12-31-96 Contract Fee (1.00) $16.26816553 (0.061) 94.842 $1,542.91
12-31-97 Contract Fee (1.00) $20.32600349 (0.049) 94.793 1,926.76
12-31-98 Contract Fee (1.00) $26.85990321 (0.037) 94.756 2,545.13
12-31-99 Contract Fee (1.00) $35.78747555 (0.028) 94.728 3,390.06
12-31-99 Value before Surr Chg $35.78747555 0.000 94.728 3,390.06
12-31-99 Surrender Charge (34.00) $35.78747555 (0.950) 93.778 3,356.06
Cumulative Total Returns without/with chrgs. 239.89% A 235.61% C
Avg. Annual Total Returns without/with chrgs. 27.72% B 27.40% D
AIM VI International Equity
12-31-94 Purchase $1,000.00 $11.41313610 87.618 87.618 $1,000.00
12-31-95 Contract Fee (1.00) $13.18291340 (0.076) 87.542 $1,154.06
12-31-96 Contract Fee (1.00) $15.59192863 (0.064) 87.478 $1,363.96
12-31-97 Contract Fee (1.00) $16.42557742 (0.061) 87.417 1,435.88
12-31-98 Contract Fee (1.00) $18.68689152 (0.054) 87.364 1,632.56
12-31-99 Contract Fee (1.00) $28.54739618 (0.035) 87.329 2,493.01
12-31-99 Value before Surr Chg $28.54739618 0.000 87.329 2,493.01
12-31-99 Surrender Charge (34.00) $28.54739618 (1.191) 86.138 2,459.01
Cumulative Total Returns without/with chrgs. 150.13% A 145.90% C
Avg. Annual Total Returns without/with chrgs. 20.12% B 19.72% D
AIM VI Value
12-31-94 Purchase $1,000.00 $11.65451267 85.804 85.804 $1,000.00
12-31-95 Contract Fee (1.00) $15.64046358 (0.064) 85.740 $1,341.01
12-31-96 Contract Fee (1.00) $17.72681230 (0.056) 85.683 $1,518.89
12-31-97 Contract Fee (1.00) $21.60351124 (0.046) 85.637 1,850.06
12-31-98 Contract Fee (1.00) $28.17440888 (0.035) 85.602 2,411.77
12-31-99 Contract Fee (1.00) $36.06193316 (0.028) 85.574 3,085.96
12-31-99 Value before Surr Chg $36.06193316 0.000 85.574 3,085.96
12-31-99 Surrender Charge (34.00) $36.06193316 (0.943) 84.631 3,051.96
Cumulative Total Returns without/with chrgs. 209.42% A 205.20% C
Avg. Annual Total Returns without/with chrgs. 25.35% B 25.00% D
Alger American Growth
12-31-94 Purchase $1,000.00 $23.26535826 42.982 42.982 $1,000.00
12-31-95 Contract Fee (1.00) $31.25832215 (0.032) 42.950 1,342.56
12-31-96 Contract Fee (1.00) $34.90290928 (0.029) 42.922 1,498.09
12-31-97 Contract Fee (1.00) $43.24043544 (0.023) 42.899 1,854.95
12-31-98 Contract Fee (1.00) $63.07984192 (0.016) 42.883 2,705.04
12-31-99 Contract Fee (1.00) $83.11733273 (0.012) 42.871 3,563.30
12-31-99 Value before Surr Chg $83.11733273 0.000 42.871 3,563.30
12-31-99 Surrender Charge (34.00) $83.11733273 (0.409) 42.462 3,529.30
Cumulative Total Returns without/with chrgs. 257.26% A 252.93% C
Avg. Annual Total Returns without/with chrgs. 29.00% B 28.69% D
Alger American Leveraged AllCap
12-31-94 Purchase $1,000.00 $23.26535826 42.982 42.982 $1,000.00
12-31-95 Contract Fee (1.00) $31.25832215 (0.032) 42.950 1,342.56
12-31-96 Contract Fee (1.00) $34.90290928 (0.029) 42.922 1,498.09
12-31-97 Contract Fee (1.00) $43.24043544 (0.023) 42.899 1,854.95
12-31-98 Contract Fee (1.00) $63.07984192 (0.016) 42.883 2,705.04
12-31-99 Contract Fee (1.00) $83.11733273 (0.012) 42.871 3,563.30
12-31-99 Value before Surr Chg $83.11733273 0.000 42.871 3,563.30
12-31-99 Surrender Charge (34.00) $83.11733273 (0.409) 42.462 3,529.30
Cumulative Total Returns without/with chrgs. 257.26% A 252.93% C
Avg. Annual Total Returns without/with chrgs. 29.00% B 28.69% D
Alger American MidCap Growth
12-31-94 Purchase $1,000.00 $13.31949928 75.078 75.078 $1,000.00
12-31-95 Contract Fee (1.00) $18.95583954 (0.053) 75.025 1,422.16
12-31-96 Contract Fee (1.00) $20.89502523 (0.048) 74.977 1,566.65
12-31-97 Contract Fee (1.00) $23.67508080 (0.042) 74.935 1,774.09
12-31-98 Contract Fee (1.00) $30.39225189 (0.033) 74.902 2,276.44
12-31-99 Contract Fee (1.00) $39.47884854 (0.025) 74.877 2,956.05
12-31-99 Value before Surr Chg $39.47884854 0.000 74.877 2,956.05
12-31-99 Surrender Charge (34.00) $39.47884854 (0.861) 74.016 2,922.05
Cumulative Total Returns without/with chrgs. 196.40% A 192.21% C
Avg. Annual Total Returns without/with chrgs. 24.27% B 23.92% D
Alger American Small Capitalization
12-31-94 Purchase $1,000.00 $27.81532419 35.951 35.951 $1,000.00
12-31-95 Contract Fee (1.00) $39.54716380 (0.025) 35.926 1,420.78
12-31-96 Contract Fee (1.00) $40.58702383 (0.025) 35.901 1,457.13
12-31-97 Contract Fee (1.00) $44.54194368 (0.022) 35.879 1,598.12
12-31-98 Contract Fee (1.00) $50.69817664 (0.020) 35.859 1,818.00
12-31-99 Contract Fee (1.00) $71.63435796 (0.014) 35.845 2,567.76
12-31-99 Value before Surr Chg $71.63435796 0.000 35.845 2,567.76
12-31-99 Surrender Charge (34.00) $71.63435796 (0.475) 35.371 2,533.76
Cumulative Total Returns without/with chrgs. 157.54% A 153.38% C
Avg. Annual Total Returns without/with chrgs. 20.83% B 20.44% D
Franklin Growth & Income
12-31-94 Purchase $1,000.00 $13.14423327 76.079 76.079 $1,000.00
12-31-95 Contract Fee (1.00) $17.20200155 (0.058) 76.021 1,307.71
12-31-96 Contract Fee (1.00) $19.35081369 (0.052) 75.969 1,470.07
12-31-97 Contract Fee (1.00) $24.35403985 (0.041) 75.928 1,849.16
12-31-98 Contract Fee (1.00) $25.99287759 (0.038) 75.890 1,972.59
12-31-99 Contract Fee (1.00) $25.89127963 (0.039) 75.851 1,963.88
12-31-99 Value before Surr Chg $25.89127963 0.000 75.851 1,963.88
12-31-99 Surrender Charge (34.00) $25.89127963 (1.313) 74.538 1,929.88
Cumulative Total Returns without/with chrgs. 96.98% A 92.99% C
Avg. Annual Total Returns without/with chrgs. 14.52% B 14.05% D
Franklin Rising Dividends Securities
12-31-94 Purchase $1,000.00 $9.74313966 102.636 102.636 $1,000.00
12-31-95 Contract Fee (1.00) $12.45442887 (0.080) 102.556 1,277.28
12-31-96 Contract Fee (1.00) $15.23536682 (0.066) 102.490 1,561.48
12-31-97 Contract Fee (1.00) $19.96761178 (0.050) 102.440 2,045.49
12-31-98 Contract Fee (1.00) $21.03405907 (0.048) 102.393 2,153.74
12-31-99 Contract Fee (1.00) $18.71235633 (0.053) 102.339 1,915.01
12-31-99 Value before Surr Chg $18.71235633 0.000 102.339 1,915.01
12-31-99 Surrender Charge (34.00) $18.71235633 (1.817) 100.522 1,881.01
Cumulative Total Returns without/with chrgs. 92.06% A 88.10% C
Avg. Annual Total Returns without/with chrgs. 13.94% B 13.47% D
Franklin U.S. Government
12-31-94 Purchase $1,000.00 $13.76239537 72.662 72.662 $1,000.00
12-31-95 Contract Fee (1.00) $16.19773372 (0.062) 72.600 1,175.96
12-31-96 Contract Fee (1.00) $16.53304452 (0.060) 72.540 1,199.30
12-31-97 Contract Fee (1.00) $17.80492179 (0.056) 72.483 1,290.56
12-31-98 Contract Fee (1.00) $18.84665157 (0.053) 72.430 1,365.07
12-31-99 Contract Fee (1.00) $18.39356716 (0.054) 72.376 1,331.25
12-31-99 Value before Surr Chg $18.39356716 0.000 72.376 1,331.25
12-31-99 Surrender Charge (34.00) $18.39356716 (1.848) 70.527 1,297.25
Cumulative Total Returns without/with chrgs. 33.65% A 29.73% C
Avg. Annual Total Returns without/with chrgs. 5.97% B 5.34% D
Oppenheimer VA Global Securities
12-31-94 Purchase $1,000.00 $14.55812228 68.690 68.690 $1,000.00
12-31-95 Contract Fee (1.00) $14.66462711 (0.068) 68.622 1,006.32
12-31-96 Contract Fee (1.00) $17.01734798 (0.059) 68.563 1,166.76
12-31-97 Contract Fee (1.00) $20.52518594 (0.049) 68.515 1,406.27
12-31-98 Contract Fee (1.00) $23.07375794 (0.043) 68.471 1,579.89
12-31-99 Contract Fee (1.00) $36.02720000 (0.028) 68.443 2,465.82
12-31-99 Value before Surr Chg $36.02720000 0.000 68.443 2,465.82
12-31-99 Surrender Charge (34.00) $36.02720000 (0.944) 67.500 2,431.82
Cumulative Total Returns without/with chrgs. 147.47% A 143.18% C
Avg. Annual Total Returns without/with chrgs. 19.87% B 19.45% D
Oppenheimer VA High Income
12-31-94 Purchase $1,000.00 $24.36014606 41.051 41.051 $1,000.00
12-31-95 Contract Fee (1.00) $28.88923580 (0.035) 41.016 1,184.92
12-31-96 Contract Fee (1.00) $32.80001507 (0.030) 40.986 1,344.33
12-31-97 Contract Fee (1.00) $36.26210352 (0.028) 40.958 1,485.22
12-31-98 Contract Fee (1.00) $35.83443551 (0.028) 40.930 1,466.71
12-31-99 Contract Fee (1.00) $36.81827013 (0.027) 40.903 1,505.97
12-31-99 Value before Surr Chg $36.81827013 0.000 40.903 1,505.97
12-31-99 Surrender Charge (34.00) $36.81827013 (0.923) 39.979 1,471.97
Cumulative Total Returns without/with chrgs. 51.14% A 47.20% C
Avg. Annual Total Returns without/with chrgs. 8.61% B 8.04% D
Templeton Developing Markets Equity
12-31-94 Purchase $1,000.00 $9.44748810 105.848 105.848 $1,000.00
12-31-95 Contract Fee (1.00) $9.56626187 (0.105) 105.744 1,011.57
12-31-96 Contract Fee (1.00) $11.45833113 (0.087) 105.656 1,210.65
12-31-97 Contract Fee (1.00) $10.30480726 (0.097) 105.559 1,087.77
12-31-98 Contract Fee (1.00) $7.95817952 (0.126) 105.434 839.06
12-31-99 Contract Fee (1.00) $12.12450336 (0.082) 105.351 1,277.33
12-31-99 Value before Surr Chg $12.12450336 0.000 105.351 1,277.33
12-31-99 Surrender Charge (34.00) $12.12450336 (2.804) 102.547 1,243.33
Cumulative Total Returns without/with chrgs. 28.34% A 24.33% C
Avg. Annual Total Returns without/with chrgs. 5.12% B 4.45% D
Templeton Global Growth
12-31-94 Purchase $1,000.00 $10.19356357 98.101 98.101 $1,000.00
12-31-95 Contract Fee (1.00) $11.32067650 (0.088) 98.013 1,109.57
12-31-96 Contract Fee (1.00) $13.52541005 (0.074) 97.939 1,324.66
12-31-97 Contract Fee (1.00) $15.12444656 (0.066) 97.873 1,480.27
12-31-98 Contract Fee (1.00) $16.23822650 (0.062) 97.811 1,588.28
12-31-99 Contract Fee (1.00) $19.36424346 (0.052) 97.760 1,893.04
12-31-99 Value before Surr Chg $19.36424346 0.000 97.760 1,893.04
12-31-99 Surrender Charge (34.00) $19.36424346 (1.756) 96.004 1,859.04
Cumulative Total Returns without/with chrgs. 89.97% A 85.90% C
Avg. Annual Total Returns without/with chrgs. 13.69% B 13.20% D
Templeton Pacific Growth
12-31-94 Purchase $1,000.00 $12.76818771 78.320 78.320 $1,000.00
12-31-95 Contract Fee (1.00) $13.58246157 (0.074) 78.246 1,062.77
12-31-96 Contract Fee (1.00) $14.86560901 (0.067) 78.179 1,162.17
12-31-97 Contract Fee (1.00) $9.38089631 (0.107) 78.072 732.39
12-31-98 Contract Fee (1.00) $8.02829857 (0.125) 77.948 625.79
12-31-99 Contract Fee (1.00) $10.83777752 (0.092) 77.855 843.78
12-31-99 Value before Surr Chg $10.83777752 0.000 77.855 843.78
12-31-99 Surrender Charge (34.00) $10.83777752 (3.137) 74.718 809.78
Cumulative Total Returns without/with chrgs. -15.12% A -19.02% C
Avg. Annual Total Returns without/with chrgs. -3.23% B -4.13% D
Van Kampen LIT Enterprise
12-31-94 Purchase $1,000.00 $15.66906575 63.820 63.820 $1,000.00
12-31-95 Contract Fee (1.00) $20.86058302 (0.048) 63.772 1,330.32
12-31-96 Contract Fee (1.00) $25.34833189 (0.039) 63.733 1,615.52
12-31-97 Contract Fee (1.00) $31.91066906 (0.031) 63.701 2,032.75
12-31-98 Contract Fee (1.00) $39.31172857 (0.025) 63.676 2,503.21
12-31-99 Contract Fee (1.00) $48.74135508 (0.021) 63.655 3,102.65
12-31-99 Value before Surr Chg $48.74135508 0.000 63.655 3,102.65
12-31-99 Surrender Charge (34.00) $48.74135508 (0.698) 62.958 3,068.65
Cumulative Total Returns without/with chrgs. 211.07% A 206.86% C
Avg. Annual Total Returns without/with chrgs. 25.48% B 25.14% D
Franklin Global Communications Securities Fund
12-31-94 Purchase $1,000.00 $15.02348951 66.562 66.562 $1,000.00
12-31-95 Contract Fee (1.00) $19.44283491 (0.051) 66.511 1,293.16
12-31-96 Contract Fee (1.00) $20.52658248 (0.049) 66.462 1,364.24
12-31-97 Contract Fee (1.00) $25.63546176 (0.039) 66.423 1,702.79
12-31-98 Contract Fee (1.00) $28.08202457 (0.036) 66.388 1,864.30
12-31-99 Contract Fee (1.00) $38.57166130 (0.026) 66.362 2,559.68
12-31-99 Value before Surr Chg $38.57166130 0.000 66.362 2,559.68
12-31-99 Surrender Charge (34.00) $38.57166130 (0.881) 65.480 2,525.68
Cumulative Total Returns without/with chrgs. 156.74% A 152.57% C
Avg. Annual Total Returns without/with chrgs. 20.75% B 20.36% D
Franklin High Income Fund
12-31-94 Purchase $1,000.00 $14.52977464 68.824 68.824 $1,000.00
12-31-95 Contract Fee (1.00) $17.14451419 (0.058) 68.766 1,178.96
12-31-96 Contract Fee (1.00) $19.23682686 (0.052) 68.714 1,321.84
12-31-97 Contract Fee (1.00) $21.14081079 (0.047) 68.667 1,451.67
12-31-98 Contract Fee (1.00) $21.01959301 (0.048) 68.619 1,442.34
12-31-99 Contract Fee (1.00) $20.69510047 (0.048) 68.571 1,419.08
12-31-99 Value before Surr Chg $20.69510047 0.000 68.571 1,419.08
12-31-99 Surrender Charge (34.00) $20.69510047 (1.643) 66.928 1,385.08
Cumulative Total Returns without/with chrgs. 42.43% A 38.51% C
Avg. Annual Total Returns without/with chrgs. 7.33% B 6.73% D
Franklin Income Securities Fund
12-31-94 Purchase $1,000.00 $16.30439562 61.333 61.333 $1,000.00
12-31-95 Contract Fee (1.00) $19.66228575 (0.051) 61.282 1,204.95
12-31-96 Contract Fee (1.00) $21.55369456 (0.046) 61.236 1,319.86
12-31-97 Contract Fee (1.00) $24.86373833 (0.040) 61.196 1,521.55
12-31-98 Contract Fee (1.00) $24.89795747 (0.040) 61.156 1,522.65
12-31-99 Contract Fee (1.00) $24.08442690 (0.042) 61.114 1,471.90
12-31-99 Value before Surr Chg $24.08442690 0.000 61.114 1,471.90
12-31-99 Surrender Charge (34.00) $24.08442690 (1.412) 59.702 1,437.90
Cumulative Total Returns without/with chrgs. 47.72% A 43.79% C
Avg. Annual Total Returns without/with chrgs. 8.12% B 7.53% D
Franklin Natural Resources Securities Fund
12-31-94 Purchase $1,000.00 $13.90432727 71.920 71.920 $1,000.00
12-31-95 Contract Fee (1.00) $14.02092182 (0.071) 71.849 1,007.39
12-31-96 Contract Fee (1.00) $14.36439436 (0.070) 71.779 1,031.06
12-31-97 Contract Fee (1.00) $11.46649607 (0.087) 71.692 822.05
12-31-98 Contract Fee (1.00) $8.42970932 (0.119) 71.573 603.34
12-31-99 Contract Fee (1.00) $10.98301490 (0.091) 71.482 785.09
12-31-99 Value before Surr Chg $10.98301490 0.000 71.482 785.09
12-31-99 Surrender Charge (34.00) $10.98301490 (3.096) 68.387 751.09
Cumulative Total Returns without/with chrgs. -21.01% A -24.89% C
Avg. Annual Total Returns without/with chrgs. -4.61% B -5.56% D
Templeton International Securities Fund
12-31-94 Purchase $1,000.00 $12.12945216 82.444 82.444 $1,000.00
12-31-95 Contract Fee (1.00) $13.21605786 (0.076) 82.368 1,088.58
12-31-96 Contract Fee (1.00) $16.01035857 (0.062) 82.306 1,317.75
12-31-97 Contract Fee (1.00) $17.61715343 (0.057) 82.249 1,448.99
12-31-98 Contract Fee (1.00) $18.32204431 (0.055) 82.194 1,505.97
12-31-99 Contract Fee (1.00) $22.85845398 (0.044) 82.151 1,877.84
12-31-99 Value before Surr Chg $22.85845398 0.000 82.151 1,877.84
12-31-99 Surrender Charge (34.00) $22.85845398 (1.487) 80.663 1,843.84
Cumulative Total Returns without/with chrgs. 88.45% A 84.38% C
Avg. Annual Total Returns without/with chrgs. 13.51% B 13.02% D
<FN>
A = (Unit Value as of December 31, 1999 - Unit Value at Purchase)/Unit Value at
Purchase B = [(A+1)^(1/5 Years)]-1 C = (Accumulated Value as of December 31,
1999 - Accum. Value at Purch.)/Accum. Value at Purch.
D = [(C+1)^(1/5 Years)]-1
</FN>
</TABLE>
<TABLE>
<CAPTION>
ADVANTAGE
PREFERRED LIFE VARIABLE ACCOUNT C
CUMULATIVE AND AVERAGE ANNUAL TOTAL RETURN CALCULATIONS - HYPOTHETICAL
ORIGINAL PURCHASE AS OF DECEMBER 31, 1989
VALUATION DATE AS OF DECEMBER 31, 1999
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
---- ----------- ------ ---------- ------ ----- -----
Alger American Growth
<S> <C> <C> <C> <C> <C> <C>
12-31-89 Purchase $1,000.00 $12.28107044 81.426 81.426 $1,000.00
12-31-90 Contract Fee (1.00) $12.59890592 (0.079) 81.347 1,024.88
12-31-91 Contract Fee (1.00) $17.42551195 (0.057) 81.289 1,416.51
12-31-92 Contract Fee (1.00) $19.29225067 (0.052) 81.238 1,567.25
12-31-93 Contract Fee (1.00) $23.27703435 (0.043) 81.195 1,889.97
12-31-94 Contract Fee (1.00) $23.26535826 (0.043) 81.152 1,888.02
12-31-95 Contract Fee (1.00) $31.25832215 (0.032) 81.120 2,535.66
12-31-96 Contract Fee (1.00) $34.90290928 (0.029) 81.091 2,830.31
12-31-97 Contract Fee (1.00) $43.24043544 (0.023) 81.068 3,505.41
12-31-98 Contract Fee (1.00) $63.07984192 (0.016) 81.052 5,112.75
12-31-99 Contract Fee (1.00) $83.11733273 (0.012) 81.040 6,735.82
12-31-99 Value before Surr Chg $83.11733273 0.000 81.040 6,735.82
12-31-99 Surrender Charge $83.11733273 0.000 81.040 6,735.82
Cumulative Total Returns without/with chrgs. 576.79% A 573.58%
Avg. Annual Total Returns without/with chrgs. 21.07% B 21.01%
Alger American Small Capitalization
12-31-89 Purchase $1,000.00 $15.59926096 64.106 64.106 $1,000.00
12-31-90 Contract Fee (1.00) $16.70637238 (0.060) 64.046 1,069.97
12-31-91 Contract Fee (1.00) $25.93089184 (0.039) 64.007 1,659.76
12-31-92 Contract Fee (1.00) $26.45408688 (0.038) 63.969 1,692.25
12-31-93 Contract Fee (1.00) $29.52384843 (0.034) 63.936 1,887.62
12-31-94 Contract Fee (1.00) $27.81532419 (0.036) 63.900 1,777.39
12-31-95 Contract Fee (1.00) $39.54716380 (0.025) 63.874 2,526.05
12-31-96 Contract Fee (1.00) $40.58702383 (0.025) 63.850 2,591.47
12-31-97 Contract Fee (1.00) $44.54194368 (0.022) 63.827 2,842.99
12-31-98 Contract Fee (1.00) $50.69817664 (0.020) 63.807 3,234.92
12-31-99 Contract Fee (1.00) $71.63435796 (0.014) 63.793 4,569.81
12-31-99 Value before Surr Chg $71.63435796 0.000 63.793 4,569.81
12-31-99 Surrender Charge $71.63435796 0.000 63.793 4,569.81
Cumulative Total Returns without/with chrgs. 359.22% A 356.98%
Avg. Annual Total Returns without/with chrgs. 16.47% B 16.41%
Franklin Growth & Income
12-31-89 Purchase $1,000.00 $10.17117733 98.317 98.317 $1,000.00
12-31-90 Contract Fee (1.00) $9.78568211 (0.102) 98.215 961.10
12-31-91 Contract Fee (1.00) $11.91776810 (0.084) 98.131 1,169.50
12-31-92 Contract Fee (1.00) $12.52913900 (0.080) 98.051 1,228.50
12-31-93 Contract Fee (1.00) $13.61630571 (0.073) 97.978 1,334.09
12-31-94 Contract Fee (1.00) $13.14423327 (0.076) 97.902 1,286.84
12-31-95 Contract Fee (1.00) $17.20200155 (0.058) 97.843 1,683.10
12-31-96 Contract Fee (1.00) $19.35081369 (0.052) 97.792 1,892.35
12-31-97 Contract Fee (1.00) $24.35403985 (0.041) 97.751 2,380.63
12-31-98 Contract Fee (1.00) $25.99287759 (0.038) 97.712 2,539.82
12-31-99 Contract Fee (1.00) $25.89127963 (0.039) 97.674 2,528.90
12-31-99 Value before Surr Chg $25.89127963 0.000 97.674 2,528.90
12-31-99 Surrender Charge $25.89127963 0.000 97.674 2,528.90
Cumulative Total Returns without/with chrgs. 154.56% A 152.89%
Avg. Annual Total Returns without/with chrgs. 9.79% B 9.72%
Franklin U.S. Government
12-31-89 Purchase $1,000.00 $10.41918956 95.977 95.977 $1,000.00
12-31-90 Contract Fee (1.00) $11.18037289 (0.089) 95.887 1,072.06
12-31-91 Contract Fee (1.00) $12.76496129 (0.078) 95.809 1,223.00
12-31-92 Contract Fee (1.00) $13.53931957 (0.074) 95.735 1,296.19
12-31-93 Contract Fee (1.00) $14.63435517 (0.068) 95.667 1,400.02
12-31-94 Contract Fee (1.00) $13.76239537 (0.073) 95.594 1,315.60
12-31-95 Contract Fee (1.00) $16.19773372 (0.062) 95.532 1,547.41
12-31-96 Contract Fee (1.00) $16.53304452 (0.060) 95.472 1,578.44
12-31-97 Contract Fee (1.00) $17.80492179 (0.056) 95.416 1,698.87
12-31-98 Contract Fee (1.00) $18.84665157 (0.053) 95.363 1,797.27
12-31-99 Contract Fee (1.00) $18.39356716 (0.054) 95.308 1,753.06
12-31-99 Value before Surr Chg $18.39356716 0.000 95.308 1,753.06
12-31-99 Surrender Charge $18.39356716 0.000 95.308 1,753.06
Cumulative Total Returns without/with chrgs. 76.54% A 75.31%
Avg. Annual Total Returns without/with chrgs. 5.85% B 5.77%
Oppenheimer VA High Income
12-31-89 Purchase $1,000.00 $12.98459692 77.014 77.014 $1,000.00
12-31-90 Contract Fee (1.00) $13.38618803 (0.075) 76.940 1,029.93
12-31-91 Contract Fee (1.00) $17.66064093 (0.057) 76.883 1,357.80
12-31-92 Contract Fee (1.00) $20.51672051 (0.049) 76.834 1,576.39
12-31-93 Contract Fee (1.00) $25.53649810 (0.039) 76.795 1,961.08
12-31-94 Contract Fee (1.00) $24.36014606 (0.041) 76.754 1,869.74
12-31-95 Contract Fee (1.00) $28.88923580 (0.035) 76.719 2,216.37
12-31-96 Contract Fee (1.00) $32.80001507 (0.030) 76.689 2,515.40
12-31-97 Contract Fee (1.00) $36.26210352 (0.028) 76.661 2,779.90
12-31-98 Contract Fee (1.00) $35.83443551 (0.028) 76.633 2,746.12
12-31-99 Contract Fee (1.00) $36.81827013 (0.027) 76.606 2,820.51
12-31-99 Value before Surr Chg $36.81827013 0.000 76.606 2,820.51
12-31-99 Surrender Charge $36.81827013 0.000 76.606 2,820.51
Cumulative Total Returns without/with chrgs. 183.55% A 182.05%
Avg. Annual Total Returns without/with chrgs. 10.98% B 10.93%
Van Kampen LIT Enterprise
12-31-89 Purchase $1,000.00 $11.95250379 83.664 83.664 $1,000.00
12-31-90 Contract Fee (1.00) $10.96372847 (0.091) 83.573 916.27
12-31-91 Contract Fee (1.00) $14.72760788 (0.068) 83.505 1,229.83
12-31-92 Contract Fee (1.00) $15.58694158 (0.064) 83.441 1,300.59
12-31-93 Contract Fee (1.00) $16.68644902 (0.060) 83.381 1,391.34
12-31-94 Contract Fee (1.00) $15.66906575 (0.064) 83.317 1,305.51
12-31-95 Contract Fee (1.00) $20.86058302 (0.048) 83.270 1,737.05
12-31-96 Contract Fee (1.00) $25.34833189 (0.039) 83.230 2,109.74
12-31-97 Contract Fee (1.00) $31.91066906 (0.031) 83.199 2,654.93
12-31-98 Contract Fee (1.00) $39.31172857 (0.025) 83.173 3,269.69
12-31-99 Contract Fee (1.00) $48.74135508 (0.021) 83.153 4,052.98
12-31-99 Value before Surr Chg $48.74135508 0.000 83.153 4,052.98
12-31-99 Surrender Charge $48.74135508 0.000 83.153 4,052.98
Cumulative Total Returns without/with chrgs. 307.79% A 305.30%
Avg. Annual Total Returns without/with chrgs. 15.09% B 15.02%
Franklin Global Communication Securities Fund
12-31-89 Purchase $1,000.00 $11.99981466 83.335 83.335 $1,000.00
12-31-90 Contract Fee (1.00) $12.04131448 (0.083) 83.252 1,002.46
12-31-91 Contract Fee (1.00) $14.78233584 (0.068) 83.184 1,229.65
12-31-92 Contract Fee (1.00) $15.83244652 (0.063) 83.121 1,316.01
12-31-93 Contract Fee (1.00) $17.24200577 (0.058) 83.063 1,432.17
12-31-94 Contract Fee (1.00) $15.02348951 (0.067) 82.996 1,246.89
12-31-95 Contract Fee (1.00) $19.44283491 (0.051) 82.945 1,612.68
12-31-96 Contract Fee (1.00) $20.52658248 (0.049) 82.896 1,701.57
12-31-97 Contract Fee (1.00) $25.63546176 (0.039) 82.857 2,124.08
12-31-98 Contract Fee (1.00) $28.08202457 (0.036) 82.821 2,325.79
12-31-99 Contract Fee (1.00) $38.57166130 (0.026) 82.796 3,193.56
12-31-99 Value before Surr Chg $38.57166130 0.000 82.796 3,193.56
12-31-99 Surrender Charge $38.57166130 0.000 82.796 3,193.56
Cumulative Total Returns without/with chrgs. 221.44% A 219.36%
Avg. Annual Total Returns without/with chrgs. 12.39% B 12.31%
Franklin High Income
12-31-89 Purchase $1,000.00 $10.01302492 99.870 99.870 $1,000.00
12-31-90 Contract Fee (1.00) $9.00999996 (0.111) 99.759 898.83
12-31-91 Contract Fee (1.00) $11.55232338 (0.087) 99.672 1,151.45
12-31-92 Contract Fee (1.00) $13.23092335 (0.076) 99.597 1,317.76
12-31-93 Contract Fee (1.00) $15.08792342 (0.066) 99.531 1,501.71
12-31-94 Contract Fee (1.00) $14.52977464 (0.069) 99.462 1,445.16
12-31-95 Contract Fee (1.00) $17.14451419 (0.058) 99.403 1,704.22
12-31-96 Contract Fee (1.00) $19.23682686 (0.052) 99.351 1,911.21
12-31-97 Contract Fee (1.00) $21.14081079 (0.047) 99.304 2,099.37
12-31-98 Contract Fee (1.00) $21.01959301 (0.048) 99.256 2,086.33
12-31-99 Contract Fee (1.00) $20.69510047 (0.048) 99.208 2,053.12
12-31-99 Value before Surr Chg $20.69510047 0.000 99.208 2,053.12
12-31-99 Surrender Charge $20.69510047 0.000 99.208 2,053.12
Cumulative Total Returns without/with chrgs. 106.68% A 105.31%
Avg. Annual Total Returns without/with chrgs. 7.53% B 7.46%
Franklin Income Securities Fund
12-31-89 Purchase $1,000.00 $10.77413342 92.815 92.815 $1,000.00
12-31-90 Contract Fee (1.00) $9.82507230 (0.102) 92.713 910.91
12-31-91 Contract Fee (1.00) $13.54447496 (0.074) 92.639 1,254.75
12-31-92 Contract Fee (1.00) $15.10888772 (0.066) 92.573 1,398.68
12-31-93 Contract Fee (1.00) $17.65574049 (0.057) 92.516 1,633.45
12-31-94 Contract Fee (1.00) $16.30439562 (0.061) 92.455 1,507.42
12-31-95 Contract Fee (1.00) $19.66228575 (0.051) 92.404 1,816.88
12-31-96 Contract Fee (1.00) $21.55369456 (0.046) 92.358 1,990.65
12-31-97 Contract Fee (1.00) $24.86373833 (0.040) 92.318 2,295.36
12-31-98 Contract Fee (1.00) $24.89795747 (0.040) 92.277 2,297.52
12-31-99 Contract Fee (1.00) $24.08442690 (0.042) 92.236 2,221.45
12-31-99 Value before Surr Chg $24.08442690 0.000 92.236 2,221.45
12-31-99 Surrender Charge $24.08442690 0.000 92.236 2,221.45
Cumulative Total Returns without/with chrgs. 123.54% A 122.15%
Avg. Annual Total Returns without/with chrgs. 8.38% B 8.31%
Franklin Natural Resources Securities Fund
12-31-89 Purchase $1,000.00 $12.23704328 81.719 81.719 $1,000.00
12-31-90 Contract Fee (1.00) $10.36932488 (0.096) 81.623 846.37
12-31-91 Contract Fee (1.00) $10.60671167 (0.094) 81.528 864.75
12-31-92 Contract Fee (1.00) $9.39103298 (0.106) 81.422 764.64
12-31-93 Contract Fee (1.00) $14.39941891 (0.069) 81.352 1,171.43
12-31-94 Contract Fee (1.00) $13.90432727 (0.072) 81.281 1,130.15
12-31-95 Contract Fee (1.00) $14.02092182 (0.071) 81.209 1,138.63
12-31-96 Contract Fee (1.00) $14.36439436 (0.070) 81.140 1,165.52
12-31-97 Contract Fee (1.00) $11.46649607 (0.087) 81.052 929.39
12-31-98 Contract Fee (1.00) $8.42970932 (0.119) 80.934 682.25
12-31-99 Contract Fee (1.00) $10.98301490 (0.091) 80.843 887.90
12-31-99 Value before Surr Chg $10.98301490 0.000 80.843 887.90
12-31-99 Surrender Charge $10.98301490 0.000 80.843 887.90
Cumulative Total Returns without/with chrgs. -10.25% A -11.21%
Avg. Annual Total Returns without/with chrgs. -1.08% B -1.18%
<FN>
A = (Unit Value as of December 31, 1999 - Unit Value at Purchase)/Unit Value at
Purchase B = [(A+1)^(1/10 Years)]-1 C = (Accumulated Value as of December 31,
1999 - Accum. Value at Purch.)/Accum. Value at Purch.
D = [(C+1)^(1/10 Years)]-1
</FN>
</TABLE>
<TABLE>
<CAPTION>
ADVANTAGE
PREFERRED LIFE VARIABLE ACCOUNT C
CUMULATIVE AND AVERAGE ANNUAL TOTAL RETURN CALCULATIONS - HYPOTHETICAL
ORIGINAL PURCHASE AS OF SUB-ACCOUNT INCEPTION
VALUATION DATE AS OF DECEMBER 31, 1999
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
---- ----------- ------ ---------- ------ ----- -----
AIM VI Capital Appreciation
<S> <C> <C> <C> <C> <C> <C>
5-5-93 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-5-94 Contract Fee (1.00) $11.78232228 (0.085) 99.915 1,177.23
5-5-95 Contract Fee (1.00) $13.12545579 (0.076) 99.839 1,310.43
5-5-96 Contract Fee (1.00) $17.74628090 (0.056) 99.783 1,770.77
5-5-97 Contract Fee (1.00) $18.58847466 (0.054) 99.729 1,853.81
5-5-98 Contract Fee (1.00) $23.44412505 (0.043) 99.686 2,337.05
5-5-99 Contract Fee (1.00) $24.96670762 (0.040) 99.646 2,487.83
12-31-99 Value before Surr Chg $34.64979889 0.000 99.646 3,452.72
12-31-99 Contract Fee (1.00) $34.64979889 (0.029) 99.617 3,451.72
12-31-99 Surrender Charge (17.00) $34.64979889 (0.491) 99.127 3,434.72
Cumulative Total Returns without/with chgs. 246.50% A 243.47% C
Avg. Annual Total Returns without/with chgs. 20.51% B 20.35% D
AIM VI Growth
5-5-93 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-5-94 Contract Fee (1.00) $10.49813411 (0.095) 99.905 1,048.81
5-5-95 Contract Fee (1.00) $11.72581335 (0.085) 99.819 1,170.46
5-5-96 Contract Fee (1.00) $14.79509721 (0.068) 99.752 1,475.84
5-5-97 Contract Fee (1.00) $17.40038646 (0.057) 99.694 1,734.72
5-5-98 Contract Fee (1.00) $23.41232831 (0.043) 99.652 2,333.08
5-5-99 Contract Fee (1.00) $28.63843892 (0.035) 99.617 2,852.87
12-31-99 Value before Surr Chg $35.78747555 0.000 99.617 3,565.03
12-31-99 Contract Fee (1.00) $35.78747555 (0.028) 99.589 3,564.03
12-31-99 Surrender Charge (17.00) $35.78747555 (0.475) 99.114 3,547.03
Cumulative Total Returns without/with chgs. 257.87% A 254.70% C
Avg. Annual Total Returns without/with chgs. 21.10% B 20.94% D
AIM VI International Equity
5-5-93 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-5-94 Contract Fee (1.00) $11.58606804 (0.086) 99.914 1,157.61
5-5-95 Contract Fee (1.00) $11.96755246 (0.084) 99.830 1,194.72
5-5-96 Contract Fee (1.00) $14.32388020 (0.070) 99.760 1,428.95
5-5-97 Contract Fee (1.00) $15.80690011 (0.063) 99.697 1,575.90
5-5-98 Contract Fee (1.00) $19.33550300 (0.052) 99.645 1,926.69
5-5-99 Contract Fee (1.00) $18.96351359 (0.053) 99.593 1,888.63
12-31-99 Value before Surr Chg $28.54739618 0.000 99.593 2,843.11
12-31-99 Contract Fee (1.00) $28.54739618 (0.035) 99.558 2,842.11
12-31-99 Surrender Charge (17.00) $28.54739618 (0.596) 98.962 2,825.11
Cumulative Total Returns without/with chgs. 185.47% A 182.51% C
Avg. Annual Total Returns without/with chgs. 17.06% B 16.87% D
AIM VI Value
5-5-93 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-5-94 Contract Fee (1.00) $11.60837333 (0.086) 99.914 1,159.84
5-5-95 Contract Fee (1.00) $13.11389118 (0.076) 99.838 1,309.26
5-5-96 Contract Fee (1.00) $15.78629610 (0.063) 99.774 1,575.07
5-5-97 Contract Fee (1.00) $18.97653729 (0.053) 99.722 1,892.37
5-5-98 Contract Fee (1.00) $24.39508291 (0.041) 99.681 2,431.72
5-5-99 Contract Fee (1.00) $30.63613223 (0.033) 99.648 3,052.83
12-31-99 Value before Surr Chg $36.06193316 0.000 99.648 3,593.50
12-31-99 Contract Fee (1.00) $36.06193316 (0.028) 99.620 3,592.50
12-31-99 Surrender Charge (17.00) $36.06193316 (0.471) 99.149 3,575.50
Cumulative Total Returns without/with chgs. 260.62% A 257.55% C
Avg. Annual Total Returns without/with chgs. 21.24% B 21.08% D
Alger American Growth
1-9-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-9-90 Contract Fee (1.00) $12.26566501 (0.082) 99.918 1,225.57
1-9-91 Contract Fee (1.00) $11.92832842 (0.084) 99.835 1,190.86
1-9-92 Contract Fee (1.00) $18.15458436 (0.055) 99.780 1,811.46
1-9-93 Contract Fee (1.00) $19.27638931 (0.052) 99.728 1,922.39
1-9-94 Contract Fee (1.00) $23.76088211 (0.042) 99.686 2,368.62
1-9-95 Contract Fee (1.00) $23.26591670 (0.043) 99.643 2,318.28
1-9-96 Contract Fee (1.00) $29.06841839 (0.034) 99.608 2,895.45
1-9-97 Contract Fee (1.00) $35.87591329 (0.028) 99.580 3,572.54
1-9-98 Contract Fee (1.00) $41.37466992 (0.024) 99.556 4,119.10
1-9-99 Contract Fee (1.00) $64.99059618 (0.015) 99.541 6,469.21
12-31-99 Value before Surr Chg $83.11733273 0.000 99.541 8,273.56
12-31-99 Contract Fee (1.00) $83.11733273 (0.012) 99.529 8,272.56
12-31-99 Surrender Charge $83.11733273 0.000 99.529 8,272.56
Cumulative Total Returns without/with chgs. 731.17% A 727.26% C
Avg. Annual Total Returns without/with chgs. 21.27% B 21.22% D
Alger American Leveraged AllCap
1-25-95 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-25-96 Contract Fee (1.00) $17.22146848 (0.058) 99.942 1,721.15
1-25-97 Contract Fee (1.00) $20.13007645 (0.050) 99.892 2,010.84
1-25-98 Contract Fee (1.00) $22.01326365 (0.045) 99.847 2,197.95
1-25-99 Contract Fee (1.00) $36.29540636 (0.028) 99.819 3,622.98
12-31-99 Value before Surr Chg $61.02671473 0.000 99.819 6,091.64
12-31-99 Contract Fee (1.00) $61.02671473 (0.016) 99.803 6,090.64
12-31-99 Surrender Charge (34.00) $61.02671473 (0.557) 99.246 6,056.64
Cumulative Total Returns without/with chgs. 510.27% A 505.66% C
Avg. Annual Total Returns without/with chgs. 44.28% B 44.06% D
Alger American MidCap Growth
5-3-93 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-3-94 Contract Fee (1.00) $12.97472464 (0.077) 99.923 1,296.47
5-3-95 Contract Fee (1.00) $14.90631383 (0.067) 99.856 1,488.48
5-3-96 Contract Fee (1.00) $20.91518007 (0.048) 99.808 2,087.50
5-3-97 Contract Fee (1.00) $20.29456484 (0.049) 99.759 2,024.56
5-3-98 Contract Fee (1.00) $27.24125275 (0.037) 99.722 2,716.55
5-3-99 Contract Fee (1.00) $31.89500441 (0.031) 99.691 3,179.64
12-31-99 Value before Surr Chg $39.47884854 0.000 99.691 3,935.67
12-31-99 Contract Fee (1.00) $39.47884854 (0.025) 99.665 3,934.67
12-31-99 Surrender Charge (17.00) $39.47884854 (0.431) 99.235 3,917.67
Cumulative Total Returns without/with chgs. 294.79% A 291.77% C
Avg. Annual Total Returns without/with chgs. 22.88% B 22.73% D
Alger American Small Capitalization
9-21-88 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
9-21-89 Contract Fee (1.00) $15.26566498 (0.066) 99.934 1,525.57
9-21-90 Contract Fee (1.00) $14.70557795 (0.068) 99.866 1,468.59
9-21-91 Contract Fee (1.00) $22.01513476 (0.045) 99.821 2,197.57
9-21-92 Contract Fee (1.00) $22.87023808 (0.044) 99.777 2,281.93
9-21-93 Contract Fee (1.00) $27.42815454 (0.036) 99.741 2,735.71
9-21-94 Contract Fee (1.00) $26.91666527 (0.037) 99.704 2,683.69
9-21-95 Contract Fee (1.00) $44.35209714 (0.023) 99.681 4,421.07
9-21-96 Contract Fee (1.00) $41.95187443 (0.024) 99.657 4,180.81
9-21-97 Contract Fee (1.00) $47.70478824 (0.021) 99.636 4,753.13
9-21-98 Contract Fee (1.00) $40.93914826 (0.024) 99.612 4,078.03
9-21-99 Contract Fee (1.00) $53.35756565 (0.019) 99.593 5,314.05
12-31-99 Value before Surr Chg $71.63435796 0.000 99.593 7,134.30
12-31-99 Contract Fee (1.00) $71.63435796 (0.014) 99.579 7,133.30
12-31-99 Surrender Charge $71.63435796 0.000 99.579 7,133.30
Cumulative Total Returns without/with chgs. 616.34% A 613.33% C
Avg. Annual Total Returns without/with chgs. 19.07% B 19.02% D
Davis VA Financial Portfolio
7-1-99 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-99 Value before Surr Chg $9.21353277 0.000 100.000 921.35
12-31-99 Contract Fee (1.00) $9.21353277 (0.109) 99.891 920.35
12-31-99 Surrender Charge (51.00) $9.21353277 (5.535) 94.356 869.35
Cumulative Total Returns without/with chgs. -7.86% A -13.06% C
Avg. Annual Total Returns without/with chgs. -15.07% B -24.36% D
Davis VA Real Estate
7-1-99 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-99 Value before Surr Chg $8.85414298 0.000 100.000 885.41
12-31-99 Contract Fee (1.00) $8.85414298 (0.113) 99.887 884.41
12-31-99 Surrender Charge (51.00) $8.85414298 (5.760) 94.127 833.41
Cumulative Total Returns without/with chgs. -11.46% A -16.66% C
Avg. Annual Total Returns without/with chgs. -21.55% B -30.47% D
Davis VA Value
7-1-99 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-99 Value before Surr Chg $10.18717575 0.000 100.000 1,018.72
12-31-99 Contract Fee (1.00) $10.18717575 (0.098) 99.902 1,017.72
12-31-99 Surrender Charge (51.00) $10.18717575 (5.006) 94.896 966.72
Cumulative Total Returns without/with chgs. 1.87% A -3.33% C
Avg. Annual Total Returns without/with chgs. 3.77% B -6.53% D
Franklin Growth & Income
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) $9.59756692 (0.104) 99.896 958.76
1-24-91 Contract Fee (1.00) $10.03104257 (0.100) 99.796 1,001.06
1-24-92 Contract Fee (1.00) $12.16171947 (0.082) 99.714 1,212.69
1-24-93 Contract Fee (1.00) $12.57661487 (0.080) 99.634 1,253.06
1-24-94 Contract Fee (1.00) $14.09886247 (0.071) 99.563 1,403.73
1-24-95 Contract Fee (1.00) $13.27759299 (0.075) 99.488 1,320.96
1-24-96 Contract Fee (1.00) $17.25393143 (0.058) 99.430 1,715.56
1-24-97 Contract Fee (1.00) $19.79450666 (0.051) 99.380 1,967.17
1-24-98 Contract Fee (1.00) $23.84479142 (0.042) 99.338 2,368.69
1-24-99 Contract Fee (1.00) $25.33178429 (0.039) 99.298 2,515.40
12-31-99 Value before Surr Chg $25.89127963 0.000 99.298 2,570.96
12-31-99 Contract Fee (1.00) $25.89127963 (0.039) 99.260 2,569.96
12-31-99 Surrender Charge $25.89127963 0.000 99.260 2,569.96
Cumulative Total Returns without/with chgs. 158.91% A 157.00% C
Avg. Annual Total Returns without/with chgs. 9.09% B 9.01% D
Franklin Rising Dividends Securities
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Contract Fee (1.00) $10.68876950 (0.094) 99.906 1,067.88
1-27-94 Contract Fee (1.00) $10.36623339 (0.096) 99.810 1,034.65
1-27-95 Contract Fee (1.00) $9.94675745 (0.101) 99.709 991.79
1-27-96 Contract Fee (1.00) $12.48933274 (0.080) 99.629 1,244.30
1-27-97 Contract Fee (1.00) $15.20870091 (0.066) 99.564 1,514.23
1-27-98 Contract Fee (1.00) $19.73278049 (0.051) 99.513 1,963.67
1-27-99 Contract Fee (1.00) $19.71148388 (0.051) 99.462 1,960.55
12-31-99 Value before Surr Chg $18.71235633 0.000 99.462 1,861.17
12-31-99 Contract Fee (1.00) $18.71235633 (0.053) 99.409 1,860.17
12-31-99 Surrender Charge $18.71235633 0.000 99.409 1,860.17
Cumulative Total Returns without/with chgs. 87.12% A 86.02% C
Avg. Annual Total Returns without/with chgs. 8.22% B 8.14% D
Franklin Small Cap
11-1-95 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
11-1-96 Contract Fee (1.00) $12.14713625 (0.082) 99.918 1,213.71
11-1-97 Contract Fee (1.00) $15.53654825 (0.064) 99.853 1,551.38
11-1-98 Contract Fee (1.00) $12.49929024 (0.080) 99.773 1,247.10
11-1-99 Contract Fee (1.00) $19.88539111 (0.050) 99.723 1,983.03
12-31-99 Value before Surr Chg $28.24659725 0.000 99.773 2,818.26
12-31-99 Contract Fee (1.00) $28.24659725 (0.035) 99.738 2,817.26
12-31-99 Surrender Charge (34.00) $28.24659725 (1.204) 98.534 2,783.26
Cumulative Total Returns without/with chgs. 182.47% A 178.33% C
Avg. Annual Total Returns without/with chgs. 28.30% B 27.84% D
Franklin U.S. Government
3-14-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-14-90 Contract Fee (1.00) $10.29864074 (0.097) 99.903 1,028.86
3-14-91 Contract Fee (1.00) $11.44148140 (0.087) 99.815 1,142.04
3-14-92 Contract Fee (1.00) $12.36677937 (0.081) 99.735 1,233.40
3-14-93 Contract Fee (1.00) $14.05074266 (0.071) 99.663 1,400.35
3-14-94 Contract Fee (1.00) $14.20297756 (0.070) 99.593 1,414.52
3-14-95 Contract Fee (1.00) $14.59412892 (0.069) 99.525 1,452.47
3-14-96 Contract Fee (1.00) $15.82460547 (0.063) 99.461 1,573.94
3-14-97 Contract Fee (1.00) $16.60622197 (0.060) 99.401 1,650.68
3-14-98 Contract Fee (1.00) $18.04599170 (0.055) 99.346 1,792.79
3-14-99 Contract Fee (1.00) $18.76504555 (0.053) 99.292 1,863.23
12-31-99 Value before Surr Chg $18.39356716 0.000 99.292 1,826.34
12-31-99 Contract Fee (1.00) $18.39356716 (0.054) 99.238 1,825.34
12-31-99 Surrender Charge $18.39356716 0.000 99.238 1,825.34
Cumulative Total Returns without/with chgs. 83.94% A 82.53% C
Avg. Annual Total Returns without/with chgs. 5.80% B 5.73% D
JP Morgan International Opportunities
1-3-95 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-3-96 Contract Fee (1.00) $11.17597245 (0.089) 99.911 1,116.60
1-3-97 Contract Fee (1.00) $12.16681571 (0.082) 99.828 1,214.59
1-3-98 Contract Fee (1.00) $12.85128023 (0.078) 99.751 1,281.92
1-3-99 Contract Fee (1.00) $13.21789713 (0.076) 99.675 1,317.49
12-31-99 Value before Surr Chg $17.79989532 0.000 99.675 1,774.20
12-31-99 Contract Fee (1.00) $17.79989532 (0.056) 99.619 1,773.20
12-31-99 Surrender Charge (34.00) $17.79989532 (1.910) 97.709 1,739.20
Cumulative Total Returns without/with chgs. 78.00% A 73.92% C
Avg. Annual Total Returns without/with chgs. 12.24% B 11.72% D
JP Morgan US Disciplined Equity
1-3-95 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-3-96 Contract Fee (1.00) $13.34969515 (0.075) 99.925 1,333.97
1-3-97 Contract Fee (1.00) $15.92357081 (0.063) 99.862 1,590.16
1-3-98 Contract Fee (1.00) $19.72766748 (0.051) 99.812 1,969.05
1-3-99 Contract Fee (1.00) $23.87761763 (0.042) 99.770 2,382.26
12-31-99 Value before Surr Chg $27.88350216 0.000 99.770 2,781.93
12-31-99 Contract Fee (1.00) $27.88350216 (0.036) 99.734 2,780.93
12-31-99 Surrender Charge (34.00) $27.88350216 (1.219) 98.514 2,746.93
Cumulative Total Returns without/with chgs. 178.84% A 174.69% C
Avg. Annual Total Returns without/with chgs. 22.79% B 22.42% 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
11-8-99 Contract Fee (1.00) $12.36982650 (0.081) 99.743 1,233.81
12-31-99 Value before Surr Chg $13.66196995 0.000 99.824 1,363.79
12-31-99 Contract Fee (1.00) $13.66196995 (0.073) 99.751 1,362.79
12-31-99 Surrender Charge (42.50) $13.66196995 (3.111) 96.640 1,320.29
Cumulative Total Returns without/with chgs. 36.62% A 32.03% C
Avg. Annual Total Returns without/with chgs. 10.43% B 9.24% 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
11-8-99 Contract Fee (1.00) $12.80813793 (0.078) 99.750 1,277.62
12-31-99 Value before Surr Chg $13.19948692 0.000 99.828 1,317.68
12-31-99 Contract Fee (1.00) $13.19948692 (0.076) 99.753 1,316.68
12-31-99 Surrender Charge (42.50) $13.19948692 (3.220) 96.533 1,274.18
Cumulative Total Returns without/with chgs. 31.99% A 27.42% C
Avg. Annual Total Returns without/with chgs. 9.23% B 8.01% D
Oppenheimer VA Global Securities
11-12-90 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
11-12-91 Contract Fee (1.00) $10.46292886 (0.096) 99.904 1,045.29
11-12-92 Contract Fee (1.00) $9.32939633 (0.107) 99.797 931.05
11-12-93 Contract Fee (1.00) $13.96054282 (0.072) 99.726 1,392.22
11-12-94 Contract Fee (1.00) $15.52495707 (0.064) 99.661 1,547.24
11-12-95 Contract Fee (1.00) $14.49807108 (0.069) 99.592 1,443.90
11-12-96 Contract Fee (1.00) $16.55927643 (0.060) 99.532 1,648.18
11-12-97 Contract Fee (1.00) $19.88298741 (0.050) 99.482 1,977.99
11-12-98 Contract Fee (1.00) $20.71053950 (0.048) 99.433 2,059.32
11-12-99 Contract Fee (1.00) $29.94051763 (0.033) 99.400 2,976.08
12-31-99 Value before Surr Chg $36.02720000 0.000 99.433 3,582.30
12-31-99 Contract Fee (1.00) $36.02720000 (0.028) 99.405 3,581.30
12-31-99 Surrender Charge $36.02720000 0.000 99.405 3,581.30
Cumulative Total Returns without/with chgs. 260.27% A 258.13% C
Avg. Annual Total Returns without/with chgs. 15.05% B 14.98% D
Oppenheimer VA High Income
4-30-86 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
4-30-87 Contract Fee (1.00) $10.97847723 (0.091) 99.909 1,096.85
4-30-88 Contract Fee (1.00) $11.69007814 (0.086) 99.823 1,166.94
4-30-89 Contract Fee (1.00) $12.78069825 (0.078) 99.745 1,274.81
4-30-90 Contract Fee (1.00) $13.14099719 (0.076) 99.669 1,309.75
4-30-91 Contract Fee (1.00) $15.46125046 (0.065) 99.604 1,540.01
4-30-92 Contract Fee (1.00) $19.21469707 (0.052) 99.552 1,912.87
4-30-93 Contract Fee (1.00) $22.64655133 (0.044) 99.508 2,253.52
4-30-94 Contract Fee (1.00) $24.69981663 (0.040) 99.468 2,456.83
4-30-95 Contract Fee (1.00) $26.12139217 (0.038) 99.429 2,597.23
4-30-96 Contract Fee (1.00) $30.10720978 (0.033) 99.396 2,992.54
4-30-97 Contract Fee (1.00) $32.89231166 (0.030) 99.366 3,268.37
4-30-98 Contract Fee (1.00) $37.54126627 (0.027) 99.339 3,729.32
4-30-99 Contract Fee (1.00) $37.70872534 (0.027) 99.313 3,744.95
12-31-99 Value before Surr Chg $36.81827013 0.000 99.313 3,656.52
12-31-99 Contract Fee (1.00) $36.81827013 (0.027) 99.285 3,655.52
12-31-99 Surrender Charge $36.81827013 0.000 99.285 3,655.52
Cumulative Total Returns without/with chgs. 268.18% A 265.55% C
Avg. Annual Total Returns without/with chgs. 10.00% B 9.94% D
Oppenheimer VA Main Street Growth & Income
7-5-95 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
7-5-96 Contract Fee (1.00) $14.32268764 (0.070) 99.930 1,431.27
7-5-97 Contract Fee (1.00) $18.77949403 (0.053) 99.877 1,875.64
7-5-98 Contract Fee (1.00) $23.88787685 (0.042) 99.835 2,384.85
7-5-99 Contract Fee (1.00) $25.09270670 (0.040) 99.795 2,504.13
12-31-99 Value before Surr Chg $26.20497498 0.000 99.795 2,615.13
12-31-99 Contract Fee (1.00) $26.20497498 (0.038) 99.757 2,614.13
12-31-99 Surrender Charge (34.00) $26.20497498 (1.297) 98.460 2,580.13
Cumulative Total Returns without/with chgs. 162.05% A 158.01% C
Avg. Annual Total Returns without/with chgs. 23.91% B 23.49% D
PIMCO VIT High Yield Bond
4-30-98 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
4-30-99 Contract Fee (1.00) $10.38281274 (0.096) 99.904 1,037.28
12-31-99 Value before Surr Chg $10.14692720 0.000 99.904 1,013.72
12-31-99 Contract Fee (1.00) $10.14692720 (0.099) 99.805 1,012.72
12-31-99 Surrender Charge (51.00) $10.14692720 (5.026) 94.779 961.72
Cumulative Total Returns without/with chgs. 1.47% A -3.83% C
Avg. Annual Total Returns without/with chgs. 0.88% B -2.31% D
PIMCO VIT Stocks PLUS Growth & Income
12-31-97 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-98 Contract Fee (1.00) $12.81862487 (0.078) 99.922 1,280.86
12-31-99 Value before Surr Chg $13.99426583 0.000 99.922 1,398.33
12-31-99 Contract Fee (1.00) $13.99426583 (0.071) 99.851 1,397.33
12-31-99 Surrender Charge (51.00) $13.99426583 (3.644) 96.206 1,346.33
Cumulative Total Returns without/with chgs. 39.94% A 34.63% C
Avg. Annual Total Returns without/with chgs. 18.30% B 16.03% D
PIMCO VIT Total Return Bond
12-31-97 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-98 Contract Fee (1.00) $10.70076399 (0.093) 99.907 1,069.08
12-31-99 Value before Surr Chg $10.42236944 0.000 99.907 1,041.26
12-31-99 Contract Fee (1.00) $10.42236944 (0.096) 99.811 1,040.26
12-31-99 Surrender Charge (51.00) $10.42236944 (4.893) 94.917 989.26
Cumulative Total Returns without/with chgs. 4.22% A -1.07% C
Avg. Annual Total Returns without/with chgs. 2.09% B -0.54% D
Seligman Henderson Global Technology
5-2-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-2-97 Contract Fee (1.00) $10.31661553 (0.097) 99.903 1,030.66
5-2-98 Contract Fee (1.00) $14.91612471 (0.067) 99.836 1,489.17
5-2-99 Contract Fee (1.00) $17.72079252 (0.056) 99.780 1,768.17
12-31-99 Value before Surr Chg $35.23345326 0.000 99.780 3,515.58
12-31-99 Contract Fee (1.00) $35.23345326 (0.028) 99.751 3,514.58
12-31-99 Surrender Charge (42.50) $35.23345326 (1.206) 98.545 3,472.08
Cumulative Total Returns without/with chgs. 252.33% A 247.21% C
Avg. Annual Total Returns without/with chgs. 41.00% B 40.43% D
Seligman Small Cap Value
5-1-98 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-1-99 Contract Fee (1.00) $10.73911196 (0.093) 99.907 1,072.91
12-31-99 Value before Surr Chg $10.95072315 0.000 99.907 1,094.05
12-31-99 Contract Fee (1.00) $10.95072315 (0.091) 99.816 1,093.05
12-31-99 Surrender Charge (51.00) $10.95072315 (4.657) 95.158 1,042.05
Cumulative Total Returns without/with chgs. 9.51% A 4.21% C
Avg. Annual Total Returns without/with chgs. 5.59% B 2.50% D
Templeton Developing Markets Equity
3-15-94 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-15-95 Contract Fee (1.00) $8.62058630 (0.116) 99.884 861.06
3-15-96 Contract Fee (1.00) $10.27729571 (0.097) 99.787 1,025.54
3-15-97 Contract Fee (1.00) $12.41978933 (0.081) 99.706 1,238.33
3-15-98 Contract Fee (1.00) $10.51420276 (0.095) 99.611 1,047.33
3-15-99 Contract Fee (1.00) $8.18678208 (0.122) 99.489 814.49
12-31-99 Value before Surr Chg $12.12450336 0.000 99.489 1,206.25
12-31-99 Contract Fee (1.00) $12.12450336 (0.082) 99.406 1,205.25
12-31-99 Surrender Charge (25.50) $12.12450336 (2.103) 97.303 1,179.75
Cumulative Total Returns without/with chgs. 21.25% A 17.98% C
Avg. Annual Total Returns without/with chgs. 3.38% B 2.89% D
Templeton Global Growth
3-15-94 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-15-95 Contract Fee (1.00) $10.09452231 (0.099) 99.901 1,008.45
3-15-96 Contract Fee (1.00) $11.79417892 (0.085) 99.816 1,177.25
3-15-97 Contract Fee (1.00) $14.06170230 (0.071) 99.745 1,402.58
3-15-98 Contract Fee (1.00) $16.68243544 (0.060) 99.685 1,662.99
3-15-99 Contract Fee (1.00) $16.12348021 (0.062) 99.623 1,606.27
12-31-99 Value before Surr Chg $19.36424346 0.000 99.623 1,929.13
12-31-99 Contract Fee (1.00) $19.36424346 (0.052) 99.571 1,928.13
12-31-99 Surrender Charge (25.50) $19.36424346 (1.317) 98.255 1,902.63
Cumulative Total Returns without/with chgs. 93.64% A 90.26% C
Avg. Annual Total Returns without/with chgs. 12.07% B 11.73% D
Templeton Pacific Growth
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Contract Fee (1.00) $9.91965141 (0.101) 99.899 990.97
1-27-94 Contract Fee (1.00) $14.07652865 (0.071) 99.828 1,405.23
1-27-95 Contract Fee (1.00) $11.91556247 (0.084) 99.744 1,188.51
1-27-96 Contract Fee (1.00) $14.44474860 (0.069) 99.675 1,439.78
1-27-97 Contract Fee (1.00) $14.58766078 (0.069) 99.606 1,453.03
1-27-98 Contract Fee (1.00) $8.42138869 (0.119) 99.488 837.82
1-27-99 Contract Fee (1.00) $7.82724368 (0.128) 99.360 777.71
12-31-99 Value before Surr Chg $10.83777752 0.000 99.360 1,076.84
12-31-99 Contract Fee (1.00) $10.83777752 (0.092) 99.268 1,075.84
12-31-99 Surrender Charge $10.83777752 0.000 99.268 1,075.84
Cumulative Total Returns without/with chgs. 8.38% A 7.58% C
Avg. Annual Total Returns without/with chgs. 1.02% B 0.93% D
Van Kampen LIT Enterprise
4-7-86 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
4-7-87 Contract Fee (1.00) $11.16260479 (0.090) 99.910 1,115.26
4-7-88 Contract Fee (1.00) $8.29181654 (0.121) 99.790 827.44
4-7-89 Contract Fee (1.00) $9.91294612 (0.101) 99.689 988.21
4-7-90 Contract Fee (1.00) $11.55560043 (0.087) 99.602 1,150.97
4-7-91 Contract Fee (1.00) $12.46079820 (0.080) 99.522 1,240.13
4-7-92 Contract Fee (1.00) $14.28539835 (0.070) 99.452 1,420.71
4-7-93 Contract Fee (1.00) $16.11443342 (0.062) 99.390 1,601.61
4-7-94 Contract Fee (1.00) $16.20017424 (0.062) 99.328 1,609.14
4-7-95 Contract Fee (1.00) $17.47638854 (0.057) 99.271 1,734.90
4-7-96 Contract Fee (1.00) $23.23925222 (0.043) 99.228 2,305.99
4-7-97 Contract Fee (1.00) $25.32818372 (0.039) 99.189 2,512.27
4-7-98 Contract Fee (1.00) $36.68401057 (0.027) 99.161 3,637.64
4-7-99 Contract Fee (1.00) $41.72832568 (0.024) 99.137 4,136.84
12-31-99 Value before Surr Chg $48.74135508 0.000 99.137 4,832.09
12-31-99 Contract Fee (1.00) $48.74135508 (0.021) 99.117 4,831.09
12-31-99 Surrender Charge $48.74135508 0.000 99.117 4,831.09
Cumulative Total Returns without/with chgs. 387.41% A 383.11% C
Avg. Annual Total Returns without/with chgs. 12.22% B 12.14% D
Van Kampen LIT Growth &Income
12-23-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-23-97 Contract Fee (1.00) $12.24726215 (0.082) 99.918 1,223.73
12-23-98 Contract Fee (1.00) $13.91396085 (0.072) 99.846 1,389.26
12-23-99 Contract Fee (1.00) $14.89666876 (0.067) 99.779 1,486.38
12-31-99 Value before Surr Chg $15.05879695 0.000 99.846 1,503.57
12-31-99 Contract Fee (1.00) $15.05879695 (0.066) 99.780 1,502.57
12-31-99 Surrender Charge (42.50) $15.05879695 (2.822) 96.958 1,460.07
Cumulative Total Returns without/with chgs. 50.59% A 46.01% C
Avg. Annual Total Returns without/with chgs. 14.51% B 13.34% D
USAllianz VIP Diversified Assets
11-12-99 Purchase $1,000.00 $10.08629352 99.144 99.144 $1,000.00
12-31-99 Contract Fee (1.00) $10.20580641 (0.098) 99.046 1,010.85
12-31-99 Value before Surr Chg $10.20580641 0.000 99.046 1,010.85
12-31-99 Surrender Charge (51.00) $10.20580641 (4.997) 94.049 959.85
Cumulative and Average Annual Total Returns
without/with charges 1.18% A -4.02% B
Avg. Annual Total Returns without/with chgs. 9.17% B -26.31% D
USAllianz VIP Fixed Income Fund
11-12-99 Purchase $1,000.00 $10.01631923 99.837 99.837 $1,000.00
12-31-99 Contract Fee (1.00) $9.71696524 (0.103) 99.734 969.11
12-31-99 Value before Surr Chg $9.71696524 0.000 99.734 969.11
12-31-99 Surrender Charge (51.00) $9.71696524 (5.249) 94.486 918.11
Cumulative and Average Annual Total Returns
without/with charges -2.99% A -8.19% B
Avg. Annual Total Returns without/with chgs. -20.23% B -47.08% D
USAllianz Growth Fund
11-12-99 Purchase $1,000.00 $10.18625678 98.171 98.171 $1,000.00
12-31-99 Contract Fee (1.00) $10.82434013 (0.092) 98.079 1,061.64
12-31-99 Value before Surr Chg $10.82434013 0.000 98.079 1,061.64
12-31-99 Surrender Charge (51.00) $10.82434013 (4.712) 93.368 1,010.64
Cumulative and Average Annual Total Returns
without/with charges 6.26% A 1.06% B
Avg. Annual Total Returns without/with chgs. 57.24% B 8.20% D
Franklin Global Communications Securities Fund
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) $11.47363453 (0.087) 99.913 1,146.36
1-24-91 Contract Fee (1.00) $11.95102656 (0.084) 99.829 1,193.06
1-24-92 Contract Fee (1.00) $14.20139407 (0.070) 99.759 1,416.71
1-24-93 Contract Fee (1.00) $15.91822229 (0.063) 99.696 1,586.98
1-24-94 Contract Fee (1.00) $16.43119760 (0.061) 99.635 1,637.12
1-24-95 Contract Fee (1.00) $15.48692698 (0.065) 99.571 1,542.04
1-24-96 Contract Fee (1.00) $19.69346882 (0.051) 99.520 1,959.89
1-24-97 Contract Fee (1.00) $20.83359223 (0.048) 99.472 2,072.35
1-24-98 Contract Fee (1.00) $25.00670659 (0.040) 99.432 2,486.46
1-24-99 Contract Fee (1.00) $27.85091832 (0.036) 99.396 2,768.27
12-31-99 Value before Surr Chg $38.57166130 0.000 99.396 3,833.86
12-31-99 Contract Fee (1.00) $38.57166130 (0.026) 99.370 3,832.86
12-31-99 Surrender Charge $38.57166130 0.000 99.370 3,832.86
Cumulative Total Returns without/with chgs. 285.72% A 283.29% C
Avg. Annual Total Returns without/with chgs. 13.13% B 13.07% D
Franklin Global Health Care Securities Fund
5-1-98 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-1-99 Contract Fee (1.00) $8.68990569 (0.115) 99.885 867.99
12-31-99 Value before Surr Chg $9.60095883 0.000 99.885 958.99
12-31-99 Contract Fee (1.00) $9.60095883 (0.104) 99.781 957.99
12-31-99 Surrender Charge (51.00) $9.60095883 (5.312) 94.469 906.99
Cumulative Total Returns without/with chgs. -3.99% A -9.30% C
Avg. Annual Total Returns without/with chgs. -2.41% B -5.68% D
Franklin High Income Fund
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) $9.98265449 (0.100) 99.900 997.27
1-24-91 Contract Fee (1.00) $8.98103976 (0.111) 99.788 896.20
1-24-92 Contract Fee (1.00) $11.85616038 (0.084) 99.704 1,182.11
1-24-93 Contract Fee (1.00) $13.39874388 (0.075) 99.630 1,334.91
1-24-94 Contract Fee (1.00) $15.29126669 (0.065) 99.564 1,522.46
1-24-95 Contract Fee (1.00) $14.64571855 (0.068) 99.496 1,457.19
1-24-96 Contract Fee (1.00) $17.40215300 (0.057) 99.438 1,730.44
1-24-97 Contract Fee (1.00) $19.32656477 (0.052) 99.387 1,920.80
1-24-98 Contract Fee (1.00) $21.32546077 (0.047) 99.340 2,118.47
1-24-99 Contract Fee (1.00) $21.17467503 (0.047) 99.293 2,102.49
12-31-99 Value before Surr Chg $20.69510047 0.000 99.293 2,054.87
12-31-99 Contract Fee (1.00) $20.69510047 (0.048) 99.244 2,053.87
12-31-99 Surrender Charge $20.69510047 0.000 99.244 2,053.87
Cumulative Total Returns without/with chgs. 106.95% A 105.39% C
Avg. Annual Total Returns without/with chgs. 6.87% B 6.80% D
Franklin Income Securities Fund
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) $10.70345941 (0.093) 99.907 1,069.35
1-24-91 Contract Fee (1.00) $9.93454622 (0.101) 99.806 991.53
1-24-92 Contract Fee (1.00) $13.99562082 (0.071) 99.734 1,395.85
1-24-93 Contract Fee (1.00) $15.30544228 (0.065) 99.669 1,525.48
1-24-94 Contract Fee (1.00) $17.64961404 (0.057) 99.612 1,758.12
1-24-95 Contract Fee (1.00) $16.27638185 (0.061) 99.551 1,620.33
1-24-96 Contract Fee (1.00) $20.08267334 (0.050) 99.501 1,998.25
1-24-97 Contract Fee (1.00) $21.74528582 (0.046) 99.455 2,162.68
1-24-98 Contract Fee (1.00) $24.54291374 (0.041) 99.415 2,439.92
1-24-99 Contract Fee (1.00) $24.52276055 (0.041) 99.374 2,436.92
12-31-99 Value before Surr Chg $24.08442690 0.000 99.374 2,393.36
12-31-99 Contract Fee (1.00) $24.08442690 (0.042) 99.332 2,392.36
12-31-99 Surrender Charge $24.08442690 0.000 99.332 2,392.36
Cumulative Total Returns without/with chgs. 140.84% A 139.24% C
Avg. Annual Total Returns without/with chgs. 8.37% B 8.30% D
Franklin Large Cap Growth Securities Fund
5-1-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-1-97 Contract Fee (1.00) $11.17227997 (0.090) 99.910 $1,116.23
5-1-98 Contract Fee (1.00) $14.62013773 (0.068) 99.842 $1,459.71
5-1-99 Contract Fee (1.00) $16.46083654 (0.061) 99.781 $1,642.48
12-31-99 Contract Fee (1.00) $20.15175796 (0.050) 99.732 $2,009.77
12-31-99 Value before Surr Chg $20.15175796 0.000 99.732 $2,009.77
12-31-99 Surrender Charge (42.50) $20.15175796 (2.109) 97.623 $1,967.27
Cumulative Total Returns without/with chgs. 101.52% A 96.73% C
Avg. Annual Total Returns without/with chgs. 21.05% B 20.26% D
Franklin Natural Resources Securities Fund
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) $12.88562226 (0.078) 99.922 1,287.56
1-24-91 Contract Fee (1.00) $9.76834317 (0.102) 99.820 975.08
1-24-92 Contract Fee (1.00) $10.91292825 (0.092) 99.728 1,088.33
1-24-93 Contract Fee (1.00) $9.12197464 (0.110) 99.619 908.72
1-24-94 Contract Fee (1.00) $14.41516281 (0.069) 99.549 1,435.02
1-24-95 Contract Fee (1.00) $12.96347704 (0.077) 99.472 1,289.51
1-24-96 Contract Fee (1.00) $15.88612084 (0.063) 99.409 1,579.23
1-24-97 Contract Fee (1.00) $13.72771013 (0.073) 99.336 1,363.66
1-24-98 Contract Fee (1.00) $10.52200700 (0.095) 99.241 1,044.22
1-24-99 Contract Fee (1.00) $8.19126066 (0.122) 99.119 811.91
12-31-99 Value before Surr Chg $10.98301490 0.000 99.119 1,088.63
12-31-99 Contract Fee (1.00) $10.98301490 (0.091) 99.028 1,087.63
12-31-99 Surrender Charge $10.98301490 0.000 99.028 1,087.63
Cumulative Total Returns without/with chgs. 9.83% A 8.76% C
Avg. Annual Total Returns without/with chgs. 0.86% B 0.77% D
Franklin S&P 500 Index Fund
11-11-99 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-99 Value before Surr Chg $10.46521066 0.000 100.000 1,046.52
12-31-99 Contract Fee (1.00) $10.46521066 (0.096) 99.904 1,045.52
12-31-99 Surrender Charge (51.00) $10.46521066 (4.873) 95.031 994.52
Cumulative Total Returns without/with chgs. 4.65% A -0.55% C
Avg. Annual Total Returns without/with chgs. 39.37% B -3.93% D
Franklin Value Securities Fund
5-1-98 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-1-99 Contract Fee (1.00) $7.78347562 (0.128) 99.872 777.35
12-31-99 Value before Surr Chg $7.72414690 0.000 99.872 771.42
12-31-99 Contract Fee (1.00) $7.72414690 (0.129) 99.742 770.42
12-31-99 Surrender Charge (51.00) $7.72414690 (6.603) 93.139 719.42
Cumulative Total Returns without/with chgs. -22.76% A -28.06% C
Avg. Annual Total Returns without/with chgs. -14.34% B -17.91% D
Templeton International Securities Fund
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Contract Fee (1.00) $9.53509236 (0.105) 99.895 952.51
1-27-94 Contract Fee (1.00) $12.85431852 (0.078) 99.817 1,283.08
1-27-95 Contract Fee (1.00) $11.91221607 (0.084) 99.733 1,188.05
1-27-96 Contract Fee (1.00) $13.52801052 (0.074) 99.659 1,348.19
1-27-97 Contract Fee (1.00) $16.14799023 (0.062) 99.598 1,608.30
1-27-98 Contract Fee (1.00) $17.44491176 (0.057) 99.540 1,736.47
1-27-99 Contract Fee (1.00) $17.72403072 (0.056) 99.484 1,763.25
12-31-99 Value before Surr Chg $22.85845398 0.000 99.484 2,274.05
12-31-99 Contract Fee (1.00) $22.85845398 (0.044) 99.440 2,273.05
12-31-99 Surrender Charge $22.85845398 0.000 99.440 2,273.05
Cumulative Total Returns without/with chgs. 128.58% A 127.30% C
Avg. Annual Total Returns without/with chgs. 10.99% B 10.91% D
Templeton International Smaller Companies Fund
5-1-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-1-97 Contract Fee (1.00) $11.32006145 (0.088) 99.912 1,131.01
5-1-98 Contract Fee (1.00) $12.03423474 (0.083) 99.829 1,201.36
5-1-99 Contract Fee (1.00) $10.34721028 (0.097) 99.732 1,031.95
12-31-99 Value before Surr Chg $11.40338804 0.000 99.732 1,137.28
12-31-99 Contract Fee (1.00) $11.40338804 (0.088) 99.644 1,136.28
12-31-99 Surrender Charge (42.50) $11.40338804 (3.727) 95.917 1,093.78
Cumulative Total Returns without/with chgs. 14.03% A 9.38% C
Avg. Annual Total Returns without/with chgs. 3.64% B 2.47% D
<FN>
A = (Unit Value as of December 31, 1999 - Unit Value at Purchase)/Unit Value at
Purchase B = [(A+1)^(1/Years since Inception)]-1 C = (Accumulated Value as of
December 31, 1999 - Accum. Value at Purch.)/Accum. Value at Purch.
D = [(C+1)^(1/Years since Inception)]-1
</FN>
</TABLE>
Organizational Chart
Allianz Aktiengesellschaft Holding (abbreviated as Allianz AG Holding), of
Munich, Germany, is the controlling owner of Allianz of America, Inc.
Allianz of America, Inc. is sole owner of Allianz Life Insurance Company of
North America.
Allianz Life is controlling owner of USAllianz Investor Services, LLC.
Allianz Life Insurance Company of North America is sole owner of Preferred Life
Insurance Company of New York.
