Registration No. 33-11158
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 12
TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUST
REGISTERED ON FORM N-8B-2
ALLIANZ LIFE VARIABLE ACCOUNT A
- -------------------------------
(Exact Name of Trust)
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
- -----------------------------------------------
(Name of Depositor)
1750 Hennepin Avenue, Minneapolis, MN 55403-2195
- ----------------------------------------------- ----------
(Address of Depositor's Principal Executive Offices) (Zip Code)
Name and Address of Agent for Service
- -------------------------------------
Michael T. Westermeyer
Allianz Life Insurance Company of North America
1750 Hennepin Avenue
Minneapolis, MN 55403-2195
Copies to:
Judith A. Hasenauer
Blazzard, Grodd & Hasenauer, P.C.
P.O. Box 5108
Westport, CT 06881
(203) 226-7866
Title and amount of Securities being Registered:
Individual Flexible Premium Variable Life Insurance Policies.
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph(b) of Rule 485
_X_ on May 1, 1998 pursuant to paragraph (b) of Rule 485
___ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
___ on (date) pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-8B-2
<TABLE>
<CAPTION>
N-8B-2 ITEM CAPTION ON PROSPECTUS
- ----------- ---------------------
<S> <C>
1 The Company, The Variable Account
2 The Company
3 Not Applicable
4 Distribution of the Policy
5 The Variable Account
6(a) Not Applicable
(b) Not Applicable
9 Not Applicable
10 Premium Payments
11 Franklin Valuemark Funds
12 Franklin Valuemark Funds
13 Deductions and Charges
14 Premium Payments
15 The Variable Account
16 Franklin Valuemark Funds
17 Account Value, Cash Surrender Value
and Transfer Rights
18 Premium Payments
19 Not Applicable
20 Not Applicable
21 Not Applicable
22 Not Applicable
23 Not Applicable
24 Not Applicable
25 The Company
26 The Company
27 The Company
28 The Company
29 The Company
30 The Company
31 Not Applicable
32 Not Applicable
33 Not Applicable
34 Not Applicable
35 The Company
37 Not Applicable
38 Distribution of the Policy
39 Distribution of the Policy
40 Not Applicable
41(a) Distribution of the Policy
42 Not Applicable
43 Not Applicable
44 Premium Payments
45 Not Applicable
46 Account Value, Cash Surrender Value
and Transfer Rights
47 Not Applicable
48 Not Applicable
49 Not Applicable
50 Not Applicable
51 The Company
52 Franklin Valuemark Funds
53 Federal Tax Status
54 Financial Statements
55 Not Applicable
</TABLE>
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
FLEXIBLE-PREMIUM VARIABLE LIFE INSURANCE POLICY
ISSUED BY: ADMINISTERED BY:
Allianz Life Insurance Company Allianz Life ValueLife
of North America Service Center
1750 Hennepin Avenue c/o CSC Financial Services Group
Minneapolis, MN 55403 2323 Bryan Street, Suite 1100
(800) 542-5427 Dallas, TX 75201
or
P.O. Box 219066
Dallas, TX 75221
(800) 525-7330
This Prospectus describes a flexible-premium variable life insurance policy
("Policy") offered by Allianz Life Insurance Company of North America
("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 the Fixed Option or Allianz
Life Variable Account A ("Variable Account"), a separate account of the Company.
The Variable Account is divided into Policy Sub-Accounts. Each Policy
Sub-Account invests in one Portfolio of Franklin Valuemark Funds ("Trust"). The
Trust is a series fund with twenty-five Portfolios, seventeen of which are
currently available in connection with the Policy: the Global Utilities
Securities Fund, the Growth and Income Fund, the High Income Fund, the Income
Securities Fund, the Money Market Fund, the Mutual Shares Securities Fund, the
Natural Resources Securities Fund, the Real Estate Securities Fund, the Rising
Dividends Fund, the Small Cap Fund, the Templeton Developing Markets Equity
Fund, the Templeton Global Asset Allocation Fund, the Templeton Global Growth
Fund, the Templeton Global Income Securities Fund, the Templeton International
Equity Fund, the Templeton Pacific Growth and the U.S. Government Securities
Fund. Prior to May 1, 1998, the Global Utilities Securities Fund was known as
the Utility Equity Fund. See "Summary" and "Federal 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.
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN
ANY STATE, COUNTRY, OR JURISDICTION IN WHICH THE OFFERING IS UNAUTHORIZED. NO
SALES REPRESENTATIVE, DEALER OR OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS.
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, 1998
TABLE OF CONTENTS
PAGE
DEFINITIONS................................................ 1
SUMMARY.................................................... 2
THE COMPANY................................................ 4
THE VARIABLE ACCOUNT....................................... 4
FRANKLIN VALUEMARK FUNDS................................... 4
General................................................ 5
Substitution of Securities............................. 5
PREMIUM PAYMENTS........................................... 5
General................................................ 5
Planned Periodic Premiums.............................. 5
Unscheduled Premiums................................... 5
Grace Period........................................... 5
Reinstatement.......................................... 6
Allocation of Premium.................................. 7
Dollar Cost Averaging.................................. 7
DEDUCTIONS AND CHARGES..................................... 7
Mortality and Expense Risk Charge...................... 7
Administrative Charges................................. 8
Insurance Risk Charges................................. 8
Charges for Additional Benefit Riders.................. 9
Surrender Charges...................................... 9
Partial Surrender Fee.................................. 9
Premium Taxes.......................................... 10
Transfer Fee........................................... 10
Income Tax Charge...................................... 10
Portfolio Annual Expenses.............................. 11
DEATH BENEFIT.............................................. 12
Death Benefit.......................................... 12
Change in Death Benefit................................ 12
Change in Face Amount.................................. 12
Face Amount Increase............................... 12
Face Amount Decrease............................... 13
Guaranteed Death Benefit Rider......................... 13
Accelerated Benefit Rider.............................. 14
POLICY ACCOUNT, CASH VALUE, NET CASH
VALUE, TRANSFER RIGHTS
AND SURRENDERS......................................... 14
Policy Account......................................... 14
Method of Determining Policy Sub-
Account Values..................................... 14
Cash Value, Net Cash Value............................. 14
Transfer Rights........................................ 14
Partial Surrenders..................................... 15
Full Surrenders........................................ 16
LOAN PROVISIONS............................................ 16
Policy Loans........................................... 16
Loan Interest Charged.................................. 16
Loan Limit............................................. 17
Security............................................... 17
Restrictions on Making Loans........................... 17
Repaying Policy Debt................................... 17
Limit on Policy Debt................................... 17
OWNERSHIP.................................................. 17
Transfer of Ownership.................................. 18
Assignment............................................. 18
BENEFICIARY PROVISIONS..................................... 18
DELAY OF PAYMENTS.......................................... 18
MANAGEMENT OF THE COMPANY.................................. 19
FEDERAL TAX STATUS......................................... 20
Introduction........................................... 20
Diversification........................................ 20
Tax Treatment of the Policy............................ 21
Policy Proceeds........................................ 21
Tax Treatment of Loans and
Surrenders......................................... 21
Multiple Policies...................................... 22
Tax Treatment of Assignments........................... 22
Qualified Plans........................................ 22
VARIABLE ACCOUNT VOTING PRIVILEGES......................... 23
Disregard of Voting Instructions....................... 23
DISTRIBUTION OF THE POLICY................................. 23
REPORTS TO OWNERS.......................................... 23
LEGAL PROCEEDINGS.......................................... 24
EXPERTS.................................................... 24
LEGAL OPINIONS............................................. 24
FINANCIAL STATEMENTS....................................... 24
APPENDIX A -- ILLUSTRATION OF
POLICY VALUES........................................... A-1
DEFINITIONS
Annual Guaranteed Coverage Premium. The Annual Guaranteed Coverage Premium is
equal to twelve times the Guaranteed Coverage Premium.
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 Option (referred to in the Policy as the "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.
Guaranteed Coverage Premium. The Guaranteed Coverage Premium is a monthly target
premium amount which will vary by the issue age, sex, and underwriting
classification of the Insured as well as the amount and type of coverage
involved. There is a distinct Guaranteed Coverage Premium for the base policy
(death benefit) as well as each rider attached to the base policy.
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 Option and in the Policy
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.
Policy Sub-Account (referred to in the Policy as "Sub-Account"). A segment of
the Variable Account. Each Policy Sub-Account is invested in shares of a
Portfolio of an Eligible Investment.
Surrender Charge Premium. The Surrender Charge Premium is equal to the Annual
Guaranteed Coverage Premium for the base policy death benefit coverage of a
standard mortality risk. The Surrender Charge Premium will vary with the issue
age, sex, and smoking classification of the Insured as well as the face amount
of the base policy.
Total Guaranteed Coverage Premium. The Total Guaranteed Coverage Premium is the
sum of the Guaranteed Coverage Premium of the base policy and the Guaranteed
Coverage Premium of any riders attached to the base policy. During the first ten
years after the policy is issued the Total Guaranteed Coverage Premium is used
in the calculation of the Minimum Required Premium to keep the policy in force.
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".
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 may
change the death benefit option which was selected.
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 "Federal 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 Policy Sub-Accounts. Each of the Policy Sub-Accounts is
invested solely in the shares of one of the Portfolios 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 "Federal 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 (in states which charge a premium tax) 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 Policy Sub-Account and is deducted from the Policy
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
Policy Sub-Account.
Administrative Charges. These charges are equal to:
a) on an annual basis, 0.15% of the average daily net assets
of each Policy Sub-Account and is deducted from the Policy
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 Charges contain: 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>
YEARS % OF SCP
- ----- --------
<C> <S>
1-8................................................... 65%
9.................................................... 60%
10.................................................... 55%
11.................................................... 44%
12.................................................... 33%
13.................................................... 22%
14.................................................... 11%
15+................................................... 0%
</TABLE>
The Surrender Charge Premium (SCP) is equal to the Annual Guaranteed
Coverage Premium for the base policy death benefit coverage of a standard
mortality risk. The SCP will vary with the issue age, sex, and smoking
classification of the Insured as well as the face amount of the base policy.
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 Policy
Sub-Account to another or to or from the Fixed Option. 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 managers and administrators for each Portfolio in
the Trust are paid fees for their services based upon each Portfolio's net
assets. (See "Deductions and Charges -- Portfolio Annual Expenses" in this
Prospectus and the Prospectus for the Trust).
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 Policy Sub-Accounts of the Variable Account
and to the unloaned portion of the Fixed Option 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. 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. The Company offers fixed and variable life
insurance and annuities, and group life, accident and health insurance.
NALAC Financial Plans, LLC 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, LLC is reimbursed for expenses incurred in
the distribution of the Policies.
The Company provides administration for the Policy at its ValueLife Service
Center: c/o CSC Financial Services Group, 2323 Bryan Street, Suite 1100, 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 Policy Sub-Accounts with the assets of
each Policy Sub-Account invested in one of the Portfolios of Franklin Valuemark
Funds.
FRANKLIN VALUEMARK FUNDS
Franklin Valuemark Funds ("Trust") is comprised of twenty-five Portfolios,
seventeen of which are currently available in connection with the Policies
described in this Prospectus. The Trust is an open-end management investment
company registered under the 1940 Act. The investment objectives of each
Portfolio and a discussion of potential risks are 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. CERTAIN PORTFOLIOS CONTAINED IN THE TRUST
PROSPECTUS ARE NOT AVAILABLE UNDER THE POLICIES OFFERED BY THIS PROSPECTUS.
Investment managers for each Portfolio are listed in the table below and
are as follows: Franklin Advisers, Inc. (FA), Franklin Advisory Services, Inc.
(FAS), Franklin Mutual Advisers, Inc. (FMA), Templeton Asset Management Ltd.
(TAM), and Templeton Global Advisors Limited (TGA). Certain managers have
retained one or more affiliated subadvisers.
<TABLE>
<CAPTION>
The following is a list of the Portfolios available under the Policy:
INVESTMENT
AVAILABLE PORTFOLIOS MANAGERS
- ------------------------------------------------------------------------------
<C> <S>
PORTFOLIO SEEKING STABILITY
OF PRINCIPAL AND INCOME
Money Market Fund....................................... FA
PORTFOLIOS SEEKING
CURRENT INCOME
High Income Fund........................................ FA
Templeton Global Income Securities
Fund................................................. FA
U.S. Government Securities Fund......................... FA
PORTFOLIOS SEEKING
GROWTH AND INCOME
Global Utilities Securities Fund........................ FA
(formerly, Utility Equity Fund)
Growth and Income Fund.................................. FA
Income Securities Fund.................................. FA
Mutual Shares Securities Fund........................... FMA
Real Estate Securities Fund............................. FA
Rising Dividends Fund................................... FAS
Templeton Global Asset Allocation
Fund................................................. TGA
PORTFOLIOS SEEKING
CAPITAL GROWTH
Natural Resources Securities
Fund................................................. FA
Small Cap Fund.......................................... FA
Templeton Developing Markets Equity
Fund................................................. TAM
Templeton Global Growth Fund............................ TGA
Templeton International Equity
Fund................................................. FA
Templeton Pacific Growth Fund........................... FA
- ------------------------------------------------------------------------------
</TABLE>
GENERAL
There is no assurance that the investment objectives of any of the
Portfolios will be met. Owners bear the complete investment risk for Policy
Account values allocated to a Policy Sub-Account.
Additional Portfolios 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
The Company may substitute one of the Portfolios Owners have selected with
another Portfolio. The Company would not do this without the prior approval of
the Securities and Exchange Commission. The Company will give Owners notice of
its intention to do this.
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. Neither the Variable Account nor the Trust is designed for professional
market timing organizations, other entities, or persons using programmed, large,
or frequent transfers.
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 Option or one or more of the Policy
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 Policy 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 investment options (seventeen Portfolios and the Fixed Option) that an
Owner may invest in at any one time. Currently, the Owner may only be invested
in a maximum of seven investment options at any one time throughout the life of
the Policy.
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 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.
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 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 or the U.S. Government Securities Sub-Account and may be
invested in a maximum of five of the other Policy 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 or the U.S. Government Securities Sub-Account (as
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. The
Company does not intend to profit from any such charge. In the event there are
additional transfers, the transfer fee may be charged.
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 Policy
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 Policy
Sub-Account. The current risk charge is equal, on an annual basis, to 0.60% of
the average daily net assets of each Policy 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 Policy 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 Policy 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.
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>
YEARS % OF SCP
- ----- --------
<C> <S>
1-8................................................... 65%
9.................................................... 60%
10.................................................... 55%
11.................................................... 44%
12.................................................... 33%
13.................................................... 22%
14.................................................... 11%
15+................................................... 0%
</TABLE>
The Surrender Charge Premium (SCP) is equal to the Annual Guaranteed
Coverage Premium for the base policy death benefit coverage of a standard
mortality risk. The SCP will vary with the issue age, sex, and smoking
classification of the Insured as well as the face amount of the base policy.
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 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.
This charge does not apply in states that do not charge premium tax.
TRANSFER FEE
The Owner may transfer values from one Policy Sub-Account to another or to
or from the Fixed Option. 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.
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 Policy Sub-Accounts of the
Variable Account. The Company reserves the right to assess a charge for such
taxes against the Policy Sub-Accounts if the Company determines that such taxes
will be incurred.
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO ANNUAL EXPENSES
There are deductions from and expenses paid out of the assets of the Portfolios which are summarized below. The Management and
Portfolio Administration Fees for each Portfolio are based on a percentage of that Portfolio's net assets. See "Franklin
Valuemark Funds" in this Prospectus and "Management" in the Trust prospectus.
The "Management and Portfolio Administration Fees" below include investment advisory and other management and administrative
fees not included as "Other Expenses" that were paid to the Managers and Portfolio Administrators to the Trust for the 1997
calendar year.
MANAGEMENT
AND PORTFOLIO OTHER TOTAL ANNUAL
ADMINISTRATION FEES1 EXPENSES EXPENSES
<C> <S> <S> <S>
Global Utilities Securities Fund2............................ .47% .03% .50%
Growth and Income Fund....................................... .47% .02% .49%
High Income Fund............................................. .50% .03% .53%
Income Securities Fund....................................... .47% .03% .50%
Money Market Fund3........................................... .51% .02% .53%
Mutual Shares Securities Fund................................ .60% .20% .80%
Natural Resources Securities Fund............................ .62% .07% .69%
Real Estate Securities Fund.................................. .51% .03% .54%
Rising Dividends Fund........................................ .72% .02% .74%
Small Cap Fund............................................... .75% .02% .77%
Templeton Developing Markets Equity Fund..................... 1.25% .17% 1.42%
Templeton Global Asset Allocation Fund....................... .65% .29% .94%
Templeton Global Growth Fund................................. .83% .05% .88%
Templeton Global Income Securities Fund...................... .56% .06% .62%
Templeton International Equity Fund.......................... .80% .09% .89%
Templeton Pacific Growth Fund................................ .92% .11% 1.03%
U.S. Government Securities Fund.............................. .48% .02% .50%
- -------------
<FN>
1 The Portfolio Administration Fee is a direct expense for the Templeton Global Asset Allocation Fund and the Mutual Shares
Securities Fund; other Portfolios pay for similar services indirectly through the Management Fee. See "Management" in the
Trust Prospectus for further information regarding these fees.
2 Prior to May 1, 1998, the Global Utilities Securities Fund was known as the Utility Equity Fund.
3 Franklin Advisers, Inc. agreed in advance to waive a portion of its Management Fee and to pay certain expenses of the
Money Market Fund during 1997. It is currently continuing this arrangement in 1998. This arrangement may be terminated at
any time. With this reduction, the Portfolio's actual Total Annual Expenses for 1997 were 0.45% of the average daily net
assets of the Portfolio.
</FN>
</TABLE>
<PAGE>
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 Portfolio, 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. There is an administrative charge for
this benefit which is guaranteed not to exceed the lesser of $1,000 or 2% of the
benefit. This limit may vary depending on the state in which the Policy was
purchased. The current administrative charge is $150.
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 Option and in the Policy Sub-Accounts of the Variable Account under
the Policy.
METHOD OF DETERMINING POLICY SUB-ACCOUNT VALUES
Policy Sub-Account values will fluctuate in accordance with the investment
experience of the applicable underlying Portfolio held within the Policy
Sub-Account. In order to determine these Policy Sub-Account values, the Company
utilizes Policy 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 Portfolio were purchased for the Policy
Sub-Accounts, each Policy Sub-Account valuation unit was valued at $10. The
value of a unit within each Policy 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 Policy 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 Policy
Sub-Account.
and (b) is the total number of units applicable to that Policy 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 Policy Sub-Account of the Variable Account to one or more of the other
Policy Sub-Accounts of the Variable Account or to the Fixed Option. The minimum
amount that can be transferred from the value in a Policy Sub-Account of the
Variable Account on any date is the lesser of the Minimum Transfer Amount
(currently $500) or the value in that Policy Sub-Account on that date. The Owner
may transfer on any Policy Anniversary an amount from the unloaned value in the
Fixed Option to one or more Policy 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 Option 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 Option
on any Policy Anniversary is the lesser of the Minimum Transfer Amount,
currently $500, or the unloaned value in the Fixed Option on that date.
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 Option and from the values in each
of the Policy 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 Option and the value in the Policy Sub-Accounts of
the Variable Account bear to the total unloaned value in the Policy Account.
Neither the Variable Account nor the Trust is designed for professional
market timing organizations, other entities, or persons using programmed, large,
or frequent transfers. A pattern of exchanges that coincides with a "market
timing" strategy may be disruptive to the Portfolio 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, if, in the Portfolio manager's judgment, a Portfolio
would be unable to invest effectively in accordance with its investment
objectives and policies, or would otherwise potentially be adversely affected.
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 surrendered. 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 Option and from values in each of the Policy 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 Option and unloaned values in the Policy 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 "Federal
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 Option. If the Policy Loan
requested exceeds the loan limit, the Owner may also request a transfer of
values from the Policy Sub-Accounts of the Variable Account to the Fixed Option,
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
Policy Sub-Accounts to be transferred, the Company will make the transfers based
on the proportions that the values in the Policy Sub-Accounts of the Variable
Account bear to the total unloaned value in the Policy Account.
Policy loans may have federal tax consequences (see "Federal 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 Option 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 Option. 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 Option,
the Company will transfer values from the Policy Sub-Accounts of the Variable
Account to the Fixed Option if such values are available, based on the
proportions that the values in the Policy Sub-Accounts of the Variable Account
bear to the total value of the Policy 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 Option and to the Policy
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 ValueLife Service
Center; 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. This may be a taxable event. Owners should consult a tax adviser
should they wish to change ownership of the Policy.
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. This may be a taxable event. Owners should consult a tax adviser should
they wish to assign the Policy.
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
Option for up to six months from the date of request. In such states the Company
provides a Policy reserving this right.
<TABLE>
<CAPTION>
MANAGEMENT OF THE COMPANY
The directors and executive officers of the Company and their principal
occupations for the past 5 years are as follows:
NAME PRINCIPAL OCCUPATIONS DURING THE PAST FIVE YEARS
- ----------------------- ---------------------------------------------------
<C> <S>
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 since November 1988.
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.
Michael T. Westermeyer Vice President -- Corporate Legal Officer and
Secretary of the Company since April 1997.
Formerly Second Vice President, Senior Counsel
and Assistant Secretary of the Company.
Paul Howman Vice President -- Underwriting of the Company
since 1995.
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.
Previously Senior Vice President and Chief
Actuary.
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, St. Paul
since July 1991.
James R. Campbell Executive Vice President of Norwest Corporation
since February 1988.
Robert M. Kimmitt Partner in the law firm of Wilmer, Cutler &
Pickering. Previously, from 1993 to 1997,
managing director of Lehman Brothers.
</TABLE>
FEDERAL 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 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.
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 Portfolio 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. However, an exchange under
Section 1035 of the Code of a life insurance policy entered into before June 21,
1988 for the Policy will not cause the Policy to be treated as a Modified
Endowment Contract if no additional premiums are paid.
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.
Upon complete surrender or when Maturity Benefits are paid, if the amount
received plus loan indebtedness exceeds the total premiums paid that are not
treated as previously surrendered by the Policy Owner, the excess generally will
be treated as ordinary income.
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, exchanging 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 or the change of ownership of a Policy may be a
taxable event. Policy Owners should therefore consult competent tax advisers
should they wish to assign or change the Owner of 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 PRIVILEGES
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 1940 Act 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 Policy 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 Portfolio 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 Portfolio.
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 Portfolio or which varies from the general quality
and nature of investments and investment techniques used by other Portfolios
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, LLC, 1750 Hennepin Avenue, Minneapolis, MN, 55403, 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 Trust. 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; (b) any transfer between Policy
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 as of and for the year ended
December 31, 1997 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
Blazzard, Grodd & Hasenauer, P.C., Westport, Connecticut has provided
advice on certain matters relating to the federal securities and income tax laws
in connection with the Policies.
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.
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT A
OF
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements
December 31, 1997
<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, 1997, 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, 1997, 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 30, 1998
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT A
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements
Statements of Assets and Liabilities
December 31, 1997
<TABLE>
<CAPTION>
Mutual
Capital Growth and High Income Money Discovery
Growth Income Income Securities Market Securities
Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Capital Growth Fund, 7,314 shares, cost $98,842 $98,154 - - - - -
Growth and Income Fund, 110,377 shares, cost $1,721,674 - 2,319,030 - - - -
High Income Fund, 126,991 shares, cost $1,595,578 - - 1,836,297 - - -
Income Securities Fund, 64,974 shares, cost $1,045,255 - - - 1,193,580 - -
Money Market Fund, 712,297 shares, cost $712,297 - - - - 712,297 -
Mutual Discovery Securities Fund, 29,255 shares, cost $328,822 - - - - - 356,036
- ---------------------------------------------------------------------------------------------------------------------------
Total assets 98,154 2,319,030 1,836,297 1,193,580 712,297 356,036
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities:
Accrued mortality and expense risk charges 97 1,470 1,346 1,195 1,084 522
Accrued administrative charges 25 367 337 298 271 130
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 122 1,837 1,683 1,493 1,355 652
- ---------------------------------------------------------------------------------------------------------------------------
Net assets $98,032 2,317,193 1,834,614 1,192,087 710,942 355,384
===========================================================================================================================
Policy owners' equity (notes 4 and 5) $98,032 2,317,193 1,834,614 1,192,087 710,942 355,384
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT A
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
December 31, 1997
<TABLE>
<CAPTION>
Mutual Natural Templeton
Shares Resources Real Estate Rising Small Developing
Securities Securities Securities Dividends Cap Markets
Fund Fund Fund Fund Fund Equity Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Mutual Shares Securities Fund, 75,498 shares,
cost $866,245 $919,568 - - - - -
Natural Resources Securities Fund, 9,348 shares,
cost $127,758 - 106,663 - - - -
Real Estate Securities Fund, 25,299 shares,
cost $500,132 - - 647,660 - - -
Rising Dividends Fund, 33,345 shares, cost $502,078 - - - 656,227 - -
Small Cap Fund, 23,878 shares, cost $333,287 - - - - 359,369 -
Templeton Developing Markets Equity Fund, 61,879 shares,
cost $706,025 - - - - - 636,734
- ---------------------------------------------------------------------------------------------------------------------------
Total assets 919,568 106,663 647,660 656,227 359,369 636,734
Liabilities:
Accrued mortality and expense risk charges 1,059 937 1,098 1,049 1,222 1,076
Accrued administrative charges 264 233 274 263 306 269
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,323 1,170 1,372 1,312 1,528 1,345
Net assets $918,245 105,493 646,288 654,915 357,841 635,389
===========================================================================================================================
Policy owners' equity (notes 4 and 5) $918,245 105,493 646,288 654,915 357,841 635,389
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT A
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
December 31, 1997
<TABLE>
<CAPTION>
Templeton
Templeton Templeton Templeton Templeton International Templeton
Global Asset Global Global Income International Smaller Pacific
Allocation Growth Securities Equity Companies Growth
Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Templeton Global Asset Allocation Fund,
22,777 shares, cost $259,422 $312,501 - - - - -
Templeton Global Growth Fund,
84,015 shares, cost $1,093,744 - 1,288,788 - - - -
Templeton Global Income Securities Fund,
11,761 shares, cost $150,515 - - 152,543 - - -
Templeton International Equity Fund, 89,852 shares,
cost $1,291,827 - - - 1,448,409 - -
Templeton International Smaller Companies Fund,
1,135 shares, cost $13,585 - - - - 12,510 -
Templeton Pacific Growth Fund,
31,363 shares, cost $426,406 - - - - - 291,047
- ---------------------------------------------------------------------------------------------------------------------------
Total assets 312,501 1,288,788 152,543 1,448,409 12,510 291,047
Liabilities:
Accrued mortality and expense risk charges 554 1,141 891 1,213 32 978
Accrued administrative charges 138 285 222 303 8 244
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 692 1,426 1,113 1,516 40 1,222
Net assets $311,809 1,287,362 151,430 1,446,893 12,470 289,825
===========================================================================================================================
Policy owners' equity (notes 4 and 5) $311,809 1,287,362 151,430 1,446,893 12,470 289,825
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT A
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
December 31, 1997
<TABLE>
<CAPTION>
U.S. Government Utility Zero Zero Zero Total
Securities Equity Coupon Coupon Coupon All
Fund Fund Fund - 2000 Fund - 2005 Fund - 2010 Funds
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
U.S. Government Securities Fund,
63,145 shares, cost $756,643 $878,985 - - - -
Utility Equity Fund, 78,490 shares,
cost $1,104,261 - 1,595,708 - - -
Zero Coupon Fund - 2000,
23,176 shares, cost $260,526 - - 350,879 - -
Zero Coupon Fund - 2005,
20,836 shares, cost $241,831 - - - 355,261 -
Zero Coupon Fund - 2010,
23,008 shares, cost $339,679 - - - - 410,226
- ---------------------------------------------------------------------------------------------------------------------------
Total assets 878,985 1,595,708 350,879 355,261 410,226 16,938,472
Liabilities:
Accrued mortality and expense risk charges 1,030 1,289 519 500 562 20,864
Accrued administrative charges 257 322 130 124 141 5,211
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,287 1,611 649 624 703 26,075
Net assets $877,698 1,594,097 350,230 354,637 409,523 16,912,397
- ---------------------------------------------------------------------------------------------------------------------------
Policy owners' equity (notes 4 and 5) $877,698 1,594,097 350,230 354,637 409,523 16,912,397
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT A
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Operations
For the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Adjustable
U.S. Government Fund Capital Growth Fund Growth and Income Fund
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $- 18,030 1,373 7 - - 61,679 28,758 10,179
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges - 740 139 96 2 - 14,386 9,969 5,842
Administrative charges - 185 35 24 - - 3,597 2,492 1,460
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses - 925 174 120 2 - 17,983 12,461 7,302
- ---------------------------------------------------------------------------------------------------------------------------
Investment income (loss), net - 17,105 1,199 (113) (2) - 43,696 16,297 2,877
Realized gains (losses) and
unrealized appreciation (depreciation)on
investments:
Realized capital gain distributions on
mutual funds - - - - - - 59,819 101,857 22,157
investments, net - (10,027) 35 (11) - - 75,044 25,750 20,358
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on investments, net - (10,027) 35 (11) - 134,863 127,607 42,515
Net change in unrealized appreciation
(depreciation)on investments - (200) 240 (548) (140) 283,057 37,916 184,273
- ---------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses)
and unrealized appreciation
(depreciation) on investments, net - (10,227) 275 (559)(140) - 417,920 165,523 226,788
Net increase (decrease) in net assets
from operations $- 6,878 1,474 (672)(142) - 461,616 181,820 229,665
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT A
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Operations (cont.)
For the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Investment Grade
High Income Fund Income Securities Fund Intermediate Bond Fund
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $153,512 167,136 78,044 71,443 33,370 19,772 - 3,706 3,949
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges 12,094 12,310 7,709 7,189 4,656 2,265 - 366 529
Administrative charges 3,023 3,077 1,927 1,797 1,164 566 - 91 132
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 15,117 15,387 9,636 8,986 5,820 2,831 - 457 661
- ---------------------------------------------------------------------------------------------------------------------------
Investment income (loss), net 138,395 151,749 68,408 62,457 27,550 16,941 - 3,249 3,288
Realized gains (losses) and
unrealized appreciation (depreciation)
on investments:
Realized capital gain distributions
on mutual funds 5,036 8,872 - 15,347 5,550 1,592 - - -
Realized gains (losses) on sales
of investments, net 43,795 33,892 7,610 7,042 2,373 721 - 1,981 1,106
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on
investments, net 48,831 42,764 7,610 22,389 7,923 2,313 - 1,981 1,106
Net change in unrealized appreciation
(depreciation) on investments 4,999 26,432 122,964 68,874 37,183 47,314 - (3,575) 2,630
- ---------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses) and
unrealized appreciation
(depreciation) on investments, net 53,830 69,196 130,574 91,263 45,106 49,627 - (1,594) 3,736
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations $192,225 220,945 198,982 153,720 72,656 66,568 - 1,655 7,024
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT A
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Operations (cont.)
For the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Mutual Discovery Mutual Shares
Money Market Fund Securities Fund Securities Fund
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $35,286 32,922 33,164 40 - - 72 - -
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges 4,368 4,291 4,898 1,140 22 - 2,067 31 -
Administrative charges 1,092 1,073 1,225 285 5 - 517 8 -
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 5,460 5,364 6,123 1,425 27 - 2,584 39 -
Investment income (loss), net 29,826 27,558 27,041 (1,385) (27) - (2,512) (39) -
Realized gains (losses) and unrealized
appreciation (depreciation)
on investments:
Realized capital gain distributions on
mutual funds - - - - - - - - -
Realized gains (losses) on sales of
investments, net - - - 166 - - 2,034 2 -
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on investments, net - - - 166 - - 2,034 2 -
Net change in unrealized appreciation (depreciation)
on investments - - - 26,719 495 - 51,689 1,634 -
- ---------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses) and unrealized
appreciation (depreciation) on
investments, net - - - 26,885 495 - 53,723 1,636 -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations $29,826 27,558 27,041 25,500 468 - 51,211 1,597 -
============================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT A
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Operations (cont.)
For the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Natural Resources Securities Fund Real Estate Securities Fund Rising Dividends Fund
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $1,844 2,102 3,600 12,965 7,943 3,875 5,990 3,981 1,695
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges 416 1,012 2,489 3,466 1,883 833 3,657 1,632 587
Administrative charges 104 253 622 867 471 208 914 408 147
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 520 1,265 3,111 4,333 2,354 1,041 4,571 2,040 734
- ---------------------------------------------------------------------------------------------------------------------------
Investment income (loss), net 1,324 837 489 8,632 5,589 2,834 1,419 1,941 961
Realized gains (losses) and
unrealized appreciation (depreciation)
on investments:
Realized capital gain distributions
on mutual funds - 1,927 2,665 6,191 - - 10,229 - -
Realized gains (losses) on sales of
investments, net (1,936) 14,498 15,031 17,125 1,980 3,559 18,073 2,703 463
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on
investments, net (1,936) 16,425 17,696 23,316 1,980 3,559 28,302 2,703 463
Net change in unrealized appreciation
(depreciation) on investments (25,118) (8,994) (10,144) 57,737 58,343 14,488 93,007 44,265 19,701
- ---------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses)
and unrealized appreciation
(depreciation) on investments, net (27,054) 7,431 7,552 81,053 60,323 18,047 121,309 46,968 20,164
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations ($25,730) 8,268 8,041 89,685 65,912 20,881 122,728 48,909 21,125
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT A
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Operations (cont.)
For the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Templeton Developing Markets Templeton Global
Small Cap Fund Equity Fund Asset Allocation Fund
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $384 - - 10,159 2,914 562 7,863 228 4
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges 1,277 105 - 3,802 2,551 3,898 2,512 2,065 25
Administrative charges 319 26 - 950 638 975 628 516 6
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 1,596 131 - 4,752 3,189 4,873 3,140 2,581 31
- ---------------------------------------------------------------------------------------------------------------------------
Investment income (loss), net (1,212) (131) - 5,407 (275) (4,311) 4,723 (2,353) (27)
Realized gains (losses) and unrealized
appreciation (depreciation)
on investments:
Realized capital gain distributions
on mutual funds 4,546 - - 16,114 5,391 132 2,268 456 -
Realized gains (losses) on sales of
investments, net 2,723 472 - 1,960 2,603 (585) 23,197 12,194 17
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on
investments, net 7,269 472 - 18,074 7,994 (453) 25,465 12,650 17
Net change in unrealized appreciation
(depreciation) on investments 22,458 3,624 - (127,265) 56,503 4,422 11,716 41,378 (15)
- ---------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses) and
unrealized appreciation (depreciation)
on investments, net 29,727 4,096 - (109,191) 64,497 3,969 37,181 54,028 2
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations $28,515 3,965 - (103,784) 64,222 (342) 41,904 51,675 (25)
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT A
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Operations (cont.)
For the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Templeton Global Templeton Global Templeton International
Growth Fund Income Securities Fund Equity Fund
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $15,984 8,202 1,137 10,037 7,568 2,871 33,230 19,177 6,289
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges 7,051 3,948 1,255 903 745 470 8,366 6,014 2,178
Administrative charges 1,763 987 314 226 186 118 2,092 1,504 545
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 8,814 4,935 1,569 1,129 931 588 10,458 7,518 2,723
Investment income (loss), net 7,170 3,267 (432) 8,908 6,637 2,283 22,772 11,659 3,566
Realized gains (losses) and unrealized
appreciation (depreciation)
on investments:
Realized capital gain distributions
on mutual funds 5,328 8,202 - - - - 50,952 23,468 7,792
Realized gains (losses) on sales of
investments, net 15,707 2,914 587 668 432 392 13,328 4,043 606
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on
investments, net 21,035 11,116 587 668 432 392 64,280 27,511 8,398
Net change in unrealized appreciation
(depreciation) on investments 80,562 91,158 23,468 (6,915) 2,837 6,634 25,384 114,314 19,054
- ---------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses) and
unrealized appreciation (depreciation)
on investments, net 101,597 102,274 24,055 (6,247) 3,269 7,026 89,664 141,825 27,452
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations $108,767 105,541 23,623 2,661 9,906 9,309 112,436 153,484 31,018
============================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT A
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Operations (cont.)
For the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Templeton International Templeton U.S Government
Smaller Companies Fund Pacific Growth Fund Securities Fund
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $17 - - 8,455 10,710 4,502 52,576 45,170 41,763
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges 29 3 - 214 2,726 1,485 5,796 4,926 3,974
Administrative charges 7 1 - 53 682 371 1,449 1,231 994
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 36 4 - 267 3,408 1,856 7,245 6,157 4,968
Investment income (loss), net (19) (4) - 8,188 7,302 2,646 45,331 39,013 36,795
Realized gains (losses) and unrealized
appreciation (depreciation)
on investments:
Realized capital gain distributions
on mutual funds - - - - 6,208 1,872 - - -
Realized gains (losses) on sales of
investments, net (2) 119 - 907 6,092 1,245 27,003 18,468 7,473
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses)
on investments, net (2) 119 - 907 12,300 3,117 27,003 18,468 7,473
Net change in unrealized appreciation
(depreciation) on investments (1,075) - - (164,185) 12,362 13,125 136 (37,068) 56,173
- ---------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses) and unrealized
appreciation (depreciation) on
investments, net (1,077) 119 - (163,278) 24,662 16,242 27,139 (18,600) 63,646
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations ($1,096) 115 - (155,090) 31,964 18,888 72,470 20,413 100,441
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT A
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Operations (cont.)
For the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Utility Equity Fund Zero Coupon Fund - 1995 Zero Coupon Fund - 2000
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $66,211 75,714 70,912 - - 17,379 24,296 19,213 13,993
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges 9,862 11,220 8,983 - - (594) 2,223 2,212 2,179
Administrative charges 2,466 2,805 2,246 - - (149) 556 553 545
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 12,328 14,025 11,229 - - (743) 2,779 2,765 2,724
Investment income (loss), net 53,883 61,689 59,683 - - 18,122 21,517 16,448 11,269
Realized gains (losses) and unrealized
appreciation (depreciation)
on investments:
Realized capital gain distributions
on mutual funds 91,611 - - - - 86 550 190 -
Realized gains (losses) on sales of
investments, net 59,135 118,555 23,410 - - 37,619 5,922 2,734 1,164
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on
investments, net 150,746 118,555 23,410 - - 37,705 6,472 2,924 1,164
Net change in unrealized appreciation
(depreciation) on investments 116,553 (93,370) 259,686 - -(37,457) (6,554) (13,736) 44,013
- ---------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses) and
unrealized appreciation (depreciation)
on investments, net 267,299 25,185 283,096 - - 248 (82) (10,812) 45,177
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations $321,182 86,874 342,779 - - 18,370 21,435 5,636 56,446
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT A
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Operations (cont.)
For the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Zero Coupon Fund - 2005 Zero Coupon Fund - 2010 Total All Funds
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in
fund shares $25,018 19,668 12,928 22,065 8,167 3,109 619,133 514,679 331,100
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense
risk charges 2,373 2,270 2,227 2,535 1,411 916 95,822 77,110 52,287
Administrative charges 593 568 557 634 353 229 23,956 19,277 13,073
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 2,966 2,838 2,784 3,169 1,764 1,145 119,778 96,387 65,360
- ---------------------------------------------------------------------------------------------------------------------------
Investment income
(loss), net 22,052 16,830 10,144 18,896 6,403 1,964 499,355 418,292 265,740
Realized gains (losses) and
unrealized appreciation
(depreciation) on investments:
Realized capital gain distributions
on mutual funds 87 - - 176 2,213 - 268,254 164,334 36,296
Realized gains (losses) on
sales of investments, net 11,706 4,146 1,495 1,074 6,865 258 324,660 252,789 122,564
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on
investments, net 11,793 4,146 1,495 1,250 9,078 258 592,914 417,123 158,860
Net change in unrealized
appreciation (depreciation)
on investments 1,480 (21,955) 68,320 35,571 4,806 32,162 548,282 354,212 871,051
- ---------------------------------------------------------------------------------------------------------------------------
Total realized gains
(losses) and unrealized
appreciation (depreciation)
on investments, net 13,273 (17,809) 69,815 36,821 13,884 32,420 1,141,196 771,335 1,029,911
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets from operations $35,325 (979) 79,959 55,717 20,287 34,384 1,640,551 1,189,627 1,295,651
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT A
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Changes in Net Assets
For the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Adjustable
U.S. Government Fund Capital Growth Fund Growth and Income Fund
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $- 17,105 1,199 (113) (2) - 43,696 16,297 2,877
Realized gains (losses) on
investments, net - (10,027) 35 (11) - - 134,863 127,607 42,515
Net change in unrealized appreciation
(depreciation) on investments - (200) 240 (548) (140) - 283,057 37,916 184,273
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets from operations - 6,878 1,474 (672) (142) - 461,616 181,820 229,665
- ---------------------------------------------------------------------------------------------------------------------------
Policy transactions (note 4):
Purchase payments - 6,969 12,633 - - - 387,084 347,781 233,408
Transfers between funds - (34,766) 11,222 94,715 4,560 - 194,269 289,040 111,030
Surrenders and terminations - (1,178) - - - - (271,440) (28,415) (54,886)
Policy loan transactions - 74 (1,764) - - - 3,110 8,174 842
Other transactions (note 2) - (2,842) (6,127) (429) - - (163,700) (145,312) (92,875)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
policy transactions - (31,743) 15,964 94,286 4,560 - 149,323 471,268 197,519
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets - (24,865) 17,438 93,614 4,418 - 610,939 653,088 427,184
Net assets at beginning of year - 24,865 7,427 4,418 - - 1,706,254 1,053,166 625,982
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $- - 24,865 98,032 4,418 - 2,317,193 1,706,254 1,053,166
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT A
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Investment Grade
High Income Fund Income Securities Fund Intermediate Bond Fund
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income
(loss), net $138,395 151,749 68,408 62,457 27,550 16,941 - 3,249 3,288
Realized gains (losses)
on investments, net 48,831 42,764 7,610 22,389 7,923 2,313 - 1,981 1,106
Net change in unrealized
appreciation (depreciation)
on investments 4,999 26,432 122,964 68,874 37,183 47,314 - (3,575) 2,630
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets
from operations 192,225 220,945 198,982 153,720 72,656 66,568 - 1,655 7,024
---------------------------------------------------------------------------------------------------------------------------
Policy transactions (note 4):
Purchase payments 50,642 57,851 44,935 255,347 275,281 223,737 - 11,940 14,163
Transfers between funds (140,178) 344,787 37,055 46,671 120,002 186,849 - (72,421) 8,123
Surrenders and
terminations (67,891) (3,551) (14,331) (11,918) (20,210) (14,487) - (751)(40,771)
Policy loan transactions (33,557) 8,073 1,359 (25,240) (4,239) (19,420) - - -
Other transactions
(note 2) (41,580) (35,494) (32,177) (96,044) (98,005) (89,585) - (5,413) (7,440)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from policy transactions (232,564) 371,666 36,841 168,816 272,829 287,094 - (66,645)(25,925)
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (40,339) 592,611 235,823 322,536 345,485 353,662 - (64,990)(18,901)
Net assets at beginning of year 1,874,953 1,282,342 1,046,519 869,551 524,066 170,404 - 64,990 83,891
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $1,834,614 1,874,953 1,282,342 1,192,087 869,551 524,066 - - 64,990
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT A
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Mutual Discovery Mutual Shares
Money Market Fund Securities Fund Securities Fund
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $29,826 27,558 27,041 (1,385) (27) - (2,512) (39) -
Realized gains (losses) on
investments, net - - - 166 - - 2,034 2 -
Net change in unrealized
appreciation (depreciation)
on investments - - - 26,719 495 - 51,689 1,634 -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets from operations 29,826 27,558 27,041 25,500 468 - 51,211 1,597 -
Policy transactions (note 4):
Purchase payments 1,996,782 2,288,562 1,140,571 - - - 16,585 - -
Transfers between funds (2,136,510) (2,221,762) (843,539) 281,309 50,000 - 776,453 84,053 -
Surrenders and terminations (52,158) (27,431) (48,126) - - - - - -
Policy loan transactions (25,633) (5,692) (251) - - - (1,956) - -
Other transactions (note 2) 168,886 (13,338) (124,409) (1,893) - - (9,654) (44) -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
policy transactions (48,633) 20,339 124,246 279,416 50,000 - 781,428 84,009 -
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (18,807) 47,897 151,287 304,916 50,468 - 832,639 85,606 -
Net assets at beginning of year 729,749 681,852 530,565 50,468 - - 85,606 - -
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $710,942 729,749 681,852 355,384 50,468 - 918,245 85,606 -
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT A
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Natural Resources Real Estate Rising
Securities Fund Securities Fund Dividends Fund
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income
(loss), net $1,324 837 489 8,632 5,589 2,834 1,419 1,941 961
Realized gains (losses) on
investments, net (1,936) 16,425 17,696 23,316 1,980 3,559 28,302 2,703 463
Net change in unrealized
appreciation (depreciation)
on investments (25,118) (8,994) (10,144) 57,737 58,343 14,488 93,007 44,265 19,701
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets from
operations (25,730) 8,268 8,041 89,685 65,912 20,881 122,728 48,909 21,125
- ---------------------------------------------------------------------------------------------------------------------------
Policy transactions (note 4):
Purchase payments 15,837 18,730 24,963 92,480 67,454 53,203 108,408 74,745 52,764
Transfers between funds (5,829) (46,431) 23,956 176,166 86,682 38,779 193,808 86,767 38,476
Surrenders and
terminations (52) (7,791) (81,139) (2,795) (1,098) (8,139) (17,668) (7,693) (264)
Policy loan transactions 172 (524) 282 (15,416) (1,340) (145) (5,874) (1,876) -
Other transactions (note 2) (6,922) (9,019) (12,614) (43,348) (27,619) (23,363) (51,398) (33,070) (19,499)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from policy transactions 3,206 (45,035) (44,552) 207,087 124,079 60,335 227,276 118,873 71,477
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (22,524) (36,767) (36,511) 296,772 189,991 81,216 350,004 167,782 92,602
Net assets at beginning of year 128,017 164,784 201,295 349,516 159,525 78,309 304,911 137,129 44,527
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $105,493 128,017 164,784 646,288 349,516 159,525 654,915 304,911 137,129
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT A
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Templeton Developing Markets Templeton Global
Small Cap Fund Equity Fund Asset Allocation Fund
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net ($1,212) (131) - 5,407 (275) (4,311) 4,723 (2,353) (27)
Realized gains (losses) on
investments, net 7,269 472 - 18,074 7,994 (453) 25,465 12,650 17
Net change in unrealized appreciation
(depreciation) on investments 22,458 3,624 - (127,265) 56,503 4,422 11,716 41,378 (15)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets from operations 28,515 3,965 - (103,784) 64,222 (342) 41,904 51,675 (25)
- ---------------------------------------------------------------------------------------------------------------------------
Policy transactions (note 4):
Purchase payments 44,998 683 - 191,340 215,896 169,165 430 439 -
Transfers between funds 248,658 51,952 - 2,200 267,310 63,297 (108,898) 333,332 311
Surrenders and terminations (965) 75 - (24,839) (10,080) (18,763) (108) - -
Policy loan transactions - - - (20,884) (2,638) - - - -
Other transactions (note 2) (19,801) (239) - (77,790) (73,383) (61,489) (5,240) (1,945) (66)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
policy transactions 272,890 52,471 - 70,027 397,105 152,210 (113,816) 331,826 245
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 301,405 56,436 - (33,757) 461,327 151,868 (71,912) 383,501 220
Net assets at beginning of year 56,436 - - 669,146 207,819 55,951 383,721 220 -
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $357,841 56,436 - 635,389 669,146 207,819 311,809 383,721 220
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT A
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Templeton Global Templeton Global Templeton International
Growth Fund Income Securities Fund Equity Fund
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income
(loss), net $7,170 3,267 (432) 8,908 6,637 2,283 22,772 11,659 3,566
Realized gains (losses)
on investments, net 21,035 11,116 587 668 432 392 64,280 27,511 8,398
Net change in unrealized
appreciation (depreciation)
on investments 80,562 91,158 23,468 (6,915) 2,837 6,634 25,384 114,314 19,054
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets from
operations 108,767 105,541 23,623 2,661 9,906 9,309 112,436 153,484 31,018
- ---------------------------------------------------------------------------------------------------------------------------
Policy transactions (note 4):
Purchase payments 317,636 335,873 237,156 42,795 39,862 42,908 359,829 371,300 297,409
Transfers between
funds 272,672 119,840 114,188 (1,929) 9,506 18,457 170,913 100,214 206,753
Surrenders and
terminations (35,910) (12,771) (6,710) (1,422) (2,101) (6,040) (30,410) (30,572) (9,230)
Policy loan transactions (19,640) (8,767) (3,177) (2,728) (425) (638) (37,789) (10,040) (1,799)
Other transactions (note 2) (131,055) (113,183) (83,481) (17,463) (16,260) (17,786) (138,095) (129,653)(110,168)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from policy transactions 403,703 320,992 257,976 19,253 30,582 36,901 324,448 301,249 382,965
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in
net assets 512,470 426,533 281,599 21,914 40,488 46,210 436,884 454,733 413,983
Net assets at beginning
of year 774,892 348,359 66,760 129,516 89,028 42,818 1,010,009 555,276 141,293
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end
of year $1,287,362 774,892 348,359 151,430 129,516 89,028 1,446,893 1,010,009 555,276
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT A
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Templeton International Templeton U.S Government
Smaller Companies Fund Pacific Growth Fund Securities Fund
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net ($19) (4) - 8,188 7,302 2,646 45,331 39,013 36,795
Realized gains (losses) on
investments, net (2) 119 - 907 12,300 3,117 27,003 18,468 7,473
Net change in unrealized appreciation
(depreciation) on investments (1,075) - - (164,185) 12,362 13,125 136 (37,068) 56,173
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets from operations (1,096) 115 - (155,090) 31,964 18,888 72,470 20,413 100,441
- ---------------------------------------------------------------------------------------------------------------------------
Policy transactions (note 4):
Purchase payments - - - 134,478 181,194 141,914 40,913 26,467 25,128
Transfers between funds 13,608 (115) - (41,449) 14,234 74,887 (108,226) 261,674 24,109
Surrenders and terminations - - - (10,217) (20,255) (10,270) (20,318) (7,837) (18,462)
Policy loan transactions - - - (13,651) (2,894) (27,456) (7,823) (424) (2,060)
Other transactions (note 2) (42) - - (52,839) (73,664) (64,733) (27,460) (19,100) (16,258)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
policy transactions 13,566 (115) - 16,322 98,615 114,342 (122,914) 260,780 12,457
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 12,470 - - (138,768) 130,579 133,230 (50,444) 281,193 112,898
Net assets at beginning of year - - - 428,593 298,014 164,784 928,142 646,949 534,051
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $12,470 - - 289,825 428,593 298,014 877,698 928,142 646,949
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT A
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Utility Equity Fund Zero Coupon Fund - 1995 Zero Coupon Fund - 2000
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $53,883 61,689 59,683 - - 18,122 21,517 16,448 11,269
Realized gains (losses) on
investments, net 150,746 118,555 23,410 - - 37,705 6,472 2,924 1,164
Net change in unrealized
appreciation (depreciation)
on investments 116,553 (93,370) 259,686 - - (37,457) (6,554) (13,736) 44,013
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets from
operations 321,182 86,874 342,779 - - 18,370 21,435 5,636 56,446
Policy transactions (note 4):
Purchase payments 116,828 127,511 116,016 - - - - - -
Transfers between funds (67,788) (163,650) 124,589 - - (270,886) (17,434) - 10,631
Surrenders and terminations (8,311) (80,389) (35,449) - - - - - -
Policy loan transactions (60,609) (97,734) (13,309) - - - (73) (64) (64)
Other transactions (note 2) (60,143) (65,596) (62,877) - - (2,815) (4,421) (4,271) (3,831)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from policy transactions (80,023) (279,858) 128,970 - - (273,701) (21,928) (4,335) 6,736
Increase (decrease) in net assets 241,159 (192,984) 471,749 - - (255,331) (493) 1,301 63,182
Net assets at beginning of year 1,352,938 1,545,922 1,074,173 - - 255,331 350,723 349,422 286,240
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $1,594,097 1,352,938 1,545,922 - - - 350,230 350,723 349,422
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT A
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Zero Coupon Fund - 2005 Zero Coupon Fund - 2010 Total All Funds
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $22,052 16,830 10,144 18,896 6,403 1,964 499,355 418,292 265,740
Realized gains (losses) on
investments, net 11,793 4,146 1,495 1,250 9,078 258 592,914 417,123 158,860
Net change in unrealized
appreciation (depreciation)
on investments 1,480 (21,955) 68,320 35,571 4,806 32,162 548,282 354,212 871,051
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets
from operations 35,325 (979) 79,959 55,717 20,287 34,384 1,640,551 1,189,627 1,295,651
Policy transactions (note 4):
Purchase payments - - - - - - 4,172,412 4,448,538 2,830,073
Transfers between funds (61,213) 57,145 - 3,652 223,644 - (214,360) (34,403) (21,713)
Surrenders and
terminations - (3,894) - - - - (556,422) (265,942) (367,067)
Policy loan transactions - - (687) (183) (176) (169) (267,774) (120,512) (68,456)
Other transactions
(note 2) (4,798) (4,109) (3,625) (5,717) (3,437) (1,657) (790,946) (874,996) (836,875)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from policy
transactions (66,011) 49,142 (4,312) (2,248) 220,031 (1,826) 2,342,910 3,152,685 1,535,962
Increase (decrease) in net assets (30,686) 48,163 75,647 53,469 240,318 32,558 3,983,461 4,342,312 2,831,613
Net assets at beginning
of year 385,323 337,160 261,513 356,054 115,736 83,178 12,928,936 8,586,624 5,755,011
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end
of year $354,637 385,323 337,160 409,523 356,054 115,736 16,912,397 12,928,936 8,586,624
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT A
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements
December 31, 1997
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. and its Templeton and Franklin affiliates, 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. Gains on the sale of fund shares are 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 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. The Capital Growth Fund
and Templeton International Smaller Companies Fund were added as available
investment options on May 1, 1996. The Mutual Discovery Securities Fund and
Mutual Shares Securities Fund were added as available investment options on
November 8, 1996.
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT A
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements (continued)
December 31, 1997
2. SIGNIFICANT ACCOUNTING POLICIES (cont.)
Investments (cont.)
The Investment Grade Intermediate Bond Fund and Adjustable U.S. Government Fund
were closed on October 25, 1996 when shares of the U.S. Government Securities
Fund were substituted for all shares of both funds.
On May 1, 1995, the Equity Growth Fund name was changed to Growth and Income
Fund. The Global Income Fund name was changed to Templeton Global Income
Securities Fund on May 1, 1996. The Precious Metals Fund name was changed to
Natural Resources Securities Fund on May 1, 1997.
Expenses
Asset Based Expenses
A mortality and expense risk charge is deducted from the Variable Account on a
daily basis 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, 1997, 1996
and 1995 were $832,417, $715,700, and $581,193, 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, 1997, 1996 and 1995 were $37,629, $28,152, and $28,613, 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, 1997, 1996 and 1995 were $211,485, $204,321, and $292,695,
respectively.
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, 1997, 1996 and 1995,
respectively. Net transfers to the Fixed Account during the years ended December
31, 1997, 1996 and 1995 were $214,360, $34,403, and $21,713, 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.
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT A
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements (continued)
December 31, 1997
3. 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.
4. POLICY TRANSACTIONS - UNIT ACTIVITY
Transactions in units for each fund for the years ended December 31, 1997, 1996
and 1995, were as follows:
<TABLE>
<CAPTION>
Adjustable Growth Investment Mutual Mutual
U.S Capital and High Income Grade Money Discovery Shares
Government Growth Income Income Securities Intermediate Market Securities Securities
Fund Fund Fund Fund Fund Bond Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Units outstanding at
December 31, 1994 654 - 29,795 63,380 10,514 6,002 37,381 - -
Policy transactions:
Purchase payments 1,060 - 9,561 2,463 12,397 963 77,441 - -
Transfers between funds 966 - 4,664 1,925 10,593 562 (57,166) - -
Surrenders and terminations - - (2,237) (772) (783) (2,761) (3,275) - -
Policy loan transactions (151) - 38 75 (1,137) - (17) - -
Other transactions (516) - (3,800) (1,738) (4,970) (507) (8,596) - -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in units
resulting from policy
transactions 1,359 - 8,226 1,953 16,100 (1,743) 8,387 - -
- ---------------------------------------------------------------------------------------------------------------------------
Units outstanding at December 31, 1995 2,013 - 38,021 65,333 26,614 4,259 45,768 - -
===========================================================================================================================
Policy transactions:
Purchase payments 553 - 12,119 2,801 13,495 778 147,764 - -
Transfers between funds (2,257) 391 9,962 17,863 5,904 (4,635) (143,612) 4,953 8,284
Surrenders and terminations (94) - (1,005) (177) (1,004) (49) (1,836) - -
Policy loan transactions 6 - 311 405 (212) - (376) - -
Other transactions (221) - (5,057) (1,722) (4,812) (353) (778) - (4)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in units
resulting from policy
transactions (2,013) 391 16,330 19,170 13,371 (4,259) 1,162 4,953 8,280
- ---------------------------------------------------------------------------------------------------------------------------
Units outstanding at December 31, 1996 - 391 54,351 84,503 39,985 - 46,930 4,953 8,280
===========================================================================================================================
Policy transactions:
Purchase payments - - 10,974 2,141 11,090 - 125,344 - 1,460
Transfers between funds - 7,029 5,516 (5,679) 1,881 - (120,861) 24,650 67,284
Surrenders and terminations - - (7,932) (3,022) (513) - (3,267) - -
Policy loan transactions - - (68) (1,471) (1,113) - (1,621) - (184)
Other transactions - (34) (4,624) (1,789) (4,161) - (2,758) (164) (841)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in units
resulting from policy transactions - 6,995 3,866 (9,820) 7,184 - (3,163 24,486 67,719
- ---------------------------------------------------------------------------------------------------------------------------
Units outstanding at December 31, 1997 - 7,386 58,217 74,683 47,169 - 43,767 29,439 75,999
===========================================================================================================================
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT A
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements (continued)
December 31, 1997
4. POLICY TRANSACTIONS - UNIT ACTIVITY (cont.)
<TABLE>
<CAPTION>
Natural Templeton Templeton Templeton Templeton Templeton
Resources Real Estate Rising Small Developing Global Asset Global Global Income International
Securities Securities Dividends Cap Markets Allocation Growth Securities Equity
Fund Fund Fund Fund Equity Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Units outstanding at
December 31, 1994 13,441 4,368 4,474 - 6,099 - 6,748 3,175 11,403
Policy transactions:
Purchase payments 1,662 2,884 4,625 - 18,183 - 22,517 2,992 22,647
Transfers between funds 1,698 2,056 3,323 - 6,624 27 11,063 1,333 15,984
Surrenders and terminations (5,150) (427) (23) - (2,067) - (627) (416) (691)
Policy loan transactions 20 (7) - - (211) - (307) (44) (130)
Other transactions (840) (1,246) (1,699) - (6,418) (6) (7,923) (1,239) (8,383)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in units resulting from
policy transactions (2,610) 3,260 6,226 - 16,111 21 24,723 2,626 29,427
- ---------------------------------------------------------------------------------------------------------------------------
Units outstanding at
December 31, 1995 10,831 7,628 10,700 - 22,210 21 31,471 5,801 40,830
===========================================================================================================================
Policy transactions:
Purchase payments 1,115 2,975 5,400 54 20,769 39 28,048 2,551 24,859
Transfers between funds (2,791) 3,397 6,298 4,297 24,526 30,441 9,880 609 6,586
Surrenders and terminations (438) (51) (581) 6 (952) - (1,089) (138) (2,070)
Policy loan transactions (29) (62) (134) - (251) - (718) (26) (665)
Other transactions (536) (1,209) (2,379) (19) (7,042) (169) (9,435) (1,041) (8,691)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in units resulting from
policy transactions (2,679) 5,050 8,604 4,338 37,050 30,311 26,686 1,955 20,019
- ---------------------------------------------------------------------------------------------------------------------------
Units outstanding at
December 31, 1996 8,152 12,678 19,304 4,338 59,260 30,332 58,157 7,756 60,849
===========================================================================================================================
Policy transactions:
Purchase payments 1,090 3,106 5,847 3,088 15,655 31 21,703 2,567 19,816
Transfers between funds (400) 5,867 10,275 17,595 (2,887) (7,728) 18,498 (108) 9,327
Surrenders and terminations (6) (93) (909) (74) (1,900) (9) (2,308) (85) (1,686)
Policy loan transactions (7) (534) (334) - (1,728) - (1,348) (164) (2,099)
Other transactions (475) (1,455) (2,780) (1,348) (6,291) (396) (8,935) (1,050) (7,573)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in units resulting from
policy transactions 202 6,891 12,099 19,261 2,849 (8,102) 27,610 1,160 17,785
- ---------------------------------------------------------------------------------------------------------------------------
Units outstanding at
December 31, 1997 8,354 19,569 31,403 23,599 62,109 22,230 85,767 8,916 78,634
===========================================================================================================================
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT A
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements (continued)
December 31, 1997
4. POLICY TRANSACTIONS - UNIT ACTIVITY (cont.)
<TABLE>
<CAPTION>
Templeton
International Templeton U.S. Zero Zero Zero Zero
Smaller Pacific Government Utility Coupon Coupon Coupon Coupon Total
Companies Growth Securities Equity Fund - Fund - Fund - Fund - All
Fund Fund Fund Fund 1995 2000 2005 2010 Funds
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Units outstanding at December 31, 1994 - 12,635 31,714 59,969 14,325 14,594 12,559 3,804 347,034
Policy transactions:
Purchase payments - 10,718 1,355 5,744 - - - - 197,212
Transfers between funds - 5,757 1,281 6,185 (14,174) 458 - - 3,159
Surrenders and terminations - (779) (965) (1,893) - - - - (22,866)
Policy loan transactions - (2,141) (111) (695) - (3) (30) (6) (4,857)
Other transactions - (4,868) (872) (3,112) (151) (175) (147) (63) (57,269)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in units
resulting from policy transactions - 8,687 688 6,229 (14,325) 280 (177) (69) 115,379
- ---------------------------------------------------------------------------------------------------------------------------
Units outstanding at December 31, 1995 - 21,322 32,402 66,198 - 14,874 12,382 3,735 462,413
===========================================================================================================================
Policy transactions:
Purchase payments - 12,100 1,329 5,397 - - - - 282,146
Transfers between funds - 802 12,856 (6,933) - 1 2,260 8,290 (2,628)
Surrenders and terminations - (1,318) (400) (3,354) - - (149) - (14,699)
Policy loan transactions - (189) (22) (4,007) - (3) - (7) (5,979)
Other transactions - (4,907) (961) (2,782) - (185) (162) (122) (52,587)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in units
resulting from policy transactions - 6,488 12,802 (11,679) - (187) 1,949 8,161 206,253
- ---------------------------------------------------------------------------------------------------------------------------
Units outstanding at December 31, 1996 - 27,810 45,204 54,519 - 14,687 14,331 11,896 668,666
===========================================================================================================================
Policy transactions:
Purchase payments - 9,779 1,925 4,451 - - - - 240,067
Transfers between funds 1,143 (2,629) (5,101) (2,894) - (707) (2,226) 119 17,964
Surrenders and terminations - (759) (952) (304) - - - - (23,819)
Policy loan transactions - (884) (382) (2,428) - (3) - (6) (14,374)
Other transactions (4) (3,737) (1,294) (2,288) - (181) (173) (183) (52,534)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in units
resulting from policy transactions 1,139 1,770 (5,804) (3,463) - (891) (2,399) (70) 167,304
- ---------------------------------------------------------------------------------------------------------------------------
Units outstanding at December 31, 1997 1,139 29,580 39,400 51,056 - 13,796 11,932 11,826 835,970
===========================================================================================================================
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT A
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements (continued)
December 31, 1997
5. UNIT VALUES
A summary of unit values and units outstanding for variable life contracts and
the expense ratios, including expenses of the underlying funds, for each year of
the five-year period ended December 31, 1997 as follows.
<TABLE>
<CAPTION>
Ratio of
Expenses
Units to Average
Outstanding Unit Value Net Assets Net Assets*
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Adjustable U.S. Government Fund
December 31,
19961 18,047 $ 12.873 $ 232,322 1.34+%
1995 2,013 12.352 24,865 1.34
1994 654 11.374 7,427 1.32
1993 403 11.481 4,622 1.33
Capital Growth Fund
December 31,
1997 7,386 13.273 98,032 1.52
19962 391 11.303 4,418 1.52+
Growth and Income Fund
December 31,
1997 58,217 39.803 2,317,193 1.24
1996 54,351 31.393 1,706,254 1.25
1995 38,021 27.700 1,053,166 1.27
1994 29,795 21.010 625,982 1.29
1993 29,140 21.604 629,549 1.33
High Income Fund
December 31,
1997 74,683 24.565 1,834,614 1.28
1996 84,503 22.188 1,874,953 1.29
1995 65,333 19.628 1,282,342 1.31
1994 63,380 16.512 1,046,519 1.35
1993 65,065 17.020 1,107,418 1.39
Income Securities Fund
December 31,
1997 47,169 25.273 1,192,087 1.25
1996 39,985 21.747 869,551 1.25
1995 26,614 19.691 524,066 1.26
1994 10,514 16.208 170,404 1.29
1993 2,104 17.423 36,655 1.31
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT A
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements (continued)
December 31, 1997
5. UNIT VALUES (cont.)
<TABLE>
<CAPTION>
Ratio of
Expenses
Units to Average
Outstanding Unit Value Net Assets Net Assets*
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Grade Intermediate Bond Fund
December 31,
19961 4,699 $ 15.617 $ 73,376 1.35+%
1995 4,259 15.260 64,990 1.36
1994 6,002 13.978 83,891 1.38
1993 582 14.017 8,158 1.41
Money Market Fund
December 31,
1997 43,767 16.244 710,942 1.20
1996 46,930 15.550 729,749 1.18
1995 45,768 14.898 681,852 1.15
1994 37,381 14.194 530,565 1.21
1993 22,430 13.773 308,920 1.41
Mutual Discovery Securities Fund
December 31,
1997 29,439 12.072 355,384 1.81
19963 4,953 10.190 50,468 2.12+
Mutual Shares Securities Fund
December 31,
1997 75,999 12.082 918,245 1.55
19963 8,280 10.339 85,606 1.75+
Natural Resources Securities Fund
December 31,
1997 8,354 12.629 105,493 1.44
1996 8,152 15.704 128,017 1.40
1995 10,831 15.214 164,784 1.41
1994 13,441 14.977 201,295 1.43
1993 7,933 15.396 122,135 1.43
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT A
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements (continued)
December 31, 1997
5. UNIT VALUES (cont.)
<TABLE>
<CAPTION>
Ratio of
Expenses
Units to Average
Outstanding Unit Value Net Assets Net Assets*
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Real Estate Securities Fund
December 31,
1997 19,569 $ 33.025 $ 646,288 1.29%
1996 12,678 27.568 349,516 1.32
1995 7,628 20.913 159,525 1.34
1994 4,368 17.928 78,309 1.37
1993 3,265 17.556 57,318 1.42
Rising Dividends Fund
December 31,
1997 31,403 20.855 654,915 1.49
1996 19,304 15.795 304,911 1.51
1995 10,700 12.816 137,129 1.53
1994 4,474 9.952 44,527 1.55
1993 3,576 10.453 37,377 1.54
Small Cap Fund
December 31,
1997 23,599 15.164 357,841 1.52
1996 4,338 13.011 56,436 1.52
19954 - 10.157 - 1.65+
Templeton Developing Markets Equity Fund
December 31,
1997 62,109 10.230 635,389 2.17
1996 59,260 11.292 669,146 2.24
1995 22,210 9.357 207,819 2.16
19945 6,099 9.173 55,951 2.28+
Templeton Global Asset Allocation Fund
December 31,
1997 22,230 14.027 311,809 1.69
1996 30,332 12.651 383,721 1.61
19956 21 10.637 220 1.65+
Templeton Global Growth Fund
December 31,
1997 85,767 15.010 1,287,362 1.63
1996 58,157 13.324 774,892 1.68
1995 31,471 11.069 348,359 1.72
19945 6,748 9.894 66,760 1.89+
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT A
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements (continued)
December 31, 1997
5. UNIT VALUES (cont.)
<TABLE>
<CAPTION>
Ratio of
Expenses
Units to Average
Outstanding Unit Value Net Assets Net Assets*
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Templeton Global Income Securities Fund
December 31,
1997 8,916 $ 16.985 $ 151,430 1.37%
1996 7,756 16.700 129,516 1.36
1995 5,801 15.347 89,028 1.39
1994 3,175 13.483 42,818 1.46
1993 1,537 14.297 21,976 1.48
Templeton International Equity Fund
December 31,
1997 78,634 18.400 1,446,893 1.64
1996 60,849 16.598 1,010,009 1.64
1995 40,830 13.600 555,276 1.67
1994 11,403 12.390 141,293 1.74
1993 1,368 12.375 16,931 1.87
Templeton International Smaller Companies Fund
December 31,
1997 1,139 10.943 12,470 1.81
19962 - 11.194 - 1.53+
Templeton Pacific Growth Fund
December 31,
1997 29,580 9.798 289,825 1.78
1996 27,810 15.412 428,593 1.74
1995 21,322 13.977 298,014 1.76
1994 12,635 13.042 164,784 1.82
1993 9,924 14.407 142,972 1.89
U.S. Government Securities Fund
December 31,
1997 39,400 22.276 877,698 1.25
1996 45,204 20.532 928,142 1.26
1995 32,402 19.966 646,949 1.27
1994 31,714 16.840 534,051 1.28
1993 38,612 17.775 686,329 1.29
Utility Equity Fund
December 31,
1997 51,056 31.223 1,594,097 1.25
1996 54,519 24.816 1,352,938 1.25
1995 66,198 23.353 1,545,922 1.25
1994 59,969 17.912 1,074,173 1.27
1993 66,241 20.406 1,351,721 1.26
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT A
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements (continued)
December 31, 1997
5. UNIT VALUES (cont.)
<TABLE>
<CAPTION>
Ratio of
Expenses
Units to Average
Outstanding Unit Value Net Assets Net Assets*
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Zero Coupon Fund - 1995
December 31,
19957 10,963 $ 18.957 $ 207,834 1.15+%
1994 14,325 17.823 255,331 1.15
1993 14,511 17.832 258,760 1.11
Zero Coupon Fund - 2000
December 31,
1997 13,796 25.386 350,230 1.15
1996 14,687 23.880 350,723 1.15
1995 14,874 23.491 349,422 1.15
1994 14,594 19.614 286,240 1.15
1993 15,249 21.191 323,131 1.12
Zero Coupon Fund - 2005
December 31,
1997 11,932 29.722 354,637 1.15
1996 14,331 26.888 385,323 1.15
1995 12,382 27.229 337,160 1.15
1994 12,559 20.821 261,513 1.15
1993 16,042 23.198 372,147 1.12
Zero Coupon Fund - 2010
December 31,
1997 11,826 34.629 409,523 1.15
1996 11,896 29.931 356,054 1.15
1995 3,735 30.991 115,736 1.15
1994 3,804 21.866 83,178 1.15
1993 7,408 24.745 183,310 1.00
<FN>
*For the year ended December 31, including the effect of the expenses of the underlying funds.
+Annualized.
1 Period from January 1, 1996 to October 25, 1996 (fund closure).
2 Period from May 1, 1996 (fund commencement) to December 31, 1996.
3 Period from November 8, 1996 (fund commencement) to December 31, 1996.
4 Period from November 1, 1995 (fund commencement) to December 31, 1995.
5 Period from July 1, 1994 (fund commencement) to December 31, 1994.
6 Period from May 1, 1995 (fund commencement) to December 31, 1995.
7 Period from January 1, 1995 to December 15, 1995 (fund closure).
</FN>
</TABLE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1997 and 1996
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
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 and subsidiaries as of December 31, 1997 and
1996, 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,
1997. 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, 1997
and 1996, and the results of their operations, changes in stockholder's equity
and cash flows for each of the years in the three-year period ended December 31,
1997, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 4, 1998
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Financial Statements
Consolidated Balance Sheets
December 31, 1997 and 1996
(in thousands)
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments:
Fixed maturities, at market $ 2,705,210 2,768,306
Equity securities, at market 442,607 327,834
Mortgage loans on real estate 318,683 245,559
Certificates of deposit and short-term securities 117,124 204,972
Policy loans 5,695 103,708
Other invested assets 51,863 44,948
- ---------------------------------------------------------------------------------------------------------------------------
Total investments 3,641,182 3,695,327
Cash 26,871 37,992
Accrued investment income 38,345 36,130
Receivables (net of allowance for uncollectible accounts of $3,122 in 1997 and $4,630 in 1996) 262,676 155,278
Reinsurance receivable:
Funds held on deposit 1,145,210 1,101,716
Recoverable on future policy benefit reserves 1,120,663 48,909
Recoverable on unpaid claims 219,443 142,199
Receivable on paid claims 31,158 18,240
Deferred acquisition costs 927,080 863,338
Other assets 34,475 26,052
Federal income tax recoverable 20,761 12,455
- ---------------------------------------------------------------------------------------------------------------------------
Assets, exclusive of separate account assets 7,467,864 6,137,636
Separate account assets 10,756,929 9,520,561
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $18,224,793 15,658,197
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Financial Statements (Continued)
Consolidated Balance Sheets (cont.)
December 31, 1997 and 1996
(in thousands)
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities:
Future benefit reserves:
Life $ 1,297,269 1,204,633
Annuity 3,251,829 2,879,221
Policy and contract claims 553,113 438,824
Unearned premiums 50,168 32,176
Reinsurance payable 165,582 96,857
Deferred income on reinsurance 150,526 0
Deferred income taxes 228,861 150,760
Accrued expenses 93,341 84,254
Commissions due and accrued 39,517 37,103
Other policyholder funds 30,208 52,267
Other liabilities 389,858 147,364
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities, exclusive of separate account liabilities 6,250,272 5,123,459
Separate account liabilities 10,756,929 9,520,561
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 17,007,201 14,644,020
- ---------------------------------------------------------------------------------------------------------------------------
Stockholder's equity:
Common stock, $1 par value, 20 million 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 25,000 25,000
Additional paid-in capital 407,088 407,088
Net unrealized gain on investments net of deferred federal income taxes 195,505 102,637
Net unrealized Canadian currency loss (4,448) (3,473)
Retained earnings 574,447 462,925
- ---------------------------------------------------------------------------------------------------------------------------
Total stockholder's equity 1,217,592 1,014,177
Commitments and contingencies (notes 6 and 11)
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity $18,224,793 15,658,197
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Financial Statements (Continued)
Consolidated Statements of Income
Years ended December 31, 1997, 1996 and 1995
(in thousands)
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Life insurance premiums $ 339,841 284,084 257,647
Other life policy considerations 83,816 85,747 93,158
Annuity considerations 219,262 170,656 147,112
Accident and health premiums 747,718 603,230 527,059
- ---------------------------------------------------------------------------------------------------------------------------
Total premiums and considerations 1,390,637 1,143,717 1,024,976
Premiums ceded 438,018 277,163 223,226
- ---------------------------------------------------------------------------------------------------------------------------
Net premiums and considerations 952,619 866,554 801,750
Investment income, net 162,350 222,622 201,158
Realized investment gains, net 61,488 28,561 29,202
Other 53,760 6,193 10,170
- ---------------------------------------------------------------------------------------------------------------------------
Total revenue 1,230,217 1,123,930 1,042,280
- ---------------------------------------------------------------------------------------------------------------------------
Benefits and expenses:
Life insurance benefits 336,090 281,441 268,163
Annuity benefits 206,189 153,238 145,636
Accident and health insurance benefits 566,746 434,793 374,743
- ---------------------------------------------------------------------------------------------------------------------------
Total benefits 1,109,025 869,472 788,542
Benefit recoveries 426,607 249,552 210,702
- ---------------------------------------------------------------------------------------------------------------------------
Net benefits 682,418 619,920 577,840
Commissions and other agent compensation 310,665 267,714 233,939
General and administrative expenses 106,744 99,018 115,419
Taxes, licenses and fees 20,605 19,959 17,672
Increase in deferred acquisition costs, net (63,742) (36,344) (28,552)
- ---------------------------------------------------------------------------------------------------------------------------
Total benefits and expenses 1,056,690 970,267 916,318
- ---------------------------------------------------------------------------------------------------------------------------
Income from operations before income taxes 173,527 153,663 125,962
- ---------------------------------------------------------------------------------------------------------------------------
Income tax expense:
Current 31,571 21,936 12,993
Deferred 28,283 30,559 25,772
- ---------------------------------------------------------------------------------------------------------------------------
Total income tax expense 59,854 52,495 38,765
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 113,673 101,168 87,197
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Financial Statements (Continued)
Consolidated Statements of Stockholder's Equity
Years ended December 31, 1997, 1996 and 1995
(in thousands)
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<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 25,000 25,000 40,000
Redemption of stock during the year 0 0 (15,000)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of year 25,000 25,000 25,000
- ---------------------------------------------------------------------------------------------------------------------------
Additional paid-in capital:
Balance at beginning of year 407,088 407,088 406,494
Additional contribution from parent 0 0 594
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of year 407,088 407,088 407,088
- ---------------------------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments:
Balance at beginning of year 102,637 139,204 (62,073)
Net unrealized gain on securities transferred from held-to-maturity
to available-for-sale classification, net of deferred federal income 0 0 1,789
Net unrealized gain (loss) during the year, net of deferred federal income taxes 92,868 (36,567) 199,488
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of year 195,505 102,637 139,204
- ---------------------------------------------------------------------------------------------------------------------------
Net unrealized Canadian currency loss:
Balance at beginning of year (3,473) (3,455) (3,787)
Net unrealized gain (loss) during the year, net of deferred federal income taxes (975) (18) 332
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of year (4,448) (3,473) (3,455)
- ---------------------------------------------------------------------------------------------------------------------------
Retained earnings:
Balance at beginning of year 462,925 363,357 278,811
Net income 113,673 101,168 87,197
Cash dividend to stockholder (2,151) (1,600) (2,651)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of year 574,447 462,925 363,357
- ---------------------------------------------------------------------------------------------------------------------------
Total stockholder's equity $1,217,592 1,014,177 951,194
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Financial Statements (continued)
Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
(in thousands)
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net income $ 113,673 101,168 87,197
- ---------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Realized investment gains, net (61,488) (28,561) (29,202)
Deferred federal income tax expense 28,283 30,559 25,772
Charges to policy account balances (859,852) (675,737) (632,962)
Interest credited to policy account balances 211,590 166,766 169,151
Change in:
Accrued investment income (2,215) 728 (2,072)
Receivables (107,398) (30,578) (13,300)
Reinsurance receivables (1,644,423) (119,384) (190,953)
Deferred acquisition costs (63,742) (36,344) (28,552)
Future benefit reserves 1,194,990 76,478 66,932
Policy and contract claims and other policyholder funds 92,230 37,055 25,116
Unearned premiums 17,992 (2,005) (6,195)
Reinsurance payable 68,725 24,019 (8,669)
Current tax recoverable (8,306) (8,508) (153)
Accrued expenses and other liabilities 12,113 15,506 17,365
Commissions due and accrued 2,414 14,124 (1,211)
Depreciation and amortization (13,312) (25,874) (23,391)
Other, net 18 (1,568) 916
- ---------------------------------------------------------------------------------------------------------------------------
Total adjustments (1,132,381) (563,324) (631,408)
Net cash provided by (used in) operating activities (1,018,708) (462,156) (544,211)
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Financial Statements (continued)
Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
(in thousands)
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows provided by (used in) operating activities (1,018,708) (462,156) (544,211)
Cash flows provided by (used in) investing activities:
Purchase of fixed maturities, at market $(1,748,950) (1,324,676)(1,533,290)
Purchase of equity securities (1,699,847) (137,304) (166,701)
Funding of mortgage loans (103,626) (70,265) (66,301)
Sale of fixed maturities, at market 1,921,534 1,043,748 1,242,988
Matured or redeemed fixed maturities, at amortized cost 0 0 7,022
Matured fixed maturities, at market 1,150 2,711 38,991
Sale of equity securities 1,691,789 122,788 97,619
Repayment of mortgage loans 29,520 23,317 25,563
Net change in certificates of deposit and short-term securities 87,848 (173,471) 123,806
Other 82,797 (20,566) (10,754)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 262,215 (533,718) (241,057)
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows provided by (used in) financing activities:
Policyholders' deposits to account balances $1,497,321 1,184,338 1,066,407
Policyholders' withdrawals from account balances (448,998) (368,490) (291,102)
Change in assets held under reinsurance agreements (540,268) 52,973 36,354
Funds borrowed on dollar reverse repurchase agreements, net 239,468 130,196 (58,150)
Net change in mortgage notes payable 0 0 (1,049)
Additional paid-in capital from parent 0 0 594
Preferred stock transactions 0 0 (15,000)
Cash dividends paid (2,151) (1,600) (2,651)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 745,372 997,417 735,403
- ---------------------------------------------------------------------------------------------------------------------------
Net change in cash (11,121) 1,543 (49,865)
Cash at beginning of year 37,992 36,449 86,314
- ---------------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 26,871 37,992 36,449
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995 (in thousands, except share data)
(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 1997 premiums and considerations,
33%, 20% and 47% of the Company's business is life, annuity and accident and
health, respectively. The Company's primary distribution channels are through
strategic alliances with other insurance companies and third party marketing
organizations. The Company has a significant relationship 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 in which it holds
an ownership interest effective in 1998.
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 subsidiary, Preferred Life
Insurance Company of New York and other less significant subsidiaries have been
consolidated. All significant intercompany balances and transactions have been
eliminated in consolidation.
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.
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
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
December 31, 1997, 1996 and 1995 (in thousands, except share data)
(1) Summary of Significant Accounting Policies (cont.)
Deferred Acquisition Costs (cont.)
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 1997, 1996 and 1995 were $219,266, $137,618,
and $117,782, 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.
Policy and Contract Claims
Policy and contract claims represent an estimate of claims and claim adjustment
expenses that have been reported but not yet paid and incurred but not yet
reported as of December 31.
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.
Investments
The Company has classified all of its investment portfolio as
"available-for-sale". 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.
The Company analyzes loan impairment at least once a year when assessing the
adequacy of the allowance for possible credit losses. The Company does not
accrue interest on impaired loans and accounts for interest income on such loans
on a cash basis.
Realized gains and losses are computed based on the specific identification
method.
As of December 31, 1997 and 1996, investments with a carrying value of $103,590
and $102,361, respectively, were held on deposit with various insurance
departments and in other trusts 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 may
cause estimates of fair values to differ from the amounts presented herein.
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995 (in thousands, except share data)
(1) Summary of Significant Accounting Policies (cont.)
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 account assets were determined using the market value of
the underlying investments held in segregated fund accounts. Fair values of
separate account liabilities were determined using the cash surrender values of
the 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
In 1996, the Company adopted Statement of Financial Accounting Standard (SFAS)
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of. No adjustments were made to the consolidated financial
statements upon adoption of this pronouncement.
In 1997 the Company adopted SFAS No. 129, Disclosure of Information about
Capital Structure, which establishes standards for disclosing information about
an entity's capital structure. No additional disclosures were required.
Accounting Pronouncements to be Adopted
The Financial Accounting Standards Board (FASB) has issued SFAS No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities, which provides accounting and reporting standards for transfers
and servicing of financial assets and extinguishments of liabilities. In
December 1996, the FASB issued SFAS No. 127, Deferral of the Effective Date of
Certain Provisions of FASB Statement No. 125, which defers the effective date of
certain paragraphs of SFAS No. 125 applicable to the Company. The Statements are
to be applied prospectively. As a result of SFAS No. 127, the Company will adopt
SFAS No. 125 January 1, 1998. Adoption of these pronouncements is not expected
to have a significant impact on the consolidated financial statements.
In June, 1997, the FASB issued SFAS No. 130 Reporting Comprehensive Income,
which establishes standards for reporting and displaying comprehensive income
and its components in general purpose financial statements, and SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information, which
requires certain business enterprises to report specified information about
their operating segments in a complete set of financial statements to
shareholders. SFAS No. 130 and SFAS No. 131 are effective for the Company, and
will be adopted in 1998.
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
December 31, 1997, 1996 and 1995 (in thousands, except share data)
(1) Summary of Significant Accounting Policies (cont.)
Reclassifications
Certain prior year balances have been reclassified to conform to the current
year presentation.
(2) Investments
Investments at December 31, 1997 consist of:
<TABLE>
<CAPTION>
Amount
shown on
Amortized Estimated consolidated
cost fair balance
or cost value sheet
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities:
U.S. Government $ 499,652 528,657 528,657
States and political subdivisions 82,287 85,829 85,829
Foreign government 35,858 37,734 37,734
Public utilities 44,151 48,237 48,237
Corporate securities 1,206,392 1,250,532 1,250,532
Mortgage backed securities 628,307 663,891 663,891
Collateralized mortgage obligations 86,246 90,330 90,330
- ---------------------------------------------------------------------------------------------------------------------------
Total fixed maturities $2,582,893 2,705,210 2,705,210
- ---------------------------------------------------------------------------------------------------------------------------
Equity securities:
Common stocks:
Banks, trusts and insurance companies 7,670 11,220 11,220
Industrial and miscellaneous 246,395 418,871 418,871
Nonredeemable preferred stocks 10,079 12,516 12,516
- ---------------------------------------------------------------------------------------------------------------------------
Total equity securities $ 264,144 442,607 442,607
- ---------------------------------------------------------------------------------------------------------------------------
Other investments:
Mortgage loans on real estate 318,683 XXXXXXXXX 318,683
Certificates of deposit and short-term securities 117,124 XXXXXXXXX 117,124
Policy loans 5,695 XXXXXXXXX 5,695
Other invested assets 51,863 XXXXXXXXX 51,863
- ---------------------------------------------------------------------------------------------------------------------------
Total other investments $ 493,365 XXXXXXXXX 493,365
- ---------------------------------------------------------------------------------------------------------------------------
Total investments $3,340,402 XXXXXXXXX 3,641,182
===========================================================================================================================
</TABLE>
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
December 31, 1997, 1996 and 1995 (in thousands, except share data)
(2) Investments (cont.)
At December 31, 1997 and 1996, the amortized cost, gross unrealized gains, gross
unrealized losses and estimated fair values of securities are as follows:
<TABLE>
<CAPTION>
Amortized Gross Gross Estimated
cost unrealized unrealized fair
or cost gains losses value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997:
U.S. Government $ 499,652 29,191 186 528,657
States and political subdivisions 82,287 3,561 19 85,829
Foreign government 35,858 1,876 0 37,734
Public utilities 44,151 4,086 0 48,237
Corporate securities 1,206,392 60,016 15,876 1,250,532
Mortgage backed securities 628,307 35,584 0 663,891
Collateralized mortgage obligations 86,246 4,086 2 90,330
- ---------------------------------------------------------------------------------------------------------------------------
Total fixed maturities 2,582,893 138,400 16,083 2,705,210
Equity securities 264,144 205,632 27,169 442,607
- ---------------------------------------------------------------------------------------------------------------------------
Total $2,847,037 344,032 43,252 3,147,817
===========================================================================================================================
1996:
U.S. Government 620,236 25,954 926 645,264
States and political subdivisions 419 5 0 424
Foreign government 304,589 6,090 1,285 309,394
Public utilities 6,466 575 0 7,041
Corporate securities 1,025,189 24,137 9,004 1,040,322
Mortgage backed securities 669,181 18,444 571 687,054
Collateralized mortgage obligations 78,331 995 519 78,807
- ---------------------------------------------------------------------------------------------------------------------------
Total fixed maturities 2,704,411 76,200 12,305 2,768,306
Equity securities 234,089 98,711 4,966 327,834
- ---------------------------------------------------------------------------------------------------------------------------
Total $2,938,500 174,911 17,271 3,096,140
===========================================================================================================================
<FN>
The changes in unrealized gains (losses) on fixed maturity securities were
$58,422, $(97,973) and $261,471 in each of the years ended December 31, 1997,
1996 and 1995, respectively.
The changes in unrealized gains (losses) in equity investments, which include
common stocks and nonredeemable preferred stocks were $84,718, $40,895 and
$48,186 for the years ended December 31, 1997, 1996 and 1995, respectively.
The amortized cost and estimated fair value of fixed maturities at December 31,
1997, 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.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Amortized Estimated
cost fair value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 27,247 27,392
Due after one year through five years 439,279 446,935
Due after five years through ten years 913,045 941,311
Due after ten years 575,015 625,68
Mortgage backed securities 628,307 663,891
- ---------------------------------------------------------------------------------------------------------------------------
Totals $2,582,893 2,705,210
===========================================================================================================================
</TABLE>
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
December 31, 1997, 1996 and 1995 (in thousands, except share data)
(2) Investments (cont.)
Gross gains of $70,335, $43,696 and $41,962 and gross losses of $8,654, $16,834
and $14,607 were realized on sales of securities in 1997, 1996 and 1995,
respectively; related taxes were $21,588, $9,402, and $9,574 in 1997, 1996 and
1995, respectively. Proceeds from redemptions of held-to-maturity securities
during 1995 were $7,022 with no gain or loss realized on such transactions.
Net realized investment gains (losses) for the respective years ended December
31 are summarized as follows:
<TABLE>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities, at market $40,268 8,897 21,877
Equity securities 21,413 17,964 5,478
Mortgage loans (982) (1,129) (687)
Real estate 635 3,104 2,530
Other 154 (275) 4
- ---------------------------------------------------------------------------------------------------------------------------
Net gains before taxes 61,488 28,561 29,202
Tax expense on net realized gains 21,521 9,996 10,218
- ---------------------------------------------------------------------------------------------------------------------------
Net gains after taxes $39,967 18,565 18,984
===========================================================================================================================
</TABLE>
The Company has 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,
1997 and 1996, mortgage backed securities underlying such agreements were
carried at a market value of $350,985 and $124,281 respectively, and other
liabilities included $369,664 and $130,196 respectively for funds received under
these agreements. Average balances outstanding were $183,530 and $83,602 and
weighted average interest rates were 7.2% and 7.5% during 1997 and 1996
respectively. The maximum balance outstanding during 1997 and 1996 was $369,664
and $130,196 respectively.
The Company participates in a securities lending program administered by AZOA's
investment division. Under this program, the Company loans U.S. Treasury Notes
to qualified third parties. The Company obtains collateral for the loans 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, 1997 and 1996.
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. There were no impaired loans held by the Company at December 31,
1997 and 1996.
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
December 31, 1997, 1996 and 1995 (in thousands, except share data)
(2) Investments (cont.)
The valuation allowances at December 31, 1997, 1996 and 1995 and the changes in
the allowance for the years then ended are summarized as follows:
<TABLE>
<CAPTION>
Writedowns
Beginning Charged to Charged to End
of year Operations Allowance Recoveries of year
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
December 31, 1997:
Mortgage loans $ 7,279 1,000 0 0 8,279
- ---------------------------------------------------------------------------------------------------------------------------
Total valuation allowance $ 7,279 1,000 0 0 8,279
===========================================================================================================================
December 31, 1996:
Mortgage loans $10,487 0 0 3,208 7,279
- ---------------------------------------------------------------------------------------------------------------------------
Total valuation allowance $10,487 0 0 3,208 7,279
===========================================================================================================================
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
===========================================================================================================================
</TABLE>
Major categories of net investment income for the respective years ended
December 31 are:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest:
Fixed maturities, at amortized cost $ 0 0 6,284
Fixed maturities, at market 211,335 178,664 158,421
Mortgage loans 25,232 19,267 16,125
Policy loans 6,526 7,013 6,688
Short-term investments 12,804 10,688 7,182
Dividends:
Preferred stock 748 818 581
Common stock 4,603 4,527 3,204
Interest on assets held by reinsurers 8,858 9,709 10,445
Other invested assets 9,438 5,344 3,614
- ---------------------------------------------------------------------------------------------------------------------------
Total investment income 279,544 236,030 212,544
Investment expenses related to coinsurance agreement (note 6) 98,417 0 0
Investment expenses 18,777 13,408 11,386
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income $162,350 222,622 201,158
============================================================================================================================
</TABLE>
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
December 31, 1997, 1996 and 1995 (in thousands, except share data)
(3) Summary Table of Fair Value Disclosures
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets Fixed maturities, at market:
U.S. Government $ 528,657 528,657 645,264 645,264
States and political subdivisions 85,829 85,829 424 424
Foreign governments 37,734 37,734 309,394 309,394
Public utilities 48,237 48,237 7,041 7,041
Corporate securities 1,250,532 1,250,532 1,040,322 1,040,322
Mortgage backed securities 663,891 663,891 687,054 687,054
Collateralized mortgage obligations 90,330 90,330 78,807 78,807
Equity securities 442,607 442,607 327,834 327,834
Mortgage loans 318,683 333,540 245,559 252,825
Short term investments 117,124 117,124 204,972 204,972
Policy loans 5,695 5,695 103,708 103,708
Other long term investments 51,863 51,863 124 124
Receivables 262,676 262,676 155,278 155,278
Separate accounts assets 10,756,929 10,756,929 9,520,561 9,520,561
Financial liabilities:
Investment contracts 3,536,690 2,945,366 3,297,973 2,747,914
Separate account liabilities 10,756,929 10,565,205 9,520,561 9,324,358
Dollar reverse repurchase agreements 369,664 369,664 130,196 130,196
<FN>
See Note 1 "Summary of Significant Accounting Policies" for description of the
methods and significant assumptions used to estimate fair values.
</FN>
</TABLE>
(4) Receivables
Receivables at December 31 consist of the following:
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Premiums due $207,293 125,216
Agents balances 3,186 5,523
Related party receivables 1,445 2,099
Reinsurance commission receivable 23,921 7,515
Scholarship enrollment fees 8,401 8,025
Due from administrators 13,630 3,244
Other 4,800 3,656
- ---------------------------------------------------------------------------------------------------------------------------
Total receivables $262,676 155,278
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
December 31, 1997, 1996 and 1995 (in thousands, except share data)
(5) 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, 1997 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.
Activity in the accident and health claims reserves, exclusive of long term
care, hospital indemnity and AIDS reserves of $12,479, $14,348 and $18,858 in
1997, 1996 and 1995, respectively, is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, net of reinsurance recoverables of $114,230,
$99,292 and $96,090 $216,596 191,804 185,028
Incurred related to:
Current year 341,908 271,308 242,024
Prior years (12,087) (11,642) (9,163)
- ---------------------------------------------------------------------------------------------------------------------------
Total incurred 329,821 259,666 232,861
- ---------------------------------------------------------------------------------------------------------------------------
Paid related to:
Current year 150,942 107,842 100,165
Prior years 144,798 127,032 125,920
- ---------------------------------------------------------------------------------------------------------------------------
Total paid 295,740 234,874 226,085
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, net of reinsurance recoverables of $125,543,
$114,230 and $99,292 $250,677 216,596 191,804
===========================================================================================================================
<FN>
Due to lower than anticipated losses related to prior years, the provision for
claims and claim adjustment expenses decreased.
</FN>
</TABLE>
(6) Reinsurance
In the normal course of business, the Company seeks to limit its exposure to
loss on any single insured and to recover a portion of benefits paid by ceding
risks under excess coverage and coinsurance contracts. The Company retains a
maximum of $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, 1997 are $902,500, $851,849,
$254,448, and $36,520 recoverable from four insurers who, as of December 31,
1997, were rated A+, A+, B++, and A+, 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.
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
December 31, 1997, 1996 and 1995 (in thousands, except share data)
(6) Reinsurance (cont.)
Life insurance, annuities and accident and health business assumed from and
ceded to other companies is as follows:
<TABLE>
<CAPTION>
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, 1997:
Life insurance in force $32,234,241 72,682,842 19,873,094 85,043,989 85.5%
- ---------------------------------------------------------------------------------------------------------------------------
Premiums:
Life insurance 252,859 170,798 110,579 313,078 54.6%
Annuities 217,353 1,910 30,789 188,474 1.0%
Accident and health insurance 436,105 311,612 296,650 451,067 69.1%
- ---------------------------------------------------------------------------------------------------------------------------
Total premiums 906,317 484,320 438,018 952,619 50.8%
===========================================================================================================================
December 31, 1996:
Life insurance in force $37,527,994 44,073,247 6,126,541 75,474,700 58.4%
- ---------------------------------------------------------------------------------------------------------------------------
Premiums:
Life insurance 235,837 133,994 37,986 331,845 40.4%
Annuities 169,503 1,153 12,769 157,887 0.7%
Accident and health insurance 396,051 207,179 226,408 376,822 55.0%
- ---------------------------------------------------------------------------------------------------------------------------
Total premiums 801,391 342,326 277,163 866,554 39.5%
===========================================================================================================================
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%
===========================================================================================================================
</TABLE>
Effective January 1, 1997, the Company entered into a 100% coinsurance agreement
with an unrelated insurance company to coinsure a block of business with life
insurance inforce of $13,200,000 and 1997 premium of $90,000. The coinsured
block included certain universal life and traditional life insurance policies
and annuity contracts. In connection with this agreement, the Company recognized
a recoverable on future benefit reserves of $1,102,000, received a ceding
commission of $138,500 and transferred assets of $881,000 which support the
business. The unearned ceding commission represents deferred revenue which will
be amortized over the revenue-producing period of the related reinsured
policies. The servicing of the coinsured business was also transferred to a
third party insurer who is also the retrocessionaire of the block.
Of the amounts ceded to others, the Company ceded life insurance inforce of
$1,163,533, $381,381 and $182,638 in 1997, 1996 and 1995, respectively, and life
insurance premiums earned of $2,538, $1,293 and $641 in 1997, 1996 and 1995,
respectively, to its ultimate parent Allianz Aktiengesellshaft. The Company also
ceded accident and health premiums earned to Allianz Aktiengesellshaft of
$2,467, $1,922 and $(7,520) in 1997, 1996 and 1995.
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
December 31, 1997, 1996 and 1995 (in thousands, except share data)
(7) Income Taxes
Income Tax Expense
Total income tax expense (benefit) for the years ended December 31 are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense attributable to operations:
Current tax expenses $ 31,571 21,936 12,993
Deferred tax expense 28,283 30,559 25,772
- ---------------------------------------------------------------------------------------------------------------------------
Total income tax expense attributable to operations $ 59,854 52,495 38,765
Income tax effect on equity:
Income tax allocated to stockholder's equity:
Attributable to unrealized gains and losses for the year 49,748 (19,967) 108,559
- ---------------------------------------------------------------------------------------------------------------------------
Total income tax effect on equity $109,602 32,528 147,324
===========================================================================================================================
</TABLE>
Components of Income Tax Expense
Income tax expense computed at the statutory rate of 35% varies from tax expense
reported in the Consolidated Statements of Income for the respective years ended
December 31 as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense computed at the statutory rate $60,735 53,782 44,087
Dividends received deductions and tax-exempt interest (2,792) (650) (5,430)
Foreign tax 916 (2,723) (464)
Interest on tax deficiency 1,100 261 408
Other (105) 1,824 164
- ---------------------------------------------------------------------------------------------------------------------------
Income tax expense as reported $59,854 52,494 38,765
===========================================================================================================================
</TABLE>
Components of Deferred Tax Assets and Liabilities on the Balance Sheet
Tax effects of temporary differences giving rise to the significant components
of the net deferred tax liability at December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Provision for post retirement benefits $ 2,100 2,024
Allowance for uncollectible accounts 929 1,256
Policy reserves 177,442 158,131
- ---------------------------------------------------------------------------------------------------------------------------
Total deferred tax assets 180,471 161,411
Deferred tax liabilities:
Deferred acquisition costs 277,627 240,906
Net unrealized gain 102,756 53,008
Other 28,949 18,257
- ---------------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 409,332 312,171
Net deferred tax liability $228,861 150,760
===========================================================================================================================
<FN>
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
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
December 31, 1997, 1996 and 1995 (in thousands, except share data)
(7) Income Taxes (cont.)
Components of Deferred Tax Assets and Liabilities on the Balance Sheet (cont.)
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, 1997 and 1996, 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 post-1990 separate return taxable
income or tax. Income taxes paid by the Company were $39,914, $30,946 and
$14,865 in 1997, 1996 and 1995, respectively. At December 31, 1997 and 1996 the
Company had a tax recoverable from AZOA of $20,689 and $11,599, respectively and
a recoverable from Revenue Canada Taxation of $72 and $856, respectively.
(8) Related Party Transactions
The Company reimbursed AZOA $562, $86 and $738 in 1997, 1996 and 1995,
respectively, for certain administrative services performed. The Company had no
liability to AZOA for such amounts at December 31, 1997 and 1996, respectively.
AZOA's investment division manages the Company's investment portfolio. The
Company paid AZOA $1,957, $1,657 and $1,024 in 1997, 1996 and 1995,
respectively, for investment advisory fees. The Company's liability to AZOA for
such amounts was $437 and $543 at December 31, 1997 and 1996, respectively.
The Company shares a data center with affiliated insurance companies. Usage
charges paid to the data center by the Company were $2,826, $3,275 and $3,752 in
1997, 1996 and 1995, respectively. The Company's liability for data center
charges was $292 and $58 at December 31, 1997 and 1996, respectively.
The Company has 200 million authorized 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 1994, the Company issued 25 million shares of Series A preferred stock with a
dividend rate of 6.4% to AZOA for $25,000 and 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.
As of December 31, 1996, the Company sold to AZOA, without recourse, two
receivables due from third parties amounting to $6,600. These receivables,
valued at $5,827, were repurchased by the Company in 1997.
(9) Employee Benefit Plans
The Company participates in the Allianz Primary Retirement Plan (Primary
Retirement Plan), a defined contribution plan. The Company makes contributions
to a money purchase pension plan on behalf of eligible participants. All
employees, 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 $729, $808 and $860 in 1997, 1996 and 1995,
respectively.
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
December 31, 1997, 1996 and 1995 (in thousands, except share data)
(9) Employee Benefit Plans (cont.)
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 Plan participants was 90% in 1997 and 100% in 1996 and 1995,
respectively. 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 $907, $1,105 and $1,188 in 1997, 1996 and 1995, respectively, toward
planned contributions.
In 1995, the Company discontinued support of its individual agency field force
and suspended contributions to the Agents' Asset Accumulation Plan as of January
1, 1996. 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. The Company made no contributions to the
Plan in either 1997 or 1996, and $118 in 1995.
The Company provides certain postretirement benefits to employees who retired on
or before December 31, 1988 or who were hired before December 31, 1988 and who
have at least ten years of service when they reach age 55. The Company's plan
obligation at December 31, 1997 and 1996 was $6,001 and $5,783, respectively.
This liability is included in "Other liabilities" in the accompanying balance
sheet.
(10) Statutory Financial Data and Dividend Restrictions
Statutory accounting is directed toward insurer solvency and protection of
policyholders. Accordingly, certain items recorded in financial statements
prepared under GAAP are excluded or vary in determining statutory policyholders'
surplus and net gain from operations. Currently, these items include, among
others, deferred acquisition costs, furniture and fixtures, accident and health
premiums receivable which are more than 90 days past due, deferred taxes and
undeclared dividends to policyholders. Additionally, future life and annuity
benefit reserves calculated for statutory accounting do not include provisions
for withdrawals.
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:
<TABLE>
<CAPTION>
Stockholder's equity Net income
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statutory basis $ 635,711 384,989 72,343 67,995 11,565
Adjustments:
Change in reserve basis (255,816) (199,566) (85,110) 13,324 (43,642)
Deferred acquisition costs 927,080 863,338 63,742 36,344 28,552
Net deferred taxes (228,861) (150,760) (28,283) (30,559) (25,772)
Statutory asset valuation reserve 151,675 133,564 0 0 0
Statutory interest maintenance reserve 34,336 26,342 7,994 1,183 8,756
Modified coinsurance reinsurance (31,953) (113,743) 81,790 5,435 104,222
Unrealized gains on investments 124,754 64,928 0 0 0
Nonadmitted assets 14,824 7,121 0 0 0
Deferred income on reinsurance (150,526) 0 0 0 0
Other (3,632) (2,036) 1,197 7,446 3,516
- ---------------------------------------------------------------------------------------------------------------------------
As reported in the accompanying
consolidated financial statements $1,217,592 1,014,177 113,673 101,168 87,197
===========================================================================================================================
</TABLE>
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
December 31, 1997, 1996 and 1995 (in thousands, except share data)
(10) Statutory Financial Data and Dividend Restrictions (cont.)
The Company is required to meet minimum statutory capital and surplus
requirements. The Company's statutory capital and surplus as of December 31,
1997 and 1996 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 1997 and 1996, the Company paid AZOA
dividends on preferred stock in the amount of $1,600. A common stock dividend of
$551 was paid in 1997. Dividends of $59,071 could be paid in 1998 without prior
approval of the Commissioner of Commerce.
Regulatory Risk Based Capital
An insurance enterprise's state of domicile imposes minimum risk-based capital
requirements that were developed by the National Association of Insurance
Commissioners (NAIC). The formulas for determining the amount of risk-based
capital specify various weighting factors that are applied to financial balances
or various levels of activity based on the perceived degree of risk. Regulatory
compliance is determined by a ratio of an enterprise's regulatory total adjusted
capital to its authorized control level risk-based capital, as defined by the
NAIC. Enterprises below specific triggerpoints or ratios are classified within
certain levels, each of which requires specified corrective action. The levels
and ratios are as follows:
Ratio of total adjusted capital to
authorized control level risk-based
Regulatory event capital (less than or equal to)
- --------------------------------------------------------------------------------
Company action level 2 (or 2.5 with negative trends)
Regulatory action level 1.5
Authorized control level 1
Mandatory control level 0.7
The Company met the minimum risk-based capital requirements as of December 31,
1997 and 1996.
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.
(11) 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
effect on the consolidated financial position of the Company.
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
December 31, 1997, 1996 and 1995 (in thousands, except share data)
(11) Commitments and Contingencies (cont.)
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.
The Company is expending significant resources to assure that its computer
systems are reprogrammed in time to effectively deal with transactions in the
year 2000 and beyond. Costs associated with this effort are not expected to be
material and are expensed as incurred. This "Year 2000 Computer Problem" creates
risk for the Company from unforeseen problems in its own computer systems and
from third parties with whom the Company deals on financial transactions
worldwide. Such failures of the Company and/or third parties' computer systems
could have a material impact on the Company's ability to conduct its business,
and especially to process and account for the transfer of funds electronically.
(12) Foreign Currency Translation
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:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning amount of cumulative translation adjustments $(3,473) (3,455) (3,787)
- ---------------------------------------------------------------------------------------------------------------------------
Aggregate adjustment for the period resulting from translation adjustments (1,500) (28) 511
Amount of income tax benefit (expense) for period related to aggregate adjustment 525 10 (179)
- ---------------------------------------------------------------------------------------------------------------------------
Net aggregate translation included in equity (975) (18) 332
- ---------------------------------------------------------------------------------------------------------------------------
Ending amount of cumulative translation adjustments $(4,448) (3,473) (3,455)
===========================================================================================================================
Canadian foreign exchange rate at end of year 0.6992 0.7297 0.7329
</TABLE>
(13) Subsequent Event - Life USA Holding, Inc.
In 1995, in conjunction with an expanded marketing agreement, the Company
provided Life USA Holding, Inc. (Life USA), an unrelated insurance company, with
$30,000 in exchange for a fifteen year convertible debenture paying 5% interest
for the first five years with the interest rate reset annually thereafter based
on LIBOR plus 1%. In connection with a definitive agreement signed in January
1998, the Company will convert its debenture to equity in 1998.
As noted above, the Company entered into a definitive agreement with Life USA in
January 1998 to acquire up to a 35% equity ownership in Life USA and extend the
existing marketing agreement between the two companies to December 31, 2000.
Acquisition of the Company's equity ownership will be accomplished through the
following:
- Conversion of the $30,000 debenture for 2.43 million shares of common stock
(conversion price of $12.34 per share);
- Exercise of the Company's preemptive right to purchase 241,846 shares of
common stock at $12.36 per share;
- Purchase of 925,000 shares of common stock from certain members of Life USA
management at $16.44 per share; and
- Commitment of $100 million to purchase newly issued common stock in
increments of $20 million over a five year period beginning in 1998.
Additionally, the Company may acquire an additional 1,604,104 shares of Life USA
common stock in open market purchases over the next year.
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
December 31, 1997, 1996 and 1995 (in thousands, except share data)
(13) Subsequent Event - Life USA Holding, Inc. (cont.)
As part of this agreement, the Company has the right to nominate two people to
Life USA's board of directors, with additional rights of nomination in the
future based on the Company's proportional ownership. Two members of the
Company's management were named to Life USA's board of directors in January
1998.
(14) Supplementary Insurance Information
The following table summarizes certain financial information by line of business
for 1997, 1996 and 1995:
<TABLE>
<CAPTION>
As of December 31 For the year ended December 31
- ---------------------------------------------------------------------------------------------------------------------------
Future policy Other Premium Benefits, Net change
Deferred benefits, policy revenue claims in
policy losses, claims and and other Net losses, and policy Other
acquisitionclaims andUnearned benefits contract investment settlement acquisition operating Premiums
costs loss expensepremiums payable considerations income expenses costs (a) expenses written (b)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997:
Life $189,971 1,297,269 5,215 63,572 313,078 24,352 230,357 (14,363) 99,913
Annuities 717,721 3,251,829 0 1,881 188,474 118,028 124,535 (44,924) 186,789
Accident and health 19,388 0 44,953 487,660 451,067 19,970 327,526 (4,455) 151,312
- ---------------------------------------------------------------------------------------------------------------------------
$927,080 4,549,098 50,168 553,113 952,619 162,350 682,418 (63,742) 438,014
===========================================================================================================================
1996:
Life $175,608 1,204,633 5,502 62,369 331,845 89,049 258,221 4,308 103,352
Annuities 672,797 2,879,221 0 1,859 157,887 113,537 105,335 (43,283) 161,002
Accident and health 14,933 0 26,674 374,596 376,822 20,036 256,364 2,631 122,337
- ---------------------------------------------------------------------------------------------------------------------------
$863,338 4,083,854 32,176 438,824 866,554 222,622 619,920 (36,344) 386,691
===========================================================================================================================
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
===========================================================================================================================
<FN>
(a) See note 1 for total gross amortization.
(b) Premiums written are not applicable for life insurance companies.
</FN>
</TABLE>
<PAGE>
APPENDIX A
ILLUSTRATION OF POLICY VALUES
The following tables illustrate how Policy Account values, Net Cash Values
and death benefits of a Policy change based on the investment experience of the
Policy Sub-Accounts. The illustrations are hypothetical and may not be used to
project or predict investment results. The Policy Account values, Net 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
Policy Sub-Accounts is lower than the gross investment return on the assets held
in the Portfolios because of the charges levied against the Policy Sub-Accounts.
The daily investment advisory fee is assumed to be equivalent to an annual rate
of 0.672% of the net assets of the Portfolios of the Trust (which is the average
of the investment advisory fees assessed the Trust in 1997 weighted by Policy
Sub-Account value as of 12/31/97). The values also assume that each Portfolio of
the Trust will incur expenses annually which are assumed to be 0.055% of the
average net assets of the Portfolio. This is the average in 1997 weighted by
Policy Sub-Account value as of 12/31/97. The Policy Sub-Accounts 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 Policy Sub-Account and for administrative expenses at an annual rate of
0.15% of the average daily net assets of the Policy 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 -1.47%, 4.45%
and 10.36%.
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.
<PAGE>
<TABLE>
<CAPTION>
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
CURRENT VALUES
-------------------------------------------------------------------------------------------
VALUES PROJECTED AT VALUES PROJECTED AT VALUES PROJECTED AT
0.00% 6.00% 12.00%
-------------------------------------------------------------------------------------------
END ACCUM NET NET NET NET NET NET
OF ANNUAL @ 5.00% POLICY CASH DEATH POLICY CASH DEATH POLICY CASH DEATH
YR. AGE PREMIUM PREMIUM ACCOUNT VALUE BENEFIT ACCOUNT VALUE BENEFIT ACCOUNT VALUE BENEFIT
- --- --- ------- ------- ------- ----- ------- ------- ----- ------- ------- ----- -------
<C> <S> <S> <S> <S> <S> <S> <S> <S> <S> <S> <S> <S>
1 35 1,200 1,260 757 35 100,000 813 92 100,000 870 148 100,000
2 36 1,200 2,583 1,674 892 100,000 1,840 1,058 100,000 2,013 1,231 100,000
3 37 1,200 3,972 2,573 1,731 100,000 2,907 2,066 100,000 3,269 2,428 100,000
4 38 1,200 5,431 3,452 2,601 100,000 4,017 3,165 100,000 4,651 3,799 100,000
5 39 1,200 6,962 4,314 3,494 100,000 5,171 4,351 100,000 6,172 5,351 100,000
6 40 1,200 8,570 5,154 4,383 100,000 6,367 5,597 100,000 7,841 7,070 100,000
7 41 1,200 10,259 5,981 5,261 100,000 7,618 6,898 100,000 9,686 8,965 100,000
8 42 1,200 12,032 6,788 6,118 100,000 8,918 8,247 100,000 11,716 11,046 100,000
9 43 1,200 13,893 7,579 6,991 100,000 10,271 9,683 100,000 13,955 13,367 100,000
10 44 1,200 15,848 8,354 7,848 100,000 11,682 11,176 100,000 16,426 15,920 100,000
15 49 1,200 27,189 11,897 11,897 100,000 19,600 19,600 100,000 33,127 33,127 100,000
20 54 1,200 41,633 14,621 14,621 100,000 28,967 28,967 100,000 60,339 60,339 100,000
25 59 1,200 60,136 16,631 16,631 100,000 41,100 41,100 100,000 107,953 107,953 144,657
30 64 1,200 83,713 16,826 16,826 100,000 55,899 55,899 100,000 187,120 187,120 228,286
35 69 1,200 113,804 13,867 13,867 100,000 74,438 74,438 100,000 318,016 318,016 368,898
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 NET CASH VALUE FOR A POLICY 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 POLICY 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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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
GUARANTEED VALUES
------------------------------------------------------------------------------------------
VALUES PROJECTED AT VALUES PROJECTED AT VALUES PROJECTED AT
0.00% 6.00% 12.00%
------------------------------------------------------------------------------------------
END ACCUM NET NET NET NET NET NET
OF ANNUAL @ 5.00% POLICY CASH DEATH POLICY CASH DEATH POLICY CASH DEATH
YR. AGE PREMIUM PREMIUM ACCOUNT VALUE BENEFIT ACCOUNT VALUE BENEFIT ACCOUNT VALUE BENEFIT
- --- --- ------- ------- ------- ----- ------- ------- ----- ------- ------- ----- -------
<C> <S> <S> <S> <S> <S> <S> <S> <S> <S> <S> <S> <S>
1 35 1,200 1,260 747 25 100,000 803 81 100,000 859 138 100,000
2 36 1,200 2,583 1,601 819 100,000 1,764 982 100,000 1,933 1,151 100,000
3 37 1,200 3,972 2,430 1,588 100,000 2,754 1,912 100,000 3,105 2,263 100,000
4 38 1,200 5,431 3,235 2,383 100,000 3,775 2,923 100,000 4,384 3,532 100,000
5 39 1,200 6,962 4,015 3,195 100,000 4,829 4,008 100,000 5,783 4,962 100,000
6 40 1,200 8,570 4,761 3,991 100,000 5,905 5,135 100,000 7,301 6,531 100,000
7 41 1,200 10,259 5,485 4,764 100,000 7,018 6,297 100,000 8,965 8,244 100,000
8 42 1,200 12,032 6,175 5,504 100,000 8,156 7,486 100,000 10,777 10,107 100,000
9 43 1,200 13,893 6,833 6,245 100,000 9,323 8,735 100,000 12,754 12,166 100,000
10 44 1,200 15,848 7,459 6,953 100,000 10,519 10,013 100,000 14,915 14,409 100,000
15 49 1,200 27,189 10,099 10,099 100,000 16,978 16,978 100,000 29,213 29,213 100,000
20 54 1,200 41,633 11,628 11,628 100,000 24,094 24,094 100,000 51,916 51,916 100,000
25 59 1,200 60,136 11,422 11,422 100,000 31,536 31,536 100,000 88,689 88,689 118,843
30 64 1,200 83,713 8,358 8,358 100,000 38,762 38,762 100,000 147,088 147,088 179,446
35 69 1,200 113,804 20 20 100,000 44,688 44,688 100,000 238,464 238,464 276,618
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 NET CASH VALUE FOR A POLICY 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 POLICY 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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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
CURRENT VALUES
------------------------------------------------------------------------------------------
VALUES PROJECTED AT VALUES PROJECTED AT VALUES PROJECTED AT
0.00% 6.00% 12.00%
------------------------------------------------------------------------------------------
END ACCUM NET NET NET NET NET NET
OF ANNUAL @ 5.00% POLICY CASH DEATH POLICY CASH DEATH POLICY CASH DEATH
YR. AGE PREMIUM PREMIUM ACCOUNT VALUE BENEFIT ACCOUNT VALUE BENEFIT ACCOUNT VALUE BENEFIT
- --- --- ------- ------- ------- ----- ------- ------- ----- ------- ------- ----- -------
<C> <S> <S> <S> <S> <S> <S> <S> <S> <S> <S> <S> <S>
1 35 1,200 1,260 755 33 100,755 812 90 100,811 868 147 100,868
2 36 1,200 2,583 1,670 888 101,669 1,835 1,053 101,835 2,008 1,226 102,007
3 37 1,200 3,972 2,563 1,722 102,563 2,897 2,055 102,896 3,257 2,416 103,257
4 38 1,200 5,431 3,437 2,585 103,436 3,998 3,147 103,998 4,629 3,777 104,628
5 39 1,200 6,962 4,290 3,470 104,290 5,142 4,321 105,141 6,135 5,314 106,134
6 40 1,200 8,570 5,119 4,349 105,119 6,323 5,553 106,323 7,784 7,014 107,784
7 41 1,200 10,259 5,935 5,214 105,934 7,556 6,836 107,556 9,604 8,883 109,603
8 42 1,200 12,032 6,728 6,057 106,727 8,833 8,163 108,833 11,600 10,929 111,599
9 43 1,200 13,893 7,502 6,914 107,501 10,160 9,572 110,159 13,795 13,207 113,795
10 44 1,200 15,848 8,259 7,753 108,258 11,539 11,033 111,539 16,212 15,706 116,211
15 49 1,200 27,189 11,666 11,666 111,666 19,178 19,178 119,178 32,352 32,352 132,351
20 54 1,200 41,633 14,122 14,122 114,122 27,864 27,864 127,864 57,847 57,847 157,847
25 59 1,200 60,136 15,609 15,609 115,608 38,332 38,332 138,331 100,885 100,885 200,884
30 64 1,200 83,713 14,889 14,889 114,888 49,279 49,279 149,278 170,655 170,655 270,655
35 69 1,200 113,804 10,535 10,535 110,535 59,083 59,083 159,082 283,488 283,488 383,488
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 NET CASH VALUE FOR A POLICY 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 POLICY 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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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
GUARANTEED VALUES
------------------------------------------------------------------------------------------
VALUES PROJECTED AT VALUES PROJECTED AT VALUES PROJECTED AT
0.00% 6.00% 12.00%
------------------------------------------------------------------------------------------
END ACCUM NET NET NET NET NET NET
OF ANNUAL @ 5.00% POLICY CASH DEATH POLICY CASH DEATH POLICY CASH DEATH
YR. AGE PREMIUM PREMIUM ACCOUNT VALUE BENEFIT ACCOUNT VALUE BENEFIT ACCOUNT VALUE BENEFIT
- --- --- ------- ------- ------- ----- ------- ------- ----- ------- ------- ----- -------
<C> <S> <S> <S> <S> <S> <S> <S> <S> <S> <S> <S> <S>
1 35 1,200 1,260 745 24 100,745 801 80 100,801 858 136 100,857
2 36 1,200 2,583 1,596 815 101,596 1,758 976 101,758 1,927 1,146 101,927
3 37 1,200 3,972 2,421 1,579 102,420 2,743 1,901 102,742 3,092 2,250 103,092
4 38 1,200 5,431 3,218 2,367 103,218 3,755 2,903 103,755 4,361 3,509 104,360
5 39 1,200 6,962 3,990 3,170 103,990 4,797 3,977 104,797 5,744 4,924 105,744
6 40 1,200 8,570 4,725 3,954 104,724 5,858 5,088 105,858 7,241 6,471 107,241
7 41 1,200 10,259 5,434 4,714 105,434 6,950 6,230 106,950 8,875 8,155 108,875
8 42 1,200 12,032 6,108 5,437 106,107 8,063 7,393 108,063 10,648 9,978 110,648
9 43 1,200 13,893 6,746 6,158 106,745 9,197 8,609 109,197 12,574 11,986 112,574
10 44 1,200 15,848 7,348 6,842 107,348 10,354 9,848 110,354 14,667 14,161 114,667
15 49 1,200 27,189 9,812 9,812 109,811 16,455 16,455 116,454 28,250 28,250 128,249
20 54 1,200 41,633 11,017 11,017 111,017 22,723 22,723 122,723 48,782 48,782 148,781
25 59 1,200 60,136 10,266 10,266 110,266 28,270 28,270 128,270 79,454 79,454 179,454
30 64 1,200 83,713 6,445 6,445 106,445 31,471 31,471 131,471 124,811 124,811 224,811
35 69 1,200 113,804 0 0 0 29,241 29,241 129,241 190,902 190,902 290,901
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 NET CASH VALUE FOR A POLICY 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 POLICY 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.
</TABLE>
<PAGE>
PART II
UNDERTAKINGS TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents, and reports as may be prescribed by any rule or regulation of the
Commission theretofore or hereafter duly adopted pursuant to authority conferred
in that section.
REPRESENTATION
Allianz Life Insurance Company of North America ("Company") hereby represents
that the fees and charges deducted under the Policy described in the Prospectus,
in the aggregate, are reasonable in relation to the services rendered, the
expenses to be incurred and the risks assumed by the Company.
INDEMNIFICATION
The Bylaws of the Company provide that:
Each person (and the heirs, executors, and administrators of such person) made
or threatened to be made a party to any action, civil or criminal, by reason of
being or having been a director, officer, or employee of the corporation (or by
reason of serving any other organization at the request of the corporation)
shall be indemnified to the extent permitted by the laws of the State of
Minnesota, and in the manner prescribed therin.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted for directors and officers or controlling persons of the
Company pursuant to the foregoing, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the Policies issued by the Variable
Account, the Company will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet
The Prospectus consisting of __ pages
Representations
The signatures
The following exhibits:
A. Copies of all exhibits required by paragraph A of instructions for
Exhibits in Form N-8B-2.
1. Resolution of the Board of Directors of the Company##
2. Not Applicable
3. a. Principal Underwriter Agreement
3. b. Selling Agreement##
4. Not Applicable
5. Individual Variable Life Insurance Policy#
i. Individual Variable Life Insurance Policy Endorsements##
6. a. Copy of Articles of Incorporation of the Company##
6. b. Copy of the Bylaws of the Company##
7. Not Applicable
8. Not Applicable
9. a. Administrative Agreement (filed confidentially)*
9. b. Form of Fund Participation Agreement#
10. Application for Individual Variable Life Insurance Policy#
12. Memorandum of Exchange Rights
13. Powers of Attorney
27. Not Applicable
B. Opinion and Consent of Counsel
C. Consent of Actuary
D. Independent Auditors' Consent
* Incorporated by reference to Registrant's Pre-Effective
Amendment No. 1
# Incorporated by reference to Registrant's Post-Effective
Amendment No. 9 to Form S-6, File Nos. 33-11158 and
811-4965 as electronically filed on April 24, 1996.
## Incorporated by reference to Registrant's Post-Effective
Amendment No. 11 to Form S-6, File Nos. 33-11158 and
811-4965 as electronically filed on April 30, 1997.
REPRESENTATIONS
1. Registrant represents that Section (b)(13)(iii)(F) of Rule 6e-3(T) is
being relied on.
2. Registrant represents that the level of the risk charge is within the
range of industry practice for comparable flexible contracts.
3. Registrant represents that it has analyzed the risk charge taking into
consideration such facts as current charge levels, potential adverse
mortality, the manner in which charges are imposed, the markets in
which the Policy will be offered and anticipated sales and lapse rates.
Registrant also represents that a memorandum has been prepared in
connection with the analysis of the risk charge as set forth above.
Registrant undertakes to keep and make available to the Commission on
request a copy of the memorandum.
4. Registrant represents that the Company has concluded that there is a
reasonable likelihood that the distribution financing arrangements of
the Variable Account will benefit the Variable Account and
policyholders and will keep and make available to the Commission on
request a memorandum setting forth the basis for this representation.
5. Registrant represents that the Variable Account will invest only in
management investment companies which have undertaken to have a Board
of Directors, a majority of whom are not interested persons of the
Company, formulate and approve any plan under Rule 12b_1 to finance
distribution expenses.
SIGNATURES
As required by the Securities Act of 1933, the Registrant certifies that it
meets all the requirements for effectiveness of this Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and it has duly caused
this Registration Statement to be signed on its behalf by the undersigned
thereunto duly authorized in the City of Minneapolis and State of Minnesota, on
this 24th day of April, 1998.
<TABLE>
<CAPTION>
<S> <C>
ALLIANZ LIFE
VARIABLE ACCOUNT A
(Registrant)
By: ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA
(Depositor)
By: /S/ MICHAEL T. WESTERMEYER
------------------------------
Michael T. Westermeyer
Attest:/S/ THOMAS B. CLIFFORD
----------------------------
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature and Title
<S> <C> <C>
Lowell C. Anderson* Chairman of the Board 04/24/98
Lowell C. Anderson President and Chief Executive Officer Date
Herbert F. Hansmeyer* Director 04/24/98
Herbert F. Hansmeyer Date
Michael P. Sullivan* Director 04/24/98
Michael P. Sullivan Date
Dr.Jerry E. Robertson* Director 04/24/98
Dr.Jerry E. Robertson Date
Dr. Gerhard Rupprecht* Director 04/24/98
Dr. Gerhard Rupprecht Date
Edward J. Bonach* Chief Financial Officer 04/24/98
Edward J. Bonach Date
Rev. Dennis J. Dease* Director 04/24/98
Rev. Dennis J. Dease Date
James R. Campbell* Director 04/24/98
James R. Campbell Date
Robert M. Kimmitt* Director 04/24/98
Robert M. Kimmitt Date
</TABLE>
*By Power of Attorney
By:/S/ MICHAEL T. WESTERMEYER
--------------------------------
Michael T. Westermeyer
Attorney-in-Fact
EXHIBITS
TO
POST-EFFECTIVE AMENDMENT NO. 12
TO
FORM S-6
ALLIANZ LIFE VARIABLE ACCOUNT A
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
INDEX TO EXHIBITS
Exhibit Page
- ------- ----
EX-99.A3a. Principal Underwriter Agreement
EX-99.A13 Powers of Attorney
EX-99.B Opinion and Consent of Counsel
EX-99.C Consent of Actuary
EX-99.D Independent Auditors' Consent
PRINCIPAL UNDERWRITER'S AGREEMENT
IT IS HEREBY AGREED by and between ALLIANZ LIFE INSURANCE COMPANY OF NORTH
AMERICA ("INSURANCE COMPANY") on behalf of NALAC VARIABLE ACCOUNT A (the
"Variable Account") and NALAC FINANCIAL PLANS, LLC ("PRINCIPAL UNDERWRITER") as
follows:
I
INSURANCE COMPANY proposes to issue and sell Individual Single Premium
Variable Life and Flexible Premium Variable Life Insurance Policies (the
"Policies") to the public through PRINCIPAL UNDERWRITER. The PRINCIPAL
UNDERWRITER agrees to provide sales service subject to the terms and conditions
hereof. The Policies to be sold are more fully described in the registration
statement and the prospectuses hereinafter mentioned. Such Policies will be
issued by INSURANCE COMPANY through the Variable Account.
II
INSURANCE COMPANY grants PRINCIPAL UNDERWRITER the exclusive right, during
the term of this Agreement, subject to registration requirements of the
Securities Act of 1933 and the Investment Company Act of 1940 and the provisions
of the Securities Exchange Act of 1934, to be the distributor of the Policies
issued through the Variable Account. PRINCIPAL UNDERWRITER will sell the
Policies under such terms as set by INSURANCE COMPANY and will make such sales
to purchasers permitted to buy such Policies as specified in the prospectus.
III
PRINCIPAL UNDERWRITER agrees that it shall undertake as its own expense, to
perform all duties and functions which are necessary and proper for the
distribution of the Policies.
IV
PRINCIPAL UNDERWRITER shall be compensated for its distribution services
with respect to the Policies covered hereby to the extent necessary for
PRINCIPAL UNDERWRITER to meet its obligations pursuant to selling agreements
with approved broker/dealers.
V
On behalf of the Variable Account, INSURANCE COMPANY shall furnish
PRINCIPAL UNDERWRITER with copies of all prospectuses, financial statements and
other documents which PRINCIPAL UNDERWRITER reasonably requests for use in
connection with the distribution of the Policies. INSURANCE COMPANY shall
provide to PRINCIPAL UNDERWRITER such number of copies of the current effective
prospectus as PRINCIPAL UNDERWRITER shall request.
VI
PRINCIPAL UNDERWRITER is not authorized to give any information, or to make
any representations concerning the Policies or the Variable Account of INSURANCE
COMPANY other than those contained in the current registration statement or
prospectus filed with the Securities and Exchange Commission or such sales
literature as may be authorized by INSURANCE COMPANY.
VII
Both parties to this Agreement agree to keep the necessary records as
indicated by applicable state and federal law and to render the necessary
assistance to one another for the accurate and timely preparation of such
records.
VIII
This Agreement shall be effective upon the execution hereof and will remain
in effect unless terminated as hereinafter provided. This Agreement shall
automatically be terminated in the event of its assignment by PRINCIPAL
UNDERWRITER.
This Agreement may at any time be terminated by either party hereto upon 60
days' written notice to the other party.
IX
All notices, requests, demands and other communications under this
Agreement shall be in writing and shall be deemed to have been given on the date
of service if served personally on the party to whom notice is to be given, or
on the date of mailing if sent by First Class Mail, Registered or Certified,
postage prepaid and properly addressed.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
signed on their behalf by their respective officers thereunto duly authorized.
EXECUTED this 16th day of April, 1998.
INSURANCE COMPANY
ALLIANZ LIFE INSURANCE COMPANY OF
NORTH AMERICA
/s/ Lowell C. Anderson
BY: _____________________________
Lowell C. Anderson, President
/s/Michael T. Westermeyer
ATTEST: _________________________________
Michael T. Westermeyer, Secretary
PRINCIPAL UNDERWRITER
NALAC FINANCIAL PLANS, LLC
/s/ Thomas B. Clifford
BY: _____________________________
Thomas B. Clifford, President
/s/Michael T. Westermeyer
ATTEST: _________________________________
Michael T. Westermeyer, Secretary
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Lowell C. Anderson, Chairman of
the Board, President & Chief Executive Officer of Allianz Life Insurance Company
of North America (Allianz Life), a corporation duly organized under the laws of
Minnesota, do hereby appoint Michael T. Westermeyer, as my attorney and agent,
for me, and in my name as Chairman of the Board, President & Chief Executive
Officer on behalf of Allianz Life, with full power to execute, deliver and file
with the Securities and Exchange Commission all documents required for
registration of a security under the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, and to do and perform each and every
act that said attorney may deem necessary or advisable to comply with the intent
of aforesaid Acts.
WITNESS my hand and seal this 3rd day of April 1998.
WITNESS
/s/ Mary Ann Lemke /s/ Lowell C. Anderson
- --------------------------- -----------------------------
Lowell C. Anderson
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Edward J. Bonach, Senior Vice
President and Chief Financial Officer of Allianz Life Insurance Company of North
America (Allianz Life), a corporation duly organized under the laws of
Minnesota, do hereby appoint Lowell C. Anderson and Michael T. Westermeyer, each
individually as my attorney and agent, for me, and in my name as Senior Vice
President and Chief Financial Officer on behalf of Allianz Life, with full power
to execute, deliver and file with the Securities and Exchange Commission all
documents required for registration of a security under the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as amended, and to do
and perform each and every act that said attorney may deem necessary or
advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 7th day of April 1998.
WITNESS
/s/ Mary Ann Lemke /s/ Edward J. Bonach
- --------------------------- -----------------------------
Edward J. Bonach
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Robert M. Kimmitt, a Director
of Allianz Life Insurance Company of North America (Allianz Life), a corporation
duly organized under the laws of Minnesota, do hereby appoint Lowell C. Anderson
and Michael T. Westermeyer, each individually as my attorney and agent, for me,
and in my name as Director of Allianz Life on behalf of Allianz Life, with full
power to execute, deliver and file with the Securities and Exchange Commission
all documents required for registration of a security under the Securities Act
of 1933, as amended, and the Investment Company Act of 1940, as amended, and to
do and perform each and every act that said attorney may deem necessary or
advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 6th day of April 1998.
WITNESS
/s/ Mary Ann Lemke /s/ Robert M. Kimmitt
- --------------------------- -----------------------------
Robert M. Kimmitt
Blazzard, Grodd & Hasenauer, P.C.
943 Post Road East
Westport, CT 06880
(203) 226-7866
April 24, 1998
Board of Directors
Allianz Life Insurance Company of North America
1750 Hennepin Avenue
Minneapolis, MN 55403
RE: Opinion and Consent of Counsel
Allianz Life Variable Account A
Dear Sir or Madam:
You have requested our Opinion of Counsel in connection with the filing with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended, of a Registration Statement on Form S-6 for the Individual Flexible
Premium Variable Life Insurance Policies to be issued by Allianz Life Insurance
Company of North America and its separate account, Allianz Life Variable Account
A.
We are of the following opinions:
1. Allianz Life Variable Account A is a unit investment trust as that term is
defined in Section 4(2) of the Investment Company Act of 1940 (the "Act"),
and is currently registered with the Securities and Exchange Commission,
pursuant to Section 8(a) of the Act.
2. Upon the acceptance of premium payments made by a Policy Owner pursuant to a
Policy issued in accordance with the Prospectus contained in the
Registration Statement and upon compliance with applicable law, such a
Policy Owner will have a legally-issued, fully-paid, non-assessable
contractual interest under such Policy.
You may use this opinion letter, or copy hereof, as an exhibit to the
Registration Statement.
We consent to the reference to our Firm under the caption "Legal Opinions"
contained in the Prospectus which forms a part of the Registration Statement.
Sincerely,
BLAZZARD, GRODD & HASENAUER, P.C.
By:/S/LYNN KORMAN STONE
-------------------------------
Lynn Korman Stone
Allianz Life Insurance Company of North America [Allianz Logo]
Jack L. Baumer, FSA, MAAA
Manager
Variable Products Actuarial
1750 Hennepin Avenue
Minneapolis, MN 55403-2195
Telephone: (612) 337-6180
Telefax: (612) 337-6136
April 29, 1998
The Board of Directors
Allianz Life Insurance Company of North America
1750 Hennepin Avenue
Minneapolis, MN 55403
CONSENT OF ACTUARY
I hereby consent to the inclusion of the Illustrations of Policy Values
contained in Appendix A in a Registration Statement Form S-6 registering
Flexible Premium Variable Life Insurance Policies. The illustrations have been
prepared in accordance with standard actuarial principles and reflect the
operation of the Policy by taking into account all charges under the Policy and
in the underlying fund, and are shown for the male, non-smoker risk
classification.
Sincerely,
/s/Jack L. Baumer
Jack L. Baumer, FSA, MAAA
JLB:rar
KPMG Peat Marwick LLP
4200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
Independent Auditors' Consent
The Board of Directors of Allianz Life Insurance Company of North America and
Policy Owners of Allianz Life Variable Account A:
We consent to the use of our report, dated January 30, 1998, on the financial
statements of Allianz Life Variable Account A and our report dated February 4,
1998, on the consolidated financial statements of Allianz Life Insurance Company
of North America and subsidiaries included herein and to the reference to our
Firm under the heading "EXPERTS".
KPMG Peat Marwick LLP
Minneapolis, Minnesota
April 24, 1998
