File Nos. 333-19173
811-05716
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ( )
Pre-Effective Amendment No. ( )
Post-Effective Amendment No. 4 (X)
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 ( )
Amendment No. 44 (X)
(Check appropriate box or boxes.)
PREFERRED LIFE VARIABLE ACCOUNT C
---------------------------------
(Exact Name of Registrant)
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
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(Name of Depositor)
152 West 57th Street, 18th Floor, New York, New York 10019
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(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (212) 586-7733
Name and Address of Agent for Service
-------------------------------------------
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 Immediate Variable Annuity Contracts
CROSS REFERENCE SHEET
(Required by Rule 495)
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ITEM NO. LOCATION
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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 Franklin Templeton
Valuemark Income Plus
Immediate Variable
Annuity Contract
Item 8. Annuity Period.............................. Annuity Payments (The
Payout Phase)
Item 9. Death Benefit............................... Death Benefit
Item 10. Purchases and Contract Value................ Purchase
Item 11. Redemptions................................. Access To Your Money
Item 12. Taxes....................................... Taxes
Item 13. Legal Proceedings........................... Not Applicable
Item 14. Table of Contents of the Statement of
Additional Information...................... Table of Contents
of the Statement of
Additional
Information
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ITEM NO. DEFINITION
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PART B
Item 15. Cover Page................................... Cover Page
Item 16. Table of Contents............................ Table of Contents
Item 17. General Information and History.............. The Company
Item 18. Services..................................... Not Applicable
Item 19. Purchase of Securities Being Offered......... Not Applicable
Item 20. Underwriters................................. Distributor
Item 21. Calculation of Performance Data.............. Calculation of
Performance Data
Item 22. Annuity Payments............................. Annuity
Provisions
Item 23. Financial Statements......................... Financial
Statements
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PART C
Information required to be included in Part C is set forth under the appropriate
Item so numbered, in Part C to this Registration Statement.
<PAGE>
PART A
THE VALUEMARK(R) INCOME PLUS
IMMEDIATE VARIABLE ANNUITY CONTRACT
ISSUED BY
PREFERRED LIFE VARIABLE ACCOUNT C
AND
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
This prospectus describes the Valuemark Income Plus Immediate Variable Annuity
Contract with a Fixed Payment Option. The Contract is offered by Preferred Life
Insurance Company of New York (Preferred Life). All references to "we," "us" and
"our" refer to Preferred Life.
The annuity offers the Variable Options listed below, and a Fixed Payment Option
of Preferred Life. Each Variable Option invests in a Portfolio of the
corresponding fund listed below. You can select up to 10 investment choices
(which includes any of the Variable Options and the Fixed Payment Option).
VARIABLE OPTIONS:
FRANKLIN TEMPLETON VARIABLE
INSURANCE PRODUCTS TRUST# :
Franklin Global Communications 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 Real Estate Fund
Franklin Rising Dividends Securities Fund
Franklin Small Cap Fund
Franklin Value Securities Fund
Mutual Discovery Securities Fund
Mutual Shares Securities Fund
Templeton Asset Strategy 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.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES NOR HAS IT DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Please read this prospectus before investing and keep it for future reference.
It contains important information about the Valuemark Income Plus Immediate
Variable Annuity Contract with a Fixed Payment Option.
To learn more about the annuity offered by this prospectus, you can receive a
copy of the Statement of Additional Information (SAI) dated May 1, 2000. The SAI
has been filed with the Securities and Exchange Commission (SEC) and is legally
a part of this prospectus. The Table of Contents of the SAI is on Page 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: 1750 Hennepin Avenue, Minneapolis,
Minnesota 55403-2195.
THE VALUEMARK INCOME PLUS IMMEDIATE VARIABLE ANNUITY CONTRACTS:
O ARE NOT BANK DEPOSITS
O ARE NOT FEDERALLY INSURED
O ARE NOT ENDORSED BY ANY BANK OR GOVERNMENT AGENCY
O ARE NOT GUARANTEED AND MAY BE SUBJECT TO LOSS OF PRINCIPAL
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
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TABLE OF CONTENTS
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Index of Terms 4
Summary 5
Fee Table 7
1. The Valuemark Income Plus
Immediate Variable Annuity Contract 11
2. Ownership 11
Contract Owner/Annuitant 11
Joint Owner/Joint Annuitant 11
Beneficiary 12
Assignment 12
3. Annuity Payments (The Payout Phase) 12
Income Date 12
Annuity Payments 12
Assumed Investment Return 13
Annuity Options 13
4. Purchase 14
Purchase Payment 14
Allocation of Purchase Payment 14
Free Look 14
VIP Units 14
5. Investment Options 15
Transfers 16
Telephone Transfers 17
Voting Privileges 17
Substitution 17
6. Expenses 17
Insurance Charges 17
Mortality and Expense Risk Charge 17
Administrative Expense Charge 17
Commutation Fee 17
Income Taxes 18
Portfolio Expenses 18
7. Taxes 18
Annuity Contracts in General 18
Qualified and Non-Qualified Contracts 18
Liquidations - Non-Qualified Contract 19
Liquidations - Qualified Contracts 19
Diversification 20
8. Access to Your Money 20
Suspension of Payments or Transfers 21
9. Performance 21
10. Death Benefit 22
Death of Beneficiary 22
11. Other Information 22
Preferred Life 22
The Separate Account 22
Distribution 23
Administration 23
Financial Statements 23
Table of Contents of the Statement of
Additional Information 23
Appendix A - Illustration of Annuity Income 24
<PAGE>
INDEX OF TERMS
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This prospectus is written in plain English to make it as understandable as
possible. However, there are some technical terms used, which are capitalized in
the prospectus. The page that is indicated below is where you will find the
definition for the word or term.
Page Page
Annuitant 11 Joint Annuitant 11
Annuity Calculation Date 14 Joint Owner 11
Annuity Options 13 Non-Qualified 18
Annuity Payments 12 Payout Phase 12
Annuity Unit 15 Portfolios 15
Assumed Investment Return (AIR) 13 Purchase Payment 14
Beneficiary 12 Qualified 18
Contract 11 Tax Deferral 18
Contract Owner 11 Total Liquidation Value 21
Fixed Payment Option 11 Variable Option 11
Income Date 12 VIP Unit 14
<PAGE>
SUMMARY
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The sections in the summary correspond to sections in this prospectus which
discuss the topics in more detail.
THE IMMEDIATE VARIABLE ANNUITY CONTRACT:
The annuity contract (Contract) offered by Preferred Life provides a means for
investing in an immediate variable annuity Contract in both Variable Options and
the Preferred Life Fixed Payment Option (referred to in the Contract as the
"Fixed Account"). In return for your one time payment, the Contract provides for
income to you and another person (if elected) under a payment plan you select.
ANNUITY PAYMENTS:
When you buy the Contract, you select an Income Date. You can start to receive
regular income from your annuity by choosing an Annuity Option. Under most
Annuity Options, you can choose whether to receive your Annuity Payments as a
variable payout, a fixed payout, or both. If you choose to have any part of your
Annuity Payments come from the Variable Options, the dollar amount of your
Annuity Payments may go up or down based on the performance of the Portfolios.
PURCHASE:
You can buy the Contract with $35,000 or more under most circumstances. You
cannot add to your Contract at a later date (i.e., it is a single purchase
payment contract). Your investment representative can help you complete the
appropriate forms.
INVESTMENT OPTIONS:
You can put your money in the Variable Options and/or you can receive Annuity
Payments from the Preferred Life Fixed Payment Option. Your income will
fluctuate up or down based on the Portfolios' performance. No minimum payment
amount is guaranteed. You can make transfers between the Variable Options. You
cannot make transfers from the Fixed Payment Option to the Variable Options.
EXPENSES:
The Contract has insurance features and investment features, and there are costs
related to each.
Preferred Life deducts a Mortality and Expense Risk Charge which is equal, on an
annual basis, to 1.25% of the average daily value of the Contract invested in a
Variable Option. Preferred Life also deducts an Administrative Expense Charge
which is equal, on an annual basis, to 0.15% of the average daily value of the
Contract invested in a Variable Option.
Certain Annuity Options allow liquidations (withdrawals). If you take money out
of the Contract, Preferred Life will assess a commutation fee which is a
percentage against the amount liquidated (withdrawn). If you choose Annuity
Options 2 or 4, you may make a partial liquidation. A commutation fee of 5% in
Contract year 2, reducing by 1% each year until it is 1% for Contract year 6 and
thereafter will apply. If you choose Annuity Option 6, you may make a full or
partial liquidation. A commutation fee of 5% in Contract years 1 and 2, reducing
by 1% each year until it is 1% for Contract year 6 and thereafter will apply.
You currently can make as many transfers as you want each year. Preferred Life
may limit this in the future. However, you will always be allowed at least 12
transfers each year.
There are also annual portfolio operating expenses, which vary depending upon
the Variable Options you select. In 1999, these expenses ranged from 0.49% to
1.56% of the average daily value of the Portfolios.
TAXES:
Your earnings are not taxed until you take them out. If the Contract is
tax-qualified, the entire payment may be taxable. If you make a partial
liquidation, the earnings come out first and are taxed as income. If you are
younger than 59 1/2 when you take the money out, you may be charged a 10%
federal tax penalty.
ACCESS TO YOUR MONEY:
Generally, you may not make liquidations (withdrawals) from your Contract.
However, under certain circumstances, you may make one liquidation each Contract
year after the Income Date if you selected Annuity Options 2, 4 or 6.
Liquidations made after the Income Date may be subject to a commutation fee. You
may also have to pay income tax and a tax penalty on any money taken out.
PARTIAL LIQUIDATIONS ARE NOT AVAILABLE UNTIL APPROVED BY THE NEW YORK INSURANCE
DEPARTMENT.
DEATH BENEFIT:
If you die before the Income Date and there is no Joint Annuitant, the Contract
will be treated as if it had never been issued. We will return your Purchase
Payment to your estate. If you have chosen an Annuity Option with a Joint
Annuitant and either you or the Joint Annuitant dies before the Income Date, the
Annuity Option will be changed to Option 2 (with 10 years of payments guaranteed
or 5 years of payments guaranteed if the survivor's life expectancy is less than
10 years).
INQUIRIES:
If you have questions about your Contract or need more information, please
contact us at:
VIP Service Center
P.O. Box 30343
Tampa, Florida 33630-3343
1-800-774-5001
Beginning June 1, 2000, all questions about your Contract should be directed to
us at:
USAllianz Service Center
c/o PNC Bank
P.O. Box 820497
Philadelphia, Pennsylvania 19182-0497
1-800-336-0320
<PAGE>
FEE TABLE
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The purpose of this Fee Table is to help you understand the costs of investing
in the Contract. It reflects expenses of the Separate Account as well as the
Portfolios.
We have provided "Illustrations of Annuity Income" in Appendix B to show you the
effects of the charges, expenses and investment performance on annuity income.
CONTRACT OWNER TRANSACTION FEES
Commutation Fee*
(as a percentage of the amount taken out [liquidated])
Contract Year Charge
--------------------------------
1 5%
2 5%
3 4%
4 3%
5 2%
6 (& thereafter) 1%
* After the first Contract year, you may make one liquidation from your Contract
each year if you have selected Annuity Options 2 or 4. If you have selected
Annuity Option 6, you may make a liquidation once each year beginning in the
first year.
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average daily account value)
Mortality and Expense Risk Charge 1.25%
Administrative Expense Charge .15%
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Total Separate Account Annual Expenses 1.40%
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FUND ANNUAL EXPENSES
(as a percentage of the Portfolios' average daily net assets). See the accompanying fund prospectus for
more information.
Management
and Portfolio Other Total Annual
Administration Fees1 Expenses Expenses
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<S> <C> <C> <C>
Franklin Global Communications Securities Fund .48% .03% .51%
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 Fund2 .75% .02% .77%
Franklin Money Market Fund .52% .01% .53%
Franklin Real Estate Fund .56% .02% .58%
Franklin Rising Dividends Securities Fund .73% .02% .75%
Franklin Small Cap Fund3 .55% .27% .82%
Franklin Value Securities Fund .60% .21% .81%
Mutual Discovery Securities Fund .80% .21% 1.01%
Mutual Shares Securities Fund2 .60% .19% .79%
Templeton Asset Strategy Fund3 .60% .18% .78%
Templeton Developing Markets Securities Fund3 1.25% .31% 1.56%
Templeton Growth Securities Fund2 .83% .05% .88%
Templeton International Securities Fund3 .69% .19% .88%
Templeton International Smaller Companies Fund .85% .26% 1.11%
Templeton Pacific Growth Securities Fund 1.00% .08% 1.08%
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<FN>
1. The Portfolio Administration Fee is a direct expense for 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 Securities 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 Insurance Products
Trust prospectus for further information regarding these fees.
2. 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; and 0.80%, 0.05%, and 0.85% respectively for the Templeton Growth Securities
Fund.
3. 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 Products 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.
</FN>
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EXAMPLES
o The examples below should not be considered a representation of past or future expenses.
Actual expenses may be greater or less than those shown.
o The examples assume you invested $1,000 with annual payments based on a 15 year period
certain payout under Annuity Option 6 with a 5% Assumed Investment Return.
o For additional information, see Section 5 - "Expenses" and the accompanying fund
prospectus.
You would pay the following expenses on a $1,000 investment, assuming a 5% annual return on
your money (compounded annually) if you surrender your Contract under Annuity Option 6 at the
end of each time period:
1 Year 3 Years 5 Years 10 Years
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Franklin Global Communications Securities Fund $64 $82 $90 $125
Franklin Growth and Income Securities Fund $64 $81 $89 $124
Franklin High Income Fund $65 $82 $91 $126
Franklin Income Securities Fund $64 $81 $89 $124
Franklin Large Cap Growth Securities Fund $67 $88 $99 $140
Franklin Money Market Fund $65 $82 $90 $126
Franklin Real Estate Fund $65 $83 $92 $129
Franklin Rising Dividends Securities Fund $67 $87 $98 $139
Franklin Small Cap Fund $67 $89 $101 $143
Franklin Value Securities Fund $67 $89 $101 $142
Mutual Discovery Securities Fund $69 $94 $108 $153
Mutual Shares Securities Fund $67 $88 $100 $141
Templeton Asset Strategy Fund $67 $88 $100 $140
Templeton Developing Markets Securities Fund $73 $106 $127 $182
Templeton Growth Securities Fund $68 $90 $103 $146
Templeton International Securities Fund $68 $90 $103 $146
Templeton International Smaller Companies Fund $70 $96 $112 $159
Templeton Pacific Growth Securities Fund $69 $95 $111 $157
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You would pay the following expenses on a $1,000 investment, assuming a 5% annual return on
your money (compounded annually) if your Contract is not surrendered:
1 Year 3 Years 5 Years 10 Years
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Franklin Global Communications Securities Fund $18 $49 $76 $121
Franklin Growth and Income Securities Fund $17 $49 $75 $120
Franklin High Income Fund $18 $50 $77 $123
Franklin Income Securities Fund $18 $49 $76 $121
Franklin Large Cap Growth Securities Fund $20 $56 $86 $136
Franklin Money Market Fund $18 $50 $77 $122
Franklin Real Estate Fund $18 $51 $79 $125
Franklin Rising Dividends Securities Fund $20 $55 $85 $135
Franklin Small Cap Fund $20 $57 $88 $139
Franklin Value Securities Fund $20 $57 $87 $139
Mutual Discovery Securities Fund $22 $62 $95 $150
Mutual Shares Securities Fund $20 $56 $87 $137
Templeton Asset Strategy Fund $20 $56 $86 $137
Templeton Developing Markets Securities Fund $27 $75 $114 $179
Templeton Growth Securities Fund $21 $58 $90 $143
Templeton International Securities Fund $21 $58 $90 $143
Templeton International Smaller Companies Fund $23 $64 $99 $155
Templeton Pacific Growth Securities Fund $23 $63 $97 $154
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<PAGE>
1. THE VALUEMARK INCOME PLUS
IMMEDIATE VARIABLE ANNUITY CONTRACT
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This prospectus describes an immediate variable annuity contract (Contract) with
a Fixed Payment Option offered by Preferred Life.
An annuity is a contract between you, the owner, and an insurance company (in
this case Preferred Life), where the insurance company promises to pay you (or
someone else you choose) an income, in the form of Annuity Payments. The Annuity
Payments must begin on a designated date that is no later than 60 days after we
allocate your Purchase Payment. This is called the Income Date.
The Contract benefits from Tax Deferral. Tax Deferral means that you are not
taxed on any earnings or appreciation on the assets in your Contract until you
take money out of your Contract.
The Contract is called a variable annuity because you can choose among 18
Variable Options, and depending upon market conditions, your payments can go up
or down based on the Portfolios' investment performance. The Portfolios are
designed to offer a better return than the Fixed Payment Option. However, this
is not guaranteed. Your payments may go up or down based on the investment
performance of the Portfolio(s) you select.
The Contract also contains a Fixed Payment Option (referred to in the Contract
as the "Fixed Account"). The Fixed Payment Option offers an interest rate that
is guaranteed by Preferred Life. If you select the Fixed Payment Option, your
money will be placed with the other general assets of Preferred Life. Any
portion of your Purchase Payment allocated to the Fixed Payment Option will be
temporarily allocated to the Franklin Money Market Fund on the day we allocate
your Purchase Payment. It will then be allocated to the Fixed Payment Option
when you begin receiving Annuity Payments from your Contract.
We will not make any changes to your Contract without your permission except as
may be required by law. We may, however, add endorsements to your Contract from
time to time.
2. OWNERSHIP
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CONTRACT OWNER/ANNUITANT
You are the Contract Owner and the Annuitant. You, as the Contract Owner, have
all the rights under the Contract. The Contract Owner is as designated at the
time the Contract is issued.
An Annuitant is the natural person on whose life we base Annuity Payments.
JOINT OWNER/JOINT ANNUITANT
If there is more than one Contract Owner, each Contract Owner is a Joint Owner
of the Contract. Joint Owners have equal ownership rights. You both must
authorize those ownership rights unless otherwise allowed by Preferred Life. You
can name a Joint Annuitant. Each Joint Owner must be either an Annuitant or
Joint Annuitant.
IF YOU DIE BEFORE THE INCOME DATE AND THERE IS NO JOINT ANNUITANT, WE WILL TREAT
THE CONTRACT AS IF WE NEVER ISSUED IT AND WILL RETURN THE PURCHASE PAYMENT TO
YOUR ESTATE.
If you die while the Contract is in force, the Joint Annuitant (if not already a
Joint Owner) will become the Contract Owner. On or after the Income Date, if
there is no Joint Annuitant or when the Joint Annuitant dies, the
Beneficiary(ies) will be the Owner(s) of their respective shares.
BENEFICIARY
The Beneficiary is the person(s) or entity you name to receive any death
benefit. You can also name a contingent Beneficiary. The contingent Beneficiary
will receive any death benefit if the Beneficiary is not alive when you and any
Joint Annuitant die. The Beneficiary is named at the time the Contract is issued
unless changed at a later date. Unless an irrevocable Beneficiary has been
named, you can change the Beneficiary or contingent Beneficiary.
ASSIGNMENT
You can transfer ownership of (assign) the Contract at any time during your
lifetime. We will not be liable for any payment we make, or other action we
take, in accordance with the Contract before we receive written notice of the
assignment. AN ASSIGNMENT MAY BE A TAXABLE EVENT.
If the Contract is issued under a Qualified plan, you may be unable to assign
the Contract.
3. ANNUITY PAYMENTS
(THE PAYOUT PHASE)
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INCOME DATE
You can receive regular income payments under your Contract as long as you and
any Joint Annuitant are alive on the Income Date. We call the date that your
Annuity Payments begin the Income Date. We ask you to choose your Income Date
when you purchase the Contract. Your Income Date must be the first or fifteenth
day of a calendar month and must not be later than 60 days from the day we
allocate your Purchase Payment.
ANNUITY PAYMENTS
Under Annuity Options 1-5, you may elect to receive your Annuity Payments as a
variable payout, a fixed payout, or a combination of both. Under Annuity Option
6, Annuity Payments will come from the Variable Options only (variable payout).
If you choose a Fixed Payment Option, all of the Annuity Payments will be the
same dollar amount (equal installments). If you choose a variable payout, you
can select from the available Variable Options.
If you choose to receive variable payments, we determine the amount of your
first variable payment based on:
1) your Contract value on the Annuity Calculation Date (no more than 10 days
before the first payment);
2) your age and the age of any Joint Annuitant on the Annuity Calculation Date
(except in Option 6);
3) the Assumed Investment Return (AIR), a benchmark you select, and
4) the Annuity Option you select.
We credit your Contract with a fixed number of Annuity Units for each Variable
Option you select. We do this by allocating the first payment amount among the
Variable Options according to your instructions, and dividing the amount
allocated to each Variable Option by the Annuity Unit value on the Annuity
Calculation Date. The number of Annuity Units in your Contract remains the same
unless you make a liquidation or transfer.
After the first payment, your payments will change based on the change in value
of the Annuity Units credited to your Contract. The amount of each change will
depend on how the Annuity Units in your Contract perform as compared to your AIR
benchmark.
You can choose the frequency of Annuity Payments (for example, monthly,
quarterly, semi-annually or annually).
The SAI contains a discussion of how we calculate Annuity Unit values.
ASSUMED INVESTMENT RETURN
We base your Annuity Payments on the Assumed Investment Return. You can choose
either a 5% or 3% AIR. If you do not choose one, the 5% AIR will automatically
apply. If the actual performance exceeds the AIR you chose, your Annuity
Payments will increase. Similarly, if the actual rate is less than the AIR you
chose, your Annuity Payments will decrease. If you choose a higher AIR, the
initial amount of income will be higher, but income will increase more slowly
during periods of good investment performance and decrease faster during periods
of poor investment performance.
ANNUITY OPTIONS
You can choose among income plans. We call those Annuity Options. Except for
Annuity Option 6, once you select an Annuity Option you may not change it.
You can choose one of the following Annuity Options. You can also choose any
other Annuity Option you want as long as Preferred Life agrees to provide it.
OPTION 1. LIFE ANNUITY. Under this option, we will make periodic Annuity
Payments so long as the Annuitant is alive. After the Annuitant dies, we will
stop making Annuity Payments.
OPTION 2. LIFE ANNUITY WITH 5, 10, 15 OR 20 YEAR PAYMENTS GUARANTEED. Under this
option, we will make periodic Annuity Payments so long as the Annuitant is
alive. However, if the Annuitant dies before the end of the selected guaranteed
period, we will continue to make Annuity Payments to the Beneficiary for the
rest of the guaranteed period. If the Beneficiary does not want to receive
Annuity Payments after the Annuitant's death, he or she can ask us for a single
lump sum. The amount of the lump sum payment is described in your Contract.
OPTION 3. JOINT AND LAST SURVIVOR ANNUITY. Under this option, we will make
periodic Annuity Payments during the joint lifetime of you and the Joint
Annuitant. When you die, if the Joint Annuitant is still alive, we will continue
to make Annuity Payments during the Joint Annuitant's life. The amount of the
Annuity Payments we will make to the Joint Annuitant can be equal to 100%, 75%
or 50% of the amount that was being paid when both you and the Joint Annuitant
were alive. You choose this percentage when you apply for the Contract. The
Annuity Payments will end when the last surviving Annuitant dies.
OPTION 4. JOINT AND LAST SURVIVOR ANNUITY WITH 5, 10, 15 OR 20 YEAR PAYMENTS
GUARANTEED. Under this option, we will make periodic Annuity Payments during the
joint lifetime of you and the Joint Annuitant. When you die, if the Joint
Annuitant is still alive, we will continue to make Annuity Payments during the
life of the surviving Annuitant. The payments will be 100% of the amount that
was being paid when you were both alive. If, when the last death occurs, we have
made Annuity Payments for less than the selected guaranteed period, we will
continue to make Annuity Payments to the Beneficiary for the rest of the
guaranteed period. If the Beneficiary does not want to receive Annuity Payments,
he or she can ask us for a single lump sum. The amount of the lump sum payment
is described in your Contract.
OPTION 5. REFUND LIFE ANNUITY. Under this option, we will make periodic Annuity
Payments during your lifetime. The last Annuity Payment will be made before you
die. If the value of the Annuity Payments made is less than the value applied to
the Annuity Option, then the Beneficiary will receive a refund as set forth in
the Contract.
OPTION 6. SPECIFIED PERIOD CERTAIN ANNUITY. Under this option, we will make
periodic Annuity Payments for a specified period that you choose. The period can
be from 5 to 30 years (you must use whole numbers of years). If at the time both
you and any Joint Annuitant die, we have made Annuity Payments for less than the
selected specified period, we will continue to make Annuity Payments to the
Beneficiary for the rest of the specified period. This option can only be
elected as a variable payout. OPTION 6 IS NOT AVAILABLE UNTIL APPROVED BY THE
NEW YORK INSURANCE DEPARTMENT.
After the first Contract anniversary, you can exchange an Annuity Option 6
payout for a payout under Annuity Options 1-5. You can do this if the Total
Liquidation Value of your Contract is at least $25,000. Furthermore, if you own
a Non-Qualified Contract you must be 59 1/2 or older. If you own a Qualified
Contract you may make the exchange after the later of your reaching age 59 1/2
or 5 years from the date of the first Annuity Payment and prior to the year in
which you reach age 70 1/2. A new Contract will be issued to you for your
existing Contract. You must return your existing Contract to us. The Contract
Owner/Annuitant and Joint Annuitant (if any) must be the same under both
Contracts.
4. PURCHASE
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PURCHASE PAYMENT
The Purchase Payment is the money you put into in the Contract. The minimum
payment Preferred Life will accept is $35,000. The Contract is a single payment
Contract. This means that you cannot add to your Contract after you buy it. If
you buy more than one Contract, the Purchase Payment for each Contract does not
need to be $35,000 if the average payment for each Contract is $35,000 or more.
We will not issue a Contract if either the Annuitant or the Joint Annuitant is
over age 90.
This product is not designed for market timers.
ALLOCATION OF PURCHASE PAYMENT
When you purchase a Contract, we will allocate your Purchase Payment to one or
more of the Variable Options you have selected. If you want any portion of the
Purchase Payment to be allocated to the Fixed Payment Option, we will
temporarily allocate it to the Franklin Money Market Fund. It will be moved to
the Fixed Payment Option on the day that we calculate your first Annuity Payment
(Annuity Calculation Date). The Annuity Calculation Date will be no more than 10
business days before the Income Date. We ask that you allocate your money in
whole percentages. Each allocation must be at least 10%.
Currently, you may invest in 10 investment choices at any one time (which
includes the Variable Options and the Fixed Payment Option). We may, in the
future, limit the number of Variable Options that you may invest in at one time.
Once we receive your Purchase Payment and the necessary information, we will
issue your Contract and allocate your 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. Our business day closes when the New York Stock Exchange closes,
which is usually at 4:00 p.m. Eastern Time.
FREE LOOK
If you change your mind about owning the Contract, you can cancel it within 10
days after receiving it. You will receive back the value of your Contract on the
day we receive your request, less any Annuity Payments paid. 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 reserve the right to allocate your 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 Option(s) you have
selected.
VIP UNITS
The value of the portion of your Contract allocated to the Variable Options will
go up or down based upon the investment performance of the Variable Option(s)
you choose. The value of your Contract will also depend on the expenses of the
Contract. In order to keep track of the value of your Contract prior to the
Annuity Calculation Date, we use a measurement called a VIP Unit (which is like
a share of a mutual fund). On and after the Annuity Calculation Date, we call it
an Annuity Unit.
Every business day we determine the value of a VIP Unit for each Variable Option
by multiplying the VIP 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 a VIP Unit may go up or down from day to day.
When you make the Purchase Payment, we credit your Contract with VIP Units. The
number of VIP Units we credit your Contract with is determined by dividing the
amount of the Purchase Payment allocated to a Variable Option by the value of
the corresponding VIP Unit.
We calculate the value of each VIP Unit after the New York Stock Exchange closes
each day and then credit your Contract.
EXAMPLE:
On Monday we receive your Purchase Payment of $35,000. You have told us you want
this to go to the Franklin Growth and Income Securities Fund. When the New York
Stock Exchange closes on that Tuesday, we determine that the value of a VIP Unit
based on an investment in the Franklin Growth and Income Securities Fund is
$12.50. We then divide $35,000 by $12.50 and credit your Contract on Tuesday
night with 2800 VIP Units.
5. INVESTMENT OPTIONS
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The Contract offers Variable Options, which invest in Portfolios of Franklin
Templeton Variable Insurance Products Trust. The Contract also offers a Fixed
Payment Option of Preferred Life. Additional Portfolios may be available in the
future.
You should read the accompanying fund prospectus (which is attached to this
prospectus) carefully before investing.
Franklin Templeton Variable Insurance Products Trust is the mutual fund
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 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: 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 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.
<TABLE>
<CAPTION>
The following is a list of the Portfolios available under the Contract and the
investment adviser for each Portfolio:
Available Portfolios Investment Advisers
- ------------------------------------------------------------------------------------------------
<S> <C>
FRANKLIN TEMPLETON VARIABLE
INSURANCE PRODUCTS TRUST:
Franklin Global Communications 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 Real Estate Fund Franklin Advisers, Inc.
Franklin Rising Dividends Securities Fund Franklin Advisory Services, LLC
Franklin Small Cap 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 (capital appreciation Franklin Mutual Advisers, LLC
with income as a secondary goal)
Templeton Asset Strategy Fund Templeton Investment Counsel, Inc.
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.
</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 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. You cannot make transfers
from the Fixed Payment Option to the Variable Options.
Preferred Life currently allows you to make as many transfers as you want each
year. We may limit this in the future. However, you will always be allowed at
least 12 transfers each year. This product is not designed for professional
market timing organizations or other persons using programmed, large, or
frequent transfers. Such activity may be disruptive to a Portfolio. We may
reject any specific Purchase Payment allocation or transfer request from any
person, if in the Portfolio managers' judgment, a Portfolio would be unable to
invest effectively in accordance with its investment objectives and policies, or
if the Portfolio would be potentially adversely affected.
The following applies to any transfer:
1. You cannot make transfers during the free look period.
2. Your request for a transfer must clearly state which Variable Options or the
Fixed Payment Option is involved in the transfer.
3. Your request for a transfer must clearly state how much the transfer is for.
4. You cannot make a transfer if it would cause any Variable Option or the Fixed
Payment Option to provide less than 10% of the benefits under your Contract.
5. You can make at least one allocation to the Fixed Payment Option. Both your
initial allocation to the Fixed Payment Option and each transfer to the Fixed
Payment Option will be treated as an allocation.
TELEPHONE TRANSFERS
You can make transfers by telephone. If you own the Contract with a Joint Owner,
we will accept instructions from either one of you unless you instruct us
otherwise. We will use reasonable procedures to confirm that instructions given
to us by telephone are genuine. If we do not use such procedures, we may be
liable for any losses due to unauthorized or fraudulent instructions. We tape
record all telephone instructions.
VOTING PRIVILEGES
We are the legal owner of the Portfolio shares. However, when a Portfolio
solicits proxies in conjunction with a shareholder vote, which affects your
investment, we will obtain from you and other affected Contract Owners
instructions as to how to vote those shares. When we receive those instructions,
we will vote all of the shares we own in proportion to those instructions. This
will also include any shares that we own on our own behalf. If we determine that
we are no longer required to comply with the above, we will vote the shares in
our own right.
SUBSTITUTION
Preferred Life may substitute one of the Variable Options you have selected with
another Variable Option. We will not do this without the prior approval of the
Securities and Exchange Commission. We will give you notice of our intention to
do this. We may also limit further investment in a Variable Option if we deem
the investment inappropriate.
6. EXPENSES
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There are charges and other expenses associated with the Contract that will
reduce your investment return. These charges and expenses are:
INSURANCE CHARGES
Each day, we make a deduction for insurance charges. We do this as part of our
calculation of the value of the VIP Units and the Annuity Units. The insurance
charge has two parts: 1) the mortality and expense risk charge, and 2) the
administrative charge.
MORTALITY AND EXPENSE RISK CHARGE. This 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,
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).
ADMINISTRATIVE EXPENSE CHARGe. This charge is equal, on an annual basis, to .15%
of the average daily value of the Contract invested in a Variable Option. This
charge is for all the expenses associated with the administration of the
Contract. Some of these expenses include: preparation of the Contract,
confirmations, annual statements, maintenance of Contract records, personnel
costs, legal and accounting fees, filing fees, and computer and systems costs.
COMMUTATION FEE
Under certain circumstances, you can liquidate (withdraw) all or part of a
Variable Option of the Contract. When you make a liquidation, the amount you
receive will be reduced by the commutation fee. The commutation fee is a
percentage of the amount withdrawn. The commutation fee is equal to:
CONTRACT YEAR CHARGE
-------------------------------
1 5%
2 5%
3 4%
4 3%
5 2%
6 (& thereafter) 1%
After the first Contract year, you may make one liquidation from your Contract
each year if you have selected Annuity Options 2 or 4. If you have selected
Annuity Option 6, you may make a liquidation once each year beginning in the
first year. OPTION 6 IS NOT AVAILABLE UNTIL APPROVED BY THE NEW YORK INSURANCE
DEPARTMENT.
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, it is not making
any such deductions.
PORTFOLIO EXPENSES
There are deductions from the assets of the various Portfolios for operating
expenses (including management fees), which are described in the Fee Table in
this prospectus and the accompanying fund prospectus.
7. TAXES
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NOTE: Preferred Life has prepared the following information on taxes as a
general discussion of the subject. It is not intended as tax advice to any
individual. You should consult your own tax adviser about your own
circumstances. Preferred Life has included an additional discussion regarding
taxes in the Statement of Additional Information.
ANNUITY CONTRACTS IN GENERAL
Annuity contracts are a means of setting aside money for future needs and for
providing a series of periodic payments for life or a fixed number of years.
Congress recognized how important saving for retirement was and provided special
rules in the Internal Revenue Code (Code) for annuities.
Simply stated, these rules provide that you will not be taxed on the earnings on
the money held in your annuity contract until you take the money out. This is
referred to as Tax Deferral. There are different rules as to how you will be
taxed depending on how you take the money out and the type of Contract
- --Qualified or Non-Qualified (see following sections).
QUALIFIED AND NON-QUALIFIED CONTRACTS
If you purchase the Contract as an individual and not as an individual
retirement annuity, your Contract is referred to as a Non-Qualified Contract.
If you purchase the Contract as an individual retirement annuity, your Contract
is referred to as a Qualified Contract.
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.
LIQUIDATIONS - NON-QUALIFIED CONTRACTS
You, as the Owner, will not be taxed on increases in the value of your Contract
until a distribution occurs - either as a surrender or as Annuity Payments. When
you make a surrender from your Contract, you are taxed on the amount of the
surrender that is earnings. For Annuity Payments, different rules apply. A
portion of each Annuity Payment is treated as a partial return of your Purchase
Payment and will not be taxed. The remaining portion of the Annuity Payment will
be treated as ordinary income. How the Annuity Payment is divided between
taxable and non-taxable portions depends upon the period over which the Annuity
Payments are expected to be made. Annuity Payments received after you have
received all of your Purchase Payment are fully includible in income. If the
value of your Contract exceeds your Purchase Payment, any surrenders will be
included in taxable income to the extent of earnings in your Contract.
The Code also provides that any amount received under an annuity contract, which
is included in income, may be subject to a penalty. The amount of the penalty is
equal to 10% of the amount that is includible in income. Some distributions will
be exempt from the penalty. They include any amounts:
1) paid on or after you reach age 591/2;
2) paid after you die;
3) paid if you become totally disabled (as that term is defined in the Code);
4) paid in a series of substantially equal payments made annually (or more
frequently) under a lifetime annuity;
5) paid as annuity payments under an immediate annuity; or
6) which come from purchase payments made prior to August 14, 1982.
The Code does not specifically address withdrawals (liquidations) from immediate
annuity contracts. A Private Letter Ruling issued by the Internal Revenue
Service concludes that the ability to make withdrawals does not prevent a
contract from qualifying as an immediate annuity. However, the Ruling does not
address the issue of whether a withdrawal would affect the favorable tax
treatment of the annuity payments made before and after the withdrawal under the
requirement that all immediate annuity payments must be substantially equal. The
loss of favorable tax treatment would mean that the income portion of each
annuity payment received prior to your attaining age 59 1/2 would be subject to
a 10% penalty tax unless another exception to the penalty tax applies. While
Preferred Life currently believes that such withdrawals will not adversely
affect the favorable tax treatment of Annuity Payments received before or after
a withdrawal and Preferred Life intends to perform its tax reporting functions
accordingly, there can be no assurance that the Internal Revenue Service will
not take a contrary position. You should obtain competent tax advice prior to
making a partial or total liquidation (withdrawal). PARTIAL LIQUIDATIONS ARE NOT
AVAILABLE UNTIL APPROVED BY THE NEW YORK INSURANCE DEPARTMENT.
LIQUIDATIONS - QUALIFIED CONTRACTS
If you make a withdrawal under an IRA Contract, a portion of the amount is
taxable, generally based on the ratio of your cost basis to the total accrued
benefit under the contract. Often in the case of IRA's, there is no cost basis
which results in the full amount of the withdrawal being included in taxable
income. The Code imposes a 10% penalty tax on the taxable portion of any
distributions from qualified retirement plans, including IRA Contracts. The
penalty tax will not apply to the following distributions:
(a)distributions made on or after the date you reach of age 59 1/2;
(b)distributions following your death or disability (for this purpose disability
is as defined in Section 72(m)(7) of the Code);
(c)distributions that are part of a series of substantially equal periodic
payments made at least yearly for your life (or life expectancy) or the joint
lives (or joint life expectancies) of you and your designated Beneficiary;
(d)distributions made to you to the extent such distributions do not exceed the
amount allowable as a deduction under Code Section 213 for amounts paid
during the taxable year for medical care;
(e)distributions made on account of an IRS levy upon the Qualified Contract;
(f)distributions for the purchase of medical insurance (as described in Section
213(d)(1)(D) of the Code) for you and your spouse and dependents if you have
received unemployment compensation for at least 12 weeks (this exception will
no longer apply after you have been re-employed for at least 60 days);
(g)distributions made to you to the extent such distributions do not exceed
your qualified higher education expenses (as defined in Section 72(t)(7) of
the Code) for the taxable year; and
(h)distributions which are qualified first time home buyer distributions (as
defined in Section 72(t)(8) of the Code).
With respect to (c) above, if the series of substantially equal periodic
payments is modified before the later of your attaining age 59 1/2 or 5 years
from the date of the first Annuity Payment, then the tax for the year of the
modification is increased by the penalty tax that would have been imposed
without the exception, plus interest for the tax years in which the exception
was used. A partial liquidation may result in the modification of the series of
Annuity Payments made after such liquidation and therefore could result in the
imposition of the 10% penalty tax and interest for the period as described
above. You should obtain competent tax advice before you make any liquidations
from an IRA Contract. Any amounts distributed will only be paid to you, your
Annuitant or your Beneficiary. Preferred Life will not transfer or pay such
amounts to another IRA or tax qualified plan.
DIVERSIFICATION
The Code provides that the underlying investments for a variable annuity must
satisfy certain diversification requirements in order to be treated as an
annuity contract. Preferred Life believes that the Portfolios of Franklin
Templeton Variable Insurance Products Trust are being managed so as to comply
with the requirements.
Neither the Code nor the Internal Revenue Service Regulations issued to date
provide guidance as to the circumstances under which you, because of the degree
of control you exercise over the underlying investments, and not Preferred Life
would be considered the owner of the shares of the Portfolios. If you are
considered the owner of the shares, it will result in the loss of the favorable
tax treatment for the Contract. It is unknown to what extent Contract Owners are
permitted to select Portfolios, to make transfers among the Portfolios or the
number and type of Portfolios Contract Owners may select from without being
considered the owner of the shares. If any guidance is provided which is
considered a new position, then the guidance would generally be applied
prospectively. However, if such guidance is considered not to be a new position,
it may be applied retroactively. This would mean that you, as the Owner of the
Contract, could be treated as the owner of the Portfolios.
Due to the uncertainty in this area, Preferred Life reserves the right to modify
the Contract in an attempt to maintain favorable tax treatment.
8. ACCESS TO YOUR MONEY
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If you have chosen Annuity Options 2, 4 or 6 you may make liquidations
(withdrawals) from your Contract under the certain circumstances described
below.
Annuity Options 2 and 4: If you have selected Annuity Option 2 or 4 and a
portion of your payments come from the Variable Options, you may make partial
liquidations (withdrawals) from your Contract. You can only make liquidations
after the first Contract year. During the lifetime of the Annuitant(s) and while
the number of Annuity Payments made is less than the guaranteed number of
payments elected under the Annuity Option, you can request a liquidation once
each year. You can liquidate a portion of the Total Liquidation Value.(Total
Liquidation Value is referred to as "Total Withdrawal Value" in your Contract
and endorsement.) The Total Liquidation Value is equal to the present value of
the remaining guaranteed Annuity Payments (allocated to the Variable Options) to
the end of the period certain commuted at the AIR, less a commutation fee. The
total amount you can liquidate is guaranteed to not be less than 25% of the
Total Liquidation Value. Currently, you may liquidate up to 75% of the Total
Liquidation Value. Preferred Life may change this amount in the future. The
minimum amount you can liquidate is the lesser of $2,500 or the remaining
portion of the Total Liquidation Value available to be liquidated. PARTIAL
LIQUIDATIONS ARE NOT AVAILABLE UNTIL APPROVED BY THE NEW YORK INSURANCE
DEPARTMENT.
After a partial liquidation, the subsequent monthly Annuity Payment during the
guaranteed period certain will be reduced by the percentage of the Total
Liquidation Value liquidated, including the commutation fee.
Annuity Option 6: If you have selected Annuity Option 6, you can currently make
one liquidation each year. You may liquidate the Total Liquidation Value of your
Contract. The Total Liquidation Value is equal to the present value of the
remaining Annuity Payments to the end of the period certain commuted at the AIR
less a commutation fee. Preferred Life may restrict the amount of a partial
liquidation to a minimum of $2,500. We may require a complete liquidation of
your Contract if the remaining Total Liquidation Value after you request a
partial liquidation would be less than $35,000. Preferred Life will require you
to return your Contract before we pay the entire commuted value. CURRENTLY,
ANNUITY OPTION 6 IS NOT AVAILABLE UNTIL APPROVED BY THE NEW YORK INSURANCE
DEPARTMENT.
We will process partial liquidations on the next Annuity Calculation Date after
your written request for a liquidation.
INCOME TAXES AND TAX PENALTIES MAY APPLY TO ANY LIQUIDATION YOU MAKE.
SUSPENSION OF PAYMENTS OR TRANSFERS
We may be required to suspend or postpone payments for liquidations or transfers
for any period when:
1. the New York Stock Exchange is closed (other than customary weekend and
holiday closings);
2. trading on the New York Stock Exchange is restricted;
3. an emergency exists as a result of which disposal of the Portfolio shares are
not reasonably practicable or we cannot reasonably value the Portfolio
shares;
4. during any other period when the Securities and Exchange Commission, by
order, so permits for the protection of Contract Owners.
9. PERFORMANCE
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We periodically advertise performance. We will calculate performance by
determining the percentage change in the value of a VIP Unit by dividing the
increase (decrease) for that unit by the value of the VIP Unit at the beginning
of the period. This performance number reflects the deduction of the insurance
charges and the expenses of the Portfolios. We may also advertise cumulative
total return information. Cumulative total return is determined the same way
except that the results are not annualized. Performance information for the
underlying Portfolios may also be advertised - see the accompanying fund
prospectus for more information. The inception dates of the Portfolios pre-date
the inception dates of the corresponding Variable Options. For periods starting
prior to the date the Variable Option invested in the Portfolio, the performance
is based on the historical performance of the corresponding Portfolio.
We may in the future also advertise yield information. If we do, we will provide
you with information regarding how yield is calculated. More detailed
information regarding how performance is calculated is found in the SAI.
We base any performance advertised on historical data. This performance does not
guarantee future results of the Portfolios.
10. DEATH BENEFIT
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IF YOU DIE BEFORE THE INCOME DATE AND THERE IS NO JOINT ANNUITANT, WE WILL TREAT
YOUR CONTRACT AS IF WE HAD NEVER ISSUED IT. WE WILL RETURN THE PURCHASE PAYMENT
TO YOUR ESTATE.
If you have chosen either Annuity Option 3, 4 or 6 with a Joint Annuitant and
either you or the Joint Annuitant dies before the Income Date, the Annuity
Option will be changed to Option 2 with 10 years of payments guaranteed. If the
survivor's life expectancy is less than 10 years, the period of guaranteed
payments will be 5 years instead.
If you or the Joint Annuitant dies on or after the Income Date, the death
benefit, if any, will be paid under the Annuity Option selected. We will require
proof of death. We may delay paying the death benefit until we receive any tax
consents and/or forms from the state.
DEATH OF BENEFICIARY
Unless you tell us otherwise, any amount payable after your death and that of
any Joint Annuitant will be payable:
1. in equal shares to the surviving Beneficiaries;
2. if no Beneficiary is living, payment will be made in equal shares to any
surviving contingent Beneficiaries;
3. if there is no surviving Beneficiary or contingent Beneficiary, payment will
be made to your estate.
11. OTHER INFORMATION
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PREFERRED LIFE
Preferred Life Insurance Company of New York (Preferred Life) is a stock life
insurance company organized under the laws of the State of New York. Preferred
Life is authorized to do business in six states, including New York, and the
District of Columbia. Preferred Life is a wholly-owned subsidiary of Allianz
Life Insurance Company of North America (Allianz Life). Allianz Life, 1750
Hennepin Avenue, Minneapolis, Minnesota 55403, was organized under the laws of
the state of Minnesota in 1896. Allianz Life offers fixed and variable life
insurance and annuities and group life, accident and health insurance. Allianz
Life is a wholly-owned subsidiary of Allianz Versicherungs-AG Holding.
THE SEPARATE ACCOUNT
Preferred Life established a separate account named Preferred Life Variable
Account C (Separate Account). The Separate Account holds the assets that
underlie the Contracts (except assets allocated to the Fixed Payment Option).
Preferred Life has registered the Separate Account with the Securities and
Exchange Commission as a unit investment trust under the Investment Company Act
of 1940. The Separate Account is divided into Variable Options (also known as
sub-accounts). Each Variable Option invests in a Portfolio.
The assets of the Separate Account are held in Preferred Life's name on behalf
of the Separate Account and legally belong to Preferred Life. However, those
assets that underlie the variable Contracts are not chargeable with liabilities
arising out of any other business Preferred Life may conduct. All the income,
gains and losses (realized or unrealized) resulting from these assets are
credited to or charged against the Contracts and not against any other contracts
Preferred Life may issue.
DISTRIBUTION
USAllianz Investor Services, LLC (formerly, NALAC Financial Plans, LLC), 1750
Hennepin Avenue, Minneapolis, MN 55403, acts as the distributor of the Contract.
USAllianz Investor Services, LLC is a wholly-owned subsidiary of Allianz Life
and an affiliate of Preferred Life.
Commissions will be paid to broker-dealers who sell the Contracts.
Broker-dealers will be paid commissions at the time of purchase up to 4.0% of
the Purchase Payment.
ADMINISTRATION
We have hired Templeton Funds Annuity Company (in California, doing business as
"Templeton Funds Life & Annuity Insurance Company") (VIP Service Center) to
perform certain administrative services regarding the Contracts. The
administrative services include issuance of the Contracts and maintenance of
Contract Owner's records. Templeton Funds Annuity Company has entered into a
reinsurance agreement with us regarding certain risks under the Contracts.
Effective June 1, 2000, Delaware Valley Financial Services, Inc. (DVFS), 300
Berwyn Park, Berwyn, Pennsylvania, will take over performing certain
administrative services regarding the Contracts.
FINANCIAL STATEMENTS
The consolidated 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
- --------------------------------------------------------------------------------
Company 2
Experts 2
Legal Opinions 2
Distributor 2
Calculation of Performance Data 2
Federal Tax Status 5
Annuity Provisions 9
Financial Statements 10
<PAGE>
APPENDIX A
- --------------------------------------------------------------------------------
ILLUSTRATION OF ANNUITY INCOME
We have prepared the following tables to show you how investment performance
affects variable annuity income over time. The variable annuity income amounts
reflect three different assumptions for a constant investment return before all
expenses: 0%, 6% and 12%. These are hypothetical rates of return. Preferred Life
does not guarantee that the Contract will earn these returns for any one-year or
any sustained period of time. The tables are for illustrative purposes only.
They do not represent past or future investment returns.
Your variable annuity income may be more or less than the income shown if the
actual returns of the Portfolios you select are different than those shown
below. Since it is very likely that investment returns will fluctuate over time,
the amount of variable annuity income you will receive will also fluctuate. The
total amount of annuity income you actually receive will depend on the
cumulative investment returns of the Portfolios you choose, how long you live
and the Annuity Option you choose.
Another factor which will affect the amount of variable annuity income you will
receive is the Assumed Investment Return (AIR). Income will increase from one
Income Date to the next if the annualized net rate of return during that time is
greater than the AIR you choose. It will decrease if the annualized net rate of
return is less than the AIR.
There are two illustrations. The first is based on a 3% AIR, and the second is
based on a 5% AIR.
The income amounts shown reflect the deduction of all fees and expenses. Actual
Portfolio fees and expenses will vary from year to year and from Portfolio to
Portfolio. Actual expenses may be higher or lower than the rate used in the
illustrations. The illustrations assume that each Portfolio will incur expenses
at an average annual rate of 0.79% of the average daily net assets of the
Portfolio. The insurance charges are calculated at an annual rate of 1.40% of
the average daily net assets of the Separate Account. After taking these
expenses and charges into consideration, the illustrated gross investment
returns of 0%, 6% and 12% are approximately equal to net rates (which means
after expenses have been deducted) of -2.17%, 3.70% and 9.57%, respectively.
<PAGE>
<TABLE>
<CAPTION>
VALUEMARK INCOME PLUS ILLUSTRATION
ANNUITANT: John Doe ANNUITY PURCHASE AMOUNT: $100,000
DATE OF BIRTH: 1/1/1931 EFFECTIVE DATE: 12/1/2000
ANNUITY INCOME OPTION: Single Life Annuity FIRST ANNUITY INCOME DATE: 1/1/2001
PREMIUM TAX: 0% FREQUENCY OF ANNUITY INCOME: Monthly
ASSUMED INVESTMENT RETURN: 3%
The amount of monthly variable annuity income shown in the table below and the graph that follows assumes a
constant annual investment return. The amount of variable annuity income that you actually receive will depend on
the investment performance of the Portfolio(s) you choose. The variable annuity income can go up or down. No
minimum dollar amount of variable annuity income is guaranteed. The amounts shown are based on a 3% AIR. Income
will remain constant at $625 per month when the net rate of return after expenses is 3% (annually).
MONTHLY ANNUITY PAYMENTS
ANNUAL RATE OF RETURN BEFORE EXPENSES: 0% 6% 12%
Annuity Income Date Age ANNUAL RATE OF RETURN AFTER EXPENSES: -2.17% 3.70% 9.57%
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
January 1, 2001 70 $622 $625 $628
January 1, 2002 71 591 629 668
January 1, 2003 72 561 634 711
January 1, 2004 73 533 638 756
January 1, 2005 74 506 642 804
January 1, 2010 79 391 664 1,096
January 1, 2015 84 302 687 1,493
January 1, 2020 89 234 711 2,034
January 1, 2025 94 181 736 2,772
</TABLE>
<PAGE>
The investment rates of return shown are hypothetical only. You should not
consider them to represent past or future investment performance. Actual rates
of return may be more or less than those shown and will depend on a number of
factors.
<TABLE>
<CAPTION>
The following table summarizes Annuity Income with an Assumed Investment Return
of 3%. This table is presented graphically in the printed prospectus.
Monthly Payment Amount
----------------------------------------------------------
-2.17% 3.70% 9.57%
Annual Rate Annual Rate Annual Rate
of Return of Return of Return
Year After Expenses After Expenses After Expenses
- ---------------------------------------------------------------------
<S> <C> <C> <C>
1 $ 622 $ 625 $ 628
2 591 629 668
3 561 634 711
4 533 638 756
5 506 642 804
6 481 647 856
7 457 651 910
8 434 655 968
9 412 660 1,030
10 391 664 1,096
11 372 669 1,166
12 353 673 1,240
13 335 678 1,319
14 318 683 1,404
15 302 687 1,493
16 287 692 1,588
17 273 697 1,690
18 259 702 1,798
19 246 706 1,912
20 234 711 2,034
21 222 716 2,164
22 211 721 2,302
23 200 726 2,449
24 190 731 2,606
25 181 736 2,772
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VALUEMARK INCOME PLUS ILLUSTRATION
ANNUITANT: John Doe ANNUITY PURCHASE AMOUNT: $100,000
DATE OF BIRTH: 1/1/1931 EFFECTIVE DATE: 12/1/2000
ANNUITY INCOME OPTION: Single Life Annuity FIRST ANNUITY INCOME DATE: 1/1/2001
PREMIUM TAX: 0% FREQUENCY OF ANNUITY INCOME: Monthly
ASSUMED INVESTMENT RETURN: 5%
The amount of monthly variable annuity income shown in the table below and the graph that follows assumes a
constant annual investment return. The amount of variable annuity income that you actually receive will depend on
the investment performance of the Portfolio(s) you choose. The variable annuity income can go up or down. No
minimum dollar amount of variable annuity income is guaranteed. The amounts shown are based on a 5% AIR. Income
will remain constant at $743 per month when the net rate of return after expenses is 5% (annually).
MONTHLY ANNUITY PAYMENTS
ANNUAL RATE OF RETURN BEFORE EXPENSES: 0% 6% 12%
Annuity Income Date Age ANNUAL RATE OF RETURN AFTER EXPENSES: -2.17% 3.70% 9.57%
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
January 1, 2001 70 $739 $742 $746
January 1, 2002 71 688 733 779
January 1, 2003 72 641 724 812
January 1, 2004 73 597 715 848
January 1, 2005 74 557 706 885
January 1, 2010 79 391 664 1,095
January 1, 2015 84 274 624 1,355
January 1, 2020 89 193 586 1,677
January 1, 2025 94 135 551 2,075
</TABLE>
<PAGE>
The investment rates of return shown are hypothetical only. You should not
consider them to represent past or future investment performance. Actual rates
of return may be more or less than those shown and will depend on a number of
factors.
<TABLE>
<CAPTION>
The following table summarizes Annuity Income with an Assumed Investment Return
of 5%. This table is presented graphically in the printed prospectus.
Monthly Payment Amount
----------------------------------------------------------
-2.17% 3.70% 9.57%
Annual Rate Annual Rate Annual Rate
of Return of Return of Return
Year After Expenses After Expenses After Expenses
- ---------------------------------------------------------------------
<S> <C> <C> <C>
1 $ 739 $ 742 $ 746
2 688 733 779
3 641 724 812
4 597 715 848
5 557 706 885
6 519 698 923
7 483 689 963
8 450 680 1,005
9 420 672 1,049
10 391 664 1,095
11 364 656 1,143
12 339 647 1,192
13 316 639 1,244
14 295 632 1,298
15 274 624 1,355
16 256 616 1,414
17 238 608 1,476
18 222 601 1,540
19 207 593 1,607
20 193 586 1,677
21 180 579 1,750
22 167 572 1,826
23 156 565 1,906
24 145 558 1,989
25 135 551 2,075
</TABLE>
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL IMMEDIATE
VARIABLE ANNUITY CONTRACTS
issued by
PREFERRED LIFE VARIABLE ACCOUNT C
and
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
May 1, 2000
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS FOR THE INDIVIDUAL IMMEDIATE VARIABLE
ANNUITY CONTRACTS WHICH ARE REFERRED TO HEREIN.
THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT A PROSPECTIVE INVESTOR
OUGHT TO KNOW BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS, CALL OR WRITE THE
COMPANY AT: 152 West 57th Street, 18th Floor, New York, NY 10019.(800)542-5427.
THIS STATEMENT OF ADDITIONAL INFORMATION AND THE PROSPECTUS ARE DATED MAY 1,
2000 AND AS MAY BE AMENDED FROM TIME TO TIME.
Table of Contents
Contents Page
- -----------------------------------------------------
Company 2
Experts 2
Legal Opinions 2
Distributor 2
Calculation of Performance Data 2
Federal Tax Status 5
Annuity Provisions 9
Financial Statements 9
PVIP SAI 05/2000
<PAGE>
Company
- --------------------------------------------------------------------------------
Information regarding Preferred Life Insurance Company of New York (the
"Company") and its ownership is contained in the Prospectus. The Company is
rated A++ (Superior, Group Rating) by A.M. BEST, an independent analyst of the
insurance industry. The financial strength of an insurance company may be
relevant 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 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 Company, acts as the distributor. The offering is on a
continuous basis.
Calculation of Performance Data
- --------------------------------------------------------------------------------
Total Return
From time to time, the Company may advertise the performance data for the
Variable Options in sales literature, advertisements and personalized
hypothetical illustrations and Contract Owner communications. Such data will
show the percentage change in the value of a VIP Unit based on the performance
of a Variable Option over a stated period of time, usually a calendar year,
which is determined by dividing the increase (or decrease) in value for that
unit by the VIP Unit Value at the beginning of the period.
Any such performance data will include total return figures for the one, five
and ten year (or since inception) time periods indicated. Such total return
figures will reflect the deduction of a 1.25% Mortality and Expense Risk Charge,
a 0.15% Administrative Expense Charge and the operating expenses of the
underlying Portfolios.
The hypothetical value of a Contract purchased for the time periods described in
the advertisement will be determined by using the actual VIP Unit values for an
initial $1,000 purchase payment. The average annual total return is then
determined by computing the fixed interest rate that a $1,000 purchase payment
would have to earn annually, compounded annually, to grow to the hypothetical
value at the end of the time periods described. The formula used in these
calculations is:
P(1+T)n = ERV
where:
P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years;
ERV = ending redeemable value of a hypothetical $1,000 purchase payment made at
the beginning of the period at the end of the period.
The Company may also advertise cumulative and total return information over
different periods of time. Cumulative total return is calculated in a similar
manner as described above except that the results are not annualized.
Yield
The Franklin Money Market Fund. The 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 Expense Charge and, in certain instances, the value of the
underlying Portfolio's investment securities. The fact that the Fund's current
yield will fluctuate and that the principal is not guaranteed should be taken
into consideration when using the Fund'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 VIP Unit for
a particular period of time (generally seven days). The return is determined by
dividing the net change (exclusive of any capital changes) in such VIP Unit by
its beginning value, and then multiplying it by 365/7 to get the annualized
current yield. The calculation of net change reflects the value of additional
shares purchased with the dividends paid by the Portfolio, and the deduction of
the Mortality and Expense Risk Charge and the Administrative Expense Charge.
The effective yield reflects the effects of compounding and represents an
annualization of the current return with all dividends reinvested. (Effective
yield = [(Base Period Return + 1)365/7]-1.)
For the seven-day period ending on 12/31/99, the Franklin Money Market Fund had
a current yield of 4.31% and an effective yield of 4.40%.
Other Variable Options. The 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
VIP Unit earned during the period (minus the deduction for the Mortality and
Expense Risk Charge and Administrative Expense Charge) by the VIP Unit Value on
the last day of the period and annualizing the resulting figure, according to
the following formula:
Yield = 2 [((a-b) + 1)6 - 1]
--------------------
Cd
where:
a = net investment income earned during the period by the Variable Option
attributable to shares owned by the Portfolio;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of VIP Units outstanding during the period;
d = the maximum offering price per VIP Unit on the last day of the period.
The above formula will be used in calculating quotations of yield, based on
specified 30-day periods (or one month) identified in the sales literature,
advertisement or communication. The Company does not currently advertise yield
information for any Variable Option (other than the Franklin Money Market Fund).
Performance Ranking
Total return information for the Variable Options and the Portfolios may be
compared to relevant indices, including U.S. domestic and international taxable
bond indices and data from Lipper Analytical Services, Inc., Standard & Poor's
Indices, or VARDS. From time to time, evaluation of performance by independent
sources may also be used.
Performance Information
Total returns reflect all aspects of a Variable Option's return, including the
automatic reinvestment by Preferred Life Variable Account C of all distributions
and any change in a Variable Option's value over the period.
The Portfolios have been in existence for some time and have investment
performance history. In order to show how investment performance of the
Portfolios affects VIP Unit values, the following performance information was
developed. The inception dates of the Portfolios pre-date the inception dates of
the corresponding Variable Options of the Separate Account. 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.
The returns reflect the deduction of the Mortality and Expense Risk Charge,
Administrative Expense Charge and the operating expenses of each Portfolio. Past
performance does not guarantee future results.
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.
<TABLE>
<CAPTION>
Standardized Total Return
Average Annual Total Return for the period ended December 31, 1999
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 37.48% 23.51% 20.84% 12.48% 13.23%
Franklin Growth and Income Securities 1/24/89 -0.30% 10.29% 14.62% 9.89% 9.18%
Franklin High Income 1/24/89 -1.46% 2.56% 7.43% 7.63% 6.97%
Franklin Income Securities 1/24/89 -3.18% 3.86% 8.21% 8.47% 8.46%
Franklin Large Cap Growth Securities 5/1/96 29.82% 21.57% NA NA 21.16%
Franklin Money Market 1/24/89 3.30% 3.61% 3.76% 3.40% 3.69%
Franklin Real Estate 1/24/89 -7.45% -3.32% 6.52% 7.51% 7.20%
Franklin Rising Dividends Securities 1/27/92 -10.96% 7.19% 14.05% NA 8.32%
Franklin Small Cap 11/1/95 94.20% 29.97% NA NA 28.41%
Franklin Value Securities 5/1/98 0.24% NA NA NA -14.26%
Mutual Discovery Securities 11/8/96 22.04% 10.41% NA NA 10.53%
Mutual Shares Securities 11/8/96 11.83% 8.62% NA NA 9.33%
Templeton Asset Strategy 5/1/95 6.03% 4.81% NA NA 8.13%
Templeton Developing Markets Securities 3/15/94 52.49% 1.99% 5.21% NA 3.47%
Templeton Growth Securities 3/15/94 19.36% 12.81% 13.80% NA 12.17%
Templeton International Securities 1/27/92 24.87% 12.70% 13.61% NA 11.09%
Templeton International Smaller Companies 5/1/96 22.18% 0.88% NA NA 3.74%
Templeton Pacific Growth Securities 1/27/92 35.12% -9.92% -3.14% NA 1.11%
<FN>
The Company may also present performance information computed on a different basis.
Contract Owners should note that investment results will fluctuate over time, and any presentation of total return for
any period should not be considered as a representation of what an investment may earn or what a Contract Owner's
total return may be in any future period.
</FN>
</TABLE>
Annuity Income
Periodic annuity income amounts may be illustrated using the historical
performance of the Portfolios, the Standard & Poor's 500 Composite Stock Price
Index or other recognized investment benchmark portfolios. All illustrations
will reflect the 1.25% annual Mortality and Expense Risk Charge and the 0.15%
Administrative Expense Charge and actual or assumed Portfolio expenses.
Federal Tax Status
- --------------------------------------------------------------------------------
NOTE: The following description is based upon the Company's understanding of
current federal income tax law applicable to annuities in general. The Company
cannot predict the probability that any changes in such laws will be made.
Purchasers are cautioned to seek competent tax advice regarding the possibility
of such changes. The Company does not guarantee the tax status of the Contracts.
Purchasers bear the complete risk that the Contracts may not be treated as
"annuity contracts" under federal income tax laws. It should be further
understood that the following discussion is not exhaustive and that special
rules not described in this Prospectus may be applicable in certain situations.
Moreover, no attempt has been made to consider any applicable state or other tax
laws.
General
Section 72 of the Internal Revenue Code of 1986, as amended (the "Code") governs
taxation of annuities in general. A Contract Owner is not taxed on increases in
the value of a Contract until distribution occurs, either in the form of a lump
sum payment or as annuity payments under the Annuity Option elected. For annuity
payments, the portion of a payment includable in income equals the excess of the
payment over the exclusion amount. The exclusion amount for payments based on a
variable annuity option is determined by dividing the investment in the Contract
(adjusted for any period certain or refund guarantee) by the number of years
over which the annuity is expected to be paid (determined by Treasury
Regulations). The exclusion amount for payments based on a fixed annuity option
is determined by multiplying the payment by the ratio that the cost basis of the
Contract (adjusted for any period certain or refund guarantee) bears to the
expected return under the Contract. Payments received after the investment in
the Contract has been recovered (i.e. the total of the excludable amounts equal
the investment in the Contract) are fully taxable. The taxable portion of an
annuity payment is taxed at ordinary income rates. For certain types of
Qualified Plans there may be no cost basis in the Contract within the meaning of
Section 72 of the Code. Contract Owners, Annuitants and Beneficiaries under the
Contracts should seek competent financial advice about the tax consequences of
any distributions.
The Company is taxed as a life insurance company under the Code. For federal
income tax purposes, the Variable Account is not a separate entity from the
Company, and its operations form a part of the Company.
Diversification
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not adequately
diversified in accordance with regulations prescribed by the United States
Treasury Department ("Treasury Department"). Disqualification of the Contract as
an annuity contract would result in the imposition of federal income tax to the
Contract Owner with respect to earnings allocable to the Contract prior to the
receipt of payments under the Contract. The Code contains a safe harbor
provision which provides that annuity contracts such as the Contracts meet the
diversification requirements if, as of the end of each quarter, the underlying
assets meet the diversification standards for a regulated investment company and
no more than fifty-five percent (55%) of the total assets consist of cash, cash
items, U.S. government securities and securities of other regulated investment
companies.
On March 2, 1989, the Treasury Department issued regulations (Treas. Reg.
1.817-5) which established diversification requirements for the investment
portfolios underlying variable contracts such as the Contracts. The regulations
amplify the diversification requirements for variable contracts set forth in the
Code and provide an alternative to the safe harbor provision described above.
Under the regulations, an investment portfolio will be deemed adequately
diversified if: (1) no more than 55% of the value of the total assets of the
portfolio is represented by any one investment; (2) no more than 70% of the
value of the total assets of the portfolio is represented by any two
investments; (3) no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and (4) no more than 90% of
the value of the total assets of the portfolio is represented by any four
investments.
The Code provides that for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable contracts
by Section 817(h) of the Code have been met, "each United States government
agency or instrumentality shall be treated as a separate issuer."
The Company intends that all Portfolios of Franklin Templeton Variable Insurance
Products Trust underlying the Contracts will be managed by the 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 Variable Account will cause the Contract Owner to be
treated as the owner of the assets of the Variable Account, thereby resulting in
the loss of favorable tax treatment for the Contract. At this time it cannot be
determined whether additional guidance will be provided and what standards may
be contained in such guidance.
The amount of Contract Owner control which may be exercised under the Contract
is different in some respects from the situations addressed in published rulings
issued by the Internal Revenue Service in which it was held that the policy
owner was not the owner of the assets of the separate account. It is unknown
whether these differences, such as the Contract Owner's ability to transfer
among investment choices or the number and type of investment choices available,
would cause the Contract Owner to be considered as the owner of the assets of
the Variable Account resulting in the imposition of federal income tax to the
Contract Owner with respect to earnings allocable to the Contract prior to
receipt of payments under the Contract.
In the event any forthcoming guidance or ruling is considered to set forth a new
position, such guidance or ruling will generally be applied only prospectively.
However, if such ruling or guidance was not considered to set forth a new
position, it may be applied retroactively resulting in the Contract Owner being
retroactively determined to be the owner of the assets of the Variable Account.
Due to the uncertainty in this area, the Company reserves the right to modify
the Contract in an attempt to maintain favorable tax treatment.
Multiple Contracts
Section 72(e)(11) of the Code provides that multiple non-qualified annuity
contracts which are issued within a calendar year period to the same contract
owner by one company or its affiliates are treated as one annuity contract for
purposes of determining the tax consequences of any distribution. Such treatment
may result in adverse tax consequences, including more rapid taxation of the
distributed amounts from such combination of contracts. For purposes of this
rule, contracts received in a Section 1035 exchange will be considered issued in
the year of the exchange. The legislative history of Section 72(e)(11) indicates
that it was not intended to apply to immediate annuities. However, the
legislative history also states that no inference is intended as to whether the
Treasury Department, under its authority to prescribe rules to enforce the tax
laws, may treat the combination purchase of a deferred annuity contract with an
immediate annuity contract as a single contract for purposes of determining the
tax consequences of any distribution.
Tax Treatment of Distributions -
Non-Qualified Contracts
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the Contract Value exceeds the aggregate purchase
payments made, any amount withdrawn will be treated as coming first from the
earnings and then, only after the income portion is exhausted, as coming from
the principal. Withdrawn earnings are includable in gross income. It further
provides that a ten percent (10%) penalty will apply to the income portion of
any distribution. However, the penalty is not imposed on amounts received: (a)
after the taxpayer reaches age 59 1/2; (b) after the death of the Contract
Owner; (c) if the taxpayer is totally disabled (for this purpose disability is
as defined in Section 72(m)(7) of the Code); (d) in a series of substantially
equal periodic payments made not less frequently than annually for the life (or
life expectancy) of the taxpayer and his Beneficiary; (e) as an annuity payment
under an immediate annuity; or (f) which are allocable to purchase payments made
prior to August 14, 1982.
The above information does not apply to Qualified Contracts. However, separate
tax withdrawal penalties and restrictions may apply to such Qualified Contracts.
(See "Tax Treatment of Distributions -IRA Contracts.")
The availability of total or partial withdrawals from an immediate annuity is
not expressly provided for in the Code or Treasury Regulations. The only tax
guidance currently available for such issue is a Private Letter Ruling holding
that the right to make withdrawals does not prevent a contract from qualifying
as an immediate annuity. However, the Private Letter Ruling does not address the
issue of whether the making of a withdrawal would adversely affect the favorable
tax treatment of annuity payments made before or after such partial withdrawal
because of the requirement that all immediate annuity payments must be
"substantially equal." The loss of favorable tax treatment would mean that the
income portion of each annuity payment received prior to the taxpayer's
attaining age 59 1/2 would be subject to a 10% penalty tax unless another
exception to the penalty tax applies. While the Company currently believes that
such withdrawals will not adversely affect the favorable tax treatment of
annuity payments received before or after a withdrawal and the Company intends
to perform its tax reporting functions accordingly, there can be no assurance
that the Internal Revenue Service will not take a contrary position. Contract
Owners should obtain competent tax advice prior to making a partial or total
withdrawal.
Qualified Plans
The Contracts offered by this Prospectus may also be used with a plan qualified
under Section 408(b) of the Code ("IRA Contracts"). Contract Owners, Annuitants
and Beneficiaries are cautioned that benefits under an IRA Contract may be
subject to the terms and conditions of the plan regardless of the terms and
conditions of the Contracts issued pursuant to the plan. The following
discussion of IRA Contracts is not exhaustive and is for general informational
purposes only. The tax rules regarding IRA Contracts are very complex and will
have differing applications depending on individual facts and circumstances.
Each purchaser should obtain competent tax advice prior to purchasing IRA
Contracts.
IRA Contracts include special provisions restricting Contract provisions that
may otherwise be available as described in this Prospectus. Generally, IRA
Contracts are not transferable except upon surrender or annuitization.
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.
Various penalty and excise taxes may apply to contributions or distributions
made in violation of applicable limitations. Furthermore, certain withdrawal
penalties and restrictions may apply to distributions from IRA Contracts. (See
"Tax Treatment of Distributions - IRA Contracts.")
On July 6, 1983, the Supreme Court decided in Arizona Governing Committee v.
Norris that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. IRA Contracts will utilize annuity tables which do
not differentiate on the basis of sex because of the use of the IRA Contracts in
a Simplified Employee Pension. Such annuity tables will also be available for
use in connection with certain non-qualified deferred compensation plans.
Under applicable limitations, certain amounts may be contributed to an IRA
Contract which will be deductible from the individual's gross income. These IRAs
are subject to limitations on eligibility, contributions, transferability and
distributions. (See "Tax Treatment of Distributions - IRA Contracts.") Under
certain conditions, distributions from other IRAs and other qualified plans may
be rolled over or transferred on a tax-deferred basis into an IRA Contract.
Sales of Contracts for use as IRA Contracts are subject to special requirements
imposed by the Code, including the requirement that certain informational
disclosure be given to persons desiring to establish an IRA. Purchasers of
Contracts to be qualified as Individual Retirement Annuities should obtain
competent tax advice as to the tax treatment and suitability of such an
investment.
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.
Tax Treatment of Distributions - IRA Contracts
In the case of a withdrawal under an IRA Contract, a ratable portion of the
amount received is taxable, generally based on the ratio of the individual's
cost basis to the individual's total accrued benefit under the retirement plan.
Special tax rules may be available for certain distributions from a Qualified
Contract.
Section 72(t) of the Code imposes a 10% penalty tax on the taxable portion of
any distribution from qualified retirement plans, including IRA Contracts. To
the extent amounts are not includible in gross income because they have been
rolled over to an IRA or to another eligible qualified plan, no tax penalty will
be imposed. The tax penalty will not apply to the following distributions: (a)
if distribution is made on or after the date on which the Annuitant reaches age
59 1/2; (b) distributions following the death or disability of the Annuitant
(for this purpose disability is as defined in Section 72(m)(7) of the Code); (c)
distributions that are part of a series of substantially equal periodic payments
made not less frequently than annually for the life (or life expectancy) of the
Annuitant or the joint lives (or joint life expectancies) of the Annuitant and
his or her designated Beneficiary; (d) distributions made to the Annuitant to
the extent such distributions do not exceed the amount allowable as a deduction
under Code Section 213 to the Annuitant for amounts paid during the taxable year
for medical care; (e) distributions from an IRA Contract for the purchase of
medical insurance (as described in Section 213(d)(1)(D) of the Code) for the
Annuitant and his or her spouse and dependents if the Annuitant has received
unemployment compensation for at least 12 weeks (this exception will no longer
apply after the Annuitant has been re-employed for at least 60 days.); (f)
distributions from an Individual Retirement Annuity made to the Annuitant to the
extent such distributions do not exceed the qualified higher education expenses
(as defined in Section 72(t)(7) of the Code) of the Annuitant for the taxable
year; (g) distributions made on account of an IRS levy upon the Qualified
Contract; and (h) distributions from an Individual Retirement Annuity made to
the Annuitant which are qualified first-time home buyer distributions (as
defined in Section 72(t)(8) of the Code). With respect to (c) above, if the
series of substantially equal periodic payments is modified before the later of
the Annuitant attaining age 59 1/2 or 5 years from the date of the first annuity
payment, then the tax for the year of the modification is increased by an amount
equal to the tax which would have been imposed (the 10% penalty tax) but for the
exception, plus interest for the tax years in which the exception was used. A
partial withdrawal may result in the modification of the series of annuity
payments made after such withdrawal and therefore could result in the imposition
of the 10% penalty tax and interest for the period as described above. Competent
tax advice should be obtained prior to making any withdrawals from an IRA
Contract. Any amounts distributed will only be paid to the Annuitant, Joint
Annuitant or Beneficiary. The Company will not transfer or pay such amounts to
another IRA or tax qualified plan.
Generally, distributions from an IRA Contract must commence no later than April
1 of the calendar year, following the later of: (a) the year in which the
employee attains age 70 1/2 or (b) the calendar year in which the employee
retires. The date set forth in (b) does not apply to an Individual Retirement
Annuity. Generally, required distributions must be over a period not exceeding
the life or life expectancy of the individual or the joint lives or life
expectancies of the individual and his or her designated beneficiary. If the
required minimum distributions are not made, a 50% penalty tax is imposed as to
the amount not distributed.
Tax Treatment of Assignments
An assignment or pledge of a Contract may be a taxable event. Contract Owners
should therefore consult competent tax advisers should they wish to assign 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.
Annuity Provisions
- --------------------------------------------------------------------------------
Variable Annuity Payout
A variable annuity is an annuity with payments which:
(1) are not predetermined as to dollar amount; and
(2) will vary in amount with the net investment results of the applicable
Sub-Account(s) of the Variable Account.
Annuity payments also depend upon the Age of the Annuitant and any Joint
Annuitant and the Assumed Net Investment Factor utilized. On the Annuity
Calculation Date, the Contract Value in each Sub-Account will be applied to the
applicable Annuity Tables. The Annuity Table used will depend upon the Annuity
Option chosen. Unisex Annuity Tables are utilized by the Company. The dollar
amount of annuity payments after the first is determined as follows:
1. The dollar amount of the first annuity payment is divided by the value of
an Annuity Unit as of the Annuity Calculation Date. This establishes the
number of Annuity Units for each monthly payment. The number of Annuity
Units remains fixed during the annuity payment period.
2. For each Sub-Account, the fixed number of Annuity Units is multiplied by
the Annuity Unit value on each subsequent annuity payment date. This result
is the dollar amount of the payment for each Sub-Account.
3. The total dollar amount of each Variable Annuity variable payout is the sum
of all Sub-Account Variable Annuity payments.
Fixed Annuity Payout
Annuity payments from the Fixed Payment Option will be equal payments unless
otherwise specified by the Annuity Option selected.
Financial Statements
- --------------------------------------------------------------------------------
The audited financial statements of the Company as of and for the year ended
December 31, 1999, included herein should be considered only as bearing upon the
ability of the Company to meet its obligations under the Contracts. The audited
financial statements of the Separate Account as of and for the year ended
December 31, 1999 are also included herein.
<PAGE>
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 C
OTHER INFORMATION
Item 24. FInancial Statements and Exhibits
a. Financial Statements
The following financial statements of the Company are included in Part
B hereof.
1. Independent Auditors' Report.
2. Balance Sheets as of December 31, 1999 and 1998.
3. Statements of Income for the years ended December 31, 1999, 1998
and 1997.
4. Statements of Stockholder's Equity for the years ended December
31, 1999, 1998 and 1997.
5. Statements of Cash Flow for the years ended December 31, 1999,
1998 and 1997.
6. Notes to 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)
b. Selling Agreement
4. Individual Immediate Variable Annuity Contract(1)
4a. Joint Owners Endorsement(1)
4b. Period Certain and Partial Liquidation Endorsement(1)
5. Application for Individual Immediate Variable Annuity Contract(1)
6. (i) Copy of Articles of Incorporation of the Company(1)
(ii) Copy of the Bylaws of the Company(3)
7. Not Applicable
8. Form of Fund Participation Agreement(1)
9. Opinion and Consent of Counsel
10. Independent Auditors' Consent
11. Not Applicable
12. Not Applicable
13. Calculation of Performance Information
14. Company Organizational Chart
27. Not Applicable
(1) Incorporated by reference to Registrant's initial Form N-4 filed
electronically on January 2, 1997.
(2) Incorporated by reference to Registrant's Pre-Effective Amendment No. 1
to Form N-4 filed electronically on May 14, 1997.
(3) Incorporated by reference to Registrant's Pre-Effective Amendment No. 2
to Form N-4 filed electronically on June 2, 1997.
Item 25. Directors and Officers of the Depositor
The following are the Officers and Directors of the Company:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices
Business Address with Depositor
- ------------------------- --------------------------------
<S> <C>
Edward J. Bonach Chairman of the Board, President
1750 Hennepin Avenue and Chief Financial Officer
Minneapolis, MN 55403
Michael T. Westermeyer Secretary and Director
1750 Hennepin Avenue
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 Avenue
New York, NY 10022
Stephen R. Herbert Director
900 Third Avenue
New York, NY 10022
Jack F. Rockett Director
140 E. 95th Street, Ste. 6A
New York, NY 10129
Kevin Walker Treasurer
300 S. Hwy 169
Minneapolis, MN 55426
Stephen Blaske Actuary
1750 Hennepin Avenue
Minneapolis, MN 55403
Margery G. Hughes Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Christopher H. Pinkerton Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Mark A. Zesbaugh Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Charles Kavitsky Director
300 S. Hwy 169
Minneapolis, MN 55426
</TABLE>
Item 26. Persons Controlled by or Under Common Control with the Depositor
or Registrant
The Company organizational chart is includede herein.
Item 27. Number of Contract Owners
As of April 25, 2000 there were no Contract Owners.
Item 28. Indemnification
The Bylaws of the Company provide that:
Each person (and the heirs, executors, and administrators of such person) made
or threatened to be made a party to any action, civil or criminal, by reason of
being or having been a Director, officer, or employee of the corporation (or by
reason of serving any other organization at the request of the corporation)
shall be indemnified to the extent permitted by the laws of the State of New
York, and in the manner prescribed therein.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted for directors and officers or controlling persons of the
Company pursuant to the foregoing, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
Item 29. Principal Underwriters
a. 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 and Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Catherine L. Mielke Compliance Officer
1750 Hennepin Avenue
Minneapolis, MN 55403
Michael M. Ahles Vice President and 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.
<PAGE>
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.
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
--------------------------
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.
<TABLE>
<CAPTION>
Signature and Title
<S> <C> <C>
Edward J. Bonach* Chairman of the Board
Edward J. Bonach President and Chief Financial
Officer 04/17/2000
Robert S. James* Director 04/17/2000
Robert S. James
Dennis J. Marion* Director 04/17/2000
Dennis J. Marion
Eugene T. Wilkinson* Director 04/17/2000
Eugene T. Wilkinson
Eugene Long* Director 04/17/2000
Eugene Long
Reinhard W. Obermueller* Director 04/17/2000
Reinhard W. Obermueller
Stephen R. Herbert* Director 04/17/2000
Stephen R. Herbert
Jack F. Rockett* Director 04/17/2000
Jack F. Rockett
________________________ Director 04/17/2000
Margery G. Hughes
________________________ Director 04/17/2000
Christopher H. Pinkerton
________________________ Director 04/17/2000
Mark A. Zesbaugh
________________________ Director 04/17/2000
Charles Kavitsky
________________________ Director 04/17/2000
Kevin Walker
</TABLE>
* By /S/ MICHAEL T. WESTERMEYER
--------------------------
Attorney-in-Fact
Secretary and Director
<PAGE>
EXHIBITS
TO
POST-EFFECTIVE AMENDMENT NO. 4
TO
FORM N-4 (FILE NO. 333-19173)
PREFERRED LIFE VARIABLE ACCOUNT C
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
INDEX TO EXHIBITS
EXHIBIT PAGE
EX-99.3.b Selling Agreement
EX-99.B9 Opinion and Consent of Counsel
EX-99.B10 Independent Auditors' Consent
EX-99.B13 Calculation of Performance Information
EX-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
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 Immediate Variable Annuity Contracts to be issued by
Preferred Life Insurance Company of New York and its separate account, Preferred
Life Variable Account C.
We are of the following opinions:
1. Preferred Life Variable Account C is a unit investment trust as that term is
defined in Section 4(2) of the Investment Company Act of 1940 (the "Act"),
and is currently registered with the Securities and Exchange Commission,
pursuant to Section 8(a) of the Act.
2. Upon the acceptance of purchase payments made by a Contract Owner pursuant
to a Contract issued in accordance with the Prospectus contained in the
Registration Statement and upon compliance with applicable law, such a
Contract Owner will have a legally-issued, fully-paid, non-assessable
contractual interest under such Contract.
You may use this opinion letter, or copy hereof, as an exhibit to the
Registration Statement.
We consent to the reference to our Firm under the caption "Legal Opinions"
contained in the Statement of Additional Information which forms a part of the
Registration Statement.
Sincerely,
BLAZZARD, GRODD, & HASENAUER, P.C.
By: /s/ LYNN KORMAN STONE
- ----------------------------------
Lynn Korman Stone
KPMG LLP
4200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
Independent Auditors' Consent
The Board of Directors of Preferred Life Insurance Company of New York
and the 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 consolidated 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
Preferred Life Insurance Company of North America refers to a change in the
method of calculating deferred acquisition costs and future benefit reserves for
two-tiered annuities.
KPMG LLP
Minneapolis, Minnesota
April 21, 2000
<TABLE>
<CAPTION>
VALUEMARK INCOME PLUS
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
Franklin Global Communications Securities
<S> <C> <C> <C> <C> <C> <C>
12-31-98 Purchase $1,000.00 $28.30779835 35.326 35.326 $1,000.00
12-31-99 Current Value 38.91678151 0.000 35.326 1,374.77
Cumulative and Average Annual Total Returns 37.48% A
Franklin Growth and Income Securities
12-31-98 Purchase $1,000.00 $26.22646854 38.129 38.129 $1,000.00
12-31-99 Current Value 26.14748139 0.000 38.129 996.99
Cumulative and Average Annual Total Returns -0.30% A
Franklin High Income
12-31-98 Purchase $1,000.00 $21.20849040 47.151 47.151 $1,000.00
12-31-99 Current Value 20.89988452 0.000 47.151 985.45
Cumulative and Average Annual Total Returns -1.46% A
Franklin Income Securities
12-31-98 Purchase $1,000.00 $25.12170867 39.806 39.806 $1,000.00
12-31-99 Current Value 24.32274932 0.000 39.806 968.20
Cumulative and Average Annual Total Returns -3.18% A
Franklin Large Cap Growth Securities
12-31-98 Purchase $1,000.00 $15.57416691 64.209 64.209 $1,000.00
12-31-99 Current Value 20.21840693 0.000 64.209 1,298.20
Cumulative and Average Annual Total Returns 29.82% A
Franklin Money Market
12-31-98 Purchase $1,000.00 $14.38555424 69.514 69.514 $1,000.00
12-31-99 Current Value 14.86037176 0.000 69.514 1,033.01
Cumulative and Average Annual Total Returns 3.30% A
Franklin Real Estate
12-31-98 Purchase $1,000.00 $23.10677956 43.277 43.277 $1,000.00
12-31-99 Current Value 21.38599208 0.000 43.277 925.53
Cumulative and Average Annual Total Returns -7.45% A
Franklin Rising Dividends Securities
12-31-98 Purchase $1,000.00 $21.16548977 47.247 47.247 $1,000.00
12-31-99 Current Value 18.84623514 0.000 47.247 890.42
Cumulative and Average Annual Total Returns -10.96% A
Franklin Small Cap
12-31-98 Purchase $1,000.00 $14.59958077 68.495 68.495 $1,000.00
12-31-99 Current Value 28.35274064 0.000 68.495 1,942.02
Cumulative and Average Annual Total Returns 94.20% A
Franklin Value Securities
12-31-98 Purchase $1,000.00 $7.71743151 129.577 129.577 $1,000.00
12-31-99 Current Value 7.73575540 0.000 129.577 1,002.37
Cumulative and Average Annual Total Returns 0.24% A
Mutual Discovery Securities
12-31-98 Purchase $1,000.00 $11.22622113 89.077 89.077 $1,000.00
12-31-99 Current Value 13.70059906 0.000 89.077 1,220.41
Cumulative and Average Annual Total Returns 22.04% A
Mutual Shares Securities
12-31-98 Purchase $1,000.00 $11.83677406 84.482 84.482 $1,000.00
12-31-99 Current Value 13.23680837 0.000 84.482 1,118.28
Cumulative and Average Annual Total Returns 11.83% A
Templeton Asset Strategy
12-31-98 Purchase $1,000.00 $13.58859831 73.591 73.591 $1,000.00
12-31-99 Current Value 14.40812335 0.000 73.591 1,060.31
Cumulative and Average Annual Total Returns 6.03% A
Templeton Developing Markets Securities
12-31-98 Purchase $1,000.00 $7.99263591 125.115 125.115 $1,000.00
12-31-99 Current Value 12.18796363 0.000 125.115 1,524.90
Cumulative and Average Annual Total Returns 52.49% A
Templeton Growth Securities
12-31-98 Purchase $1,000.00 $16.30853286 61.318 61.318 $1,000.00
12-31-99 Current Value 19.46559691 0.000 61.318 1,193.58
Cumulative and Average Annual Total Returns 19.36% A
Templeton International Securities
12-31-98 Purchase $1,000.00 $18.43652906 54.240 54.240 $1,000.00
12-31-99 Current Value 23.02199633 0.000 54.240 1,248.72
Cumulative and Average Annual Total Returns 24.87% A
Templeton International Smaller Companies
12-31-98 Purchase $1,000.00 $9.36443942 106.787 106.787 $1,000.00
12-31-99 Current Value 11.44110306 0.000 106.787 1,221.76
Cumulative and Average Annual Total Returns 22.18% A
Templeton Pacific Growth Securities
12-31-98 Purchase $1,000.00 $8.07846316 123.786 123.786 $1,000.00
12-31-99 Current Value 10.91531713 0.000 123.786 1,351.16
Cumulative and Average Annual Total Returns 35.12% A
<FN>
A = (Accumulated Value as of December 31, 1999 - Accum. Value at Purch.)/Accum. Value at Purch.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VALUEMARK INCOME PLUS
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
Franklin Global Communications Securities
<S> <C> <C> <C> <C> <C> <C>
12-31-96 Purchase $1,000.00 $20.65439774 48.416 48.416 $1,000.00
12-31-99 Current Value 38.91678151 0.000 48.416 1,884.19
Cumulative Total Return 88.42% A
Average Annual Total Return 23.51% B
Franklin Growth and Income Securities
12-31-96 Purchase $1,000.00 $19.48959860 51.309 51.309 $1,000.00
12-31-99 Current Value 26.14748139 0.000 51.309 1,341.61
Cumulative Total Return 34.16% A
Average Annual Total Return 10.29% B
Franklin High Income
12-31-96 Purchase $1,000.00 $19.37479425 51.613 51.613 $1,000.00
12-31-99 Current Value 20.89988452 0.000 51.613 1,078.72
Cumulative Total Return 7.87% A
Average Annual Total Return 2.56% B
Franklin Income Securities
12-31-96 Purchase $1,000.00 $21.70827863 46.065 46.065 $1,000.00
12-31-99 Current Value 24.32274932 0.000 46.065 1,120.44
Cumulative Total Return 12.04% A
Average Annual Total Return 3.86% B
Franklin Large Cap Growth Securities
12-31-96 Purchase $1,000.00 $11.25417490 88.856 88.856 $1,000.00
12-31-99 Current Value 20.21840693 0.000 88.856 1,796.53
Cumulative Total Return 79.65% A
Average Annual Total Return 21.57% B
Franklin Money Market
12-31-96 Purchase $1,000.00 $13.35923111 74.855 74.855 $1,000.00
12-31-99 Current Value 14.86037176 0.000 74.855 1,112.37
Cumulative Total Return 11.24% A
Average Annual Total Return 3.61% B
Franklin Real Estate
12-31-96 Purchase $1,000.00 $23.66770609 42.252 42.252 $1,000.00
12-31-99 Current Value 21.38599208 0.000 42.252 903.59
Cumulative Total Return -9.64% A
Average Annual Total Return -3.32% B
Franklin Rising Dividends Securities
12-31-96 Purchase $1,000.00 $15.30299222 65.347 65.347 $1,000.00
12-31-99 Current Value 18.84623514 0.000 65.347 1,231.54
Cumulative Total Return 23.15% A
Average Annual Total Return 7.19% B
Franklin Small Cap
12-31-96 Purchase $1,000.00 $12.91274591 77.443 77.443 $1,000.00
12-31-99 Current Value 28.35274064 0.000 77.443 2,195.72
Cumulative Total Return 119.57% A
Average Annual Total Return 29.97% B
Mutual Discovery Securities
12-31-96 Purchase $1,000.00 $10.18045638 98.227 98.227 $1,000.00
12-31-99 Current Value 13.70059906 0.000 98.227 1,345.77
Cumulative Total Return 34.58% A
Average Annual Total Return 10.41% B
Mutual Shares Securities
12-31-96 Purchase $1,000.00 $10.33016898 96.804 96.804 $1,000.00
12-31-99 Current Value 13.23680837 0.000 96.804 1,281.37
Cumulative Total Return 28.14% A
Average Annual Total Return 8.62% B
Templeton Asset Strategy
12-31-96 Purchase $1,000.00 $12.51416879 79.909 79.909 $1,000.00
12-31-99 Current Value 14.40812335 0.000 79.909 1,151.34
Cumulative Total Return 15.13% A
Average Annual Total Return 4.81% B
Templeton Developing Markets Securities
12-31-96 Purchase $1,000.00 $11.48724479 87.053 87.053 $1,000.00
12-31-99 Current Value 12.18796363 0.000 87.053 1,061.00
Cumulative Total Return 6.10% A
Average Annual Total Return 1.99% B
Templeton Growth Securities
12-31-96 Purchase $1,000.00 $13.55953972 73.749 73.749 $1,000.00
12-31-99 Current Value 19.46559691 0.000 73.749 1,435.56
Cumulative Total Return 43.56% A
Average Annual Total Return 12.81% B
Templeton International Securities
12-31-96 Purchase $1,000.00 $16.08142393 62.184 62.184 $1,000.00
12-31-99 Current Value 23.02199633 0.000 62.184 1,431.59
Cumulative Total Return 43.16% A
Average Annual Total Return 12.70% B
Templeton International Smaller Companies
12-31-96 Purchase $1,000.00 $11.14519961 89.725 89.725 $1,000.00
12-31-99 Current Value 11.44110306 0.000 89.725 1,026.55
Cumulative Total Return 2.65% A
Average Annual Total Return 0.88% B
Templeton Pacific Growth Securities
12-31-96 Purchase $1,000.00 $14.93159316 66.972 66.972 $1,000.00
12-31-99 Current Value 10.91531713 0.000 66.972 731.02
Cumulative Total Return -26.90% A
Average Annual Total Return -9.92% B
<FN>
A = (Accumulated Value as of December 31, 1999 - Accum. Value at Purch.)/Accum. Value at Purch.
B = [(A+1)^(1/3 Years)]-1
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VALUEMARK INCOME PLUS
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
Franklin Global Communications Securities
<S> <C> <C> <C> <C> <C> <C>
12-31-94 Purchase $1,000.00 $15.10395032 66.208 66.208 $1,000.00
12-31-99 Current Value 38.91678151 0.000 66.208 2,576.60
Cumulative Total Return 157.66% A
Average Annual Total Return 20.84% B
Franklin Growth and Income Securities
12-31-94 Purchase $1,000.00 $13.21462941 75.674 75.674 $1,000.00
12-31-99 Current Value 26.14748139 0.000 75.674 1,978.68
Cumulative Total Return 97.87% A
Average Annual Total Return 14.62% B
Franklin High Income
12-31-94 Purchase $1,000.00 $14.60759128 68.458 68.458 $1,000.00
12-31-99 Current Value 20.89988452 0.000 68.458 1,430.76
Cumulative Total Return 43.08% A
Average Annual Total Return 7.43% B
Franklin Income Securities
12-31-94 Purchase $1,000.00 $16.39171653 61.006 61.006 $1,000.00
12-31-99 Current Value 24.32274932 0.000 61.006 1,483.84
Cumulative Total Return 48.38% A
Average Annual Total Return 8.21% B
Franklin Money Market
12-31-94 Purchase $1,000.00 $12.35398427 80.946 80.946 $1,000.00
12-31-99 Current Value 14.86037176 0.000 80.946 1,202.88
Cumulative Total Return 20.29% A
Average Annual Total Return 3.76% B
Franklin Real Estate
12-31-94 Purchase $1,000.00 $15.59407180 64.127 64.127 $1,000.00
12-31-99 Current Value 21.38599208 0.000 64.127 1,371.42
Cumulative Total Return 37.14% A
Average Annual Total Return 6.52% B
Franklin Rising Dividends Securities
12-31-94 Purchase $1,000.00 $9.76873744 102.367 102.367 $1,000.00
12-31-99 Current Value 18.84623514 0.000 102.367 1,929.24
Cumulative Total Return 92.92% A
Average Annual Total Return 14.05% B
Templeton Developing Markets Securities
12-31-94 Purchase $1,000.00 $9.45424664 105.773 105.773 $1,000.00
12-31-99 Current Value 12.18796363 0.000 105.773 1,289.15
Cumulative Total Return 28.92% A
Average Annual Total Return 5.21% B
Templeton Growth Securities
12-31-94 Purchase $1,000.00 $10.20085584 98.031 98.031 $1,000.00
12-31-99 Current Value 19.46559691 0.000 98.031 1,908.23
Cumulative Total Return 90.82% A
Average Annual Total Return 13.80% B
Templeton International Securities
12-31-94 Purchase $1,000.00 $12.16131942 82.228 82.228 $1,000.00
12-31-99 Current Value 23.02199633 0.000 82.228 1,893.05
Cumulative Total Return 89.31% A
Average Annual Total Return 13.61% B
Templeton Pacific Growth Securities
12-31-94 Purchase $1,000.00 $12.80173310 78.114 78.114 $1,000.00
12-31-99 Current Value 10.91531713 0.000 78.114 852.64
Cumulative Total Return -14.74% A
Average Annual Total Return -3.14% B
<FN>
A = (Accumulated Value as of December 31, 1999 - Accum. Value at Purch.)/Accum. Value at Purch.
B = [(A+1)^(1/5 Years)]-1
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VALUEMARK INCOME PLUS
Preferred Life Variable Account C
Cumulative and Average Annual Total Return Calculations
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
Franklin Global Communications Securities
<S> <C> <C> <C> <C> <C> <C>
12-31-89 Purchase $1,000.00 $12.00985184 83.265 83.265 $1,000.00
12-31-99 Current Value 38.91678151 0.000 83.265 3,240.40
Cumulative Total Return 224.04% A
Average Annual Total Return 12.48% B
Franklin Growth and Income Securities
12-31-89 Purchase $1,000.00 $10.17968496 98.235 98.235 $1,000.00
12-31-99 Current Value 26.14748139 0.000 98.235 2,568.59
Cumulative Total Return 156.86% A
Average Annual Total Return 9.89% B
Franklin High Income
12-31-89 Purchase $1,000.00 $10.02140026 99.786 99.786 $1,000.00
12-31-99 Current Value 20.89988452 0.000 99.786 2,085.53
Cumulative Total Return 108.55% A
Average Annual Total Return 7.63% B
Franklin Income Securities
12-31-89 Purchase $1,000.00 $10.78314539 92.737 92.737 $1,000.00
12-31-99 Current Value 24.32274932 0.000 92.737 2,255.63
Cumulative Total Return 125.56% A
Average Annual Total Return 8.47% B
Franklin Money Market
12-31-89 Purchase $1,000.00 $10.63670089 94.014 94.014 $1,000.00
12-31-99 Current Value 14.86037176 0.000 94.014 1,397.08
Cumulative Total Return 39.71% A
Average Annual Total Return 3.40% B
Franklin Real Estate
12-31-89 Purchase $1,000.00 $10.36764805 96.454 96.454 $1,000.00
12-31-99 Current Value 21.38599208 0.000 96.454 2,062.76
Cumulative Total Return 106.28% A
Average Annual Total Return 7.51% B
<FN>
A = (Accumulated Value as of December 31, 1999 - Accum. Value at Purch.)/Accum. Value at Purch.
B = [(A+1)^(1/10 Years)]-1
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VALUEMARK INCOME PLUS
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
Franklin Global Communications Securities
<S> <C> <C> <C> <C> <C> <C>
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-99 Current Value 38.91678151 0.000 100.000 3,891.68
Cumulative Total Return 289.17% A
Average Annual Total Return 13.23% B
Franklin Growth and Income Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-99 Current Value 26.14748139 0.000 100.000 2,614.75
Cumulative Total Return 161.47% A
Average Annual Total Return 9.18% B
Franklin High Income
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-99 Current Value 20.89988452 0.000 100.000 2,089.99
Cumulative Total Return 109.00% A
Average Annual Total Return 6.97% B
Franklin Income Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-99 Current Value 24.32274932 0.000 100.000 2,432.27
Cumulative Total Return 143.23% A
Average Annual Total Return 8.46% B
Franklin Large Cap Growth Securities
5-1-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-99 Current Value 20.21840693 0.000 100.000 2,021.84
Cumulative Total Return 102.18% A
Average Annual Total Return 21.16% B
Franklin Money Market
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-99 Current Value 14.86037176 0.000 100.000 1,486.04
Cumulative Total Return 48.60% A
Average Annual Total Return 3.69% B
Franklin Real Estate
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-99 Current Value 21.38599208 0.000 100.000 2,138.60
Cumulative Total Return 113.86% A
Average Annual Total Return 7.20% B
Franklin Rising Dividends Securities
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-99 Current Value 18.84623514 0.000 100.000 1,884.62
Cumulative Total Return 88.46% A
Average Annual Total Return 8.32% B
Franklin Small Cap
11-1-95 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-99 Current Value 28.35274064 0.000 100.000 2,835.27
Cumulative Total Return 183.53% A
Average Annual Total Return 28.41% B
Franklin Value Securities
5-1-98 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-99 Current Value 7.73575540 0.000 100.000 773.58
Cumulative Total Return -22.64% A
Average Annual Total Return -14.26% B
Mutual Discovery Securities
11-8-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-99 Current Value 13.70059906 0.000 100.000 1,370.06
Cumulative Total Return 37.01% A
Average Annual Total Return 10.53% B
Mutual Shares Securities
11-8-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-99 Current Value 13.23680837 0.000 100.000 1,323.68
Cumulative Total Return 32.37% A
Average Annual Total Return 9.33% B
Templeton Asset Strategy
5-1-95 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-99 Current Value 14.40812335 0.000 100.000 1,440.81
Cumulative Total Return 44.08% A
Average Annual Total Return 8.13% B
Templeton Developing Markets Securities
3-15-94 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-99 Current Value 12.18796363 0.000 100.000 1,218.80
Cumulative Total Return 21.88% A
Average Annual Total Return 3.47% B
Templeton Growth Securities
3-15-94 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-99 Current Value 19.46559691 0.000 100.000 1,946.56
Cumulative Total Return 94.66% A
Average Annual Total Return 12.17% B
Templeton International Securities
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-99 Current Value 23.02199633 0.000 100.000 2,302.20
Cumulative Total Return 130.22% A
Average Annual Total Return 11.09% B
Templeton International Smaller Companies
5-1-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-99 Current Value 11.44110306 0.000 100.000 1,144.11
Cumulative Total Return 14.41% A
Average Annual Total Return 3.74% B
Templeton Pacific Growth Securities
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-99 Current Value 10.91531713 0.000 100.000 1,091.53
Cumulative Total Return 9.15% A
Average Annual Total Return 1.11% B
<FN>
A = (Accumulated Value as of December 31, 1999 - Accum. Value at Purch.)/Accum. Value at Purch.
B = [(A+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.
