ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
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ISSUED BY: ADMINISTERED BY:
ALLIANZ LIFE INSURANCE COMPANY ALLIANZ LIFE VALUELIFE SERVICE CENTER
OF NORTH AMERICA 2323 BRYAN STREET
1750 HENNEPIN AVENUE DALLAS, TX 75201
MINNEAPOLIS, MN 55403 OR
(800) 542-5427 P.O. BOX 219066
DALLAS, TX 75221
(800) 525-7330
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This Prospectus describes a flexible premium variable life insurance
policy ("Policy") offered by Allianz Life Insurance Company of North America
("Company"). Prior to April 1, 1993, the Company was known as North American
Life and Casualty Company. The Policy has been designed to be used in
connection with estate planning and other insurance needs of individuals.
Upon acceptance, premiums will be allocated to Allianz Life Variable
Account A ("Variable Account"), a separate account of the Company. Prior to
May 1, 1993, the name of the Variable Account was NALAC Variable Account A.
The Variable Account is divided into Sub-Accounts. Each Sub-Account invests in
one Fund of Franklin Valuemark Funds ("Trust"). The Trust is a series fund
with twenty-three Funds, seventeen of which are currently available in
connection with the Policy: the Money Market Fund, the Adjustable U.S.
Government Fund, the High Income Fund, the Investment Grade Intermediate Bond
Fund, the Templeton Global Income Securities Fund, The U.S. Government
Securities Fund, the Growth and Income Fund, the Income Securities Fund, the
Real Estate Securities Fund, the Rising Dividends Fund, the Templeton Global
Asset Allocation Fund, the Utility Equity Fund, the Precious Metals
Fund, the Templeton Developing Markets Equity Fund, the
Templeton Global Growth Fund, the Templeton International Equity Fund
and the Templeton Pacific Growth Fund. SUBJECT TO REGULATORY APPROVAL,
SHARES OF THE U.S. GOVERNMENT SECURITIES FUND WILL BE SUBSTITUTED FOR SHARES
OF THE ADJUSTABLE U.S. GOVERNMENT FUND AND THE INVESTMENT GRADE INTERMEDIATE
BOND FUND ON OCTOBER 25, 1996, OR AS SOON AS POSSIBLE THEREAFTER. THUS,
FOLLOWING THE SUBSTITUTION, THE ADJUSTABLE U.S. GOVERNMENT AND THE
INVESTMENT GRADE INTERMEDIATE BOND FUNDS WILL NO LONGER BE AVAILABLE AS
ELIGIBLE INVESTMENTS FOR OWNERS. SEE "FRANKLIN VALUEMARK FUNDS, PROPOSED
SUBSTITUTION TRANSACTION," BELOW. Prior to May 1, 1996, the Templeton Global
Income Securities Fund was known as the Global Income Fund. See "Summary" and
"Tax Status - Diversification" for a discussion of owner control of the
underlying investments in a variable life policy.
The Owner of the Policy bears the complete investment risk for all
amounts allocated to the Variable Account. The Cash Value and under certain
circumstances, the Death Benefit of the Policy may increase or decrease
depending on the investment experience of the Variable Account.
IT MAY NOT BE ADVANTAGEOUS TO PURCHASE THE POLICY AS A REPLACEMENT FOR
ANOTHER TYPE OF LIFE INSURANCE. IT ALSO MAY NOT BE ADVANTAGEOUS TO PURCHASE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE TO OBTAIN ADDITIONAL INSURANCE
PROTECTION IF THE PURCHASER ALREADY OWNS ANOTHER FLEXIBLE PREMIUM LIFE
INSURANCE POLICY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR FUTURE REFERENCE.
THIS PROSPECTUS MUST BE ACCOMPANIED BY OR PRECEDED BY A CURRENT PROSPECTUS FOR
FRANKLIN VALUEMARK FUNDS.
Dated: May 1, 1996
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TABLE OF CONTENTS
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PAGE
DEFINITIONS
SUMMARY
THE COMPANY
THE VARIABLE ACCOUNT
FRANKLIN VALUEMARK FUNDS
Description of the Funds
General
Substitution of Securities
Proposed Substitution Transaction
PREMIUM PAYMENTS
General
Planned Periodic Premiums
Unscheduled Premiums
Grace Period
Reinstatement
Allocation of Premium
Dollar Cost Averaging
DEDUCTIONS AND CHARGES
Mortality and Expense Risk Charge
Administrative Charges
Insurance Risk Charges
Charges for Additional Benefit Riders
Surrender Charges
Partial Surrender Fee
Premium Taxes
Transfer Fee
Other Expenses
Income Tax Charge
DEATH BENEFIT
Death Benefit
Change in Death Benefit
Change in Face Amount
Face Amount Increase
Face Amount Decrease
Guaranteed Death Benefit Rider
Accelerated Benefit Rider
POLICY ACCOUNT, CASH VALUE, NET CASH VALUE, TRANSFER RIGHTS
AND SURRENDERS
Policy Account
Method of Determining Sub-Account Values
Cash Value, Net Cash Value
Transfer Rights
Partial Surrenders
Full Surrenders
LOAN PROVISIONS
Policy Loans
Loan Interest Charged
Loan Limit
Security
Restrictions on Making Loans
Repaying Policy Debt
Limit on Policy Debt
OWNERSHIP
Transfer of Ownership
Assignment
BENEFICIARY PROVISIONS
DELAY OF PAYMENTS
MANAGEMENT OF THE COMPANY
TAX STATUS
Introduction
Diversification
Tax Treatment of the Policy
Policy Proceeds
Tax Treatment of Loans and Surrenders
Multiple Policies
Tax Treatment of Assignments
Qualified Plans
VARIABLE ACCOUNT VOTING RIGHTS
Disregard of Voting Instructions
DISTRIBUTION OF THE POLICY
REPORTS TO OWNERS
LEGAL PROCEEDINGS
EXPERTS
LEGAL OPINIONS
FINANCIAL STATEMENTS
APPENDIX A
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DEFINITIONS
BENEFICIARY, CONTINGENT BENEFICIARY. The person or persons who will receive
any death benefit proceeds. The Primary Beneficiary and the Contingent
Beneficiary, if any, are named in the application, unless changed. The
Contingent Beneficiary, if any, will become the Beneficiary should the Primary
Beneficiary die prior to the date of death of the Insured.
CASH VALUE. The Policy Account minus the Surrender Charge.
COMPANY. Allianz Life Insurance Company of North America.
DEATH BENEFIT. The amount to be paid to the Beneficiary upon the death of the
Insured.
ELIGIBLE INVESTMENT. Those investments available under the Policy.
FACE AMOUNT OF INSURANCE. The amount of coverage chosen by the Owner used to
determine the Death Benefit. The minimum Face Amount is $100,000.
FIXED ACCOUNT. The Company's general investment account which contains all
the assets of the Company with the exception of the Variable Account and other
segregated asset accounts.
INSURANCE RISK AMOUNT. The excess of the Death Benefit over the Policy
Account.
INSURED. The person whose life is covered by the Policy. The Insured is named
on the Coverage Page of the Policy.
ISSUE DATE. The date when the Insured's life is covered under the Policy. The
Issue Date is shown on the Coverage Page of the Policy.
MATURITY BENEFIT. An amount equal to the Policy Account less any outstanding
Policy Debt. This amount will be paid to the Owner on the Maturity Date.
MATURITY DATE. The last date on which premiums can be paid and coverage
continued under the Policy.
NET CASH VALUE. The Cash Value minus any Policy Debt.
OWNER. The person having all rights under the Policy. The Owner as of the
Issue Date is named on the Coverage Page of the Policy.
POLICY ACCOUNT. The sum of the amounts in the Fixed Account and in the
Sub-Accounts of the Variable Account under the Policy.
POLICY DEBT. The total of any outstanding loans made on the Policy, including
interest paid in advance for the current Policy Year.
POLICY MONTH. The first Policy Month starts on the Issue Date. Future Policy
Months start on the same day in each subsequent month, known as a Monthly
Anniversary Date.
POLICY YEAR, POLICY ANNIVERSARY. The first Policy Year starts on the Issue
Date. Future Policy Years start on the same day and month in each subsequent
year, known as a Policy Anniversary.
REALLOCATION DATE. The date thirty (30) days after the Policy is released to
an active status in the Company's processing system.
SERVICE OFFICE. The Company's ValueLife Service Center shown on the
cover page.
SUB-ACCOUNT. A segment of the Variable Account. Each Sub-Account is invested
in shares of a Fund of an Eligible Investment.
VALUATION DATE. The Variable Account will be valued each day that the New
York Stock Exchange is open for trading which is Monday through Friday, except
for normal business holidays.
VALUATION PERIOD. The period commencing at the close of business of the New
York Stock Exchange on each Valuation Date and ending at the close of business
for the next succeeding Valuation Date.
VARIABLE ACCOUNT. A separate account maintained by the Company into which
premiums for the Policy and certain other policies are allocated. The Variable
Account has been designated "Allianz Life Variable Account A". Prior to May 1,
1993, the name of the Variable Account was NALAC Variable Account A.
SUMMARY
THE POLICY
The Policy described in this Prospectus is a flexible premium variable
life insurance policy. The Policy is "flexible" because unlike the fixed
premium and benefits of an ordinary whole life insurance policy, the frequency
and amount of premium payments can vary, the Owner can choose between death
benefit options and can increase or decrease the amount of insurance coverage,
all within the same policy of insurance.
The Policy is "variable" because the Policy Account, when allocated to
the Variable Account, and under certain circumstances the death benefit under
the Policy, may increase or decrease depending upon the investment results of
the selected Eligible Investments or Portfolios within an Eligible Investment.
There are two death benefit options: Option A and Option B. If Death
Benefit Option A is in effect, the Death Benefit is the greater of the Total
Face Amount at the beginning of the Policy Month when the death occurs or the
Policy Account on the date of death multiplied by the applicable factor. Under
this option, the amount of the Death Benefit is fixed, except when it is
determined by such a percentage. If Death Benefit Option B is in effect, the
Death Benefit is the greater of the total Face Amount at the beginning of the
Policy Month when the death occurs plus the Policy Account on the date of
death or the Policy Account on the date of death multiplied by the applicable
factor. Under this option, the amount of the Death Benefit is variable. The
Owner can change the selection of death benefit option.
During the life of the Insured, the Owner can surrender the Policy for
all or part of its Net Cash Value.
The Owner may obtain a Policy Loan, using the Policy Cash Value as
security.
The Company makes available a number of riders that can be elected to
meet a variety of needs of the Insured. See "Death Benefit" section for a
description of the Guaranteed Death Benefit Rider and the Accelerated Benefit
Rider.
The Policy has been designed to comply with the definition of life
insurance contained in Section 7702 of the Internal Revenue Code of 1986, as
amended ("Code"). However, the law in this regard is very complex and unclear.
While every attempt has been made to comply, there is the risk that the
Internal Revenue Service will not concur with the Company's interpretations of
Section 7702 that were made in determining such compliance. Furthermore, under
certain circumstances, the Policy could be treated as a "modified endowment
contract" under Section 7702A of the Code. For a further discussion, see "Tax
Status - Tax Treatment of the Policy."
THE VARIABLE ACCOUNT
The Variable Account is a separate account of the Company which was
established to hold the investments which underlie the Policy. The Variable
Account is divided into Sub-Accounts. Each of the Sub-Accounts is invested
solely in the shares of one of the Funds of the Trust. (See "Franklin
Valuemark Funds".)
The Treasury Department has indicated that guidelines may be forthcoming
under which a variable life insurance policy will not be treated as life
insurance for tax purposes if the Owner of the Policy has excessive control
over the investments underlying the Policy. The issuance of such guidelines
may require the Company to impose limitations on the Owner's right to control
the investment. It is not known whether any such guidelines would have a
retroactive effect. (See "Tax Status - Diversification".)
DEDUCTIONS AND CHARGES
The Company makes certain deductions from premiums, the Policy Account
and from the assets of the Variable Account. These deductions are made for
premium taxes, for mortality and expense risks, for administrative expenses,
for sales charges and for providing life insurance protection. These
deductions can be summarized as follows:
CHARGE FOR PREMIUM TAXES. This charge is for state and local premium
taxes and is deducted from each premium payment. The charge is equal to 2.5%
of each premium payment and approximates the average expenses to the Company
associated with premium taxes. See "Deductions and Charges - Premium Taxes."
MORTALITY AND EXPENSE RISK CHARGE. This risk charge is guaranteed not to
exceed, on an annual basis, 0.90% of the average daily net assets of each
Sub-Account and is deducted from the Sub-Account on each Valuation Date. The
current risk charge is equal, on an annual basis, to 0.60% of the average
daily net assets of each Sub-Account.
ADMINISTRATIVE CHARGES. This charge is equal to:
a) on an annual basis, 0.15% of the average daily net assets of each
Sub-Account and is deducted from the Sub-Account on each Valuation Date; plus
b) $20 per Policy Month for the first Policy Year, and $9 per Policy
Month guaranteed thereafter. Currently, the charge is $5 per Policy Month
after the first Policy Year. These amounts are deducted from the Policy
Account on the Monthly Anniversary Date.
CHARGES FOR ADDITIONAL BENEFIT RIDERS. The amount of the charge, if any,
each Policy Month for additional benefit riders is determined in accordance
with the rider and is shown on the Coverage Page of the Policy.
INSURANCE RISK CHARGE. On each Monthly Anniversary Date, the Company
deducts from the Policy Account the cost of insurance for the next Policy
Month. This charge provides death benefit protection for the following Policy
Month.
SURRENDER CHARGES. A Surrender Charge may be deducted in the event of a
full or partial surrender. The Surrender Charge consists of two parts: a
Deferred Administrative Expense and a Deferred Sales Load. The Deferred
Administrative Expense is $5.00 per $1,000 of Face Amount of Insurance for the
first three Policy Years, then grades linearly to zero over Policy Years 4
through 13. The Deferred Sales Load is the lesser of 30% of the Surrender
Charge Premium, plus 5% of all premiums over the Surrender Charge Premium
(SCP), or the following percentage of SCP.
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YEARS % OF SCP
1-8 65%
9 60%
10 55%
11 44%
12 33%
13 22%
14 11%
15+ 0%
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For some higher issue ages, the Standard Non-Forfeiture Law of the
state where the Policy is delivered may limit Surrender Charges to
amounts less than those defined above. A Surrender Charge may also
be deducted in the event of a decrease in Face Amount.
PARTIAL SURRENDER FEE. If the Owner surrenders only a portion of the Net
Cash Value at any time during the Insured's lifetime, there is an
administrative fee assessed which is currently equal to the lesser of $25 or
2% of the Partial Surrender Amount. A Partial Surrender that does not exceed
10% of the Net Cash Value may be made once each Policy Year without incurring
a Surrender Charge or the Partial Surrender Fee.
TRANSFER FEE. The Owner may transfer values from one Sub-Account to
another or to or from the Fixed Account. The first 12 transfers in a Policy
Year are free. The fee for each additional transfer is the lesser of $25 or 2%
of the amount transferred. Prescheduled automatic dollar cost averaging
transfers are not counted.
OTHER EXPENSES. The investment managers for the Trust are paid fees for
their services based upon each Fund's net assets.
RIGHT TO EXAMINE
The Policy may be cancelled by returning it with a written request for
cancellation to the Company at its ValueLife Service Center by the later of:
(a) the 20th day after the Owner receives it; or (b) the 45th day after the
application was signed. If this is done, the Company will refund any premium
paid. Prior to the Reallocation Date, premiums will be allocated to the Money
Market Sub-Account. On the Reallocation Date, the amount in the Money Market
Sub-Account will be allocated to the Sub-Accounts of the Variable Account and
to the unloaned portion of the Fixed Account according to the allocation
percentages on the application. This transfer does not count in determining
the applicability of the transfer fee. The Reallocation Date is the date 30
days after the Policy is released to an active status in the Company's
processing system.
CHANGE IN PLAN
The Owner may exchange the Policy for a similar one for another plan of
insurance. Any such change of plan is subject to the Company's approval and
the requirements and payment it may determine.
THE COMPANY
Allianz Life Insurance Company of North America (the "Company") is a
stock life insurance company organized under the laws of the state of
Minnesota in 1896. On April 1, 1993, the Company changed its name from North
American Life and Casualty Company ("NALAC") to its present name. The Company
is a wholly-owned subsidiary of Allianz Versicherungs-AG Holding ("Allianz").
Allianz is headquartered in Munich, Germany, and has sales outlets throughout
the world. Both NALAC and Fidelity Union Life Insurance Company of Dallas,
Texas had been owned by Allianz since 1979. Over the last decade there
has been a gradual consolidation of operations. On May 31, 1993, Fidelity
Union was consolidated into the Company. The Company offers fixed and variable
life insurance and annuities, and group life, accident and health insurance.
NALAC Financial Plans, Inc. is a wholly-owned subsidiary of the Company.
It provides marketing services for the Company and is the principal
underwriter of the Policy. NALAC Financial Plans, Inc. is reimbursed for
expenses incurred in the distribution of the Policies.
The Company provides administration for the Policy at its ValueLife
Service Center: 2323 Bryan Street, Dallas, TX 75201 or P.O. Box 219066,
Dallas, TX 75221, (800) 525-7330.
THE VARIABLE ACCOUNT
The Board of Directors of the Company established the Variable Account on
May 31, 1985. The Variable Account is registered with the Securities and
Exchange Commission as a unit investment trust under the Investment Company
Act of 1940, as amended (the "1940 Act").
The assets of the Variable Account are the property of the Company.
However, the assets of the Variable Account equal to the reserves and other
policy liabilities with respect to the Variable Account are not chargeable
with liabilities arising out of any other business the Company may conduct.
Income, gains and losses, whether or not realized, are, in accordance with the
Policies, credited to or charged against the Variable Account without regard
to other income, gains or losses of the Company. The Company's obligations
arising under the Policies are general corporate obligations.
The Variable Account meets the definition of a "separate account" under
the federal securities laws.
The Variable Account is divided into Sub-Accounts with the assets of each
Sub-Account invested in one of the Funds of Franklin Valuemark Funds. Franklin
Valuemark Funds is comprised of twenty-three Funds, seventeen of which
are currently available in connection with the Policies described in this
Prospectus .
FRANKLIN VALUEMARK FUNDS
Each of the Sub-Accounts of the Variable Account is invested solely in
the shares of one of the Funds of Franklin Valuemark Funds ("Trust"). The
Trust is an open-end management investment company registered under the 1940
Act. While a brief summary of the investment objectives is set forth below,
more comprehensive information, including a discussion of potential risks, is
found in the prospectus for the Trust which is included with this Prospectus.
PURCHASERS SHOULD READ THIS PROSPECTUS AND THE ACCOMPANYING PROSPECTUS FOR
THE TRUST CAREFULLY BEFORE INVESTING.
Franklin Advisers, Inc. ("Advisers"), 777 Mariners Island Blvd., San
Mateo, California 94404, serves as each Fund's (except the Templeton Global
Growth Fund, the Templeton Developing Markets Equity Fund and the
Templeton Global Asset Allocation Fund ) investment manager. The
investment manager for the Templeton Global Growth Fund and the Templeton
Global Asset Allocation Fund is Templeton Global Advisers Limited, formerly
known as Templeton, Galbraith & Hansberger, Ltd., Lyford Cay Nassau, N.P.
Bahamas. As of October 1, 1995 the investment manager for the Templeton
Developing Markets Equity Fund is Templeton Asset Management Ltd., formerly
known as Templeton Investment Management (Singapore) Pte Ltd., 20 Raffles
Place, Ocean Towers, Singapore. All investment managers or
subadvisers are referred to collectively as "Managers." The Managers are
direct or indirect wholly-owned subsidiaries of Franklin Resources, Inc., a
publicly-owned holding company. The Managers, subject to the overall
policies, control and direction and review of the Board of Trustees of the
Trust, are responsible for recommending and providing advice with respect to
each Fund's investments, and for determining which securities will be
purchased, retained or sold as well as for execution of portfolio
transactions. Certain Managers have retained one or more subadvisers.
Advisers act as investment managers or administrator to 36 U.S. registered
investment companies (119 separate series) with aggregate assets of over
$81 billion.
Templeton Global Investors, Inc. ("Business Manager"), Broward
Financial Centre, Suite 2100, Ft. Lauderdale, Florida, provides certain
administrative facilities and services for certain of the Funds.
Franklin Templeton Investor Services, Inc., 777 Mariners Island Blvd.,
San Mateo, California 94404, also a wholly-owned subsidiary of Franklin
Resources, Inc., maintains the records of the Trust's shareholder accounts,
processes purchases and redemptions of shares, and serves as each Fund's
dividend paying agent.
DESCRIPTION OF THE FUNDS
FUND SEEKING STABILITY
OF PRINCIPAL AND INCOME
Money Market Fund
The Money Market Fund seeks high current income, consistent with
capital preservation and liquidity. The Fund will pursue its objective
by investing exclusively in high quality money market instruments. An
investment in the Money Market Fund is neither insured nor guaranteed
by the U.S. government. The Money Market Fund attempts to maintain a
stable net asset value of $1.00 per share, although no assurances can be
given that the Fund will be able to do so.
FUNDS SEEKING CURRENT INCOME
Adjustable U.S. Government Fund
The Adjustable U.S. Government Fund seeks a high level of current income,
consistent with lower volatility of principal, by investing primarily in
adjustable rate securities which are issued or guaranteed by the U.S.
government, its agencies or instrumentalities. SUBJECT TO REGULATORY
APPROVAL, SHARES OF THE U.S. GOVERNMENT SECURITIES FUND WILL BE SUBSTITUTED
FOR SHARES OF THE FUND ON OCTOBER 25, 1996, OR AS SOON AS POSSIBLE THEREAFTER,
AND THUS, FOLLOWING THE SUBSTITUTION, THE FUND WOULD NO LONGER BE AVAILABLE
AS AN ELIGIBLE INVESTMENT FOR OWNERS. SEE "FRANKLIN VALUEMARK FUNDS -
PROPOSED SUBSTITUTION TRANSACTION," BELOW.
High Income Fund
The High Income Fund seeks a high level of current income, with capital
appreciation as a secondary objective, by investing in debt obligations and
dividend-paying common and preferred stocks. Debt obligations include high
yield, high risk, lower rated obligations (commonly referred to as "junk
bonds") which involve increased risks related to the creditworthiness of their
issuers.
Investment Grade Intermediate Bond Fund
The Investment Grade Intermediate Bond Fund seeks current income,
consistent with preservation of capital, primarily through investment in
intermediate-term , investment grade corporate obligations and in U.S.
government securities. SUBJECT TO REGULATORY APPROVAL, SHARES OF THE U.S.
GOVERNMENT SECURITIES FUND WILL BE SUBSTITUTED FOR SHARES OF THE FUND ON
OCTOBER 25, 1996, OR AS SOON AS POSSIBLE THEREAFTER, AND THUS, FOLLOWING THE
SUBSTITUTION, THE FUND WOULD NO LONGER BE AVAILABLE AS AN ELIGIBLE INVESTMENT
FOR OWNERS. SEE "FRANKLIN VALUEMARK FUNDS - PROPOSED SUBSTITUTION
TRANSACTION," BELOW.
Templeton Global Income Securities Fund
The Templeton Global Income Securities Fund (formerly the Global
Income Fund) seeks a high level of current income, consistent with
preservation of capital, with capital appreciation as a secondary
consideration, through investing in foreign and domestic debt obligations,
including up to 25% in high yield, high risk, lower rated debt obligations
(commonly referred to as "junk bonds"), and related currency transactions.
Investing in a non-diversified fund of global securities, including those
of developing markets issuers, involves increased susceptibility to the
special risks associated with foreign investing.
The U.S. Government Securities Fund
The U.S. Government Securities Fund seeks current income and safety of
capital by investing exclusively in obligations issued or guaranteed by
the U.S. government or its agencies or instrumentalities.
FUNDS SEEKING GROWTH AND INCOME
Growth and Income Fund
The Growth and Income Fund seeks capital appreciation, with current
income return as a secondary objective, by investing primarily in U.S.
common stocks, securities convertible into common stocks , and
preferred stocks.
Income Securities Fund
The Income Securities Fund seeks to maximize income while maintaining
prospects for capital appreciation by investing in a diversified portfolio
of domestic and foreign, including developing markets, debt obligations
and/or equity securities. Debt obligations include high yield, high
risk, lower rated obligations (commonly referred to as "junk bonds")
which involve increased risks related to the creditworthiness of their
issuers.
Real Estate Securities Fund
The Real Estate Securities Fund seeks capital appreciation, with
current income return as a secondary objective, by concentrating its
investments in publicly traded securities of U.S. companies in the real
estate industry.
Rising Dividends Fund
The Rising Dividends Fund seeks capital appreciation, primarily
through investment in the equity securities of companies that have paid
consistently rising dividends over the past ten years. Preservation of
capital is also an important consideration. The Fund seeks current income
incidental to capital appreciation.
Templeton Global Asset Allocation Fund
The Templeton Global Asset Allocation Fund seeks a high level of total
return through a flexible policy of investing in equity securities, debt
obligations, including up to 25% in high yield, high risk, lower rated debt
obligations (commonly referred to as "junk bonds"), and money market
instruments of issuers in any nation, including developing markets nations.
The mix of investments among the three market segments will be adjusted in
an attempt to capitalize on total return potential produced by changing
economic conditions throughout the world. Foreign investing involves
special risks.
Utility Equity Fund
The Utility Equity Fund seeks both capital appreciation and current
income by investing in securities of domestic and foreign,including
developing markets, issuers engaged in the public utilities industry.
FUNDS SEEKING CAPITAL GROWTH
Precious Metals Fund
The Precious Metals Fund seeks capital appreciation, with current income
return as a secondary objective, by concentrating its investments in
securities of U.S. and foreign companies, including those in developing
markets, engaged in mining, processing or dealing in gold and other precious
metals.
Templeton Developing Markets Equity Fund
The Templeton Developing Markets Equity Fund seeks long-term capital
appreciation. The Fund seeks to achieve this objective by investing
primarily in equities of issuers in countries having developing markets.
The Fund is subject to the heightened foreign securities investment risks
that accompany foreign developing markets and an investment in the Fund may
be considered speculative.
Templeton Global Growth Fund
The Templeton Global Growth Fund seeks long-term capital growth. The Fund
hopes to achieve its objective through a flexible policy of investing in
stocks and debt obligations of companies and governments of any nation,
including developing markets. The realization of income, if any, is only
incidental to accomplishment of the Fund's objective of long-term capital
growth. Foreign investing involves special risks.
Templeton International Equity Fund
The Templeton International Equity Fund seeks long-term growth of
capital. Under normal conditions, the Templeton International Equity Fund
will invest at least 65% of its total assets in an internationally mixed
portfolio of foreign equity securities which trade on markets in countries
other than the U.S., including developing markets, and are (i) issued by
companies domiciled in countries other than the U.S., or (ii) issued by
companies that derive at least 50% of either heir revenues or pre-tax income
from activities outside of the U.S.. Foreign investing involves special
risks.
Templeton Pacific Growth Fund
The Templeton Pacific Growth Fund seeks long-term growth of capital,
primarily through investing at least 65% of its total assets in equity
securities which trade on markets in the Pacific Rim, including developing
markets, and are (i) issued by companies domiciled in the Pacific Rim or
(ii) issued by companies that derive at least 50% of either their revenues
or pre-tax income from activities in the Pacific Rim. Investing in a portfolio
of geographically concentrated foreign securities, including developing
markets, involves increased susceptibility to the special risks of foreign
investing and an investment in the Fund may be considered speculative.
THE TEMPLETON GLOBAL ASSET ALLOCATION FUND, TEMPLETON DEVELOPING MARKETS
EQUITY FUND, TEMPLETON GLOBAL GROWTH FUND, TEMPLETON GLOBAL INCOME SECURITIES
FUND, GROWTH AND INCOME FUND, INCOME SECURITIES FUND, INVESTMENT GRADE
INTERMEDIATE BOND FUND, TEMPLETON INTERNATIONAL EQUITY FUND, MONEY
MARKET FUND, TEMPLETON PACIFIC GROWTH FUND, PRECIOUS METALS FUND, AND
UTILITY EQUITY FUND MAY INVEST MORE THAN 10% OF THEIR TOTAL NET ASSETS IN
FOREIGN SECURITIES WHICH ARE SUBJECT TO SPECIAL AND ADDITIONAL RISKS RELATED
TO CURRENCY FLUCTUATIONS, MARKET VOLATILITY AND ECONOMIC, SOCIAL AND POLITICAL
UNCERTAINTY; INVESTING IN DEVELOPING MARKETS INVOLVES SIMILAR BUT HEIGHTENED
RISKS RELATED TO THE RELATIVELY SMALL SIZE AND LESSER LIQUIDITY OF THESE
MARKETS. SEE "HIGHLIGHTED RISK CONSIDERATIONS, FOREIGN TRANSACTIONS" IN THE
TRUST PROSPECTUS.
THE HIGH INCOME FUND AND THE INCOME SECURITIES FUND MAY INVEST UP TO 100%
OF THEIR RESPECTIVE NET ASSETS IN SECURITIES OR DEBT OBLIGATIONS RATED BELOW
INVESTMENT GRADE, COMMONLY KNOWN AS "JUNK BONDS," OR IN OBLIGATIONS
WHICH HAVE NOT BEEN RATED BY ANY RATING AGENCY. INVESTMENTS RATED BELOW
INVESTMENT GRADE INVOLVE GREATER RISKS, INCLUDING PRICE VOLATILITY AND
RISK OF DEFAULT THAN INVESTMENTS IN HIGHER RATED OBLIGATIONS. SEE
"HIGHLIGHTED RISK CONSIDERATIONS, LOWER RATED DEBT OBLIGATIONS" IN THE
TRUST PROSPECTUS.
GENERAL
There is no assurance that the investment objectives of any of the Funds
will be met. Owners bear the complete investment risk for Policy Account
values allocated to a Sub-Account.
Additional Funds and/or additional Eligible Investments may, from
time to time, be made available as investments to underlie the Policy.
However, the right to make such selections will be limited by the terms and
conditions imposed on such transactions by the Company.
Trust shares are issued and redeemed only in connection with variable
annuity contracts and variable life insurance policies issued through separate
accounts of the Company and its affiliates. The Trust does not foresee any
disadvantage to Owners arising out of the fact that the Trust may be made
available to separate accounts which are used in connection with both variable
annuity and variable life insurance products. Nevertheless, the Trust's Board
of Trustees intends to monitor events in order to identify any material
irreconcilable conflicts which may possibly arise and to determine what
action, if any, should be taken in response thereto. If such a conflict were
to occur, one of the separate accounts might withdraw its investment in the
Trust. This might force the Trust to sell portfolio securities at
disadvantageous prices.
SUBSTITUTION OF SECURITIES
If the shares of any Fund of the Trust should no longer be available for
investment by the Variable Account or, if in the judgment of the Company,
further investment in such shares should become inappropriate in view of the
purpose of the Policy, the Company may substitute shares of another Eligible
Investment (or Fund within the Trust). No substitution of securities in
any Sub-Account may take place without prior approval of the Securities and
Exchange Commission and under such requirements as it may impose.
PROPOSED SUBSTITUTION TRANSACTION
1. DESCRIPTION. Under its authority described above, the Company has proposed
a substitution transaction (the "Substitution") such that shares of The U.S.
Government Securities Fund ("Government Fund") would be substituted for all
shares of both the Adjustable U.S. Government Fund ("Adjustable Fund") and
the Investment Grade Intermediate Bond Fund ("Bond Fund") held by Sub-Accounts
of the Variable Account. Owners' interests in the Adjustable and Bond Fund
Sub-Accounts would be replaced by interests of equivalent value in the
Government Fund Sub-Account. As a result, the Adjustable Fund and
Bond Fund Sub-Accounts would no longer be available to Owners.
In April 1996, the Company and the Variable Account filed an application with
the Securities and Exchange Commission requesting an order approving the
Substitution. Upon obtaining the order, and subject to any prior approval by
applicable state insurance authorities, the Company and the Variable Account
propose to complete the Substitution on October 25, 1996, or as soon as
possible thereafter.
2. REASONS FOR SUBSTITUTION. The Company has proposed the Substitution for
several reasons: the similarity of the affected Funds' investment objectives,
strategies and risks; the limited recent demand by Owners for fixed-income
investment choices; and the potential to benefit Owners through economies of
scale, including potentially lower operating expenses, by consolidating the
affected Funds' assets.
3. EFFECT ON OWNERS. Except as stated in this paragraph, Owners may continue
to redeem or transfer their Policy Account as stated under "POLICY ACCOUNT,
CASH VALUE, NET CASH VALUE, TRANSFER RIGHTS AND SURRENDERS -- TRANSFER
RIGHTS." Within five days after the Substitution, the Company will send to
Owners a written notice showing the shares of the Adjustable Fund and the
Bond Fund that have been eliminated and the shares of the Government Fund that
have been substituted (the "Notice"). For a 30-day period beginning on the
date following the mailing of the Notice, transfers out of the Government Fund
Sub-Account to any other available Sub-Account will not count toward the limit
on the annual number of free transfers. However, transfers pursuant to a
"market timing" strategy will continue to be subject to the applicable
restrictions on such transfers, as described under "Transfer Rights."
OWNERS CONSIDERING NEW PURCHASES OR TRANSFERS TO EITHER THE ADJUSTABLE OR BOND
FUNDS MAY ALSO WISH TO CONSIDER THE GOVERNMENT FUND, WHICH HAS SIMILAR
INVESTMENT OBJECTIVES AND POLICIES, AND TO CONSULT WITH THEIR INVESTMENT
REPRESENTATIVES. SEE THE ACCOMPANYING FRANKLIN VALUEMARK FUNDS PROSPECTUS.
Immediately following the Substitution, the Company will treat the
Sub-Accounts invested in shares of the Adjustable Fund, Bond Fund and
Government Fund as a single Sub-Account of the Variable Account for
administrative purposes. The Company will effect the Substitution by
simultaneously placing orders to redeem all shares of the Adjustable Fund and
Bond Fund and to purchase shares of the Government Fund equal in value to the
shares redeemed. The net asset values of all affected shares will be
determined as of the close of the business day immediately before the date of
these orders. The Company will bear the expenses of the Substitution, and
will send affected Owners a notice within five days after the Substitution.
The Company believes, based on its review of existing federal income tax laws
and regulations, that the Substitution will not have any tax consequences to
Owners.
Effective immediately, Owners may elect to use the Government Fund Sub-Account
as the source account for investments in other Funds through the Dollar Cost
Averaging ("DCA") program. If the Adjustable Fund Sub-Account is an Owner's
DCA source account at the time of the Substitution, the Government Fund
Sub-Account will automatically become the DCA source account after the
Substitution. If an Owner is using DCA to invest in the Bond Fund
Sub-Account, his or her DCA program will be adjusted to reflect DCA into the
Government Fund Sub-Account using the same allocation percentages when the
Substitution occurs, unless he or she has previously contacted the Company to
select other Sub-Accounts.
FOR FURTHER INFORMATION, PLEASE CONTACT THE VALUELIFE SERVICE CENTER
AT 800/525-7330.
PREMIUM PAYMENTS
GENERAL
The initial premium for a Policy is due before the Company will deliver
the Policy. Before the Company will deliver a Policy, the application and the
premium must be in good order as determined by the Company's administrative
rules.
PLANNED PERIODIC PREMIUMS
Planned periodic premiums may be paid annually, semi-annually, quarterly
or monthly. The Owner selects the planned periodic premium and payment
interval at the time of application. The Owner may change the amount and
frequency of premiums. The Company has the right to limit the amount of any
increase. Each premium after the initial premium must be at least $25 ($50 in
Maryland). Except in Maryland, the Company may increase this minimum limit 90
days after it sends the Owner a written notice of such increase.
UNSCHEDULED PREMIUMS
Additional unscheduled premium payments can be made at any time while the
Policy is in force. The Company has the right to limit the number and amount
of such premium payments. In order to preserve the favorable tax status of the
Policy, the Company may limit the amount of premiums paid and may return any
premiums that exceed the limits under the tax laws of the United States.
GRACE PERIOD
During the first 10 Policy Years (5 Policy Years in Massachusetts), a
grace period begins on the Monthly Anniversary Date when:
* the Net Cash Value is not large enough to cover the monthly deduction
made on that date; and
* adjusted premium payments are less than Accumulated Guaranteed
Coverage Premiums.
Adjusted premium payments as of a Monthly Anniversary Date equal:
* total premiums the Company has received on or before that date; minus
* any partial surrenders the Owner has made on or before that date, and
any Policy Debt.
Accumulated Guaranteed Coverage Premiums as of a Monthly Anniversary Date
equal:
* the Total Guaranteed Coverage Premium; multiplied by
* one plus the number of months the Policy has been in force as of that
Monthly Anniversary Date.
If the same Total Guaranteed Coverage Premium has not been in effect
every month during this period, Accumulated Guaranteed Coverage Premiums will
be based on the different premiums that were in effect and the number of
months for which each applied.
After the first 10 Policy Years (5 Policy Years in Massachusetts), a
grace period begins on the Monthly Anniversary Date when the Net Cash Value is
not large enough to cover the monthly deduction made on that date.
The Company will continue the Policy in effect for 61 days after a grace
period begins. If the Insured dies during a grace period, the Company will
deduct the premium that would have been required to keep the Policy from
terminating at the end of the grace period, as described below, from the
amount it would otherwise pay.
The Policy will terminate without value at the end of a grace period
unless the Company receives a premium large enough to keep the Policy from
terminating at the end of that grace period, as described below, before the
grace period ends. This premium must also meet the minimum premium
requirements.
During the first 10 Policy Years (5 Policy Years in Massachusetts), the
premium required to keep the Policy from terminating at the end of a grace
period equals the lesser of:
* three monthly deductions; or
* Accumulated Guaranteed Coverage Premiums for the Monthly Anniversary
Date when the grace period began minus adjusted premium payments as
of that date.
After the first 10 Policy Years (5 Policy Years in Massachusetts), the
premium required to keep the Policy from terminating at the end of a grace
period equals three monthly deductions.
The Company will notify the Owner in writing at least 31 days before a
grace period ends. The notice will show how much must be paid to keep the
Policy from terminating at the end of that grace period. The Company will send
the notice to the Owner's last known address on file.
REINSTATEMENT
The Policy may be reinstated (coverage restored) anytime within five
years after it has terminated at the end of a grace period. To reinstate the
Policy the Owner must:
* submit an application for reinstatement;
* submit proof satisfactory to the Company that the Insured is still
insurable at the risk classification that applies for the latest Face
Amount portion then in effect;
* pay or agree to reinstatement of any Policy Debt; and
* pay the premium required to reinstate the Policy.
The premium required to reinstate the Policy equals the total of the
following amounts:
* the amounts that would have been required for the Policy to continue
in force without entering a grace period for each month during the
grace period at the end of which it terminated; and
* the amount that will be required for the Policy to continue in force
without entering a grace period for the next 3 months after the
reinstatement date.
The reinstatement date will be the Monthly Anniversary Date on or
following the day the Company approves the application for reinstatement. The
Policy Account on the reinstatement date will be equal to the Policy Account
on the Monthly Anniversary Date when the grace period ended. The Surrender
Charge on the reinstatement date will be equal to the Surrender Charge on the
Monthly Anniversary Date when the grace period ended.
The Policy may not be reinstated after:
* it has been surrendered for its Net Cash Value; or
* the Insured's Death; or
* the Maturity Date.
ALLOCATION OF PREMIUM
The premium is allocated to the Fixed Account or one or more of the
Sub-Accounts of the Variable Account as selected by the Owner. Prior to the
Reallocation Date, the initial premium is allocated to the Money Market
Sub-Account.
On the Reallocation Date, the Policy Account will be allocated to one or
more of the Sub-Accounts in accordance with the premium allocation on record.
This allocation is not deemed to be a transfer subject to the transfer fee
provision (see "Transfer Fee"). The Company reserves the right to limit the
number of allocations that an Owner can have at any one time. SUBJECT TO
REGULATORY APPROVAL, SHARES OF THE U.S. GOVERNMENT SECURITIES FUND WILL BE
SUBSTITUTED FOR SHARES OF THE ADJUSTABLE U.S. GOVERNMENT FUND AND THE
INVESTMENT GRADE INTERMEDIATE BOND FUND ON OCTOBER 25, 1996, OR AS SOON AS
POSSIBLE THEREAFTER. THUS, FOLLOWING THE SUBSTITUTION, THE ADJUSTABLE
U.S. GOVERNMENT AND THE INVESTMENT GRADE INTERMEDIATE BOND FUNDS WILL NO
LONGER BE AVAILABLE AS ELIGIBLE INVESTMENTS FOR OWNERS. SEE "FRANKLIN
VALUEMARK FUNDS - PROPOSED SUBSTITUTION TRANSACTION."
DOLLAR COST AVERAGING
Dollar Cost Averaging is a program which, if elected, enables an Owner to
systematically allocate specified dollar amounts from the Money Market
Sub-Account, the Adjustable U.S. Government Sub-Account or The U.S.
Government Securities Sub-Account to the Policy's other Sub-Accounts (maximum
of five) at regular intervals. By allocating on a regularly scheduled
basis, as opposed to allocating the total amount at one particular time, an
Owner may be less susceptible to the impact of market fluctuations. UPON
REGULATORY APPROVAL OF THE PROPOSED SUBSTITUTION TRANSACTION, THE ADJUSTABLE
U.S. GOVERNMENT AND INVESTMENT GRADE INTERMEDIATE BOND FUNDS WILL NO LONGER BE
AVAILABLE IN THE DOLLAR COST AVERAGING PROGRAM. SEE "FRANKLIN VALUEMARK
FUNDS - PROPOSED SUBSTITUTION TRANSACTION."
Dollar Cost Averaging may be selected for 12 to 36 months. The minimum
amount per period to allocate is $1,000. All dollar cost averaging transfers
will be made effective the tenth of the month (or the next Valuation Date if
the tenth of the month is not a Valuation Date). Election into this program
may occur at any time by properly completing the Dollar Cost Averaging
election form, returning it to the Company by the first of the month, to be
effective that month, and insuring that sufficient value is in either the
Money Market Sub-Account, the Adjustable U.S. Government Sub-Account ,
or The U.S. Government Securities Sub-Account. When utilizing the Dollar Cost
Averaging program, an Owner must be invested in either the Money Market
Sub-Account, the Adjustable U.S. Government Sub-Account , or The U.S.
Government Securities Sub-Account and may be invested in a maximum of five of
the other Sub-Accounts.
Dollar Cost Averaging will terminate when any of the following occurs:
(1) the number of designated transfers has been completed; (2) the value of
the Money Market Sub-Account , the Adjustable U.S. Government
Sub-Account , or The U.S. Government Securities Sub-Account ( if
applicable) is insufficient to complete the next transfer; (3) the Owner
requests termination in writing and such writing is received by the first of
the month in order to cancel the transfer scheduled to take effect that month;
or (4) the Policy is terminated. There is no current charge for Dollar Cost
Averaging but the Company reserves the right to charge for this program. In
the event there are additional transfers, the transfer fee may be charged. The
Company does not intend to profit from any such charge.
DEDUCTIONS AND CHARGES
Deductions under the Policy will be made as follows:
MORTALITY AND EXPENSE RISK CHARGE
The Company deducts a Mortality and Expense Risk Charge from each
Sub-Account on each Valuation Date. This risk charge is guaranteed not to
exceed, on an annual basis, 0.90% of the average daily net assets of the
Sub-Account. The current risk charge is equal, on an annual basis, to 0.60% of
the average daily net assets of each Sub-Account. This risk charge compensates
the Company for assuming the mortality and expense risks under the Policy. The
mortality risk assumed by the Company is that the Insureds, as a group, may
not live as long as expected. The expense risk assumed by the Company is that
actual expenses may be greater than those assumed. The Company is responsible
for all administration of the Policy and the Variable Account. The Company
expects to profit from this charge.
ADMINISTRATIVE CHARGES
The Company deducts Administrative Charges from each Sub-Account on each
Valuation Date and from the Policy Account on each Monthly Anniversary Date.
The asset-based charge is equal, on an annual basis, to 0.15% of the average
daily net assets of the Sub-Account. The Policy charge is equal to $20 per
Policy Month for the first Policy Year and $9 per Policy Month guaranteed
thereafter. Currently, the charge is $5 per Policy Month after the first
Policy Year. This charge reimburses the Company for expenses incurred in the
administration of the Policies and the Variable Account. Such expenses include
but are not limited to: confirmations, annual reports and account statements,
maintenance of Policy records, maintenance of Variable Account records,
administrative personnel costs, mailing costs, data processing costs, legal
fees, accounting fees, filing fees, the costs of other services necessary for
Policy Owner servicing and all accounting, valuation, regulatory and updating
requirements. The Company will not profit from the charges and they will be
reduced to the extent that the amount of the charges is in excess of that
necessary to reimburse the Company for its administrative expenses. Should the
guaranteed charges prove to be insufficient, the Company will not increase the
charges above such guaranteed levels and will incur the loss.
INSURANCE RISK CHARGES
The insurance risk charge for each Policy Month equals the total of the
insurance risk charges for that month for each Face Amount portion then in
effect. To determine the insurance risk charge for a Face Amount portion for a
Policy Month the Company multiplies:
* the Insurance Risk Amount for the Face Amount portion for that month;
by
* the cost of insurance rate that applies to the Face Amount portion for
that month.
The Insurance Risk Amount for a Face Amount portion for a Policy Month
equals the excess of:
* the Death Benefit associated with that Face Amount portion; over
* the amount of the beginning Policy Account, before the monthly
deduction for the month is subtracted, applied to reduce the risk
amount for that Face Amount portion.
If Death Benefit Option B is in effect, the beginning Policy Account is
attributed to the Initial Face Amount in determining the Death Benefit
associated with each Face Amount portion.
The amount of the Death Benefit based on the beginning Policy Account may
exceed the sum of the Face Amount portions and any beginning Policy Account
attributed to the Initial Face Amount. The excess will be attributed to the
most recent Face Amount portion then in effect in determining the Death
Benefit associated with each Face Amount portion.
The beginning Policy Account is applied, first, to reduce the risk amount
for the Initial Face Amount. Any beginning Policy Account in excess of the
Initial Face Amount is then applied to reduce the risk amount for the first
Face Amount increase portion in an amount up to that Face Amount portion.
Remainders are successively applied to reduce the risk amount for the
following Face Amount increase portions in the order of the increases until
the entire Policy Account has been applied.
The cost of insurance rate for a Face Amount portion for a Policy Month
equals the sum of:
* the standard cost of insurance rate for that month from the table of
standard cost of insurance rates declared by the Company's Board of
Directors (the declared standard cost of insurance rate); and
* an additional rate for any extra mortality risk classification that
applies for the Face Amount portion as shown on the Coverage Page of
the Policy, or the supplement to the Coverage Page if the Face Amount
has been changed.
The additional rate for an extra mortality risk classification for any
Policy Month equals the amount of extra mortality that the risk classification
represents for that month.
The total cost of insurance rate for a Policy Month will be uniform for
all Face Amount portions that:
* are in the same Face Amount band, sex, and risk classification;
* take effect when the Insureds are the same age; and
* have been in force the same length of time.
The Company may change the declared cost of insurance rates from time to
time based on its expectations as to future cost elements such as: investment
earnings, mortality, persistency, expenses and taxes. Any change the Company
makes will apply to all Face Amount portions in the same risk classification.
The declared standard cost of insurance rates for each Policy Month will
not be more than the amount shown in the table contained in the Policy. The
table is based on the Insured's age at his or her last birthday at the
beginning of each year (attained age), the Insured's sex and whether or not
the Insured has qualified for the non-smoker classification. For the Initial
Face Amount, the Insured's attained age is determined at the beginning of each
Policy Year. For each Face Amount increase, attained age is determined at the
beginning of each Policy Year measured from the date the increase took effect.
Since the mortality tables used with the Policy distinguish between males
and females, the cost of insurance and the benefits payable will differ
between males and females of the same age. Employers, employee plans and
employee organizations should seek legal advice to determine whether the Civil
Rights Act of 1964, Title VII, or other applicable law prohibits the use of
sex distinct mortality tables. The Company will offer the Policy based upon
unisex mortality tables where required.
CHARGES FOR ADDITIONAL BENEFIT RIDERS
The amount of the charge, if any, each Policy Month for additional
benefit riders is determined in accordance with the rider and is shown on the
Coverage Page of the Policy.
SURRENDER CHARGES
A Surrender Charge may be deducted in the event of a full or partial
surrender. The Surrender Charge consists of two parts: a Deferred
Administrative Expense and a Deferred Sales Load. The Deferred Administrative
Expense is $5.00 per $1,000 of Face Amount of Insurance for the first three
Policy Years, then grades linearly to zero over Policy Years 4 through 13. The
Deferred Sales Load is the lesser of 30% of the Surrender Charge Premium, plus
5% of all premiums over the Surrender Charge Premium (SCP), or the following
percentage of SCP.
<TABLE>
<CAPTION>
<S> <C>
Years % of SCP
1-8 65%
9 60%
10 55%
11 44%
12 33%
13 22%
14 11%
15+ 0%
</TABLE>
For some higher issue ages, the Standard Non-Forfeiture Law of the state
where the Policy is delivered may limit Surrender Charges to amounts less than
those defined above.
The Surrender Charge may also be deducted in the event of a decrease in
Face Amount.
The Surrender Charge at any time during the first Policy Year equals the
Surrender Charge at the end of the year. The Surrender Charge during any
subsequent Policy Year will be calculated based on end of year Surrender
Charges and the portion of the year that has been completed.
When the Policy terminates, the Policy Account may be less than the
Surrender Charge. If so, the Owner will not have to pay the difference. If the
Policy is reinstated, the Surrender Charge will also be reinstated.
PARTIAL SURRENDER FEE
If the Owner surrenders only a portion of the Net Cash Value at any time
during the Insured's lifetime, there is an administrative fee assessed which
is currently equal to the lesser of $25 or 2% of the Partial Surrender Amount.
(See "Policy Account, Cash Value, Net Cash Value, Transfer Rights and
Surrenders - Partial Surrenders".) A Partial Surrender that does not exceed
10% of the Net Cash Value may be made once each Policy Year without
incurring a Surrender Charge or the Partial Surrender Fee.
PREMIUM TAXES
There is a charge for state and local premium taxes and it is deducted
from each premium payment. The charge is equal to 2.5% of each premium payment
and approximates the average expenses to the Company associated with premium
taxes. Premium taxes currently imposed on the Policies offered hereby range
from 2% to 3.5% of premium payments. It is therefore possible that an Owner
may be assessed a charge for premium taxes which is greater than the
applicable charge in his or her state.
TRANSFER FEE
The Owner may transfer values from one Sub-Account to another or to or
from the Fixed Account. The first 12 transfers in a Policy Year are free. The
fee for each additional transfer is currently the lesser of $25 or 2% of the
amount transferred. Prescheduled automatic dollar cost averaging transfers are
not counted nor is the transfer of the initial premium at the end of the free
look period.
OTHER EXPENSES
The Managers for the Trust are paid fees for their services based upon
each Fund's net assets which are described in the accompanying Trust
prospectus.
INCOME TAX CHARGE
The Company does not currently assess any charge for income taxes
incurred by the Company as a result of the operation of the Sub-Accounts of
the Variable Account. The Company reserves the right to assess a charge
for such taxes against the Sub-Accounts if the Company determines that such
taxes will be incurred.
DEATH BENEFIT
DEATH BENEFIT
The amount of the Death Benefit depends on the total Face Amount, the
Policy Account on the date of the Insured's death and the Death Benefit
option (Option A or Option B) in effect at that time.
The total Face Amount is the sum of all of the Face Amount portions. The
Initial Face Amount and each Face Amount increase still in effect are Face
Amount portions. The Initial Face Amount and the Death Benefit option in
effect on the Issue Date are shown on the Coverage Page of the Policy.
OPTION A. The amount of the Death Benefit under Option A is the greater
of:
* the total Face Amount at the beginning of the Policy Month when the
death occurs; or
* the Policy Account on the date of death multiplied by the applicable
factor from the Table of Death Benefit Factors contained in the Policy.
OPTION B. The amount of the Death Benefit under Option B is the greater
of:
* the total Face Amount at the beginning of the Policy Month when the
death occurs plus the Policy Account on the date of death; or
* the Policy Account on the date of death multiplied by the applicable
factor from the Table of Death Benefit Factors.
CHANGE IN DEATH BENEFIT
The Owner may change the Death Benefit option after the Policy has been
in force for at least one year, subject to the following requirements:
* the Owner must request the change in writing;
* once the Death Benefit option has been changed, it cannot be changed
again for the next three years;
* if Death Benefit Option A is to be changed to Option B, the Owner must
submit proof satisfactory to the Company that the Insured is still
insurable at the risk classification that applies for the Initial
Face Amount as shown on the Coverage Page of the Policy. The Face
Amount will not change; and
* if Death Benefit Option B is changed to Option A, the Face Amount will
be increased by an amount equal to the Policy Account on the date of
the change. The risk classification for the last Face Amount portion
to go into effect which is still in force will apply to the Face
Amount increase. This increase will not result in any increase in
premiums, expense charges or Surrender Charges.
Any change in a Death Benefit option will take effect on the Monthly
Anniversary Date on or following the date the Company approves the request for
the change.
CHANGE IN FACE AMOUNT
The Owner may change the Face Amount of the Policy on any Monthly
Anniversary Date after the Policy has been in force at least one year, subject
to the following requirements. Once the Face Amount has been changed, it
cannot be changed again for the next twelve months.
FACE AMOUNT INCREASE. To increase the Face Amount the Owner must:
* submit an application for the increase;
* submit proof satisfactory to the Company that the Insured is an
insurable risk; and
* pay any additional premium which is required.
The Face Amount can only be increased before the Insured reaches age 81.
Each Face Amount increase must be at least as large as the Minimum Face Amount
Increase (currently $25,000). A Face Amount increase will take effect on the
Monthly Anniversary Date on or following the day the Company approves the
application for the increase.
The risk classification that applies for any Face Amount increase may be
different from the risk classification that applies for the Initial Face
Amount.
The following changes will be made to reflect the increase:
* the Guaranteed Coverage Premium will be increased.
* the Monthly Administrative Charge will increase to $20 per month for
the twelve months following the increase.
* additional Surrender Charges equal to the Face Amount increase (in
$1,000's) multiplied by the Surrender Charge Factors will apply for
13 years following the increase.
The Company will furnish a supplement to the Coverage Page of the Policy
that shows:
* the risk classification and the amount of the increase; and
* the values for the changes described above.
FACE AMOUNT DECREASE. The Owner must request in writing any decrease in
the Face Amount. The decrease will take effect on the later of:
* the Monthly Anniversary Date on or following the day the Company
receives the Owner's request for the decrease; or
* the Monthly Anniversary Date one year after the last change in Face
Amount was made.
A Face Amount decrease will be used to reduce any previous Face Amount
increases which are then in effect starting with the latest increase and
continuing in the reverse order in which the increases were made. If any
portion of the decrease is left after all Face Amount increases have been
reduced, it will be used to reduce the Initial Face Amount. The Company will
not permit a Face Amount decrease that would reduce the Initial Face Amount
below the Minimum Face Amount, currently $100,000.
The Guaranteed Coverage Premium will be reduced to reflect the Face
Amount decrease. The new Guaranteed Coverage Premium will be shown on a
supplement to the Coverage Page of the Policy.
The Company will deduct a charge from the Policy Account when the Face
Amount is decreased. The maximum charge the Company will deduct each time the
Face Amount is decreased is the lesser of:
* the total of the current Surrender Charge for the amount of each Face
Amount portion reduced; or
* the Policy Account when the decrease is made.
The charge will be deducted for each Face Amount portion reduced,
starting with the charge for the first Face Amount portion reduced, and
continuing in the same order in which the reductions are made until the charge
is completely deducted.
Future Surrender Charges will be reduced proportionately for any charges
deducted. After the Face Amount is decreased, the Surrender Charges for each
Face Amount portion for which a charge is deducted will be equal to the
Surrender Charges shown for that Face Amount portion on the Coverage Page of
the Policy, or in the supplement to the Coverage Page, multiplied by the ratio
of:
* the amount of the Surrender Charge in effect for the Face Amount
portion at the time the charge is deducted minus the amount of the
charge deducted for the Face Amount portion; divided by
* the amount of the Surrender Charge in effect for the Face Amount
portion at the time the charge is deducted.
GUARANTEED DEATH BENEFIT RIDER
The Owner can elect a Guaranteed Death Benefit Rider. This Rider provides
that the Policy will remain in force to attained age 95 for Death Benefit
Option A Policies and to attained age 80 for Death Benefit Option B Policies,
regardless of the performance of the underlying Fund, so long as the minimum
required premium is paid. The premium required is significantly higher than
the minimum premium required to issue the Policy and to keep it in force.
There is an additional charge for this benefit, currently $0.01 per $1000 of
Face Amount per Policy Month. A Policy cannot have both the Guaranteed Death
Benefit Rider and any of the following riders:
* Insured Term Rider
* Spouse Term Rider
ACCELERATED BENEFIT RIDER
The Owner can elect the Accelerated Benefit Rider. This rider provides
that the Owner may elect to receive some of the death benefit proceeds of the
Policy if the Insured is suffering from a terminal illness, as defined in the
rider. Death Benefits, Cash Values, if any, and Loan Values, if any, will be
reduced if a benefit is paid pursuant to this rider.
POLICY ACCOUNT, CASH VALUE,
NET CASH VALUE, TRANSFER
RIGHTS AND SURRENDERS
POLICY ACCOUNT
On the Issue Date, the beginning Policy Account equals:
* the first premium paid less the charge for premium taxes, the initial
Insurance Risk Charge and the initial charge for any additional
benefit riders; minus
* the monthly deduction for the first Policy Month.
After the Issue Date the Policy Account equals the sum of the amounts in
the Fixed Account and in the Sub-Accounts of the Variable Account under the
Policy.
METHOD OF DETERMINING SUB-ACCOUNT VALUES
Sub-Account values will fluctuate in accordance with the investment
experience of the applicable underlying Fund held within the Sub-Account. In
order to determine these Sub-Account values, the Company utilizes Sub-Account
valuation units. The value of a unit applicable during any Valuation Period is
determined at the end of that Period.
When the first shares of the Funds were purchased for the Sub-Accounts,
each Sub-Account valuation unit was valued at $10. The value of a unit within
each Sub-Account on any Valuation Date thereafter is determined by dividing
(a) by (b), where:
(a) is equal to:
1. the total value of the net assets in the Sub-Account; minus
2. the daily Mortality and Expense Risk Charge; minus
3. the daily charge for the asset-based Administrative Charge; plus or
minus
4. a charge or credit for any tax provision established for the
Sub-Account.
and (b) is the total number of units applicable to that Sub-Account
at the end of the Valuation Period.
A valuation unit may increase or decrease in value from Valuation Date to
Valuation Date.
CASH VALUE, NET CASH VALUE
The Cash Value equals:
* the Policy Account; minus
* the Surrender Charges.
See "Deductions and Charges" regarding a description of the Surrender
Charges.
The Net Cash Value equals:
* the Cash Value; minus
* any Policy Debt.
During the Insured's life the Owner may:
* take loans based on the Cash Value;
* make Partial Surrenders; or
* surrender the Policy for its Net Cash Value.
TRANSFER RIGHTS
At the Owner's request the Company will transfer amounts from the value
in any Sub-Account of the Variable Account to one or more of the Sub-Accounts
of the Variable Account or to the Fixed Account. The minimum amount that can
be transferred from the value in a Sub-Account of the Variable Account on any
date is the lesser of the Minimum Transfer Amount (currently $500) or the
value in that Sub-Account on that date. The Owner may transfer on any Policy
Anniversary an amount from the unloaned value in the Fixed Account to one or
more Sub-Accounts of the Variable Account. However, transfers will be made
only if:
* the Company receives such request at least 30 days before that Policy
Anniversary; and
* the amount requested is not more than the greater of 25% of the
unloaned value in the Fixed Account on that Anniversary or the Minimum
Transfer Amount.
In no event will the Company transfer more than such unloaned value. The
minimum amount that the Company will transfer from the value in the Fixed
Account on any Policy Anniversary is the lesser of the Minimum Transfer
Amount, currently $500, or the unloaned value in the Fixed Account on that
date. Upon regulatory approval of the proposed Substitution transaction,
Owners who have selected the Adjustable U.S. Government Fund or the
Investment Grade Intermediate Bond Fund may be entitled to certain special
transfer rights. See "Franklin Valuemark Funds - Proposed Substitution
Transaction."
Twelve transfers may be made in a Policy Year without the imposition of a
charge. The Company may charge a transfer fee for additional transfers in a
Policy Year. The current transfer fee is the lesser of $25 or 2% of the amount
transferred. The Owner may tell the Company how much of such a transfer fee is
to come from the unloaned value in the Fixed Account and from the values in
each of the Sub-Accounts of the Variable Account. If the Owner does not tell
the Company, it will make such deduction based on the proportions that the
unloaned values in the Fixed Account and the value in the Sub-Accounts of the
Variable Account bear to the total unloaned value in the Policy Account.
Neither the Variable Account nor the Trust are designed for professional
market timing organizations, other entities, or individuals using programmed,
large, or frequent transfers. A pattern of exchanges that coincides with a
"market timing" strategy may be disruptive to the Fund and may be refused.
Accounts under common ownership or control may be aggregated for purposes of
transfer limits. In coordination with the Trust, the Company reserves the
right to restrict the transfer privilege or reject any specific premium
allocation request for any person whose transactions seem to follow a timing
pattern.
An Owner may elect to make transfers by telephone. To elect this option
the Owner must do so in writing to the Company. If there are Joint Owners,
unless the Company is informed to the contrary, instructions will be accepted
from either one of the Joint Owners. The Company will use reasonable
procedures to confirm that instructions communicated by telephone are genuine.
If it does not, the Company may be liable for any losses due to unauthorized
or fraudulent instructions. The Company tape records all telephone
instructions.
PARTIAL SURRENDERS
The Owner may make a partial surrender from the Net Cash Value at any
time during the Insured's life and before the Policy has terminated. The
Minimum Partial Surrender Amount is currently $500. The Partial Surrender may
not exceed the Net Cash Value, less $300.
The Company will assess a Partial Surrender Fee when a partial surrender
is made. The maximum Partial Surrender Fee the Company will make is $50 and
the current charge is the lesser of 2% of the Partial Surrender Amount or $25.
In addition, a Surrender Charge may be assessed on the amount withdrawn. See
"Surrender Charges" above. A Partial Surrender that does not exceed 10% of the
Net Cash Value may be made once each Policy Year without incurring a Surrender
Charge or the Partial Surrender Fee.
When a partial surrender is made, the amount of the partial surrender,
the Partial Surrender Fee and the Surrender Charge, if any, will be deducted
from the Policy Account. The Owner elects how much of each partial surrender,
Partial Surrender Fee and Surrender Charge is to come from the unloaned value
in the Fixed Account and from values in each of the Sub-Accounts of the
Variable Account. If the Owner does not so elect, or if the Company
cannot make the Surrender on the basis of the Owner's direction or those
allocation percentages, the Company will make it based on the proportions that
the unloaned value in the Fixed Account and unloaned values in the
Sub-Accounts of the Variable Account bear to the total unloaned value in the
Policy Account.
The Face Amount will be reduced if Death Benefit Option A is in effect
when a partial surrender is made. Such a reduction will be equal to the amount
of the partial surrender minus the excess, if any, of:
* the Death Benefit at the time the partial surrender is made; over
* the Face Amount at the time the partial surrender is made.
However, if the amount of the partial surrender is less than or equal to
the excess described above, the Face Amount will not be reduced.
Any Face Amount reduction will be used first to reduce any Face Amount
increases then in effect starting with the latest increase and continuing in
the reverse order in which the increases were made. If any of the reduction is
left after all Face Amount increases have been reduced, it will be used to
reduce the Initial Face Amount.
The Company will not permit a partial surrender that would reduce the
Face Amount below the minimum Face Amount (currently $100,000). The Company
may limit the number of partial surrenders in a Policy Year, but this limit
will not be less than one.
FULL SURRENDERS
The Owner may completely surrender the Policy and receive the Net Cash
Value anytime during the Insured's life and before the Policy has terminated.
The full surrender will take effect on the later of:
* the date the Company receives the Owner's written request for the
surrender; or
* the date the Owner requests, in writing, for the surrender to take
effect.
The Policy and all coverage under it will terminate at 12:01 a.m. at
the Company's ValueLife Service Center on the date the surrender
takes effect.
Partial and full surrenders may have federal tax consequences (see "Tax
Status").
LOAN PROVISIONS
POLICY LOANS
The Company will loan money to the Owner at the loan interest rate the
Company establishes for each Policy Year during which the loan is outstanding.
The request by the Owner for a loan must be in writing.
The Policy Loan will be divided into two parts, the Preferred Loan and
the Non-Preferred Loan. A Preferred Loan may be made not more than once per
Policy Year, beginning the later of the tenth Policy Anniversary or the
anniversary following the Insured's 60th birthday. No more than 10% of the
Cash Value of the Policy at the time of the loan may be made as a Preferred
Loan. Any portion of a loan that is not a Preferred Loan is a Non-Preferred
Loan.
The Policy Loan must be allocated to the Fixed Account. If the Policy
Loan requested exceeds the loan limit, the Owner may also request a transfer
of values from the Sub-Accounts of the Variable Account to the Fixed Account,
if such values are available. These values will be determined at the time of
the request for transfer. If the Owner does not indicate the proportions of
the Sub-Accounts to be transferred, the Company will make the transfers based
on the proportions that the values in the Sub-Accounts of the Variable Account
bear to the total unloaned value in the Policy Account.
Policy loans may have federal tax consequences (see "Tax Status").
LOAN INTEREST CHARGED
There may be a lower declared loan interest rate each year for the
Preferred Loan than for the Non-Preferred Loan. The Company will determine the
loan interest rates for a Policy Year at least 60 days before the Policy Year
begins. The maximum annual loan interest rates the Company will use for
Preferred and Non-Preferred Loans for a Policy (the maximum allowable rate)
are the greater of:
* the guaranteed interest rate for the Fixed Account shown on the
Coverage Page of the Policy for a Policy Year (currently 3.5% for all Policy
Years) plus 1%; or
* MOODY'S CORPORATE BOND YIELD AVERAGE, MONTHLY AVERAGE CORPORATES as
published by Moody's Investors Service, Inc., for the calendar month ending
two months before the date on which the loan interest rate is determined.
If MOODY'S CORPORATE BOND YIELD AVERAGE, MONTHLY AVERAGE CORPORATES is no
longer published on a timely basis, the Company will use a substantially
similar average approved by the insurance department in the state where the
Policy was delivered to determine the maximum allowable rate.
If the maximum allowable rate for a Policy is at least 1/2% lower than
the loan interest rate in effect for the previous Policy Year, the Company
will decrease the loan interest rate to not more than the maximum allowable
rate. If the maximum allowable rate for a Policy Year is at least 1/2% higher
than either loan interest rate in effect for the previous Policy Year, the
Company may increase either loan interest rate to not more than the maximum
allowable rate. The Company will not use a loan interest rate for any Policy
Year that exceeds 15%. The Company will notify the Owner as to the Preferred
Loan and Non-Preferred Loan interest rates that apply at the time a new loan
is made or when any Policy Debt is reinstated. If either loan interest rate
that applies to an existing Policy Loan is increased, the Company will notify
the Owner in writing at least 30 days before the new rate takes effect.
When a loan is made, interest for the rest of the current Policy Year
must be paid in advance. If interest is not paid when due, it will be added to
the Policy Debt and allocated to the Fixed Account. The accumulation of
Preferred Loans, together with interest on such loans, is the Preferred Debt.
The accumulation of Non-Preferred Loans, together with interest on such loans,
is the Non-Preferred Debt. Total Policy Debt is the sum of the Preferred Debt
and the Non-Preferred Debt, and equals the total outstanding loan with
interest. If the Total Policy Debt (including interest in advance) exceeds the
Fixed Account, the Company will transfer values from the Sub-Accounts of the
Variable Account to the Fixed Account if such values are available, based on
the proportions that the values in the Sub-Accounts of the Variable Account
bear to the total value of the Sub-Accounts of the Variable Account. The
unpaid interest will then be treated as part of the Policy Debt and will bear
interest at the loan rates.
LOAN LIMIT
A loan may be for any amount which does not exceed the loan limit.
The loan limit equals:
* the Cash Value on the date the loan is made; minus
* interest for the rest of the current Policy Year; minus
* any existing Policy Debt.
SECURITY
The Policy will be the only security for the loan.
RESTRICTIONS ON MAKING LOANS
Loans will not be available during a grace period or after the Insured
dies.
REPAYING POLICY DEBT
The Policy Debt, or any part, may be repaid at any time as long as the
Policy is in force. The Company has the right to not accept partial loan
repayments for amounts less than $50. Any Policy Debt outstanding will be
deducted before any benefit proceeds are paid or applied under a payment
option.
Repayments will be applied first to the Non-Preferred Debt Account, and
then to the Preferred Debt Account, unless the Owner specifies differently.
Repayments will be allocated to the Fixed Account and to the Sub-
Accounts of the Variable Account based on the premium allocation schedule then
in effect, unless a different allocation is requested.
When there is Policy Debt outstanding, any payments received will be
applied first as repayment of debt, rather than as premium, unless the Company
is instructed otherwise.
LIMIT ON POLICY DEBT
Total Policy Debt must not exceed the Cash Value. If Total Policy Debt,
adjusted for any unearned loan interest, ever equals or exceeds the Cash
Value, the Company can terminate the Policy. The Policy will terminate 61 days
after the Company has mailed a written notice to the Owner and to anyone who
is relying on the Policy as collateral security as shown on the Company's
records. A notice will be sent to the last known address the Company has on
file.
OWNERSHIP
The Owner, as of the Issue Date, is named on the Coverage Page of the
Policy. The Owner may be the Insured or someone other than the Insured. If
another person has become the Owner after the Issue Date, the Company will
have a record of such change.
During the Insured's life, the Owner may exercise any rights and receive
all benefits described in the Policy.
While the Insured is alive, the Owner may exercise all the rights of the
Policy subject to the rights of:
1. any assignee under an assignment filed with the Dallas Office; and
2. any irrevocably named Beneficiary.
TRANSFER OF OWNERSHIP
The Owner may transfer ownership of the Policy. The Company will not be
responsible for any payment it makes or other action the Company takes before
a copy of the written transfer is received by it. The Company is not
responsible for the validity of the transfer. The Company may require the
Policy to record the transfer.
The new Owner takes the Policy subject to all Policy Debt.
ASSIGNMENT
The Owner may assign the Policy. A copy of any assignment must be filed
with the ValueLife Service Center. The Company is not responsible for
the validity of any assignment. If the Owner assigns the Policy, the Owner's
rights and those of any revocably-named person will be subject to the
assignment. An assignment will not affect any payments the Company may make or
actions it may take before such assignment has been recorded at the Company's
ValueLife Service Center.
BENEFICIARY PROVISIONS
The Company will pay any Death Benefit proceeds to the Primary
Beneficiary. Contingent Beneficiaries may be named to receive the proceeds
if the Primary Beneficiary dies before the Insured. If no named Beneficiary
is living when the Insured dies, the proceeds will be paid to the Owner or the
Owner's estate.
Primary and Contingent Beneficiaries are as named in the application,
unless changed by the Owner. The Beneficiaries may be changed by the Owner
at any time during the Insured's life. To change a Beneficiary, a written
request must be made to the Company. The Company may require the Policy to
record the change. The request will take effect when signed, subject to any
action the Company takes before receiving it.
One or more irrevocable Beneficiaries may be named. An irrevocable
Beneficiary is one whose rights cannot be reduced or destroyed without his or
her consent.
If a Beneficiary is a minor, the Company will make payment to the
guardian of his or her estate. The Company may require proof of age of any
Beneficiary.
Proceeds payable to a Beneficiary will be free from the claims of
creditors, to the extent allowed by law.
DELAY OF PAYMENTS
The Company will generally pay Policy proceeds within seven business days
of receipt of a completed request for such payment. The Company reserves the
right to suspend or postpone any type of payment from the Variable Account for
any period when:
a. the New York Stock Exchange is closed (other than customary weekend
and holiday closings);
b. trading on the New York Stock Exchange is restricted;
c. an emergency exists as a result of which disposal of securities held
in the Variable Account is not reasonably practicable or it is not reasonably
practicable to determine the value of the Variable Account's net assets; or
d. the Securities and Exchange Commission, by order, so permits delay
for the protection of Owners.
The applicable rules of the Securities and Exchange Commission will
govern as to whether the conditions described in (b) and (c) exist.
The insurance laws of some states require that the Company reserve the
right to defer making payment of Cash Surrender Values and loans from the
Fixed Account for up to six months from the date of request. In such states
the Company provides a Policy reserving this right.
MANAGEMENT OF THE COMPANY
The directors and executive officers of the Company and their principal
occupations for the past 5 years are as follows:
<TABLE>
<CAPTION>
<S> <C>
NAME PRINCIPAL OCCUPATIONS DURING THE PAST FIVE YEARS
Lowell C. Anderson Chairman, President and Chief Executive Officer of
the Company since October, 1988. From 1985 to
1988, Mr. Anderson was President and Chief
Operating Officer of the Company.
Herbert F. Hansmeyer Chairman of the Board of Allianz of America
Corp. Member of the Board of Management of
Allianz-AG, Munich, Germany, since 1986;
formerly Chief Executive Officer of Allianz
Insurance Company, Los Angeles, California;
formerly President and Chief Executive Officer of
FFIC.
Dr. Jerry E. Robertson Former Executive Vice President, 3M/Life
Sciences Sector.
Dr. Gerhard Rupprecht Chairman of the Board of Management -
Allianz Lebensversicherungs, since 1979.
Michael P. Sullivan President, Chief Executive Officer and
Director of International Dairy Queen, Inc. since
1987.
Alan A. Grove Vice President - Corporate Legal Officer
and Secretary of the Company.
J. Ward Hamlin Vice President - Underwriting of the Company.
Robert S. James President - Individual Marketing Division of the
Company since March 31, 1995. Previously
President of Financial Markets Division.
Edward J. Bonach Senior Vice President - Chief Financial Officer
and Treasurer of the Company since 1993. Senior
Vice President and Chief Actuary previously.
Ronald L. Wobbeking President - Mass Marketing Division of the
Company since September 1991. Previously Senior
Vice President Mass Marketing.
Rev. Dennis J. Dease President, University of St. Thomas.
James R. Campbell Executive Vice President of Norwest Corporation.
</TABLE>
TAX STATUS
NOTE: THE FOLLOWING DESCRIPTION IS BASED UPON THE COMPANY'S
UNDERSTANDING OF CURRENT FEDERAL INCOME TAX LAW APPLICABLE TO LIFE INSURANCE
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. SECTION 7702 OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), DEFINES THE TERM "LIFE
INSURANCE CONTRACT" FOR PURPOSES OF THE CODE. THE COMPANY BELIEVES THAT THE
POLICIES TO BE ISSUED WILL QUALIFY AS "LIFE INSURANCE CONTRACTS" UNDER SECTION
7702. THE COMPANY DOES NOT GUARANTEE THE TAX STATUS OF THE POLICIES.
PURCHASERS BEAR THE COMPLETE RISK THAT THE POLICIES MAY NOT BE TREATED AS
"LIFE INSURANCE" UNDER FEDERAL INCOME TAX LAWS. PURCHASERS SHOULD CONSULT
THEIR OWN TAX ADVISERS. IT SHOULD BE FURTHER UNDERSTOOD THAT THE FOLLOWING
DISCUSSION IS NOT EXHAUSTIVE AND THAT SPECIAL RULES NOT DESCRIBED IN THIS
PROSPECTUS MAY BE APPLICABLE IN CERTAIN SITUATIONS.
INTRODUCTION
The discussion contained herein is general in nature and is not intended
as tax advice. Each person concerned should consult a competent tax adviser.
No attempt is made to consider any applicable state or other tax laws.
Moreover, the discussion herein is based upon the Company's understanding of
current federal income tax laws as they are currently interpreted. No
representation is made regarding the likelihood of continuation of those
current federal income tax laws or of the current interpretations by the
Internal Revenue Service.
The Company is taxed as a life insurance company under the Code. For
federal income tax purposes, the Variable Account is not a separate entity
from the Company and its operations form a part of the Company.
DIVERSIFICATION
Section 817(h) of the Code imposes certain diversification standards on
the underlying assets of variable life insurance policies. The Code provides
that a variable life insurance policy will not be treated as life insurance
for any period (and any subsequent period) for which the investments are not,
in accordance with regulations prescribed by the United States Treasury
Department ("Treasury Department"), adequately diversified. Disqualification
of the Policy as a life insurance contract would result in the imposition of
federal income tax on the Owner with respect to earnings allocable to the
Policy prior to the receipt of payments under the Policy. The Code contains a
safe harbor provision which provides that life insurance policies such as the
Policies meet the diversification requirements if, as of the close of each
quarter, the underlying assets meet the diversification standards for a
regulated investment company and no more than fifty-five (55%) percent of the
total assets consist of cash, cash items, U.S. Government securities and
securities of other regulated investment companies. There is an exception for
securities issued by the U.S. Treasury in connection with variable life
insurance policies.
On March 2, 1989, the Treasury Department issued Regulations (Treas. Reg.
Section 1.817-5), which establish diversification requirements for the
investment portfolios underlying variable contracts such as the Policies. 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: (i) no more than 55% of the value of the total
assets of the portfolio is represented by any one investment; (ii) no more
than 70% of the value of the total assets of the portfolio is represented by
any two investments; (iii) no more than 80% of the value of the total assets
of the portfolio is represented by any three investments; and (iv) no more
than 90% of the value of the total assets of the portfolio is represented by
any four investments. For purposes of these Regulations, all securities of the
same issuer are treated as a single investment.
The Code further 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 each Fund of the Trust underlying the Policies
will be managed by the Managers for the Trust in such a manner as to comply
with these diversification requirements.
The Treasury Department has indicated that the diversification
Regulations do not provide guidance regarding the circumstances in which Owner
control of the investments of the Variable Account will cause the Owner to be
treated as the owner of the assets of the Variable Account, thereby resulting
in the loss of favorable tax treatment for the Policy. 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 Owner control which may be exercised under the Policy 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 Owner's ability to transfer among
investment choices or the number and type of investment choices available,
would cause the Owner to be considered as the owner of the assets of the
Variable Account.
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 Owner
being retroactively determined to be the owner of the assets of the Variable
Account.
Due to the uncertainty in this area, the Company reserves the right to
modify the Policy in an attempt to maintain favorable tax treatment.
TAX TREATMENT OF THE POLICY
The Policy has been designed to comply with the definition of life
insurance contained in Section 7702 of the Code. Although some interim
guidance has been provided and proposed regulations have been issued, final
regulations have not been adopted. Section 7702 of the Code requires the use
of reasonable mortality and other expense charges. In establishing these
charges, the Company has relied on the interim guidance provided in IRS Notice
88-128 and proposed regulations issued on July 5, 1991. Currently, there is
even less guidance as to a Policy issued on a substandard risk basis and thus
it is even less clear whether a Policy issued on such basis would meet the
requirements of Section 7702 of the Code.
While the Company has attempted to comply with Section 7702, the law in
this area is very complex and unclear. There is a risk, therefore, that the
Internal Revenue Service will not concur with the Company's interpretations of
Section 7702 that were made in determining such compliance. In the event the
Policy is determined not to so comply, it would not qualify for the favorable
tax treatment usually accorded life insurance policies. Owners should consult
their tax advisers with respect to the tax consequences of purchasing the
Policy.
POLICY PROCEEDS
The tax treatment accorded to loan proceeds and/or surrender payments
from the Policies will depend on whether the Policy is considered to be a
Modified Endowment Contract. (See "Tax Treatment of Loans and Surrenders".)
Otherwise, the Company believes that the Policy should receive the same
federal income tax treatment as any other type of life insurance. As such, the
death benefit thereunder is excludable from the gross income of the
Beneficiary under Section 101(a) of the Code. Also, the Owner is not deemed to
be in constructive receipt of the Policy Account or Net Cash Value, including
increments thereon, under a Policy until there is a distribution of such
amounts.
Federal, state and local estate, inheritance and other tax consequences
of ownership, or receipt of Policy proceeds, depend on the circumstances of
each Owner or Beneficiary.
TAX TREATMENT OF LOANS AND SURRENDERS
Section 7702A of the Code sets forth the rules for determining when a
life insurance policy will be deemed to be a Modified Endowment Contract. A
Modified Endowment Contract is a contract which is entered into or materially
changed on or after June 21, 1988 and fails to meet the 7-pay test. A Policy
fails to meet the 7-pay test when the cumulative amount paid under the Policy
at any time during the first 7 Policy Years exceeds the sum of the net level
premiums which would have been paid on or before such time if the Policy
provided for paid-up future benefits after the payment of seven (7) level
annual premiums. A material change would include any increase in the future
benefits or addition of qualified additional benefits provided under a policy
unless the increase is attributable to: (1) the payment of premiums necessary
to fund the lowest death benefit and qualified additional benefits payable in
the first seven policy years; or (2) the crediting of interest or other
earnings (including policyholder dividends) with respect to such premiums.
Furthermore, any Policy received in exchange for a Policy classified as a
Modified Endowment Contract will be treated as a Modified Endowment Contract
regardless of whether it meets the 7- pay test. The status of an exchange of a
contract issued before June 21, 1988 is unclear, however, the Internal Revenue
Service has taken the position in a Private Letter Ruling that a contract
received in an exchange on or after June 21, 1988 will be considered as
entered into as of the date of the exchange and therefore subject to Section
7702A.
Due to the flexible premium nature of the Policy, the determination of
whether it qualifies for treatment as a Modified Endowment Contract
depends on the individual circumstances of each Policy.
If the Policy is classified as a Modified Endowment Contract, then
surrenders and/or loan proceeds are taxable to the extent of income in the
Policy. Such distributions are deemed to be on a last-in, first-out basis,
which means the taxable income is distributed first. Loan proceeds and/or
surrender payments may also be subject to an additional 10% federal income tax
penalty applied to the income portion of such distribution. The penalty shall
not apply, however, to any distributions: (1) made on or after the date on
which the taxpayer reaches age 59 1/2; (2) which is attributable to the
taxpayer becoming disabled (within the meaning of Section 72(m)(7) of the
Code); or (3) which is part of a series of substantially equal periodic
payments made not less frequently than annually for the life (or life
expectancy) of the taxpayer or the joint lives (or joint life expectancies)
of such taxpayer and his beneficiary.
If a Policy is not classified as a Modified Endowment Contract, then any
surrenders shall be treated first as a recovery of the investment in the
Policy which would not be received as taxable income. However, if a
distribution is the result of a reduction in benefits under the Policy within
the first fifteen years after the Policy is issued in order to comply with
Section 7702, such distribution will, under rules set forth in Section 7702,
be taxed as ordinary income to the extent of income in the Policy.
Any loans from a Policy which is not classified as a Modified Endowment
Contract, will be treated as indebtedness of the Owner and not a distribution.
Personal interest payable on a loan under a Policy owned by an individual
is generally not deductible. Furthermore, no deduction will be allowed for
interest on loans under Policies covering the life of any employee or officer
of the taxpayer or any person financially interested in the business carried
on by the taxpayer to the extent the indebtedness for such employee, officer
or financially interested person exceeds $50,000. The deductibility of
interest payable on Policy loans may be subject to further rules and
limitations under Sections 163 and 264 of the Code.
Policy Owners should seek competent tax advice on the tax consequences of
taking loans, distributions or surrendering any Policy.
MULTIPLE POLICIES
The Code further provides that multiple Modified Endowment Contracts that
are issued within a calendar year period to the same owner by one company or
its affiliates are treated as one Modified Endowment Contract for purposes of
determining the taxable portion of any loans or distributions. Such treatment
may result in adverse tax consequences including more rapid taxation of the
loans or distributed amounts from such combination of contracts. Policy Owners
should consult a tax adviser prior to purchasing more than one Modified
Endowment Contract in any calendar year period.
TAX TREATMENT OF ASSIGNMENTS
An assignment of a Policy may be a taxable event. Policy Owners should
therefore consult competent tax advisers should they wish to assign their
Policies.
QUALIFIED PLANS
The Policies may be used in conjunction with certain Qualified Plans.
Because the rules governing such use are complex, a purchaser should not do so
until he has consulted a competent Qualified Plans consultant.
VARIABLE ACCOUNT VOTING RIGHTS
In accordance with its view of present applicable law, the Company will
vote the shares of the Trust held in the Variable Account at special meetings
of the shareholders of the Trust in accordance with instructions received from
Owners (or Beneficiaries if applicable) having the voting interest in the
Variable Account. The Company will vote shares for which it has not received
instructions in the same proportion as it votes shares for which it has
received instructions. The Company will vote shares it owns in the same
proportion as it votes shares for which it has received instructions. The
Trust does not hold regular meetings of shareholders.
If the Investment Company Act of 1940 or any regulation thereunder should
be amended or if the present interpretation thereof should change, and as a
result the Company determines that it is permitted to vote the shares of the
Trust in its own right, it may elect to do so.
The voting interests of the Owner (or the Beneficiary if applicable) in
the Trust will be determined as follows: Owners may cast one vote for each
$100 of Account Value of the Policy allocated to the Sub-Account on the record
date for the shareholder meeting of the Trust. Fractional votes are counted.
The number of shares which a person has a right to vote will be
determined as of the date to be chosen by the Company not more than sixty
(60) days prior to the meeting of the Trust. Voting instructions will be
solicited by written communication at least fourteen (14) days prior to such
meeting.
Each Owner (or Beneficiary if applicable) having the voting interest in
the Variable Account will receive periodic reports relating to the Trust in
which he or she has an interest, proxy material and a form with which to give
such voting instructions with respect to the proportion of the shares held in
the Variable Account corresponding to his or her interest in the Variable
Account.
DISREGARD OF VOTING INSTRUCTIONS
The Company may, when required to do so by state insurance authorities,
vote shares of the Trust without regard to instructions from Owners if such
instructions would require such shares to be voted to cause any Fund of the
Trust to make (or refrain from making) investments which would result in
changes in the sub-classification or investment objectives of the Trust or a
Fund. The Company may also disapprove changes in the investment policy
initiated by the Owners or trustees of the Trust, if such disapproval is
reasonable and is based on a good faith determination by the Company that the
change would violate state or federal law or the change would not be
consistent with the investment objectives of the Trust or a Fund or which
varies from the general quality and nature of investments and investment
techniques used by other funds with similar investment objectives underlying
other separate accounts of the Company or of an affiliated life insurance
company. In the event the Company does disregard voting instructions, a
summary of this action and the reasons for such action will be included in the
next semi-annual report to Owners.
DISTRIBUTION OF THE POLICY
The Policy is sold by licensed insurance agents, where the Policy may be
lawfully sold, who are registered representatives of broker- dealers which are
registered under the Securities Exchange Act of 1934 and are members of the
National Association of Securities Dealers, Inc.
The Policy is distributed through the principal underwriter NALAC
Financial Plans, Inc., 1750 Hennepin Avenue, Minneapolis, MN, a wholly-owned
subsidiary of the Company.
Commissions will be paid to broker-dealers who sell the Policies.
Broker-dealers will be paid commissions and expense reimbursements up to an
amount equal to 100% of the first Guaranteed Coverage Premium; 4% of the next
six Guaranteed Coverage Premiums; and 2% of all premiums paid thereafter.
Similar commissions are paid on premiums received after any increase in Face
Amount, or the addition of a rider. In addition, broker-dealers may also
receive additional compensation, based on meeting certain production
standards.
REPORTS TO OWNERS
The Company will send to each Owner annual reports of the Variable
Account. Within 30 days after each Policy Anniversary, an annual statement
will be sent to each Owner. The statement will show the current amount of
death benefit payable under the Policy, the current Policy Account, the
current Net Cash Value, current Indebtedness and will show all transactions
previously confirmed. The statement will also show premiums paid, investment
returns and all charges deducted during the Policy Year.
Confirmations will be mailed to Policy Owners within seven days of the
transaction of: (a) the receipt of premium other than by monthly
pre-authorized checks or drafts or government allotments; (b) any transfer
between Sub-Accounts; (c) any loan, interest repayment, or loan repayment; (d)
any surrender; (e) exercise of the free look privilege; (f) any exchange of
the Policy; and (g) payment of the death benefit under the Policy. Upon
request, a Policy Owner shall be entitled to a receipt evidencing payment of
premium.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Variable Account or the
Principal Underwriter is a party or to which the assets of the Variable
Account are subject. The Company is not involved in any litigation that is
of material importance in relation to its total assets or that relates to the
Variable Account.
EXPERTS
The financial statements of Allianz Life Variable Account A and
the consolidated financial statements of the Company included in this
Prospectus have been audited by KPMG Peat Marwick LLP, independent auditors,
as indicated in their reports included in this Prospectus, and are included
herein, in reliance upon such reports and upon the authority of said firm as
experts in accounting and auditing.
LEGAL OPINIONS
Legal matters in connection with the Policies described herein are being
passed upon by the law firm of Blazzard, Grodd & Hasenauer, P.C., Westport,
Connecticut.
FINANCIAL STATEMENTS
The consolidated financial statements of the Company included herein
should be considered only as bearing upon the ability of the Company to meet
its obligations under the Policies.
ALLIANZ LIFE VARIABLE ACCOUNT A
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements
December 31, 1995
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT A
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
INDEPENDENT AUDITORS' REPORT
The Board of Directors of Allianz Life Insurance Company of North America and
Policyholders of Allianz Life Variable Account A:
We have audited the accompanying statements of assets and liabilities of the
sub-accounts of Allianz Life Variable Account A as of December 31, 1995, and
the related statements of operations and changes in net assets for each of the
years in the three-year period then ended. These financial statements are the
responsibility of the Variable Account's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
Investment securities held in custody for the benefit of the Variable Account
were confirmed to us by the Franklin Valuemark Funds. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets and liabilities of the sub-accounts of
Allianz Life Variable Account A at December 31, 1995, and the results of their
operations and the changes in their net assets for each of the years in the
three-year period then ended, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 22, 1996
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT A
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Assets and Liabilities
December 31, 1995
U.S.
Money Growth and Precious High Real Estate Government
Market Income Metals Income Securities Securities
Fund Fund Fund Fund Fund Fund
-------- ---------- -------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Money Market Fund, 688,783
shares, cost $688,783 $688,783 - - - - -
Growth and Income Fund,
61,923 shares, cost $784,975 - 1,061,358 - - - -
Precious Metals Fund,
11,972 shares, cost $155,552 - - 168,569 - - -
High Income Fund, 94,672
shares, cost $1,083,932 - - - 1,293,220 - -
Real Estate Securities Fund,
9,253 shares, cost $129,563 - - - - 161,011 -
U.S. Government Securities Fund,
46,630 shares, cost $493,541 - - - - - 652,815
-------- ---------- -------- --------- ----------- ----------
Total assets 688,783 1,061,358 168,569 1,293,220 161,011 652,815
-------- ---------- -------- --------- ----------- ----------
Liabilities:
Accrued mortality and expense risk charges 5,545 6,553 3,028 8,702 1,189 4,693
Accrued administrative charges 1,386 1,639 757 2,176 297 1,173
-------- ---------- -------- --------- ----------- ----------
Total liabilities 6,931 8,192 3,785 10,878 1,486 5,866
-------- ---------- -------- --------- ----------- ----------
Net assets $681,852 1,053,166 164,784 1,282,342 159,525 646,949
======== ========== ======== ========= =========== ==========
Policy owners' equity (note 5) $681,852 1,053,166 164,784 1,282,342 159,525 646,949
======== ========== ======== ========= =========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT A
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Assets and Liabilities (Continued)
December 31, 1995
Zero Zero Zero
Utility Coupon Coupon Coupon Global
Equity Fund - Fund - Fund - Income
Fund 2000 2005 2010 Fund
---------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Utility Equity Fund, 87,060
shares, cost $1,090,116 $1,558,380 - - - -
Zero Coupon Fund - 2000,
22,437 shares, cost $242,285 - 352,928 - - -
Zero Coupon Fund - 2005,
19,602 shares, cost $206,775 - - 340,680 - -
Zero Coupon Fund - 2010,
6,514 shares, cost $87,335 - - - 117,505 -
Global Income Fund,
6,678 shares, cost $83,776 - - - - 89,882
---------- ------- ------- ------- ------
Total assets 1,558,380 352,928 340,680 117,505 89,882
---------- ------- ------- ------- ------
Liabilities:
Accrued mortality and expense risk charges 9,966 2,805 2,816 1,415 683
Accrued administrative charges 2,492 701 704 354 171
---------- ------- ------- ------- ------
Total liabilities 12,458 3,506 3,520 1,769 854
---------- ------- ------- ------- ------
Net assets $1,545,922 349,422 337,160 115,736 89,028
========== ======= ======= ======= ======
Policy owners' equity (note 5) $1,545,922 349,422 337,160 115,736 89,028
========== ======= ======= ======= ======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT A
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Assets and Liabilities (Continued)
December 31, 1995
Investment Adjustable Templeton Templeton
Grade Income U.S. Pacific Rising International
Intermediate Securities Government Growth Dividends Equity
Bond Fund Fund Fund Fund Fund Fund
------------- ---------- ---------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Investment Grade Intermediate Bond
Fund, 4,694 shares, cost $62,378 $ 65,953 - - - - -
Income Securities Fund,
32,025 shares, cost $485,185 - 527,453 - - - -
Adjustable U.S. Government Fund,
2,355 shares, cost $25,140 - - 25,340 - - -
Templeton Pacific Growth Fund,
21,600 shares, cost $283,997 - - - 300,461 - -
Rising Dividends Fund,
10,919 shares, cost $121,353 - - - - 138,230 -
Templeton International Equity Fund,
41,923 shares, cost $541,531 - - - - - 558,415
------------- ---------- ---------- --------- --------- -------------
Total assets 65,953 527,453 25,340 300,461 138,230 558,415
------------- ---------- ---------- --------- --------- -------------
Liabilities:
Accrued mortality and expense risk charges 771 2,710 380 1,958 881 2,511
Accrued administrative charges 192 677 95 489 220 628
------------- ---------- ---------- --------- --------- -------------
Total liabilities 963 3,387 475 2,447 1,101 3,139
------------- ---------- ---------- --------- --------- -------------
Net assets $ 64,990 524,066 24,865 298,014 137,129 555,276
============= ========== ========== ========= ========= =============
Policy owners' equity (note 5) $ 64,990 524,066 24,865 298,014 137,129 555,276
============= ========== ========== ========= ========= =============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT A
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Assets and Liabilities (Continued)
December 31, 1995
Templeton Templeton
Developing Templeton Global
Markets Global Asset Total
Equity Growth Allocation All
Fund Fund Fund Funds
----------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Templeton Developing Markets Equity
Fund, 21,362 shares, cost $207,452 $ 208,923 - -
Templeton Global Growth Fund,
29,782 shares, cost $326,613 - 349,937 -
Templeton Global Asset Allocation
Fund, 21 shares, cost $236 - - 221
----------- --------- ----------
Total assets 208,923 349,937 221 8,660,064
----------- --------- ---------- ---------
Liabilities:
Accrued mortality and expense risk charges 883 1,262 1 58,752
Accrued administrative charges 221 316 - 14,688
----------- --------- ---------- ---------
Total liabilities 1,104 1,578 1 73,440
----------- --------- ---------- ---------
Net assets $ 207,819 348,359 220 8,586,624
=========== ========= ========== =========
Policy owners' equity (note 5) $ 207,819 348,359 220 8,586,624
=========== ========= ========== =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT A
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Operations
For the years ended December 31, 1995, 1994 and 1993
Growth Growth Growth
Money Money Money and and and
Market Market Market Income Income Income
Fund Fund Fund Fund Fund Fund
---------- --------- --------- -------- -------- ---------
1995 1994 1993 1995 1994 1993
---------- --------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ 33,164 14,466 9,437 10,179 4,301 5,989
---------- --------- --------- -------- -------- ---------
Expenses:
Mortality and expense risk charges 4,898 2,689 2,266 5,842 3,726 4,110
Administrative charges 1,225 672 567 1,460 932 1,028
---------- --------- --------- -------- -------- ---------
Total expenses 6,123 3,361 2,833 7,302 4,658 5,138
---------- --------- --------- -------- -------- ---------
Investment income (loss), net 27,041 11,105 6,604 2,877 (357) 851
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions on mutual funds - - - 22,157 8,957 -
---------- --------- --------- -------- -------- ---------
Realized gains (losses) on sales of investments:
Proceeds from sales 965,636 513,009 202,473 97,576 114,661 228,561
Cost of investments sold (965,636) (513,009) (202,473) (77,218) (94,631) (188,907)
---------- --------- --------- -------- -------- ---------
Total realized gains (losses) on
sales of investments, net - - - 20,358 20,030 39,654
---------- --------- --------- -------- -------- ---------
Realized gains (losses) on investments, net - - - 42,515 28,987 39,654
Net change in unrealized appreciation
(depreciation) on investments - - - 184,273 (45,642) 19,332
---------- --------- --------- -------- -------- ---------
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments, net - - - 226,788 (16,655) 58,986
---------- --------- --------- -------- -------- ---------
Net increase (decrease) in net assets from operations $ 27,041 11,105 6,604 229,665 (17,012) 59,837
========== ========= ========= ======== ======== =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT A
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Operations (Continued)
For the years ended December 31, 1995, 1994 and 1993
Precious Precious Precious High High High
Metals Metals Metals Income Income Income
Fund Fund Fund Fund Fund Fund
---------- --------- --------- -------- -------- --------
1995 1994 1993 1995 1994 1993
---------- --------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ 3,600 626 1,029 78,044 44,601 37,831
---------- --------- --------- -------- -------- --------
Expenses:
Mortality and expense risk charges 2,489 700 999 7,709 6,671 6,406
Administrative charges 622 175 250 1,927 1,668 1,602
---------- --------- --------- -------- -------- --------
Total expenses 3,111 875 1,249 9,636 8,339 8,008
---------- --------- --------- -------- -------- --------
Investment income (loss), net 489 (249) (220) 68,408 36,262 29,823
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions on mutual funds 2,665 - - - 6,061 -
---------- --------- --------- -------- -------- --------
Realized gains (losses) on sales of investments:
Proceeds from sales 161,878 11,123 220,760 47,176 51,287 40,079
Cost of investments sold (146,847) (9,528) (208,874) (39,566) (45,931) (35,650)
---------- --------- --------- -------- -------- --------
Total realized gains (losses) on
sales of investments, net 15,031 1,595 11,886 7,610 5,356 4,429
---------- --------- --------- -------- -------- --------
Realized gains (losses) on investments, net 17,696 1,595 11,886 7,610 11,417 4,429
Net change in unrealized appreciation
(depreciation) on investments (10,144) (2,094) 49,249 122,964 (81,774) 110,533
---------- --------- --------- -------- -------- --------
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments, net 7,552 (499) 61,135 130,574 (70,357) 114,962
---------- --------- --------- -------- -------- --------
Net increase (decrease) in net assets from operations $ 8,041 (748) 60,915 198,982 (34,095) 144,785
========== ========= ========= ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT A
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Operations (Continued)
For the years ended December 31, 1995, 1994 and 1993
Real Real Real U.S. U.S. U.S.
Estate Estate Estate Government Government Government
Securities Securities Securities Securities Securities Securities
Fund Fund Fund Fund Fund Fund
------------ ----------- ----------- ----------- ----------- -----------
1995 1994 1993 1995 1994 1993
------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ 3,875 613 603 41,763 29,171 24,746
------------ ----------- ----------- ----------- ----------- -----------
Expenses:
Mortality and expense risk charges 833 672 385 3,974 3,380 4,158
Administrative charges 208 168 96 994 845 1,039
------------ ----------- ----------- ----------- ----------- -----------
Total expenses 1,041 840 481 4,968 4,225 5,197
------------ ----------- ----------- ----------- ----------- -----------
Investment income (loss), net 2,834 (227) 122 36,795 24,946 19,549
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain
distributions on mutual funds - - - - 2,285 3,795
------------ ----------- ----------- ----------- ----------- -----------
Realized gains (losses) on
sales of investments:
Proceeds from sales 22,803 5,838 10,124 33,799 131,317 22,770
Cost of investments sold (19,244) (4,033) (7,269) (26,326) (99,718) (16,285)
------------ ----------- ----------- ----------- ----------- -----------
Total realized gains (losses) on
sales of investments, net 3,559 1,805 2,855 7,473 31,599 6,485
------------ ----------- ----------- ----------- ----------- -----------
Realized gains (losses) on investments, net 3,559 1,805 2,855 7,473 33,884 10,280
Net change in unrealized appreciation
(depreciation) on investments 14,488 759 5,891 56,173 (91,983) 27,413
------------ ----------- ----------- ----------- ----------- -----------
Total realized gains (losses) and
unrealized appreciation (depreciation)
on investments, net 18,047 2,564 8,746 63,646 (58,099) 37,693
------------ ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in
net assets from operations $ 20,881 2,337 8,868 100,441 (33,153) 57,242
============ =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT A
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Operations (Continued)
For the years ended December 31, 1995, 1994 and 1993
Zero Zero Zero
Utility Utility Utility Coupon Coupon Coupon
Equity Equity Equity Fund - Fund - Fund -
Fund Fund Fund 1995 1995 1995
--------- --------- --------- --------- -------- -------
1995 1994 1993 1995 1994 1993
--------- --------- --------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ 70,912 44,904 25,962 17,379 15,282 15,253
--------- --------- --------- --------- -------- -------
Expenses:
Mortality and expense risk charges 8,983 6,698 8,255 (594) 1,529 1,574
Administrative charges 2,246 1,674 2,064 (149) 383 394
--------- --------- --------- --------- -------- -------
Total expenses 11,229 8,372 10,319 (743) 1,912 1,968
--------- --------- --------- --------- -------- -------
Investment income (loss), net 59,683 36,532 15,643 18,122 13,370 13,285
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions on mutual funds - 7,958 138 86 625 3,220
--------- --------- --------- --------- -------- -------
Realized gains (losses) on sales of investments:
Proceeds from sales 112,297 183,473 185,645 273,701 4,692 5,351
Cost of investments sold (88,887) (138,153) (121,008) (236,082) (3,908) (4,170)
--------- --------- --------- --------- -------- -------
Total realized gains (losses) on
sales of investments, net 23,410 45,320 64,637 37,619 784 1,181
--------- --------- --------- --------- -------- -------
Realized gains (losses) on investments, net 23,410 53,278 64,775 37,705 1,409 4,401
Net change in unrealized appreciation
(depreciation) on investments 259,686 (253,440) 47,455 (37,457) (14,916) (1,412)
--------- --------- --------- --------- -------- -------
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments, net 283,096 (200,162) 112,230 248 (13,507) 2,989
--------- --------- --------- --------- -------- -------
Net increase (decrease) in net assets from operations $342,779 (163,630) 127,873 18,370 (137) 16,274
========= ========= ========= ========= ======== =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT A
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Operations (Continued)
For the years ended December 31, 1995, 1994 and 1993
Zero Zero Zero Zero Zero Zero
Coupon Coupon Coupon Coupon Coupon Coupon
Fund - Fund - Fund - Fund - Fund - Fund -
2000 2000 2000 2005 2005 2005
-------- -------- ------- ------- -------- --------
1995 1994 1993 1995 1994 1993
-------- -------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $13,993 14,292 12,537 12,928 11,417 12,406
-------- -------- ------- ------- -------- --------
Expenses:
Mortality and expense risk charges 2,179 1,769 1,943 2,227 1,741 2,279
Administrative charges 545 442 486 557 435 570
-------- -------- ------- ------- -------- --------
Total expenses 2,724 2,211 2,429 2,784 2,176 2,849
-------- -------- ------- ------- -------- --------
Investment income (loss), net 11,269 12,081 10,108 10,144 9,241 9,557
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions on mutual funds - 2,038 637 - 3,569 138
-------- -------- ------- ------- -------- --------
Realized gains (losses) on sales of investments:
Proceeds from sales 3,895 14,723 6,582 4,311 75,603 47,063
Cost of investments sold (2,731) (10,946) (4,419) (2,816) (52,536) (30,041)
-------- -------- ------- ------- -------- --------
Total realized gains (losses) on
sales of investments, net 1,164 3,777 2,163 1,495 23,067 17,022
-------- -------- ------- ------- -------- --------
Realized gains (losses) on investments, net 1,164 5,815 2,800 1,495 26,636 17,160
Net change in unrealized appreciation
(depreciation) on investments 44,013 (41,764) 30,329 68,320 (72,608) 44,629
-------- -------- ------- ------- -------- --------
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments, net 45,177 (35,949) 33,129 69,815 (45,972) 61,789
-------- -------- ------- ------- -------- --------
Net increase (decrease) in net assets from operations $56,446 (23,868) 43,237 79,959 (36,731) 71,346
======== ======== ======= ======= ======== ========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT A
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Operations (Continued)
For the years ended December 31, 1995, 1994 and 1993
Zero Zero Zero
Coupon Coupon Coupon Global Global Global
Fund - Fund - Fund - Income Income Income
2010 2010 2010 Fund Fund Fund
-------- -------- ------- -------- ------- -------
1995 1994 1993 1995 1994 1993
-------- -------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ 3,109 7,316 5,501 2,871 494 798
-------- -------- ------- -------- ------- -------
Expenses:
Mortality and expense risk charges 916 926 827 470 129 151
Administrative charges 229 231 207 118 32 38
-------- -------- ------- -------- ------- -------
Total expenses 1,145 1,157 1,034 588 161 189
-------- -------- ------- -------- ------- -------
Investment income (loss), net 1,964 6,159 4,467 2,283 333 609
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions on mutual funds - 3,560 224 - 204 259
-------- -------- ------- -------- ------- -------
Realized gains (losses) on sales of investments:
Proceeds from sales 1,827 79,261 3,258 15,642 2,577 449
Cost of investments sold (1,569) (81,331) (2,479) (15,250) (2,445) (429)
-------- -------- ------- -------- ------- -------
Total realized gains (losses) on
sales of investments, net 258 (2,070) 779 392 132 20
-------- -------- ------- -------- ------- -------
Realized gains (losses) on investments, net 258 1,490 1,003 392 336 279
Net change in unrealized appreciation
(depreciation) on investments 32,162 (29,320) 10,850 6,634 (2,030) 2,156
-------- -------- ------- -------- ------- -------
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments, net 32,420 (27,830) 11,853 7,026 (1,694) 2,435
-------- -------- ------- -------- ------- -------
Net increase (decrease) in net assets from operations $34,384 (21,671) 16,320 9,309 (1,361) 3,044
======== ======== ======= ======== ======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT A
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Operations (Continued)
For the years ended December 31, 1995, 1994 and 1993
Investment Investment Investment
Grade Grade Grade Income Income Income
Intermediate Intermediate Intermediate Securities Securities Securities
Bond Fund Bond Fund Bond Fund Fund Fund Fund
-------------- ------------- ------------- ----------- ----------- -----------
1995 1994 1993 1995 1994 1993
-------------- ------------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ 3,949 253 195 19,772 2,467 813
-------------- ------------- ------------- ----------- ----------- -----------
Expenses:
Mortality and expense risk charges 529 169 51 2,265 963 221
Administrative charges 132 42 13 566 241 55
-------------- ------------- ------------- ----------- ----------- -----------
Total expenses 661 211 64 2,831 1,204 276
-------------- ------------- ------------- ----------- ----------- -----------
Investment income (loss), net 3,288 42 131 16,941 1,263 537
Realized gains (losses) and unrealized
appreciation (depreciation) on investments
Realized capital gain
distributions on mutual funds - 36 32 1,592 367 118
-------------- ------------- ------------- ----------- ----------- -----------
Realized gains (losses)
on sales of investments:
Proceeds from sales 44,251 577 85 55,949 29,910 5,434
Cost of investments sold (43,145) (565) (77) (55,228) (30,339) (4,871)
-------------- ------------- ------------- ----------- ----------- -----------
Total realized gains (losses) on
sales of investments, net 1,106 12 8 721 (429) 563
-------------- ------------- ------------- ----------- ----------- -----------
Realized gains (losses)
on investments, net 1,106 48 40 2,313 (62) 681
Net change in unrealized appreciation
(depreciation) on investments 2,630 150 419 47,314 (9,527) 4,145
-------------- ------------- ------------- ----------- ----------- -----------
Total realized gains (losses)
and unrealized appreciation
(depreciation) on investments, net 3,736 198 459 49,627 (9,589) 4,826
-------------- ------------- ------------- ----------- ----------- -----------
Net increase (decrease) in
net assets from operations $ 7,024 240 590 66,568 (8,326) 5,363
============== ============= ============= =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT A
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Operations (Continued)
For the years ended December 31, 1995, 1994 and 1993
Adjustable Adjustable Adjustable Templeton Templeton Templeton
U.S. U.S. U.S. Pacific Pacific Pacific
Government Government Government Growth Growth Growth
Fund Fund Fund Fund Fund Fund
------------ ----------- ----------- ---------- ---------- ----------
1995 1994 1993 1995 1994 1993
------------ ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ 1,373 184 192 4,502 347 -
------------ ----------- ----------- ---------- ---------- ----------
Expenses:
Mortality and expense risk charges 139 27 34 1,485 689 315
Administrative charges 35 7 9 371 172 79
------------ ----------- ----------- ---------- ---------- ----------
Total expenses 174 34 43 1,856 861 394
------------ ----------- ----------- ---------- ---------- ----------
Investment income (loss), net 1,199 150 149 2,646 (514) (394)
Realized gains (losses) and unrealized
appreciation (depreciation) on investments
Realized capital gain
distributions on mutual funds - - - 1,872 672 -
------------ ----------- ----------- ---------- ---------- ----------
Realized gains (losses)
on sales of investments:
Proceeds from sales 11,606 8,733 82 60,917 116,746 743
Cost of investments sold (11,571) (8,814) (80) (59,672) (108,205) (666)
------------ ----------- ----------- ---------- ---------- ----------
Total realized gains (losses) on
sales of investments, net 35 (81) 2 1,245 8,541 77
------------ ----------- ----------- ---------- ---------- ----------
Realized gains (losses) on investments, net 35 (81) 2 3,117 9,213 77
Net change in unrealized appreciation
(depreciation) on investments 240 (98) (25) 13,125 (24,505) 28,189
------------ ----------- ----------- ---------- ---------- ----------
Total realized gains (losses)
and unrealized appreciation
(depreciation) on investments, net 275 (179) (23) 16,242 (15,292) 28,266
------------ ----------- ----------- ---------- ---------- ----------
Net increase (decrease) in
net assets from operations $ 1,474 (29) 126 18,888 (15,806) 27,872
============ =========== =========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT A
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Operations (Continued)
For the years ended December 31, 1995, 1994 and 1993
Rising Rising Rising Templeton Templeton Templeton
Dividends Dividends Dividends International International International
Fund Fund Fund Equity Fund Equity Fund Equity Fund
----------- ---------- ---------- -------------- -------------- --------------
1995 1994 1993 1995 1994 1993
----------- ---------- ---------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ 1,695 601 99 6,289 71 -
----------- ---------- ---------- -------------- -------------- --------------
Expenses:
Mortality and expense risk charges 587 227 208 2,178 323 93
Administrative charges 147 57 52 545 81 23
----------- ---------- ---------- -------------- -------------- --------------
Total expenses 734 284 260 2,723 404 116
----------- ---------- ---------- -------------- -------------- --------------
Investment income (loss), net 961 317 (161) 3,566 (333) (116)
Realized gains (losses) and
unrealized appreciation
(depreciation) on investments:
Realized capital gain
distributions on mutual funds - - - 7,792 95 -
----------- ---------- ---------- -------------- -------------- --------------
Realized gains (losses)
on sales of investments:
Proceeds from sales 6,910 752 394 37,517 895 88,730
Cost of investments sold (6,447) (796) (402) (36,911) (878) (84,735)
----------- ---------- ---------- -------------- -------------- --------------
Total realized gains (losses) on
sales of investments, net 463 (44) (8) 606 17 3,995
----------- ---------- ---------- -------------- -------------- --------------
Realized gains (losses)
on investments, net 463 (44) (8) 8,398 112 3,995
Net change in unrealized appreciation
(depreciation) on investments 19,701 (2,053) (1,565) 19,054 (3,562) 1,391
----------- ---------- ---------- -------------- -------------- --------------
Total realized gains (losses)
and unrealized appreciation
(depreciation) on investments, net 20,164 (2,097) (1,573) 27,452 (3,450) 5,386
----------- ---------- ---------- -------------- -------------- --------------
Net increase (decrease) in
net assets from operations $ 21,125 (1,780) (1,734) 31,018 (3,783) 5,270
=========== ========== ========== ============== ============== ==============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT A
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Operations (Continued)
For the years ended December 31, 1995, 1994 and 1993
Templeton Templeton Templeton
Developing Developing Developing Templeton Templeton Templeton
Markets Markets Markets Global Global Global
Equity Equity Equity Growth Growth Growth
Fund Fund Fund Fund Fund Fund
------------ ----------- ---------- ---------- ---------- ---------
1995 1994 1993 1995 1994 1993
------------ ----------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ 562 - - 1,137 - -
------------ ----------- ---------- ---------- ---------- ---------
Expenses:
Mortality and expense risk charges 3,898 3,197 - 1,255 65 -
Administrative charges 975 799 - 314 16 -
------------ ----------- ---------- ---------- ---------- ---------
Total expenses 4,873 3,996 - 1,569 81 -
------------ ----------- ---------- ---------- ---------- ---------
Investment income (loss), net (4,311) (3,996) - (432) (81) -
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain
distributions on mutual funds 132 - - - - -
------------ ----------- ---------- ---------- ---------- ---------
Realized gains (losses)
on sales of investments:
Proceeds from sales 37,410 2,518 - 28,814 3,901 -
Cost of investments sold (37,995) (2,585) - (28,227) (3,952) -
------------ ----------- ---------- ---------- ---------- ---------
Total realized gains (losses) on
sales of investments, net (585) (67) - 587 (51) -
------------ ----------- ---------- ---------- ---------- ---------
Realized gains (losses) on investments, net (453) (67) - 587 (51) -
Net change in unrealized appreciation
(depreciation) on investments 4,422 (2,951) - 23,468 (144) -
------------ ----------- ---------- ---------- ---------- ---------
Total realized gains (losses)
and unrealized appreciation
(depreciation) on investments, net 3,969 (3,018) - 24,055 (195) -
------------ ----------- ---------- ---------- ---------- ---------
Net increase (decrease) in
net assets from operations $ (342) (7,014) - 23,623 (276) -
============ =========== ========== ========== ========== =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT A
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Operations (Continued)
For the years ended December 31, 1995, 1994 and 1993
Templeton Templeton Templeton
Global Global Global
Asset Asset Asset Total Total Total
Allocation Allocation Allocation All All All
Fund Fund Fund Funds Funds Funds
------------ ---------- ---------- ----------- ----------- ----------
1995 1994 1993 1995 1994 1993
------------ ---------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ 4 - - 331,100 191,406 153,391
------------ ---------- ---------- ----------- ----------- ----------
Expenses:
Mortality and expense risk charges 25 - - 52,287 36,290 34,275
Administrative charges 6 - - 13,073 9,072 8,572
------------ ---------- ---------- ----------- ----------- ----------
Total expenses 31 - - 65,360 45,362 42,847
------------ ---------- ---------- ----------- ----------- ----------
Investment income (loss), net (27) - - 265,740 146,044 110,544
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain
distributions on mutual funds - - - 36,296 36,427 8,561
------------ ---------- ---------- ----------- ----------- ----------
Realized gains (losses)
on sales of investments:
Proceeds from sales 168 - - 2,024,083 1,351,596 1,068,583
Cost of investments sold (151) - - (1,901,519) (1,212,303) (912,835)
------------ ---------- ---------- ----------- ----------- ----------
Total realized gains (losses) on
sales of investments, net 17 - - 122,564 139,293 155,748
------------ ---------- ---------- ----------- ----------- ----------
Realized gains (losses)
on investments, net 17 - - 158,860 175,720 164,309
Net change in unrealized appreciation
(depreciation) on investments (15) - - 871,051 (677,502) 378,979
------------ ---------- ---------- ----------- ----------- ----------
Total realized gains (losses)
and unrealized appreciation
(depreciation) on investments, net 2 - - 1,029,911 (501,782) 543,288
------------ ---------- ---------- ----------- ----------- ----------
Net increase (decrease) in
net assets from operations $ (25) - - 1,295,651 (355,738) 653,832
============ ========== ========== =========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT A
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Changes in Net Assets
For the years ended December 31, 1995, 1994 and 1993
Growth Growth Growth
Money Money Money and and and
Market Market Market Income Income Income
Fund Fund Fund Fund Fund Fund
----------- --------- -------- ---------- -------- ---------
1995 1994 1993 1995 1994 1993
----------- --------- -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 27,041 11,105 6,604 2,877 (357) 851
Realized gains (losses) on investments, net - - - 42,515 28,987 39,654
Net change in unrealized appreciation
(depreciation) on investments - - - 184,273 (45,642) 19,332
----------- --------- -------- ---------- -------- ---------
Net increase (decrease) in net assets
from operations 27,041 11,105 6,604 229,665 (17,012) 59,837
----------- --------- -------- ---------- -------- ---------
Contract transactions (note 5):
Purchase payments 1,140,571 835,456 - 233,408 15,811 -
Transfers between funds (843,539) (442,767) 16,604 111,030 97,056 (88,021)
Surrenders and terminations (48,126) (101,035) (66,017) (54,886) (49,775) (67,969)
Other transactions (note 2) (124,660) (81,114) (6,376) (92,033) (49,647) 400
----------- --------- -------- ---------- -------- ---------
Net increase (decrease) in net assets
resulting from contract transactions 124,246 210,540 (55,789) 197,519 13,445 (155,590)
----------- --------- -------- ---------- -------- ---------
Increase (decrease) in net assets 151,287 221,645 (49,185) 427,184 (3,567) (95,753)
----------- --------- -------- ---------- -------- ---------
Net assets at beginning of year 530,565 308,920 358,105 625,982 629,549 725,302
----------- --------- -------- ---------- -------- ---------
Net assets at end of year $ 681,852 530,565 308,920 1,053,166 625,982 629,549
=========== ========= ======== ========== ======== =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT A
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Changes in Net Assets (Continued)
For the years ended December 31, 1995, 1994 and 1993
Precious Precious Precious High High High
Metals Metals Metals Income Income Income
Fund Fund Fund Fund Fund Fund
---------- --------- --------- ---------- ---------- ----------
1995 1994 1993 1995 1994 1993
---------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 489 (249) (220) 68,408 36,262 29,823
Realized gains (losses) on investments, net 17,696 1,595 11,886 7,610 11,417 4,429
Net change in unrealized appreciation
(depreciation) on investments (10,144) (2,094) 49,249 122,964 (81,774) 110,533
---------- --------- --------- ---------- ---------- ----------
Net increase (decrease) in net assets
from operations 8,041 (748) 60,915 198,982 (34,095) 144,785
---------- --------- --------- ---------- ---------- ----------
Contract transactions (note 5):
Purchase payments 24,963 988 - 44,935 4,791 -
Transfers between funds 23,956 89,216 (102,112) 37,055 (10,182) (1,243)
Surrenders and terminations (81,139) (8,168) - (14,331) (14,141) -
Other transactions (note 2) (12,332) (2,128) (140) (30,818) (7,272) (11,334)
---------- --------- --------- ---------- ---------- ----------
Net increase (decrease) in net assets
resulting from contract transactions (44,552) 79,908 (102,252) 36,841 (26,804) (12,577)
---------- --------- --------- ---------- ---------- ----------
Increase (decrease) in net assets (36,511) 79,160 (41,337) 235,823 (60,899) 132,208
---------- --------- --------- ---------- ---------- ----------
Net assets at beginning of year 201,295 122,135 163,472 1,046,519 1,107,418 975,210
---------- --------- --------- ---------- ---------- ----------
Net assets at end of year $ 164,784 201,295 122,135 1,282,342 1,046,519 1,107,418
========== ========= ========= ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT A
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Changes in Net Assets (Continued)
For the years ended December 31, 1995, 1994 and 1993
Real Real Real U.S. U.S. U.S.
Estate Estate Estate Government Government Government
Securities Securities Securities Securities Securities Securities
Fund Fund Fund Fund Fund Fund
------------ ----------- ----------- ----------- ----------- -----------
1995 1994 1993 1995 1994 1993
------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 2,834 (227) 122 36,795 24,946 19,549
Realized gains (losses) on investments, net 3,559 1,805 2,855 7,473 33,884 10,280
Net change in unrealized appreciation
(depreciation) on investments 14,488 759 5,891 56,173 (91,983) 27,413
------------ ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
from operations 20,881 2,337 8,868 100,441 (33,153) 57,242
------------ ----------- ----------- ----------- ----------- -----------
Contract transactions (note 5):
Purchase payments 53,203 7,592 - 25,128 1,041 -
Transfers between funds 38,779 14,088 (4,205) 24,109 (111,346) (8,013)
Surrenders and terminations (8,139) - - (18,462) - -
Other transactions (note 2) (23,508) (3,026) 1,380 (18,318) (8,820) (9,256)
------------ ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from contract transactions 60,335 18,654 (2,825) 12,457 (119,125) (17,269)
------------ ----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets 81,216 20,991 6,043 112,898 (152,278) 39,973
------------ ----------- ----------- ----------- ----------- -----------
Net assets at beginning of year 78,309 57,318 51,275 534,051 686,329 646,356
------------ ----------- ----------- ----------- ----------- -----------
Net assets at end of year $ 159,525 78,309 57,318 646,949 534,051 686,329
============ =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT A
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Changes in Net Assets (Continued)
For the years ended December 31, 1995, 1994 and 1993
Zero Zero Zero
Utility Utility Utility Coupon Coupon Coupon
Equity Equity Equity Fund - Fund - Fund -
Fund Fund Fund 1995 1995 1995
----------- ---------- ---------- --------- -------- --------
1995 1994 1993 1995 1994 1993
----------- ---------- ---------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 59,683 36,532 15,643 18,122 13,370 13,285
Realized gains (losses) on investments, net 23,410 53,278 64,775 37,705 1,409 4,401
Net change in unrealized appreciation
(depreciation) on investments 259,686 (253,440) 47,455 (37,457) (14,916) (1,412)
----------- ---------- ---------- --------- -------- --------
Net increase (decrease) in net assets
from operations 342,779 (163,630) 127,873 18,370 (137) 16,274
----------- ---------- ---------- --------- -------- --------
Contract transactions (note 5):
Purchase payments 116,016 11,599 - - - -
Transfers between funds 124,589 (62,456) (19,863) (270,886) - -
Surrenders and terminations (35,449) (23,338) (91,320) - - -
Other transactions (note 2) (76,186) (39,723) (18,834) (2,815) (3,292) (3,050)
----------- ---------- ---------- --------- -------- --------
Net increase (decrease) in net assets
resulting from contract transactions 128,970 (113,918) (130,017) (273,701) (3,292) (3,050)
----------- ---------- ---------- --------- -------- --------
Increase (decrease) in net assets 471,749 (277,548) (2,144) (255,331) (3,429) 13,224
----------- ---------- ---------- --------- -------- --------
Net assets at beginning of year 1,074,173 1,351,721 1,353,865 255,331 258,760 245,536
----------- ---------- ---------- --------- -------- --------
Net assets at end of year $1,545,922 1,074,173 1,351,721 - 255,331 258,760
=========== ========== ========== ========= ======== ========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT A
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Changes in Net Assets (Continued)
For the years ended December 31, 1995, 1994 and 1993
Zero Zero Zero Zero Zero Zero
Coupon Coupon Coupon Coupon Coupon Coupon
Fund - Fund - Fund - Fund - Fund - Fund -
2000 2000 2000 2005 2005 2005
--------- -------- -------- -------- --------- --------
1995 1994 1993 1995 1994 1993
--------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 11,269 12,081 10,108 10,144 9,241 9,557
Realized gains (losses) on investments, net 1,164 5,815 2,800 1,495 26,636 17,160
Net change in unrealized appreciation
(depreciation) on investments 44,013 (41,764) 30,329 68,320 (72,608) 44,629
--------- -------- -------- -------- --------- --------
Net increase (decrease) in net assets
from operations 56,446 (23,868) 43,237 79,959 (36,731) 71,346
--------- -------- -------- -------- --------- --------
Contract transactions (note 5):
Purchase payments - - - - - -
Transfers between funds 10,631 - - - (41,224) (31,627)
Surrenders and terminations - (7,535) - - (28,826) -
Other transactions (note 2) (3,895) (5,488) (3,880) (4,312) (3,853) (2,637)
--------- -------- -------- -------- --------- --------
Net increase (decrease) in net assets
resulting from contract transactions 6,736 (13,023) (3,880) (4,312) (73,903) (34,264)
--------- -------- -------- -------- --------- --------
Increase (decrease) in net assets 63,182 (36,891) 39,357 75,647 (110,634) 37,082
--------- -------- -------- -------- --------- --------
Net assets at beginning of year 286,240 323,131 283,774 261,513 372,147 335,065
--------- -------- -------- -------- --------- --------
Net assets at end of year $349,422 286,240 323,131 337,160 261,513 372,147
========= ======== ======== ======== ========= ========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT A
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Changes in Net Assets (Continued)
For the years ended December 31, 1995, 1994 and 1993
Zero Zero Zero
Coupon Coupon Coupon Global Global Global
Fund - Fund - Fund - Income Income Income
2010 2010 2010 Fund Fund Fund
--------- --------- -------- -------- ------- -------
1995 1994 1993 1995 1994 1993
--------- --------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 1,964 6,159 4,467 2,283 333 609
Realized gains (losses) on investments, net 258 1,490 1,003 392 336 279
Net change in unrealized appreciation
(depreciation) on investments 32,162 (29,320) 10,850 6,634 (2,030) 2,156
--------- --------- -------- -------- ------- -------
Net increase (decrease) in net assets
from operations 34,384 (21,671) 16,320 9,309 (1,361) 3,044
--------- --------- -------- -------- ------- -------
Contract transactions (note 5):
Purchase payments - - - 42,908 1,813 -
Transfers between funds - (74,884) 90,077 18,457 21,778 -
Surrenders and terminations - - - (6,040) - -
Other transactions (note 2) (1,826) (3,577) (1,956) (18,424) (1,388) (348)
--------- --------- -------- -------- ------- -------
Net increase (decrease) in net assets
resulting from contract transactions (1,826) (78,461) 88,121 36,901 22,203 (348)
--------- --------- -------- -------- ------- -------
Increase (decrease) in net assets 32,558 (100,132) 104,441 46,210 20,842 2,696
--------- --------- -------- -------- ------- -------
Net assets at beginning of year 83,178 183,310 78,869 42,818 21,976 19,280
--------- --------- -------- -------- ------- -------
Net assets at end of year $115,736 83,178 183,310 89,028 42,818 21,976
========= ========= ======== ======== ======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT A
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Changes in Net Assets (Continued)
For the years ended December 31, 1995, 1994 and 1993
Investment Investment Investment
Grade Grade Grade Income Income Income
Intermediate Intermediate Intermediate Securities Securities Securities
Bond Fund Bond Fund Bond Fund Fund Fund Fund
-------------- ------------- ------------- ----------- ----------- -----------
1995 1994 1993 1995 1994 1993
-------------- ------------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 3,288 42 131 16,941 1,263 537
Realized gains (losses)
on investments, net 1,106 48 40 2,313 (62) 681
Net change in unrealized
appreciation (depreciation)
on investments 2,630 150 419 47,314 (9,527) 4,145
-------------- ------------- ------------- ----------- ----------- -----------
Net increase (decrease) in
net assets from operations 7,024 240 590 66,568 (8,326) 5,363
-------------- ------------- ------------- ----------- ----------- -----------
Contract transactions (note 5):
Purchase payments 14,163 1,391 - 223,737 22,483 -
Transfers between funds 8,123 75,010 - 186,849 153,200 7,985
Surrenders and terminations (40,771) - - (14,487) - -
Other transactions (note 2) (7,440) (908) (84) (109,005) (33,608) (341)
-------------- ------------- ------------- ----------- ----------- -----------
Net increase (decrease) in
net assets resulting from
contract transactions (25,925) 75,493 (84) 287,094 142,075 7,644
-------------- ------------- ------------- ----------- ----------- -----------
Increase (decrease) in net assets (18,901) 75,733 506 353,662 133,749 13,007
-------------- ------------- ------------- ----------- ----------- -----------
Net assets at beginning of year 83,891 8,158 7,652 170,404 36,655 23,648
-------------- ------------- ------------- ----------- ----------- -----------
Net assets at end of year $ 64,990 83,891 8,158 524,066 170,404 36,655
============== ============= ============= =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT A
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Changes in Net Assets (Continued)
For the years ended December 31, 1995, 1994 and 1993
Adjustable Adjustable Adjustable Templeton Templeton Templeton
U.S. U.S. U.S. Pacific Pacific Pacific
Government Government Government Growth Growth Growth
Fund Fund Fund Fund Fund Fund
------------ ----------- ----------- ---------- ---------- ----------
1995 1994 1993 1995 1994 1993
------------ ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 1,199 150 149 2,646 (514) (394)
Realized gains (losses) on investments, net 35 (81) 2 3,117 9,213 77
Net change in unrealized appreciation
(depreciation) on investments 240 (98) (25) 13,125 (24,505) 28,189
------------ ----------- ----------- ---------- ---------- ----------
Net increase (decrease) in net assets
from operations 1,474 (29) 126 18,888 (15,806) 27,872
------------ ----------- ----------- ---------- ---------- ----------
Contract transactions (note 5):
Purchase payments 12,633 5,636 - 141,914 13,634 -
Transfers between funds 11,222 (2,444) - 74,887 91,481 109,893
Surrenders and terminations - - - (10,270) - -
Other transactions (note 2) (7,891) (358) (81) (92,189) (67,497) (543)
------------ ----------- ----------- ---------- ---------- ----------
Net increase (decrease) in net assets
resulting from contract transactions 15,964 2,834 (81) 114,342 37,618 109,350
------------ ----------- ----------- ---------- ---------- ----------
Increase (decrease) in net assets 17,438 2,805 45 133,230 21,812 137,222
------------ ----------- ----------- ---------- ---------- ----------
Net assets at beginning of year 7,427 4,622 4,577 164,784 142,972 5,750
------------ ----------- ----------- ---------- ---------- ----------
Net assets at end of year $ 24,865 7,427 4,622 298,014 164,784 142,972
============ =========== =========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT A
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Changes in Net Assets (Continued)
For the years ended December 31, 1995, 1994 and 1993
Templeton Templeton Templeton
Rising Rising Rising International International International
Dividends Dividends Dividends Equity Equity Equity
Fund Fund Fund Fund Fund Fund
----------- ---------- ---------- -------------- -------------- --------------
1995 1994 1993 1995 1994 1993
----------- ---------- ---------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 961 317 (161) 3,566 (333) (116)
Realized gains (losses)
on investments, net 463 (44) (8) 8,398 112 3,995
Net change in unrealized
appreciation (depreciation)
on investments 19,701 (2,053) (1,565) 19,054 (3,562) 1,391
----------- ---------- ---------- -------------- -------------- --------------
Net increase (decrease) in
net assets from operations 21,125 (1,780) (1,734) 31,018 (3,783) 5,270
----------- ---------- ---------- -------------- -------------- --------------
Contract transactions (note 5):
Purchase payments 52,764 4,169 - 297,409 32,269 -
Transfers between funds 38,476 5,960 18,787 206,753 104,241 11,738
Surrenders and terminations (264) - - (9,230) - -
Other transactions (note 2) (19,499) (1,199) (393) (111,967) (8,365) (77)
----------- ---------- ---------- -------------- -------------- --------------
Net increase (decrease) in
net assets resulting from
contract transactions 71,477 8,930 18,394 382,965 128,145 11,661
----------- ---------- ---------- -------------- -------------- --------------
Increase (decrease) in net assets 92,602 7,150 16,660 413,983 124,362 16,931
----------- ---------- ---------- -------------- -------------- --------------
Net assets at beginning of year 44,527 37,377 20,717 141,293 16,931 -
----------- ---------- ---------- -------------- -------------- --------------
Net assets at end of year $ 137,129 44,527 37,377 555,276 141,293 16,931
=========== ========== ========== ============== ============== ==============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT A
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Changes in Net Assets (Continued)
For the years ended December 31, 1995, 1994 and 1993
Templeton Templeton Templeton
Developing Developing Developing Templeton Templeton Templeton
Markets Markets Markets Global Global Global
Equity Equity Equity Growth Growth Growth
Fund Fund Fund Fund Fund Fund
------------ ----------- ---------- ---------- ---------- ---------
1995 1994 1993 1995 1994 1993
------------ ----------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net ($4,311) (3,996) - (432) (81) -
Realized gains (losses) on investments, net (453) (67) - 587 (51) -
Net change in unrealized appreciation
(depreciation) on investments 4,422 (2,951) - 23,468 (144) -
------------ ----------- ---------- ---------- ---------- ---------
Net increase (decrease) in net assets
from operations (342) (7,014) - 23,623 (276) -
------------ ----------- ---------- ---------- ---------- ---------
Contract transactions (note 5):
Purchase payments 169,165 19,997 - 237,156 27,117 -
Transfers between funds 63,297 44,206 - 114,188 45,458 -
Surrenders and terminations (18,763) - - (6,710) - -
Other transactions (note 2) (61,489) (1,238) - (86,658) (5,539) -
------------ ----------- ---------- ---------- ---------- ---------
Net increase (decrease) in net assets
resulting from contract transactions 152,210 62,965 - 257,976 67,036 -
------------ ----------- ---------- ---------- ---------- ---------
Increase (decrease) in net assets 151,868 55,951 - 281,599 66,760 -
------------ ----------- ---------- ---------- ---------- ---------
Net assets at beginning of year 55,951 - - 66,760 - -
------------ ----------- ---------- ---------- ---------- ---------
Net assets at end of year $ 207,819 55,951 - 348,359 66,760 -
============ =========== ========== ========== ========== =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT A
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Changes in Net Assets (Continued)
For the years ended December 31, 1995, 1994 and 1993
Templeton Templeton Templeton
Global Global Global
Asset Asset Asset Total Total Total
Allocation Allocation Allocation All All All
Fund Fund Fund Funds Funds Funds
------------ ---------- ---------- ---------- ---------- ----------
1995 1994 1993 1995 1994 1993
------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net ($27) - - 265,740 146,044 110,544
Realized gains (losses) on investments, net 17 - - 158,860 175,720 164,309
Net change in unrealized appreciation
(depreciation) on investments (15) - - 871,051 (677,502) 378,979
------------ ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net assets
from operations (25) - - 1,295,651 (355,738) 653,832
------------ ---------- ---------- ---------- ---------- ----------
Contract transactions (note 5):
Purchase payments - - - 2,830,073 1,005,787 -
Transfers between funds 311 - - (21,713) (3,609) -
Surrenders and terminations - - - (367,067) (232,818) (225,306)
Other transactions (note 2) (66) - - (905,331) (328,040) (57,550)
------------ ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net assets
resulting from contract transactions 245 - - 1,535,962 441,320 (282,856)
------------ ---------- ---------- ---------- ---------- ----------
Increase (decrease) in net assets 220 - - 2,831,613 85,582 370,976
------------ ---------- ---------- ---------- ---------- ----------
Net assets at beginning of year - - - 5,755,011 5,669,429 5,298,453
------------ ---------- ---------- ---------- ---------- ----------
Net assets at end of year $ 220 - - 8,586,624 5,755,011 5,669,429
============ ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT A
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements
December 31, 1995
1. ORGANIZATION
Allianz Life Variable Account A (Variable Account) is a segregated investment
account of Allianz Life Insurance Company of North America (Allianz Life)
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 on May 31, 1985 and commenced
operations September 8, 1987. Accordingly, it is an accounting entity wherein
all segregated account transactions are reflected.
The Variable Account's assets are the property of Allianz Life and are held
for the benefit of the owners and other persons entitled to payments under
variable life policies issued through the Variable Account and underwritten by
Allianz 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 Allianz Life may conduct.
The Variable Account's sub-accounts may invest, at net asset values, in one or
more of the funds of the Franklin Valuemark Funds (FVF), managed by Franklin
Advisers, Inc., in accordance with the selection made by the policy owner.
Not all funds are available as investment options for the products which
comprise the Variable Account.
Certain officers and trustees of the FVF are also officers and/or directors of
Franklin Advisers, Inc. and/or Allianz Life.
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
INVESTMENTS
Investments of the Variable Account are valued daily at market value using net
asset values provided by Franklin Advisers, Inc.
Realized investment gains include realized gain distributions received from
the respective funds and gains on the sale of fund shares as determined by the
average cost method.
Realized gain distributions are reinvested in the respective funds. Dividend
distributions received from the FVF are reinvested in additional shares of the
FVF and are recorded as income to the Variable Account on the ex-dividend
date.
A Fixed Account investment option is available to variable universal life
policy owners. This account is comprised of equity and fixed income
investments which are part of the general assets of Allianz Life. The
liabilities of the Fixed Account are part of the general obligations of
Allianz Life and are not included in the Variable Account. The guaranteed
minimum rate of return on the Fixed Account is 3.5%.
The Templeton Developing Markets Equity Fund, Templeton Global Growth Fund and
Fixed Account were added as available investment options on July 1, 1994. The
Templeton Global Asset Allocation Fund and Small Cap Fund were added as
available investment options on May 1, 1995 and November 1, 1995,
respectively. The Small Cap Fund had no investment activity during 1995. The
Zero Coupon - 1995 Fund matured and was closed on December 15, 1995.
In April 1995, the Equity Growth Fund name was changed to Growth and Income
Fund.
EXPENSES
ASSET BASED EXPENSES
A mortality and expense risk charge is deducted from the Variable Account on a
daily basis equal, on an annual basis, to .60% of the daily net assets of the
Variable Account.
An administrative charge is deducted from the Variable Account on a daily
basis equal, on an annual basis, to .15% of the daily net assets of the
Variable Account.
CONTRACT BASED EXPENSES
A cost of insurance charge is deducted against each policy by liquidating
units. The amount of the charge is based upon age, sex, rate class and net
amount at risk (death benefit less total cash surrender value). Total cost of
insurance charges paid by the policy owners for the years ended December 31,
1995, 1994 and 1993 were $581,193, $123,231 and $46,026, respectively.
A deferred issue charge is deducted annually, at the end of the policy year,
from each single premium variable life policy for the first ten policy years
by liquidating units. The amount of the charge is 7% of the single premium
consisting of 2.5% for premium taxes, 4% for sales charge and .5% for policy
issue charge (in the State of California, 2.35%, 4.15% and .5%, respectively).
If the policy is surrendered before the full amount is collected, the
uncollected portion of this charge is deducted from the account value. Total
deferred issue charges paid by the policy owners for the years ended December
31, 1995, 1994 and 1993 were $28,613, $32,516 and $34,016, respectively.
A policy charge is deducted on each monthly anniversary date from each
variable universal life policy by liquidating units. The amount of the charge
is equal to 2.5% of each premium payment for premium taxes plus $20 per month
for the first policy year and $9 per month guaranteed thereafter. Currently,
Allianz Life has agreed to voluntarily limit the charge to $5 per month after
the first policy year. Total policy charges paid by the policy owners for the
years ended December 31, 1995 and 1994 were $292,695 and $64,030,
respectively. There were no variable universal life policies issued during
the year ended December 31, 1993.
Twelve free transfers are permitted each contract year. Thereafter, the fee
is the lesser of $25 or 2% of the amount transferred. No transfer charges
were paid by the policy owners during the years ended December 31, 1995, 1994
and 1993, respectively. Transfers to the Fixed Account during the years ended
December 31, 1995 and 1994 were $21,713 and $3,609, respectively.
The cost of insurance, deferred issue, policy and transfer charges paid are
reflected in the Statements of Changes in Net Assets as other transactions.
3. INVESTMENT TRANSACTIONS
The sub-account purchases of fund shares, including reinvestment of dividend
distributions, were as follows during the year ended December 31, 1995:
<TABLE>
<CAPTION>
<S> <C>
Money Market Fund $1,122,415
Growth and Income Fund 326,793
Precious Metals Fund 123,585
High Income Fund 162,053
Real Estate Securities Fund 86,588
U.S. Government Securities Fund 88,014
Utility Equity Fund 312,133
Zero Coupon Fund - 1995 17,464
Zero Coupon Fund - 2000 24,625
Zero Coupon Fund - 2005 12,928
Zero Coupon Fund - 2010 3,109
Global Income Fund 55,385
Investment Grade Intermediate Bond Fund 22,252
Income Securities Fund 363,976
Adjustable U.S. Government Fund 28,937
Templeton Pacific Growth Fund 180,053
Rising Dividends Fund 80,078
Templeton International Equity Fund 434,389
Templeton Developing Markets Equity Fund 180,752
Templeton Global Growth Fund 285,990
Templeton Global Asset Allocation Fund 387
</TABLE>
4. FEDERAL INCOME TAXES
Operations of the Variable Account form a part of, and are taxed with,
operations of Allianz Life, which is taxed as a life insurance company under
the Internal Revenue Code.
Allianz Life does not expect to incur any federal income taxes in the
operation of the Variable Account. If in the future Allianz 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>
5. CONTRACT TRANSACTIONS - UNIT ACTIVITY
Transactions in units for each fund for the years ended December 31, 1995,
1994 and 1993, were as follows:
<TABLE>
<CAPTION>
Growth Real U.S.
Money and Precious High Estate Government
Market Income Metals Income Securities Securities
Fund Fund Fund Fund Fund Fund
--------- ---------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding at December 31, 1992 26,464 36,756 16,401 65,825 3,450 39,596
Contract transactions:
Transfers between funds 1,266 (4,296) (8,477) (59) (272) (451)
Surrenders and terminations (4,833) (3,404) - - - -
Other transactions (467) 84 9 (701) 87 (533)
--------- ---------- --------- ---------- ----------- -----------
Net increase (decrease) in units
resulting from contract transactions (4,034) (7,616) (8,468) (760) (185) (984)
--------- ---------- --------- ---------- ----------- -----------
Units outstanding at December 31, 1993 22,430 29,140 7,933 65,065 3,265 38,612
========= ========== ========= ========== =========== ===========
Accumulation unit value
per unit at December 31, 1993 $ 13.773 21.604 15.396 17.020 17.556 17.775
========= ========== ========= ========== =========== ===========
Contract transactions:
Purchase payments 59,285 751 67 265 419 62
Transfers between funds (31,325) 4,606 6,162 (637) 861 (6,440)
Surrenders and terminations (7,250) (2,364) (578) (869) - -
Other transactions (5,759) (2,338) (143) (444) (177) (520)
--------- ---------- --------- ---------- ----------- -----------
Net increase (decrease) in units
resulting from contract transactions 14,951 655 5,508 (1,685) 1,103 (6,898)
--------- ---------- --------- ---------- ----------- -----------
Units outstanding at December 31, 1994 37,381 29,795 13,441 63,380 4,368 31,714
========= ========== ========= ========== =========== ===========
Accumulation unit value
per unit at December 31, 1994 $ 14.194 21.010 14.977 16.512 17.928 16.840
========= ========== ========= ========== =========== ===========
Contract transactions:
Purchase payments 77,441 9,561 1,662 2,463 2,884 1,355
Transfers between funds (57,166) 4,664 1,698 1,925 2,056 1,281
Surrenders and terminations (3,275) (2,237) (5,150) (772) (427) (965)
Other transactions (8,613) (3,762) (820) (1,663) (1,253) (983)
--------- ---------- --------- ---------- ----------- -----------
Net increase (decrease) in units
resulting from contract transactions 8,387 8,226 (2,610) 1,953 3,260 688
--------- ---------- --------- ---------- ----------- -----------
Units outstanding at December 31, 1995 45,768 38,021 10,831 65,333 7,628 32,402
========= ========== ========= ========== =========== ===========
Accumulation unit value
per unit at December 31, 1995 $ 14.898 27.700 15.214 19.628 20.913 19.966
========= ========== ========= ========== =========== ===========
Accumulation net assets at December 31, 1995 $681,852 1,053,166 164,784 1,282,342 159,525 646,949
========= ========== ========= ========== =========== ===========
</TABLE>
<PAGE>
5. CONTRACT TRANSACTIONS - UNIT ACTIVITY (CONTINUED)
<TABLE>
<CAPTION>
Zero Zero Zero Zero
Utility Coupon Coupon Coupon Coupon Global
Equity Fund - Fund - Fund - Fund - Income
Fund 1995 2000 2005 2010 Fund
----------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding at December 31, 1992 72,790 14,686 15,439 17,524 3,968 1,562
Contract transactions:
Transfers between funds (998) - - (1,326) 3,524 -
Surrenders and terminations (4,617) - - - - -
Other transactions (934) (175) (190) (156) (84) (25)
----------- -------- -------- -------- -------- -------
Net increase (decrease) in units
resulting from contract transactions (6,549) (175) (190) (1,482) 3,440 (25)
----------- -------- -------- -------- -------- -------
Units outstanding at December 31, 1993 66,241 14,511 15,249 16,042 7,408 1,537
=========== ======== ======== ======== ======== =======
Accumulation unit value
per unit at December 31, 1993 $ 20.406 17.832 21.191 23.198 24.745 14.297
=========== ======== ======== ======== ======== =======
Contract transactions:
Purchase payments 654 - - - - 133
Transfers between funds (3,468) - - (1,953) (3,442) 1,607
Surrenders and terminations (1,253) - (379) (1,348) - -
Other transactions (2,205) (186) (276) (182) (162) (102)
----------- -------- -------- -------- -------- -------
Net increase (decrease) in units
resulting from contract transactions (6,272) (186) (655) (3,483) (3,604) 1,638
----------- -------- -------- -------- -------- -------
Units outstanding at December 31, 1994 59,969 14,325 14,594 12,559 3,804 3,175
=========== ======== ======== ======== ======== =======
Accumulation unit value
per unit at December 31, 1994 $ 17.912 17.823 19.614 20.821 21.866 13.483
=========== ======== ======== ======== ======== =======
Contract transactions:
Purchase payments 5,744 - - - - 2,992
Transfers between funds 6,185 (14,174) 458 - - 1,333
Surrenders and terminations (1,893) - - - - (416)
Other transactions (3,807) (151) (178) (177) (69) (1,283)
----------- -------- -------- -------- -------- -------
Net increase (decrease) in units
resulting from contract transactions 6,229 (14,325) 280 (177) (69) 2,626
----------- -------- -------- -------- -------- -------
Units outstanding at December 31, 1995 66,198 - 14,874 12,382 3,735 5,801
=========== ======== ======== ======== ======== =======
Accumulation unit value
per unit at December 31, 1995 $ 23.353 - 23.491 27.229 30.991 15.347
=========== ======== ======== ======== ======== =======
Accumulation net assets at December 31, 1995 $1,545,922 - 349,422 337,160 115,736 89,028
=========== ======== ======== ======== ======== =======
</TABLE>
<PAGE>
5. CONTRACT TRANSACTIONS - UNIT ACTIVITY (CONTINUED)
<TABLE>
<CAPTION>
Investment
Grade Adjustable Templeton
Intermediate Income U.S. Pacific Rising
Bond Securities Government Growth Dividends
Fund Fund Fund Fund Fund
-------------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Units outstanding at December 31, 1992 588 1,598 410 586 1,899
Contract transactions:
Transfers between funds - 527 - 9,382 1,714
Surrenders and terminations - - - - -
Other transactions (6) (21) (7) (44) (37)
-------------- ----------- ----------- ---------- ----------
Net increase (decrease) in units
resulting from contract transactions (6) 506 (7) 9,338 1,677
-------------- ----------- ----------- ---------- ----------
Units outstanding at December 31, 1993 582 2,104 403 9,924 3,576
============== =========== =========== ========== ==========
Accumulation unit value
per unit at December 31, 1993 $ 14.017 17.423 11.481 14.407 10.453
============== =========== =========== ========== ==========
Contract transactions:
Purchase payments 100 1,334 495 998 418
Transfers between funds 5,385 9,100 (213) 6,850 601
Surrenders and terminations - - - - -
Other transactions (65) (2,024) (31) (5,137) (121)
-------------- ----------- ----------- ---------- ----------
Net increase (decrease) in units
resulting from contract transactions 5,420 8,410 251 2,711 898
-------------- ----------- ----------- ---------- ----------
Units outstanding at December 31, 1994 6,002 10,514 654 12,635 4,474
============== =========== =========== ========== ==========
Accumulation unit value
per unit at December 31, 1994 $ 13.978 16.208 11.374 13.042 9.952
============== =========== =========== ========== ==========
Contract transactions:
Purchase payments 963 12,397 1,060 10,718 4,625
Transfers between funds 562 10,593 966 5,757 3,323
Surrenders and terminations (2,761) (783) - (779) (23)
Other transactions (507) (6,107) (667) (7,009) (1,699)
-------------- ----------- ----------- ---------- ----------
Net increase (decrease) in units
resulting from contract transactions (1,743) 16,100 1,359 8,687 6,226
-------------- ----------- ----------- ---------- ----------
Units outstanding at December 31, 1995 4,259 26,614 2,013 21,322 10,700
============== =========== =========== ========== ==========
Accumulation unit value
per unit at December 31, 1995 $ 15.260 19.691 12.352 13.977 12.816
============== =========== =========== ========== ==========
Accumulation net assets at December 31, 1995 $ 64,990 524,066 24,865 298,014 137,129
============== =========== =========== ========== ==========
</TABLE>
<PAGE>
5. CONTRACT TRANSACTIONS - UNIT ACTIVITY (CONTINUED)
<TABLE>
<CAPTION>
Templeton Templeton
Templeton Developing Templeton Global
International Markets Global Asset Total
Equity Equity Growth Allocation All
Fund Fund Fund Fund Funds
--------------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Units outstanding at December 31, 1992 - - - - 319,542
Contract transactions:
Transfers between funds 1,375 - - - 1,909
Surrenders and terminations - - - - (12,854)
Other transactions (7) - - - (3,207)
--------------- ----------- ---------- ----------- ----------
Net increase (decrease) in units
resulting from contract transactions 1,368 - - - (14,152)
--------------- ----------- ---------- ----------- ----------
Units outstanding at December 31, 1993 1,368 - - - 305,390
=============== =========== ========== =========== ==========
Accumulation unit value
per unit at December 31, 1993 $ 12.375 - - -
=============== =========== ========== ===========
Contract transactions:
Purchase payments 2,526 2,054 2,721 - 72,282
Transfers between funds 8,168 4,590 4,585 - 5,037
Surrenders and terminations - - - - (14,041)
Other transactions (659) (545) (558) - (21,634)
--------------- ----------- ---------- ----------- ----------
Net increase (decrease) in units
resulting from contract transactions 10,035 6,099 6,748 - 41,644
--------------- ----------- ---------- ----------- ----------
Units outstanding at December 31, 1994 11,403 6,099 6,748 - 347,034
=============== =========== ========== =========== ==========
Accumulation unit value
per unit at December 31, 1994 $ 12.390 9.173 9.894 -
=============== =========== ========== ===========
Contract transactions:
Purchase payments 22,647 18,183 22,517 - 197,212
Transfers between funds 15,984 6,624 11,063 27 3,159
Surrenders and terminations (691) (2,067) (627) - (22,866)
Other transactions (8,513) (6,629) (8,230) (6) (62,126)
--------------- ----------- ---------- ----------- ----------
Net increase (decrease) in units
resulting from contract transactions 29,427 16,111 24,723 21 115,379
--------------- ----------- ---------- ----------- ----------
Units outstanding at December 31, 1995 40,830 22,210 31,471 21 462,413
=============== =========== ========== =========== ==========
Accumulation unit value
per unit at December 31, 1995 $ 13.600 9.357 11.069 10.637
=============== =========== ========== ===========
Accumulation net assets at December 31, 1995 $ 555,276 207,819 348,359 220 8,586,624
=============== =========== ========== =========== ==========
</TABLE>
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1995 and 1994
<PAGE>
KPMG Peat Marwick LLP
4200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Allianz Life Insurance Company of North America:
We have audited the accompanying consolidated balance sheets of Allianz Life
Insurance Company of North America (a wholly owned subsidiary of Allianz of
America, Inc.) and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, stockholder's equity and cash flows
for each of the years in the three-year period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Allianz Life Insurance Company of North America and subsidiaries as of
December 31, 1995 and 1994, and the results of their operations and changes in
stockholder's equity and cash flows for each of the years in the three-year
period ended December 31, 1995, in conformity with generally accepted
accounting principles.
In 1994, as discussed in note 1 to the consolidated financial statements, the
Company adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities. In 1993, as discussed in notes 1,
8 and 10 to the consolidated financial statements, the Company adopted the
provisions of the Financial Accounting Standards Board's Statements of
Financial Accounting Standards No. 106, Accounting for Postretirement Benefits
Other Than Pensions and No. 109, Accounting for Income Taxes.
KPMG Peat Marwick LLP
February 6, 1996
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1995 and 1994
(in thousands except share data)
Assets 1995 1994
- ---------------------------------------------------------- ----------- ----------
<S> <C> <C>
Investments:
Fixed maturities, at amortized cost $ 0 90,615
Fixed maturities, at market 2,549,598 1,906,208
Equity securities, at market 254,458 131,712
Mortgage loans on real estate 203,128 163,099
Real estate, at cost 8,806 4,685
Investment in real estate partnerships, at equity 11,975 12,551
Certificates of deposit and short-term securities 31,501 155,307
Policy loans 104,184 101,899
Other long-term investments 650 1,117
----------- ----------
Total investments 3,164,300 2,567,193
Cash 10,936 63,883
Accrued investment income 36,858 34,786
Receivables (net of allowance for uncollectible
accounts of $7,697 in 1995 and $9,607 in 1994) 124,700 111,400
Reinsurance receivable:
Funds held on deposit 1,060,566 927,353
Recoverable on future policy benefit reserves 43,248 35,387
Recoverable on unpaid claims 109,075 105,603
Receivable on paid claims 22,172 26,736
Prepaid insurance premiums 4,078 4,317
Home office property and equipment (net of accumulated
depreciation of $21,256 in 1995 and $28,547 in 1994) 8,790 11,612
Deferred acquisition costs 826,994 798,442
Federal income tax recoverable 3,947 3,794
Other assets 11,048 9,818
----------- ----------
Assets, exclusive of separate account assets 5,426,712 4,700,324
Separate account assets 8,402,003 6,965,755
----------- ----------
Total assets $13,828,715 11,666,079
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
AND SUBSIDIARIES
Consolidated Balance Sheets, continued
December 31, 1995 and 1994
(in thousands except share data)
Liabilities and Stockholder's Equity 1995 1994
- --------------------------------------------------------------------- ------------ -----------
<S> <C> <C>
Liabilities:
Future policy benefit reserves:
Life $ 1,088,964 1,022,537
Annuity 2,601,943 2,304,560
Policy and contract claims 371,898 355,411
Unearned premiums 34,181 40,376
Reinsurance payable 72,838 81,507
Deferred income taxes 140,174 5,807
Accrued expenses 41,266 29,006
Commissions due and accrued 22,979 24,190
Other policyholder funds 82,138 73,509
Other liabilities 19,137 76,314
------------ -----------
Liabilities, exclusive of separate account liabilities 4,475,518 4,013,217
Separate account liabilities 8,402,003 6,965,755
------------ -----------
Total liabilities 12,877,521 10,978,972
------------ -----------
Minority interest in subsidiary 0 7,662
------------ -----------
Stockholder's equity:
Common stock, $1 par value, 20,000,000 shares
authorized, issued and outstanding 20,000 20,000
Preferred stock, $1 par value, cumulative, 200 million
shares authorized, 25 million shares issued and outstanding
in 1995 and 40 million shares issued and outstanding in 1994 25,000 40,000
Additional paid-in capital 407,088 406,494
Net unrealized holding gain (loss) on securities
available-for-sale, net of deferred federal income taxes 139,204 (62,073)
Net unrealized Canadian currency loss (3,455) (3,787)
Retained earnings 363,357 278,811
------------ -----------
Total stockholder's equity 951,194 679,445
------------ -----------
Commitments and contingencies (notes 7 and 12)
Total liabilities and stockholder's equity $13,828,715 11,666,079
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
AND SUBSIDIARIES
Consolidated Statements of Income
Years Ended December 31, 1995, 1994 and 1993
(in thousands)
1995 1994 1993
----------- --------- ---------
<S> <C> <C> <C>
Revenue:
Life insurance premiums $ 257,647 234,295 217,717
Other life policy considerations 93,158 92,254 88,003
Annuity considerations 147,112 120,240 69,583
Accident and health premiums 527,059 547,508 508,785
----------- --------- ---------
Total premiums and considerations 1,024,976 994,297 884,088
Premiums ceded 223,226 244,208 202,904
----------- --------- ---------
Net premiums and considerations 801,750 750,089 681,184
Investment income, net 201,158 181,291 174,831
Realized investment gains, net 29,202 829 28,318
Other 10,140 12,703 9,347
----------- --------- ---------
Total revenue 1,042,250 944,912 893,680
----------- --------- ---------
Benefits and expenses:
Life insurance benefits 268,163 254,326 233,694
Annuity benefits 145,636 131,793 113,500
Accident and health insurance benefits 374,743 379,122 341,676
----------- --------- ---------
Total benefits 788,542 765,241 688,870
Benefit recoveries 210,702 212,144 155,043
----------- --------- ---------
Net benefits 577,840 553,097 533,827
Commissions and other agent compensation 233,939 313,715 398,161
General and administrative expenses 115,419 111,116 109,333
Taxes, licenses and fees 17,672 22,514 25,239
Increase in deferred acquisition costs, net (28,552) (132,090) (253,234)
Minority interest in income of consolidated subsidiary (30) (66) 0
----------- --------- ---------
Total benefits and expenses 916,288 868,286 813,326
----------- --------- ---------
Income from operations before income taxes 125,962 76,626 80,354
----------- --------- ---------
Income tax expense (benefit):
Current 12,993 5,098 30,215
Deferred 25,772 16,053 (6,496)
----------- --------- ---------
Total income tax expense 38,765 21,151 23,719
----------- --------- ---------
Income before cumulative effect of
changes in accounting 87,197 55,475 56,635
Cumulative effect of changes in accounting 0 0 26,875
----------- --------- ---------
Net income $ 87,197 55,475 83,510
=========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
AND SUBSIDIARIES
Consolidated Statements of Stockholder's Equity
Years Ended December 31, 1995, 1994 and 1993
(in thousands)
1995 1994 1993
--------- --------- --------
<S> <C> <C> <C>
Common stock:
Balance at beginning and end of year $ 20,000 20,000 20,000
--------- --------- --------
Preferred Stock:
Balance at beginning of year 40,000 0 0
Issuance of stock during the year 0 40,000 0
Redemption of stock during the year (15,000) 0 0
--------- --------- --------
Balance at end of year 25,000 40,000 0
--------- --------- --------
Additional paid-in capital:
Balance at beginning of year 406,494 401,304 401,304
Additional contribution from parent 594 5,190 0
--------- --------- --------
Balance at end of year 407,088 406,494 401,304
--------- --------- --------
Net unrealized gain (loss) on investments:
Balance at beginning of year (62,073) 9,071 12,071
Cumulative effect of implementation of Statement
No. 115, net of deferred federal income taxes 0 74,866 0
Net unrealized gain on securities transferred
from held-to-maturity to available-for-sale
classification, net of deferred federal income taxes 1,789 0 0
Net unrealized gain (loss) during the year,
net of deferred federal income taxes 199,488 (146,010) (3,000)
--------- --------- --------
Balance at end of year 139,204 (62,073) 9,071
--------- --------- --------
Net unrealized Canadian currency gain (loss):
Balance at beginning of year (3,787) (2,708) (1,835)
Net unrealized gain (loss) during the year,
net of deferred federal income taxes 332 (1,079) (873)
--------- --------- --------
Balance at end of year (3,455) (3,787) (2,708)
--------- --------- --------
Retained earnings:
Balance at beginning of year 278,811 223,749 140,239
Net income 87,197 55,475 83,510
Cash dividend to stockholder (2,651) (413) 0
--------- --------- --------
Balance at end of year 363,357 278,811 223,749
--------- --------- --------
Total stockholder's equity $951,194 679,445 651,416
========= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 1995, 1994 and 1993
(in thousands)
1995 1994 1993
---------- --------- ---------
<S> <C> <C> <C>
Cash flows used in operating activities:
Net income $ 87,197 55,475 83,510
---------- --------- ---------
Adjustments to reconcile net income to net
cash used in operating activities:
Realized gains on investments (29,202) (829) (28,318)
Deferred federal income tax (benefit) expense 25,772 16,053 (6,496)
Cumulative effect of changes in accounting 0 0 (26,875)
Charges to policy account balances (120,254) (125,488) (105,912)
Interest credited to policy account balances 169,151 150,490 147,983
Change in:
Accrued investment income (2,072) (764) (2,725)
Receivables (13,300) 12,040 (20,206)
Reinsurance receivables (190,953) (93,453) (107,809)
Deferred acquisition costs (28,552) (132,090) (253,234)
Future policy benefit reserves 66,932 20,791 (9,557)
Policy and contract claims 25,116 25,072 40,211
Unearned premiums (6,195) (1,194) (2,111)
Reinsurance payable (8,669) 19,779 31,653
Current tax recoverable (153) (6,255) 1,085
Deferred tax liability 0 0 15,936
Accrued expenses and other liabilities (43,867) 54,626 14,657
Commissions due and accrued (1,211) 3,316 1,461
Depreciation and amortization (23,391) (11,498) (7,681)
Other, net 916 (86) 2,303
---------- --------- ---------
Total adjustments (179,932) (69,490) (315,635)
---------- --------- ---------
Net cash used in operating activities (92,735) (14,015) (232,125)
---------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
AND SUBSIDIARIES
Consolidated Statements of Cash Flows, continued
Years Ended December 31, 1995, 1994 and 1993
(in thousands)
1995 1994 1993
------------ --------- -----------
<S> <C> <C> <C>
Cash flows used in investing activities:
Purchase of fixed maturities, at amortized cost $ 0 0 (1,191,749)
Purchase of fixed maturities, at market (1,533,290) (928,532) 0
Purchase of equity securities (166,701) (145,267) (205,345)
Purchase of other long-term investments 0 (467) (650)
Funding of mortgage loans (66,301) (64,808) (20,097)
Sale of fixed maturities, at amortized cost 0 0 666,893
Sale of fixed maturities, at market 1,242,988 791,659 0
Matured or redeemed fixed maturities, at amortized cost 7,022 4,342 314,223
Matured fixed maturities, at market 38,991 32,508 0
Sale of equity securities 97,619 150,347 217,524
Repayment of mortgage loans 25,563 28,206 15,989
Sale of minority interest in subsidiary 0 0 8,189
Purchase of minority interest's shares in subsidiary (7,903) 0 0
Net change in certificates of deposit and
short-term securities 123,806 (96,344) 33,330
Other (2,851) (6,232) 782
------------ --------- -----------
Net cash used in investing activities (241,057) (234,588) (160,911)
------------ --------- -----------
Cash flows used in financing activities:
Policyholders' deposits to account balances $ 553,699 526,918 639,633
Policyholders' withdrawals from account balances (291,102) (235,309) (164,911)
Change in assets held under reinsurance agreements 36,354 (59,349) (75,658)
Net change in mortgage notes payable (1,049) (39) (36)
Additional paid-in capital from parent 594 5,190 0
Preferred stock transactions (15,000) 40,000 0
Cash dividends paid (2,651) (413) 0
------------ --------- -----------
Net cash used in financing activities 280,845 276,998 399,028
------------ --------- -----------
Net change in cash (52,947) 28,395 5,992
Cash at beginning of year 63,883 35,488 29,496
------------ --------- -----------
Cash at end of year $ 10,936 63,883 35,488
============ ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
(in thousands)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Allianz Life Insurance Company of North America (the Company) is a wholly
owned subsidiary of Allianz of America, Inc. (AZOA), a majority-owned
subsidiary of Allianz A.G. Holding, a Federal Republic of Germany company.
The Company is a life insurance company which is licensed to sell both group
and individual life, annuity and accident and health policies in the United
States, Canada and several U.S. territories. Based on 1995 gross premium
volume, 13%, 71% and 16% of the Company's business is life, annuity and
accident and health, respectively. The Company's primary distribution
channels are through strategic alliances with other insurance companies and
third party marketing organizations. The Company has a significant
relationship as of December 31, 1995 with a mutual fund company and its
broker/dealer network related to sales of its variable life and variable
annuity products and another significant administration, marketing and
reinsurance relationship with an unrelated insurance company.
Following is a summary of the significant accounting policies reflected in the
accompanying consolidated financial statements.
BASIS OF PRESENTATION
The consolidated 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 accounts of the Company's major subsidiaries, Preferred Life
Insurance Company of New York and Canadian American Financial Corporation and
other less significant subsidiaries have been consolidated. All significant
intercompany balances and transactions have been eliminated in consolidation.
Certain amounts as previously reported have been reclassified to be consistent
with the current year's presentation.
The preparation of financial statements in conformity with GAAP requires
management to make certain estimates and assumptions that affect reported
assets and liabilities including reporting or disclosure of contingent assets
and liabilities as of the balance sheet date and the reported amounts of
revenues and expenses during the reporting period. Actual results could vary
significantly from management's estimates.
RECOGNITION OF TRADITIONAL LIFE, GROUP LIFE AND GROUP ACCIDENT AND HEALTH
REVENUE
Traditional life products include products with guaranteed premiums and
benefits and consist principally of whole life and term insurance policies,
limited payment contracts and certain annuity products with life
contingencies.
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 for
traditional and group products 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.
<PAGE>
RECOGNITION OF NONTRADITIONAL AND VARIABLE LIFE AND ANNUITY REVENUE
Nontraditional and variable life insurance and interest sensitive contracts
that have significant mortality or morbidity risk are accounted for in
accordance with the retrospective deposit method. Interest sensitive
contracts that do not have significant mortality or morbidity risk are
accounted for in a manner consistent with interest bearing financial
instruments. For both types of contracts, 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. Mortality or morbidity charges are also
accounted for as revenue on those contracts containing mortality or morbidity
risk. Benefits consist of interest credited to contractholder's accounts and
claims or 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
traditional life and group life products, such costs are amortized over the
revenue-producing period of the related policies using the same actuarial
assumptions used in computing future policy benefit reserves. Acquisition
costs for accident and health insurance policies are deferred and amortized
over the lives of the policies in the same manner as premiums are earned. For
interest sensitive products, acquisition costs are amortized in relation to
the present value of expected future gross profits from investment margins and
mortality, morbidity and expense charges. Deferred acquisition costs amortized
during 1995, 1994 and 1993 were $117,782, $108,676 and $72,431, respectively.
FUTURE POLICY BENEFIT RESERVES
Future policy benefit reserves on traditional life products are computed by
the net level premium method based upon estimated future investment yield,
mortality and withdrawal assumptions, commensurate with the Company's
experience, modified as necessary to reflect anticipated trends, including
possible unfavorable deviations. Most life reserve interest assumptions are
graded from 9% to 5.5%.
Future policy benefit reserves for interest sensitive products are generally
carried at accumulated contract values. Reserves on some deferred annuity
contracts are computed based on contractholder cash value accumulations,
adjusted for mortality, withdrawal and interest margin assumptions.
Fair values of investment contracts, which include deferred annuities and
other annuities without significant mortality risk, were determined by testing
amounts payable on demand against discounted cash flows using interest rates
commensurate with the risks involved. Fair values are based on the amount
payable on demand at December 31, 1995 and 1994.
POLICY AND CONTRACT CLAIMS
Policy and contract claims represent an estimate of claims and claim
adjustment expenses on accident and health and life insurance policies that
have been reported but not yet paid and incurred but not yet reported as of
December 31.
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 receivable. Reinsurance receivables are recognized
in a manner consistent with the liabilities related to the underlying
reinsured contracts.
<PAGE>
INVESTMENTS
On January 1, 1994, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and
Equity Securities which addresses the accounting and reporting for investments
in equity securities that have readily determinable fair values and for all
investments in debt securities. Those investments are classified in one of
three categories. Debt securities that the Company has the positive intent
and ability to hold to maturity are classified as "held-to-maturity
securities" and reported at amortized cost. Debt and equity securities bought
and held principally for the purpose of selling them in the near term are
classified as "trading securities" and reported at fair value, with unrealized
gains and losses included in earnings. Debt and equity securities not
classified as either "held-to-maturity securities" or "trading securities" are
classified as "available-for-sale securities" and reported at fair value, with
unrealized gains and losses reported as a separate component of stockholders'
equity, net of deferred taxes. SFAS No. 115 did not permit retroactive
application of its provisions. The Company classified the majority of its
investment portfolio as "available-for-sale securities" with a limited number
of securities classified as "held-to-maturity" at January 1, 1994.
At December 31, 1995, the Company transferred all of its securities with an
amortized cost of $83,357 classified as "held-to-maturity' to the
"available-for-sale" classifications as provided in the Financial Accounting
Standards Board (FASB) Special Report on the implementation of SFAS No. 115.
The effect of this transfer was an increase in stockholder's equity of $1,789.
All of the Company's investment portfolio is classified as
"available-for-sale" at December 31, 1995.
Short-term investments are carried at amortized cost which approximates
market. Policy loans are reflected at their unpaid principal balances.
Mortgage loans are reflected at unpaid principal balances adjusted for premium
and discount amortization and an allowance for uncollectible balances. During
1995, the Company adopted SFAS No. 114, Accounting by Creditors for Impairment
of a Loan and SFAS No. 118, Accounting by Creditors for Impairment of a
Loan-Income Recognition and Disclosures. SFAS No. 114 addresses accounting by
creditors for impairment of certain loans. It requires that impaired loans
within the scope of the Statement be measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate
or, alternatively, at the loan's observable market price of the fair value of
supporting collateral. The Company analyzes loan impairment at least once a
year when assessing the adequacy of the allowance for possible credit losses.
SFAS No. 118 permits existing income recognition practices to continue. The
Company does not accrue interest on impaired loans and accounts for interest
income on a cash basis. The adoption of these Statements did not have a
material impact on the Company's net income or financial position.
Investments in real estate are reflected at the lower of cost or market value.
Real estate occupied by the Company is reflected at cost, less accumulated
depreciation. Investments in real estate, exclusive of land, are being
depreciated on a straight-line basis over estimated useful lives ranging from
3 to 30 years.
Realized gains and losses are computed based on the specific identification
method.
As of December 31, 1995 and 1994, investments with a carrying value of $37,879
and $44,337, respectively, were held on deposit with various insurance
departments as required by statutory regulations.
The fair values of invested assets, excluding investments in real estate, are
deemed by management to approximate their estimated market values. The fair
value of mortgage loans has been calculated using discounted cash flows and is
based on pertinent information available to management as of year end. Policy
loan balances which are supported by the underlying cash value of the policies
approximate fair value. Changes in market conditions subsequent to year end
<PAGE>
may cause estimates of fair values to differ from the amounts presented
herein.
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
income in the period that includes the enactment date.
SEPARATE ACCOUNTS
Separate accounts represent funds for which investment income and investment
gains and losses accrue directly to the policyholders and 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 accounts assets were determined using the market value
of the investments held in segregated fund accounts. Fair values of separate
accounts liabilities were determined using the cash surrender values of the
policyholder's and contractholder's account.
RECEIVABLES
Receivable balances approximate estimated fair values. This is based on
pertinent information available to management as of year end including the
financial condition and credit worthiness of the parties underlying the
receivables. Changes in market conditions subsequent to year end may cause
estimates of fair values to differ from the amounts presented herein.
ACCOUNTING CHANGES
The impact of implementation of SFAS No. 115 in 1994 was an increase in equity
of $74,866 at January 1, 1994.
<TABLE>
<CAPTION>
The table below presents the cumulative effect of changes, net of tax, in
accounting principles implemented in 1993 on after tax net income:
<S> <C>
SFAS No. 106, Accounting for Postretirement Benefits Other Than Pensions $(4,006)
SFAS No. 109, Accounting for Income Taxes 30,881
--------
Total cumulative effect on after tax net income
of changes in accounting principles $26,875
========
</TABLE>
ACCOUNTING PRONOUNCEMENTS TO BE ADOPTED
In March 1995, the FASB issued SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount.
SFAS No. 121 also addresses the accounting for long-lived assets that are
expected to be disposed of by a company. The Company will adopt SFAS No. 121
in the first quarter of 1996 and, based on current circumstances, does not
believe the effect of adoption will be material.
<PAGE>
(2) BUSINESS COMBINATION
On May 31, 1993, the Company acquired the majority of the assets and
liabilities of Fidelity Union Life Insurance Company (FULICO), a wholly owned
subsidiary of AZOA, through an assumption reinsurance arrangement. FULICO
remained in existence retaining only its corporate charter and those assets
necessary to maintain its charter and licenses to conduct life insurance and
annuity business until it was sold in 1994.
The Company accounted for this transaction as an "as-if pooling of interests"
involving the combination of entities under the common control of AZOA.
Accordingly, all financial data for periods prior to May 31, 1993 were
restated to include the operations of FULICO and all intercompany transactions
were eliminated.
<TABLE>
<CAPTION>
Total revenues and net income, before adoption of any changes in accounting,
of the separate companies for the five-months ended May 31, 1993 were:
Allianz Life FULICO Combined
------------- ------ --------
<S> <C> <C> <C>
Five-months ended May 31, 1993:
Total revenue $ 309,159 78,814 387,973
Net income 19,224 12,944 32,168
</TABLE>
(3) INVESTMENTS
<TABLE>
<CAPTION>
Investments at December 31, 1995 consist of:
Amount
Amortized Estimated shown on
cost fair balance
or cost value sheet
---------- --------- ---------
<S> <C> <C> <C>
Fixed maturities - Available-for-sale:
U.S. government $ 793,311 867,793 867,793
States and political subdivisions 469 481 481
Foreign government 254,457 265,797 265,797
Public utilities 32,100 36,728 36,728
Corporate securities 709,906 747,609 747,609
Mortgage backed securities 516,538 548,182 548,182
Collateralized mortgage obligations 80,949 83,008 83,008
---------- --------- ---------
Total fixed maturities $2,387,730 2,549,598 2,549,598
---------- --------- ---------
Equity securities - Available-for-sale:
Common stocks:
Public utilities 9,305 10,377 10,377
Banks, trusts and insurance companies 6,305 7,108 7,108
Industrial and miscellaneous 171,163 221,002 221,002
Nonredeemable preferred stocks 14,835 15,971 15,971
---------- --------- ---------
Total equity securities $ 201,608 254,458 254,458
---------- --------- ---------
<PAGE>
Other investments:
Mortgage loans on real estate 203,128 XXXXXXXXX 203,128
Real estate:
Investment properties 8,806 XXXXXXXXX 8,806
Partnerships 11,975 XXXXXXXXX 11,975
Certificates of deposit and short term securities 31,501 XXXXXXXXX 31,501
Policy loans 104,184 XXXXXXXXX 104,184
Other long term investments 650 XXXXXXXXX 650
---------- --------- ---------
Total other investments $ 360,244 XXXXXXXXX 360,244
---------- --------- ---------
Total investments $2,949,582 XXXXXXXXX 3,164,300
========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1995 and 1994, the amortized cost, gross unrealized gains, gross
unrealized losses and estimated fair values of marketable securities are as follows:
Amortized Gross Gross Estimated
cost unrealized unrealized fair
or cost gains losses value
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
1995:
Available-for-sale:
U.S. government $ 793,311 74,482 0 867,793
States and political subdivisions 469 12 0 481
Foreign government 254,457 11,613 273 265,797
Public utilities 32,100 4,628 0 36,728
Corporate securities 709,906 41,746 4,043 747,609
Mortgage backed securities 516,538 31,644 0 548,182
Collateralized mortgage obligations 80,949 2,751 692 83,008
---------- ---------- ---------- ---------
Total fixed maturities 2,387,730 166,876 5,008 2,549,598
Equity securities 201,608 61,753 8,903 254,458
---------- ---------- ---------- ---------
Total $2,589,338 228,629 13,911 2,804,056
========== ========== ========== =========
1994:
Held-to maturity:
Corporate securities $ 90,615 110 5,166 85,559
---------- ---------- ---------- ---------
Total held-to-maturity 90,615 110 5,166 85,559
---------- ---------- ---------- ---------
Available-for-sale:
U.S. government 495,048 49 31,403 463,694
States and political subdivisions 519 3 24 498
Foreign government 44,818 562 1,886 43,494
Public utilities 79,170 1,154 322 80,002
Corporate securities 1,099,623 7,034 63,790 1,042,867
Mortgage backed securities 228,894 0 7,815 221,079
Collateralized mortgage obligations 57,739 0 3,165 54,574
---------- ---------- ---------- ---------
Total fixed maturities 2,005,811 8,802 108,405 1,906,208
Equity securities 127,048 18,556 13,892 131,712
---------- ---------- ---------- ---------
Total available-for-sale 2,132,859 27,358 122,297 2,037,920
---------- ---------- ---------- ---------
Total $2,223,474 27,468 127,463 2,123,479
========== ========== ========== =========
</TABLE>
<PAGE>
The changes in unrealized gains (losses) on fixed maturities
available-for-sale securities were $261,471 and $(214,245) and the changes in
unrealized losses on held-to-maturity securities were $0 and $(8,783) for the
years ended December 31, 1995 and 1994, respectively. The change in
unrealized gains from fixed maturities was $33,645 for the year ended December
31, 1993.
The changes in unrealized gains (losses) in equity investments, which include
common stocks and nonredeemable preferred stocks, and other investments were
$48,186, $(9,587) and $(2,468) for the years ended December 31, 1995, 1994 and
1993, respectively.
<TABLE>
<CAPTION>
The amortized cost and estimated fair value of fixed maturities at December
31, 1995, 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.
Amortized Estimated
cost fair value
---------- ----------
<S> <C> <C>
Available-for-sale:
Due in one year or less $ 3,494 3,552
Due after one year through five years 282,290 295,698
Due after five years through ten years 1,252,516 1,337,963
Due after ten years 251,943 281,195
Mortgage backed securities 597,487 631,190
---------- ----------
Totals $2,387,730 2,549,598
========== ==========
</TABLE>
Gross gains of $41,962 and $26,848 and gross losses of $14,607 and $26,805
were realized on sales of available-for-sale securities in 1995 and 1994,
respectively; related taxes were $9,574 and $715 in 1995 and 1994,
respectively. Proceeds from redemptions of held-to-maturity securities
during 1995 and 1994 were $7,022 and $4,342, respectively, with no gain
or loss realized on the transactions. Proceeds from sales of fixed
maturity securities in 1993 were $666,893. Gross gains of $25,229 and
gross losses of $2,102 were realized on sales of fixed maturities in 1993;
related taxes were $8,094.
<TABLE>
<CAPTION>
Net realized investment gains (losses) for the respective years ended December
31 are summarized as follows:
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Fixed maturities, at amortized cost $ 0 0 23,127
Fixed maturities, at market 21,877 (2,712) 0
Equity securities 5,478 2,745 5,876
Mortgage loans (687) (1,667) (189)
Real estate 2,530 2,067 (513)
Other 4 396 17
-------- ------- -------
Net gains before taxes 29,202 829 28,318
<PAGE>
Tax expense on net realized gains 10,218 352 10,329
-------- ------- -------
Net gains after taxes $18,984 477 17,989
======== ======= =======
</TABLE>
In 1995, in conjunction with an expanded marketing agreement, the Company
provided an unrelated insurance company with $30 million in exchange for a
fifteen year convertible debenture paying 5% interest for the first five years
with the interest rate reset annually thereafter at the one-year LIBOR plus
1%. If converted, the Company would obtain approximately 10% equity ownership
in the unrelated company. The Company has no intention of converting the
debenture in the near term.
During 1995 and 1994, the Company entered into mortgage backed security
reverse repurchase transactions ("dollar rolls") with certain securities
dealers. Under this program, the Company sells certain securities for
delivery in the current month and simultaneously contracts with the same
dealer to repurchase similar, but not identical, securities on a specified
future date. The Company gives up the right to receive principal and interest
on the securities sold. As of December 31, 1995 there were no outstanding
amounts under the Company's dollar roll program. As of December 31, 1994,
mortgage backed securities underlying the agreements were carried at a market
value of $58,174 and other liabilities included $58,150 for funds received
under these agreements. Average balances outstanding were $67,735 and $66,110
and weighted average interest rates were 7.4% and 6.5% during 1995 and 1994,
respectively.
During 1995 and 1994 the Company participated in a securities lending program
that is administered by Allianz Investment Corporation (AIC), an affiliated
company. Under this program, the Company loans U.S. Treasury Notes to
qualified third parties. The Company obtains collateral for the loan equal to
102 percent of the estimated market value and accrued interest on the loaned
securities and receives a portion of the interest earned on the collateral.
In addition, the Company maintains full ownership rights to the securities
loaned, including investment income and has the ability to sell the securities
while they are on loan with the consent of the borrower. There were no
securities on loan at December 31, 1995. As of December 31, 1994, the
estimated market value of the loaned securities was $110,063, collateralized
by investments in FNMA securities.
<TABLE>
<CAPTION>
Impaired mortgage loans are defined as those where it is probable that amounts
due according to contractual terms, including principal and interest, will not
be collected. Impaired mortgage loans are measured by the Company at the fair
value of collateral. Interest income on impaired mortgage loans is recorded
on a cash basis. Below is a summary of impaired mortgage loans as of December
31, 1995.
Impaired Impaired Total
mortgage loans mortgage loans impaired
with a related without a related mortgage
allowance allowance loans
--------------- ----------------- --------
<S> <C> <C> <C>
Balance $ 9,210 8,541 17,751
Related allowance 3,580 - 3,580
--------------- ----------------- --------
Balance, net of allowance $ 5,630 8,541 14,171
=============== ================= ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Below is a summary of interest income on impaired mortgage loans.
1995
-------
<S> <C>
Average impaired mortgage loans $19,671
Total interest income on impaired mortgage loans 1,100
Interest income on impaired mortgage loans recorded on a cash basis 1,100
</TABLE>
<TABLE>
<CAPTION>
The valuation allowances at December 31, 1995, 1994 and 1993 and the changes in the
allowance for the years then ended are summarized as follows:
Writedowns
Beginning Charged to Charged to End
of year Operations Allowance Recoveries of year
---------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C>
December 31, 1995:
Mortgage loans $ 11,552 914 0 1,979 10,487
Investment in real estate 1,550 0 0 1,550 0
---------- ---------- ---------- ---------- -------
Total valuation allowance $ 13,102 914 0 3,529 10,487
========== ========== ========== ========== =======
December 31, 1994:
Mortgage loans $ 11,552 1,598 0 1,598 11,552
Investment in real estate 1,550 0 0 0 1,550
---------- ---------- ---------- ---------- -------
Total valuation allowance $ 13,102 1,598 0 1,598 13,102
========== ========== ========== ========== =======
December 31, 1993:
Mortgage loans $ 13,602 0 0 2,050 11,552
Investment in real estate 1,854 973 0 1,277 1,550
---------- ---------- ---------- ---------- -------
Total valuation allowance $ 15,456 973 0 3,327 13,102
========== ========== ========== ========== =======
</TABLE>
<TABLE>
<CAPTION>
Major categories of net investment income for the respective years ended
December 31 are:
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Interest:
Fixed maturities, at amortized cost $ 6,284 6,966 142,814
Fixed maturities, at market 158,421 141,611 0
Mortgage loans 16,125 13,706 12,764
Policy loans 6,688 6,329 6,404
Short-term investments 7,182 3,012 4,159
<PAGE>
Dividends:
Preferred stock 581 495 231
Common stock 3,204 2,673 2,496
Rental income on real estate 2,781 3,135 2,540
Interest on assets held by reinsurers 10,445 10,470 10,074
Other 833 577 1,131
-------- ------- -------
Total investment income 212,544 188,974 182,613
Investment expenses 11,386 7,683 7,782
-------- ------- -------
Net investment income $201,158 181,291 174,831
======== ======= =======
</TABLE>
(4) SUMMARY TABLE OF FAIR VALUE DISCLOSURES
<TABLE>
<CAPTION>
1995 1995 1994 1994
---------- ---------- ---------- ----------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial assets
- -------------------------------------------
Fixed maturities, at amortized cost:
Corporate securities $ 0 $ 0 $ 90,615 $ 85,559
Fixed maturities, at market:
U.S. Government 867,793 867,793 463,694 463,694
States and political subdivisions 481 481 498 498
Foreign governments 265,797 265,797 43,494 43,494
Public utilities 36,728 36,728 80,002 80,002
Corporate securities 747,609 747,609 1,042,867 1,042,867
Mortgage backed securities 548,182 548,182 221,079 221,079
Collateralized mortgage obligations 83,008 83,008 54,574 54,574
Equity securities 254,458 254,458 131,712 131,712
Mortgage loans 203,128 212,766 163,099 162,903
Short term investments 31,501 31,501 155,307 155,307
Policy loans 104,184 104,184 101,899 101,899
Other long term investments 650 650 1,117 1,117
Receivables 124,700 124,700 111,874 111,874
Separate accounts assets 8,402,003 8,402,003 6,965,755 6,965,755
Financial liabilities
- -------------------------------------------
Investment contracts 3,063,100 2,542,260 2,753,304 2,319,872
Separate account liabilities 8,402,003 8,181,725 6,965,755 6,715,730
</TABLE>
See Note 1 "Summary of Significant Accounting Policies" for description of the
methods and significant assumptions used to estimate fair values.
(5) RECEIVABLES
<TABLE>
<CAPTION>
<PAGE>
Receivables at December 31 consist of the following:
1995 1994
-------- -------
<S> <C> <C>
Premiums due $ 83,695 76,840
Agents balances 7,236 7,299
Related party receivables 922 1,042
Reinsurance commission receivable 16,693 13,723
Scholarship enrollment fees 6,822 6,753
Due from administrators 6,149 2,735
Other 3,183 3,008
-------- -------
Total receivables $124,700 111,400
======== =======
</TABLE>
(6) ACCIDENT AND HEALTH CLAIMS RESERVES
Accident and health claims reserves are based on long-range projections
subject to uncertainty. Uncertainty regarding reserves of a given accident
year is gradually reduced as new information emerges each succeeding year,
thereby allowing more reliable re-evaluations of such reserves. While
management believes that reserves as of December 31, 1995 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 which are small
relative to the amount of such reserves could significantly impact future
reported earnings of the Company.
<TABLE>
<CAPTION>
Activity in the accident and health claims reserves, exclusive of long term
care, hospital indemnity and AIDS reserves of $18,858, $11,149 and $8,742 in
1995, 1994 and 1993, respectively, is summarized as follows:
1995 1994 1993
--------- -------- --------
<S> <C> <C> <C>
Balance at January 1, net of reinsurance
recoverables of $96,090, $86,551 and $91,303 $185,028 170,123 168,872
Incurred related to:
Current year 242,024 230,995 226,815
Prior years (9,163) (7,290) (8,432)
--------- -------- --------
Total incurred 232,861 223,705 218,383
--------- -------- --------
Paid related to:
Current year 100,165 82,338 84,172
Prior years 125,920 126,462 132,960
--------- -------- --------
Total paid 226,085 208,800 217,132
--------- -------- --------
Balance at December 31, net of reinsurance
recoverables of $99,292, $96,090 and $86,551 $191,804 185,028 170,123
========= ======== ========
</TABLE>
There were no significant adjustments to accident and health claim liabilities
resulting from changes in estimates of benefits related to prior years.
<PAGE>
(7) 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 $1 million 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; consequently, allowances are established for amounts
deemed uncollectible. The Company evaluates the financial condition of its
reinsurers and monitors concentrations of credit risk to minimize its exposure
to significant losses from reinsurer insolvencies.
Included in reinsurance receivables at December 31, 1995 are $873,724, $67,819
and $148,319 recoverable from insurers who, as of December 31, 1995, were
rated A+, A+ and B++, respectively by Best's Insurance Reports. A contingent
liability exists to the extent that the Company's reinsurers are unable to
meet their contractual obligations. Management is of the opinion that no
liability will accrue to the Company with respect to this contingency.
<TABLE>
<CAPTION>
Life insurance, annuities and accident and health business assumed from and ceded to other
companies is as follows:
Percentage
Assumed Ceded of amount
Gross from other to other Net assumed
Year ended amount companies companies amount to net
- -------------------------------- ----------- ---------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
December 31, 1995:
Life insurance In force $39,601,531 28,790,199 6,884,645 61,507,085 46.8%
----------- ---------- --------- ---------- -----------
Premiums:
Life insurance 242,704 108,102 40,291 310,515 34.8%
Annuities 145,994 1,117 10,376 136,735 0.8%
Accident and health insurance 361,290 165,769 172,559 354,500 46.8%
----------- ---------- --------- ---------- -----------
Total premiums 749,988 274,988 223,226 801,750 34.3%
=========== ========== ========= ========== ===========
December 31, 1994:
Life insurance In force $39,789,859 24,411,513 6,893,030 57,308,342 42.6%
----------- ---------- --------- ---------- -----------
Premiums:
Life insurance 230,241 96,308 35,578 290,971 33.1%
Annuities 119,045 1,195 6,806 113,434 1.1%
Accident and health insurance 388,759 158,749 201,824 345,684 45.9%
----------- ---------- --------- ---------- -----------
Total premiums 738,045 256,252 244,208 750,089 34.2%
=========== ========== ========= ========== ===========
December 31, 1993:
Life insurance In force $39,784,564 21,861,833 6,297,943 55,348,454 39.5%
----------- ---------- --------- ---------- -----------
Premiums:
Life insurance 220,287 85,433 42,323 263,397 32.4%
Annuities 68,713 870 6,633 62,950 1.4%
Accident and health insurance 365,894 142,891 153,948 354,837 40.3%
----------- ---------- --------- ---------- -----------
Total premiums 654,894 229,194 202,904 681,184 33.6%
=========== ========== ========= ========== ===========
</TABLE>
<PAGE>
Of the amounts ceded to others, the Company ceded life insurance inforce of
$182,638, $86,055 and $30,841 in 1995, 1994 and 1993, respectively, and life
insurance premiums earned of $641, $203 and $98 in 1995, 1994 and 1993,
respectively, to its ultimate parent Allianz Aktiengesellshaft. The Company
also ceded accident and health premiums earned to Allianz Aktiengesellshaft of
$(7,520), $12,256 and $8,966 in 1995, 1994 and 1993.
In addition to the above transactions, the Company ceded a portion of its
mortality risk associated with the variable annuity product to Allianz
Aktiengesellshaft. The Company recorded a recoverable on future policy
benefit reserves of $930 as of December 31, 1995.
(8) INCOME TAXES
INCOME TAX EXPENSE
<TABLE>
<CAPTION>
Total income tax expense (benefit) for the years ended December 31 are as follows:
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Income tax expense attributable to operations:
Current tax expenses $ 12,993 5,098 30,215
-------- -------- --------
Deferred tax (benefit) expense 25,772 16,053 (10,847)
Benefit of operating loss carryforwards 0 0 3,406
Adjustment of deferred tax assets and
liabilities for enacted change in tax rates 0 0 945
-------- -------- --------
Total deferred tax (benefit) expense 25,772 16,053 (6,496)
-------- -------- --------
Total income tax expense attributable to operations 38,765 21,151 23,719
Income tax effect on equity:
Income tax allocated to cumulative effect of
adoption of SFAS No. 106 0 0 (2,064)
Income tax allocated to stockholder's equity:
Adoption of SFAS No. 115 0 40,312 0
Attributable to unrealized gains and losses for the year 108,559 (79,201) 62
-------- -------- --------
Total income tax effect on equity $147,324 (17,738) 21,717
======== ======== ========
</TABLE>
COMPONENTS OF INCOME TAX EXPENSE
<TABLE>
<CAPTION>
Income tax expense computed at the statutory rate of 35% in 1995, 1994 and 1993,
varies from tax expense reported in the Consolidated Statements of Income for the
respective years ended December 31 as follows:
<PAGE>
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Income tax expense computed at the statutory rate $44,087 26,819 28,125
Dividends received deductions and tax-exempt interest (5,430) (3,967) (2,189)
Foreign tax (464) (79) (1,324)
Interest on tax deficiency 408 (716) 528
Impact of statutory rate change on deferred tax liability 0 0 945
Utilization of net operating loss and alternative
minimum tax credits 0 0 (2,549)
Other 164 (906) 183
-------- ------- -------
Income tax expense as reported $38,765 21,151 23,719
======== ======= =======
</TABLE>
COMPONENTS OF DEFERRED TAX ASSETS AND LIABILITIES ON THE BALANCE SHEET
<TABLE>
<CAPTION>
Tax effects of temporary differences giving rise to the significant components of the
net deferred tax liability at December 31 are as follows:
1995 1994
-------- -------
<S> <C> <C>
Deferred tax assets:
Provision for post retirement benefits $ 1,936 1,885
Allowance for uncollectible accounts 2,283 2,961
Policy reserves 175,963 188,602
Unrealized losses on investments in available for sale securities 0 35,584
-------- -------
Total deferred tax assets 180,182 229,032
-------- -------
Deferred tax liabilities:
Deferred acquisition costs 234,393 229,577
Net unrealized gain 72,975 0
Other 12,988 5,262
-------- -------
Total deferred tax liabilities 320,356 234,839
-------- -------
Net deferred tax liability $140,174 5,807
======== =======
</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.
As of December 31, 1995, the Company had no tax loss carryforwards or
alternative minimum tax credits.
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 and each of its insurance subsidiaries generally
will be paid for the tax benefit on their losses, and any other tax
attributes, to the extent they could have obtained a benefit against their
<PAGE>
post-1990 separate return taxable income or tax. Income taxes paid by the
Company were $14,865, $15,162 and $28,465 in 1995, 1994 and 1993,
respectively. At December 31, 1995 and 1994 the Company has a tax recoverable
from AZOA of $3,257 and $5,095 and a recoverable from Revenue Canada Taxation
of $690 and a payable to Revenue Canada Taxation of $1,301, respectively.
(9) RELATED PARTY TRANSACTIONS
In November 1995, the Company purchased the 400 non-voting common shares in
its subsidiary, Canadian American Financial Corporation from AZOA for $7,903.
The acquisition of the shares increased the Company's equity ownership in both
voting and non-voting common stock to 100%.
As of December 31, 1995 and 1994, Allianz Real Estate (AzRE), a wholly owned
subsidiary of AZOA, owned 100% of the stock or was a limited partner of
certain entities whose assets include mortgage loans issued by the Company
amounting to $6,245 and $12,100, respectively. Included in the mortgage loans
are properties originally foreclosed upon by the Company of which the balances
at December 31, 1995 and 1994 are $1,650 and $4,575, respectively.
Allianz Investment Corporation (AIC) manages the Company's investment
portfolio. The Company paid AIC $1,024, $1,285 and $1,207 in 1995, 1994 and
1993, respectively, for investment advisory fees. The Company's liability to
AIC was $377 and $0 at December 31, 1995 and 1994, respectively.
The Company shares a data center with affiliated insurance companies. Usage
charges paid to the data center by the Company were $3,752, $4,228 and $4,715
in 1995, 1994 and 1993, respectively. The Company's liability for data center
charges was $337 and $457 at December 31, 1995 and 1994, respectively.
The Company reimbursed AZOA $738, $817 and $339 in 1995, 1994 and 1993,
respectively, for certain administrative services performed. The Company's
liability to AZOA was $528 and $264 at December 31, 1995 and 1994,
respectively.
In June 1994, the Company authorized 200 million shares of preferred stock
with a par value of $1 per share. This preferred stock is issuable in series
with the number of shares, redemption rights and dividend rate designated by
the Board of Directors for each series. Dividends are cumulative at a rate
reflective of prevailing market conditions at time of issue and are payable
semiannually. Dividend payments are restricted by provisions in State of
Minnesota statutes. In June 1994, the Company issued 25 millions shares of
Series A preferred stock with a dividend rate of 6.4% to AZOA for $25,000. In
December 1994, the Company issued 15 millions shares of Series B preferred
stock with a dividend rate of 6.95% to AZOA for $15,000. In December 1995,
the Company redeemed and canceled the 15 million shares of Series B preferred
stock issued to AZOA. There are currently 25 million shares of Series A
preferred stock issued and outstanding.
In 1995 and 1994, AZOA contributed additional capital to the Company of $594
and $5,190, respectively.
(10) 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, excluding agents, 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 $860, $918 and $1,363 in
1995, 1994 and 1993, respectively.
<PAGE>
The Company participates in the Allianz Asset Accumulation Plan (Allianz
Plan), a defined contribution plan sponsored by AZOA. Under the Allianz Plan
provisions, the Company will match from 50% to 100% of eligible employees'
contributions up to a maximum of 6% of a participant's compensation. The
total Company match for 1995, 1994 and 1993 Plan participants was 100%. All
employees, excluding agents, 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 has
accrued $1,188, $1,266 and $1,270 in 1995, 1994 and 1993, respectively, toward
planned contributions.
The Company sponsors an asset accumulation plan for field agents. Under the
Plan provisions, the Company will match 100% of eligible agents' contributions
up to a maximum of 3% of a participant's compensation. The Plan accepts
participant's pretax or after tax contributions up to 10% of participant's
compensation. It is the Company's policy to fund the Plan costs as accrued.
In 1995, the Company discontinued support of its individual agency field force
and suspended contributions to the Plan as of January 1, 1996. Also during
1995, participation in the Plan decreased significantly resulting in a partial
plan termination whereby participants as of January 1, 1995 became fully
vested in the Plan. The Company has no intention to fully terminate the Plan
in the near term. Total Company contributions to the Plan were $118, $386 and
$319 in 1995, 1994 and 1993, respectively.
The Company adopted SFAS No. 106, effective January 1, 1993 which requires
benefits paid to retirees, other than pension benefits, to be accrued. The
transition obligation associated with this adoption was $4,006, which is net
of a $2,064 tax benefit. The Company's current plan obligation is $5,532 and
the liability is included in "Other liabilities" in the accompanying balance
sheet.
(11) 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 in determining statutory policyholders'
surplus. These items include, among other, 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 policy and annuity benefit reserves
calculated for statutory accounting do not include provisions for withdrawals.
<TABLE>
<CAPTION>
The differences between stockholder's equity and net income reported in accordance with statutory
accounting practices and the accompanying consolidated financial statements as of and for the year ended
December 31 are as follows:
Stockholder's Stockholder's Net Net Net
equity equity Income Income Income
--------------- -------------- -------- --------- ---------
1995 1994 1995 1994 1993
--------------- -------------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Statutory basis $ 299,186 294,334 11,565 6,895 657
Adjustments:
Change in reserve basis (211,678) (339,283) (43,642) (109,473) (138,864)
Deferred acquisition costs 826,994 798,442 28,552 132,090 253,240
Net deferred taxes (140,174) (5,807) (25,772) (16,053) 6,496
Statutory asset valuation reserve 100,462 59,169 0 0 0
Statutory interest maintenance reserve 25,061 16,305 8,756 (4,768) 11,178
Modified coinsurance reinsurance (119,178) (51,947) 104,222 44,920 (75,611)
<PAGE>
Unrealized gains (losses) on investments 163,237 (99,408) 0 0 0
Nonadmitted assets 1,471 2,302 0 0 0
Cumulative effect of accounting changes 0 0 0 0 26,875
Other 5,813 5,338 3,516 1,864 (461)
--------------- -------------- -------- --------- ---------
As reported in the accompanying
consolidated financial statements $ 951,194 679,445 87,197 55,475 83,510
=============== ============== ======== ========= =========
</TABLE>
The Company is required to meet minimum statutory capital and surplus
requirements. The Company's statutory capital and surplus as of December 31,
1995 and 1994 was in compliance with these requirements. The maximum amount
of dividends which can be paid by Minnesota insurance companies to
stockholders without prior approval of the Commissioner of Commerce is subject
to restrictions relating to statutory earned surplus, also known as unassigned
funds. Unassigned funds are determined in accordance with the accounting
procedures and practices governing preparation of the statutory annual
statement, minus 25% of earned surplus attributable to unrealized capital
gains. In accordance with Minnesota Statutes, the Company may declare and pay
from its surplus, cash dividends of not more than the greater of 10% of its
beginning of the year statutory surplus in any year, or the net gain from
operations of the insurer, not including realized gains, for the 12-month
period ending the 31st day of the next preceding year. In 1995 and 1994,
respectively, the Company paid dividends on preferred stock in the amount of
$2,651 and $413, respectively to AZOA. Dividends of $23,433 could be paid in
1996 without prior approval of the Commissioner of Commerce.
REGULATORY RISK BASED CAPITAL
<TABLE>
<CAPTION>
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:
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 met the minimum risk-based capital requirements for the years
ended December 31, 1995 and 1994.
<PAGE>
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 NAIC currently has a
project underway to codify statutory accounting practices, the result of which
is expected to constitute the only source of "prescribed" statutory accounting
practices. Accordingly, that project will likely 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 does not
currently use permitted statutory accounting practices which have a
significant impact on its statutory financial statements.
(12) COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries are involved in various pending or threatened
legal proceedings arising from the conduct of their business. In the opinion
of management, the ultimate resolution of such litigation will not have a
material adverse effect on the consolidated 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.
(13) FOREIGN CURRENCY TRANSLATION
<TABLE>
<CAPTION>
The net assets of the Company's foreign operations are translated into U.S.
dollars using exchange rates in effect at each year end. Translation adjustments
arising from differences in exchange rates from period to period are included in
the accumulated foreign currency translation adjustment reported as a separate
component of stockholder's equity. An analysis of this account for the respective
years ended December 31 follows:
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Beginning amount of cumulative translation adjustments $(3,787) (2,708) (1,835)
-------- ------- -------
Aggregate adjustment for the period resulting from
translation adjustments 511 (1,659) (1,746)
Amount of income tax benefit for period related to
aggregate adjustment (179) 580 873
-------- ------- -------
Net aggregate translation included in equity 332 (1,079) (873)
-------- ------- -------
Ending amount of cumulative translation adjustments $(3,455) (3,787) (2,708)
======== ======= =======
Canadian foreign exchange rate at end of year 0.7329 0.7129 0.7554
</TABLE>
<PAGE>
(14) SUPPLEMENTARY INSURANCE INFORMATION
<TABLE>
<CAPTION>
The following table summarizes certain financial information by line of business for 1995, 1994 and 1993:
As of December 31 For the year ended December 31
--------- --------- -------- -------- --------- ------- --------- --------- --------- ---------
Amortiz-
Future Premium Benefits, ation
policy Other revenue claims of
Deferred benefits, policy and losses, deferred
policy losses, claims other Net and policy
acquis- claims and contract invest- settle- acquis- Other Premiums
ition and loss Unearned benefits consider- ment ment ition operating written
costs expense premiums payable ations income expenses costs (a) expenses (b)
--------- --------- -------- -------- --------- ------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995:
Life $ 179,915 1,088,964 5,493 62,660 310,514 83,741 239,287 8,475 124,415
Annuities 629,515 2,601,943 0 580 136,736 98,214 89,321 (34,235) 137,000
Accident
and health 17,564 0 28,688 308,658 354,500 19,203 249,232 (2,792) 105,615
--------- --------- -------- -------- --------- ------- --------- --------- ---------
$ 826,994 3,690,907 34,181 371,898 801,750 201,158 577,840 (28,552) 367,030
========= ========= ======== ======== ========= ======= ========= ========= =========
1994:
Life $ 188,390 1,022,537 6,012 63,728 290,971 78,100 228,383 6,889 114,767
Annuities 595,280 2,304,560 0 360 113,434 86,168 88,100 (140,776) 210,933
Accident
and health 14,772 0 34,364 291,323 345,684 17,023 236,614 1,797 121,645
--------- --------- -------- -------- --------- ------- --------- --------- ---------
$ 798,442 3,327,097 40,376 355,411 750,089 181,291 553,097 (132,090) 447,345
========= ========= ======== ======== ========= ======= ========= ========= =========
1993:
Life $ 195,279 989,309 7,389 57,763 263,397 80,422 206,157 (10,925) 186,457
Annuities 454,504 1,986,801 0 578 62,950 78,674 86,227 (243,113) 191,783
Accident
and health 16,569 0 34,181 264,583 354,837 15,735 241,443 804 154,493
--------- --------- -------- -------- --------- ------- --------- --------- ---------
$ 666,352 2,976,110 41,570 322,924 681,184 174,831 533,827 (253,234) 532,733
========= ========= ======== ======== ========= ======= ========= ========= =========
</TABLE>
(a) Represents the net change in deferred policy acquisition cost reported in
the income statement.
(b) Premiums written are not applicable for life insurance companies.
<PAGE>
APPENDIX A
ILLUSTRATION OF POLICY VALUES
The following tables illustrate how Policy Account values, Cash Values and
death benefits of a Policy change with the investment experience of the
Sub-Accounts. The illustrations are hypothetical and may not be used to
project or predict investment results. The Policy Account values, Cash Values
and death benefits in the tables take into account all charges and deductions
against the Policy. These tables assume that the cost of insurance rates for
the Policy are based on the current and guaranteed rates appropriate to the
class indicated. These tables also assume that a level annual premium of
$1,200 was paid. These tables all assume that the Insured is in the most
favorable male risk status, i.e., Non-Smoker. For Insureds who are classified
as Smoker or less favorable risk status, the cost of insurance will be greater
and thus Policy values will be less given the same assumed hypothetical gross
annual investment rates of return. The cost of insurance will be less and
thus Policy values will be greater for female Insureds of comparable risk
status. Some states require that the Policies contain tables based upon
unisex rates.
Gross investment returns of 0%, 6% and 12% are assumed to be level for all
years shown. The values would be different if the rates of return averaged
0%, 6% and 12% over the period of years but fluctuated above and below those
averages during individual years.
The values shown reflect the fact that the net investment return of the
Sub-Accounts is lower than the gross investment return on the assets held in
the Funds because of the charges levied against the Sub-Accounts. The daily
investment advisory fee is assumed to be equivalent to an annual rate of 0.69%
of the net assets of the Funds of the Trust (which is the average of the
investment advisory fees assessed the Trust in 1995 weighted by Sub-Account
value as of 12/31/95). The values also assume that each Fund of the Trust
will incur expenses annually which are assumed to be 0.06% of the average net
assets of the Fund. This is the average in 1995 weighted by Sub-Account value
as of 12/31/95. The Sub-Account s will be assessed for mortality and
expense risks at a guaranteed annual rate not to exceed 0.90% (the current
annual rate is 0.60%) of the average daily net assets of the Sub-Account and
for administrative expenses at an annual rate of 0.15% of the average daily
net assets of the Sub-Account. After taking these expenses and charges into
consideration, the illustrated gross annual investment rates of 0%, 6% and 12%
are equivalent to net rates of -1.49%, 4.42% and 10.33%.
The Company deducts an insurance risk premium for a Policy Month from the
Policy Account values. The insurance risk premium rate is based on the sex
(where permitted by state law), attained age and rate class of the Insured.
Upon request, the Company will provide a comparable illustration based upon
the attained age, sex (where permitted by state law) and rate class of the
proposed Insured and for the face amount or premium requested.
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
VARIABLE UNIVERSAL LIFE
PREPARED FOR: CLIENT INITIAL DEATH BENEFIT: $100,000
ISSUE AGE: 35, NON-SMOKER ANNUAL PREMIUM: $1,200.00
SEX: MALE INITIAL DEATH BENEFIT OPTION: A
<TABLE>
<CAPTION>
CURRENT VALUES
VALUES PROJECTED AT 0.00%
------- --------- ----------
END ACCUM
OF ANNUAL @ 5.00% POLICY NET CASH NET DEATH
YR. AGE PREMIUM PREMIUM ACCOUNT VALUE BENEFIT
- --- --- ------- -------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
1 35 1,200 1,260 757 35 100,000
2 36 1,200 2,583 1,674 892 100,000
3 37 1,200 3,972 2,571 1,730 100,000
4 38 1,200 5,431 3,451 2,599 100,000
5 39 1,200 6,962 4,311 3,491 100,000
6 40 1,200 8,570 5,150 4,379 100,000
7 41 1,200 10,259 5,976 5,256 100,000
8 42 1,200 12,032 6,782 6,112 100,000
9 43 1,200 13,893 7,571 6,983 100,000
10 44 1,200 15,848 8,344 7,838 100,000
15 49 1,200 27,189 11,878 11,878 100,000
20 54 1,200 41,633 14,589 14,589 100,000
25 59 1,200 60,136 16,575 16,575 100,000
30 64 1,200 83,713 16,742 16,742 100,000
35 69 1,200 113,804 13,754 13,754 100,000
</TABLE>
<TABLE>
<CAPTION>
CURRENT VALUES
VALUES PROJECTED AT 6.00%
------- --------- ----------
END ACCUM
OF ANNUAL @ 5.00% POLICY NET CASH NET DEATH
YR. AGE PREMIUM PREMIUM ACCOUNT VALUE BENEFIT
- --- --- ------- -------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
1 35 1,200 1,260 813 91 100,000
2 36 1,200 2,583 1,839 1,058 100,000
3 37 1,200 3,972 2,906 2,064 100,000
4 38 1,200 5,431 4,014 3,162 100,000
5 39 1,200 6,962 5,167 4,346 100,000
6 40 1,200 8,570 6,361 5,590 100,000
7 41 1,200 10,259 7,609 6,889 100,000
8 42 1,200 12,032 8,905 8,235 100,000
9 43 1,200 13,893 10,255 9,667 100,000
10 44 1,200 15,848 11,662 11,156 100,000
15 49 1,200 27,189 19,549 19,549 100,000
20 54 1,200 41,633 28,863 28,863 100,000
25 59 1,200 60,136 40,923 40,923 100,000
30 64 1,200 83,713 55,606 55,606 100,000
35 69 1,200 113,804 73,953 73,953 100,000
</TABLE>
<TABLE>
<CAPTION>
CURRENT VALUES
VALUES PROJECTED AT 12.00%
------- --------- ----------
END ACCUM
OF ANNUAL @ 5.00% POLICY NET CASH NET DEATH
YR. AGE PREMIUM PREMIUM ACCOUNT VALUE BENEFIT
- --- --- ------- -------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
1 35 1,200 1,260 870 148 100,000
2 36 1,200 2,583 2,012 1,230 100,000
3 37 1,200 3,972 3,268 2,426 100,000
4 38 1,200 5,431 4,648 3,796 100,000
5 39 1,200 6,962 6,166 5,346 100,000
6 40 1,200 8,570 7,833 7,062 100,000
7 41 1,200 10,259 9,674 8,954 100,000
8 42 1,200 12,032 11,700 11,029 100,000
9 43 1,200 13,893 13,933 13,345 100,000
10 44 1,200 15,848 16,397 15,891 100,000
15 49 1,200 27,189 33,037 33,037 100,000
20 54 1,200 41,633 60,110 60,110 100,000
25 59 1,200 60,136 107,474 107,474 144,015
30 64 1,200 83,713 186,157 186,157 227,112
35 69 1,200 113,804 316,137 316,137 366,719
</TABLE>
CURRENT VALUES ARE BASED ON PROJECTED INTEREST RATES AND CURRENT EXPENSES AND
COST OF INSURANCE CHARGES NOW IN EFFECT, WHICH ARE SUBJECT TO CHANGE. THE
CURRENT MONTHLY EXPENSE CHARGES ARE $20.00 PER MONTH IN YEAR 1 AND $5.00 PER
MONTH THEREAFTER.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN IN
THIS ILLUSTRATION ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A
REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND UPON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY THE OWNER, PREVAILING
INTEREST RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A
CONTRACT WOULD BE DIFFERENT THAN THOSE SHOWN IF THE ACTUAL INVESTMENT
RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT ALSO
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT YEARS.
NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER A PERIOD OF TIME.
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
VARIABLE UNIVERSAL LIFE
PREPARED FOR: CLIENT INITIAL DEATH BENEFIT: $100,000
ISSUE AGE: 35, NON-SMOKER ANNUAL PREMIUM: $1,200.00
SEX: MALE INITIAL DEATH BENEFIT OPTION: A
<TABLE>
<CAPTION>
GUARANTEED VALUES
VALUES PROJECTED AT 0.00%
------- --------- ----------
END ACCUM
OF ANNUAL @ 5.00% POLICY NET CASH NET DEATH
YR. AGE PREMIUM PREMIUM ACCOUNT VALUE BENEFIT
- --- --- ------- -------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
1 35 1,200 1,260 747 25 100,000
2 36 1,200 2,583 1,601 819 100,000
3 37 1,200 3,972 2,429 1,587 100,000
4 38 1,200 5,431 3,233 2,381 100,000
5 39 1,200 6,962 4,013 3,192 100,000
6 40 1,200 8,570 4,758 3,987 100,000
7 41 1,200 10,259 5,480 4,759 100,000
8 42 1,200 12,032 6,169 5,498 100,000
9 43 1,200 13,893 6,825 6,237 100,000
10 44 1,200 15,848 7,450 6,944 100,000
15 49 1,200 27,189 10,081 10,081 100,000
20 54 1,200 41,633 11,601 11,601 100,000
25 59 1,200 60,136 11,383 11,383 100,000
30 64 1,200 83,713 8,308 8,308 100,000
35 69 1,200 113,804 0 0 0
</TABLE>
<TABLE>
<CAPTION>
GUARANTEED VALUES
VALUES PROJECTED AT 6.00%
------- --------- ----------
END ACCUM
OF ANNUAL @ 5.00% POLICY NET CASH NET DEATH
YR. AGE PREMIUM PREMIUM ACCOUNT VALUE BENEFIT
- --- --- ------- -------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
1 35 1,200 1,260 803 81 100,000
2 36 1,200 2,583 1,763 981 100,000
3 37 1,200 3,972 2,752 1,911 100,000
4 38 1,200 5,431 3,773 2,921 100,000
5 39 1,200 6,962 4,826 4,005 100,000
6 40 1,200 8,570 5,901 5,130 100,000
7 41 1,200 10,259 7,012 6,291 100,000
8 42 1,200 12,032 8,149 7,478 100,000
9 43 1,200 13,893 9,313 8,725 100,000
10 44 1,200 15,848 10,507 10,001 100,000
15 49 1,200 27,189 16,948 16,948 100,000
20 54 1,200 41,633 24,033 24,033 100,000
25 59 1,200 60,136 31,427 31,427 100,000
30 64 1,200 83,713 38,577 38,577 100,000
35 69 1,200 113,804 44,379 44,379 100,000
</TABLE>
<TABLE>
<CAPTION>
GUARANTEED VALUES
VALUES PROJECTED AT 12.00%
------- --------- ----------
END ACCUM
OF ANNUAL @ 5.00% POLICY NET CASH NET DEATH
YR. AGE PREMIUM PREMIUM ACCOUNT VALUE BENEFIT
- --- --- ------- -------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
1 35 1,200 1,260 859 137 100,000
2 36 1,200 2,583 1,932 1,151 100,000
3 37 1,200 3,972 3,103 2,261 100,000
4 38 1,200 5,431 4,381 3,529 100,000
5 39 1,200 6,962 5,777 4,957 100,000
6 40 1,200 8,570 7,293 6,523 100,000
7 41 1,200 10,259 8,954 8,233 100,000
8 42 1,200 12,032 10,762 10,091 100,000
9 43 1,200 13,893 12,734 12,146 100,000
10 44 1,200 15,848 14,888 14,382 100,000
15 49 1,200 27,189 29,131 29,131 100,000
20 54 1,200 41,633 51,710 51,710 100,000
25 59 1,200 60,136 88,233 88,233 118,232
30 64 1,200 83,713 146,172 146,172 178,329
35 69 1,200 113,804 236,704 236,704 274,576
</TABLE>
CURRENT VALUES ARE BASED ON PROJECTED INTEREST RATES AND CURRENT EXPENSES AND
COST OF INSURANCE CHARGES NOW IN EFFECT, WHICH ARE SUBJECT TO CHANGE. THE
CURRENT MONTHLY EXPENSE CHARGES ARE $20.00 PER MONTH IN YEAR 1 AND $9.00
PER MONTH THEREAFTER.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN IN
THIS ILLUSTRATION ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A
REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND UPON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY THE OWNER, PREVAILING
INTEREST RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A
CONTRACT WOULD BE DIFFERENT THAN THOSE SHOWN IF THE ACTUAL INVESTMENT
RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT ALSO
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT YEARS.
NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER A PERIOD OF TIME.
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
VARIABLE UNIVERSAL LIFE
PREPARED FOR: CLIENT INITIAL DEATH BENEFIT: $100,000
ISSUE AGE: 35, NON-SMOKER ANNUAL PREMIUM: $1,200.00
SEX: MALE INITIAL DEATH BENEFIT OPTION: B
<TABLE>
<CAPTION>
CURRENT VALUES
VALUES PROJECTED AT 0.00%
------- --------- ----------
END ACCUM
OF ANNUAL @ 5.00% POLICY NET CASH NET DEATH
YR. AGE PREMIUM PREMIUM ACCOUNT VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C>
1 35 1,200 1,260 755 33 100,755
2 36 1,200 2,583 1,669 887 101,669
3 37 1,200 3,972 2,562 1,720 102,562
4 38 1,200 5,431 3,435 2,583 103,435
5 39 1,200 6,962 4,288 3,467 104,288
6 40 1,200 8,570 5,116 4,345 105,116
7 41 1,200 10,259 5,930 5,210 105,930
8 42 1,200 12,032 6,722 6,051 106,722
9 43 1,200 13,893 7,494 6,906 107,494
10 44 1,200 15,848 8,250 7,744 108,250
15 49 1,200 27,189 11,647 11,647 111,647
20 54 1,200 41,633 14,092 14,092 114,092
25 59 1,200 60,136 15,556 15,556 115,556
30 64 1,200 83,713 14,815 14,815 114,815
35 69 1,200 113,804 10,445 10,445 110,445
</TABLE>
<TABLE>
<CAPTION>
CURRENT VALUES
VALUES PROJECTED AT 6.00%
------- --------- ----------
END ACCUM
OF ANNUAL @ 5.00% POLICY NET CASH NET DEATH
YR. AGE PREMIUM PREMIUM ACCOUNT VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C>
1 35 1,200 1,260 811 90 100,811
2 36 1,200 2,583 1,834 1,053 101,834
3 37 1,200 3,972 2,895 2,053 102,895
4 38 1,200 5,431 3,995 3,144 103,995
5 39 1,200 6,962 5,137 4,316 105,137
6 40 1,200 8,570 6,317 5,546 106,317
7 41 1,200 10,259 7,547 6,827 107,547
8 42 1,200 12,032 8,821 8,151 108,821
9 43 1,200 13,893 10,144 9,556 110,144
10 44 1,200 15,848 11,519 11,013 111,519
15 49 1,200 27,189 19,128 19,128 119,128
20 54 1,200 41,633 27,764 27,764 127,764
25 59 1,200 60,136 38,168 38,168 138,168
30 64 1,200 83,713 49,021 49,021 149,021
35 69 1,200 113,804 58,694 58,694 158,694
</TABLE>
<TABLE>
<CAPTION>
CURRENT VALUES
VALUES PROJECTED AT 12.00%
------- --------- ----------
END ACCUM
OF ANNUAL @ 5.00% POLICY NET CASH NET DEATH
YR. AGE PREMIUM PREMIUM ACCOUNT VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C>
1 35 1,200 1,260 868 146 100,868
2 36 1,200 2,583 2,007 1,225 102,007
3 37 1,200 3,972 3,255 2,414 103,255
4 38 1,200 5,431 4,626 3,774 104,626
5 39 1,200 6,962 6,130 5,309 106,130
6 40 1,200 8,570 7,776 7,006 107,776
7 41 1,200 10,259 9,592 8,871 109,592
8 42 1,200 12,032 11,584 10,913 111,584
9 43 1,200 13,893 13,774 13,186 113,774
10 44 1,200 15,848 16,183 15,677 116,183
15 49 1,200 27,189 32,264 32,264 132,264
20 54 1,200 41,633 57,628 57,628 157,628
25 59 1,200 60,136 100,425 100,425 200,425
30 64 1,200 83,713 169,725 169,725 269,725
35 69 1,200 113,804 281,663 281,663 381,663
</TABLE>
CURRENT VALUES ARE BASED ON PROJECTED INTEREST RATES AND CURRENT EXPENSES AND
COST OF INSURANCE CHARGES NOW IN EFFECT, WHICH ARE SUBJECT TO CHANGE. THE
CURRENT MONTHLY EXPENSE CHARGES ARE $20.00 PER MONTH IN YEAR 1 AND $5.00 PER
MONTH THEREAFTER.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN IN
THIS ILLUSTRATION ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A
REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND UPON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY THE OWNER, PREVAILING
INTEREST RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A
CONTRACT WOULD BE DIFFERENT THAN THOSE SHOWN IF THE ACTUAL INVESTMENT
RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT ALSO
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT YEARS.
NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER A PERIOD OF TIME.
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
VARIABLE UNIVERSAL LIFE
PREPARED FOR: CLIENT INITIAL DEATH BENEFIT: $100,000
ISSUE AGE: 35, NON-SMOKER ANNUAL PREMIUM: $1,200.00
SEX: MALE INITIAL DEATH BENEFIT OPTION: B
<TABLE>
<CAPTION>
GUARANTEED VALUES
VALUES PROJECTED AT 0.00%
------- --------- ----------
END ACCUM
OF ANNUAL @ 5.00% POLICY NET CASH NET DEATH
YR. AGE PREMIUM PREMIUM ACCOUNT VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C>
1 35 1,200 1,260 745 23 100,745
2 36 1,200 2,583 1,596 814 101,596
3 37 1,200 3,972 2,419 1,578 102,419
4 38 1,200 5,431 3,217 2,365 103,217
5 39 1,200 6,962 3,988 3,167 103,988
6 40 1,200 8,570 4,721 3,951 104,721
7 41 1,200 10,259 5,430 4,709 105,430
8 42 1,200 12,032 6,102 5,431 106,102
9 43 1,200 13,893 6,739 6,151 106,739
10 44 1,200 15,848 7,340 6,834 107,340
15 49 1,200 27,189 9,795 9,795 109,795
20 54 1,200 41,633 10,991 10,991 110,991
25 59 1,200 60,136 10,231 10,231 110,231
30 64 1,200 83,713 6,404 6,404 106,404
35 69 1,200 113,804 0 0 0
</TABLE>
<TABLE>
<CAPTION>
GUARANTEED VALUES
VALUES PROJECTED AT 6.00%
------- --------- ----------
END ACCUM
OF ANNUAL @ 5.00% POLICY NET CASH NET DEATH
YR. AGE PREMIUM PREMIUM ACCOUNT VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C>
1 35 1,200 1,260 801 79 100,801
2 36 1,200 2,583 1,758 976 101,758
3 37 1,200 3,972 2,741 1,900 102,741
4 38 1,200 5,431 3,753 2,902 103,753
5 39 1,200 6,962 4,794 3,974 104,794
6 40 1,200 8,570 5,854 5,083 105,854
7 41 1,200 10,259 6,945 6,224 106,945
8 42 1,200 12,032 8,056 7,385 108,056
9 43 1,200 13,893 9,188 8,600 109,188
10 44 1,200 15,848 10,342 9,836 110,342
15 49 1,200 27,189 16,425 16,425 116,425
20 54 1,200 41,633 22,666 22,666 122,666
25 59 1,200 60,136 28,172 28,172 128,172
30 64 1,200 83,713 31,319 31,319 131,319
35 69 1,200 113,804 29,021 29,021 129,021
</TABLE>
<TABLE>
<CAPTION>
GUARANTEED VALUES
VALUES PROJECTED AT 12.00%
------- --------- ----------
END ACCUM
OF ANNUAL @ 5.00% POLICY NET CASH NET DEATH
YR. AGE PREMIUM PREMIUM ACCOUNT VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C>
1 35 1,200 1,260 857 135 100,857
2 36 1,200 2,583 1,927 1,145 101,927
3 37 1,200 3,972 3,090 2,248 103,090
4 38 1,200 5,431 4,358 3,506 104,358
5 39 1,200 6,962 5,739 4,918 105,739
6 40 1,200 8,570 7,233 6,463 107,233
7 41 1,200 10,259 8,865 8,144 108,865
8 42 1,200 12,032 10,633 9,963 110,633
9 43 1,200 13,893 12,554 11,966 112,554
10 44 1,200 15,848 14,641 14,135 114,641
15 49 1,200 27,189 28,171 28,171 128,171
20 54 1,200 41,633 48,589 48,589 148,589
25 59 1,200 60,136 79,035 79,035 179,035
30 64 1,200 83,713 123,962 123,962 223,962
35 69 1,200 113,804 189,267 189,267 289,267
</TABLE>
CURRENT VALUES ARE BASED ON PROJECTED INTEREST RATES AND CURRENT EXPENSES AND
COST OF INSURANCE CHARGES NOW IN EFFECT, WHICH ARE SUBJECT TO CHANGE. THE
CURRENT MONTHLY EXPENSE CHARGES ARE $20.00 PER MONTH IN YEAR 1 AND $9.00
PER MONTH THEREAFTER.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN IN
THIS ILLUSTRATION ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A
REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND UPON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY THE OWNER, PREVAILING
INTEREST RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A
CONTRACT WOULD BE DIFFERENT THAN THOSE SHOWN IF THE ACTUAL INVESTMENT
RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT ALSO
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT YEARS.
NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER A PERIOD OF TIME.
