File Nos. 33-26646
811-5716
==============================================================================
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. 20 (X)
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 ( )
Amendment No. 43 (X)
(Check appropriate box or boxes.)
PREFERRED LIFE VARIABLE ACCOUNT C
---------------------------------
(Exact Name of Registrant)
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
--------------------------------------------
(Name of Depositor)
152 West 57th Street, 18th Floor, New York, New York 10019
---------------------------------------------------- ---------
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (212) 586-7733
Name and Address of Agent for Service
- -------------------------------------
Eugene Long
Preferred Life Insurance Company of New York
152 West 57th Street, 18th Floor
New York, New York 10019
Copies to:
Judith A. Hasenauer
Blazzard, Grodd & Hasenauer, P.C.
P.O. Box 5108
Westport, CT 06881
(203) 226-7866
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b) of Rule 485
_X_ on May 1, 2000 pursuant to paragraph (b) of Rule 485
___ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
___ on (date) pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following:
___ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Registered:
Individual Deferred Variable Annuity Contracts
CROSS REFERENCE SHEET
(Required by Rule 495)
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Item No. Location
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<S> <C> <C>
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
Condensed Financial
Information
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 Individual Flexible
Payment 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
</TABLE>
<TABLE>
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Item No. Location
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<S> <C> <C>
PART B
Item 15. Cover Page.............................. Cover Page
Item 16. Table of Contents....................... Table of Contents
Item 17. General Information and History......... The Company
Item 18. Services................................ Not Applicable
Item 19. Purchase of Securities Being Offered.... Not Applicable
Item 20. Underwriters............................ Distributor
Item 21. Calculation of Performance Data......... Calculation of
Performance Data
Item 22. Annuity Payments........................ Annuity Provisions
Item 23. Financial Statements.................... Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the appropriate
Item so numbered, in Part C to this Registration Statement.
<PAGE>
PART A
THE VALUEMARK(R) II VARIABLE ANNUITY CONTRACT
ISSUED BY
PREFERRED LIFE VARIABLE ACCOUNT C
AND
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
- --------------------------------------------------------------------------------
This prospectus describes the Valuemark II Variable Annuity Contract, with a
Fixed Account (Contract) offered by Preferred Life Insurance Company of New York
(Preferred Life). All references to "we," "us" and "our" refer to Preferred
Life.
The annuity offers the Variable Options listed below, and a Fixed Account of
Preferred Life. Each Variable Option invests in a Portfolio listed below. You
can select up to 10 investment choices (which includes any of the Variable
Options and the Fixed Account).
<TABLE>
<CAPTION>
VARIABLE OPTIONS:
AIM VARIABLE INSURANCE
FUNDS, INC.:
AIM V.I. Growth Fund
THE ALGER AMERICAN FUND:
Alger American Growth Portfolio
Alger American Leveraged AllCap Portfolio
FRANKLIN TEMPLETON VARIABLE
INSURANCE PRODUCTS TRUST+:
Franklin Aggressive Growth Securities Fund
Franklin Global Communications Securities Fund*
Franklin Global Health Care Securities Fund
Franklin Growth and Income Securities Fund*
Franklin High Income Fund
Franklin Income Securities Fund
Franklin Large Cap Growth Securities Fund*
Franklin Money Market Fund
Franklin Natural Resources Securities Fund
Franklin Real Estate Fund*
Franklin Rising Dividends Securities Fund*
Franklin S&P 500 Index Fund
Franklin Small Cap Fund
Franklin Technology Securities Fund
Franklin U.S. Government Fund*
Franklin Value Securities Fund
Franklin Zero Coupon Funds - 2000, 2005 and 2010
Mutual Discovery Securities Fund
Mutual Shares Securities Fund
Templeton Asset Strategy Fund*
Templeton Developing Markets Securities Fund*
Templeton Global Income Securities Fund
Templeton Growth Securities Fund*
Templeton International Securities Fund*
Templeton International Smaller Companies Fund
Templeton Pacific Growth Securities Fund*
+ Effective May 1, 2000, the funds of Templeton Variable Products Series Fund
were merged into similar funds of Franklin Templeton Variable Insurance
Products Trust.
USALLIANZ VARIABLE INSURANCE
PRODUCTS TRUST:
USAllianz VIP Diversified Assets Fund
USAllianz VIP Fixed Income Fund
USAllianz VIP Growth Fund
* The fund name changed since the last prospectus update as follows:
CURRENT NAME PREVIOUS NAME
- ----------------------------------------------------------------------------------------------
<S> <C>
Franklin Global Communications Securities Fund Franklin Global Utilities Securities Fund
Franklin Growth and Income Securities Fund Franklin Growth and Income Fund
Franklin Large Cap Growth Securities Fund Franklin Capital Growth Fund
Franklin Real Estate Fund Franklin Real Estate Securities Fund
Franklin Rising Dividends Securities Fund Franklin Rising Dividends Fund
Franklin U.S. Government Fund Franklin U.S. Government Securities Fund
Templeton Asset Strategy Fund Templeton Global Asset Allocation Fund
Templeton Developing Markets Securities Fund Templeton Developing Markets Equity Fund
Templeton Growth Securities Fund Templeton Global Growth Fund
Templeton International Securities Fund Templeton International Equity Fund
Templeton Pacific Growth Securities Fund Templeton Pacific Growth Fund
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
2
Please read this prospectus before investing and keep it for future reference.
It contains important information about the Valuemark II Variable Annuity
Contract, with a Fixed Account.
To learn more about the Contract offered by this prospectus, you can obtain a
copy of the Statement of Additional Information (SAI) dated May 1, 2000. The SAI
has been filed with the Securities and Exchange Commission (SEC) and is legally
a part of this prospectus. The Table of Contents of the SAI is on page 23 of
this prospectus. The SEC maintains a Web site (http://www.sec.gov) that contains
the SAI, material incorporated by reference and other information about
companies that file electronically with the SEC. For a free copy of the SAI,
call us at 1-800-542-5427 or write us at: 152 West 57th Street, New York, NY
10019.
THE VALUEMARK II
VARIABLE ANNUITY CONTRACTS:
O ARE NOT BANK DEPOSITS
O ARE NOT FEDERALLY INSURED
O ARE NOT ENDORSED BY ANY BANK OR GOVERNMENT AGENCY
O ARE NOT GUARANTEED AND MAY BE SUBJECT TO LOSS OF PRINCIPAL
This prospectus is not an offering of the securities in any state, country, or
jurisdiction in which we are not authorized to sell the Contracts. You should
rely only on the information contained in this prospectus or that we have
referred you to. We have not authorized anyone to provide you with information
that is different.
Dated: May 1, 2000
<PAGE>
Variable Annuity Prospectus 3
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
INDEX OF TERMS 4
SUMMARY 5
FEE TABLE 6
THE VALUEMARK II
VARIABLE ANNUITY CONTRACT 10
Contract Owner 10
Contingent Owner 10
Annuitant 10
Beneficiary 10
Assignment 11
ANNUITY PAYMENTS (THE PAYOUT PHASE) 11
Annuity Options 11
PURCHASE 12
Purchase Payments 12
Automatic Investment Plan 12
Allocation of Purchase Payments 12
Accumulation Units 12
INVESTMENT OPTIONS 13
Transfers 15
Telephone Transfers 15
Dollar Cost Averaging Program 15
Flexible Rebalancing 16
Voting Privileges 16
Substitution 16
EXPENSES 16
Insurance Charges 16
Mortality and Expense Risk Charge 16
Administrative Expense Charge 16
Contract Maintenance Charge 16
Contingent Deferred Sales Charge 17
Reduction or Elimination of the
Contingent Deferred Sales Charge 17
Transfer Fee 17
Income Taxes 17
Portfolio Expenses 17
TAXES 17
Annuity Contracts in General 18
Qualified and Non-Qualified Contracts 18
Multiple Contracts 18
Withdrawals-- Non-Qualified Contracts 18
Withdrawals-- Qualified Contracts 19
Withdrawals-- Tax-Sheltered Annuities 19
Diversification 19
ACCESS TO YOUR MONEY 20
Systematic Withdrawal Program 20
Minimum Distribution Program 20
Suspension of Payments or Transfers 20
PERFORMANCE 20
DEATH BENEFIT 21
Death of Contract Owner 21
Death of Annuitant 22
OTHER INFORMATION 22
Preferred Life 22
The Separate Account 22
Distribution 22
Administration 23
Financial Statements 23
TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL
INFORMATION 23
APPENDIX 24
<PAGE>
4
INDEX OF TERMS
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This prospectus is written in plain English. 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
Accumulation Phase 10
Accumulation Unit 12
Annuitant 10
Annuity Options 11
Annuity Payments 11
Annuity Unit 12
Beneficiary 10
Contract 10
Contract Owner 10
Fixed Account 10
Income Date 11
Non-Qualified 18
Payout Phase 11
Portfolios 13
Purchase Payment 12
Qualified 18
Tax Deferral 18
Variable Option 10
<PAGE>
Variable Annuity Prospectus 5
SUMMARY
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The sections in the summary correspond to sections in this prospectus which
discuss the topics in more detail.
THE VARIABLE ANNUITY CONTRACT:
The annuity contract offered by Preferred Life provides a means for investing on
a tax-deferred basis in Variable Options and the Preferred Life Fixed Account
for retirement savings or other long-term investment purposes. The Contract
provides a guaranteed death benefit and annuity income options.
ANNUITY PAYMENTS:
If you want to receive regular income from your annuity, you can choose an
Annuity Option. You can choose whether to have payments come from our general
account or from the available Variable Options. If you choose to have any part
of your payments come from the Variable Options, the dollar amount of your
payments may go up or down based on the performance of the Portfolios.
PURCHASE:
The Contract is no longer offered for sale. However, you can add $250 or more
($100 if you select the automatic investment plan) any time you like during the
Accumulation Phase.
INVESTMENT OPTIONS:
You can put your money in the Variable Options and/or you can invest in the
Preferred Life Fixed Account. The investment returns on the Variable Options are
not guaranteed. You can make or lose money. You can make transfers between
investment options.
EXPENSES:
The Contract has insurance and investment features, and there are costs related
to each.
o Each year, Preferred Life deducts a $30 contract maintenance charge from your
Contract. Preferred Life currently waives this charge if the value of your
Contract is at least $100,000.
o Preferred Life deducts a mortality and expense risk charge which is equal, on
an annual basis, to 1.25% total of the average daily value of the Contract
invested in a Variable Option. Preferred Life also deducts an administrative
charge which is equal, on an annual basis, to 0.15% of the average daily value
of the Contract invested in a Variable Option.
o If you take money out of the Contract, Preferred Life may assess a contingent
deferred sales charge against each Purchase Payment withdrawn. The contingent
deferred sales charge starts at 5% in the first year and declines to 0% after
5 years.
o You can make 12 free transfers each year. After that, Preferred Life deducts
$25, or 2% of the amount transferred, whichever is less, for each additional
transfer.
o There are also daily investment charges which range, on an annual basis, from
0.49% to 1.56% of the average daily value of the Portfolio, depending upon the
Portfolio.
TAXES:
Your earnings are not taxed until you take them out. If you take money out
during the Accumulation Phase, earnings come out first and are taxed as income.
If you are younger than 591/2 when you take money out, you may be charged a 10%
federal tax penalty.
ACCESS TO YOUR MONEY:
You can take money out of your Contract during the Accumulation Phase.
Withdrawals during the Accumulation Phase may be subject to a contingent
deferred sales charge. You may also have to pay income tax and a tax penalty on
any money you take out.
DEATH BENEFIT:
If you die before moving to the Payout Phase, the person you have chosen as a
Beneficiary will receive a death benefit.
INQUIRIES:
If you have questions about your Contract or need more information, please
contact us at:
USAllianz Service Center
300 Berwyn Park
P.O. Box 3031
Berwyn, PA 19312-0031
1-800-624-0197
<PAGE>
6
FEE TABLE
- --------------------------------------------------------------------------------
The purpose of this Fee Table is to help you understand the costs of investing,
directly or indirectly, in the Contract. It reflects expenses of the Separate
Account as well as the Portfolios.
CONTRACT OWNER TRANSACTION FEES
Contingent Deferred Sales Charge*
(as a percentage of Purchase Payments)
Years Since
Purchase Payment Charge
--------------------------
0-1 5%
1-2 5%
2-3 4%
3-4 3%
4-5 1.5%
5+ 0%
Transfer Fee** First 12 transfers in a Contract year
during the Accumulation Phase are free.
Thereafter, the fee is $25 (or 2% of the
amount transferred, if less). Dollar
Cost Averaging transfers and Flexible
Rebalancing transfers are not counted.
CONTRACT MAINTENANCE CHARGE*** $30 per Contract per year
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Charge 1.25%
Administrative Expense Charge .15%
-----
Total Separate Account Annual Expenses 1.40%
* Once each Contract year, you may make a partial withdrawal of up to 15% of
the Purchase Payments you have made (less prior withdrawals) and Preferred
Life will not assess a contingent deferred sales charge. If you do not make
a withdrawal in a Contract year, you may take that 15% in future years. See
"Access to Your Money" for additional options.
** The Contract provides that if more than three transfers have been made in a
Contract year, Preferred Life may deduct a transfer fee. Currently,
Preferred Life permits you to make 12 free transfers each year during the
Accumulation Phase. All transfers during the Payout Phase are subject to a
transfer fee. Market timing transfers may not be permitted.
*** During the Accumulation Phase, the charge is waived if the value of your
Contract or the Purchase Payments you have made (less withdrawals) is at
least $100,000. Currently, the charge is also waived during the Payout Phase
if the value of your Contract at the Income Date is at least $100,000.
<PAGE>
Variable Annuity Prospectus 7
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FUND ANNUAL EXPENSES
(as a percentage of the portfolios' average daily net assets for the most recent
fiscal year). See the accompanying fund prospectuses for more information.
MANAGEMENT
AND PORTFOLIO OTHER TOTAL ANNUAL
ADMINISTRATION FEES1 12B-1 FEES EXPENSES EXPENSES
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AIM V.I. Growth Fund .63% -- .10% .73%
Alger American Growth Portfolio .75% -- .04% .79%
Alger American Leveraged AllCap Portfolio2 .85% -- .08% .93%
Franklin Aggressive Growth Securities Fund3 .50% -- .22% .72%
Franklin Global Communications Securities Fund .48% -- .03% .51%
Franklin Global Health Care Securities Fund .60% -- .22% .82%
Franklin Growth and Income Securities Fund .47% -- .02% .49%
Franklin High Income Fund .51% -- .03% .54%
Franklin Income Securities Fund .48% -- .02% .50%
Franklin Large Cap Growth Securities Fund4 .75% -- .02% .77%
Franklin Money Market Fund .52% -- .01% .53%
Franklin Natural Resources Securities Fund .62% -- .04% .66%
Franklin Real Estate Fund .56% -- .02% .58%
Franklin Rising Dividends Securities Fund .73% -- .02% .75%
Franklin S&P 500 Index Fund5 .15% -- .38% .53%
Franklin Small Cap Fund6 .55% -- .27% .82%
Franklin Technology Securities Fund3 .55% -- .38% .93%
Franklin U.S. Government Fund .49% -- .02% .51%
Franklin Value Securities Fund .60% -- .21% .81%
Franklin Zero Coupon Fund - 2000 .63% -- .02% .65%
Franklin Zero Coupon Fund - 2005 .63% -- .02% .65%
Franklin Zero Coupon Fund - 2010 .63% -- .02% .65%
Mutual Discovery Securities Fund .80% -- .21% 1.01%
Mutual Shares Securities Fund4 .60% -- .19% .79%
Templeton Asset Strategy Fund6 .60% -- .18% .78%
Templeton Developing Markets Securities Fund6 1.25% -- .31% 1.56%
Templeton Global Income Securities Fund4 .60% -- .05% .65%
Templeton Growth Securities Fund4 .83% -- .05% .88%
Templeton International Securities Fund6 .69% -- .19% .88%
Templeton International Smaller Companies Fund .85% -- .26% 1.11%
Templeton Pacific Growth Securities Fund 1.00% -- .08% 1.08%
USAllianz VIP Diversified Assets Fund5/7 .55% .25% .20% 1.00%
USAllianz VIP Fixed Income Fund5/7 .50% .25% -- .75%
USAllianz VIP Growth Fund5/7 .65% .25% -- .90%
<FN>
1. The Portfolio Administration Fee is a direct expense for the Franklin Global
Health Care Securities Fund, the Franklin Small Cap Fund, the Franklin Value
Securities Fund, the Mutual Discovery Securities Fund, the Mutual Shares
Securities Fund, the Templeton Asset Strategy Fund, the Templeton Developing
Markets 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. Other Expenses for the Alger American Leveraged AllCap Portfolio include
0.01% of interest expense.
3. The Franklin Aggressive Growth Securities Fund and the Franklin Technology
Securities Fund commenced operations as of the date of this prospectus. The
expenses shown above for these portfolios are therefore estimated for the
current fiscal year.
4. On 2/8/00, a merger and reorganization was approved that combined the fund
with a similar fund of Templeton Variable Products Series Fund, effective
5/1/00. The table shows total expenses based on the fund's assets as of
12/31/99, and not the assets of the combined fund. However, if the table
reflected combined assets, the fund's Management Fees, Other Expenses, and
Total Fund Operating Expenses after 5/1/00 would be estimated as: 0.75%,
0.02%, and 0.77% respectively for the Franklin Large Cap Growth Securities
Fund; 0.60%, 0.19%, and 0.79% respectively for the Mutual Shares Securities
Fund; 0.80%, 0.05%, and 0.85% respectively for the Templeton Growth
Securities Fund; and .0.60%, 0.04%, and 0.64% respectively for the Templeton
Global Income Securities Fund.
5. The Franklin S&P 500 Index Fund, the USAllianz VIP Diversified Assets Fund,
the USAllianz VIP Growth Fund, and the USAllianz VIP Fixed income fund
commenced operations November 12, 1999. The expenses shown for these
Portfolios are therefore estimated for the funds' current fiscal year.
6. On 2/8/00, shareholders approved a merger and reorganization that combined
the assets of the fund with a similar fund of the Templeton Variable 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.
7. Certain expenses of the USAllianz VIP Funds have been assumed by the Adviser.
Had those expenses not been assumed, total return would have been lower and
total fund expenses would have been 3.08% for the Diversified Assets Fund,
3.77% for the Fixed Income Fund, and 3.90% for the Growth Fund.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
8
EXAMPLES
o The examples below should not be considered a representation of past or future expenses. Actual
expenses may be greater or less than those shown.
o The $30 contract maintenance charge is included in the examples as a prorated charge of $1. Since
the average Contract size is greater than $1,000, the contract maintenance charge is reduced
accordingly.
o For additional information, see "Expenses" and the accompanying portfolio prospectuses.
You would pay the following expenses on a $1,000 investment, assuming a 5% annual return on your
money if you surrender your Contract at the end of each time period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM V.I. Growth Fund $65 $92 $123 $256
Alger American Growth Portfolio $66 $94 $126 $262
Alger American Leveraged AllCap Portfolio $67 $98 $133 $277
Franklin Aggressive Growth Securities Fund* $65 $91 $123 $255
Franklin Global Communications Securities Fund $63 $85 $112 $233
Franklin Global Health Care Securities Fund $66 $94 $128 $265
Franklin Growth and Income Securities Fund $63 $84 $111 $231
Franklin High Income Fund $63 $86 $113 $236
Franklin Income Securities Fund $63 $85 $111 $232
Franklin Large Cap Growth Securities Fund $66 $93 $125 $260
Franklin Money Market Fund $63 $86 $113 $235
Franklin Natural Resources Securities Fund $64 $90 $120 $249
Franklin Real Estate Fund $64 $87 $116 $241
Franklin Rising Dividends Securities Fund $65 $92 $124 $258
Franklin S&P 500 Index Fund* $63 $86 $113 $235
Franklin Technology Securities Fund* $67 $98 $133 $277
Franklin Small Cap Fund $66 $94 $128 $265
Franklin U.S Government Fund $63 $85 $112 $233
Franklin Value Securities Fund $66 $94 $127 $264
Franklin Zero Coupon Fund -2000 $64 $89 $119 $248
Franklin Zero Coupon Fund -2005 $64 $89 $119 $248
Franklin Zero Coupon Fund -2010 $64 $89 $119 $248
Mutual Discovery Securities Fund $68 $100 $137 $285
Mutual Shares Securities Fund $66 $94 $126 $262
Templeton Asset Strategy Fund $66 $93 $126 $261
Templeton Developing Markets Securities Fund $73 $117 $164 $338
Templeton Global Income Securities Fund $63 $86 $113 $235
Templeton Growth Securities Fund $67 $96 $131 $272
Templeton International Securities Fund $67 $96 $131 $272
Templeton International Smaller Companies Fund $69 $103 $142 $295
Templeton Pacific Growth Securities Fund $69 $102 $141 $292
USAllianz VIP Diversified Assets Fund* $65 $92 $124 $258
USAllianz VIP Fixed Income Fund* $63 $85 $111 $232
USAllianz VIP Growth Fund* $64 $89 $119 $248
<FN>
*Estimated
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Variable Annuity Prospectus 9
You would pay the following expenses on a $1,000 investment, assuming a 5% annual return on your
money if you do not surrender your Contract or if you apply the Contract value to an Annuity Option:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM V.I. Growth Fund $23 $70 $119 $256
Alger American Growth Portfolio $23 $72 $122 $262
Alger American Leveraged AllCap Portfolio $25 $76 $130 $277
Franklin Aggressive Growth Securities Fund* $23 $69 $119 $255
Franklin Global Communications Securities Fund $20 $63 $108 $233
Franklin Global Health Care Securities Fund $24 $72 $124 $265
Franklin Growth and Income Securities Fund $20 $62 $107 $231
Franklin High Income Fund $21 $64 $110 $236
Franklin Income Securities Fund $20 $63 $108 $232
Franklin Large Cap Growth Securities Fund $23 $71 $121 $260
Franklin Money Market Fund $21 $64 $109 $235
Franklin Natural Resources Securities Fund $22 $68 $116 $249
Franklin Real Estate Fund $21 $65 $112 $241
Franklin Rising Dividends Securities Fund $23 $70 $120 $258
Franklin S&P 500 Index Fund* $21 $64 $109 $235
Franklin Small Cap Fund $24 $72 $124 $265
Franklin Technology Securities Fund* $25 $76 $130 $277
Franklin U.S. Government Fund $20 $63 $108 $233
Franklin Value Securities Fund $23 $72 $123 $264
Franklin Zero Coupon Fund -2000 $22 $67 $115 $248
Franklin Zero Coupon Fund -2005 $22 $67 $115 $248
Franklin Zero Coupon Fund - 2010 $22 $67 $115 $248
Mutual Discovery Securities Fund $25 $78 $134 $285
Mutual Shares Securities Fund $23 $72 $122 $262
Templeton Asset Strategy Fund $23 $71 $122 $261
Templeton Developing Markets Securities Fund $31 $95 $161 $338
Templeton Global Income Securities Fund $21 $64 $109 $235
Templeton Growth Securities Fund $24 $74 $127 $272
Templeton International Securities Fund $24 $74 $127 $272
Templeton International Smaller Companies Fund $26 $81 $139 $295
Templeton Pacific Growth Securities Fund $26 $80 $137 $292
USAllianz VIP Diversified Assets Fund* $23 $70 $120 $258
USAllianz VIP Fixed Income Fund* $20 $63 $108 $232
USAllianz VIP Growth Fund* $22 $67 $115 $248
<FN>
*Estimated
</FN>
</TABLE>
<PAGE>
10
THE VALUEMARK II
VARIABLE ANNUITY CONTRACT
- --------------------------------------------------------------------------------
This prospectus describes the Valuemark II flexible payment variable deferred
annuity contract, with a Fixed Account, issued by Preferred Life. The Contract
is no longer offered for sale. However, as an existing Contract Owner, you may
make additional Purchase Payments to your Contract.
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 at least 5 years after we issue
your Contract. Until you decide to begin receiving Annuity Payments, your
annuity is in the Accumulation Phase. Once you begin receiving Annuity Payments,
your Contract switches to the Payout Phase.
The Contract benefits from Tax Deferral. Tax Deferral means that you are not
taxed on any earnings or appreciation on the assets in your Contract until you
take money out of your Contract.
Your investment choices include Variable Options and the Fixed Account of
Preferred Life. The Contract is called a variable annuity because you can choose
among the Variable Options and, depending upon market conditions, you can make
or lose money in the Contract based on the investment performance of the
Portfolios. The Portfolios are designed to offer a better return than the Fixed
Account. However, this is not guaranteed. The amount of money you are able to
accumulate in your Contract during the Accumulation Phase depends in large part
upon the investment performance of the Portfolio(s) you select. The amount of
the Annuity Payments you receive during the Payout Phase of the Contract also
depends in large part upon the investment performance of the Portfolios you
select for the Payout Phase.
The Contract also contains a Fixed Account. The Fixed Account offers an interest
rate that is guaranteed by Preferred Life for all deposits made within a twelve
month period. Your initial interest rate is set on the date when your money is
invested in the Fixed Account and remains effective for one year. Initial
interest rates are declared monthly. Preferred Life guarantees that the interest
credited to the Fixed Account will not be less than 3% per year. If you select
the Fixed Account, your money will be placed with the other general assets of
Preferred Life. Preferred Life may change the terms of the Fixed Account in the
future -- please contact Preferred Life for the most current terms. If you
select the Fixed Account, the amount of money you are able to accumulate in your
Contract during the Accumulation Phase depends upon the total interest credited
to your Contract.
We will not make any changes to your Contract without your permission except as
may be required by law.
CONTRACT OWNER
You, as the Contract Owner, have all the rights under the Contract. The Contract
Owner is as designated at the time the Contract is issued, unless changed. You
may change Contract Owners or Contingent Owners at any time. A request for
change must be:
o in writing, and
o received by Preferred Life at its USAllianz Service
Center.
After Preferred Life records the change, it will become effective as of the date
the written request is signed. A new designation of Contract Owner will not
apply to any payment made or action taken by Preferred Life before the time the
change was received. This may be a taxable event. You should consult with your
tax adviser before doing this.
CONTINGENT OWNER
You can name a Contingent Owner. Any Contingent Owner must be your spouse.
If a Contingent Owner is named, upon the death of the Contract Owner before the
Income Date, the Contingent Owner, if any, becomes the designated Beneficiary
and we will treat any other Beneficiary named as a contingent Beneficiary unless
you indicate otherwise.
ANNUITANT
The Annuitant is the natural person on whose life we base Annuity Payments. You
name an Annuitant. Joint Annuitants are allowed during the Payout Phase. You may
change the Annuitant at any time before the Income Date unless the Contract is
owned by a non-individual (for example, a corporation). The Annuitant has no
rights or privileges prior to the Income Date.
BENEFICIARY
The Beneficiary is the person(s) or entity you name to receive any death
benefit. The Beneficiary is as 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. Upon the death of the
Contract Owner, the Contingent
Owner will be the designated Beneficiary and any other Beneficiary named will be
treated as a contingent Beneficiary, unless you indicate otherwise.
ASSIGNMENT
You can transfer ownership of (assign) the Contract at any time during your
lifetime. Preferred Life will not be bound by the assignment until it receives
the written notice of the assignment. Preferred Life will not be liable for any
payment or other action we take in accordance with the Contract before we
receive notice of the assignment. Any assignment made after the death benefit
has become payable can only be done with our consent. AN ASSIGNMENT MAY BE A
TAXABLE EVENT.
If the Contract is issued pursuant to a Qualified plan, you may be unable to
assign the Contract.
ANNUITY PAYMENTS
(THE PAYOUT PHASE)
- --------------------------------------------------------------------------------
You can receive regular monthly income payments under your Contract. You can
choose the month and year in which those payments begin. We call that date the
Income Date. Your Income Date must be the first day of a calendar month and must
be at least five years after you buy the Contract. The Income Date cannot be
later than the month following the Annuitant's 85th birthday or 10 years from
the day we issue your Contract, if later. You can also choose among income
plans. We call those Annuity Options.
We ask you to choose your Income Date when you purchase the Contract. You can
change it at any time before the Income Date with 30 days notice to us. The
Annuitant will receive the Annuity Payments. You will receive tax reporting on
those payments.
Depending on the Annuity Option you select, you may elect to receive your
Annuity Payments as a variable payout or a fixed payout. Annuity Payments under
Annuity Options 1 and 2 are available as fixed payouts only. Annuity Payments
under Annuity Options 3, 4 and 5 are available as variable payouts only. Under a
fixed payout, all of the Annuity Payments will be the same dollar amount (equal
installments). If you choose a variable payout, you can select from the
available Variable Options. If you do not tell us otherwise, your Annuity
Payments will be based on the investment allocations that were in place on the
Income Date.
If you choose to have any portion of your Annuity Payments based on the
investment performance of the Variable Option(s), the dollar amount of your
payments will depend upon:
1) the value of your Contract in the Variable Option(s) on the Income Date;
2) the 5% assumed investment rate used in the annuity table for the Contract
(other assumed investment rates may be available);
3) the performance of the Variable Option(s) you selected; and
4) the Annuity Option you select.
If the actual performance of the Variable Option(s) you selected exceeds the 5%
assumed investment rate, your Annuity Payments will increase. Similarly, if the
actual performance is less than 5%, your Annuity Payments will decrease.
ANNUITY OPTIONS
Instead of having the proceeds paid in one sum, you can choose one of the
following Annuity Options or any other Annuity Option you want and that
Preferred Life agrees to provide. After Annuity Payments begin, you cannot
change the Annuity Option. The Annuity Option must be selected at least 30 days
prior to the Income Date.
OPTION 1. LIFE ANNUITY WITH GUARANTEE FOR MINIMUM PERIOD. Under this fixed
annuity option, we will make equal monthly Annuity Payments during the lifetime
of the Annuitant but at least for the minimum period. If, when the Annuitant
dies, we have made Annuity Payments for less than the selected guaranteed
period, we will pay the discounted value of the remaining guaranteed payments in
a single lump sum.
OPTION 2. LIFE ANNUITY WITH CASH REFUND. Under this fixed annuity option, we
will make equal monthly Annuity Payments during the Annuitant's lifetime. The
last Annuity Payment will be made before the Annuitant dies and if the value of
the Annuity Payments we have made is less than the value applied to the Annuity
Option, then you will receive a cash refund as set forth in your Contract.
OPTION 3. LIFE ANNUITY. Under this variable annuity option, we will make monthly
Annuity Payments so long as the Annuitant is alive. After the Annuitant dies, we
stop making Annuity Payments.
OPTION 4. LIFE ANNUITY WITH 10 YEAR GUARANTEE. Under this variable annuity
option, we will make monthly Annuity Payments during the Annuitant's lifetime.
However, if the Annuitant dies before the end of the 10 year guaranteed period,
we will continue to make Annuity Payments for the rest of the 10 year guaranteed
period.
OPTION 5. JOINT AND LAST SURVIVOR ANNUITY. Under this variable annuity option,
we will make monthly Annuity Payments during the joint lifetime of the Annuitant
and the joint Annuitant. When the Annuitant dies, if the joint Annuitant is
still alive, we will continue to make Annuity Payments, so long as the joint
Annuitant continues to live. The monthly Annuity Payments will end when the last
surviving Annuitant dies.
PURCHASE
- --------------------------------------------------------------------------------
PURCHASE PAYMENTS
A Purchase Payment is the money you invest in the Contract. You can make
additional Purchase Payments of $250 or more (or as low as $100 if you have
selected the Automatic Investment Plan). Preferred Life may, at its sole
discretion, waive the minimum payment requirements. We will not waive the
minimum amounts for Qualified Contracts.
This product is not designed for professional market timing organizations, other
entities, or persons using programmed, large or frequent transfers.
AUTOMATIC INVESTMENT PLAN
The Automatic Investment Plan (AIP) is a program which allows you to make
additional Purchase Payments to your Contract on a monthly or quarterly basis by
electronic transfer of monies from your savings or checking account. You may
participate in this program by completing the appropriate form. We must receive
your form by the first of the month in order for AIP to begin that same month.
Investments will take place on the 20th of the month, or the next business day.
The minimum investment that can be made by AIP is $100. You may stop AIP at any
time you want. We need to be notified by the first of the month in order to stop
or change AIP that month. If AIP is used for a Qualified Contract, you should
consult your tax adviser for advice regarding maximum contributions.
ALLOCATION OF PURCHASE PAYMENTS
We ask that you allocate your money in either whole percentages or round
dollars. Transfers do not change the allocation instructions for payments. You
can instruct us how to allocate additional Purchase Payments you make. If you do
not instruct us, we will allocate them in the same way as your previous
instructions to us. You may change the allocation of future payments without
fee, penalty or other charge upon written notice or telephone instructions to
the USAllianz Service Center. A change will be effective for payments received
on or after we receive your notice or instructions. Preferred Life reserves the
right to limit the number of Variable Options that you may invest in at one
time. Currently, you may invest in up to 10 investment choices (which includes
any of the Variable Options and the Preferred Life Fixed Account). We may change
this in the future.
If you make additional Purchase Payments, we will credit these amounts to your
Contract within one business day. Our business day closes when the New York
Stock Exchange closes, which is usually at 4 p.m. Eastern time.
ACCUMULATION 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, we use a
measurement called an Accumulation Unit (which is like a share of a mutual
fund). During the Payout Phase of the Contract we call it an Annuity Unit.
Every business day we determine the value of an Accumulation Unit for each
Variable Option by multiplying the Accumulation Unit value for the previous
period by a factor for the current period. The factor is determined by:
1) dividing the value of a Portfolio at the end of the current period by the
value of a Portfolio for the previous period; and
2) multiplying it by one minus the daily amount of the insurance charges and any
charges for taxes.
The value of an Accumulation Unit may go up or down from day to day.
When you make a Purchase Payment, we credit your Contract with Accumulation
Units for any portion of your Purchase Payment allocated to a Variable Option.
The number of Accumulation Units 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 Accumulation Unit.
We calculate the value of each Accumulation Unit after the New York Stock
Exchange closes each day and then credit your Contract.
EXAMPLE:
On Wednesday we receive an additional Purchase Payment of $3,000 from you. You
have told us you want this to go to the Franklin Growth and Income Securities
Fund. When the New York Stock Exchange closes on that Wednesday, we determine
that the value of an Accumulation Unit based on an investment in the Franklin
Growth and Income Securities Fund is $12.50. We then divide $3,000 by $12.50 and
credit your Contract on Wednesday night with 240 Accumulation Units.
INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
The Contract offers Variable Options which invest in Portfolios of AIM Variable
Insurance Funds. The Alger American Fund, Franklin Templeton Variable Insurance
Products Trust, and USAllianz Variable Insurance Products Trust. The Contract
also offers a Fixed Account of Preferred Life. Additional Portfolios may be
available in the future.
You should read the accompanying fund prospectuses (which are attached to this
prospectus) carefully before investing.
AIM Variable Insurance Funds, The Alger American Fund, Franklin Templeton
Variable Insurance Products Trust, and USAllianz Variable Insurance Products
Trust are the funds underlying your Contract. Each Portfolio has its own
investment objective.
Franklin Templeton Variable Insurance Products Trust (formerly, Franklin
Valuemark Funds) issues two classes of shares which are described in the
attached prospectus for Franklin Templeton Variable Insurance Products Trust.
Only Class 1 shares are available with your Contract. Effective May 1, 2000, the
funds of Templeton Variable Products Series Fund were merged into similar funds
of Franklin Templeton Variable Insurance Products Trust.
Investment advisers for each Portfolio are listed in the table below and are as
follows: A I M Advisors, Inc., Allianz of America, Inc., Fred Alger Management,
Inc., Franklin Advisers, Inc., Franklin Advisory Services, LLC, Franklin Mutual
Advisers, LLC, Templeton Asset Management Ltd., Templeton Global Advisors
Limited, and Templeton Investment Counsel, Inc. Certain advisers have retained
one or more subadvisers to help them manage the Portfolios.
The investment objectives and policies of certain Portfolios are similar to the
investment objectives and policies of other mutual funds that 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 funds 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>
AIM VARIABLE INSURANCE FUNDS, INC.:
AIM V.I. Growth Fund A I M Advisors, Inc.
THE ALGER AMERICAN FUND:
Alger American Growth Portfolio Fred Alger Management, Inc.
Alger American Leveraged AllCap Portfolio Fred Alger Management, Inc.
(seeks long-term capital appreciation)
FRANKLIN TEMPLETON VARIABLE
INSURANCE PRODUCTS TRUST:
Franklin Aggressive Growth Securities Fund Franklin Advisers, Inc.
Franklin Global Communications Securities Fund* Franklin Advisers, Inc.
Franklin Global Health Care Securities Fund Franklin Advisers, Inc.
Franklin Growth and Income Securities Fund* Franklin Advisers, Inc.
Franklin High Income Fund Franklin Advisers, Inc.
Franklin Income Securities Fund Franklin Advisers, Inc.
Franklin Large Cap Growth Securities Fund* Franklin Advisers, Inc.
Franklin Money Market Fund Franklin Advisers, Inc.
Franklin Natural Resources Securities Fund Franklin Advisers, Inc.
Franklin Real Estate Fund* Franklin Advisers, Inc.
Franklin Rising Dividends Securities Fund* Franklin Advisory Services, LLC
Franklin S&P 500 Index Fund Franklin Advisers, Inc.
Franklin Small Cap Fund Franklin Advisers, Inc.
Franklin Technology Securities Fund Franklin Advisers, Inc.
Franklin U.S. Government Fund* Franklin Advisers, Inc.
Franklin Value Securities Fund Franklin Advisory Services, LLC
Franklin Zero Coupon Funds - 2000, 2005 and 2010 Franklin Advisers, Inc.
Mutual Discovery Securities Fund (capital appreciation) Franklin Mutual Advisers, LLC
Mutual Shares Securities Fund (capital appreciation
with income as a secondary goal) Franklin Mutual Advisers, LLC
Templeton Asset Strategy Fund* Templeton Investment Counsel, Inc.
Templeton Developing Markets Securities Fund* Templeton Asset Management Ltd.
Templeton Global Income Securities Fund Franklin Advisers, Inc.
Templeton Growth Securities Fund* Templeton Global Advisors Limited
Templeton International Securities Fund* Templeton Investment Counsel, Inc.
Templeton International Smaller Companies Fund Templeton Investment Counsel, Inc.
Templeton Pacific Growth Securities Fund* Franklin Advisers, Inc.
USALLIANZ VARIABLE
INSURANCE PRODUCTS TRUST:
USAllianz VIP Diversified Assets Fund Allianz of America, Inc.
USAllianz VIP Fixed Income Fund Allianz of America, Inc.
USAllianz VIP Growth Fund Allianz of America, Inc.
<FN>
* The fund name changed since the last prospectus update as of the effective date listed below:
CURRENT NAME PREVIOUS NAME EFFECTIVE DATE
- ---------------------------------------------------------------------------------------------------------------
Franklin Global Communications Securities Fund Franklin Global Utilities Securities Fund 11-15-1999
Franklin Growth and Income Securities Fund Franklin Growth and Income Fund 05-01-2000
Franklin Large Cap Growth Securities Fund Franklin Capital Growth Fund 12-15-1999
Franklin Real Estate Fund Franklin Real Estate Securities Fund 11-15-1999
Franklin Rising Dividends Securities Fund Franklin Rising Dividends Fund 11-15-1999
Franklin U.S. Government Fund Franklin U.S. Government Securities Fund 11-15-1999
Templeton Asset Strategy Fund Templeton Global Asset Allocation Fund 05-01-2000
Templeton Developing Markets Securities Fund Templeton Developing Markets Equity Fund 05-01-2000
Templeton Growth Securities Fund Templeton Global Growth Fund 05-01-2000
Templeton International Securities Fund Templeton International Equity Fund 05-01-2000
Templeton Pacific Growth Securities Fund Templeton Pacific Growth Fund 05-01-2000
</FN>
</TABLE>
THE FRANKLIN ZERO COUPON FUND-2000 WILL MATURE DECEMBER 15, 2000. If you have
not made a selection prior to the maturity date of a Zero Coupon Fund, the
Contract Value held in the Franklin Zero Coupon Fund-2000 underlying your
Contract will be automatically transferred to the Franklin Money Market Fund. We
will notify you of a maturing Zero Coupon Fund in writing at least 30 days prior
to the maturity. Included with the notification will be investment options
available at that time as well as the automatic Money Market option.
Shares of the funds may be offered in connection with certain variable annuity
contracts and variable life insurance policies of various insurance companies
which may or may not be affiliated with Preferred Life. Certain funds may also
be sold directly to qualified plans. The investment advisers believe that
offering their shares in this manner will not be disadvantageous to you.
Preferred Life may enter into certain arrangements under which it is reimbursed
by the funds' advisers, distributors and/or affiliates for the administrative
services which it provides to the Portfolios.
TRANSFERS
You can transfer money among the Variable Options and/or the Fixed Account.
Preferred Life currently allows you to make as many transfers as you want to
each year. However, this product is not designed for professional market timing
organizations or other persons using programmed, large, or frequent transfers.
Such activity may be disruptive to a Portfolio.
Your Contract provides that you can make 3 transfers every year without charge.
However, currently Preferred Life permits you to make 12 transfers every year
without charge during the Accumulation Phase. We measure a year from the
anniversary of the day we issued your Contract. Preferred Life charges for all
transfers you make after the Income Date. You can make a transfer to or from the
Fixed account and to or from the any Variable Option. After the Income Date, if
you select a variable payout, you can make transfers.
The following applies to any transfer:
1) The minimum amount which you can transfer is the lesser of: $1,000, or your
entire value in the Variable Option or the Fixed Account.
2) You cannot make a partial transfer if the value remaining in the Variable
Option or the Fixed Account would be less than $1,000.
3) Your request for a transfer must clearly state which Variable Option(s) or
the Fixed Account is involved in the transfer.
4) Your request for a transfer must clearly state how much the transfer is for.
5) You cannot make any transfers within 7 calendar days prior to the date your
first Annuity Payment is due.
6) During the Payout Phase, you may not make a transfer from a fixed Annuity
Option to a variable Annuity Option.
7) During the Payout Phase, you can make at least one transfer from a variable
Annuity Option to a fixed Annuity Option.
TELEPHONE TRANSFERS
You can make transfers by telephone. We may allow you to authorize someone else
to make transfers by telephone on your behalf. Preferred Life 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. Preferred Life tape records all
telephone instructions.
DOLLAR COST AVERAGING PROGRAM
The Dollar Cost Averaging Program allows you to systematically transfer a set
amount of money each month or quarter from any one Variable Option or the Fixed
Account to up to eight of the other Variable Options. The Variable Option(s) you
transfer from may not be the Variable Option(s) you transfer to in this program.
By allocating amounts on a regularly scheduled basis, as opposed to allocating
the total amount at one particular time, you may be less susceptible to the
impact of market fluctuations. You may only participate in this program during
the Accumulation Phase.
You must participate in the program for at least six months (or two quarters)
and must transfer at least $500 each time (or $1,500 each quarter). Your
allocations can be in whole percentages or dollar amounts. You may elect this
program by properly completing the Dollar Cost Averaging forms printed by
Preferred Life.
All Dollar Cost Averaging transfers will be made on the 10th day of the month
unless that day is not a business day. If it is not, then the transfer will be
made the next business day.
Your participation in the program will end when any of the following occurs:
1) the number of desired transfers have been made;
2) you do not have enough money in the Variable Option(s) or the Fixed Account
to make the transfer (if less money is available, that amount will be dollar
cost averaged and the program will end);
3) you request to terminate the program (your request must be received by us by
the first of the month to terminate that month); or
4) the Contract is terminated.
If you participate in the Dollar Cost Averaging Program, the transfers made
under the program are not currently taken into account in determining any
transfer fee. You may not participate in the Dollar Cost Averaging Program and
Flexible Rebalancing at the same time.
FLEXIBLE REBALANCING
Once your money has been invested, the performance of the Variable Options may
cause your chosen allocation to shift. Flexible Rebalancing is designed to help
you maintain your specified allocation mix among the different Variable Options.
You can direct us to readjust your Contract value on a quarterly, semi-annual or
annual basis to return to your original Variable Option allocations. Flexible
Rebalancing transfers are done on calendar quarters only and will be made on the
20th day of the month unless that day is not a business day. If it is not, then
the transfer will be made on the previous day. We must receive a request to
participate in the program by the 8th of the month for Flexible Rebalancing to
begin that month. If you participate in Flexible Rebalancing, the transfers made
under the program are not currently taken into account in determining any
transfer fee. The Fixed Account is not part of Flexible Rebalancing.
VOTING PRIVILEGES
Preferred Life is the legal owner of the Portfolio shares. However, when a
Portfolio solicits proxies in conjunction with a shareholder vote which affects
your investment, Preferred Life will obtain from you and other affected Contract
Owners instructions as to how to vote those shares. When we receive those
instructions, we will vote all of the shares we own in proportion to those
instructions. This will also include any shares that Preferred Life owns on its
own behalf. Should Preferred Life determine that it is no longer required to
comply with the above, we will vote the shares in our own right.
SUBSTITUTION
Preferred Life may substitute one of the Variable Options you have selected with
another Variable Option. We would not do this without the prior approval of the
Securities and Exchange Commission. We will give you notice of our intention to
do this.
EXPENSES
- --------------------------------------------------------------------------------
There are charges and other expenses associated with the Contract that will
reduce your investment return. These charges and expenses are:
INSURANCE CHARGES
Each day, Preferred Life makes a deduction for its insurance charges. Preferred
Life does this as part of its calculation of the value of the Accumulation Units
and the Annuity Units. The insurance charge has two parts:
1) the mortality and expense risk charge, and
2) the administrative expense 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, the
death benefits, certain expenses related to the Contract, and for assuming the
risk (expense risk) that the current charges will be insufficient in the future
to cover the cost of administering the Contract).
ADMINISTRATIVE EXPENSE CHARGE. This charge is equal, on an annual basis, to
0.15% of the average daily value of the Contract invested in a Variable Option.
This charge, together with the contract maintenance charge (which is explained
below), is for all the expenses associated with the administration of the
Contract. Some of these expenses include: preparation of the Contract,
confirmations, annual statements, maintenance of Contract records, personnel
costs, legal and accounting fees, filing fees, and computer and systems costs.
CONTRACT MAINTENANCE CHARGE
On each Contract anniversary, Preferred Life deducts $30 from your Contract as a
contract maintenance charge. The fee is assessed on the last day of each
Contract year. This charge is for administrative expenses (see above). This
charge can not be increased.
However, during the Accumulation Phase, if the value of your Contract or
Purchase Payments (less withdrawals) is at least $100,000 when the deduction for
the charge is to be made, Preferred Life will not deduct this charge. Currently,
Preferred Life also waives the charge during the Payout Phase if the value of
your Contract at the Income Date is at least $100,000.
If you make a complete withdrawal from your Contract on other than a Contract
anniversary, the contract maintenance charge will also be deducted. During the
Payout Phase, if the contract maintenance charge is deducted, the charge will be
collected monthly out of each Annuity Payment.
CONTINGENT DEFERRED SALES CHARGE
If you make a withdrawal, it may be subject to a contingent deferred sales
charge. During the Accumulation Phase, you can make withdrawals from your
Contract. Preferred Life keeps track of each Purchase Payment you make. The
amount of the contingent deferred sales charge depends upon the length of time
since you made your Purchase Payment. This charge reimburses Preferred Life for
expenses associated with the promotion, sale and distribution of the Contracts.
For a partial withdrawal, we will deduct the charge from the amount remaining in
the Contract, if sufficient. Otherwise, we will deduct it from the amount you
withdraw. We will deduct the charge pro rata from the Variable Options and/or
the Fixed Account unless you instruct us otherwise. The charge is:
YEARS SINCE CONTINGENT DEFERRED
PURCHASE PAYMENT SALES CHARGE
--------------------------------------
0-1 5%
1-2 5%
2-3 4%
3-4 3%
4-5 1.5%
5+ 0%
However, after Preferred Life has had a Purchase Payment for 5 full years, there
is no charge when you withdraw that Purchase Payment. For purposes of the
contingent deferred sales charge, Preferred Life treats withdrawals as coming
from the oldest Purchase Payments first.
NOTE: For tax purposes, withdrawals are considered to have come from the last
money you put into the Contract. Thus, for tax purposes, earnings are considered
to come out first.
Once each Contract year, you can make a withdrawal up to 15% of Purchase
Payments you have made (less any prior withdrawals) and no contingent deferred
sales charge will be deducted from the 15% you take out. If you make a
withdrawal of more than the free withdrawal amount, it will be subject to the
contingent deferred sales charge. You may carry over to the next year the full
15% if you do not make any withdrawal in a Contract year. If you do not withdraw
the full 15% in any one Contract year, you may not carry over the remaining
percentage amount to another year. Preferred Life does not assess the contingent
deferred sales charge from Purchase Payments which have been held under the
Contract for more than 5 years or paid out as Annuity Payment.
You may also elect to participate in the Systematic Withdrawal Program or the
Minimum Distribution Program. These programs allow you to make withdrawals
without the deduction of the contingent deferred sales charge under certain
circumstances. See "Access to Your Money" for a description of the Systematic
Withdrawal Program and the Minimum Distribution Program.
REDUCTION OR ELIMINATION OF THE
CONTINGENT DEFERRED SALES CHARGE
Preferred Life will reduce or eliminate the amount of the contingent deferred
sales charge when the Contract is sold under circumstances which reduce its
sales expenses. Some examples are: if there is a large group of individuals that
will be purchasing the Contract or a prospective purchaser already had a
relationship with Preferred Life. Preferred Life may choose to not deduct a
contingent deferred sales charge under a Contract issued to an officer, director
or employee of Preferred Life or any of its affiliates. Also, Preferred Life may
choose to reduce or not deduct a contingent deferred sales charge when a
Contract is sold by an agent of Preferred Life to any members of his or her
immediate family and the commission is waived. We require our prior approval for
any reduction or elimination of the contingent deferred sales charge.
TRANSFER FEE
Prior to the Income Date, you can make 12 free transfers every year. We measure
a year from the day we issue your Contract. If you make more than 12 transfers a
year, we will deduct a transfer fee of $25 or 2% of the amount that is
transferred, whichever is less, for each additional transfer. If the transfer is
part of the Dollar Cost Averaging Program or Flexible Rebalancing, it will not
count in determining the transfer fee.
Preferred Life charges a fee for all transfers you make after the Income Date.
INCOME TAXES
Preferred Life reserves the right to deduct from the Contract for any income
taxes which it may incur because of the Contract. Currently, Preferred Life is
not making any such deductions.
PORTFOLIO EXPENSES
There are deductions from the assets of the various Portfolios for operating
expenses (including management fees), which are described in the Fee Table in
this prospectus and the accompanying fund prospectuses.
TAXES
NOTE: Preferred Life has prepared the following information on taxes as a
general discussion of the subject. It is not intended as tax advice. You should
consult your own tax adviser about your own circumstances. Preferred Life has
included additional information regarding taxes in the Statement of Additional
Information.
ANNUITY CONTRACTS IN GENERAL
Annuity contracts are a means of setting aside money for future needs --usually
retirement. Congress recognized how important saving for retirement was and
provided special rules in the Internal Revenue Code (Code) for annuities.
Basically, these rules provide that you will not be taxed on any earnings on the
money held in your annuity Contract until you take the money out. This is
referred to as Tax Deferral. There are different rules regarding how you will be
taxed depending upon how you take the money out and the type of Contract --
Qualified or Non-Qualified (see following sections).
You, as the Contract Owner, will not be taxed on increases in the value of your
Contract until a distribution occurs -- either as a withdrawal or as Annuity
Payments. When you make a withdrawal you are taxed on the amount of the
withdrawal that is earnings. For Annuity Payments, different rules apply. A
portion of each Annuity Payment you receive will be treated as a partial return
of your Purchase Payments and will not be taxed. The remaining portion of the
Annuity Payment will be treated as ordinary income. How the Annuity Payment is
divided between taxable and non-taxable portions depends upon the period over
which the Annuity Payments are expected to be made. Annuity Payments received
after you have received all of your Purchase Payments are fully includible in
income.
When a Non-Qualified Contract is owned by a non-natural person (e.g., a
corporation or certain other entities other than a trust holding the Contract as
an agent for a natural person), the Contract will generally not be treated as an
annuity for tax purposes. This means that the Contract may not receive the
benefits of Tax Deferral. Income may be taxed as ordinary income every year.
QUALIFIED AND NON-QUALIFIED CONTRACTS
If you purchase the Contract under a Qualified plan, your Contract is referred
to as a Qualified Contract. Examples of Qualified plans are: Individual
Retirement Annuities (IRAs), Tax-Sheltered Annuities (sometimes referred to as
403(b) contracts), and pension and profit-sharing plans, which include 401(k)
plans and H.R. 10 plans. If you do not purchase the Contract under a Qualified
plan, your Contract is referred to as a Non-Qualified Contract.
A Qualified Contract will not provide any necessary or additional Tax Deferral
if it is used to fund a Qualified plan that is tax deferred. However, the
Contract has features and benefits other than Tax Deferral that may make it an
appropriate investment for a Qualified plan. You should consult your tax adviser
regarding these features and benefits prior to purchasing a Qualified Contract.
MULTIPLE CONTRACTS
The Code provides that multiple Non-Qualified annuity contracts which are issued
within a calendar year period to the same Contract Owner by one company or its
affiliates are treated as one annuity contract for purposes of determining the
tax consequences of any distribution. Such treatment may result in adverse tax
consequences, including more rapid taxation of the distributed amounts from such
combination of contracts. For purposes of this rule, contracts received in a
Section 1035 exchange will be considered issued in the year of the exchange. You
should consult a tax adviser prior to purchasing more than one Non-Qualified
annuity contract in any calendar year period.
WITHDRAWALS -- NON-QUALIFIED CONTRACTS
If you make a withdrawal from your Contract, the Code treats such a withdrawal
as first coming from earnings and then from your Purchase Payments. In most
cases, such withdrawn earnings are includible in income.
The Code also provides that any amount received under an annuity contract which
is included in income may be subject to a tax penalty. The amount of the penalty
is equal to 10% of the amount that is includible in income. Some withdrawals
will be exempt from the penalty. They include any amounts:
1) paid on or after the taxpayer reaches age 591/2
2) paid after you die;
3) paid if the taxpayer becomes totally disabled (as that term is defined in the
Code);
4) paid in a series of substantially equal payments made annually (or more
frequently) for life or a period not exceeding life expectancy;
5) paid under an immediate annuity; or
6) which come from purchase payments made prior to August 14, 1982.
WITHDRAWALS -- QUALIFIED CONTRACTS
If you make a withdrawal from your Qualified Contract, a portion of the
withdrawal is treated as taxable income. This portion depends on the ratio of
pre-tax Purchase Payments to the after-tax Purchase Payments in your Contract.
If all of your Purchase Payments were made with pre-tax money then the full
amount of any withdrawal is includible in taxable income. Special rules may
apply to withdrawals from certain types of Qualified Contracts.
The Code also provides that any amount received under a Qualified Contract,
which is included in income, may be subject to a penalty. The amount of the
penalty is equal to 10% of the amount that is includible in income. Some
withdrawals will be exempt from the penalty. They include any amounts:
1) paid on or after you reach age 591/2;
2) paid after you die;
3) paid if you become totally disabled (as that term is defined in the Code);
4) paid to you after leaving your employment in a series of substantially equal
periodic payments made annually (or more frequently) under a lifetime
annuity;
5) paid to you after you have attained age 55 and you have left your employment;
6) paid for certain allowable medical expenses (as defined in the Code);
7) paid pursuant to a qualified domestic relations order;
8) paid on account of an IRS levy upon the Qualified Contract;
9) paid from an IRA for medical insurance (as defined in the Code);
10)paid from an IRA for qualified higher education expenses; or
11)paid from an IRA for up to $10,000 for qualified first-time homebuyer
expenses (as defined in the Code).
The exceptions in 5) and 7) above do not apply to IRAs. The exception in 4)
above applies to IRAs but without the requirement of leaving employment.
We have provided a more complete discussion in the Statment of Additional
Information.
WITHDRAWALS -- TAX-SHELTERED ANNUITIES
The Code limits the withdrawal of amounts attributable to Purchase Payments made
under a salary reduction agreement by Contract Owners from Tax-Sheltered
Annuities. Withdrawals can only be made when a Contract Owner:
1) reaches age 591/2;
2) leaves his/her job;
3) dies;
4) becomes disabled (as that term is defined in the Code); or
5) in the case of hardship.
However, in the case of hardship, you can only withdraw the Purchase Payments
and not any earnings.
DIVERSIFICATION
The Code provides that the underlying investments for a variable annuity must
satisfy certain diversification requirements in order to be treated as an
annuity contract. Preferred Life believes that the Portfolios are being managed
so as to comply with the requirements.
Neither the Code nor the Internal Revenue Service Regulations issued to date
provide guidance as to the circumstances under which you, because of the degree
of control you exercise over the underlying investments, and not Preferred Life,
would be considered the owner of the shares of the Portfolios. If you are
considered the owner of the shares, it will result in the loss of the favorable
tax treatment for the Contract. It is unknown to what extent under federal tax
law Contract Owners are permitted to select Portfolios, to make transfers among
the Portfolios or the number and type of Portfolios Contract Owners may select
from without being considered the owner of the shares. If any guidance is
provided which is considered a new position, then the guidance would generally
be applied prospectively. However, if such guidance is considered not to be a
new position, it may be applied retroactively. This would mean that you, as the
owner of the Contract, could be treated as the owner of the Portfolios.
Due to the uncertainty in this area, Preferred Life reserves the right to modify
the Contract in an attempt to maintain favorable tax treatment.
ACCESS TO YOUR MONEY
- --------------------------------------------------------------------------------
You can have access to the money in your Contract:
1) by making a withdrawal (either a partial or a total withdrawal);
2) by receiving Annuity Payments; or
3) when a death benefit is paid to your Beneficiary.
Withdrawals can only be made during the Accumulation Phase.
When you make a complete withdrawal you will receive the value of the Contract
on the day you made the withdrawal, less any applicable contingent deferred
sales charge and less any contract maintenance charge. (See "Expenses" for a
discussion of the charges.)
Unless you instruct Preferred Life otherwise, a partial withdrawal will be made
pro-rata from all the Variable Options you selected.
We will pay the amount of any withdrawal from the Variable Options within seven
(7) days of when we receive your request in good order unless the Suspension of
Payments or Transfers provision is in effect (see below).
INCOME TAXES, TAX PENALTIES AND CERTAIN RESTRICTIONS MAY APPLY TO ANY WITHDRAWAL
YOU MAKE.
There are limits to the amount you can withdraw from a Qualified plan referred
to as a 403(b) plan. For a more complete explanation see "Taxes" and the
discussion in the SAI.
SYSTEMATIC WITHDRAWAL PROGRAM
If the value of your Contract is at least $25,000, Preferred Life offers a
program which provides automatic monthly or quarterly payments to you each year.
The total systematic withdrawals which you can make each year without Preferred
Life deducting a contingent deferred sales charge are limited to 9% of the value
of your Contract. However, we may increase the 9% limit to allow you to make
systematic withdrawals to meet the applicable minimum distribution requirements
for Qualified Contracts. If you make withdrawals under this program, you may not
also use the 15% free withdrawal amount that year. All systematic withdrawals
will be made on the 9th day of the month unless it is not a business day. If it
is not, then the withdrawal will be made on the previous business day. For a
discussion of the contingent deferred sales charge and the 15% free withdrawal
amount, see "Expenses." Preferred Life reserves the right to modify the
eligibility rules of this program at any time without notice.
INCOME TAXES, TAX PENALTIES AND CERTAIN RESTRICTIONS MAY APPLY TO SYSTEMATIC
WITHDRAWALS.
MINIMUM DISTRIBUTION PROGRAM
If you own a Contract that is an Individual Retirement Annuity (IRA), you may
select the Minimum Distribution Program. Under this program, Preferred Life will
make payments to you from your Contract that are designed to meet the applicable
minimum distribution requirements imposed by the Code for IRAs. If the value of
your Contract is at least $25,000, Preferred Life will make payments to you on a
monthly or quarterly basis. The payments will not be subject to the contingent
deferred sales charge and will be instead of the 15% free withdrawal amount.
SUSPENSION OF PAYMENTS OR TRANSFERS
Preferred Life may be required to suspend or postpone payments for withdrawals
or transfers for any period when:
1) the New York Stock Exchange is closed (other than customary weekend and
holiday closings);
2) trading on the New York Stock Exchange is restricted;
3) an emergency exists as a result of which disposal of the Portfolio shares is
not reasonably practicable or Preferred Life cannot reasonably value the
Portfolio shares;
4) during any other period when the Securities and Exchange Commission, by
order, so permits for the protection of Contract Owners.
Preferred Life has reserved the right to defer payment for a withdrawal or
transfer from the Fixed Account for the period permitted by law but not for more
than six months.
PERFORMANCE
- --------------------------------------------------------------------------------
Preferred Life periodically advertises performance of the Variable Options.
Preferred Life will calculate performance by determining the percentage change
in the value of an Accumulation Unit by dividing the increase (decrease) for
that unit by the value of the Accumulation Unit at the beginning of the period.
This performance number reflects the deduction of the insurance charges and the
Portfolio expenses. It does not reflect the deduction of any applicable
contingent deferred sales charge and contract maintenance charge. The deduction
of any applicable contract maintenance charge and contingent deferred sales
charges would reduce the percentage increase or make greater any percentage
decrease. Any advertisement will also include average annual total return
figures which reflect the deduction of the insurance charges, contract
maintenance charge, contingent deferred sales charges and the expenses of the
Portfolios. Preferred Life may also advertise cumulative total return
information. Cumulative total return is determined the same way except that the
results are not annualized. Performance information for the underlying
Portfolios may also be advertised; see the fund prospectuses for more
information.
Certain Portfolios have been in existence for some time and have investment
performance history. In order to demonstrate how the actual investment
experience of the Portfolios may affect your Accumulation Unit Values, Preferred
Life has prepared performance information. The performance is based on the
historical performance of the Portfolios, modified to reflect the charges and
expenses of your Contract as if the Contract had been in existence for the time
periods shown. The inception dates of the Portfolios pre-date the inception
dates of the corresponding Variable Options. For periods starting prior to the
date the Variable Options invested in the Portfolio, the performance is based on
the historical performance of the corresponding Portfolio.
Preferred Life may in the future also advertise yield information. If it does,
it will provide you with information regarding how yield is calculated. More
detailed information regarding how performance is calculated is found in the
SAI.
Any performance advertised will be based on historical data. It does not
guarantee future results of the Portfolios.
DEATH BENEFIT
- --------------------------------------------------------------------------------
DEATH OF CONTRACT OWNER
If you die during the Accumulation Phase, Preferred Life will pay a death
benefit to your Beneficiary (see below). No death benefit is paid if you die
during the Payout Phase. We will determine the value of the death benefit as of
the end of the business day we receive both due proof of death and a payment
election at our USAllianz Service Center.
The guaranteed death benefit is:
o on the day we issue your Contract, the guaranteed death benefit is equal to
the Purchase Payments you have made.
o after the date we issue your Contract, the guaranteed death benefit will be
the sum of all Purchase Payments you have made, less any withdrawals.
The guaranteed death benefit will never be less than the value of your Contract
as of the most recent five year Contract anniversary before the earlier of:
o the date of your death, or
o the date of your 81st birthday, plus subsequent Purchase Payments you have
made less withdrawals.
The Beneficiary may, at any time before the end of a sixty (60) day period after
Preferred Life receives proof of death, elect the death benefit to be paid under
one of the following options:
A. Lump sum payment of the death benefit. The value of the death benefit is
equal to the greater of the guaranteed death benefit or the surrender value
as of the end of the business day we receive both due proof of death and a
payment election.
B. The payment of the entire death benefit within 5 years of the date of the
Contract Owner's death. We determine the value of the death benefit under
Option B by comparing the guaranteed death benefit to the Contract value as
of the end of the business day we receive both due proof of death and a
payment election. If the Contract value is greater, it will be the death
benefit. We will reduce any distribution of such death benefit by the sum of
any contract maintenance charges and contingent deferred sales charges. If
the guaranteed death benefit is greater, it will be the death benefit. After
the death benefit is calculated, it will be subject to market risk. We will
not accept any additional Purchase Payments after the Contract Owner dies.
C. Payment over the lifetime of the designated Beneficiary or over a period not
extending beyond the life expectancy of the designated Beneficiary with
distribution beginning within one year of the date of death of the Contract
Owner (see "Annuity Payments (The Payout Phase) -- Annuity Options"). We
determine the value of the death benefit under Option C by comparing the
guaranteed death benefit to the Contract value as of the end of the business
day we receive both due proof of death and a payment election. If the
Contract value is greater, we will treat it as the death benefit. If the
guaranteed death benefit is greater, it will be the death benefit.
D. If the Beneficiary is your spouse, he/she can elect to continue the Contract
in his/her own name. We deter- mine the value of the death benefit under
Option D by comparing the guaranteed death benefit to the Contract value as
of the end of the business day we receive both due proof of death and a
payment election. If the Contract value is greater, it will remain the
Contract value. If the guaranteed death benefit is greater, it will become
the new Contract value. Any distribution to the new Contract Owner will be
reduced by the sum of any applicable contract maintenance charges and
contingent deferred sales charges.
If the Beneficiary does not elect a payment option, we will make a single sum
settlement at the end of the sixty (60) day period following the date we receive
proof of death. Some states, including New York, require the submission of tax
forms in connection with death benefit proceeds under certain circumstances. We
may delay paying a death benefit pending receipt of any applicable tax consents
and/or forms.
In those Contracts where a Contingent Owner is named, in the event of your death
before the Income Date, the Contingent Owner (if any) becomes the designated
Beneficiary and we will treat any other Beneficiary as a contingent Beneficiary,
unless you indicate otherwise. Only your spouse can be a Contingent Owner. If
there is no surviving Contingent Owner, the death benefit is payable to the
Beneficiary you designate.
DEATH OF ANNUITANT
If the Annuitant, who is not a Contract Owner, dies on or before the Income
Date, you may name a new Annuitant. If you do not designate a new Annuitant, you
will become the Annuitant. However, if the Contract Owner is a non-natural
person (e.g., a corporation), then for purposes of the death benefit, the death
of the Annuitant will be treated as the death of the Contract Owner, and a new
Annuitant may not be named.
If the Annuitant dies on or after the Income Date, the remaining amounts
payable, if any, will be as provided for in the Annuity Option selected. We will
require proof of the Annuitant's death. The remaining amounts payable will be
paid at least as rapidly as they were being paid at the Annuitant's death.
OTHER INFORMATION
- --------------------------------------------------------------------------------
PREFERRED LIFE
Preferred Life Insurance Company of New York (Preferred Life) is a stock life
insurance company organized under the laws of the state of New York. Preferred
Life is a wholly-owned subsidiary of Allianz Life Insurance Company of North
America (Allianz Life). Allianz Life is headquartered in Minneapolis, Minnesota.
Allianz Life is a wholly-owned subsidiary of Allianz Versicherungs-AG Holding.
Preferred Life is authorized to do direct business in six states, including New
York, and the District of Columbia. Preferred Life offers group life, group
accident and health insurance and variable annuity products.
THE SEPARATE ACCOUNT
Preferred Life established a separate account named Preferred Life Variable
Account C (Separate Account) to hold the assets that underlie the Contract,
except assets allocated to the Fixed Account. The Board of Directors of
Preferred Life adopted a resolution to establish the Separate Account on
February 26, 1988. Preferred Life has registered the Separate Account with the
Securities and Exchange Commission as a unit investment trust under the
Investment Company Act of 1940. The Separate Account is divided into Variable
Options (also known as sub-accounts). Each Variable Option invests in one
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 Contract 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 Contract and not against any other contracts
Preferred Life may issue.
DISTRIBUTION
USAllianz Investor Services, LLC (formerly NALAC Financial Plans, LLC), 1750
Hennepin Avenue, Minneapolis, MN 55403, acts as the distributor of the
Contracts. USAllianz Investor Services, LLC, is an affiliate of Preferred Life.
Commissions will be paid to broker-dealers who sell the Contracts.
Broker-dealers will be paid commissions up to 7.0% of Purchase Payments. The New
York Insurance Department permits asset-based compensation. Preferred Life may
adopt an asset-based compensation program in - addition to, or instead of, the
present compensation program. Commissions may be recovered from broker-dealers
if a full or partial withdrawal occurs within 12 months of a Purchase Payment or
there is a recission of the Contract within the Free-Look period.
ADMINISTRATION
Preferred Life has hired Delaware Valley Financial Services, Inc., 300 Berwyn
Park, Berwyn, Pennsylvania, to perform certain administrative services regarding
the Contracts. The administrative services include issuance of the Contracts and
maintenance of Contract Owner's records.
FINANCIAL STATEMENTS
The financial statements of Preferred Life and the Separate Account have been
included in the Statement of Additional Information.
TABLE OF CONTENTS
OF THE STATEMENT OF
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
Company 2
Experts 2
Legal Opinions 2
Distribution 2
Reduction or Elimination of the
Contingent Deferred Sales Charge 2
Calculation of Performance Data 2
Federal Tax Status 7
Annuity Provisions 12
Financial Statements 13
<PAGE>
<TABLE>
<CAPTION>
24
APPENDIX
- ------------------------------------------------------------------------------------------------------------------------
CONDENSED FINANCIAL INFORMATION
The financial statements of Preferred Life and the financial statements of the Separate Account may be found in the
Statement of Additional Information.
The table below includes Accumulation Unit values for the periods indicated.
This information should be read in conjunction with the financial statements and related notes to the Separate
Account included in the Statement of Additional Information.
(NUMBER OF UNITS IN THOUSANDS) ALGER FRANKLIN FRANKLIN FRANKLIN
AIM ALGER AMERICAN GLOBAL GLOBAL GROWTH & FRANKLIN FRANKLIN
V.I. AMERICAN LEVERAGED COMM HEALTH CARE INCOME HIGH INCOME
VARIABLE OPTIONS GROWTH GROWTH ALLCAP SECURITIES SECURITIES SECURITIES INCOME SECURITIES
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Unit value at beginning of period $10.000* $10.000* $10.000* $28.308 $10.610 $26.226 $21.208 $25.122
Unit value at end of period $11.084 $10.922 $12.160 $38.917 $9.615 $26.147 $20.900 $24.323
Number of units outstanding
at end of period 36 36 18 2,088 47 3,184 1,276 2,248
YEAR ENDED DEC. 31, 1998
Unit value at beginning of period NA NA NA $25.818 $10.000 $24.551 $21.312 $25.065
Unit value at end of period NA NA NA $28.308 $10.610 $26.226 $21.208 $25.122
Number of units outstanding
at end of period NA NA NA 2,843 26 4,289 1,783 3,263
YEAR ENDED DEC. 31, 1997
Unit value at beginning of period NA NA NA $20.654 NA $19.490 $19.375 $21.708
Unit value at end of period NA NA NA $25.818 NA $24.551 $21.312 $25.065
Number of units outstanding
at end of period NA NA NA 3,699 NA 4,952 2,110 3,991
YEAR ENDED DEC. 31, 1996
Unit value at beginning of period NA NA NA $19.565 NA $17.310 $17.252 $19.785
Unit value at end of period NA NA NA $20.654 NA $19.490 $19.375 $21.708
Number of units outstanding
at end of period NA NA NA 4,998 NA 5,070 2,164 4,519
YEAR ENDED DEC. 31, 1995
Unit value at beginning of period NA NA NA $15.104 NA $13.215 $14.608 $16.392
Unit value at end of period NA NA NA $19.565 NA $17.310 $17.252 $19.785
Number of units outstanding
at end of period NA NA NA 5,916 NA 4,346 2,075 4,567
YEAR ENDED DEC. 31, 1994
Unit value at beginning of period NA NA NA $17.319 NA $13.677 $15.155 $17.734
Unit value at end of period NA NA NA $15.104 NA $13.215 $14.608 $16.392
Number of units outstanding
at end of period NA NA NA 6,317 NA 3,452 1,710 4,416
YEAR ENDED DEC. 31, 1993
Unit value at beginning of period NA NA NA $15.889 NA $12.574 $13.278 $15.163
Unit value at end of period NA NA NA $17.319 NA $13.677 $15.155 $17.734
Number of units outstanding
at end of period NA NA NA 7,479 NA 2,402 1,135 2,634
YEAR ENDED DEC. 31, 1992
Unit value at beginning of period NA NA NA $14.821 NA $11.949 $11.583 $13.580
Unit value at end of period NA NA NA $15.889 NA $12.574 $13.278 $15.163
Number of units outstanding
at end of period NA NA NA 2,519 NA 1,227 266 668
PERIOD FROM INCEPTION* TO DEC. 31, 1991
Unit value at beginning of period NA NA NA $13.234 NA $11.061 $11.043 $12.811
Unit value at end of period NA NA NA $14.821 NA $11.949 $11.583 $13.580
Number of units outstanding
at end of period NA NA NA 166 NA 125 37 35
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Variable Annuity Prospectus 25
(NUMBER OF UNITS IN THOUSANDS) FRANKLIN FRANKLIN FRANKLIN
LARGE CAP FRANKLIN NATURAL FRANKLIN RISING FRANKLIN FRANKLIN FRANKLIN
GROWTH MONEY RESOURCES REAL DIVIDENDS S&P 500 SMALL U.S.
VARIABLE OPTIONS SECURITIES MARKET SECURITIES ESTATE SECURITIES INDEX CAP GOVERNMENT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Unit value at beginning of period $15.574 $14.386 $8.505 $23.107 $21.165 $10.000* $14.600 $19.014
Unit value at end of period $20.218 $14.860 $11.092 $21.386 $18.846 $10.467 $28.353 $18.574
Number of units outstanding
at end of period 1,325 1,593 268 466 2,207 47 783 2,761
YEAR ENDED DEC. 31, 1998
Unit value at beginning of period $13.130 $13.865 $11.559 $28.169 $20.074 NA $14.952 $17.947
Unit value at end of period $15.574 $14.386 $8.505 $23.107 $21.165 NA $14.600 $19.014
Number of units outstanding
at end of period 1,016 2,168 415 708 3,176 NA 1,012 3,787
YEAR ENDED DEC. 31, 1997
Unit value at beginning of period $11.254 $13.359 $14.467 $23.668 $15.303 NA $12.913 $16.650
Unit value at end of period $13.130 $13.865 $11.559 $28.169 $20.074 NA $14.952 $17.947
Number of units outstanding
at end of period 622 2,155 458 942 3,489 NA 938 4,844
YEAR ENDED DEC. 31, 1996
Unit value at beginning of period $10.214* $12.883 $14.109 $18.073 $12.498 NA $12.517* $16.298
Unit value at end of period $11.254 $13.359 $14.467 $23.668 $15.303 NA $12.913 $16.650
Number of units outstanding
at end of period 225 2,433 566 859 3,394 NA 416 6,017
YEAR ENDED DEC. 31, 1995
Unit value at beginning of period NA $12.354 $13.979 $15.594 $9.769 NA NA $13.835
Unit value at end of period NA $12.883 $14.109 $18.073 $12.498 NA NA $16.298
Number of units outstanding
at end of period NA 2,218 516 794 3,182 NA NA 5,089
YEAR ENDED DEC. 31, 1994
Unit value at beginning of period NA $12.066 $14.464 $15.369 $10.327 NA NA $14.698
Unit value at end of period NA $12.354 $13.979 $15.594 $9.769 NA NA $13.835
Number of units outstanding
at end of period NA 2,487 647 900 2,936 NA NA 5,331
YEAR ENDED DEC. 31, 1993
Unit value at beginning of period NA $11.932 $9.424 $13.095 $10.848 NA NA $13.586
Unit value at end of period NA $12.066 $14.464 $15.369 $10.327 NA NA $14.698
Number of units outstanding
at end of period NA 627 391 437 2,772 NA NA 6,108
YEAR ENDED DEC. 31, 1992
Unit value at beginning of period NA $11.742 $10.635 $11.848 $9.992* NA NA $12.798
Unit value at end of period NA $11.932 $9.424 $13.095 $10.848 NA NA $13.586
Number of units outstanding
at end of period NA 301 30 77 617 NA NA 2,266
PERIOD FROM INCEPTION* TO DEC. 31, 1991
Unit value at beginning of period NA $11.623 $10.433 $10.787 NA NA NA $12.036
Unit value at end of period NA $11.742 $10.635 $11.848 NA NA NA $12.798
Number of units outstanding
at end of period NA 62 5 8 NA NA NA 213
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
26
(NUMBER OF UNITS IN THOUSANDS) FRANKLIN FRANKLIN FRANKLIN TEMPLETON
FRANKLIN ZERO ZERO ZERO MUTUAL MUTUAL TEMPLETON DEVELOPING
VALUE COUPON COUPON COUPON DISCOVERY SHARES ASSET MARKETS
VARIABLE OPTIONS SECURITIES 2000 2005 2010 SECURITIES SECURITIES STRATEGY SECURITIES
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Unit value at beginning of period $7.717 $20.684 $25.003 $27.920 $11.226 $11.837 $13.589 $7.993
Unit value at end of period $7.736 $21.023 $23.205 $24.164 $13.701 $13.237 $14.408 $12.188
Number of units outstanding
at end of period 35 519 259 197 810 1,879 228 615
YEAR ENDED DEC. 31, 1998
Unit value at beginning of period $10.000 $19.512 $22.532 $24.740 $11.983 $11.993 $13.786 $10.340
Unit value at end of period $7.717 $20.684 $25.003 $27.920 $11.226 $11.837 $13.589 $7.993
Number of units outstanding
at end of period 19 723 349 272 1,127 2,264 318 749
YEAR ENDED DEC. 31, 1997
Unit value at beginning of period NA $18.475 $20.517 $21.522 $10.180 $10.330 $12.514 $11.487
Unit value at end of period NA $19.512 $22.532 $24.740 $11.983 $11.993 $13.786 $10.340
Number of units outstanding
at end of period NA 1,087 345 292 924 1,823 424 1,160
YEAR ENDED DEC. 31, 1996
Unit value at beginning of period NA $18.294 $20.914 $22.431 $10.122* $10.112* $10.591 $9.582
Unit value at end of period NA $18.475 $20.517 $21.522 $10.180 $10.330 $12.514 $11.487
Number of units outstanding
at end of period NA 1,358 428 348 27 43 300 1,042
YEAR ENDED DEC. 31, 1995
Unit value at beginning of period NA $15.373 $16.096 $15.930 NA NA $10.322* $9.454
Unit value at end of period NA $18.294 $20.914 $22.431 NA NA $10.591 $9.582
Number of units outstanding
at end of period NA 1,416 456 372 NA NA 36 757
YEAR ENDED DEC. 31, 1994
Unit value at beginning of period NA $16.717 $18.050 $18.144 NA NA NA $9.994*
Unit value at end of period NA $15.373 $16.096 $15.930 NA NA NA $9.454
Number of units outstanding
at end of period NA 1,158 403 252 NA NA NA 591
YEAR ENDED DEC. 31, 1993
Unit value at beginning of period NA $14.595 $14.975 $14.670 NA NA NA NA
Unit value at end of period NA $16.717 $18.050 $18.144 NA NA NA NA
Number of units outstanding
at end of period NA 795 341 193 NA NA NA NA
YEAR ENDED DEC. 31, 1992
Unit value at beginning of period NA $13.570 $13.705 $13.482 NA NA NA NA
Unit value at end of period NA $14.595 $14.975 $14.670 NA NA NA NA
Number of units outstanding
at end of period NA 397 108 60 NA NA NA NA
PERIOD FROM INCEPTION* TO DEC. 31, 1991
Unit value at beginning of period NA $12.274 $12.369 $12.013 NA NA NA NA
Unit value at end of period NA $13.570 $13.705 $13.482 NA NA NA NA
Number of units outstanding
at end of period NA 6 3 1 NA NA NA NA
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Variable Annuity Prospectus 27
TEMPLETON TEMPLETON USALLIANZ USALLIANZ
GLOBAL TEMPLETON TEMPLETON TEMPLETON PACIFIC VIP VIP USALLIANZ
INCOME GROWTH INTERNT'L INTERNT'L GROWTH DIVERSIFIED FIXED VIP
VARIABLE OPTIONS SECURITIES SECURITIES SECURITIES SMALLER COS SECURITIES ASSETS INCOME GROWTH
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Unit value at beginning of period $17.905 $16.309 $18.437 $9.364 $8.078 $10.000* $10.000* $10.000*
Unit value at end of period $16.635 $19.466 $23.022 $11.441 $10.915 $10.170 $ 9.751 $10.733
Number of units outstanding
at end of period 542 1,859 2,034 101 659 0 0 0
YEAR ENDED DEC. 31, 1998
Unit value at beginning of period $16.957 $15.176 $17.711 $10.825 $9.431 NA NA NA
Unit value at end of period $17.905 $16.309 $18.437 $9.364 $8.078 NA NA NA
Number of units outstanding
at end of period 787 2,239 2,938 114 821 NA NA NA
YEAR ENDED DEC. 31, 1997
Unit value at beginning of period $16.781 $13.560 $16.081 $11.145 $14.932 NA NA NA
Unit value at end of period $16.957 $15.176 $17.711 $10.825 $9.431 NA NA NA
Number of units outstanding
at end of period 1,072 2,594 4,063 173 1,251 NA NA NA
YEAR ENDED DEC. 31, 1996
Unit value at beginning of period $15.522 $11.339 $13.263 $10.174* $13.630 NA NA NA
Unit value at end of period $16.781 $13.560 $16.081 $11.145 $14.932 NA NA NA
Number of units outstanding
at end of period 1,354 2,146 4,375 65 1,751 NA NA NA
YEAR ENDED DEC. 31, 1995
Unit value at beginning of period $13.726 $10.201 $12.161 NA $12.802 NA NA NA
Unit value at end of period $15.522 $11.339 $13.263 NA $13.630 NA NA NA
Number of units outstanding
at end of period 1,472 1,417 4,073 NA 1,811 NA NA NA
YEAR ENDED DEC. 31, 1994
Unit value at beginning of period $14.650 $9.984* $12.226 NA $14.233 NA NA NA
Unit value at end of period $13.726 $10.201 $12.161 NA $12.802 NA NA NA
Number of units outstanding
at end of period 1,667 921 4,079 NA 2,112 NA NA NA
YEAR ENDED DEC. 31, 1993
Unit value at beginning of period $12.733 NA $9.642 NA $9.761 NA NA NA
Unit value at end of period $14.650 NA $12.226 NA $14.233 NA NA NA
Number of units outstanding
at end of period 1,045 NA 1,346 NA 915 NA NA NA
YEAR ENDED DEC. 31, 1992
Unit value at beginning of period $12.962 NA $9.992* NA $9.992* NA NA NA
Unit value at end of period $12.733 NA $9.642 NA $9.761 NA NA NA
Number of units outstanding
at end of period 406 NA 88 NA 58 NA NA NA
PERIOD FROM INCEPTION*
TO DEC. 31, 1991
Unit value at beginning of period $12.296 NA NA NA NA NA NA NA
Unit value at end of period $12.962 NA NA NA NA NA NA NA
Number of units outstanding
at end of period 47 NA NA NA NA NA NA NA
<FN>
* Unit Value at inception
Accumulation Unit Value at the inception was $10.00 for each Variable Option. The inception date for all Variable
Options, except those noted below, was September 6, 1991. Inception was 3/10/92 for Franklin Rising Dividends
Securities, Templeton International Securities and Templeton Pacific Growth Securities; 4/25/94 for Templeton
Developing Markets Securities and Templeton Growth Securities; 8/4/95 for Templeton Asset Strategy; 6/10/96 for
Franklin Large Cap Growth Securities, Franklin Small Cap, and Templeton International Smaller Companies; 12/2/96 for
Mutual Discovery Securities and Mutual Shares Securities; 8/17/98 for Franklin Global Health Care Securities and
Franklin Value Securities. The AIM V.I. Growth, Alger American Growth, Alger American Leveraged AllCap, Franklin S&P
500 Index, USAllianz VIP Diversified Assets, USAllianz VIP Fixed Income, and USAllianz VIP Growth Variable Options
commenced operations with the Separate Account November 12, 1999.
There are no accumulation units shown for the Franklin Aggressive Growth Securities Fund and the Franklin Technology
Securities Fund because they commenced operations as of the date of this prospectus, and therefore had no assets as
of December 31, 1999.
</FN>
</TABLE>
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
VALUEMARK II
INDIVIDUAL FLEXIBLE PAYMENT
VARIABLE ANNUITY CONTRACTS
issued by
PREFERRED LIFE VARIABLE ACCOUNT C
and
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
May 1, 2000
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS FOR THE INDIVIDUAL FLEXIBLE PAYMENT
VARIABLE ANNUITY CONTRACTS WHICH ARE REFERRED TO HEREIN.
THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT A PROSPECTIVE INVESTOR
OUGHT TO KNOW BEFORE INVESTING.FOR A COPY OF THE PROSPECTUS, CALL OR WRITE THE
COMPANY AT: 152 West 57th Street, 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
Reduction or Elimination of the
Contingent Deferred Sales Charge 2
Calculation of Performance Data 2
Federal Tax Status 7
Annuity Provisions 12
Financial Statements 13
<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
consolidated 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), a
subsidiary of Allianz Life Insurance Company of North America, the Company's
parent, acts as the distributor. The offering is on a continuous basis.
Reduction or Elimination of the
Contingent Deferred Sales Charge
- --------------------------------------------------------------------------------
The amount of the contingent deferred sales charge on the Contracts may be
reduced or eliminated when sales of the Contracts are made to individuals or to
a group of individuals in a manner that results in savings of sales expenses.
The entitlement to a reduction of the contingent deferred sales charge will be
determined by the Insurance Company after examination of the following factors:
1) the size of the group; 2) the total amount of purchase payments expected to
be received from the group; 3) the nature of the group for which the Contracts
are purchased, and the persistency expected in that group; 4) the purpose for
which the Contracts are purchased and whether that purpose makes it likely that
expenses will be reduced; and 5) any other circumstances which the Company
believes to be relevant to determining whether reduced sales or administrative
expenses may be expected. None of the reductions in charges for sales is
contractually guaranteed.
The contingent deferred sales charge may be eliminated when the Contracts are
issued to an officer, director or employee of the Company or any of its
affiliates. The contingent deferred sales charge may be reduced or eliminated
when the Contract is sold by an agent of the Company to any members of his or
her immediate family and the commission is waived. In no event will any
reduction or elimination of the contingent deferred sales charge be permitted
where the reduction or elimination will be unfairly discriminatory to any
person.
Calculation of Performance Data
- --------------------------------------------------------------------------------
Total Return
From time to time, the Company may advertise the performance data for the
Variable Options (also known as Sub-Accounts) in sales literature,
advertisements, personalized hypothetical illustrations, and Contract Owner
communications. Such data will show the percentage change in the value of an
Accumulation Unit based on the performance of a variable option over a stated
period of time which is determined by dividing the increase (or decrease) in
value for that unit by the Accumulation Unit value at the beginning of the
period.
Any such performance data will 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, the operating expenses of the underlying
Portfolios and any applicable contingent deferred sales charge and contract
maintenance charge ("Standardized Total Return"). The contingent deferred sales
charge and contract maintenance charge deductions are calculated assuming a
Contract is surrendered at the end of the reporting period.
The hypothetical value of a Contract purchased for the time periods described
will be determined by using the actual Accumulation Unit values for an initial
$1,000 purchase payment, and deducting any applicable contingent deferred sales
charge and contract maintenance charge to arrive at the ending hypothetical
value. The average annual total return is then determined by computing the fixed
interest rate that a $1,000 purchase payment would have to earn annually,
compounded annually, to grow to the hypothetical value at the end of the time
periods described. The formula used in these calculations is:
P (1 + T)n = ERV
where:
P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years;
ERV = ending redeemable value of a hypothetical $1,000 purchase payment made at
the beginning of the period at the end of the period.
The Company may also advertise performance data which will be calculated in the
same manner as described above but which will not reflect the deduction of the
contingent deferred sales charge and the contract maintenance charge. Cumulative
total return is calculated in a similar manner as described above except that
the results are not annualized. The Company may also advertise cumulative and
total return information over different periods of time. The Company may also
present performance information computed on a different basis ("Non-Standardized
Total Return").
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 the contract maintenance 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 Accumulation
Unit for a particular period of time (generally seven days). The return is
determined by dividing the net change (exclusive of any capital changes) in such
Accumulation Unit by its beginning value, and then multiplying it by 365/7 to
get the annualized current yield. The calculation of net change reflects the
value of additional shares purchased with the dividends paid by the Portfolio,
and the deduction of the Mortality and Expense Risk Charge, Administrative
Expense Charge and contract maintenance charge.
The effective yield reflects the effects of compounding and represents an
annualization of the current return with all dividends reinvested. (Effective
yield = [(Base Period Return + 1)365/7] -1.)
For the seven-day period ending on 12/31/1999, 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
Accumulation Unit earned during the period (minus the deduction for the
Mortality and Expense Risk Charge, Administrative Expense Charge and contract
maintenance charge) by the Accumulation Unit value on the last day of the period
and annualizing the resulting figure, according to the following formula:
Yield = 2 [((a-b) + 1)6 - 1]
--------------------
Cd
where:
a = net investment income earned during the period by the Variable Option
attributable to shares owned by the Portfolio;
b = expenses accrued for the period (net of reimbursements, if applicable);
c = the average daily number of Accumulation Units outstanding during the
period;
d = the maximum offering price per Accumulation Unit on the last day of the
period.
The above formula will be used in calculating quotations of yield, based on
specified 30-day periods (or one month) identified in the sales literature,
advertisement, or communication. Yield calculations assume that no contingent
deferred sales charges have been deducted (see the Prospectus for information
regarding the contingent deferred sales charge). 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 indices
and data from Lipper Analytical Services, Inc., Standard & Poor's Indices, or
VARDS(R).
From time to time, evaluation of performance by independent sources may also be
used.
Performance Information
Total returns reflect all aspects of a Variable Options'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 returns reflect the deduction of the Mortality and Expense Risk Charge,
Administrative Expense Charge and the operating expenses of each Portfolio and
are shown both with and without the deduction of the contingent deferred sales
charge and contract maintenance charge. 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. 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 to follow 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 to follow 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 to follow reflects the historical performance of the Templeton Global
Asset Allocation Fund.
<PAGE>
<TABLE>
<CAPTION>
Standardized Total Return
Average Annual Total Return for the period ended December 31, 1999: with contingent deferred sales charge and Other
Charges
- ---------------------------------------------------------------------------------------------------------------------------
Sub-Account
Inception One Three Five Ten Since
Variable Option Date Year Year Year Year Inception
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Franklin Global Communications Securities* 1/24/89 33.13% 22.94% 20.73% 12.40% 13.16%
Franklin Global Health Care Securities 5/1/98 -13.73% NA NA NA -4.60%
Franklin Growth and Income Securities* 1/24/89 -4.65% 9.60% 14.51% 9.82% 9.11%
Franklin High Income 1/24/89 -5.81% 1.76% 7.29% 7.56% 6.90%
Franklin Income Securities 1/24/89 -7.53% 3.09% 8.08% 8.41% 8.40%
Franklin Large Cap Growth Securities* 5/1/96 25.47% 20.98% NA NA 20.87%
Franklin Money Market 1/24/89 -1.05% 2.83% 3.61% 3.31% 3.60%
Franklin Natural Resources Securities 1/24/89 26.06% -9.49% -4.73% -1.09% 0.86%
Franklin Real Estate* 1/24/89 -11.80% -4.21% 6.39% 7.44% 7.13%
Franklin Rising Dividends Securities* 1/27/92 -15.31% 6.46% 13.93% NA 8.24%
Franklin Small Cap 11/1/95 89.85% 29.44% NA NA 28.28%
Franklin U.S. Government* 3/14/89 -6.67% 2.93% 5.93% 5.87% 5.82%
Franklin Value Securities 5/1/98 -4.11% NA NA NA -16.74%
Franklin Zero Coupon - 2000 3/14/89 -2.71% 3.63% 6.32% 6.66% 7.05%
Franklin Zero Coupon - 2005 3/14/89 -11.54% 3.42% 7.46% 7.29% 8.03%
Franklin Zero Coupon - 2010 3/14/89 -17.81% 3.16% 8.56% 7.65% 8.44%
Mutual Discovery Securities 11/8/96 17.69% 9.71% NA NA 10.10%
Mutual Shares Securities 11/8/96 7.48% 7.90% NA NA 8.90%
Templeton Asset Strategy* 5/1/95 1.68% 4.05% NA NA 7.98%
Templeton Developing Markets Securities* 3/15/94 48.14% 1.16% 5.05% NA 3.36%
Templeton Global Income Securities 1/24/89 -11.45% -1.13% 3.77% 4.32% 4.69%
Templeton Growth Securities* 3/15/94 15.01% 12.14% 13.67% NA 12.09%
Templeton International Securities* 1/27/92 20.52% 12.03% 13.49% NA 11.01%
Templeton International Smaller Companies 5/1/96 17.83% 0.04% NA NA 3.34%
Templeton Pacific Growth Securities* 1/27/92 30.77% -10.98% -3.34% NA 1.02%
<FN>
*The fund name changed since the last Statement of Additional Information update
as of the effective date listed below:
Current Name Previous Name Effective Date
----------------------------------------------------------------------------------------------------------
Franklin Global Communications Securities Fund Franklin Global Utilities Securities Fund 11-15-1999
Franklin Growth and Income Securities Fund Franklin Growth and Income Fund 05-01-2000
Franklin Large Cap Growth Securities Fund Franklin Capital Growth Fund 12-15-1999
Franklin Real Estate Fund Franklin Real Estate Securities Fund 11-15-1999
Franklin Rising Dividends Securities Fund Franklin Rising Dividends Fund 11-15-1999
Franklin U.S. Government Fund Franklin U.S. Government Securities Fund 11-15-1999
Templeton Asset Strategy Fund Templeton Global Asset Allocation Fund 05-01-2000
Templeton Developing Markets Securities Fund Templeton Developing Markets Equity Fund 05-01-2000
Templeton Growth Securities Fund Templeton Global Growth Fund 05-01-2000
Templeton International Securities Fund Templeton International Equity Fund 05-01-2000
Templeton Pacific Growth Securities Fund Templeton Pacific Growth Fund 05-01-2000
There is no performance shown for the AIM V.I. Growth, Alger American Growth, Alger American Leveraged AllCap, Franklin
S&P 500 Index, USAllianz VIP Diversified Assets, USAllianz VIP Fixed Income, and USAllianz VIP Growth Sub-Accounts
because they were first offered under the Contract on November 12, 1999.
The Franklin Aggressive Growth Securities and Franklin Technology Securities Sub-Accounts commenced operations on May 1,
2000.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Non-Standardized Total Return
Total Return for the period ended December 31, 1999: Without contingent deferred sales charge or contract maintenance
charge
Annual Total Return
- ---------------------------------------------------------------------------------------------------------------------------
Sub-Account
Inception One Three Five Ten Since
Variable Option Date Year Year Year Year Inception
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Franklin Global Communications Securities* 1/24/89 37.48% 23.51% 20.84% 12.48% 13.23%
Franklin Global Health Care Securities 5/1/98 -9.38% NA NA NA -2.32%
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 Natural Resources Securities 1/24/89 30.41% -8.48% -4.52% -0.99% 0.95%
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 U.S. Government* 3/14/89 -2.32% 3.71% 6.07% 5.94% 5.90%
Franklin Value Securities 5/1/98 0.24% NA NA NA -14.26%
Franklin Zero Coupon - 2000 3/14/89 1.64% 4.40% 6.46% 6.73% 7.12%
Franklin Zero Coupon - 2005 3/14/89 -7.19% 4.19% 7.59% 7.36% 8.10%
Franklin Zero Coupon - 2010 3/14/89 -13.46% 3.93% 8.69% 7.72% 8.51%
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 Global Income Securities 1/24/89 -7.10% -0.29% 3.92% 4.40% 4.76%
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 fund name changed since the last Statement of Additional Information update as of the effective date listed below:
Current Name Previous Name Effective Date
----------------------------------------------------------------------------------------------------------
Franklin Global Communications Securities Fund Franklin Global Utilities Securities Fund 11-15-1999
Franklin Growth and Income Securities Fund Franklin Growth and Income Fund 05-01-2000
Franklin Large Cap Growth Securities Fund Franklin Capital Growth Fund 12-15-1999
Franklin Real Estate Fund Franklin Real Estate Securities Fund 11-15-1999
Franklin Rising Dividends Securities Fund Franklin Rising Dividends Fund 11-15-1999
Franklin U.S. Government Fund Franklin U.S. Government Securities Fund 11-15-1999
Templeton Asset Strategy Fund Templeton Global Asset Allocation Fund 05-01-2000
Templeton Developing Markets Securities Fund Templeton Developing Markets Equity Fund 05-01-2000
Templeton Growth Securities Fund Templeton Global Growth Fund 05-01-2000
Templeton International Securities Fund Templeton International Equity Fund 05-01-2000
Templeton Pacific Growth Securities Fund Templeton Pacific Growth Fund 05-01-2000
There is no performance shown for the AIM V.I. Growth, Alger American Growth, Alger American Leveraged AllCap, Franklin
S&P 500 Index, USAllianz VIP Diversified Assets, USAllianz VIP Fixed Income, and USAllianz VIP Growth Sub-Accounts
because they were first offered under the Contract on November 12, 1999.
The Franklin Aggressive Growth Securities and Franklin Technology Securities Sub-Accounts commenced operations on May 1,
2000.
</FN>
You should note that investment results will fluctuate over time, and any presentation of total return for any period
should not be considered as a representation of what an investment may earn or what your total return may be in any
future period.
</TABLE>
<PAGE>
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 herein may be applicable in certain situations. Moreover, no
attempt has been made to consider any applicable state or other tax laws.
General
Section 72 of the Internal Revenue Code of 1986, as amended ("Code") governs
taxation of annuities in general. A Contract Owner is not taxed on increases in
the value of a Contract until distribution occurs, either in the form of a lump
sum payment or as annuity payments under the Annuity Option elected. For a lump
sum payment received as a total surrender (total redemption) or death benefit,
the recipient is taxed on the portion of the payment that exceeds the cost basis
of the Contract. For Non-Qualified Contracts, this cost basis is generally the
purchase payments, while for Qualified Contracts there may be no cost basis. The
taxable portion of the lump sum payment is taxed at ordinary income tax rates.
For annuity payments, a portion of each payment in excess of an exclusion amount
is includible in taxable income. The exclusion amount for payments based on a
fixed annuity option is determined by multiplying the payment by the ratio that
the cost basis of the Contract (adjusted for any period certain or refund
feature) bears to the expected return under the Contract. The exclusion amount
for payments based on a variable annuity option is determined by dividing the
cost basis of the Contract (adjusted for any period certain or refund guarantee)
by the number of years over which the annuity is expected to be paid. Payments
received after the investment in the Contract has been recovered (i.e. when the
total of the excludible amounts equal the investment in the Contract) are fully
taxable. The taxable portion is taxed at ordinary income rates. For certain
types of Qualified Plans there may be no cost basis in the Contract within the
meaning of Section 72 of the Code. Contract Owners, annuitants and beneficiaries
under the Contracts should seek competent financial advice about the tax
consequences of any distributions.
The Company is taxed as a life insurance company under the Code. For federal
income tax purposes, the Separate Account is not a separate entity from the
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 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 underlying the Contracts will be managed
by the investment advisers in such a manner as to comply with these
diversification requirements.
The Treasury Department has indicated that the diversification Regulations do
not provide guidance regarding the circumstances in which Contract Owner control
of the investments of the Separate Account will cause the Contract Owner to be
treated as the owner of the assets of the Separate Account, thereby resulting in
the loss of favorable tax treatment for the Contract. At this time it cannot be
determined whether additional guidance will be provided and what standards may
be contained in such guidance.
The amount of Contract Owner control which may be exercised under the Contract
is different in some respects from the situations addressed in published rulings
issued by the Internal Revenue Service in which it was held that the policy
owner was not the owner of the assets of the separate account. It is unknown
whether these differences, such as the Contract Owner's ability to transfer
among investment choices or the number and type of investment choices available,
would cause the Contract Owner to be considered as the owner of the assets of
the Separate Account resulting in the imposition of federal income tax to the
Contract Owner with respect to earnings allocable to the Contract prior to
receipt of payments under the Contract.
In the event any forthcoming guidance or ruling is considered to set forth a new
position, such guidance or ruling will generally be applied only prospectively.
However, if such ruling or guidance was not considered to set forth a new
position, it may be applied retroactively resulting in the Contract Owner being
retroactively determined to be the owner of the assets of the Separate Account.
Due to the uncertainty in this area, the Company reserves the right to modify
the Contract in an attempt to maintain favorable tax treatment.
Multiple Contracts
The Code provides that multiple non-qualified annuity contracts which are issued
within a calendar year period to the same contract owner by one company or its
affiliates are treated as one annuity contract for purposes of determining the
tax consequences of any distribution. Such treatment may result in adverse tax
consequences, including more rapid taxation of the distributed amounts from such
combination of contracts. For purposes of this rule, contracts received in a
Section 1035 exchange will be considered issued in the year of the exchange.
Contract Owners should consult a tax adviser prior to purchasing more than one
non-qualified annuity contract in any calendar year period.
Contracts Owned by Other than Natural Persons
Under Section 72(u) of the Code, the investment earnings on purchase payments
for the Contracts will be taxed currently to the Contract Owner if the Owner is
a non-natural person, e.g., a corporation or certain other entities. Such
Contracts generally will not be treated as annuities for federal income tax
purposes. However, this treatment is not applied to Contracts held by a trust or
other entity as an agent for a natural person nor to Contracts held by qualified
plans. Purchasers should consult their own tax counsel or other tax adviser
before purchasing a Contract to be owned by a non-natural person.
Tax Treatment of Assignments
An assignment or pledge of a Contract may be a taxable event. Contract Owners
should therefore consult competent tax advisers should they wish to assign or
pledge their Contracts.
Death Benefits
Any death benefits paid under the Contract are taxable to the beneficiary. The
rules governing the taxation of payments from an annuity contract, as discussed
above, generally apply to the payment of death benefits and depend on whether
the death benefits are paid as a lump sum or as annuity payments. Estate taxes
may also apply.
Income Tax Withholding
All distributions or the portion thereof which is includible in the gross income
of the Contract Owner are subject to federal income tax withholding. Generally,
amounts are withheld from periodic payments at the same rate as wages and at the
rate of 10% from non-periodic payments. However, the Contract Owner, in most
cases, may elect not to have taxes withheld or to have withholding done at a
different rate.
Certain distributions from retirement plans qualified under Section 401 or
Section 403(b) of the Code, which are not directly rolled over to another
eligible retirement plan or individual retirement account or individual
retirement annuity, are subject to a mandatory 20% withholding for federal
income tax. The 20% withholding requirement generally does not apply to: (a) a
series of substantially equal payments made at least annually for the life or
life expectancy of the participant or joint and last survivor expectancy of the
participant and a designated beneficiary, or for a specified period of 10 years
or more; or (b) distributions which are required minimum distributions; or (c)
the portion of the distributions not includible in gross income (i.e. returns of
after-tax contributions); or (d) hardship withdrawals. Participants should
consult their own tax counsel or other tax adviser regarding withholding
requirements.
Tax Treatment of Withdrawals -
Non-Qualified Contracts
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the contract value exceeds the aggregate purchase
payments made, any amount withdrawn will be treated as coming first from the
earnings and then, only after the income portion is exhausted, as coming from
the principal. Withdrawn earnings are includible in gross income. It further
provides that a ten percent (10%) penalty will apply to the income portion of
any distribution. However, the penalty is not imposed on amounts received: (a)
after the taxpayer reaches age 591/2; (b) after the death of the Contract Owner;
(c) if the taxpayer is totally disabled (for this purpose disability is as
defined in Section 72(m) (7) of the Code); (d) in a series of substantially
equal periodic payments made not less frequently than annually for the life (or
life expectancy) of the taxpayer or for the joint lives (or joint life
expectancies) of the taxpayer and his Beneficiary; (e) under an immediate
annuity; or (f) which are allocable to purchase payments made prior to August
14, 1982.
With respect to (d) above, if the series of substantially equal periodic
payments is modified before the later of your attaining age 591/2 or 5 years
from the date of the first periodic payment, then the tax for the year of the
modification is increased by an amount equal to the tax which would have been
imposed (the 10% penalty tax) but for the exception, plus interest for the tax
years in which the exception was used.
The above information does not apply to Qualified Contracts. However, separate
tax withdrawal penalties and restrictions may apply to such Qualified Contracts.
(See "Tax Treatment of Withdrawals - Qualified Contracts.")
Qualified Plans
The Contracts offered by the Prospectus are designed to be suitable for use
under various types of Qualified Plans. Because of the minimum purchase payment
requirements, these Contracts may not be appropriate for some periodic payment
retirement plans. Taxation of participants in each Qualified Plan varies with
the type of plan and terms and conditions of each specific plan. Contract
Owners, annuitants and beneficiaries are cautioned that benefits under a
Qualified Plan may be subject to the terms and conditions of the plan regardless
of the terms and conditions of the Contracts issued pursuant to the plan. Some
retirement plans are subject to distribution and other requirements that are not
incorporated into the Company's administrative procedures. The Company is not
bound by the terms and conditions of such plans to the extent such terms
conflict with the terms of a Contract, unless the Company specifically consents
to be bound. Contract Owners, participants and beneficiaries are responsible for
determining that contributions, distributions and other transactions with
respect to the Contracts comply with applicable law.
A Qualified Contract will not provide any necessary or additional tax deferral
if it is used to fund a Qualified Plan that is tax deferred. However, the
Contract has features and benefits other than tax deferral that may make it an
appropriate investment for a Qualified Plan. Following are general descriptions
of the types of Qualified Plans with which the Contracts may be used. Such
descriptions are not exhaustive and are for general informational purposes only.
The tax rules regarding Qualified Plans are very complex and will have differing
applications, depending on individual facts and circumstances. Each purchaser
should obtain competent tax advice prior to purchasing a Contract issued under a
Qualified Plan.
On July 6, 1983, the Supreme Court decided in Arizona Governing Committee v.
Norris that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. The Contracts sold by the Insurance Company in
connection with Qualified Plans will utilize annuity tables which do not
differentiate on the basis of sex. Such annuity tables will also be available
for use in connection with certain non-qualified deferred compensation plans.
Contracts issued pursuant to Qualified Plans include special provisions
restricting Contract provisions that may otherwise be available and described in
this Statement of Additional Information. Generally, Contracts issued pursuant
to Qualified Plans are not transferable except upon surrender or annuitization.
Various penalty and excise taxes may apply to contributions or distributions
made in violation of applicable limitations. Furthermore, certain withdrawal
penalties and restrictions may apply to withdrawals from Qualified Contracts.
(See "Tax Treatment of Withdrawals - Qualified Contracts.")
A 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.
a. Tax-Sheltered Annuities
Section 403(b) of the Code permits the purchase of "tax-sheltered annuities" by
public schools and certain charitable, educational and scientific organizations
described in Section 501(c) (3) of the Code. These qualifying employers may make
contributions to the Contracts for the benefit of their employees. Such
contributions are not includible in the gross income of the employee until the
employee receives distributions from the Contract. The amount of contributions
to the tax-sheltered annuity is limited to certain maximums imposed by the Code.
Furthermore, the Code sets forth additional restrictions governing such items as
transferability, distributions, nondiscrimination and withdrawals. (See "Tax
Treatment of Withdrawals - Qualified Contracts" and "Tax-Sheltered Annuities -
Withdrawal Limitations.") Employee loans are not allowed under these Contracts.
Any employee should obtain competent tax advice as to the tax treatment and
suitability of such an investment.
b. Individual Retirement Annuities
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity"
("IRA"). Under applicable limitations, certain amounts may be contributed to an
IRA which may be deductible from the individual's taxable income. These IRAs are
subject to limitations on eligibility, contributions, transferability and
distributions. (See "Tax Treatment of Withdrawals - Qualified Contracts.") Under
certain conditions, distributions from other IRAs and other Qualified Plans may
be rolled over or transferred on a tax-deferred basis into an IRA. Sales of
Contracts for use with IRAs are subject to special requirements imposed by the
Code, including the requirement that certain informational disclosure be given
to persons desiring to establish an IRA. Purchasers of Contracts to be qualified
as Individual Retirement Annuities should obtain competent tax advice as to the
tax treatment and suitability of such an investment.
Roth IRAs
Section 408A of the Code provides that beginning in 1998, individuals may
purchase a new type of non-deductible IRA, known as a Roth IRA. Purchase
payments for a Roth IRA are limited to a maximum of $2,000 per year and are not
deductible from taxable income. Lower maximum limitations apply to individuals
with adjusted gross incomes between $95,000 and $110,000 in the case of single
taxpayers, between $150,000 and $160,000 in the case of married taxpayers filing
joint returns, and between $0 and $10,000 in the case of married taxpayers
filing separately. An overall $2,000 annual limitation continues to apply to all
of a taxpayer's IRA contributions, including Roth IRA and non-Roth IRAs.
Qualified distributions from Roth IRAs are free from federal income tax. A
qualified distribution requires that an individual has held the Roth IRA for at
least five years and, in addition, that the distribution is made either after
the individual reaches age 591/2, on the individual's death or disability, or as
a qualified first-time home purchase, subject to a $10,000 lifetime maximum, for
the individual, a spouse, child, grandchild, or ancestor. Any distribution which
is not a qualified distribution is taxable to the extent of earnings in the
distribution. Distributions are treated as made from contributions first and
therefore no distributions are taxable until distributions exceed the amount of
contributions to the Roth IRA. The 10% penalty tax and the regular IRA
exceptions to the 10% penalty tax apply to taxable distributions from a Roth
IRA.
Amounts may be rolled over from one Roth IRA to another Roth IRA. Furthermore,
an individual may make a rollover contribution from a non-Roth IRA to a Roth
IRA, unless the individual has adjusted gross income over $100,000 or the
individual is a married taxpayer filing a separate return. The individual must
pay tax on any portion of the IRA being rolled over that represents income or a
previously deductible IRA contribution. However, for rollovers in 1998, the
individual may pay that tax ratably over the four taxable year periods beginning
with tax year 1998.
Purchasers of Contracts to be qualified as a Roth IRA should obtain competent
tax advice as to the tax treatment and suitability of such an investment.
c. Pension and Profit-Sharing Plans
Sections 401(a) and 401(k) of the Code permit employers, including self-employed
individuals, to establish various types of retirement plans for employees. These
retirement plans may permit the purchase of the Contracts to provide benefits
under the Plan. Contributions to the Plan for the benefit of employees will not
be includible in the gross income of the employee until distributed from the
Plan. The tax consequences to participants may vary, depending upon the
particular Plan design. However, the Code places limitations and restrictions on
all Plans, including on such items as: amount of allowable contributions; form,
manner and timing of distributions; transferability of benefits; vesting and
nonforfeitability of interests; nondiscrimination in eligibility and
participation; and the tax treatment of distributions and withdrawals.
Participant loans are not allowed under the Contracts purchased in connection
with these Plans. (See "Tax Treatment of Withdrawals - Qualified Contracts.")
Purchasers of Contracts for use with Pension or Profit-Sharing Plans should
obtain competent tax advice as to the tax treatment and suitability of such an
investment.
Tax Treatment of Withdrawals -
Qualified Contracts
In the case of a withdrawal under a Qualified Contract, a ratable portion of the
amount received is taxable, generally based on the ratio of the individual's
cost basis to the individual's total accrued benefit under the retirement plan.
Special tax rules may be available for certain distributions from a Qualified
Contract. Section 72(t) of the Code imposes a 10% penalty tax on the taxable
portion of any distribution from qualified retirement plans, including Contracts
issued and qualified under Code Sections 401 (Pension and Profit-Sharing Plans),
403(b) (Tax-Sheltered Annuities) and 408 and 408A (Individual Retirement
Annuities). To the extent amounts are not includible in gross income because
they have been properly rolled over to an IRA or to another eligible Qualified
Plan, no tax penalty will be imposed. The tax penalty will not apply to the
following distributions: (a) if distribution is made on or after the date on
which the Contract Owner or Annuitant (as applicable) reaches age 591/2; (b)
distributions following the death or disability of the Contract Owner or
Annuitant (as applicable) (for this purpose disability is as defined in Section
72(m) (7) of the Code); (c) after separation from service, distributions that
are part of substantially equal periodic payments made not less frequently than
annually for the life (or life expectancy) of the Contract Owner or Annuitant
(as applicable) or the joint lives (or joint life expectancies) of such Contract
Owner or Annuitant (as applicable) and his or her designated beneficiary; (d)
distributions to a Contract Owner or Annuitant (as applicable) who has separated
from service after he or she has attained age 55; (e) distributions made to the
Contract Owner or Annuitant (as applicable) to the extent such distributions do
not exceed the amount allowable as a deduction under Code Section 213 to the
Contract Owner or Annuitant (as applicable) for amounts paid during the taxable
year for medical care; (f) distributions made to an alternate payee pursuant to
a qualified domestic relations order; (g) distributions made on account of an
IRS levy upon the Qualified Contract; (h) distributions from an Individual
Retirement Annuity for the purchase of medical insurance (as described in
Section 213(d) (1) (D) of the Code) for the Contract Owner or Annuitant (as
applicable) and his or her spouse and dependents if the Contract Owner or
Annuitant (as applicable) has received unemployment compensation for at least 12
weeks (this exception no longer applies after the Contract Owner or Annuitant
(as applicable) has been re-employed for at least 60 days); (i) distributions
from an Individual Retirement Annuity made to the Owner or Annuitant (as
applicable) to the extent such distributions do not exceed the qualified higher
education expenses (as defined in Section 72 (t) (7) of the Code) of the Owner
or Annuitant (as applicable) for the taxable year; and (j) distributions from an
Individual Retirement Annuity made to the Owner or Annuitant (as applicable)
which are qualified first-time home buyer distributions (as defined in Section
72 (t) (8) of the Code). The exceptions stated in items (d) and (f) above do not
apply in the case of an Individual Retirement Annuity. The exception stated in
item (c) applies to an Individual Retirement Annuity without the requirement
that there be a separation from service.
With respect to (c) above, if the series of substantially equal periodic
payments is modified before the later of your attaining age 591/2 or 5 years
from the date of the first periodic payment, then the tax for the year of the
modification is increased by an amount equal to the tax which would have been
imposed (the 10% penalty tax) but for the exception, plus interest for the tax
years in which the exception was used.
Generally, distributions from a Qualified Plan must commence no later than April
1 of the calendar year following the later of: (a) the year in which the
employee attains age 701/2, or (b) the calendar year in which the employee
retires. The date set forth in (b) does not apply to an Individual Retirement
Annuity. Required distributions must be over a period not exceeding the life
expectancy of the individual or the joint lives or life expectancies of the
individual and his or her designated beneficiary. If the required minimum
distributions are not made, a 50% penalty tax is imposed as to the amount not
distributed.
Tax-Sheltered Annuities -
Withdrawal Limitations
The Code limits the withdrawal of amounts attributable to contributions made
pursuant to a salary reduction agreement (as defined in Section 403 (b) (11) of
the Code) to circumstances only when the Contract Owner: (1) attains age 59 1/2;
(2) separates from service; (3) dies; (4) becomes disabled (within the meaning
of Section 72 (m) (7) of the Code); or (5) in the case of hardship. However,
withdrawals for hardship are restricted to the portion of the Contract Owner's
Contract Value which represents contributions by the Contract Owner and does not
include any investment results. The limitations on withdrawals became effective
on January 1, 1989 and apply only to salary reduction contributions made after
December 31, 1988, and to income attributable to such contributions and to
income attributable to amounts held as of December 31, 1988. The limitations on
withdrawals do not affect rollovers and transfers between certain Qualified
Plans. Contract Owners should consult their own tax counsel or other tax adviser
regarding any distributions.
Annuity Provisions
- --------------------------------------------------------------------------------
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. At the Income 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. Both sex distinct and unisex Annuity Tables are
utilized by the Company, depending on the state and type of Contract. If, as of
the Income Date, the then current Annuity Option rates applicable to this class
of Contracts provide a larger income than that guaranteed for the same form of
annuity under the Contract, the larger amount will be paid. 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 Income 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. The fixed number of Annuity Units is multiplied by the Annuity Unit value for
the last Valuation Period of the month preceding the month for which the payment
is due. This result is the dollar amount of the payment.
3. The total dollar amount of each Variable Annuity variable payout is the sum
of all Sub-Account Variable Annuity payments, reduced by the contract
maintenance charge.
Annuity Unit Value
- --------------------------------------------------------------------------------
The value of an Annuity Unit for a Sub-Account is determined (see below) by
subtracting (2) from (1), dividing the result by (3) and multiplying the result
by .999866337248 (.999866337248 is the daily factor to neutralize the assumed
net investment rate of 5% per annum which is built into the annuity rate table)
where:
1. is the net result of
a. the assets of the Sub-Account attributable to the Annuity Units; plus or
minus
b. the cumulative charge or credit for taxes reserved which is determined by
the Company to have resulted from the operation of the Sub-Account;
2. is the cumulative unpaid charge for the Mortality and Expense Risk Charge and
for the Administrative Expense Charge; and
3. is the number of Annuity Units outstanding at the end of the Valuation
Period.
The value of an Annuity Unit may increase or decrease from Valuation Period to
Valuation Period.
Fixed Annuity Payout
A fixed annuity is an annuity with payments which are guaranteed as to dollar
amount by the Company and do not vary with the investment experience of the
Variable Account. The Fixed Option value on the day immediately preceding the
Annuity Date will be used to determine the Fixed Annuity monthly payment. The
monthly Annuity Payment will be based upon the Contract Value at the time of
annuitization, the Annuity Option selected, the age of the annuitant and any
joint annuitant and the sex of the annuitant and any joint annuitant where
allowed.
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 (3)
b. Selling Agreement
4. Individual Variable Annuity Contract(2)
5. Application for Individual Variable Annuity Contract(2)
6. (i) Copy of Articles of Incorporation of the Company(1)
(ii) Copy of the Bylaws of the Company(3)
7. Not Applicable
8. (i) Form of Fund Participation Agreement between AIM Variable
Insurance Funds, Inc., Preferred Life Insurance Company of New
York and NALAC Financial Plans LLC(4)
(ii) Form of Fund Participation Agreement between Alger American
Fund, Preferred Life Insurance Company of New York and Fred
Alger and Company(4)
(iii) Form of Fund Participation Agreement between USAllianz Variable
Insurance Products Trust, Preferred Life Insurance Company of
New York and BISYS Fund Services Limited Partnership(4)
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 Post-Effective Amendment No. 9 to
Registrant's Form N-4 as filed electronically on October 27, 1995.
(2) Incorporated by reference to Post-Effective Amendment No. 10 to
Registrants Form N-4 as filed electronically on April 18, 1996.
(3) Incorporated by reference to Post-Effective Amendment No.14 to
Registrants Form N-4 as filed electronically on April 29, 1998.
(4) Incorporated by reference to Post-Effective Amendment No.19 to
Registrants Form N-4 as filed electronically on November 12, 1999.
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 Ave
New York, NY 10022
Stephen R. Herbert Director
900 Third Avenue
New York, NY 10022
Jack F. Rockett Director
140 East 95th Street, Ste 6A
New York, NY 10129
Kevin Walker Treasurer
300 S Hwy 169
Minneapolis, MN 55426
Stephen Blaske Actuary
1750 Hennepin 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 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 included herein.
Item 27. Number of Contract Owners
As of February 29, 2000, there were 3,760 qualified Contract Owners and 7,835
non-qualified 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.
REPRESENTATIONS
The Company hereby represents that it is relying upon a No-Action Letter issued
to the American Council of Life Insurance, dated November 28, 1988 (Commission
ref. IP-6-88), and that the following provisions have been complied with:
1. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration statement, including the
prospectus, used in connection with the offer of the contract;
2. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in connection with
the offer of the contract;
3. Instruct sales representatives who solicit participants to purchase the
contract specifically to bring the redemption restrictions imposed by Section
403(b)(11) to the attention of the potential participants;
4. Obtain from each plan participant who purchases a Section 403(b) annuity
contract, prior to or at the time of such purchase, a signed statement
acknowledging the participant's understanding of (1) the restrictions on
redemption imposed by Section 403(b)(11), and (2) other investment alternatives
available under the employer's Section 403(b) arrangement to which the
participant may elect to transfer his contract value.
<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 & Chief Financial
Officer 04/17/2000
Robert S. James* Director
Robert S. James 04/17/2000
Dennis Marion* Director
Dennis Marion 04/17/2000
Eugene T. Wilkinson* Director
Eugene T. Wilkinson 04/17/2000
Eugene Long* Director
Eugene Long 04/17/2000
Reinhard W. Obermueller* Director
Reinhard W. Obermueller 04/17/2000
Stephen R. Herbert* Director
Stephen R. Herbert 04/17/2000
Jack F. Rockett* Director
Jack F. Rockett 04/17/2000
_______________________ Director
Margery G. Hughes 04/17/2000
_______________________ Director
Christopher H. Pinkerton 04/17/2000
_______________________ Director
Mark A. Zesbaugh 04/17/2000
_______________________ Director
Charles Kavitsky 04/17/2000
_______________________ Director
Kevin Walker 04/17/2000
</TABLE>
* By /S/ Michael T. Westermeyer
--------------------------
Attorney-in-Fact
Secretary and Director
<PAGE>
EXHIBITS
TO
POST-EFFECTIVE AMENDMENT NO. 20
TO
FORM N-4
PREFERRED LIFE VARIABLE ACCOUNT C
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
INDEX TO EXHIBITS
Exhibit Page
- ------- ----
EX-99.B3.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 Deferred Variable Annuity Contracts to be issued by Preferred
Life Insurance Company of New York and its separate account, Preferred Life
Variable Account C.
We are of the following opinions:
1. Preferred Life Variable Account C is a unit investment trust as that term is
defined in Section 4(2) of the Investment Company Act of 1940 (the "Act"),
and is currently registered with the Securities and Exchange Commission,
pursuant to Section 8(a) of the Act.
2. Upon the acceptance of purchase payments made by a Contract Owner pursuant
to a Contract issued in accordance with the Prospectus contained in the
Registration Statement and upon compliance with applicable law, such a
Contract Owner will have a legally-issued, fully-paid, non-assessable
contractual interest under such Contract.
You may use this opinion letter, or copy hereof, as an exhibit to the
Registration Statement.
We consent to the reference to our Firm under the caption "Legal Opinions"
contained in the Statement of Additional Information which forms a part of the
Registration Statement.
Sincerely,
BLAZZARD, GRODD, & HASENAUER, P.C.
By: /s/ LYNN KORMAN STONE
- ----------------------------------
Lynn Korman Stone
KPMG 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>
FRANKLIN VALUEMARK II
Preferred Life Variable Account C
Cumulative and Average Annual Total Return Calculations
Original Purchase as of December 31, 1998
Valuation Date as of December 31, 1999
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
Capital Growth
<S> <C> <C> <C> <C> <C> <C>
12-31-98 Purchase $1,000.00 $15.57416691 64.209 64.209 $1,000.00
12-31-99 Contract Fee (1.00) $20.21840693 (0.049) 64.159 1,297.20
12-31-99 Value before Surr Chg $20.21840693 0.000 64.159 1,297.20
12-31-99 Surrender Charge (42.50) $20.21840693 (2.102) 62.057 1,254.70
Cumulative and Average Annual Total Returns
without/with charges 29.82% A 25.47% B
Growth and Income
12-31-98 Purchase $1,000.00 $26.22646854 38.129 38.129 $1,000.00
12-31-99 Contract Fee (1.00) $26.14748139 (0.038) 38.091 995.99
12-31-99 Value before Surr Chg $26.14748139 0.000 38.091 995.99
12-31-99 Surrender Charge (42.50) $26.14748139 (1.625) 36.466 953.49
Cumulative and Average Annual Total Returns
without/with charges -0.30% A -4.65% B
High Income
12-31-98 Purchase $1,000.00 $21.20849040 47.151 47.151 $1,000.00
12-31-99 Contract Fee (1.00) $20.89988452 (0.048) 47.103 984.45
12-31-99 Value before Surr Chg $20.89988452 0.000 47.103 984.45
12-31-99 Surrender Charge (42.50) $20.89988452 (2.034) 45.070 941.95
Cumulative and Average Annual Total Returns
without/with charges -1.46% A -5.81% B
Income Securities
12-31-98 Purchase $1,000.00 $25.12170867 39.806 39.806 $1,000.00
12-31-99 Contract Fee (1.00) $24.32274932 (0.041) 39.765 967.20
12-31-99 Value before Surr Chg $24.32274932 0.000 39.765 967.20
12-31-99 Surrender Charge (42.50) $24.32274932 (1.747) 38.018 924.70
Cumulative and Average Annual Total Returns
without/with charges -3.18% A -7.53% B
Money Market
12-31-98 Purchase $1,000.00 $14.38555424 69.514 69.514 $1,000.00
12-31-99 Contract Fee (1.00) $14.86037176 (0.067) 69.447 1,032.01
12-31-99 Value before Surr Chg $14.86037176 0.000 69.447 1,032.01
12-31-99 Surrender Charge (42.50) $14.86037176 (2.860) 66.587 989.51
Cumulative and Average Annual Total Returns
without/with charges 3.30% A -1.05% B
Mutual Discovery Securities
12-31-98 Purchase $1,000.00 $11.22622113 89.077 89.077 $1,000.00
12-31-99 Contract Fee (1.00) $13.70059906 (0.073) 89.004 1,219.41
12-31-99 Value before Surr Chg $13.70059906 0.000 89.004 1,219.41
12-31-99 Surrender Charge (42.50) $13.70059906 (3.102) 85.902 1,176.91
Cumulative and Average Annual Total Returns
without/with charges 22.04% 17.69%
Mutual Shares Securities
12-31-98 Purchase $1,000.00 $11.83677406 84.482 84.482 $1,000.00
12-31-99 Contract Fee (1.00) $13.23680837 (0.076) 84.407 1,117.28
12-31-99 Value before Surr Chg $13.23680837 0.000 84.407 1,117.28
12-31-99 Surrender Charge (42.50) $13.23680837 (3.211) 81.196 1,074.78
Cumulative and Average Annual Total Returns
without/with charges 11.83% 7.48%
Natural Resource Securities
12-31-98 Purchase $1,000.00 $8.50546484 117.571 117.571 $1,000.00
12-31-99 Contract Fee (1.00) $11.09169503 (0.090) 117.481 1,303.07
12-31-99 Value before Surr Chg $11.09169503 0.000 117.481 1,303.07
12-31-99 Surrender Charge (42.50) $11.09169503 (3.832) 113.650 1,260.57
Cumulative and Average Annual Total Returns
without/with charges 30.41% A 26.06% B
Real Estate Securities
12-31-98 Purchase $1,000.00 $23.10677956 43.277 43.277 $1,000.00
12-31-99 Contract Fee (1.00) $21.38599208 (0.047) 43.231 924.53
12-31-99 Value before Surr Chg $21.38599208 0.000 43.231 924.53
12-31-99 Surrender Charge (42.50) $21.38599208 (1.987) 41.243 882.03
Cumulative and Average Annual Total Returns
without/with charges -7.45% A -11.80% B
Rising Dividends
12-31-98 Purchase $1,000.00 $21.16548977 47.247 47.247 $1,000.00
12-31-99 Contract Fee (1.00) $18.84623514 (0.053) 47.194 889.42
12-31-99 Value before Surr Chg $18.84623514 0.000 47.194 889.42
12-31-99 Surrender Charge (42.50) $18.84623514 (2.255) 44.939 846.92
Cumulative and Average Annual Total Returns
without/with charges -10.96% A -15.31% B
Small Cap
12-31-98 Purchase $1,000.00 $14.59958077 68.495 68.495 $1,000.00
12-31-99 Contract Fee (1.00) $28.35274064 (0.035) 68.460 1,941.02
12-31-99 Value before Surr Chg $28.35274064 0.000 68.460 1,941.02
12-31-99 Surrender Charge (42.50) $28.35274064 (1.499) 66.961 1,898.52
Cumulative and Average Annual Total Returns
without/with charges 94.20% 89.85%
Templeton Developing Markets Equity
12-31-98 Purchase $1,000.00 $7.99263591 125.115 125.115 $1,000.00
12-31-99 Contract Fee (1.00) $12.18796363 (0.082) 125.033 1,523.90
12-31-99 Value before Surr Chg $12.18796363 0.000 125.033 1,523.90
12-31-99 Surrender Charge (42.50) $12.18796363 (3.487) 121.546 1,481.40
Cumulative and Average Annual Total Returns
without/with charges 52.49% A 48.14% B
Templeton Global Asset Allocation
12-31-98 Purchase $1,000.00 $13.58859831 73.591 73.591 $1,000.00
12-31-99 Contract Fee (1.00) $14.40812335 (0.069) 73.522 1,059.31
12-31-99 Value before Surr Chg $14.40812335 0.000 73.522 1,059.31
12-31-99 Surrender Charge (42.50) $14.40812335 (2.950) 70.572 1,016.81
Cumulative and Average Annual Total Returns
without/with charges 6.03% A 1.68% B
Templeton Global Growth
12-31-98 Purchase $1,000.00 $16.30853286 61.318 61.318 $1,000.00
12-31-99 Contract Fee (1.00) $19.46559691 (0.051) 61.266 1,192.58
12-31-99 Value before Surr Chg $19.46559691 0.000 61.266 1,192.58
12-31-99 Surrender Charge (42.50) $19.46559691 (2.183) 59.083 1,150.08
Cumulative and Average Annual Total Returns
without/with charges 19.36% A 15.01% B
Templeton Global Income Securities
12-31-98 Purchase $1,000.00 $17.90515943 55.850 55.850 $1,000.00
12-31-99 Contract Fee (1.00) $16.63474333 (0.060) 55.790 928.05
12-31-99 Value before Surr Chg $16.63474333 0.000 55.790 928.05
12-31-99 Surrender Charge (42.50) $16.63474333 (2.555) 53.235 885.55
Cumulative and Average Annual Total Returns
without/with charges -7.10% A -11.45% B
Templeton International Equity
12-31-98 Purchase $1,000.00 $18.43652906 54.240 54.240 $1,000.00
12-31-99 Contract Fee (1.00) $23.02199633 (0.043) 54.197 1,247.72
12-31-99 Value before Surr Chg $23.02199633 0.000 54.197 1,247.72
12-31-99 Surrender Charge (42.50) $23.02199633 (1.846) 52.351 1,205.22
Cumulative and Average Annual Total Returns
without/with charges 24.87% A 20.52% B
Templeton International Smaller Companies
12-31-98 Purchase $1,000.00 $9.36443942 106.787 106.787 $1,000.00
12-31-99 Contract Fee (1.00) $11.44110306 (0.087) 106.700 1,220.76
12-31-99 Value before Surr Chg $11.44110306 0.000 106.700 1,220.76
12-31-99 Surrender Charge (42.50) $11.44110306 (3.715) 102.985 1,178.26
Cumulative and Average Annual Total Returns
without/with charges 22.18% A 17.83% B
Templeton Pacific Growth
12-31-98 Purchase $1,000.00 $8.07846316 123.786 123.786 $1,000.00
12-31-99 Contract Fee (1.00) $10.91531713 (0.092) 123.694 1,350.16
12-31-99 Value before Surr Chg $10.91531713 0.000 123.694 1,350.16
12-31-99 Surrender Charge (42.50) $10.91531713 (3.894) 119.801 1,307.66
Cumulative and Average Annual Total Returns
without/with charges 35.12% A 30.77% B
U.S. Government Securities
12-31-98 Purchase $1,000.00 $19.01438042 52.592 52.592 $1,000.00
12-31-99 Contract Fee (1.00) $18.57397398 (0.054) 52.538 975.84
12-31-99 Value before Surr Chg $18.57397398 0.000 52.538 975.84
12-31-99 Surrender Charge (42.50) $18.57397398 (2.288) 50.250 933.34
Cumulative and Average Annual Total Returns
without/with charges -2.32% A -6.67% B
Franklin Global Communications Securities
12-31-98 Purchase $1,000.00 $28.30779835 35.326 35.326 $1,000.00
12-31-99 Contract Fee (1.00) $38.91678151 (0.026) 35.300 1,373.77
12-31-99 Value before Surr Chg $38.91678151 0.000 35.300 1,373.77
12-31-99 Surrender Charge (42.50) $38.91678151 (1.092) 34.208 1,331.27
Cumulative and Average Annual Total Returns
without/with charges 37.48% A 33.13% B
Zero Coupon - 2000
12-31-98 Purchase $1,000.00 $20.68442229 48.346 48.346 $1,000.00
12-31-99 Contract Fee (1.00) $21.02275632 (0.048) 48.298 1,015.36
12-31-99 Value before Surr Chg $21.02275632 0.000 48.298 1,015.36
12-31-99 Surrender Charge (42.50) $21.02275632 (2.022) 46.276 972.86
Cumulative and Average Annual Total Returns
without/with charges 1.64% A -2.71% B
Zero Coupon - 2005
12-31-98 Purchase $1,000.00 $25.00286219 39.995 39.995 $1,000.00
12-31-99 Contract Fee (1.00) $23.20546373 (0.043) 39.952 927.11
12-31-99 Value before Surr Chg $23.20546373 0.000 39.952 927.11
12-31-99 Surrender Charge (42.50) $23.20546373 (1.831) 38.121 884.61
Cumulative and Average Annual Total Returns
without/with charges -7.19% A -11.54% B
Zero Coupon - 2010
12-31-98 Purchase $1,000.00 $27.92036039 35.816 35.816 $1,000.00
12-31-99 Contract Fee (1.00) $24.16356346 (0.041) 35.775 864.45
12-31-99 Value before Surr Chg $24.16356346 0.000 35.775 864.45
12-31-99 Surrender Charge (42.50) $24.16356346 (1.759) 34.016 821.95
Cumulative and Average Annual Total Returns
without/with charges -13.46% A -17.81% B
Global Health Care Securities
12-31-98 Purchase $1,000.00 $10.61022997 94.249 94.249 $1,000.00
12-31-99 Contract Fee (1.00) $9.61538796 (0.104) 94.145 905.24
12-31-99 Value before Surr Chg $9.61538796 0.000 94.145 905.24
12-31-99 Surrender Charge (42.50) $9.61538796 (4.420) 89.725 862.74
Cumulative and Average Annual Total Returns
without/with charges -9.38% A -13.73% B
Value Securities
12-31-98 Purchase $1,000.00 $7.71743151 129.577 129.577 $1,000.00
12-31-99 Contract Fee (1.00) $7.73575540 (0.129) 129.448 1,001.37
12-31-99 Value before Surr Chg $7.73575540 0.000 129.448 1,001.37
12-31-99 Surrender Charge (42.50) $7.73575540 (5.494) 123.954 958.87
Cumulative and Average Annual Total Returns
without/with charges 0.24% A -4.11% B
A = (Unit Value as of December 31, 1999 - Unit Value at Purchase)/Unit Value at Purchase
B = (Accumulated Value as of December 31, 1999 - Accum. Value at Purch.)/Accum. Value at Purch.
</TABLE>
<PAGE>
<TABLE>
FRANKLIN VALUEMARK II
Preferred Life Variable Account C
Cumulative and Average Annual Total Return Calculations
Original Purchase as of December 31, 1996
Valuation Date as of December 31, 1999
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
Capital Growth
<S> <C> <C> <C> <C> <C> <C>
12-31-96 Purchase $1,000.00 $11.25417490 88.856 88.856 $1,000.00
12-31-97 Contract Fee (1.00) $13.12966406 (0.076) 88.780 $1,165.65
12-31-98 Contract Fee (1.00) $15.57416691 (0.064) 88.716 $1,381.67
12-31-99 Contract Fee (1.00) $20.21840693 (0.049) 88.666 $1,792.69
12-31-99 Value before Surr Chg $20.21840693 0.000 88.666 $1,792.69
12-31-99 Surrender Charge (22.00) $20.21840693 (1.088) 87.578 $1,770.69
Cumulative Total Returns 79.65% 77.07%
Average Annual Total Returns 21.57% 20.98%
Growth and Income
12-31-96 Purchase $1,000.00 $19.48959860 51.309 51.309 $1,000.00
12-31-97 Contract Fee (1.00) $24.55079561 (0.041) 51.269 1,258.69
12-31-98 Contract Fee (1.00) $26.22646854 (0.038) 51.231 1,343.60
12-31-99 Contract Fee (1.00) $26.14748139 (0.038) 51.192 1,338.55
12-31-99 Value before Surr Chg $26.14748139 0.000 51.192 1,338.55
12-31-99 Surrender Charge (22.00) $26.14748139 (0.841) 50.351 1,316.55
Cumulative Total Returns without/with chrgs. 34.16% A 31.66% C
Avg. Annual Total Returns without/with chrgs. 10.29% B 9.60% D
High Income
12-31-96 Purchase $1,000.00 $19.37479425 51.613 51.613 $1,000.00
12-31-97 Contract Fee (1.00) $21.31160694 (0.047) 51.567 1,098.97
12-31-98 Contract Fee (1.00) $21.20849040 (0.047) 51.519 1,092.65
12-31-99 Contract Fee (1.00) $20.89988452 (0.048) 51.472 1,075.75
12-31-99 Value before Surr Chg $20.89988452 0.000 51.472 1,075.75
12-31-99 Surrender Charge (22.00) $20.89988452 (1.053) 50.419 1,053.75
Cumulative Total Returns without/with chrgs. 7.87% A 5.37% C
Avg. Annual Total Returns without/with chrgs. 2.56% B 1.76% D
Income Securities
12-31-96 Purchase $1,000.00 $21.70827863 46.065 46.065 $1,000.00
12-31-97 Contract Fee (1.00) $25.06461193 (0.040) 46.025 1,153.61
12-31-98 Contract Fee (1.00) $25.12170867 (0.040) 45.986 1,155.24
12-31-99 Contract Fee (1.00) $24.32274932 (0.041) 45.945 1,117.50
12-31-99 Value before Surr Chg $24.32274932 0.000 45.945 1,117.50
12-31-99 Surrender Charge (22.00) $24.32274932 (0.905) 45.040 1,095.50
Cumulative Total Returns without/with chrgs. 12.04% A 9.55% C
Avg. Annual Total Returns without/with chrgs. 3.86% B 3.09% D
Money Market
12-31-96 Purchase $1,000.00 $13.35923111 74.855 74.855 $1,000.00
12-31-97 Contract Fee (1.00) $13.86472844 (0.072) 74.782 1,036.84
12-31-98 Contract Fee (1.00) $14.38555424 (0.070) 74.713 1,074.79
12-31-99 Contract Fee (1.00) $14.86037176 (0.067) 74.646 1,109.26
12-31-99 Value before Surr Chg $14.86037176 0.000 74.646 1,109.26
12-31-99 Surrender Charge (22.00) $14.86037176 (1.480) 73.165 1,087.26
Cumulative Total Returns without/with chrgs. 11.24% A 8.73% C
Avg. Annual Total Returns without/with chrgs. 3.61% B 2.83% D
Mutual Discovery Securities
12-31-96 Purchase $1,000.00 $10.18045638 98.227 98.227 $1,000.00
12-31-97 Contract Fee (1.00) $11.98316359 (0.083) 98.144 $1,176.08
12-31-98 Contract Fee (1.00) $11.22622113 (0.089) 98.055 $1,100.79
12-31-99 Contract Fee (1.00) $13.70059906 (0.073) 97.982 $1,342.41
12-31-99 Value before Surr Chg $13.70059906 0.000 97.982 $1,342.41
12-31-99 Surrender Charge (22.00) $13.70059906 (1.606) 96.376 $1,320.41
Cumulative Total Returns without/with chrgs. 34.58% 32.04%
Avg. Annual Total Returns without/with chrgs. 10.41% 9.71%
Mutual Shares Securities
12-31-96 Purchase $1,000.00 $10.33016898 96.804 96.804 $1,000.00
12-31-97 Contract Fee (1.00) $11.99296726 (0.083) 96.720 1,159.97
12-31-98 Contract Fee (1.00) $11.83677406 (0.084) 96.636 1,143.86
12-31-99 Contract Fee (1.00) $13.23680837 (0.076) 96.560 1,278.15
12-31-99 Value before Surr Chg $13.23680837 0.000 96.560 1,278.15
12-31-99 Surrender Charge (22.00) $13.23680837 (1.662) 94.898 1,256.15
Cumulative Total Returns without/with chrgs. 28.14% 25.62%
Avg. Annual Total Returns without/with chrgs. 8.62% 7.90%
Natural Resource Securities
12-31-96 Purchase $1,000.00 $14.46741645 69.121 69.121 $1,000.00
12-31-97 Contract Fee (1.00) $11.55913365 (0.087) 69.034 797.98
12-31-98 Contract Fee (1.00) $8.50546484 (0.118) 68.917 586.17
12-31-99 Contract Fee (1.00) $11.09169503 (0.090) 68.827 763.40
12-31-99 Value before Surr Chg $11.09169503 0.000 68.827 763.40
12-31-99 Surrender Charge (22.00) $11.09169503 (1.983) 66.843 741.40
Cumulative Total Returns without/with chrgs. -23.33% A -25.86% C
Avg. Annual Total Returns without/with chrgs. -8.48% B -9.49% D
Real Estate Securities
12-31-96 Purchase $1,000.00 $23.66770609 42.252 42.252 $1,000.00
12-31-97 Contract Fee (1.00) $28.16943249 (0.035) 42.216 1,189.21
12-31-98 Contract Fee (1.00) $23.10677956 (0.043) 42.173 974.48
12-31-99 Contract Fee (1.00) $21.38599208 (0.047) 42.126 900.91
12-31-99 Value before Surr Chg $21.38599208 0.000 42.126 900.91
12-31-99 Surrender Charge (22.00) $21.38599208 (1.029) 41.097 878.91
Cumulative Total Returns without/with chrgs. -9.64% A -12.11% C
Avg. Annual Total Returns without/with chrgs. -3.32% B -4.21% D
Rising Dividends
12-31-96 Purchase $1,000.00 $15.30299222 65.347 65.347 $1,000.00
12-31-97 Contract Fee (1.00) $20.07430239 (0.050) 65.297 1,310.79
12-31-98 Contract Fee (1.00) $21.16548977 (0.047) 65.250 1,381.04
12-31-99 Contract Fee (1.00) $18.84623514 (0.053) 65.197 1,228.71
12-31-99 Value before Surr Chg $18.84623514 0.000 65.197 1,228.71
12-31-99 Surrender Charge (22.00) $18.84623514 (1.167) 64.029 1,206.71
Cumulative Total Returns without/with chrgs. 23.15% A 20.67% C
Avg. Annual Total Returns without/with chrgs. 7.19% B 6.46% D
Small Cap
12-31-96 Purchase $1,000.00 $12.91274591 77.443 77.443 $1,000.00
12-31-97 Contract Fee (1.00) $14.95194471 (0.067) 77.376 1,156.92
12-31-98 Contract Fee (1.00) $14.59958077 (0.068) 77.307 1,128.66
12-31-99 Contract Fee (1.00) $28.35274064 (0.035) 77.272 2,190.88
12-31-99 Value before Surr Chg $28.35274064 0.000 77.272 2,190.88
12-31-99 Surrender Charge (22.00) $28.35274064 (0.776) 76.496 2,168.88
Cumulative Total Returns without/with charges 119.57% 116.89%
Average Annual Total Returns without/with charges 29.97% 29.44%
Templeton Developing Markets Equity
12-31-96 Purchase $1,000.00 $11.48724479 87.053 87.053 $1,000.00
12-31-97 Contract Fee (1.00) $10.34011278 (0.097) 86.956 899.14
12-31-98 Contract Fee (1.00) $7.99263591 (0.125) 86.831 694.01
12-31-99 Contract Fee (1.00) $12.18796363 (0.082) 86.749 1,057.30
12-31-99 Value before Surr Chg $12.18796363 0.000 86.749 1,057.30
12-31-99 Surrender Charge (22.00) $12.18796363 (1.805) 84.944 1,035.30
Cumulative Total Returns without/with chrgs. 6.10% A 3.53% C
Avg. Annual Total Returns without/with chrgs. 1.99% B 1.16% D
Templeton Global Asset Allocation
12-31-96 Purchase $1,000.00 $12.51416879 79.909 79.909 $1,000.00
12-31-97 Contract Fee (1.00) $13.78572229 (0.073) 79.837 1,100.61
12-31-98 Contract Fee (1.00) $13.58859831 (0.074) 79.763 1,083.87
12-31-99 Contract Fee (1.00) $14.40812335 (0.069) 79.694 1,148.24
12-31-99 Value before Surr Chg $14.40812335 0.000 79.694 1,148.24
12-31-99 Surrender Charge (22.00) $14.40812335 (1.527) 78.167 1,126.24
Cumulative Total Returns without/with chrgs. 15.13% A 12.62% C
Avg. Annual Total Returns without/with chrgs. 4.81% B 4.04% D
Templeton Global Growth
12-31-96 Purchase $1,000.00 $13.55953972 73.749 73.749 $1,000.00
12-31-97 Contract Fee (1.00) $15.17626475 (0.066) 73.683 1,118.23
12-31-98 Contract Fee (1.00) $16.30853286 (0.061) 73.622 1,200.66
12-31-99 Contract Fee (1.00) $19.46559691 (0.051) 73.570 1,432.09
12-31-99 Value before Surr Chg $19.46559691 0.000 73.570 1,432.09
12-31-99 Surrender Charge (22.00) $19.46559691 (1.130) 72.440 1,410.09
Cumulative Total Returns without/with chrgs. 43.56% A 41.01% C
Avg. Annual Total Returns without/with chrgs. 12.81% B 12.14% D
Templeton Global Income Securities
12-31-96 Purchase $1,000.00 $16.78052472 59.593 59.593 $1,000.00
12-31-97 Contract Fee (1.00) $16.95673923 (0.059) 59.534 1,009.50
12-31-98 Contract Fee (1.00) $17.90515943 (0.056) 59.478 1,064.96
12-31-99 Contract Fee (1.00) $16.63474333 (0.060) 59.418 988.40
12-31-99 Value before Surr Chg $16.63474333 0.000 59.418 988.40
12-31-99 Surrender Charge (22.00) $16.63474333 (1.323) 58.095 966.40
Cumulative Total Returns without/with chrgs. -0.87% A -3.36% C
Avg. Annual Total Returns without/with chrgs. -0.29% B -1.13% D
Templeton International Equity
12-31-96 Purchase $1,000.00 $16.08142393 62.184 62.184 $1,000.00
12-31-97 Contract Fee (1.00) $17.71128511 (0.056) 62.127 1,100.35
12-31-98 Contract Fee (1.00) $18.43652906 (0.054) 62.073 1,144.41
12-31-99 Contract Fee (1.00) $23.02199633 (0.043) 62.029 1,428.04
12-31-99 Value before Surr Chg $23.02199633 0.000 62.029 1,428.04
12-31-99 Surrender Charge (22.00) $23.02199633 (0.956) 61.074 1,406.04
Cumulative Total Returns without/with chrgs. 43.16% A 40.60% C
Avg. Annual Total Returns without/with chrgs. 12.70% B 12.03% D
Templeton International Smaller Companies
12-31-96 Purchase $1,000.00 $11.14519961 89.725 89.725 $1,000.00
12-31-97 Contract Fee (1.00) $10.82516357 (0.092) 89.632 970.28
12-31-98 Contract Fee (1.00) $9.36443942 (0.107) 89.526 838.36
12-31-99 Contract Fee (1.00) $11.44110306 (0.087) 89.438 1,023.27
12-31-99 Value before Surr Chg $11.44110306 0.000 89.438 1,023.27
12-31-99 Surrender Charge (22.00) $11.44110306 (1.923) 87.515 1,001.27
Cumulative Total Returns without/with chrgs. 2.65% 0.13%
Avg. Annual Total Returns without/with chrgs. 0.88% 0.04%
Templeton Pacific Growth
12-31-96 Purchase $1,000.00 $14.93159316 66.972 66.972 $1,000.00
12-31-97 Contract Fee (1.00) $9.43102016 (0.106) 66.866 630.62
12-31-98 Contract Fee (1.00) $8.07846316 (0.124) 66.742 539.17
12-31-99 Contract Fee (1.00) $10.91531713 (0.092) 66.651 727.51
12-31-99 Value before Surr Chg $10.91531713 0.000 66.651 727.51
12-31-99 Surrender Charge (22.00) $10.91531713 (2.016) 64.635 705.51
Cumulative Total Returns without/with chrgs. -26.90% A -29.45% C
Avg. Annual Total Returns without/with chrgs. -9.92% B -10.98% D
U.S. Government Securities
12-31-96 Purchase $1,000.00 $16.65018339 60.059 60.059 $1,000.00
12-31-97 Contract Fee (1.00) $17.94721856 (0.056) 60.004 1,076.90
12-31-98 Contract Fee (1.00) $19.01438042 (0.053) 59.951 1,139.93
12-31-99 Contract Fee (1.00) $18.57397398 (0.054) 59.897 1,112.53
12-31-99 Value before Surr Chg $18.57397398 0.000 59.897 1,112.53
12-31-99 Surrender Charge (22.00) $18.57397398 (1.184) 58.713 1,090.53
Cumulative Total Returns without/with chrgs. 11.55% A 9.05% C
Avg. Annual Total Returns without/with chrgs. 3.71% B 2.93% D
Global Communications Securities Fund
12-31-96 Purchase $1,000.00 $20.65439774 48.416 48.416 $1,000.00
12-31-97 Contract Fee (1.00) $25.81831690 (0.039) 48.377 1,249.02
12-31-98 Contract Fee (1.00) $28.30779835 (0.035) 48.342 1,368.45
12-31-99 Contract Fee (1.00) $38.91678151 (0.026) 48.316 1,880.31
12-31-99 Value before Surr Chg $38.91678151 0.000 48.316 1,880.31
12-31-99 Surrender Charge (22.00) $38.91678151 (0.565) 47.751 1,858.31
Cumulative Total Returns without/with chrgs. 88.42% A 85.83% C
Avg. Annual Total Returns without/with chrgs. 23.51% B 22.94% D
Zero Coupon - 2000
12-31-96 Purchase $1,000.00 $18.47475298 54.128 54.128 $1,000.00
12-31-97 Contract Fee (1.00) $19.51237855 (0.051) 54.077 1,055.16
12-31-98 Contract Fee (1.00) $20.68442229 (0.048) 54.028 1,117.54
12-31-99 Contract Fee (1.00) $21.02275632 (0.048) 53.981 1,134.82
12-31-99 Value before Surr Chg $21.02275632 0.000 53.981 1,134.82
12-31-99 Surrender Charge (22.00) $21.02275632 (1.046) 52.934 1,112.82
Cumulative Total Returns without/with chrgs. 13.79% A 11.28% C
Avg. Annual Total Returns without/with chrgs. 4.40% B 3.63% D
Zero Coupon - 2005
12-31-96 Purchase $1,000.00 $20.51665706 48.741 48.741 $1,000.00
12-31-97 Contract Fee (1.00) $22.53212008 (0.044) 48.697 1,097.24
12-31-98 Contract Fee (1.00) $25.00286219 (0.040) 48.657 1,216.55
12-31-99 Contract Fee (1.00) $23.20546373 (0.043) 48.613 1,128.10
12-31-99 Value before Surr Chg $23.20546373 0.000 48.613 1,128.10
12-31-99 Surrender Charge (22.00) $23.20546373 (0.948) 47.665 1,106.10
Cumulative Total Returns without/with chrgs. 13.11% A 10.61% C
Avg. Annual Total Returns without/with chrgs. 4.19% B 3.42% D
Zero Coupon - 2010
12-31-96 Purchase $1,000.00 $21.52246902 46.463 46.463 $1,000.00
12-31-97 Contract Fee (1.00) $24.73976107 (0.040) 46.423 1,148.49
12-31-98 Contract Fee (1.00) $27.92036039 (0.036) 46.387 1,295.14
12-31-99 Contract Fee (1.00) $24.16356346 (0.041) 46.345 1,119.87
12-31-99 Value before Surr Chg $24.16356346 0.000 46.345 1,119.87
12-31-99 Surrender Charge (22.00) $24.16356346 (0.910) 45.435 1,097.87
Cumulative Total Returns without/with chrgs. 12.27% A 9.79% C
Avg. Annual Total Returns without/with chrgs. 3.93% B 3.16% D
A = (Unit Value as of December 31, 1999 - Unit Value at Purchase)/Unit Value at Purchase
B = [(A+1)^(1/3 Years)]-1
C = (Accumulated Value as of December 31, 1999 - Accum. Value at Purch.)/Accum. Value at Purch.
D = [(C+1)^(1/3 Years)]-1
</TABLE>
<PAGE>
<TABLE>
FRANKLIN VALUEMARK II
Preferred Life Variable Account C
Cumulative and Average Annual Total Return Calculations
Original Purchase as of December 31, 1994
Valuation Date as of December 31, 1999
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
Growth and Income
<S> <C> <C> <C> <C> <C> <C>
12-31-94 Purchase $1,000.00 $13.21462941 75.674 75.674 $1,000.00
12-31-95 Contract Fee (1.00) $17.30965999 (0.058) 75.616 1,308.89
12-31-96 Contract Fee (1.00) $19.48959860 (0.051) 75.565 1,472.72
12-31-97 Contract Fee (1.00) $24.55079561 (0.041) 75.524 1,854.17
12-31-98 Contract Fee (1.00) $26.22646854 (0.038) 75.486 1,979.73
12-31-99 Contract Fee (1.00) $26.14748139 (0.038) 75.448 1,972.76
12-31-99 Value before Surr Chg $26.14748139 0.000 75.448 1,972.76
12-31-99 Surrender Charge (3.75) $26.14748139 (0.143) 75.304 1,969.01
Cumulative Total Returns without/with chrgs. 97.87% A 96.90% C
Avg. Annual Total Returns without/with chrgs. 14.62% B 14.51% D
High Income
12-31-94 Purchase $1,000.00 $14.60759128 68.458 68.458 $1,000.00
12-31-95 Contract Fee (1.00) $17.25181285 (0.058) 68.400 1,180.02
12-31-96 Contract Fee (1.00) $19.37479425 (0.052) 68.348 1,324.23
12-31-97 Contract Fee (1.00) $21.31160694 (0.047) 68.301 1,455.61
12-31-98 Contract Fee (1.00) $21.20849040 (0.047) 68.254 1,447.56
12-31-99 Contract Fee (1.00) $20.89988452 (0.048) 68.206 1,425.50
12-31-99 Value before Surr Chg $20.89988452 0.000 68.206 1,425.50
12-31-99 Surrender Charge (3.75) $20.89988452 (0.179) 68.027 1,421.75
Cumulative Total Returns without/with chrgs. 43.08% A 42.17% C
Avg. Annual Total Returns without/with chrgs. 7.43% B 7.29% D
Income Securities
12-31-94 Purchase $1,000.00 $16.39171653 61.006 61.006 $1,000.00
12-31-95 Contract Fee (1.00) $19.78534185 (0.051) 60.956 1,206.03
12-31-96 Contract Fee (1.00) $21.70827863 (0.046) 60.910 1,322.25
12-31-97 Contract Fee (1.00) $25.06461193 (0.040) 60.870 1,525.68
12-31-98 Contract Fee (1.00) $25.12170867 (0.040) 60.830 1,528.16
12-31-99 Contract Fee (1.00) $24.32274932 (0.041) 60.789 1,478.56
12-31-99 Value before Surr Chg $24.32274932 0.000 60.789 1,478.56
12-31-99 Surrender Charge (3.75) $24.32274932 (0.154) 60.635 1,474.81
Cumulative Total Returns without/with chrgs. 48.38% A 47.48% C
Avg. Annual Total Returns without/with chrgs. 8.21% B 8.08% D
Money Market
12-31-94 Purchase $1,000.00 $12.35398427 80.946 80.946 $1,000.00
12-31-95 Contract Fee (1.00) $12.88349436 (0.078) 80.868 1,041.86
12-31-96 Contract Fee (1.00) $13.35923111 (0.075) 80.793 1,079.33
12-31-97 Contract Fee (1.00) $13.86472844 (0.072) 80.721 1,119.17
12-31-98 Contract Fee (1.00) $14.38555424 (0.070) 80.651 1,160.22
12-31-99 Contract Fee (1.00) $14.86037176 (0.067) 80.584 1,197.51
12-31-99 Value before Surr Chg $14.86037176 0.000 80.584 1,197.51
12-31-99 Surrender Charge (3.75) $14.86037176 (0.252) 80.332 1,193.76
Cumulative Total Returns without/with chrgs. 20.29% A 19.38% C
Avg. Annual Total Returns without/with chrgs. 3.76% B 3.61% D
Natural Resource Securities
12-31-94 Purchase $1,000.00 $13.97879422 71.537 71.537 $1,000.00
12-31-95 Contract Fee (1.00) $14.10867153 (0.071) 71.466 1,008.29
12-31-96 Contract Fee (1.00) $14.46741645 (0.069) 71.397 1,032.93
12-31-97 Contract Fee (1.00) $11.55913365 (0.087) 71.310 824.29
12-31-98 Contract Fee (1.00) $8.50546484 (0.118) 71.193 605.53
12-31-99 Contract Fee (1.00) $11.09169503 (0.090) 71.103 788.65
12-31-99 Value before Surr Chg $11.09169503 0.000 71.103 788.65
12-31-99 Surrender Charge (3.75) $11.09169503 (0.338) 70.765 784.90
Cumulative Total Returns without/with chrgs. -20.65% A -21.51% C
Avg. Annual Total Returns without/with chrgs. -4.52% B -4.73% D
Real Estate Securities
12-31-94 Purchase $1,000.00 $15.59407180 64.127 64.127 $1,000.00
12-31-95 Contract Fee (1.00) $18.07282328 (0.055) 64.072 1,157.95
12-31-96 Contract Fee (1.00) $23.66770609 (0.042) 64.029 1,515.43
12-31-97 Contract Fee (1.00) $28.16943249 (0.035) 63.994 1,802.67
12-31-98 Contract Fee (1.00) $23.10677956 (0.043) 63.951 1,477.69
12-31-99 Contract Fee (1.00) $21.38599208 (0.047) 63.904 1,366.65
12-31-99 Value before Surr Chg $21.38599208 0.000 63.904 1,366.65
12-31-99 Surrender Charge (3.75) $21.38599208 (0.175) 63.728 1,362.90
Cumulative Total Returns without/with chrgs. 37.14% A 36.29% C
Avg. Annual Total Returns without/with chrgs. 6.52% B 6.39% D
Rising Dividends
12-31-94 Purchase $1,000.00 $9.76873744 102.367 102.367 $1,000.00
12-31-95 Contract Fee (1.00) $12.49836348 (0.080) 102.287 $1,278.42
12-31-96 Contract Fee (1.00) $15.30299222 (0.065) 102.222 $1,564.30
12-31-97 Contract Fee (1.00) $20.07430239 (0.050) 102.172 2,051.04
12-31-98 Contract Fee (1.00) $21.16548977 (0.047) 102.125 2,161.52
12-31-99 Contract Fee (1.00) $18.84623514 (0.053) 102.072 1,923.67
12-31-99 Value before Surr Chg $18.84623514 0.000 102.072 1,923.67
12-31-99 Surrender Charge (3.75) $18.84623514 (0.199) 101.873 1,919.92
Cumulative Total Returns without/with chrgs. 92.92% A 91.99% C
Avg. Annual Total Rtns. without/with chrgs. 14.05% B 13.93% D
Templeton Developing Markets Equity
12-31-94 Purchase $1,000.00 $9.45424664 105.773 105.773 $1,000.00
12-31-95 Contract Fee (1.00) $9.58170209 (0.104) 105.668 1,012.48
12-31-96 Contract Fee (1.00) $11.48724479 (0.087) 105.581 1,212.84
12-31-97 Contract Fee (1.00) $10.34011278 (0.097) 105.484 1,090.72
12-31-98 Contract Fee (1.00) $7.99263591 (0.125) 105.359 842.10
12-31-99 Contract Fee (1.00) $12.18796363 (0.082) 105.277 1,283.12
12-31-99 Value before Surr Chg $12.18796363 0.000 105.277 1,283.12
12-31-99 Surrender Charge (3.75) $12.18796363 (0.308) 104.970 1,279.37
Cumulative Total Returns without/with chrgs. 28.92% 27.94%
Avg. Annual Total Rtns. without/with chrgs. 5.21% 5.05%
Templeton Global Growth
12-31-94 Purchase $1,000.00 $10.20085584 98.031 98.031 $1,000.00
12-31-95 Contract Fee (1.00) $11.33894840 (0.088) 97.943 1,110.57
12-31-96 Contract Fee (1.00) $13.55953972 (0.074) 97.869 1,327.06
12-31-97 Contract Fee (1.00) $15.17626475 (0.066) 97.803 1,484.29
12-31-98 Contract Fee (1.00) $16.30853286 (0.061) 97.742 1,594.03
12-31-99 Contract Fee (1.00) $19.46559691 (0.051) 97.690 1,901.60
12-31-99 Value before Surr Chg $19.46559691 0.000 97.690 1,901.60
12-31-99 Surrender Charge (3.75) $19.46559691 (0.193) 97.498 1,897.85
Cumulative Total Returns without/with chrgs. 90.82% 89.79%
Avg. Annual Total Rtns. without/with chrgs. 13.80% 13.67%
Templeton Global Income Securities
12-31-94 Purchase $1,000.00 $13.72629720 72.853 72.853 $1,000.00
12-31-95 Contract Fee (1.00) $15.52246997 (0.064) 72.788 1,129.86
12-31-96 Contract Fee (1.00) $16.78052472 (0.060) 72.729 1,220.43
12-31-97 Contract Fee (1.00) $16.95673923 (0.059) 72.670 1,232.24
12-31-98 Contract Fee (1.00) $17.90515943 (0.056) 72.614 1,300.17
12-31-99 Contract Fee (1.00) $16.63474333 (0.060) 72.554 1,206.92
12-31-99 Value before Surr Chg $16.63474333 0.000 72.554 1,206.92
12-31-99 Surrender Charge (3.75) $16.63474333 (0.225) 72.328 1,203.17
Cumulative Total Returns without/with chrgs. 21.19% A 20.32% C
Avg. Annual Total Returns without/with chrgs. 3.92% B 3.77% D
Templeton International Equity
12-31-94 Purchase $1,000.00 $12.16131942 82.228 82.228 $1,000.00
12-31-95 Contract Fee (1.00) $13.26267921 (0.075) 82.153 1,089.56
12-31-96 Contract Fee (1.00) $16.08142393 (0.062) 82.090 1,320.13
12-31-97 Contract Fee (1.00) $17.71128511 (0.056) 82.034 1,452.93
12-31-98 Contract Fee (1.00) $18.43652906 (0.054) 81.980 1,511.42
12-31-99 Contract Fee (1.00) $23.02199633 (0.043) 81.936 1,886.33
12-31-99 Value before Surr Chg $23.02199633 0.000 81.936 1,886.33
12-31-99 Surrender Charge (3.75) $23.02199633 (0.163) 81.773 1,882.58
Cumulative Total Returns without/with chrgs. 89.31% A 88.26% C
Avg. Annual Total Rtns. without/with chrgs. 13.61% B 13.49% D
Templeton Pacific Growth
12-31-94 Purchase $1,000.00 $12.80173310 78.114 78.114 $1,000.00
12-31-95 Contract Fee (1.00) $13.63037545 (0.073) 78.041 1,063.73
12-31-96 Contract Fee (1.00) $14.93159316 (0.067) 77.974 1,164.28
12-31-97 Contract Fee (1.00) $9.43102016 (0.106) 77.868 734.38
12-31-98 Contract Fee (1.00) $8.07846316 (0.124) 77.744 628.05
12-31-99 Contract Fee (1.00) $10.91531713 (0.092) 77.653 847.60
12-31-99 Value before Surr Chg $10.91531713 0.000 77.653 847.60
12-31-99 Surrender Charge (3.75) $10.91531713 (0.344) 77.309 843.85
Cumulative Total Returns without/with chrgs. -14.74% A -15.61% C
Avg. Annual Total Rtns. without/with chrgs. -3.14% B -3.34% D
U.S. Government Securities
12-31-94 Purchase $1,000.00 $13.83490825 72.281 72.281 $1,000.00
12-31-95 Contract Fee (1.00) $16.29770051 (0.061) 72.220 1,177.01
12-31-96 Contract Fee (1.00) $16.65018339 (0.060) 72.160 1,201.47
12-31-97 Contract Fee (1.00) $17.94721856 (0.056) 72.104 1,294.06
12-31-98 Contract Fee (1.00) $19.01438042 (0.053) 72.051 1,370.01
12-31-99 Contract Fee (1.00) $18.57397398 (0.054) 71.997 1,337.28
12-31-99 Value before Surr Chg $18.57397398 0.000 71.997 1,337.28
12-31-99 Surrender Charge (3.75) $18.57397398 (0.202) 71.795 1,333.53
Cumulative Total Returns without/with chrgs. 34.25% A 33.35% C
Avg. Annual Total Returns without/with chrgs. 6.07% B 5.93% D
Franklin Global Communications Securities
12-31-94 Purchase $1,000.00 $15.10395032 66.208 66.208 $1,000.00
12-31-95 Contract Fee (1.00) $19.56451758 (0.051) 66.157 1,294.32
12-31-96 Contract Fee (1.00) $20.65439774 (0.048) 66.108 1,365.43
12-31-97 Contract Fee (1.00) $25.81831690 (0.039) 66.070 1,705.81
12-31-98 Contract Fee (1.00) $28.30779835 (0.035) 66.034 1,869.28
12-31-99 Contract Fee (1.00) $38.91678151 (0.026) 66.009 2,568.84
12-31-99 Value before Surr Chg $38.91678151 0.000 66.009 2,568.84
12-31-99 Surrender Charge (3.75) $38.91678151 (0.096) 65.912 2,565.09
Cumulative Total Returns without/with chrgs. 157.66% A 156.51% C
Avg. Annual Total Returns without/with chrgs. 20.84% B 20.73% D
Zero Coupon - 2000
12-31-94 Purchase $1,000.00 $15.37318118 65.048 65.048 $1,000.00
12-31-95 Contract Fee (1.00) $18.29362036 (0.055) 64.994 1,188.97
12-31-96 Contract Fee (1.00) $18.47475298 (0.054) 64.940 1,199.74
12-31-97 Contract Fee (1.00) $19.51237855 (0.051) 64.888 1,266.13
12-31-98 Contract Fee (1.00) $20.68442229 (0.048) 64.840 1,341.18
12-31-99 Contract Fee (1.00) $21.02275632 (0.048) 64.792 1,362.11
12-31-99 Value before Surr Chg $21.02275632 0.000 64.792 1,362.11
12-31-99 Surrender Charge (3.75) $21.02275632 (0.178) 64.614 1,358.36
Cumulative Total Returns without/with chrgs. 36.75% A 35.84% C
Avg. Annual Total Returns without/with chrgs. 6.46% B 6.32% D
Zero Coupon - 2005
12-31-94 Purchase $1,000.00 $16.09601101 62.127 62.127 $1,000.00
12-31-95 Contract Fee (1.00) $20.91363234 (0.048) 62.079 1,298.31
12-31-96 Contract Fee (1.00) $20.51665706 (0.049) 62.031 1,272.66
12-31-97 Contract Fee (1.00) $22.53212008 (0.044) 61.986 1,396.68
12-31-98 Contract Fee (1.00) $25.00286219 (0.040) 61.946 1,548.83
12-31-99 Contract Fee (1.00) $23.20546373 (0.043) 61.903 1,436.49
12-31-99 Value before Surr Chg $23.20546373 0.000 61.903 1,436.49
12-31-99 Surrender Charge (3.75) $23.20546373 (0.162) 61.742 1,432.74
Cumulative Total Returns without/with chrgs. 44.17% A 43.27% C
Avg. Annual Total Returns without/with chrgs. 7.59% B 7.46% D
Zero Coupon - 2010
12-31-94 Purchase $1,000.00 $15.92982416 62.775 62.775 $1,000.00
12-31-95 Contract Fee (1.00) $22.43134838 (0.045) 62.731 1,407.14
12-31-96 Contract Fee (1.00) $21.52246902 (0.046) 62.684 1,349.12
12-31-97 Contract Fee (1.00) $24.73976107 (0.040) 62.644 1,549.79
12-31-98 Contract Fee (1.00) $27.92036039 (0.036) 62.608 1,748.04
12-31-99 Contract Fee (1.00) $24.16356346 (0.041) 62.567 1,511.83
12-31-99 Value before Surr Chg $24.16356346 0.000 62.567 1,511.83
12-31-99 Surrender Charge (3.75) $24.16356346 (0.155) 62.411 1,508.08
Cumulative Total Returns without/with chrgs. 51.69% A 50.81% C
Avg. Annual Total Returns without/with chrgs. 8.69% B 8.56% D
A = (Unit Value as of December 31, 1999 - Unit Value at Purchase)/Unit Value at Purchase
B = [(A+1)^(1/5 Years)]-1
C = (Accumulated Value as of December 31, 1999 - Accum. Value at Purch.)/Accum. Value at Purch.
D = [(C+1)^(1/5 Years)]-1
</TABLE>
<PAGE>
<TABLE>
FRANKLIN VALUEMARK II
Preferred Life Variable Account C
Cumulative and Average Annual Total Return Calculations
Original Purchase as of Sub-Account Inception
Valuation Date as of December 31, 1999
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
Capital Growth
<S> <C> <C> <C> <C> <C> <C>
6-10-96 Purchase $1,000.00 $10.21431608 97.902 97.902 $1,000.00
6-10-97 Contract Fee (1.00) $12.12024399 (0.083) 97.819 1,185.59
6-10-98 Contract Fee (1.00) $14.37121581 (0.070) 97.750 1,404.78
6-10-99 Contract Fee (1.00) $16.31572814 (0.061) 97.688 1,593.86
12-31-99 Contract Fee (1.00) $20.21840693 (0.049) 97.639 1,974.10
12-31-99 Value before Surr Chg $20.21840693 0.000 97.639 1,974.10
12-31-99 Surrender Charge (12.00) $20.21840693 (0.594) 97.045 1,962.10
Cumulative Total Returns without/with chgs. 97.94% A 96.21% C
Avg. Annual Total Returns without/with chgs. 21.15% B 20.85% D
Growth and Income
9-6-91 Purchase $1,000.00 $11.06100045 90.408 90.408 $1,000.00
9-6-92 Contract Fee (1.00) $11.72211872 (0.085) 90.322 1,058.77
9-6-93 Contract Fee (1.00) $13.08151583 (0.076) 90.246 1,180.55
9-6-94 Contract Fee (1.00) $13.64877251 (0.073) 90.173 1,230.75
9-6-95 Contract Fee (1.00) $15.69159535 (0.064) 90.109 1,413.95
9-6-96 Contract Fee (1.00) $17.74713845 (0.056) 90.053 1,598.18
9-6-97 Contract Fee (1.00) $23.02966197 (0.043) 90.009 2,072.88
9-6-98 Contract Fee (1.00) $22.92933519 (0.044) 89.966 2,062.85
9-6-99 Contract Fee (1.00) $27.15350994 (0.037) 89.929 2,441.88
12-31-99 Value before Surr Chg $26.14748139 0.000 89.929 2,351.41
12-31-99 Contract Fee (1.00) $26.14748139 (0.038) 89.891 2,350.41
12-31-99 Surrender Charge 0.00 $26.14748139 0.000 89.891 2,350.41
Cumulative Total Returns without/with chgs. 136.39% A 135.04% C
Avg. Annual Total Returns without/with chgs. 10.89% B 10.81% D
High Income
9-6-91 Purchase $1,000.00 $11.04294172 90.556 90.556 $1,000.00
9-6-92 Contract Fee (1.00) $13.02082293 (0.077) 90.479 1,178.11
9-6-93 Contract Fee (1.00) $14.43598307 (0.069) 90.410 1,305.15
9-6-94 Contract Fee (1.00) $14.57603729 (0.069) 90.341 1,316.81
9-6-95 Contract Fee (1.00) $16.73123123 (0.060) 90.281 1,510.51
9-6-96 Contract Fee (1.00) $18.25174132 (0.055) 90.226 1,646.79
9-6-97 Contract Fee (1.00) $20.72645284 (0.048) 90.178 1,869.07
9-6-98 Contract Fee (1.00) $20.39026809 (0.049) 90.129 1,837.76
9-6-99 Contract Fee (1.00) $20.94561304 (0.048) 90.081 1,886.81
12-31-99 Value before Surr Chg $20.89988452 0.000 90.081 1,882.69
12-31-99 Contract Fee (1.00) $20.89988452 (0.048) 90.033 1,881.69
12-31-99 Surrender Charge 0.00 $20.89988452 0.000 90.033 1,881.69
Cumulative Total Returns without/with chgs. 89.26% A 88.17% C
Avg. Annual Total Returns without/with chgs. 7.97% B 7.89% D
Income Securities
9-6-91 Purchase $1,000.00 $12.81115768 78.057 78.057 $1,000.00
9-6-92 Contract Fee (1.00) $15.22014979 (0.066) 77.991 1,187.04
9-6-93 Contract Fee (1.00) $17.20662330 (0.058) 77.933 1,340.97
9-6-94 Contract Fee (1.00) $16.92439680 (0.059) 77.874 1,317.97
9-6-95 Contract Fee (1.00) $18.68961882 (0.054) 77.821 1,454.44
9-6-96 Contract Fee (1.00) $20.33536339 (0.049) 77.771 1,581.51
9-6-97 Contract Fee (1.00) $23.51896220 (0.043) 77.729 1,828.10
9-6-98 Contract Fee (1.00) $23.29676126 (0.043) 77.686 1,809.83
9-6-99 Contract Fee (1.00) $25.18251527 (0.040) 77.646 1,955.33
12-31-99 Value before Surr Chg $24.32274932 0.000 77.646 1,888.57
12-31-99 Contract Fee (1.00) $24.32274932 (0.041) 77.605 1,887.57
12-31-99 Surrender Charge 0.00 $24.32274932 0.000 77.605 1,887.57
Cumulative Total Returns without/with chgs. 89.86% A 88.76% C
Avg. Annual Total Returns without/with chgs. 8.01% B 7.93% D
Money Market
9-6-91 Purchase $1,000.00 $11.62328752 86.034 86.034 $1,000.00
9-6-92 Contract Fee (1.00) $11.88668450 (0.084) 85.950 1,021.66
9-6-93 Contract Fee (1.00) $12.02049281 (0.083) 85.867 1,032.16
9-6-94 Contract Fee (1.00) $12.22313720 (0.082) 85.785 1,048.56
9-6-95 Contract Fee (1.00) $12.72016095 (0.079) 85.706 1,090.20
9-6-96 Contract Fee (1.00) $13.20667243 (0.076) 85.631 1,130.90
9-6-97 Contract Fee (1.00) $13.69708704 (0.073) 85.558 1,171.89
9-6-98 Contract Fee (1.00) $14.22178403 (0.070) 85.487 1,215.78
9-6-99 Contract Fee (1.00) $14.68641399 (0.068) 85.419 1,254.50
12-31-99 Value before Surr Chg $14.86037176 0.000 85.419 1,269.36
12-31-99 Contract Fee (1.00) $14.86037176 (0.067) 85.352 1,268.36
12-31-99 Surrender Charge 0.00 $14.86037176 0.000 85.352 1,268.36
Cumulative Total Returns without/with chgs. 27.85% A 26.84% C
Avg. Annual Total Returns without/with chgs. 3.00% B 2.90% D
Mutual Discovery Securities
12-2-96 Purchase $1,000.00 $10.12184347 98.796 98.796 $1,000.00
12-2-97 Contract Fee (1.00) $11.93735609 (0.084) 98.712 $1,178.37
12-2-98 Contract Fee (1.00) $10.95003312 (0.091) 98.621 $1,079.90
12-2-99 Contract Fee (1.00) $12.95778686 (0.077) 98.544 $1,276.91
12-31-99 Value before Surr Chg $13.70059906 0.000 98.544 $1,350.11
12-31-99 Contract Fee (1.00) $13.70059906 (0.073) 98.471 $1,349.11
12-31-99 Surrender Charge (12.00) $13.70059906 (0.876) 97.595 $1,337.11
Cumulative Total Returns without/with chgs. 35.36% A 33.71% C
Avg. Annual Total Returns without/with chgs. 10.33% B 9.89% D
Mutual Shares Securities
12-2-96 Purchase $1,000.00 $10.11185152 98.894 98.894 $1,000.00
12-2-97 Contract Fee (1.00) $11.84859686 (0.084) 98.809 $1,170.75
12-2-98 Contract Fee (1.00) $11.62206466 (0.086) 98.723 $1,147.37
12-2-99 Contract Fee (1.00) $12.98110122 (0.077) 98.646 $1,280.54
12-31-99 Value before Surr Chg $13.23680837 0.000 98.646 $1,305.76
12-31-99 Contract Fee (1.00) $13.23680837 (0.076) 98.571 $1,304.76
12-31-99 Surrender Charge (12.00) $13.23680837 (0.907) 97.664 $1,292.76
Cumulative Total Returns without/with chgs. 30.90% A 29.28% C
Avg. Annual Total Returns without/with chgs. 9.14% B 8.70% D
Natural Resources Securities
9-6-91 Purchase $1,000.00 $10.43283659 95.851 95.851 $1,000.00
9-6-92 Contract Fee (1.00) $10.57971370 (0.095) 95.757 1,013.08
9-6-93 Contract Fee (1.00) $12.35930507 (0.081) 95.676 1,182.49
9-6-94 Contract Fee (1.00) $14.72817303 (0.068) 95.608 1,408.13
9-6-95 Contract Fee (1.00) $14.43217167 (0.069) 95.539 1,378.83
9-6-96 Contract Fee (1.00) $15.42683089 (0.065) 95.474 1,472.86
9-6-97 Contract Fee (1.00) $13.57514610 (0.074) 95.400 1,295.07
9-6-98 Contract Fee (1.00) $7.75991149 (0.129) 95.271 739.30
9-6-99 Contract Fee (1.00) $11.36671545 (0.088) 95.183 1,081.92
12-31-99 Value before Surr Chg $11.09169503 0.000 95.183 1,055.74
12-31-99 Contract Fee (1.00) $11.09169503 (0.090) 95.093 1,054.74
12-31-99 Surrender Charge 0.00 $11.09169503 0.000 95.093 1,054.74
Cumulative Total Returns without/with chgs. 6.32% A 5.47% C
Avg. Annual Total Returns without/with chgs. 0.74% B 0.64% D
Real Estate Securities
9-6-91 Purchase $1,000.00 $10.78746364 92.700 92.700 $1,000.00
9-6-92 Contract Fee (1.00) $12.12635190 (0.082) 92.618 1,123.12
9-6-93 Contract Fee (1.00) $15.56248115 (0.064) 92.553 1,440.36
9-6-94 Contract Fee (1.00) $15.61185818 (0.064) 92.489 1,443.93
9-6-95 Contract Fee (1.00) $16.97318612 (0.059) 92.431 1,568.84
9-6-96 Contract Fee (1.00) $19.93343784 (0.050) 92.380 1,841.46
9-6-97 Contract Fee (1.00) $26.18497932 (0.038) 92.342 2,417.98
9-6-98 Contract Fee (1.00) $21.97706670 (0.046) 92.297 2,028.41
9-6-99 Contract Fee (1.00) $22.56378421 (0.044) 92.252 2,081.56
12-31-99 Value before Surr Chg $21.38599208 0.000 92.252 1,972.91
12-31-99 Contract Fee (1.00) $21.38599208 (0.047) 92.206 1,971.91
12-31-99 Surrender Charge 0.00 $21.38599208 0.000 92.206 1,971.91
Cumulative Total Returns without/with chgs. 98.25% A 97.19% C
Avg. Annual Total Returns without/with chgs. 8.57% B 8.50% D
Rising Dividends
3-10-92 Purchase $1,000.00 $9.99233143 100.077 100.077 $1,000.00
3-10-93 Contract Fee (1.00) $10.77962863 (0.093) 99.984 1,077.79
3-10-94 Contract Fee (1.00) $10.06603924 (0.099) 99.885 1,005.44
3-10-95 Contract Fee (1.00) $10.31908288 (0.097) 99.788 1,029.72
3-10-96 Contract Fee (1.00) $12.84883820 (0.078) 99.710 1,281.16
3-10-97 Contract Fee (1.00) $16.45183282 (0.061) 99.649 1,639.41
3-10-98 Contract Fee (1.00) $21.73037282 (0.046) 99.603 2,164.41
3-10-99 Contract Fee (1.00) $19.58257118 (0.051) 99.552 1,949.48
12-31-99 Value before Surr Chg $18.84623514 0.000 99.552 1,876.18
12-31-99 Contract Fee (1.00) $18.84623514 (0.053) 99.499 1,875.18
12-31-99 Surrender Charge 0.00 $18.84623514 0.000 99.499 1,875.18
Cumulative Total Returns without/with chgs. 88.61% A 87.52% C
Avg. Annual Total Returns without/with chgs. 8.46% B 8.38% D
Small Cap
6-10-96 Purchase $1,000.00 $12.51721035 79.890 79.890 $1,000.00
6-10-97 Contract Fee (1.00) $13.42629958 (0.074) 79.816 1,071.63
6-10-98 Contract Fee (1.00) $15.31408169 (0.065) 79.750 1,221.30
6-10-99 Contract Fee (1.00) $16.09603485 (0.062) 79.688 1,282.66
12-31-99 Value before Surr Chg $28.35274064 0.000 79.688 2,259.38
12-31-99 Contract Fee (1.00) $28.35274064 (0.035) 79.653 2,258.38
12-31-99 Surrender Charge (12.00) $28.35274064 (0.423) 79.230 2,246.38
Cumulative Total Returns without/with chgs. 126.51% A 124.64% C
Avg. Annual Total Returns without/with chgs. 25.83% B 25.53% D
Templeton Developing Markets Equity
4-25-94 Purchase $1,000.00 $9.99427001 100.057 100.057 $1,000.00
4-25-95 Contract Fee (1.00) $9.56980111 (0.104) 99.953 956.53
4-25-96 Contract Fee (1.00) $10.84533301 (0.092) 99.861 1,083.02
4-25-97 Contract Fee (1.00) $12.52213365 (0.080) 99.781 1,249.47
4-25-98 Contract Fee (1.00) $11.01534615 (0.091) 99.690 1,098.12
4-25-99 Contract Fee (1.00) $9.93894676 (0.101) 99.589 989.81
12-31-99 Value before Surr Chg $12.18796363 0.000 99.589 1,213.79
12-31-99 Contract Fee (1.00) $12.18796363 (0.082) 99.507 1,212.79
12-31-99 Surrender Charge 0.00 $12.18796363 0.000 99.507 1,212.79
Cumulative Total Returns without/with chgs. 21.95% A 21.28% C
Avg. Annual Total Returns without/with chgs. 3.55% B 3.45% D
Templeton Global Asset Allocation
8-4-95 Purchase $1,000.00 $10.32195885 96.881 96.881 $1,000.00
8-4-96 Contract Fee (1.00) $11.32717526 (0.088) 96.793 1,096.39
8-4-97 Contract Fee (1.00) $14.19821840 (0.070) 96.722 1,373.28
8-4-98 Contract Fee (1.00) $13.88221313 (0.072) 96.650 1,341.72
8-4-99 Contract Fee (1.00) $13.99397493 (0.071) 96.579 1,351.52
12-31-99 Value before Surr Chg $14.40812335 0.000 96.579 1,391.52
12-31-99 Contract Fee (1.00) $14.40812335 (0.069) 96.509 1,390.52
12-31-99 Surrender Charge (3.75) $14.40812335 (0.260) 96.249 1,386.77
Cumulative Total Returns without/with chgs. 39.59% A 38.68% C
Avg. Annual Total Returns without/with chgs. 7.85% B 7.69% D
Templeton Global Growth
4-25-94 Purchase $1,000.00 $9.98428572 100.157 100.157 $1,000.00
4-25-95 Contract Fee (1.00) $10.45597133 (0.096) 100.062 1,046.24
4-25-96 Contract Fee (1.00) $12.30604043 (0.081) 99.980 1,230.36
4-25-97 Contract Fee (1.00) $13.75420379 (0.073) 99.908 1,374.15
4-25-98 Contract Fee (1.00) $17.19826764 (0.058) 99.850 1,717.24
4-25-99 Contract Fee (1.00) $17.74416283 (0.056) 99.793 1,770.75
12-31-99 Value before Surr Chg $19.46559691 0.000 99.793 1,942.54
12-31-99 Contract Fee (1.00) $19.46559691 (0.051) 99.742 1,941.54
12-31-99 Surrender Charge 0.00 $19.46559691 0.000 99.742 1,941.54
Cumulative Total Returns without/with chgs. 94.96% A 94.15% C
Avg. Annual Total Returns without/with chgs. 12.46% B 12.37% D
Templeton Global Income Securities
9-6-91 Purchase $1,000.00 $12.29596065 81.328 81.328 $1,000.00
9-6-92 Contract Fee (1.00) $13.40846444 (0.075) 81.253 1,089.48
9-6-93 Contract Fee (1.00) $14.17507844 (0.071) 81.182 1,150.77
9-6-94 Contract Fee (1.00) $13.73042891 (0.073) 81.110 1,113.67
9-6-95 Contract Fee (1.00) $14.66386795 (0.068) 81.041 1,188.38
9-6-96 Contract Fee (1.00) $15.84056920 (0.063) 80.978 1,282.74
9-6-97 Contract Fee (1.00) $16.79662212 (0.060) 80.919 1,359.16
9-6-98 Contract Fee (1.00) $16.65871907 (0.060) 80.859 1,347.00
9-6-99 Contract Fee (1.00) $16.75667616 (0.060) 80.799 1,353.92
12-31-99 Value before Surr Chg $16.63474333 0.000 80.799 1,344.07
12-31-99 Contract Fee (1.00) $16.63474333 (0.060) 80.739 1,343.07
12-31-99 Surrender Charge 0.00 $16.63474333 0.000 80.739 1,343.07
Cumulative Total Returns without/with chgs. 35.29% A 34.31% C
Avg. Annual Total Returns without/with chgs. 3.70% B 3.61% D
Templeton International Equity
3-10-92 Purchase $1,000.00 $9.99233143 100.077 100.077 $1,000.00
3-10-93 Contract Fee (1.00) $9.70560713 (0.103) 99.974 970.31
3-10-94 Contract Fee (1.00) $12.81763662 (0.078) 99.896 1,280.43
3-10-95 Contract Fee (1.00) $11.75059639 (0.085) 99.811 1,172.83
3-10-96 Contract Fee (1.00) $13.94209546 (0.072) 99.739 1,390.57
3-10-97 Contract Fee (1.00) $16.85903083 (0.059) 99.680 1,680.50
3-10-98 Contract Fee (1.00) $18.95752778 (0.053) 99.627 1,888.68
3-10-99 Contract Fee (1.00) $18.25747203 (0.055) 99.572 1,817.93
12-31-99 Value before Surr Chg $23.02199633 0.000 99.572 2,292.35
12-31-99 Contract Fee (1.00) $23.02199633 (0.043) 99.529 2,291.35
12-31-99 Surrender Charge 0.00 $23.02199633 0.000 99.529 2,291.35
Cumulative Total Returns without/with chgs. 130.40% A 129.13% C
Avg. Annual Total Returns without/with chgs. 11.27% B 11.19% D
Templeton International Smaller Companies
6-10-96 Purchase $1,000.00 $10.17437740 98.286 98.286 $1,000.00
6-10-97 Contract Fee (1.00) $11.58856798 (0.086) 98.200 1,138.00
6-10-98 Contract Fee (1.00) $11.32475567 (0.088) 98.112 1,111.09
6-10-99 Contract Fee (1.00) $10.70280474 (0.093) 98.018 1,049.07
12-31-99 Value before Surr Chg $11.44110306 0.000 98.018 1,121.44
12-31-99 Contract Fee (1.00) $11.44110306 (0.087) 97.931 1,120.44
12-31-99 Surrender Charge (12.00) $11.44110306 (1.049) 96.882 1,108.44
Cumulative Total Returns without/with chgs. 12.45% A 10.84% C
Avg. Annual Total Returns without/with chgs. 3.35% B 2.93% D
Templeton Pacific Growth
3-10-92 Purchase $1,000.00 $9.99233143 100.077 100.077 $1,000.00
3-10-93 Contract Fee (1.00) $10.27710481 (0.097) 99.979 1,027.50
3-10-94 Contract Fee (1.00) $13.68071454 (0.073) 99.906 1,366.79
3-10-95 Contract Fee (1.00) $12.21775190 (0.082) 99.824 1,219.63
3-10-96 Contract Fee (1.00) $14.60041465 (0.068) 99.756 1,456.48
3-10-97 Contract Fee (1.00) $14.62979889 (0.068) 99.688 1,458.41
3-10-98 Contract Fee (1.00) $9.44663576 (0.106) 99.582 940.71
3-10-99 Contract Fee (1.00) $7.77816906 (0.129) 99.453 773.56
12-31-99 Value before Surr Chg $10.91531713 0.000 99.453 1,085.56
12-31-99 Contract Fee (1.00) $10.91531713 (0.092) 99.362 1,084.56
12-31-99 Surrender Charge 0.00 $10.91531713 0.000 99.362 1,084.56
Cumulative Total Returns without/with chgs. 9.24% A 8.46% C
Avg. Annual Total Returns without/with chgs. 1.14% B 1.04% D
U.S. Government Securities
9-6-91 Purchase $1,000.00 $12.03610875 83.083 83.083 $1,000.00
9-6-92 Contract Fee (1.00) $13.57568854 (0.074) 83.010 1,126.91
9-6-93 Contract Fee (1.00) $14.79732981 (0.068) 82.942 1,227.32
9-6-94 Contract Fee (1.00) $14.01767493 (0.071) 82.871 1,161.66
9-6-95 Contract Fee (1.00) $15.66758872 (0.064) 82.807 1,297.38
9-6-96 Contract Fee (1.00) $15.95463735 (0.063) 82.744 1,320.15
9-6-97 Contract Fee (1.00) $17.36743717 (0.058) 82.687 1,436.06
9-6-98 Contract Fee (1.00) $18.77060573 (0.053) 82.633 1,551.08
9-6-99 Contract Fee (1.00) $18.53725345 (0.054) 82.579 1,530.80
12-31-99 Value before Surr Chg $18.57397398 0.000 82.579 1,533.83
12-31-99 Contract Fee (1.00) $18.57397398 (0.054) 82.526 1,532.83
12-31-99 Surrender Charge 0.00 $18.57397398 0.000 82.526 1,532.83
Cumulative Total Returns without/with chgs. 54.32% A 53.28% C
Avg. Annual Total Returns without/with chgs. 5.35% B 5.27% D
Franklin Global Communications Securities
9-6-91 Purchase $1,000.00 $13.23446838 75.560 75.560 $1,000.00
9-6-92 Contract Fee (1.00) $15.54708249 (0.064) 75.496 1,173.74
9-6-93 Contract Fee (1.00) $18.24052412 (0.055) 75.441 1,376.09
9-6-94 Contract Fee (1.00) $14.88666629 (0.067) 75.374 1,122.07
9-6-95 Contract Fee (1.00) $17.09242929 (0.059) 75.315 1,287.32
9-6-96 Contract Fee (1.00) $19.37709761 (0.052) 75.264 1,458.39
9-6-97 Contract Fee (1.00) $22.15845159 (0.045) 75.219 1,666.73
9-6-98 Contract Fee (1.00) $24.44345921 (0.041) 75.178 1,837.61
9-6-99 Contract Fee (1.00) $29.98947392 (0.033) 75.144 2,253.54
12-31-99 Value before Surr Chg $38.91678151 0.000 75.144 2,924.38
12-31-99 Contract Fee (1.00) $38.91678151 (0.026) 75.119 2,923.38
12-31-99 Surrender Charge 0.00 $38.91678151 0.000 75.119 2,923.38
Cumulative Total Returns without/with chgs. 194.06% A 192.34% C
Avg. Annual Total Returns without/with chgs. 13.84% B 13.76% D
Zero Coupon - 2000
9-6-91 Purchase $1,000.00 $12.27379294 81.474 81.474 $1,000.00
9-6-92 Contract Fee (1.00) $14.67166556 (0.068) 81.406 1,194.37
9-6-93 Contract Fee (1.00) $17.02232449 (0.059) 81.348 1,384.72
9-6-94 Contract Fee (1.00) $15.72443108 (0.064) 81.284 1,278.14
9-6-95 Contract Fee (1.00) $17.50941512 (0.057) 81.227 1,422.23
9-6-96 Contract Fee (1.00) $17.78748821 (0.056) 81.171 1,443.82
9-6-97 Contract Fee (1.00) $19.04346853 (0.053) 81.118 1,544.77
9-6-98 Contract Fee (1.00) $20.35735982 (0.049) 81.069 1,650.35
9-6-99 Contract Fee (1.00) $20.85686756 (0.048) 81.021 1,689.84
12-31-99 Value before Surr Chg $21.02275632 0.000 81.021 1,703.28
12-31-99 Contract Fee (1.00) $21.02275632 (0.048) 80.973 1,702.28
12-31-99 Surrender Charge 0.00 $21.02275632 0.000 80.973 1,702.28
Cumulative Total Returns without/with chgs. 71.28% A 70.23% C
Avg. Annual Total Returns without/with chgs. 6.68% B 6.60% D
Zero Coupon - 2005
9-6-91 Purchase $1,000.00 $12.36920966 80.846 80.846 $1,000.00
9-6-92 Contract Fee (1.00) $14.86589685 (0.067) 80.779 1,200.85
9-6-93 Contract Fee (1.00) $18.60614446 (0.054) 80.725 1,501.98
9-6-94 Contract Fee (1.00) $16.31991142 (0.061) 80.664 1,316.42
9-6-95 Contract Fee (1.00) $19.28908605 (0.052) 80.612 1,554.93
9-6-96 Contract Fee (1.00) $19.19645917 (0.052) 80.560 1,546.46
9-6-97 Contract Fee (1.00) $21.25289261 (0.047) 80.513 1,711.13
9-6-98 Contract Fee (1.00) $24.30928080 (0.041) 80.471 1,956.20
9-6-99 Contract Fee (1.00) $23.50321538 (0.043) 80.429 1,890.34
12-31-99 Value before Surr Chg $23.20546373 0.000 80.429 1,866.39
12-31-99 Contract Fee (1.00) $23.20546373 (0.043) 80.386 1,865.39
12-31-99 Surrender Charge 0.00 $23.20546373 0.000 80.386 1,865.39
Cumulative Total Returns without/with chgs. 87.61% A 86.54% C
Avg. Annual Total Returns without/with chgs. 7.85% B 7.78% D
Zero Coupon - 2010
9-6-91 Purchase $1,000.00 $12.01310325 83.242 83.242 $1,000.00
9-6-92 Contract Fee (1.00) $14.40501183 (0.069) 83.173 1,198.11
9-6-93 Contract Fee (1.00) $19.05285238 (0.052) 83.121 1,583.68
9-6-94 Contract Fee (1.00) $15.87698587 (0.063) 83.058 1,318.70
9-6-95 Contract Fee (1.00) $19.89453029 (0.050) 83.007 1,651.39
9-6-96 Contract Fee (1.00) $19.46854542 (0.051) 82.956 1,615.03
9-6-97 Contract Fee (1.00) $22.45374263 (0.045) 82.911 1,861.67
9-6-98 Contract Fee (1.00) $27.39921476 (0.036) 82.875 2,270.71
9-6-99 Contract Fee (1.00) $25.03500794 (0.040) 82.835 2,073.77
12-31-99 Value before Surr Chg $24.16356346 0.000 82.835 2,001.59
12-31-99 Contract Fee (1.00) $24.16356346 (0.041) 82.794 2,000.59
12-31-99 Surrender Charge 0.00 $24.16356346 0.000 82.794 2,000.59
Cumulative Total Returns without/with chgs. 101.14% A 100.06% C
Avg. Annual Total Returns without/with chgs. 8.76% B 8.69% D
Global Health Care Securities
8-17-98 Purchase $1,000.00 $9.35118122 106.938 106.938 1,000.00
8-17-99 Contract Fee ($1.00) $8.74045107 (0.114) 106.824 933.69
12-31-99 Value before Surr Chg $9.61538796 0.000 106.824 1,027.15
12-31-99 Contract Fee (1.00) $9.61538796 (0.104) 106.720 1,026.15
12-31-99 Surrender Charge (35.00) $9.61538796 (3.640) 103.080 991.15
Cumulative Total Returns without/with chgs. 2.83% A -0.88% C
Avg. Annual Total Returns without/with chgs. 2.05% B -0.65% D
Value Securities
8-17-98 Purchase $1,000.00 $7.91713426 126.308 126.308 1,000.00
8-17-99 Contract Fee ($1.00) $8.21916444 (0.122) 126.187 1,037.15
12-31-99 Value before Surr Chg $7.73575540 0.000 126.187 976.15
12-31-99 Contract Fee (1.00) $7.73575540 (0.129) 126.057 975.15
12-31-99 Surrender Charge (35.00) $7.73575540 (4.524) 121.533 940.15
Cumulative Total Returns without/with chgs. -2.29% A -5.99% C
Avg. Annual Total Returns without/with chgs. -1.67% B -4.40% D
A =
B = [(A+1)^(1/Years since Inception)]-1
C = (Accumulated Value as of December 31, 1999 - Accum. Value at Purch.)/Accum. Value at Purch.
D = [(C+1)^(1/Years since Inception)]-1
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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.
