Registration Nos. 33-15464
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 22
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
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(Exact Name of Trust)
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
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(Name of Depositor)
1750 Hennepin Avenue, Minneapolis, MN 55403-2195
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(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
It is proposed that this filing will become effective:
_____ immediately upon filing pursuant to paragraph (b) of Rule 485
__X__ on May 1, 1999 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.
Title and amount of securities being registered:
Individual Single Premium Variable Life Insurance Policies.
CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-8B-2
<TABLE>
<CAPTION>
<S> <C>
N-8B-2 Item Caption in Prospectus
1 Allianz Life, The Separate Account
2 Allianz Life
3 Not Applicable
4 Distributor
5 The Separate Account
6(a) Not Applicable
(b) Not Applicable
9 Not Applicable
10 Purchases
11 Investment Options
12 Investment Options
13 Expenses
14 Purchases
15 The Separate Account
16 Investment Options
17 Policy Values, Access to your Money
and Transfers
18 Purchases
19 Not Applicable
20 Not Applicable
21 Not Applicable
22 Not Applicable
23 Not Applicable
24 Not Applicable
25 Allianz Life
26 Allianz Life
27 Allianz Life
28 Allianz Life
29 Allianz Life
30 Allianz Life
31 Not Applicable
32 Not Applicable
33 Not Applicable
34 Not Applicable
35 Allianz Life
37 Not Applicable
38 Distributor
39 Distributor
40 Not Applicable
41(a) Distributor
42 Not Applicable
43 Not Applicable
44 Purchases
45 Not Applicable
46 Policy Values, Access to your Money
and Transfers
47 Not Applicable
48 Not Applicable
49 Not Applicable
50 Not Applicable
51 Allianz Life
52 Investment Options
53 Taxes
54 Financial Statements
55 Not Applicable
</TABLE>
<PAGE>
THE SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
issued by
ALLIANZ LIFE VARIABLE ACCOUNT A
and
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
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This prospectus describes the Single Premium Variable Life Insurance Policy
(Policy) offered by Allianz Life Insurance Company of North America (Allianz
Life).
The Policy is a variable benefit policy. We have designed the Policy for use in
estate planning and other insurance needs of individuals.
The Policy offers you 25 variable options, each of which invests in a portfolio
of Franklin Valuemark Funds. The portfolios are listed below. When you buy a
Policy, you are subject to investment risk. This means that the death benefit
and your Policy Value may increase and decrease depending upon the performance
of the variable option(s) you select. There is a Guaranteed Death Benefit
payable. However, any loans against the Policy will impact this guarantee. You
can surrender your Policy for its Cash Surrender Value. No partial surrenders
are allowed.
FRANKLIN VALUEMARK FUNDS:
PORTFOLIO SEEKING CAPITAL PRESERVATION AND INCOME:
Money Market Fund
PORTFOLIOS SEEKING INCOME:
High Income Fund
Templeton Global Income Securities Fund
U.S. Government Securities Fund
Zero Coupon Funds - 2000, 2005 and 2010
PORTFOLIOS SEEKING GROWTH AND INCOME:
Global Utilities Securities Fund
Growth and Income Fund
Income Securities Fund
Mutual Shares Securities Fund
Real Estate Securities Fund
Rising Dividends Fund
Templeton Global Asset Allocation Fund
Value Securities Fund
PORTFOLIOS SEEKING CAPITAL GROWTH:
Capital Growth Fund
Global Health Care Securities Fund
Mutual Discovery Securities Fund
Natural Resources Securities Fund
Small Cap Fund
Templeton Developing Markets Equity Fund
Templeton Global Growth Fund
Templeton International Equity Fund
Templeton International Smaller Companies Fund
Templeton Pacific Growth Fund
The portfolios are described in the attached prospectus for Franklin Valuemark
Funds. You can make or lose money based on the portfolio's performance. The
Policy is subject to investment risk.
Please read this prospectus before investing and keep it on file for future
reference. It contains important information about the Allianz Life Single
Premium Variable Life Insurance Policy. The Securities and Exchange Commission
(SEC) maintains a Web site (http://www.sec.gov) that contains material
incorporated by reference and other information regarding companies that file
electronically with the SEC.
The Policy:
o is not a bank deposit.
o is not federally insured.
o is not endorsed by any bank or government agency.
o is not guaranteed and may be subject to loss of
principal.
The Securities and Exchange Commission has not approved or disapproved these
securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
This prospectus is not an offering of the securities in any state, country, or
jurisdiction in which we are not authorized to sell these securities. You should
rely only on the information contained in this prospectus or that we have
referred you to. We have not authorized anyone to provide you with information
that is different.
In Oregon, all references to "Franklin Valuemark Life" refer to "Valuemark
Life."
May 1, 1999
TABLE OF CONTENTS
Special Terms 3
Summary 3
Part I 5
1. The Variable Life
Insurance Policy 5
2. Purchases 6
Single Premium 6
Application for a Policy 6
Allocation of Single Premium 6
Free Look 6
Grace Period 6
Reinstatement 7
Policy Values 7
Exchange Provision 7
3. Investment Options 7
Transfers 8
Substitution 8
4. Expenses 8
Insurance Charges 8
Cost of Insurance Charge 8
Deferred Issue Charge 9
Transfer Fee 9
Taxes 9
Portfolio Expenses 9
5. Death Benefit 11
6. Taxes 11
Life Insurance in General 11
Taking Money Out of Your Policy 11
Diversification 11
7. Access to Your Money 12
Loans 12
Total Surrender and Termination of the Policy 12
8. Other Information 12
Allianz Life 12
Year 2000 13
The Separate Account 13
Distributor 13
Suspension of Payments or Transfers 13
Ownership 13
Part II 14
Management of Allianz Life 14
Administration of the Policies 14
Voting 14
The Separate Account 15
Legal Opinions 15
Misstatement of Age or Sex 15
Right to Contest 15
Settlement Options 15
Tax Status 15
Reports to Owners 18
Legal Proceedings 18
Experts 18
Financial Statements 18
Appendix A - Illustration of
Policy Values 79
Appendix B - Table of Net
Single Premium Factors 86
<PAGE>
SPECIAL TERMS
We have tried to make this prospectus as readable and understandable for you as
possible. However, by the very nature of the Policy certain technical words or
terms are unavoidable. We have identified some of those words or terms. For
several of these terms we have provided a definition. For the remainder, we
believe that you will find an adequate discussion in the text. We have
identified those terms not defined below in the text in italics and provided you
with a page number that indicates where we believe you will find the best
explanation for the word or term.
Cash Surrender Value - Your Policy Value less the sum of the uncollected
Deductions and any Indebtedness.
Deductions - The charges we levy against your Policy.
Face Amount - The amount of coverage that you choose. This amount is used to
determine the death benefit.
Guaranteed Death Benefit - We guarantee that the Policy will remain in force
regardless of investment experience, unless the Indebtedness under your Policy
exceeds the Policy Value less uncollected Deductions. If there is no
Indebtedness, the Policy cannot lapse even if the Policy Value is $0.
Indebtedness - The amount of any existing Policy loans plus the pro-rata portion
of any accrued interest.
Policy Date, Policy Anniversary, Policy Year - The Policy Date is when the
insured's life is covered under your Policy. It is the date from which your
Policy Anniversaries and Policy Years are determined.
Policy Value - The total value of your Policy. It is equal to the sum of the
values allocated to the variable options and the values allocated to the loan
account. (Policy Value is referred to as Account Value in the Policy.)
Processing Date - The Policy Date and the same day of the month as the Policy
Date at the end of each successive 3-month period. The Processing Date is when
we deduct charges and recalculate the death benefit.
Valuation Unit - An accounting unit used to calculate Policy Values when they
are allocated to the portfolios.
Page
Beneficiary . 13
Business Day. 7
Insured. 3
Issue Date. 6
Joint Owner. 13
Loan Account. 12
Owner. 13
Portfolio. 7
Premiu. 6
Variable Option. 7
The prospectus is divided into three sections: Summary, Part I and Part II. The
sections in the Summary correspond to sections in Part I of this prospectus
where the topics are discussed in more detail. Additional important information
is contained in Part II of this prospectus.
SUMMARY
1. THE VARIABLE LIFE
INSURANCE POLICY
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The variable life insurance policy that we are offering is a contract between
you, the owner, and Allianz Life, an insurance company. In this prospectus,
"we", "us" and "our" refers to Allianz Life. The Policy provides for the payment
of a death benefit to your selected beneficiary upon the death of the insured.
This death benefit is distributed free from federal income taxes. The Policy can
be used as part of your estate planning. Estate taxes may apply. The insured is
the person whose life is insured under the Policy. You, the owner can also be
the insured but you do not have to be.
You can choose among the 25 variable options. Each variable option invests in
one portfolio of Franklin Valuemark Funds. The portfolios are listed in Item 3.
You can allocate your unloaned Policy Value to any or all of the variable
options. You can transfer between variable options up to 12 times a year without
charge and without being taxed. If you make more than 12 transfers in a year, we
will charge $25 or 2% of the amount transferred, whichever is less. Market
timing transfers may not be permitted.
While the Policy is in force, the Policy Value and, under certain circumstances,
the death benefit, will vary with the investment performance of the portfolios
you choose. You are not taxed on the earnings from the variable options until
you surrender or borrow from your Policy.
2. PURCHASES
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You buy the Policy with a single premium payment. The minimum single premium we
will accept is $20,000. In some circumstances, the insured may be required to
provide us with medical records or a complete paramedical examination. Your
registered representative can help you complete the proper forms.
3. INVESTMENT OPTIONS
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The variable options each invest in a portfolio of Franklin Valuemark Funds. You
can put your money in the Class 1 share portfolios listed below which are
described in the prospectus for Franklin Valuemark Funds. Franklin Valuemark
Funds offers two classes of shares. Only Class 1 shares are available with the
Policy.
PORTFOLIO SEEKING
CAPITAL PRESERVATION AND INCOME:
Money Market Fund
PORTFOLIOS SEEKING INCOME:
High Income Fund
Templeton Global Income Securities Fund
U.S. Government Securities Fund
Zero Coupon Funds - 2000, 2005 and 2010
PORTFOLIOS SEEKING GROWTH AND INCOME:
Global Utilities Securities Fund
Growth and Income Fund
Income Securities Fund
Mutual Shares Securities Fund
Real Estate Securities Fund
Rising Dividends Fund
Templeton Global Asset Allocation Fund
Value Securities Fund
PORTFOLIOS SEEKING CAPITAL GROWTH:
Capital Growth Fund
Global Health Care Securities Fund
Mutual Discovery Securities Fund
Natural Resources Securities Fund
Small Cap Fund
Templeton Developing Markets Equity Fund
Templeton Global Growth Fund
Templeton International Equity Fund
Templeton International Smaller Companies Fund
Templeton Pacific Growth Fund
Depending upon market conditions and the performance of the portfolio(s) you
select, you can make or lose money in any of these portfolios.
4. EXPENSES
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The Policy has both insurance features and investment features, and there are
costs related to each that reduce the return on your investment.
Each business day we deduct a total insurance charge which is equal, on an
annual basis, to 0.75% of your average Policy Value.
Each Processing Date we deduct from your Policy Value the cost of insurance
charge. This charge pays us for providing you with death benefit protection for
the period since the last Processing Date. This charge varies and depends upon
the sex, age and rating classification of the insured.
When the single premium is received by us, we accrue against your Policy a
deferred issue charge. This charge includes a premium tax charge which is 2.5%
of the premium; a sales charge which is 4% of the premium; and a policy issue
charge which is 0.5% of the premium. A portion of the deferred issue charge is
deducted annually for the first 10 years of the Policy. If you surrender your
Policy before the full amount of the deferred issue charge is deducted, we will
collect the remaining portion of the charge from your Policy Value at the time
of surrender.
Under certain circumstances, we may assess a transfer fee when you transfer your
Policy Value from one variable option to another.
There are also annual portfolio operating expenses, which vary depending upon
the portfolio(s) you select. These expenses range from .49% to 1.41% of the
average daily value of the portfolios' Class 1 shares.
5. DEATH BENEFIT
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The Policy provides for a Face Amount of insurance. On the day we issue you a
Policy the death benefit is the Face Amount. Thereafter the death benefit may
vary. The actual amount payable to your beneficiary is the death benefit less
any Indebtedness.
The death benefit will be the greater of (1) your Face Amount or (2) your Policy
Value multiplied by a specified percentage. These percentages vary by the age of
the insured and are shown in your Policy. Therefore, increases in your Policy
Value under certain circumstances will increase the death benefit. A decrease in
Policy Value may decrease the death benefit, but the death benefit will never be
less than the Face Amount so long as the Policy remains in force.
When you apply for a Policy, you designate a beneficiary who is the person or
persons who will receive the death benefit. You can change your beneficiary
unless you have designated an irrevocable beneficiary. The beneficiary does not
have to be a natural person.
6. TAXES
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Your earnings are not taxed until you take them out. In most cases, your Policy
will be a modified endowment contract unless it was exchanged for a contract
issued before June 21, 1988. Money taken out of a modified endowment contract is
considered to come from earnings first and is taxed as income. Also, if you are
younger than 591/2 when you take money out, you may be charged a 10% federal tax
penalty on the earnings withdrawn. The death benefit is paid to your beneficiary
income tax free. However, estate taxes may apply.
7. ACCESS TO YOUR MONEY
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Under the Policy you may surrender the Policy at anytime for its Cash Surrender
Value. You can also borrow some of your Policy Value. The minimum loan amount is
$1,000. Loans will affect the death benefit, Policy Value and investment
performance. You cannot make partial surrenders.
8. OTHER INFORMATION
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RIGHT TO EXAMINE
If you cancel your Policy within ten days after you receive it (or whatever
period is required in your state), we will return to you the greater of (1) the
premium(s) you paid or (2) your Policy Value on the day we, or the agent through
whom it was purchased, received the returned Policy. Until the end of the time
you are allowed to examine your Policy (15 days or the required period in your
state), your premium will remain in the Money Market Fund. After that, we will
invest your Policy Value as you requested.
WHO SHOULD PURCHASE THE POLICY?
The Policy is designed for an individual who wants to:
o create or conserve his/her estate;
o retain access to cash through loans and surrenders; and
o use the income tax advantages of life insurance.
If you currently own a variable life insurance policy on the life of the
insured, you should consider whether the purchase of the Policy is appropriate.
Also, you should carefully consider whether the Policy should be used to replace
an existing Policy on the life of an insured. Replacement of an existing policy
with this Policy may not be advantageous to your situation.
Allianz Life will not issue a Policy on an insured older than 80. However, we
may waive this requirement under special circumstances.
9. INQUIRIES
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If you need more information, please contact us at:
Allianz Life Insurance Company of North America
1750 Hennepin Ave.
Minneapolis, MN 55403
800-542-5437
If you need Policy owner service (such as changes in Policy information,
questions regarding Policy Values, or to make a loan), please contact us at:
Valuemark Service Center
300 Berwyn Park
P.O. BOX 3031
Berwyn, PA 19312
800-624-0197
PART I
1. THE VARIABLE LIFE
INSURANCE POLICY
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This variable life insurance policy is a contract between you, the owner, and
Allianz Life, an insurance company. This kind of policy is most commonly used
for estate planning.
While the insured is still alive, you can select among the variable options
offered in the Policy. (There are currently 25 variable options each of which
invests in a portfolio of Franklin Valuemark Funds. The portfolios are listed in
Item 3.) You can transfer between the variable options up to 12 times a year
without charge. The Policy Value and, under some circumstances, the death
benefit will go up or down depending upon the investment experience of the
portfolio(s) you select. This gives you the opportunity to capture the upside
potential of the market. It also means you could lose money.
While your money remains in the Policy, you pay no current income taxes on
earnings or gains. This is called tax-deferred accumulation. It helps your money
grow faster. Subject to some limitations, you may take money out at any time
through loans or a surrender. There are no partial surrenders allowed, only full
surrenders. However, any money you take out, even as a loan, is taxed as
earnings until all earnings have been removed from the Policy. If you are
younger than age 591/2 when you take money out, you may also incur an additional
10% federal tax penalty. If you purchased a Policy in exchange for a policy
issued prior to June 21, 1988, different tax rules may apply. (See Section 6.
Taxes. Part II also contains more detailed information regarding taxes.)
Because this is a life insurance policy, it provides a death benefit, which is
an amount greater than your Policy Value. When the insured dies, the death
benefit (minus any loans and any accrued loan interest) is paid to your
beneficiary free from federal income tax. Estate taxes may apply.
2. PURCHASES
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SINGLE PREMIUM
The single premium is the money you give us to buy the Policy. The minimum
single premium we will accept is $20,000. When you apply for the Policy, you
request a specific amount of insurance which will vary depending, in part, on
the amount of the premium you pay. We call this amount the Face Amount of the
Policy. The Internal Revenue Code (Code) has established certain criteria which
must be met in order for a life insurance policy to qualify as life insurance
under the Code. The Code requires that there be a minimum Face Amount for a
specified premium depending upon the age of the insured.
APPLICATION FOR A POLICY
In order to purchase a Policy, you must submit to us an application which
provides us with information on the proposed insured. In some cases, we will ask
for additional information. We may request that the insured provide us with
medical records or possibly require other medical tests.
We will not issue a Policy if the insured is over age 80, except under special
circumstances.
We will review all the information we have about the insured and determine
whether or not the insured meets our standards for issuing the Policy. This
process is called underwriting. If the insured meets all of our underwriting
requirements, we will issue a Policy. There are several underwriting classes
under which the Policy may be issued. We will not issue the Policy unless the
premium and the application are in good order as determined by our underwriting
rules.
ALLOCATION OF SINGLE PREMIUM
When you purchase a Policy, we will initially invest your money in the Money
Market Fund. After 15 days from the issue date (or the period required in your
state), we will allocate your Policy Value to the portfolios as you requested in
the application. The issue date is the date that underwriting is completed and
we issue the policy. We reserve the right to limit the number of variable
options which you can invest in. Currently, you can invest in up to 10 variable
options.
If as a result of underwriting review, we do not issue you a Policy, we will
return your premium, plus interest required by your state.
FREE LOOK
If you change your mind about owning a Policy, you can cancel it within 10 days
after receiving it (or the period required in your state). We will give you back
the greater of your premium payment or your Policy Value. Any amounts we refund
will include all Policy fees and charges.
GRACE PERIOD
Your policy will lapse if your total Indebtedness under the Policy is greater
than your Policy Value less any uncollected Deductions. If you have no loan
outstanding, the Policy cannot lapse even if your Policy Value goes to zero.
If your Policy does lapse, you have a 31-day grace period to repay your loan by
making a payment of at least an amount which is sufficient to keep your Policy
in force through 3 Processing Dates. If you do not make the required loan
repayment by the end of the grace period, your Policy will lapse and all
coverage under your Policy will terminate without value.
Your Policy continues in force during the grace period. If the insured dies
during the grace period, the death benefit is calculated as the death benefit in
effect immediately prior to the start of the grace period less any accrued
Deductions and less any Indebtedness.
REINSTATEMENT
If your Policy terminates while the insured is still alive you can have it
reinstated if the Policy did not terminate because you made a total surrender.
You can only reinstate your Policy during the lifetime of the insured.
The requirements for a reinstatement are:
o We must receive a properly executed application for reinstatement. It must be
sent to our Service Office.
o You must provide us with satisfactory evidence of insurability of the insured.
o You must pay a premium sufficient to keep the Policy in force through 3
Processing Dates.
o You must repay any Indebtedness.
We will reinstate your Policy on the next Processing Date after we approve the
reinstatement application.
The effective date of the reinstated Policy is the next processing date
following our approval of your application for reinstatement.
POLICY VALUES
The value of your Policy will go up or down depending upon the investment
performance of the portfolio(s) you choose and the charges and deductions made
against the Policy Value. In order to keep track of your Policy Value, we use a
unit of measure we call a Valuation Unit. (A Valuation Unit works like a share
of a mutual fund.)
Every business day Allianz Life determines the value of a Valuation Unit for
each of the variable options. The value of a Valuation Unit for any given
business day is determined by multiplying a factor we call the net investment
factor times the value of Valuation Unit for the previous business day. We do
this for each variable option. The net investment factor is a number that
reflects the change (up or down) in an underlying investment portfolio share.
Our business days are each day that the New York Stock Exchange is open for
business. Our business day closes when the New York Stock Exchange closes,
usually 4:00 P.M. Eastern time.
The value of a Valuation Unit may go up or down from day to day.
When you make a premium payment, we credit your Policy with Valuation Units. The
number of Valuation Units credited is determined by dividing the amount of
premiums allocated to a variable option by the value of the Valuation Unit for
that variable option.
When we assess the Deductions we do so by deducting Valuation Units from your
Policy. If you select more than one variable option, we make the deductions pro
rata from all of the variable options. When you make a loan we also deduct
Valuation Units and place the amount in the Loan Account.
EXCHANGE PROVISION
You can exchange a Policy for a policy with benefits that do not vary with the
investment results of the portfolios. You must elect such an exchange within 24
months after we issue you the Policy. You do not need to submit any evidence of
insurability so long as the benefits under the new policy are equal to or less
than the benefits under the Policy at the time of exchange.
3. INVESTMENT OPTIONS
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The Policy offers variable options which invest in Class 1 shares of 25
portfolios of Franklin Valuemark Funds which are listed below. Additional
portfolios may be available in the future.
You should read the prospectus for Franklin Valuemark Funds (which is attached
to this prospectus) carefully before investing.
Franklin Valuemark Funds (Trust) is the mutual fund underlying your Policy. Each
portfolio has its own investment objective. The Trust issues two classes of
shares which are described in the accompanying Trust prospectus. Only Class 1
shares are available in connection with your Policy. 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), Templeton Global
Advisors Limited (TGA), and Templeton Investment Counsel, Inc. (TIC). Certain
managers have retained one or more affiliated subadvisers to help them manage
the portfolios.
The following is a list of the Portfolios available under the Policy:
Investment
Available Portfolios Managers
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PORTFOLIO SEEKING
CAPITAL PRESERVATION AND INCOME
Money Market Fund FA
PORTFOLIOS SEEKING INCOME
High Income Fund FA
Templeton Global Income Securities Fund FA
U.S. Government Securities Fund FA
Zero Coupon Funds-2000,2005,2010 FA
Investment
Available Portfolios Managers
PORTFOLIOS SEEKING GROWTH AND INCOME
Global Utilities Securities Fund FA
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
Value Securities Fund FAS
PORTFOLIOS SEEKING CAPITAL GROWTH
Capital Growth Fund FA
Global Health Care Securities Fund FA
Mutual Discovery Securities Fund FMA
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 International Smaller Companies Fund TIC
Templeton Pacific Growth Fund FA
Franklin Valuemark Funds serves as the underlying mutual fund for variable life
insurance policies offered by Allianz Life and variable annuity contracts
offered by Allianz Life and its affiliates. Franklin Valuemark Funds believes
that offering its shares in this manner will not be disadvantageous to you.
TRANSFERS
You can transfer money among the 25 variable options.
You can make 12 transfers every Policy Year without charge while the insured is
alive. If you make more than 12 transfers in a year, there is a transfer fee
deducted. (We measure years from your Policy Date.) The fee is $25 per transfer
or, if less, 2% of the amount transferred. The minimum amount which you can
transfer is $500, or your entire value in the variable option.
You can make transfers by telephone only if you previously elected to do so in
writing. Unless we are instructed otherwise, if you own the Policy with a joint
owner we will accept instructions from either you or the other owner. We will
use reasonable procedures to confirm that instructions given to us by telephone
are genuine. If we fail to use such procedures, we may be liable for any losses
due to unauthorized or fraudulent instructions. We record all telephone
instructions.
We have not designed the Policy for use by professional market timing
organizations or other persons using programmed, large, or frequent transfers.
Such activity may be disruptive to a portfolio. We reserve the right to reject
any transfer request from any person, if in the portfolio managers' judgment, a
portfolio would be unable to invest effectively in accordance with its
investment objectives and policies, or would otherwise potentially be adversely
affected.
SUBSTITUTION
We may elect to substitute one of the variable options you have selected with
another variable option. We would not do this without the prior approval of the
Securities and Exchange Commission. We will give you notice of our intent to do
this. We may also limit further investment in a variable option if we deem the
investment inappropriate.
4. EXPENSES
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There are charges and other expenses associated with the Policy that reduce the
return on your investment in the Policy. These charges and expenses are:
INSURANCE CHARGES
Each business day we will make a deduction for the mortality and expense risk
charge and the administrative charge.
Mortality and Expense Risk Charge. This charge is equal, on an annual basis, to
0.60% of the Policy Value of the Policy. This charge cannot be increased. This
charge compensates us for assuming the mortality and expense risks under the
Policy.
Administrative Charge. This charge is equal, on an annual basis, to .15% of the
Policy Value of your Policy. This charge cannot be increased. This charge
compensates us for expenses we incur in the administration of the Policies.
COST OF INSURANCE CHARGE
This charge compensates us for insurance coverage provided since the last
Processing Date.
The guaranteed cost of insurance charge is determined by multiplying the net
amount at risk by the cost of insurance rate. The net amount at risk is the
difference between the death benefit and the sum of your Cash Surrender Value
and your loan account value. The cost of insurance rate is based upon the sex
(in states where permitted), age and rate classification of the insured. The
rate classification of the insured is determined through our underwriting
process.
The Policy provides that for standard risks, the guaranteed cost of insurance
rate is based on the Commissioners Standard 1980 Ordinary Male and Female,
Smoker and Non-Smoker Mortality Tables last birthday (1980 CSO Tables). For
substandard risks, the guaranteed cost of insurance rate is higher and will be
based upon a multiple of the 1980 CSO Tables. The multiple is based on the
insured's substandard rating. Tables setting forth the guaranteed cost of
insurance rates are included in each Policy.
We can use rates that are less than the guaranteed cost of insurance rates shown
in the Policy. We refer to these rates as the current cost of insurance rates.
The current rates we currently use are approximately 75% of the 1980 CSO Tables.
The current rates will never be more than the guaranteed maximum cost of
insurance rates.
DEFERRED ISSUE CHARGE
When we receive your single premium payment, a Deferred Issue Charge of 7% is
accrued. We deduct this charge in 10 equal annual deductions of .7% on Policy
Anniversaries for the first 10 Policy Years. If you surrender the Policy before
the full amount is deducted, the uncollected portion of this charge is deducted
from the Policy Value. The total Deferred Issue Charge is 7.0%. The Deferred
Issue Charge is for premium taxes (2.5% of the single-premium); sales charge
(4.0% of the single-premium); and Policy issue charge (0.5% of the
single-premium). For policies issued in the state of California only, the
Deferred Issue Charge is for premium taxes (2.35% of the single-premium); sales
charge (4.15% of the single-premium); and Policy issue charge (0.5% of the
single-premium).
Premium Taxes - Most states and certain jurisdictions, such as cities and
counties, tax premium payments. Premium taxes vary from state to state and
generally range from 2% to 3%. This charge does not apply in states that have no
premium tax.
Sales Charge - This sales charge reimburses us for expenses incurred in
connection with the promotion, sale and distribution of the Policy. This charge
is not expected to cover all of our distribution costs. If this charge is
insufficient to cover the distribution costs, we may make up the difference from
our general assets and from the profit we expect from the Mortality and Expense
Risk Charge.
Policy Issue Charge - This charge is designed to cover the administrative
expenses we incur in connection with issuing a Policy. Such expenses include
initial underwriting review, medical examinations, inspection reports, attending
physicians' statements, insurance underwriting costs, Policy issuance costs,
establishing permanent Policy records, preparation of illustrations, preparation
of riders and the initial confirmation of the transaction.
TRANSFER FEE
You can make 12 free transfers every year. We measure a year from the Policy
Date. If you make more than 12 transfers a year, we will deduct a transfer fee
of $25 or 2% of the amount that is transferred, whichever is less. If we do
assess a transfer fee, it will be deducted from the amount transferred.
Your initial allocation will not count in determining the transfer fee.
TAXES
We may assess a charge against a Policy for any taxes attributable to the
Policy. We do not expect to incur such taxes.
PORTFOLIO EXPENSES
There are deductions from the assets of the various portfolios for operating
expenses (including management fees), which are summarized below. See the
Franklin Valuemark Funds prospectus for a complete description.
<PAGE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK FUNDS' ANNUAL EXPENSES: CLASS 1 SHARES
(as a percentage of a Franklin Valuemark Funds' average net assets).
The Management and Portfolio Administration Fees and Total Annual Expenses for each Portfolio are based on a percentage of that
Portfolio's average net assets for the most recent fiscal year. See the prospectus for Franklin Valuemark Funds for more
information.
Management
and Portfolio Total Annual
Administration Fees1 Other Expenses Expenses
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital Growth Fund .75% .02% .77%
Global Health Care Securities Fund2 .75% .09% .84%
Global Utilities Securities Fund .47% .03% .50%
Growth and Income Fund .47% .02% .49%
High Income Fund .50% .03% .53%
Income Securities Fund .47% .02% .49%
Money Market Fund .51% .02% .53%
Mutual Discovery Securities Fund .95% .05% 1.00%
Mutual Shares Securities Fund .74% .03% .77%
Natural Resources Securities Fund .62% .02% .64%
Real Estate Securities Fund .52% .02% .54%
Rising Dividends Fund .70% .02% .72%
Small Cap Fund .75% .02% .77%
Templeton Developing Markets Equity Fund 1.25% .16% 1.41%
Templeton Global Asset Allocation Fund .80% .04% .84%
Templeton Global Growth Fund .83% .05% .88%
Templeton Global Income Securities Fund .57% .06% .63%
Templeton International Equity Fund .80% .08% .88%
Templeton International Smaller Companies Fund 1.00% .10% 1.10%
Templeton Pacific Growth Fund .99% .11% 1.10%
U.S. Government Securities Fund .48% .02% .50%
Value Securities Fund2 .75% .08% .83%
Zero Coupon Fund - 2000 .63% .03% .66%
Zero Coupon Fund - 2005 .63% .03% .66%
Zero Coupon Fund - 2010 .62% .04% .66%
<FN>
1. The Portfolio Administration Fee is a direct expense for the Global Health Care Securities Fund, the Mutual Discovery
Securities Fund, the Mutual Shares Securities Fund, the Templeton Global Asset Allocation Fund, the Templeton International
Smaller Companies Fund, and the Value Securities Fund; other Portfolios pay for similar services indirectly through the Management
Fee. See the Franklin Valuemark Funds prospectus for further information regarding these fees.
2. The Global Health Care Securities Fund and the Value Securities Fund commenced operations May 1, 1998. The expenses shown above
for these Portfolios are therefore estimated for 1999.
</FN>
</TABLE>
<PAGE>
5. DEATH BENEFIT
- --------------------------------------------------------------------------------
The primary purpose of the Policy is to provide death benefit protection on the
life of your insured. Even if your Policy Value is $0, the Policy will not lapse
if there is no Indebtedness under the Policy.
The death benefit is paid upon receipt of due proof of the insured's death. The
death benefit is the greater of: (1) the Face Amount; or (2) the variable
insurance amount as of the date we receive proof of death of the insured. After
the issue date, the variable insurance amount will be your Policy Value, less
the uncollected Deductions, multiplied by the net single premium factor for the
insured's attained age as of such date. The table of net single premium factors
is contained in Appendix B to this prospectus and is shown in your Policy. The
Face Amount is determined on the date we issue your Policy. The variable
insurance amount is the same as the Face Amount on that date. Thereafter the
variable insurance amount will vary.
The amount payable for the death benefit is reduced by any Indebtedness and any
accrued Deductions, and is increased by amount due from riders. Payment of the
death benefit may be delayed pending receipt of any applicable tax consents
and/or forms from a state. Your Policy will terminate without value, as
described in the grace period provision, if your Indebtedness is greater than
the Policy Value less the uncollected Deductions.
6. TAXES
- --------------------------------------------------------------------------------
NOTE: We have prepared the following information on taxes as a general
discussion of the subject. It is not intended as tax advice to any person. You
should consult your own tax adviser about your own circumstances. We have
included an additional discussion regarding taxes in Part II of this prospectus.
LIFE INSURANCE IN GENERAL
Life insurance, such as the Policy, is a means of providing for certain
financial protections upon your death and setting aside money for future needs.
Congress recognized the importance of such planning and provided special rules
in the Internal Revenue Code (Code) for life insurance.
Simply stated, these rules provide that you will not be taxed on the earnings on
the money held in your life insurance policy until you take the money out. The
beneficiaries are not taxed when they receive the death proceeds upon the death
of the insured. However, estate taxes may apply.
You, as the owner, will not be taxed on increases in the value of your Policy
until a distribution occur -- either as a surrender or as a loan. When you
receive a distribution, you are taxed on the amount of the surrender that is
earnings.
TAKING MONEY OUT OF YOUR POLICY
For tax purposes, your Policy will be treated as a modified endowment contract,
unless under certain circumstances it was exchanged for a policy issued before
June 21, 1988. Consequently, if you make a withdrawal or take a loan from your
Policy, the Code treats it as first coming from earnings and then from your
premiums. These earnings are included in taxable income.
The Code also provides that any amount received from an insurance policy which
is included in income may be subject to a 10% penalty. The penalty will not
apply if the income received is: (1) paid on or after the taxpayer reaches age
591/2; (2) paid if the taxpayer becomes totally disabled (as that term is
defined in the Code); or (3) in a series of substantially equal payments made
annually (or more frequently) for the life or life expectancy of the taxpayer.
If you purchased a Policy in exchange for a policy issued prior to June 21,
1988, different tax rules may apply. See "Tax Status" in Part II for more
details.
DIVERSIFICATION
The Code provides that the underlying investments for a variable life policy
must satisfy certain diversification requirements in order to be treated as a
life insurance contract. We believe that the portfolios are being managed so as
to comply with the requirements.
Under current federal tax law, it is unclear as to the circumstances under which
you, because of the degree of control you exercise over the underlying
investments, and not us would be considered the owner of the shares of the
investment portfolios. If you are considered the owner of the investments, it
will result in the loss of the favorable tax treatment for the Policy. It is
unknown to what extent owners are permitted to select portfolios, to make
transfers among the portfolios or the number and type of portfolios owners may
select from without being considered the owner of the shares. If guidance from
the Internal Revenue Service is provided which is considered a new position,
then the guidance would generally be applied prospectively. However, if such
guidance is considered not to be a new position, it may be applied
retroactively. This would mean that you, as the owner of the Policy, could be
treated as the owner of the portfolios. Due to the uncertainty in this area, we
reserve the right to modify the Policy in an attempt to maintain favorable tax
treatment.
7. ACCESS TO YOUR MONEY
- -------------------------------------------------------------------------------
The Cash Surrender Value in your Policy is available:
(1) by making a complete surrender, or (2) by taking a loan from your Policy.
LOANS
You may borrow money from us while the Policy is still in force. The Policy is
the only security we require for a Policy loan. You cannot borrow against your
Policy until the end of the right to examine period and you cannot borrow if the
Policy is in a grace period. Loans are considered distributions from the Policy
for tax purposes and the portion of the loan that has come from earnings will be
taxable to you and may be subject to a 10% penalty tax. Loan amounts are treated
as coming first from earnings and then from premiums. See "Tax Status" in Part
II for more details.
Loan Amount. The maximum loan amount is equal to 90% of the Policy Value less
any uncollected Deductions.
The minimum loan amount is $1,000. If total loans equal or exceed the Policy
Value, the Policy will terminate at the end of the grace period if an
appropriate loan repayment is not made.
Loan Account. When you make a loan, a portion of your Policy Value equal to the
loan will be transferred on a prorata basis from the portfolios to the loan
account. The loan account is a portion of our general account that contains
Policy Values attributable to Policy loans.
Loan Interest. Loan interest due on the Policy loan accrues daily at a current
rate of 4.75% per annum. The loan interest is due each Policy Anniversary and if
not paid will become part of the loan. When that happens, a portion of the
Policy Value equal to the loan interest due is transferred, on a prorata basis,
from the portfolios to the loan account.
Interest Credited. Amounts held in the loan account are credited daily with
interest, at a current rate of 4.0% per annum.
Effect of Loan. When you make a loan against your Policy, we will redeem
Valuation Units from the portfolios equal to the loan request and transfer that
amount to the loan account.
A Policy loan, whether or not repaid, will have a permanent effect on the
Policy. This is because the loan account does not share in the investment
results of the portfolio(s). If it is not repaid, the Policy loan and accrued
loan interest will reduce the amount of Policy Value. It will also reduce the
amount payable at death because Indebtedness is deducted from the death benefit.
Loan Repayments. You can repay all or part of a loan at any time while your
Policy is in force and the insured is alive. The minimum loan repayment amount
is $1,000. If you want to repay a loan in full, the loan repayment must equal
the loan plus all the accrued loan interest. When you repay a loan, we will
transfer the amount held in the loan account to the portfolios according to your
most recent instructions.
Unless you tell us otherwise, any payment we receive from you will go first to
pay any interest due and then to repay any loan.
TOTAL SURRENDER AND TERMINATION
OF THE POLICY
You can terminate your Policy by notifying us in writing. We will pay you the
Cash Surrender Value. When that happens, the Policy will be terminated and there
will be no other benefits. When you make a total surrender we deduct any
uncollected Deductions. Partial surrenders are not allowed.
Your Policy will also terminate if the grace period has ended or the insured has
died.
8. OTHER INFORMATION
- --------------------------------------------------------------------------------
ALLIANZ LIFE
Allianz Life Insurance Company of North America (Allianz Life), 1750 Hennepin
Avenue, Minneapolis, Minnesota 55403, was organized under the laws of the state
of Minnesota in 1896. Allianz Life offers fixed and variable life insurance and
annuities and group life, accident and health insurance. Allianz Life is
licensed to do business in 49 states and the District of Columbia. Allianz Life
is a wholly-owned subsidiary of Allianz Versicherugs-AG Holding.
NALAC Financial Plans, LLC is our wholly-owned subsidiary. It provides marketing
services and is the principal underwriter of the Policy. NALAC Financial Plans,
LLC is reimbursed for expenses incurred in the distribution of the Policies.
Administration for the Policy is provided at our Service Office:
Valuemark Service Center
300 Berwyn Park
P.O. Box 3031
Berwyn, Pennsylvania 19312
(800) 624-0197
YEAR 2000
Allianz Life has initiated programs to ensure that all of the computer systems
utilized to provide services and administer policies will function properly in
the year 2000. An assessment of the total expected costs specifically related to
the year 2000 conversion has been completed. These costs are expensed as
incurred and total costs are not expected to have a significant effect on
Allianz Life's financial position or results of operations. Allianz Life
believes it is taking steps that are reasonably designed to address the
potential failure of computer systems used by its service providers and to
ensure its year 2000 program is completed on a timely basis. There can be no
assurance, however, that the steps taken by Allianz Life will be adequate to
avoid any adverse impact.
THE SEPARATE ACCOUNT
We established a separate account, Allianz Life Separate Account A (Separate
Account), to hold the assets that underlie the Policies.
The assets of the Separate Account are held in our name on behalf of the
Separate Account and legally belong to us. However, those assets that underlie
the Policies, are not chargeable with liabilities arising out of any other
business we may conduct. All the income, gains and losses (realized or
unrealized) resulting from those assets are credited to or against the Policies
and not against any other policies we may issue.
DISTRIBUTOR
NALAC Financial Plans, LLC (NFP), 1750 Hennepin Ave., Minneapolis, MN 55403,
acts as the distributor of the Policies. NFP is an affiliate of Allianz Life.
Commissions will be paid to broker-dealers who sell the Policies. Broker-dealers
will be paid commissions up to 6% of premiums and a trail commission up to .25%
per year of the Policy Value after the first Policy Year. In addition, under
certain circumstances, Allianz Life may pay certain sellers production bonuses
which will take into account, among other things, the total premiums which have
been paid under Policies associated with the broker-dealer. In addition, Allianz
Life and Franklin Advisers, Inc. and/or its affiliates may pay certain sellers
for other services not directly related to the sale of the Policies (such as
special marketing support allowances).
Sometimes, we enter into an agreement with the broker-dealer to pay the
broker-dealer persistency bonuses, in addition to the standard commission. A
persistency bonus is paid as an additional commission to certain broker-dealers
based on the value and length of time in force for the block of policies
associated with the broker-dealer.
SUSPENSION OF PAYMENTS OR TRANSFERS
We may be required to suspend or postpone any payments or transfers for any
period when:
1. the New York Stock Exchange is closed (other than customary weekend and
holiday closings);
2. trading on the New York Stock Exchange is restricted;
3. an emergency exists as a result of which disposal of shares of the portfolios
is not reasonably practicable or Allianz Life cannot reasonably value the shares
of the portfolios;
4. during any other period when the Securities and Exchange Commission, by
order, so permits for the protection of owners.
OWNERSHIP
Owner. You, as the owner of the Policy, have all of the rights under the Policy.
If you die while the Policy is still in force and the insured is living,
ownership passes to a successor owner or if none, then your estate becomes the
owner.
Joint Owner. The Policy can be owned by joint owners. Authorization of both
joint owners is required for all Policy changes except for telephone transfers.
Beneficiary. The beneficiary is the person(s) or entity you name to receive any
death benefit. The beneficiary is named at the time the Policy is issued unless
changed at a later date. Unless an irrevocable beneficiary has been named, you
can change the beneficiary at any time before the insured dies. If there is an
irrevocable beneficiary, all Policy changes except premium allocations and
transfers require the consent of the beneficiary.
Assignment. You can transfer ownership of (assign) the Policy.
<PAGE>
PART II - MORE INFORMATION
MANAGEMENT OF ALLIANZ LIFE
As of May 1, 1999, 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
- --------------------------------------------------------------------------------
Lowell C. Anderson Chairman, President and Chief Executive Officer of the
Company since October, 1988.
Herbert F. Hansmeyer Chairman of the Board of Allianz Life of America Corp.
Member of the Board of Management of Allianz Life-AG,
Munich, Germany, since 1986.
Dr. Gerhard Rupprecht Chairman of the Board of Management - Allianz Life
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 Executive Vice President - Chief Financial Officer and
Treasurer of the Company since 1993.
Ronald L. Wobbeking President - Mass Marketing Division of the Company since
September 1991.
Rev. Dennis J. Dease President, University of St. Thomas, St. Paul since July
1991.
James R. Campbell Chairman and Chief Executive Officer of Norwest Bank MN,
N.A. since 1998. Previously Executive Vice President
since February 1988.
Robert M. Kimmitt Partner in the law firm of Wilmer, Cutler & Pickering.
ADMINISTRATION OF THE POLICIES
While we have primary responsibility for all administration of the Policies and
the Separate Account, we have retained the services of Delaware Valley Financial
Services, Inc. ("DVFS" or "Valuemark Service Center") pursuant to an
Administrative Agreement. Such administrative services include issuance of the
Policies and maintenance of Policy owners' records. We pay all charges and fees
assessed by DVFS. DVFS serves as the administrator to various insurance
companies offering variable and fixed annuity and variable life insurance
contracts. Our ability to administer the Policies could be adversely affected
should DVFS elect to terminate the Agreement.
VOTING
Pursuant to our view of present applicable law, we will vote the shares of the
portfolios at special meetings of shareholders in accordance with instructions
received from owners having a voting interest. We will vote shares for which we
have not received instructions. We will vote all shares in the same proportion
as the shares for which we have received instructions. We will vote our shares
in the same manner. Franklin Valuemark Funds does not hold regular meetings of
shareholders.
If the Investment Company Act of 1940 or any regulation thereunder is amended or
if the present interpretation thereof changes so as to permit us to vote the
shares in our own right, we may elect to do so.
The voting interests of an owner in Franklin Valuemark Funds is determined as
follows:
o Owners may cast one vote for each $100 of Policy Value which is allocated to a
portfolio on the record date. Fractional votes are counted.
o The number of shares which a person has a right to vote will be determined as
of the date chosen by us. This will be done not more than 60 days prior to the
meeting of the fund. Voting instructions will be solicited by written
communication at least 14 days prior to such meeting.
o Each owner having a voting interest will receive periodic reports relating to
the portfolios in which he or she has an interest, proxy material and a form
with which to give such voting instructions.
Disregard of Voting Instructions. We may, when required to do so by state
insurance authorities, vote shares of the funds without regard to instructions
from owners. We will do this if such instructions would require the shares to be
voted to cause a portfolio to make, or refrain from making, investments which
would result in changes in the sub-classification or investment objectives of
the portfolio. We may also disapprove changes in the investment policy initiated
by owners or trustees/directors of the funds, if such disapproval:
o is reasonable and is based on a good faith determination by us that the change
would violate state or federal law;
o the change would not be consistent with the investment objectives of the
portfolios; or
o which varies from the general quality and nature of investments and investment
techniques used by other funds with similar investment objectives underlying
other variable contracts offered by us or of an affiliated company.
In the event we do 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.
THE SEPARATE ACCOUNT
We have established the separate account, Allianz Life Separate Account A
(Separate Account), to hold the assets that underlie the Policies. Our Board of
Directors adopted a resolution to establish the Separate Account under Minnesota
insurance law on May 31, 1985. We have registered the Separate Account with the
Securities and Exchange Commission as a unit investment trust under the
Investment Company Act of 1940. The Separate Account is divided into variable
options (also known as sub-accounts). Each variable option invests in one class
of shares of a portfolio.
The investment program of the Separate Account will not be changed without the
approval by the Insurance Commissioner of the state of Minnesota. If required,
the approval process is on file with the Commissioner of the state in which this
Policy is issued.
If the New York Stock Exchange is closed (except for holidays and weekends) or
trading is restricted due to an emergency as defined by the Securities and
Exchange Commission so that we cannot value Valuation Units, we may postpone all
procedures which require valuation of the Valuation Units until valuation is
possible.
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.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the insured(s) is incorrectly stated, the death benefit
will be adjusted. This adjustment will reflect the death benefit that would have
been provided by the last cost of insurance at the correct age and/or sex of the
insured.
OUR RIGHT TO CONTEST
We cannot contest the validity of the Policy, except in the case of fraud after
it has been in effect during the insured's lifetime for 2 years from the Policy
Date. If the Policy is reinstated, the 2-year period is measured from the date
of reinstatement. In addition, if the insured commits suicide in the 2-year
period, or such period as specified in state law, the benefit payable is limited
to premiums paid, less debt and less any surrenders.
SETTLEMENT OPTIONS
The Cash Surrender Value or the death proceeds may be paid in a lump sum or may
be applied to one of the Settlement Options. The Settlement Options are:
Option 1: Proceeds at Interest
Option 2: Payments for a Definite Period
Option 3: Life Annuity with Minimum Guarantee for Minimum Period
Option 4: Payments for a Designated Amount
Option 5: Life Annuity with Cash Refund
You or the beneficiary can select to have the Settlement Options payable on
either a fixed or variable basis.
TAX STATUS
NOTE: The following description is based upon our understanding of current
federal income tax law applicable to life insurance in general. We 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 ("Code"),
defines the term "life insurance contract" for purposes of the Code. We believe
that the Policies to be issued will qualify as "life insurance contracts" under
section 7702. We do 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 Allianz Life'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.
We are taxed as a life insurance company under the Code. For federal income tax
purposes, the Separate Account is not a separate entity and its operations form
a part of our operation.
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 imposition of federal
income tax to 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 established diversification requirements for the
investment portfolios underlying variable contracts such as the Policies. The
Regulations amplify the diversification requirements for variable contracts set
forth in the Code and provide an alternative to the safe harbor provision
described above. Under the Regulations, an investment portfolio will be deemed
adequately diversified if: (i) no more than 55% of the value of the total assets
of the portfolio is represented by any one investment; (ii) no more than 70% of
the value of the total assets of the portfolio is represented by any two
investments; (iii) no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and (iv) no more than 90% of
the value of the total assets of the portfolio is represented by any four
investments. For purposes of these Regulations, all securities of the same
issuer are treated as a single investment.
The Code 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 are met, "each United States government agency or
instrumentality shall be treated as a separate issuer".
We intend that each portfolio underlying the Policies will be managed by the
investment managers 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 where owner control of the
investments of the Separate Account causes the owner to be treated as the owner
of the assets of the Separate Account, thereby resulting in the loss of
favorable tax treatment for the 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 Separate Account.
In the event any future 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 Separate Account.
Due to the uncertainty in this area, we reserve 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, we have 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 we have 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 our interpretations of Section 7702 that were made
in determining such compliance. In the event the Policy is determined not to
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. Loan proceeds and/or surrender payments from the Policies,
including those resulting from the lapse of the Policy, are fully taxable to the
extent of income in the Policy and may further be subject to an additional 10%
federal income tax penalty. (See "Tax Treatment of Loans and Surrenders".)
Otherwise, 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. Furthermore, the owner is not deemed to be in constructive receipt of the
Policy Value or Cash Surrender Value, including increments thereon, under a
Policy until surrender thereof. If the death proceeds are to be paid under one
of the Settlement Options, the payments will be pro rated between the amount
attributable to the death benefit which will be excludable from the
beneficiary's income and the amount attributable to interest which will be
includable in the beneficiary's income.
Federal, state and local estate, inheritance and other tax consequences of
ownership, or receipt of Policy proceeds, depend on the circumstances of each
Policy owner or beneficiary. Owners and beneficiaries should consult their tax
advisers.
Tax Treatment of Loans and Surrenders. The Code alters the tax treatment
accorded to loans and certain distributions from life insurance policies which
are deemed to be "modified endowment contracts". The Policy's premium
requirements are such that Policies issued on or after June 21, 1988 will be
treated as modified endowment contracts. A Policy received in exchange for a
modified endowment contract is also 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.
A Policy that was entered into prior to June 21, 1988 may be deemed to be a
modified endowment contract if it is materially changed 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 7 level
annual premiums. A material change would include any increase in the future
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.
Assuming that the Policy is treated as a modified endowment contract, 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 distribution: (1) made on or after the date on which the taxpayer reaches
age 591/2; (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 or her beneficiary. Furthermore,
only under limited circumstances will interest paid on Policy loans be tax
deductible.
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 lapse of the Policy or when maturity benefits are
paid, if the amount received plus the policy debt 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.
Policy owners should seek competent tax advice on the tax consequences of taking
loans, making a total surrender or making any material modifications to their
Policies.
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.
Income Tax Withholding. All distributions or the portion thereof which is
includable in gross income of the Policy owner are subject to federal income tax
withholding. However, the Policy owner in most cases may elect not to have taxes
withheld. The Policy owner may be required to pay penalties under the estimated
tax rules, if the Policy owner's withholding and estimated tax payments are
insufficient.
REPORTS TO OWNERS
We will send to each owner semi-annual and annual reports of the portfolios.
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 Value, the current Cash Surrender
Value, current debt and will show all transactions previously confirmed. The
statement will also show premiums paid 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 portfolios;
(c) any loan, interest repayment, or loan repayment; (d) any surrender; (e)
exercise of the free look privilege; and (f) payment of the death benefit under
the Policy. Upon request a Policy owner shall be entitled to a receipt of
premium payment.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Separate Account or the Distributor
is a party or to which the assets of the Separate Account are subject. Allianz
Life is not involved in any litigation that is of material importance in
relation to its total assets or that relates to the Separate Account.
EXPERTS
The financial statements of Allianz Life Variable Account A and the consolidated
financial statements of Allianz Life as of and for the year ended December 31,
1998 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.
FINANCIAL STATEMENTS
The consolidated financial statements of Allianz Life that are included in this
prospectus should be considered only as bearing upon our ability to meet our
obligations under the Policy.
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT A
OF
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements
December 31, 1998
<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, 1998, 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, 1998, 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 29, 1999
<PAGE>
<TABLE>
<CAPTION>
Allianz Life Variable Account A
of Allianz Life Insurance Company of North America
Financial Statements
Statements of Assets and Liabilities
December 31, 1998
Capital Global Health Global Utilities Growth and High Income Money
Growth Care Securities Securities Income Income Securities Market
Fund Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Capital Growth Fund,
20,238 shares, cost $291,200 $325,424 - - - - - -
Global Health Care Securities Fund,
774 shares, cost $6,591 - 8,285 - - - - -
Global Utilities Securities Fund,
85,290 shares, cost $1,292,716 - - 1,743,335 - - - -
Growth and Income Fund,
142,817 shares, cost $2,429,075 - - - 2,907,763 - - -
High Income Fund,
124,657 shares, cost $1,592,204 - - - - 1,655,443 - -
Income Securities Fund,
92,113 shares, cost $1,526,016 - - - - - 1,558,547 -
Money Market Fund,
1,906,414 shares, cost $1,906,414 - - - - - - 1,906,414
- ---------------------------------------------------------------------------------------------------------------------------
Total assets 325,424 8,285 1,743,335 2,907,763 1,655,443 1,558,547 1,906,414
Liabilities:
Accrued mortality and expense risk charges 505 16 1,268 1,458 1,194 1,226 1,822
Accrued administrative charges 126 4 316 364 298 306 456
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 631 20 1,584 1,822 1,492 1,532 2,278
Net assets $324,793 8,265 1,741,751 2,905,941 1,653,951 1,557,015 1,904,136
- ---------------------------------------------------------------------------------------------------------------------------
Policy owners' equity (note 4) $324,793 8,265 1,741,751 2,905,941 1,653,951 1,557,015 1,904,136
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
Allianz Life Variable Account A
of Allianz Life Insurance Company of North America
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
December 31, 1998
<CAPTION>
Templeton
Mutual Mutual Natural Developing
Discovery Shares Resources Real Estate Rising Small Markets
SecuritiesSecuritiesSecurities Securities Dividends Cap Equity
Fund Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Mutual Discovery Securities Fund,
36,383 shares, cost $433,409 $410,762 - - - - - -
Mutual Shares Securities Fund,
86,962 shares, cost $1,021,958 - 1,040,062 - - - - -
Natural Resources Securities Fund,
15,067 shares, cost $182,925 - - 126,410 - - - -
Real Estate Securities Fund,
30,309 shares, cost $636,087 - - - 604,058 - - -
Rising Dividends Fund,
55,775 shares, cost $933,572 - - - - 1,010,086 - -
Small Cap Fund,
59,126 shares, cost $833,923 - - - - - 811,211 -
Templeton Developing Markets Equity Fund,
81,734 shares, cost $832,181 - - - - - - 564,782
- ---------------------------------------------------------------------------------------------------------------------------
Total assets 410,762 1,040,062 126,410 604,058 1,010,086 811,211 564,782
Liabilities:
Accrued mortality and expense risk charges 511 1,141 1,078 1,100 1,186 1,161 1,058
Accrued administrative charges 127 285 269 275 297 290 264
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 638 1,426 1,347 1,375 1,483 1,451 1,322
- ---------------------------------------------------------------------------------------------------------------------------
Net assets $410,124 1,038,636 125,063 602,683 1,008,603 809,760 563,460
- ---------------------------------------------------------------------------------------------------------------------------
Policy owners' equity (note 4) $410,124 1,038,636 125,063 602,683 1,008,603 809,760 563,460
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Allianz Life Variable Account A
of Allianz Life Insurance Company of North America
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
December 31, 1998
Templeton
Templeton Templeton Templeton TempletonInternationalTempleton U.S.
Global Asset Global Global IncomeInternationalSmaller PacificGovernment
Allocation Growth Securities Equity Companies Growth Securities
Fund Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Templeton Global Asset Allocation Fund,
18,881 shares, cost $217,784 $239,226 - - - - - -
Templeton Global Growth Fund,
120,846 shares, cost $1,659,909 - 1,784,902 - - - - -
Templeton Global Income Securities Fund,
14,806 shares, cost $189,049 - - 190,556 - - - -
Templeton International Equity Fund,
117,816 shares, cost $1,768,945 - - - 1,828,501 - - -
Templeton International Smaller Companies Fund,
1,986 shares, cost $23,637 - - - - 18,267 - -
Templeton Pacific Growth Fund,
36,695 shares, cost $418,438 - - - - - 275,579 -
U.S. Government Securities Fund,
65,484 shares, cost $805,338 - - - - - - 909,579
- ---------------------------------------------------------------------------------------------------------------------------
Total assets 239,226 1,784,902 190,556 1,828,501 18,267 275,579 909,579
Liabilities:
Accrued mortality and expense risk charges 503 1,225 978 1,309 131 1,006 1,074
Accrued administrative charges 125 306 243 327 33 251 269
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 628 1,531 1,221 1,636 164 1,257 1,343
- ---------------------------------------------------------------------------------------------------------------------------
Net assets $238,598 1,783,371 189,335 1,826,865 18,103 274,322 908,236
Policy owners' equity (note 4) $238,598 1,783,371 189,335 1,826,865 18,103 274,322 908,236
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Allianz Life Variable Account A
of Allianz Life Insurance Company of North America
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
December 31, 1998
Value Zero Zero Zero Total
Securities Coupon Coupon Coupon All
Fund Fund - 2000Fund - 2005Fund - 2010 Funds
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Value Securities Fund, 398 shares, cost $3,393 $3,104 - - -
Zero Coupon Fund - 2000, 23,849 shares, cost $274,490 - 353,200 - -
Zero Coupon Fund - 2005 22,076 shares, cost $264,413 - - 391,631 -
Zero Coupon Fund - 2010 23,983 shares, cost $358,785 - - - 456,868
- ---------------------------------------------------------------------------------------------------------------------------
Total assets 3,104 353,200 391,631 456,868 21,123,995
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities:
Accrued mortality and expense risk charges 6 515 531 545 22,547
Accrued administrative charges - 129 132 136 5,628
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 6 644 663 681 28,175
Net assets $3,098 352,556 390,968 456,187 21,095,820
Policy owners' equity (note 4) $3,098 352,556 390,968 456,187 21,095,820
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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, 1998, 1997, and 1996
Adjustable U.S. Global Health Care
Government Fund Capital Growth Fund Securities Fund
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $- - 18,030 833 7 - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges - - 740 1,287 96 2 54 - -
Administrative charges - - 185 322 24 - 13 - -
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses - - 925 1,609 120 2 67 - -
Investment income (loss), net - - 17,105 (776) (113) (2) (67) - -
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions
on mutual funds - - - - - - - - -
Realized gains (losses) on sales of
investments, net - - (10,027) 989 (11) - 2 - -
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on investments, net - - (10,027) 989 (11) - 2 - -
Net change in unrealized appreciation
(depreciation) on investments - - (200) 34,912 (548) (140) 1,694 - -
- ---------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments, net - - (10,227) 35,901 (559) (140) 1,696 - -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations $- - 6,878 35,125 (672) (142) 1,629 - -
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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, 1998, 1997, and 1996
Global Utilities Securities Fund Growth and Income Fund High Income Fund
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ 63,845 66,211 75,714 86,614 61,679 28,758 160,598 153,512 167,136
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges 10,459 9,862 11,220 16,628 14,386 9,969 10,568 12,094 12,310
Administrative charges 2,615 2,466 2,805 4,157 3,597 2,492 2,642 3,023 3,077
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 13,074 12,328 14,025 20,785 17,983 12,461 13,210 15,117 15,387
- ---------------------------------------------------------------------------------------------------------------------------
Investment income (loss), net 50,771 53,883 61,689 65,829 43,696 16,297 147,388 138,395 151,749
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions
on mutual funds 93,096 91,611 - 203,765 59,819 101,857 9,531 5,036 8,872
Realized gains (losses) on sales of
investments, net 56,812 59,135 118,555 27,735 75,044 25,750 29,193 43,795 33,892
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses)
on investments, net 149,908 150,746 118,555 231,500 134,863 127,607 38,724 48,831 42,764
Net change in unrealized appreciation
(depreciation) on investments (40,828)116,553 (93,370) (118,668) 283,057 37,916 (177,480) 4,999 26,432
- ---------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses) and unrealized
appreciation (depreciation)
on investments, net 109,080 267,299 25,185 112,832 417,920 165,523 (138,756) 53,830 69,196
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations $159,851 321,182 86,874 178,661 461,616 181,820 8,632 192,225 220,945
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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, 1998, 1997, and 1996
Investment Grade
Income Securities Fund Intermediate Bond Fund Money Market Fund
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $111,419 71,443 33,370 - - 3,706 62,012 35,286 32,922
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges 8,671 7,189 4,656 - - 366 7,539 4,368 4,291
Administrative charges 2,168 1,797 1,164 - - 91 1,885 1,092 1,073
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 10,839 8,986 5,820 - - 457 9,424 5,460 5,364
- ---------------------------------------------------------------------------------------------------------------------------
Investment income (loss), net 100,580 62,457 27,550 - - 3,249 52,588 29,826 27,558
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions
on mutual funds 26,313 15,347 5,550 - - - - - -
Realized gains (losses) on sales
of investments, net 3,544 7,042 2,373 - - 1,981 - - -
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses)
on investments, net 29,857 22,389 7,923 - - 1,981 - - -
Net change in unrealized appreciation
(depreciation) on investments (115,794) 68,874 37,183 - - (3,575) - - -
- ---------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses)
and unrealized appreciation
(depreciation) on investments, net (85,937) 91,263 45,106 - - (1,594) - - -
Net increase (decrease) in net
assets from operations $ 14,643 153,720 72,656 - - 1,655 52,588 29,826 27,558
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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, 1998, 1997, and 1996
Mutual Discovery Mutual Shares Natural Resources
Securities Fund Securities Fund Securities Fund
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $5,534 40 - 11,623 72 - 2,271 1,844 2,102
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges 2,229 1,140 22 6,003 2,067 31 461 416 1,012
Administrative charges 557 285 5 1,501 517 8 115 104 253
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 2,786 1,425 27 7,504 2,584 39 576 520 1,265
Investment income (loss), net 2,748 (1,385) (27) 4,119 (2,512) (39) 1,695 1,324 837
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions
on mutual funds 5,149 - - 10,153 - - - - 1,927
Realized gains (losses) on sales
of investments, net 5,744 166 - 10,137 2,034 2 (8,058)(1,936) 14,498
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on
investments, net 10,893 166 - 20,290 2,034 2 (8,058) (1,936) 16,425
Net change in unrealized appreciation
(depreciation) on investments (49,861) 26,719 495 (35,219) 51,689 1,634 (35,420)(25,118)(8,994)
- ---------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses) and
unrealized appreciation (depreciation)
on investments, net (38,968) 26,885 495 (14,929) 53,723 1,636 (43,478)(27,054) 7,431
Net increase (decrease) in net
assets from operations ($36,220) 25,500 468 (10,810) 51,211 1,597 (41,783)(25,730) 8,268
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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, 1998, 1997, and 1996
Real Estate Securities Fund Rising Dividends Fund Small Cap Fund
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ 26,119 12,965 7,943 9,265 5,990 3,981 386 384 -
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges 3,282 3,466 1,883 5,177 3,657 1,632 3,458 1,277 105
Administrative charges 821 867 471 1,294 914 408 865 319 26
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 4,103 4,333 2,354 6,471 4,571 2,040 4,323 1,596 131
Investment income (loss), net 22,016 8,632 5,589 2,794 1,419 1,941 (3,937)(1,212) (131)
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions
on mutual funds 16,168 6,191 - 113,543 10,229 - 49,628 4,546 -
Realized gains (losses) on sales
of investments, net 15,172 17,125 1,980 6,199 18,073 2,703 (1,660) 2,723 472
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses)
on investments, net 31,340 23,316 1,980 119,742 28,302 2,703 47,968 7,269 472
Net change in unrealized appreciation
(depreciation) on investments (179,557) 57,737 58,343 (77,635) 93,007 44,265 (48,794)22,458 3,624
- ---------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses) and
unrealized appreciation (depreciation)
on investments, net (148,217) 81,053 60,323 42,107 121,309 46,968 (826)29,727 4,096
Net increase (decrease) in net
assets from operations ($126,201) 89,685 65,912 44,901 122,728 48,909 (4,763) 28,515 3,965
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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, 1998, 1997, and 1996
Templeton Developing Templeton Global Templeton Global
Markets Equity Fund Asset Allocation Fund Growth Fund
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $19,038 10,159 2,914 10,932 7,863 228 39,344 15,984 8,202
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges 2,862 3,802 2,551 1,629 2,512 2,065 9,684 7,051 3,948
Administrative charges 715 950 638 407 628 516 2,421 1,763 987
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 3,577 4,752 3,189 2,036 3,140 2,581 12,105 8,814 4,935
Investment income (loss), net 15,461 5,407 (275) 8,896 4,723 (2,353) 27,239 7,170 3,267
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions
on mutual funds 61,907 16,114 5,391 13,002 2,268 456 143,312 5,328 8,202
Realized gains (losses) on sales
of investments, net (23,346) 1,960 2,603 11,507 23,197 12,194 13,548 15,707 2,914
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses)
on investments, net 38,561 18,074 7,994 24,509 25,465 12,650 156,860 21,035 11,116
Net change in unrealized appreciation
(depreciation) on investments (198,108)(127,265) 56,503 (31,637) 11,716 41,378 (70,051) 80,562 91,158
- ---------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses) and unrealized
appreciation (depreciation) on
investments, net (159,547)(109,191) 64,497 (7,128) 37,181 54,028 86,809 101,597 102,274
Net increase (decrease) in net
assets from operations ($144,086)(103,784) 64,222 1,768 41,904 51,675 114,048 108,767 105,541
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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, 1998, 1997, and 1996
Templeton Global Templeton International Templeton International
Income Securities Fund Equity Fund Smaller Companies Fund
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $12,826 10,037 7,568 55,115 33,230 19,177 488 17 -
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges 1,127 903 745 10,176 8,366 6,014 99 29 3
Administrative charges 282 226 186 2,544 2,092 1,504 25 7 1
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 1,409 1,129 931 12,720 10,458 7,518 124 36 4
Investment income (loss), net 11,417 8,908 6,637 42,395 22,772 11,659 364 (19) (4)
Realized gains (losses) and unrealized appreciation (depreciation) on
investments:
Realized capital gain distributions
on mutual funds - - - 110,714 50,952 23,468 565 - -
Realized gains (losses) on sales
of investments, net (315) 668 432 9,119 13,328 4,043 (121) (2) 119
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses)
on investments, net (315) 668 432 119,833 64,280 27,511 444 (2) 119
Net change in unrealized appreciation
(depreciation) on investments (521) (6,915) 2,837 (97,026) 25,384 114,314 (4,295)(1,075) -
- ---------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments, net (836) (6,247) 3,269 22,807 89,664 141,825 (3,851) (1,077)
119
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations $10,581 2,661 9,906 65,202 112,436 153,484 (3,487)(1,096) 115
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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, 1998, 1997, and 1996
Templeton Pacific Growth Fund U.S. Government Securities Fund Value Securities Fund
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $10,966 8,455 10,710 64,457 52,576 45,170 - - -
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges 1,388 214 2,726 5,484 5,796 4,926 - - -
Administrative charges 347 53 682 1,371 1,449 1,231 - - -
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 1,735 267 3,408 6,855 7,245 6,157 - - -
Investment income (loss), net 9,231 8,188 7,302 57,602 45,331 39,013 - - -
Realized gains (losses) and unrealized appreciation (depreciation) on
investments:
Realized capital gain distributions
on mutual funds 3,337 - 6,208 - - - - - -
Realized gains (losses) on sales
of investments, net (38,525) 907 6,092 17,179 27,003 18,468 (3) - -
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses)
on investments, net (35,188) 907 12,300 17,179 27,003 18,468 (3) - -
Net change in unrealized appreciation
(depreciation) on investments (7,500)(164,185)12,362 (18,101) 136 (37,068) (289) - -
- ---------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses) and
unrealized appreciation (depreciation)
on investments, net (42,688)(163,278)24,662 (922) 27,139 (18,600) (292) - -
Net increase (decrease) in net
assets from operations ($33,457) (155,090)31,964 56,680 72,470 20,413 (292) - -
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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, 1998, 1997, and 1996
Zero Coupon Fund - 2000 Zero Coupon Fund - 2005 Zero Coupon Fund - 2010
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $27,976 24,296 19,213 22,733 25,018 19,668 25,369 22,065 8,167
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges 2,236 2,223 2,212 2,431 2,373 2,270 2,862 2,535 1,411
Administrative charges 559 556 553 608 593 568 716 634 353
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 2,795 2,779 2,765 3,039 2,966 2,838 3,578 3,169 1,764
Investment income (loss), net 25,181 21,517 16,448 19,694 22,052 16,830 21,791 18,896 6,403
Realized gains (losses) and unrealized appreciation (depreciation) on
investments:
Realized capital gain distributions
on mutual funds 4,476 550 190 5,259 87 - 3,510 176 2,213
Realized gains (losses) on sales
of investments, net 4,953 5,922 2,734 2,463 11,706 4,146 2,415 1,074 6,865
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses)
on investments, net 9,429 6,472 2,924 7,722 11,793 4,146 5,925 1,250 9,078
Net change in unrealized appreciation
(depreciation) on investments (11,643) (6,554)(13,736) 13,788 1,480 (21,955) 27,536 35,571 4,806
- ---------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses) and
unrealized appreciation (depreciation)
on investments, net (2,214) (82)(10,812) 21,510 13,273 (17,809) 33,461 36,821 13,884
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations $22,967 21,435 5,636 41,204 35,325 (979) 55,252 55,717 20,287
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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, 1998, 1997, and 1996
Total All Funds
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ 829,763 619,133 514,679
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges 115,794 95,822 77,110
Administrative charges 28,950 23,956 19,277
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 144,744 119,778 96,387
Investment income (loss), net 685,019 499,355 418,292
Realized gains (losses) and unrealized appreciation (depreciation) on
investments:
Realized capital gain distributions on mutual funds 873,428 268,254 164,334
Realized gains (losses) on sales of investments, net 144,683 324,660 252,789
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on investments, net 1,018,111 592,914 417,123
Net change in unrealized appreciation (depreciation) on investments (1,240,497) 548,282 354,212
- ---------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses) and unrealized appreciation
(depreciation) on investments, net (222,386)1,141,196 771,335
Net increase (decrease) in net assets from operations $ 462,633 1,640,551 1,189,627
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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, 1998, 1997 and 1996
Global Health
Adjustable U.S. Government Fund Capital Growth Fund Care Securities Fund
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $- - 17,105 (776) (113) (2) (67) - -
Realized gains (losses) on investments, net - - (10,027) 989 (11) - 2 - -
Net change in unrealized appreciation
(depreciation) on investments - - (200) 34,912 (548) (140) 1,694 - -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations - - 6,878 35,125 (672) (142) 1,629 - -
Policy transactions (note 4):
Purchase payments - - 6,969 - - - - - -
Transfers between funds - - (34,766) 194,912 94,715 4,560 6,656 - -
Surrenders and terminations - - (1,178) - - - - - -
Rescissions - - - - - - - - -
Policy loan transactions - - 74 - - - - - -
Other transactions (note 2) - - (2,842) (3,276) (429) - (20) - -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from policy transactions - - (31,743) 191,636 94,286 4,560 6,636 - -
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets - - (24,865) 226,761 93,614 4,418 8,265 - -
Net assets at beginning of year - - 24,865 98,032 4,418 - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $- - - 324,793 98,032 4,418 8,265 - -
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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, 1998, 1997 and 1996
Global Utilities Securities Fund Growth and Income Fund High Income Fund
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 50,771 53,883 61,689 65,829 43,696 16,297 147,388 138,395 151,749
Realized gains (losses) on
investments, net 149,908 150,746 118,555 231,500 134,863 127,607 38,724 48,831 42,764
Net change in unrealized
appreciation (depreciation)
on investments (40,828) 116,553 ( 93,370) (118,668) 283,057 37,916 (177,480) 4,999 26,432
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets from
operations 159,851 321,182 86,874 178,661 461,616 181,820 8,632 192,225 220,945
- ---------------------------------------------------------------------------------------------------------------------------
Policy transactions (note 4):
Purchase payments 104,584 116,828 127,511 427,399 387,084 347,781 55,984 50,642 57,851
Transfers between funds (38,007) (67,788) (163,650) 282,965 194,269 289,040 (12,125) (140,178) 344,787
Surrenders and terminations (46,228) (8,311) (80,389) (66,385) (271,440) (28,415) (21,000) (67,891) (3,551)
Rescissions - - - - - - - - -
Policy loan transactions 32,511 (60,609) (97,734) (31,446) 3,110 8,174 (168,452) (33,557) 8,073
Other transactions (note 2) (65,057) (60,143) (65,596) (202,446) (163,700) (145,312) (43,702) (41,580) (35,494)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase
(decrease) in net
assets resulting from
policy transactions (12,197) (80,023) (279,858) 410,087 149,323 471,268 (189,295) (232,564) 371,666
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease)
in net assets 147,654 241,159 (192,984) 588,748 610,939 653,088 (180,663) (40,339) 592,611
Net assets at beginning
of year 1,594,097 1,352,938 1,545,922 2,317,193 1,706,254 1,053,166 1,834,614 1,874,953 1,282,342
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $1,741,751 1,594,097 1,352,938 2,905,941 2,317,193 1,706,254 1,653,951 1,834,614 1,874,953
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Allianz Life Variable Account A
of Allianz Life Insurance Company of North America
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1998, 1997 and 1996
Investment Grade
Income Securities Fund Intermediate Bond Fund Money Market Fund
- --------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net$ 100,580 62,457 27,550 - - 3,249 52,588 29,826 27,558
Realized gains (losses)
on investments, net 29,857 22,389 7,923 - - 1,981 - - -
Net change in unrealized
appreciation (depreciation)
on investments (115,794) 68,874 37,183 - - (3,575) - - -
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets
from operations 14,643 153,720 72,656 - - 1,655 52,588 29,826 27,558
- --------------------------------------------------------------------------------------------------------------------------------
Policy transactions (note 4):
Purchase payments 219,675 255,347 275,281 - - 11,940 3,668,991 1,996,782 2,288,562
Transfers between funds 295,129 46,671 120,002 - - (72,421) (2,423,871) (2,136,510) (2,221,762)
Surrenders and terminations (50,336) (11,918) (20,210) - - (751) (25,503) (52,158) (27,431)
Rescissions - - - - - - (29,369) - -
Policy loan transactions (12,262) (25,240) (4,239) - - - (9,864) (25,633) (5,692)
Other transactions (note 2) (101,921) (96,044) (98,005) - - (5,413) (39,778) 168,886 (13,338)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from policy transactions 350,285 168,816 272,829 - - (66,645) 1,140,606 (48,633) 20,339
- --------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in
net assets 364,928 322,536 345,485 - - (64,990) 1,193,194 (18,807) 47,897
Net assets at
beginning of year 1,192,087 869,551 524,066 - - 64,990 710,942 729,749 681,852
- --------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $1,557,015 1,192,087 869,551 - - - 1,904,136 710,942 729,749
- --------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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, 1998, 1997 and 1996
Mutual Discovery Mutual Shares Natural Resources
Securities Fund Securities Fund Securities Fund
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 2,748 (1,385) (27) 4,119 (2,512) (39) 1,695 1,324 837
Realized gains (losses) on
investments, net 10,893 166 - 20,290 2,034 2 (8,058) (1,936) 16,425
Net change in unrealized appreciation
(depreciation) on investments (49,861) 26,719 495 (35,219) 51,689 1,634 (35,420) (25,118) (8,994)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations (36,220) 25,500 468 (10,810) 51,211 1,597 (41,783) (25,730) 8,268
- ---------------------------------------------------------------------------------------------------------------------------
Policy transactions (note 4):
Purchase payments - - - 74,363 16,585 - 13,268 15,837 18,730
Transfers between funds 155,186 281,309 50,000 214,033 776,453 84,053 59,479 (5,829) (46,431)
Surrenders and terminations - - - (3,707) - - (5,593) (52) (7,791)
Rescissions - - - - - - - - -
Policy loan transactions (56,263) - - (111,671) (1,956) - 789 172 (524)
Other transactions (note 2) (7,963) (1,893) - (41,817) (9,654) (44) (6,590) (6,922) (9,019)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from policy transactions 90,960 279,416 50,000 131,201 781,428 84,009 61,353 3,206 (45,035)
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 54,740 304,916 50,468 120,391 832,639 85,606 19,570 (22,524) (36,767)
Net assets at beginning of year 355,384 50,468 - 918,245 85,606 - 105,493 128,017 164,784
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $410,124 355,384 50,468 1,038,636 918,245 85,606 125,063 105,493 128,017
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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, 1998, 1997 and 1996
Real Estate Securities Fund Rising Dividends Fund Small Cap Fund
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 22,016 8,632 5,589 2,794 1,419 1,941 (3,937) (1,212) (131)
Realized gains (losses) on
investments, net 31,340 23,316 1,980 119,742 28,302 2,703 47,968 7,269 472
Net change in
unrealized appreciation
(depreciation) on
investments (179,557) 57,737 58,343 (77,635) 93,007 44,265 (48,794) 22,458 3,624
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets from
operations (126,201) 89,685 65,912 44,901 122,728 48,909 (4,763) 28,515 3,965
- ---------------------------------------------------------------------------------------------------------------------------
Policy transactions (note 4):
Purchase payments 115,546 92,480 67,454 161,902 108,408 74,745 113,167 44,998 683
Transfers between funds 37,909 176,166 86,682 244,722 193,808 86,767 400,975 248,658 51,952
Surrenders and terminations (10,028) (2,795) (1,098) (14,872) (17,668) (7,693) (9,697) (965)
75
Rescissions - - - - - - - - -
Policy loan transactions (4,950) (15,416) (1,340) (4,345) (5,874) (1,876) (575) - -
Other transactions (note 2) (55,881) (43,348) (27,619) (78,620) (51,398) (33,070) (47,188) (19,801)
(239)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
policy transactions 82,596 207,087 124,079 308,787 227,276 118,873 456,682 272,890 52,471
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in
net assets (43,605) 296,772 189,991 353,688 350,004 167,782 451,919 301,405 56,436
Net assets at beginning
of year 646,288 349,516 159,525 654,915 304,911 137,129 357,841 56,436 -
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $602,683 646,288 349,516 1,008,603 654,915 304,911 809,760 357,841 56,436
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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, 1998, 1997 and 1996
Templeton Developing Markets Templeton Global Templeton Global
Equity Fund Asset Allocation Fund Growth Fund
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 15,461 5,407 (275) 8,896 4,723 (2,353) 27,239 7,170 3,267
Realized gains (losses) on
investments, net 38,561 18,074 7,994 24,509 25,465 12,650 156,860 21,035 11,116
Net change in unrealized
appreciation (depreciation)
on investments (198,108) (127,265) 56,503 (31,637) 11,716 41,378 (70,051) 80,562 91,158
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets
from operations (144,086) (103,784) 64,222 1,768 41,904 51,675 114,048 108,767 105,541
- ---------------------------------------------------------------------------------------------------------------------------
Policy transactions (note 4):
Purchase payments 159,440 191,340 215,896 1,438 430 439 318,275 317,636 335,873
Transfers between funds 5,954 2,200 267,310 5,929 (108,898) 333,332 262,188 272,672 119,840
Surrenders and terminations (19,910) (24,839) (10,080) - (108) - (42,480) (35,910) (12,771)
Rescissions - - - - - - - - -
Policy loan transactions (16,461) (20,884) (2,638) (77,494) - - (11,353) (19,640) (8,767)
Other transactions (note 2) (56,866) (77,790) (73,383) (4,852) (5,240) (1,945)(144,669) (131,055) (113,183)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from policy transactions 72,157 70,027 397,105 (74,979) (113,816) 331,826 381,961 403,703 320,992
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in
net assets (71,929) (33,757) 461,327 (73,211) (71,912) 383,501 496,009 512,470 426,533
Net assets at beginning
of year 635,389 669,146 207,819 311,809 383,721 220 1,287,362 774,892 348,359
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $563,460 635,389 669,146 238,598 311,809 383,721 1,783,371 1,287,362 774,892
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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, 1998, 1997 and 1996
Templeton Global Templeton International Templeton International
Income Securities Fund Equity Fund Smaller Companies Fund
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 11,417 8,908 6,637 42,395 22,772 11,659 364 (19) (4)
Realized gains (losses)
on investments, net (315) 668 432 119,833 64,280 27,511 444 (2) 119
Net change in unrealized
appreciation (depreciation)
on investments (521) (6,915) 2,837 (97,026) 25,384 114,314 (4,295) (1,075) -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets from
operations 10,581 2,661 9,906 65,202 112,436 153,484 (3,487) (1,096) 115
- ---------------------------------------------------------------------------------------------------------------------------
Policy transactions (note 4):
Purchase payments 43,650 42,795 39,862 343,054 359,829 371,300 - - -
Transfers between funds 8,645 (1,929) 9,506 214,070 170,913 100,214 9,480 13,608 (115)
Surrenders and terminations (2,203) (1,422) (2,101) (77,537) (30,410) (30,572) - - -
Rescissions - - - - - - - - -
Policy loan transactions (4,262) (2,728) (425) (14,359) (37,789) (10,040) - - -
Other transactions (note 2) (18,506) (17,463) (16,260) (150,458) (138,095) (129,653) (360) (42) -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting
from policy transactions 27,324 19,253 30,582 314,770 324,448 301,249 9,120 13,566 (115)
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets37,905 21,914 40,488 379,972 436,884 454,733 5,633 12,470 -
Net assets at beginning of year 151,430 129,516 89,028 1,446,893 1,010,009 555,276 12,470 - -
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $189,335 151,430 129,516 1,826,865 1,446,893 1,010,009 18,103 12,470 -
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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, 1998, 1997 and 1996
Templeton Pacific Growth Fund U.S. Government Securities Fund Value Securities Fund
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 9,231 8,188 7,302 57,602 45,331 39,013 - - -
Realized gains (losses)
on investments, net (35,188) 907 12,300 17,179 27,003 18,468 (3) - -
Net change in unrealized
appreciation (depreciation)
on investments (7,500) (164,185) 12,362 (18,101) 136 (37,068) (289) - -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets from
operations (33,457) (155,090) 31,964 56,680 72,470 20,413 (292) - -
- ---------------------------------------------------------------------------------------------------------------------------
Policy transactions (note 4):
Purchase payments 91,236 134,478 181,194 36,225 40,913 26,467 - - -
Transfers between funds (25,732) (41,449) 14,234 2,433 (108,226) 261,674 3,405 - -
Surrenders and terminations (15,757) (10,217) (20,255) (28,787) (20,318) (7,837) - - -
Rescissions - - - - - - - - -
Policy loan transactions (2,091) (13,651) (2,894) (7,674) (7,823) (424) - - -
Other transactions (note 2) (29,702) (52,839) (73,664) (28,339) (27,460) (19,100) (15) - -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from policy transactions 17,954 16,322 98,615 (26,142) (122,914) 260,780 3,390 - -
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in
net assets (15,503) (138,768) 130,579 30,538 (50,444) 281,193 3,098 - -
Net assets at beginning
of year 289,825 428,593 298,014 877,698 928,142 646,949 - - -
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $274,322 289,825 428,593 908,236 877,698 928,142 3,098 - -
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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, 1998, 1997 and 1996
Zero Coupon Fund - 2000 Zero Coupon Fund - 2005 Zero Coupon Fund - 2010
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 25,181 21,517 16,448 19,694 22,052 16,830 21,791 18,896 6,403
Realized gains (losses) on
investments, net 9,429 6,472 2,924 7,722 11,793 4,146 5,925 1,250 9,078
Net change in unrealized appreciation
(depreciation) on investments (11,643) (6,554) (13,736) 13,788 1,480 (21,955) 27,536 35,571 4,806
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations 22,967 21,435 5,636 41,204 35,325 (979) 55,252 55,717 20,287
- ---------------------------------------------------------------------------------------------------------------------------
Policy transactions (note 4):
Purchase payments - - - - - - - - -
Transfers between funds - (17,434) - - (61,213) 57,145 - 3,652 223,644
Surrenders and terminations (9,045) - - - - (3,894) - - -
Rescissions - - - - - - - - -
Policy loan transactions (7,106) (73) (64) - - - (1,739) (183) (176)
Other transactions (note 2) (4,490) (4,421) (4,271) (4,873) (4,798) (4,109) (6,849) (5,717) (3,437)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from policy transactions (20,641)(21,928) (4,335) (4,873) (66,011) 49,142 (8,588) (2,248) 220,031
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 2,326 (493) 1,301 36,331 (30,686) 48,163 46,664 53,469 240,318
Net assets at beginning of year 350,230 350,723 349,422 354,637 385,323 337,160 409,523 356,054 115,736
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $352,556 350,230 350,723 390,968 354,637 385,323 456,187 409,523 356,054
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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, 1998, 1997 and 1996
Total All Funds
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 685,019 499,355 418,292
Realized gains (losses) on investments, net 1,018,111 592,914 417,123
Net change in unrealized appreciation (depreciation) on investments (1,240,497) 548,282 354,212
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations 462,633 1,640,551 1,189,627
Policy transactions (note 4):
Purchase payments 5,948,197 4,172,412 4,448,538
Transfers between funds (95,665) (214,360) (34,403)
Surrenders and terminations (449,068) (556,422) (265,942)
Rescissions (29,369) - -
Policy loan transactions (509,067) (267,774) (120,512)
Other transactions (note 2) (1,144,238) (790,946) (874,996)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from policy transactions 3,720,790 2,342,910 3,152,685
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 4,183,423 3,983,461 4,342,312
Net assets at beginning of year 16,912,397 12,928,936 8,586,624
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $21,095,820 16,912,397 12,928,936
- ---------------------------------------------------------------------------------------------------------------------------
<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, 1998
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 and gains on the sale of fund shares as determined by the
average cost method. Realized gain distributions are reinvested in the
respective funds. Dividend distributions received from the FVF are reinvested in
additional shares of the FVF and are recorded as income to the Variable Account
on the ex-dividend date.
A Fixed Account investment option is available to variable universal life policy
owners. This account is comprised of equity and fixed income investments which
are part of the general assets of Allianz Life. The liabilities of the Fixed
Account are part of the general obligations of Allianz Life and are not included
in the Variable Account. The guaranteed minimum rate of return on the Fixed
Account is 3 %.
The Global Health Care Securities Fund and Value Securities Fund were added as
available investment options on May 1, 1998. 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. 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, 1998, the Utility Equity Fund name was changed to Global Utilities
Securities Fund. The Precious Metals Fund name was changed to Natural Resources
Securities Fund on May 1, 1997. On May 1, 1996, the Global Income Fund name was
changed to Templeton Global Income Securities Fund.
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES (CONT.)
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, 1998, 1997
and 1996 were $939,693, $832,417 and $715,700, 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, 1998, 1997 and 1996 were $40,600, $37,629, and $28,152, 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, 1998, 1997 and 1996 were $213,159, $211,485, and $204,321,
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, 1998, 1997 and 1996,
respectively. Net transfers to the Fixed Account during the years ended December
31, 1998, 1997 and 1996 were $95,665, $214,360, and $34,403, respectively.
The cost of insurance, deferred issue, policy and transfer charges paid are
reflected in the Statements of Changes in Net Assets as Other transactions.
3. FEDERAL INCOME TAXES
Operations of the Variable Account form a part of, and are taxed with,
operations of Allianz Life, which is taxed as a life insurance company under the
Internal Revenue Code.
Allianz Life does not expect to incur any federal income taxes in the operation
of the Variable Account. If, in the future, Allianz Life determines that the
Variable Account may incur federal income taxes, it may then assess a charge
against the Variable Account for such taxes.
<PAGE>
<TABLE>
<CAPTION>
4. POLICY TRANSACTIONS - UNIT ACTIVITY
Transactions in units for each fund for the years ended December 31, 1998, 1997
and 1996, were as follows:
Global Global Investment Mutual
Adjustable U.S Capital Health Care Utilities Growth and High Income Grade Money Discovery
Government Growth Securities Securities Income Income Securities Intermediate Market Securities
Fund Fund Fund Fund Fund Fund Fund Bond Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Units outstanding at
December 31, 1995 2,013 - - 66,198 38,021 65,333 26,614 4,259 45,768 -
Policy transactions:
Purchase payments 553 - - 5,397 12,119 2,801 13,495 778 147,764 -
Transfers between funds (2,257) 391 - (6,933) 9,962 17,863 5,904 (4,635) (143,612) 4,953
Surrenders and terminations (94) - - (3,354) (1,005) (177) (1,004) (49) (1,836) -
Policy loan transactions 6 - - (4,007) 311 405 (212) - (376) -
Other transactions (221) - - (2,782) (5,057) (1,722) (4,812) (353) (778) -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in units resulting from
policy transactions (2,013) 391 - (11,679) 16,330 19,170 13,371 (4,259) 1,162 4,953
Units outstanding at
December 31, 1996 - 391 - 54,519 54,351 84,503 39,985 - 46,930 4,953
Policy transactions:
Purchase payments - - - 4,451 10,974 2,141 11,090 - 125,344 -
Transfers between funds - 7,029 - (2,894) 5,516 (5,679) 1,881 - (120,861) 24,650
Surrenders and terminations - - - (304) (7,932) (3,022) (513) - (3,267) -
Policy loan transactions - - - (2,428) (68) (1,471) (1,113) - (1,621) -
Other transactions - (34) - (2,288) (4,624) (1,789) (4,161) - (2,758) (164)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in units resulting from
policy transactions - 6,995 - (3,463) 3,866 (9,820) 7,184 - (3,163) 24,486
- ---------------------------------------------------------------------------------------------------------------------------
Units outstanding at
December 31, 1997 - 7,386 - 51,056 58,217 74,683 47,169 - 43,767 29,439
- ---------------------------------------------------------------------------------------------------------------------------
Policy transactions:
Purchase payments - - - 3,254 10,356 2,263 8,710 - 216,819 -
Transfers between funds - 13,340 778 (1,327) 6,612 (511) 11,713 - (142,026) 11,424
Surrenders and terminations - - - (1,451) (1,628) (852) (1,996) - (1,535) -
Rescissions - - - - - - - - (1,784) -
Policy loan transactions - - - 1,042 (754) (6,603) (481) - (599) (4,187)
Other transactions - (230) (2) (2,025) (4,902) (1,762) (4,044) - (2,394) (647)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in units resulting from
policy transactions - 13,110 776 (507) 9,684 (7,465) 13,902 - 68,481 6,590
- ---------------------------------------------------------------------------------------------------------------------------
Units outstanding at
December 31, 1998 - 20,496 776 50,549 67,901 67,218 61,071 - 112,248 36,029
- ---------------------------------------------------------------------------------------------------------------------------
<PAGE>
4. POLICY TRANSACTIONS - UNIT ACTIVITY (CONT.)
Templeton
Mutual Natural Templeton Templeton Templeton Global Templeton
Shares Resources Real Estate Rising Small Developing Global Asset Global Income International
Securities Securities Securities Dividends Cap Markets Equity Allocation Growth Securities Equity
Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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 8,284 (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 (4) (536) (1,209) (2,379) (19) (7,042) (169) (9,435) (1,041) (8,691)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase
(decrease) in units
resulting from policy
transactions 8,280 (2,679) 5,050 8,604 4,338 37,050 30,311 26,686 1,955 20,019
- ---------------------------------------------------------------------------------------------------------------------------
Units outstanding at
December 31, 1996 8,280 8,152 12,678 19,304 4,338 59,260 30,332 58,157 7,756 60,849
- ---------------------------------------------------------------------------------------------------------------------------
Policy transactions:
Purchase payments 1,460 1,090 3,106 5,847 3,088 15,655 31 21,703 2,567 19,816
Transfers between
funds 67,284 (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 (184) (7) (534) (334) - (1,728) - (1,348) (164) (2,099)
Other transactions (841) (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 67,719 202 6,891 12,099 19,261 2,849 (8,102) 27,610 1,160 17,785
- ---------------------------------------------------------------------------------------------------------------------------
Units outstanding at
December 31, 1997 75,999 8,354 19,569 31,403 23,599 62,109 22,230 85,767 8,916 78,634
- ---------------------------------------------------------------------------------------------------------------------------
Policy transactions:
Purchase payments 6,140 1,227 3,889 7,667 7,774 18,632 102 20,228 2,504 17,692
Transfers between
funds 16,707 4,888 1,042 11,079 26,906 714 445 16,458 502 10,775
Surrenders and
terminations (307) (544) (354) (668) (631) (2,188) - (2,700) (129) (3,966)
Rescissions - - - - - - - - - -
Policy loan transactions (8,559) 57 (163) (199) (47) (1,902) (5,298) (677) (244) (733)
Other transactions (3,446) (609) (1,880) (3,711) (3,266) (6,572) (335) (9,229) (1,062) (7,641)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase
(decrease) in units
resulting from
policy transactions 10,535 5,019 2,534 14,168 30,736 8,684 (5,086) 24,080 1,571 16,127
- ---------------------------------------------------------------------------------------------------------------------------
Units outstanding at
December 31, 1998 86,534 13,373 22,103 45,571 54,335 70,793 17,144 109,847 10,487 94,761
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
4. POLICY TRANSACTIONS - UNIT ACTIVITY (CONT.)
Templeton
International Templeton U.S. Zero Zero Zero
Smaller Pacific Government Value Coupon Coupon Coupon Total
Companies Growth Securities Securities Fund - Fund - Fund - All
Fund Fund Fund Fund 2000 2005 2010 Funds
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Units outstanding at December 31, 1995 - 21,322 32,402 - 14,874 12,382 3,735 462,413
Policy transactions:
Purchase payments - 12,100 1,329 - - 2,260 - 282,146
Transfers between funds - 802 12,856 - 1 (149) 8,290 (2,628)
Surrenders and terminations - (1,318) (400) - - - - (14,699)
Policy loan transactions - (189) (22) - (3) - (7) (5,979)
Other transactions - (4,907) (961) - (185) (162) (122) (52,587)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in units
resulting from policy transactions - 6,488 12,802 - (187) 1,949 8,161 206,253
- ---------------------------------------------------------------------------------------------------------------------------
Units outstanding at December 31, 1996 - 27,810 45,204 - 14,687 14,331 11,896 668,666
Policy transactions:
Purchase payments - 9,779 1,925 - - - - 240,067
Transfers between funds 1,143 (2,629) (5,101) - (707) (2,226) 119 17,964
Surrenders and terminations - (759) (952) - - - - (23,819)
Policy loan transactions - (884) (382) - (3) - (6) (14,374)
Other transactions (4) (3,737) (1,294) - (181) (173) (183) (52,534)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in units
resulting from policy transactions 1,139 1,770 (5,804) - (891) (2,399) (70) 167,304
- ---------------------------------------------------------------------------------------------------------------------------
Units outstanding at December 31, 1997 1,139 29,580 39,400 - 13,796 11,932 11,826 835,970
Policy transactions:
Purchase payments - 11,546 1,572 - - - - 340,375
Transfers between funds 795 (2,703) 45 401 - - - (11,943)
Surrenders and terminations - (2,018) (1,237) - (346) - - (22,550)
Rescissions - - - - - - - (1,784)
Policy loan transactions - (247) (332) - (263) - (45) (30,234)
Other transactions (35) (3,684) (1,215) (2) (171) (154) (184) (59,202)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in units
resulting from policy transactions 760 2,894 (1,167) 399 (780) (154) (229) 214,662
Units outstanding at December 31, 1998 1,899 32,474 38,233 399 13,016 11,778 11,597 1,050,632
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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 of the
five years in the period ended December 31, 1998 follows.
Ratio of
Expenses to
Units 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,
1998 20,496 15.847 324,793 1.52
1997 7,386 13.273 98,032 1.52
19962 391 11.303 4,418 1.52
Global Health Care Securities Fund
December 31,
19983 776 10.656 8,265 1.59
Global Utilities Securities Fund
December 31,
1998 50,549 34.456 1,741,751 1.25
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
Growth and Income Fund
December 31,
1998 67,901 42.797 2,905,941 1.24
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
High Income Fund
December 31,
1998 67,218 24.606 1,653,951 1.28
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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
5. UNIT VALUES (CONT.)
Ratio of
Expenses to
Units Average
Outstanding Unit Value Net Assets Net Assets*
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income Securities Fund
December 31,
1998 61,071 $25.496 $1,557,015 1.24%
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
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,
1998 112,248 16.964 1,904,136 1.20
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
Mutual Discovery Securities Fund
December 31,
1998 36,029 11.383 410,124 1.75
1997 29,439 12.072 355,384 1.81
19964 4,953 10.190 50,468 2.12
Mutual Shares Securities Fund
December 31,
1998 86,534 12.002 1,038,636 1.52
1997 75,999 12.082 918,245 1.55
19964 8,280 10.339 85,606 1.75
Natural Resources Securities Fund
December 31,
1998 13,373 9.353 125,063 1.39
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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
5. UNIT VALUES (CONT.)
Ratio of
Expenses to
Units Average
Outstanding Unit Value Net Assets Net Assets*
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Real Estate Securities Fund
December 31,
1998 22,103 $27.267 $602,683 1.29%
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
Rising Dividends Fund
December 31,
1998 45,571 22.132 1,008,603 1.47
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
Small Cap Fund
December 31,
1998 54,335 14.903 809,760 1.52
1997 23,599 15.164 357,841 1.52
1996 4,338 13.011 56,436 1.52
19955 - 10.157 - 1.65
Templeton Developing Markets Equity Fund
December 31,
1998 70,793 7.959 563,460 2.16
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
19946 6,099 9.173 55,951 2.28
Templeton Global Asset Allocation Fund
December 31,
1998 17,144 13.917 238,598 1.59
1997 22,230 14.027 311,809 1.69
1996 30,332 12.651 383,721 1.61
19957 21 10.637 220 1.65
Templeton Global Growth Fund
December 31,
1998 109,847 16.235 1,783,371 1.63
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
19946 6,748 9.894 66,760 1.89
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
5. UNIT VALUES (CONT.)
Ratio of
Expenses to
Units Average
Outstanding Unit Value Net Assets Net Assets*
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Templeton Global Income Securities Fund
December 31,
1998 10,487 $18.052 $189,335 1.38%
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
Templeton International Equity Fund
December 31,
1998 94,761 19.278 1,826,865 1.63
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
Templeton International Smaller Companies Fund
December 31,
1998 1,899 9.528 18,103 1.85
1997 1,139 10.943 12,470 1.81
19962 - 11.194 - 1.53
Templeton Pacific Growth Fund
December 31,
1998 32,474 8.447 274,322 1.85
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
U.S. Government Securities Fund
December 31,
1998 38,233 23.755 908,236 1.25
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
Value Securities Fund
December 31,
19983 399 7.751 3,098 1.87
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
5. UNIT VALUES (CONT.)
Ratio of
Expenses to
Units Average
Outstanding Unit Value Net Assets Net Assets*
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Zero Coupon Fund - 2000
December 31,
1998 13,016 $27.086 $352,556 1.15%
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
Zero Coupon Fund - 2005
December 31,
1998 11,778 33.196 390,968 1.15
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
Zero Coupon Fund - 2010
December 31,
1998 11,597 39.336 456,187 1.15
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
<FN>
*For the year ended December 31, including the effect of the expenses of the underlying funds.
Annualized.
1Period from January 1, 1996 to October 25, 1996 (fund closure). 2Period from
May 1, 1996 (fund commencement) to December 31, 1996. 3Period from May 1, 1998
(fund commencement) to December 31, 1998. 4Period from November 8, 1996 (fund
commencement) to December 31, 1996. 5Period from November 1, 1995 (fund
commencement) to December 31, 1995. 6Period from July 1, 1994 (fund
commencement) to December 31, 1994. 7Period from May 1, 1995 (fund commencement)
to December 31, 1995.
</FN>
</TABLE>
ALLIANZ LIFE INSURANCE
COMPANY OF NORTH AMERICA
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1998 and 1997
<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, 1998 and
1997, 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,
1998. 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, 1998
and 1997, 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,
1998, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 5, 1999
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Financial Statements
Consolidated Balance Sheets
December 31, 1998 and 1997
(in thousands)
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments:
Fixed maturities, at fair value $ 2,538,291 2,705,210
Equity securities, at fair value 512,404 442,607
Mortgage loans on real estate 457,128 318,683
Certificates of deposit and short-term securities 166,366 117,124
Policy loans 7,118 5,695
Other invested assets 95,746 51,863
Investment in LifeUSA Holdings Inc. 80,928 0
- ---------------------------------------------------------------------------------------------------------------------------
Total investments 3,857,981 3,641,182
Cash 67,195 26,871
Accrued investment income 36,649 38,345
Receivables (net of allowance for uncollectible accounts of $3,254 in 1998 and $3,122 in 1997) 323,971 262,676
Reinsurance receivable:
Funds held on deposit 1,170,170 1,145,210
Recoverable on future policy benefit reserves 1,191,098 1,120,663
Recoverable on unpaid claims 293,179 219,443
Receivable on paid claims 24,986 31,158
Deferred acquisition costs 930,059 927,080
Other assets 35,755 34,475
Federal income tax recoverable 4,060 20,761
- ---------------------------------------------------------------------------------------------------------------------------
Assets, exclusive of separate account assets 7,935,103 7,467,864
Separate account assets 9,915,150 10,756,929
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $17,850,253 18,224,793
<FN>
See accompanying notes to consolidated 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, 1998 and 1997
(in thousands)
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities:
Future benefit reserves:
Life $ 1,445,844 1,297,269
Annuity 3,588,491 3,251,829
Policy and contract claims 770,846 607,011
Unearned premiums 53,778 50,168
Reinsurance payable 129,397 111,684
Deferred income on reinsurance 106,065 115,688
Deferred income taxes 257,903 228,861
Accrued expenses 91,631 93,341
Commissions due and accrued 41,000 39,517
Other policyholder funds 20,586 30,208
Other liabilities 89,038 424,696
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities, exclusive of separate account liabilities 6,594,579 6,250,272
Separate account liabilities 9,915,150 10,756,929
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 16,509,729 17,007,201
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,
No shares outstanding in 1998, 25 million shares outstanding in 1997 0 25,000
Additional paid-in capital 407,088 407,088
Retained earnings 673,857 574,447
Accumulated other comprehensive income 239,579 191,057
- ---------------------------------------------------------------------------------------------------------------------------
Total stockholder's equity 1,340,524 1,217,592
Commitments and contingencies (notes 6, 12 and 13)
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity $17,850,253 18,224,793
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to consolidated 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, 1998, 1997 and 1996
(in thousands)
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Life insurance premiums $ 416,199 339,841 284,084
Other life policy considerations 52,668 83,816 85,747
Annuity considerations 222,632 219,262 170,656
Accident and health premiums 773,570 747,718 603,230
- ---------------------------------------------------------------------------------------------------------------------------
Total premiums and considerations 1,465,069 1,390,637 1,143,717
Premiums and annuity considerations ceded 411,316 438,018 277,163
- ---------------------------------------------------------------------------------------------------------------------------
Net premiums and considerations 1,053,753 952,619 866,554
Investment income, net 217,066 162,350 222,622
Realized investment gains 89,226 61,488 28,561
Equity in earnings of LifeUSA Holdings Inc. 2,207 0 0
Other 75,967 53,760 6,193
- ---------------------------------------------------------------------------------------------------------------------------
Total revenue 1,438,219 1,230,217 1,123,930
Benefits and expenses:
Life insurance benefits 461,891 336,090 281,441
Annuity benefits 251,463 206,189 153,238
Accident and health insurance benefits 623,640 566,746 434,793
- ---------------------------------------------------------------------------------------------------------------------------
Total benefits 1,336,994 1,109,025 869,472
Benefit recoveries 501,719 426,607 249,552
- ---------------------------------------------------------------------------------------------------------------------------
Net benefits 835,275 682,418 619,920
Commissions and other agent compensation 322,697 310,665 267,714
General and administrative expenses 116,007 106,744 99,018
Taxes, licenses and fees 15,848 20,605 19,959
Increase in deferred acquisition costs, net (2,979) (63,742) (36,344)
- ---------------------------------------------------------------------------------------------------------------------------
Total benefits and expenses 1,286,848 1,056,690 970,267
Income from operations before income taxes 151,371 173,527 153,663
Income tax expense:
Current 48,410 31,571 21,936
Deferred 2,822 28,283 30,559
- ---------------------------------------------------------------------------------------------------------------------------
Total income tax expense 51,232 59,854 52,495
Net income $ 100,139 113,673 101,168
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Financial Statements (continued)
Consolidated Statements of Comprehensive Income
Years ended December 31, 1998, 1997 and 1996
(in thousands)
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $100,139 113,673 101,168
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax benefit of $949, $525, and $10 in
1998, 1997, and 1996 respectively (1,761) (975) (18)
- ---------------------------------------------------------------------------------------------------------------------------
Unrealized gains (losses) on fixed maturities and equity securities:
Unrealized holding gains (losses) arising during the period net of tax expense (benefit)
of $57,703, $71,594 and $(10,289) in 1998, 1997, and 1996 respectively 107,162 132,961 (19,107)
Reclassification adjustment for gains included in net income, net of tax expense of
$30,627, $21,588, and $9,401 in 1998, 1997, and 1996 respectively (56,879) (40,093) (17,460)
- ---------------------------------------------------------------------------------------------------------------------------
Total unrealized holding gains (losses) 50,283 92,868 (36,567)
Total other comprehensive income (loss) 48,522 91,893 (36,585)
Total comprehensive income $148,661 205,566 64,583
<FN>
See accompanying notes to consolidated 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, 1998,
1997 and 1996
(in thousands)
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<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 25,000
Redemption of stock during the year (25,000) 0 0
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of year 0 25,000 25,000
Additional paid-in capital:
Balance at beginning and end of year 407,088 407,088 407,088
- ---------------------------------------------------------------------------------------------------------------------------
Retained earnings:
Balance at beginning of year 574,447 462,925 363,357
Net income 100,139 113,673 101,168
Cash dividend to stockholder (729) (2,151) (1,600)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of year 673,857 574,447 462,925
Accumulated other comprehensive income:
Accumulated unrealized holding gain:
Balance at beginning of year 195,505 102,637 139,204
Net unrealized gain (loss) on investments during the year, net of deferred federal income taxes 50,283
92,868 (36,567)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of year 245,788 195,505 102,637
Accumulated unrealized foreign currency (loss):
Balance at beginning of year (4,448) (3,473) (3,455)
Net unrealized (loss) on foreign currency translation during the year,
net of deferred federal income taxes (1,761) (975) (18)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of year (6,209) (4,448) (3,473)
Total accumulated comprehensive income 239,579 191,057 99,164
- ---------------------------------------------------------------------------------------------------------------------------
Total stockholder's equity $1,340,524 1,217,592 1,014,177
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Financial Statements (continued)
Consolidated Statements of Cash Flows
December 31, 1998, 1997 and 1996
(in thousands)
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net income $100,139 113,673 101,168
- ---------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Realized investment gains (89,226) (61,488) (28,561)
Deferred federal income tax expense 2,822 28,283 30,559
Charges to policy account balances (104,681) (148,159) (87,865)
Interest credited to policy account balances 262,956 251,182 202,243
Change in:
Accrued investment income 1,696 (2,215) 728
Receivables (61,295) (107,398) (30,578)
Reinsurance receivables (162,959) (1,205,410) (76,003)
Deferred acquisition costs (2,979) (63,742) (36,344)
Future benefit reserves 25,183 138,370 71,193
Policy and contract claims and other policyholder funds 154,213 92,230 37,055
Unearned premiums 3,610 17,992 (2,005)
Reinsurance payable 17,713 68,725 24,019
Current tax recoverable 16,701 (8,306) (8,508)
Accrued expenses and other liabilities 14,797 12,113 15,506
Commissions due and accrued 1,483 2,414 14,124
Depreciation and amortization (12,711) (13,312) (25,874)
Equity in earnings of LifeUSA Holdings Inc. (2,207) 0 0
Other, net 94 18 (1,568)
- ---------------------------------------------------------------------------------------------------------------------------
Total adjustments 65,210 (998,703) 98,121
Net cash provided by (used in) operating activities 165,349 (885,030) 199,289
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Financial Statements (continued)
Consolidated Statements of Cash Flows (cont.)
Years ended December 31, 1998, 1997 and 1996
(in thousands)
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows provided by (used in) operating activities 165,349 (885,030) 199,289
Cash flows provided by (used in) investing activities:
Purchase of fixed maturities $(1,256,653) (1,748,950)(1,324,676)
Purchase of equity securities (1,518,096) (1,699,847) (137,304)
Purchase of stock in LifeUSA Holdings, Inc. (79,091) 0 0
Funding of mortgage loans (168,870) (103,626) (70,265)
Sale of fixed maturities 1,460,969 1,921,534 1,043,748
Matured fixed maturities 28,152 1,150 2,711
Sale of equity securities 1,560,695 1,691,789 122,788
Repayment of mortgage loans 29,105 29,520 23,317
Net change in certificates of deposit and short-term securities (49,242) 87,848 (173,471)
Other (46,256) 82,797 (20,566)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (39,287) 262,215 (533,718)
Cash flows provided by (used in) financing activities:
Policyholders' deposits to account balances $ 864,446 748,430 591,926
Policyholders' withdrawals from account balances (562,667) (524,579) (384,550)
Change in assets held under reinsurance agreements 7,876 150,526 0
Funds borrowed (repaid) on dollar reverse repurchase agreements, net (369,664) 239,468 130,196
Redemption of preferred stock (25,000) 0 0
Cash dividends paid (729) (2,151) (1,600)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (85,738) 611,694 335,972
Net change in cash 40,324 (11,121) 1,543
Cash at beginning of year 26,871 37,992 36,449
- ---------------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 67,195 26,871 37,992
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(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 group and
individual life, annuity and accident and health policies in the United States,
Canada and several U.S. territories. Based on 1998 net revenues and
considerations, 36%, 16% and 48% 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 The
Franklin Templeton Group 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 LifeUSA Holding Inc.
(LifeUSA), a publicly traded insurance company in which it holds a 21.4%
ownership interest at December 31, 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.
Traditional Life, Group Life and Group Accident and Health Insurance
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.
Nontraditional and Variable Life and Annuity Business
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
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(in thousands, except share data)
(1) Summary of Significant Accounting Policies (cont.)
Deferred Acquisition Costs (cont.)
policies are deferred and amortized over the lives of the policies in the same
manner as premiums are earned. For interest sensitive products, acquisition
costs are amortized in relation to the present value of expected future gross
profits from investment margins and mortality, morbidity and expense charges.
Deferred acquisition costs amortized during 1998, 1997 and 1996 were $202,644,
$219,266, and $137,618, 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 range from 7.5% 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 fixed maturity and equity portfolio as
"available-for-sale" and, accordingly, the securities are carried at fair value.
Short-term investments are carried at amortized cost, which approximates market
value. 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.
The Company accounts for its investment in LifeUSA under the equity method of
accounting and carries its investment at cost, adjusted for its share of
LifeUSA's earnings, amortization of goodwill and dividends received. The
difference between the cost of the investment and underlying equity is amortized
into net income over ten years.
Realized gains and losses are computed based on the specific identification
method.
As of December 31, 1998 and 1997, investments with a carrying value of $116,197
and $103,590, respectively, were held on deposit with various insurance
departments and in other trusts as required by statutory regulations.
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(in thousands, except share data)
(1) Summary of Significant Accounting Policies (cont.)
Investments (cont.)
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.
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 fair
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 1998, the Company adopted Statement of Financial Accounting Standard (SFAS)
No. 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, and SFAS No. 132, Employers Disclosures about
Pensions and Other Postretirement Benefits. No adjustments were made to the
consolidated financial statements upon adoption of these pronouncements.
In 1998, the Company adopted SFAS No. 130, Reporting Comprehensive Income. A
Consolidated Statement of ComprehensiveIncome is now included in these
financial statements.
Accounting Pronouncements to be Adopted
In December 1997, the AICPA issued Statement of Position (SOP) 97-3, Accounting
by Insurance and Other Enterprises for Insurance-Related Assessments. The SOP
provides guidance for determining when to recognize a liability for guaranty
fund assessments, how to measure the liability and for determining when an asset
may be recognized for premium tax offset recoveries. The SOP is effective for
years beginning after December 15, 1998. The Company will adopt SOP 97-3 on
January 1, 1999. Adoption of this SOP is not expected to have a significant
impact on the consolidated financial statements.
In February 1998, the AICPA issued SOP 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. The SOP provides
guidance for determining whether computer software is in fact internal-use
software and offers guidelines on accounting for the proceeds of computer
software originally developed or obtained for internal use and subsequently
marketed and sold to the public. The
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(in thousands, except share data)
(1) Summary of Significant Accounting Policies (cont.)
Accounting Pronouncements to be Adopted (cont.)
SOP applies to all non-government entities and is effective for years beginning
after December 15, 1998. The Company will adopt SOP 98-1 on January 1, 1999.
Adoption of this SOP is not expected to have a significant impact on the
consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. The statement
establishes accounting and reporting standards for derivative financial
instruments and other similar financial instruments and for hedging activities.
The statement is effective for fiscal years beginning after June 15, 1999. The
Company will adopt SFAS No. 133 on January 1, 2000. Adoption of this statement
is not expected to have a significant impact on the consolidated financial
statements.
Reclassifications
Certain prior year balances have been reclassified to conform to the current
year presentation.
<TABLE>
(2) Investments
Investments at December 31, 1998 consist of:
Amount
shown on
Amortized Estimated consolidated
cost fair balance
or cost value sheet
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities:
U.S. government $ 274,813 311,296 311,296
States and political subdivisions 94,640 101,121 101,121
Foreign government 34,652 36,731 36,731
Public utilities 66,236 71,982 71,982
Corporate securities 1,441,359 1,498,702 1,498,702
Mortgage backed securities 401,505 428,304 428,304
Collateralized mortgage obligations 80,599 90,155 90,155
- ---------------------------------------------------------------------------------------------------------------------------
Total fixed maturities $2,393,804 2,538,291 2,538,291
Equity securities:
Common stocks:
Banks, trusts and insurance companies 18,824 31,194 31,194
Industrial and miscellaneous 252,122 469,566 469,566
Nonredeemable preferred stocks 7,807 11,644 11,644
- ---------------------------------------------------------------------------------------------------------------------------
Total equity securities $ 278,753 512,404 512,404
Other investments:
Mortgage loans on real estate 457,128 XXXXXXXXX 457,128
Certificates of deposit and short-term securities 166,366 XXXXXXXXX 166,366
Policy loans 7,118 XXXXXXXXX 7,118
Other invested assets 95,746 XXXXXXXXX 95,746
Investment in LifeUSA Holdings Inc. 80,928 XXXXXXXXX 80,928
- ---------------------------------------------------------------------------------------------------------------------------
Total other investments $ 807,286 XXXXXXXXX 807,286
Total investments $3,479,843 XXXXXXXXX 3,857,981
</TABLE>
<PAGE>
<TABLE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(in thousands, except share data)
(2) Investments (cont.)
At December 31, 1998 and 1997, the amortized cost, gross unrealized gains, gross
unrealized losses and estimated fair values of securities are as follows:
Amortized Gross Gross Estimated
cost unrealized unrealized fair
or cost gains losses value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998:
U.S. government $ 274,813 36,717 234 311,296
States and political subdivisions 94,640 6,481 0 101,121
Foreign government 34,652 2,079 0 36,731
Public utilities 66,236 5,948 202 71,982
Corporate securities 1,441,359 67,234 9,891 1,498,702
Mortgage backed securities 401,505 26,799 0 428,304
Collateralized mortgage obligations 80,599 10,141 585 90,155
- ---------------------------------------------------------------------------------------------------------------------------
Total fixed maturities 2,393,804 155,399 10,912 2,538,291
Equity securities 278,753 245,913 12,262 512,404
- ---------------------------------------------------------------------------------------------------------------------------
Total $2,672,557 401,312 23,174 3,050,695
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
- ---------------------------------------------------------------------------------------------------------------------------
The changes in unrealized gains on fixed maturity securities were $22,170,
$58,422, and $(97,973) in each of the years ended December 31, 1998, 1997 and
1996, respectively.
The changes in unrealized gains in equity investments, which include common
stocks and nonredeemable preferred stocks were $55,188, $84,718, and $40,895 for
the years ended December 31, 1998, 1997 and 1996, respectively.
The amortized cost and estimated fair value of fixed maturities at December 31,
1998, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
</TABLE>
<TABLE>
Amortized Estimated
cost fair value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 19,578 19,831
Due after one year through five years 542,463 558,635
Due after five years through ten years 700,012 741,834
Due after ten years 649,647 699,532
Mortgage backed securities and collateralized mortgage obligations 482,104 518,459
- ---------------------------------------------------------------------------------------------------------------------------
Totals $2,393,804 2,538,291
</TABLE>
<PAGE>
<TABLE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(in thousands, except share data)
(2) Investments (cont.)
Gross gains of $105,723, $70,335, and $43,696 and gross losses of $18,217,
$8,654, and $16,834 were realized on sales of securities in 1998, 1997 and 1996,
respectively.
Net realized investment gains (losses) for the respective years ended December
31 are summarized as follows:
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities, at market $30,299 40,268 8,897
Equity securities 57,207 21,413 17,964
Mortgage loans (1,320) (982) (1,129)
Real estate 3,133 635 3,104
Other (93) 154 (275)
- ---------------------------------------------------------------------------------------------------------------------------
Net gains before taxes 89,226 61,488 28,561
Tax expense on net realized gains 31,229 21,521 9,996
- ---------------------------------------------------------------------------------------------------------------------------
Net gains after taxes $57,997 39,967 18,565
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
During the first two months of 1998 and all of 1997, the Company entered into
mortgage backed security reverse repurchase transactions ("dollar rolls") with
certain securities dealers. Under this program, the Company sold certain
securities for delivery in the current month and simultaneously contracted with
the same dealer to repurchase similar, but not identical, securities on a
specified future date. The Company gave up the right to receive principal and
interest on the securities sold. As of December 31, 1998 there were no
outstanding amounts under the Company's dollar roll program. As of December 31,
1997, mortgage backed securities underlying such agreements were carried at a
market value of $350,985 and other liabilities were $369,664 for funds received
under these agreements. Average balances outstanding for the first two months of
1998 and all of 1997, respectively were $120,525 and $183,530 and weighted
average interest rates were 6.5% and 7.2%. The maximum balance outstanding
during 1998 and 1997 was $120,525 and $369,664, respectively.
The valuation allowances on mortgage loans at December 31, 1998, 1997 and 1996
and the changes in the allowance for the years then ended are summarized as
follows:
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Beginning of Year $8,279 7,279 10,487
Charged to operations 1,320 1,000 0
Recoveries 0 0 (3,208)
- ---------------------------------------------------------------------------------------------------------------------------
End of Year $9,599 8,279 7,279
- ---------------------------------------------------------------------------------------------------------------------------
Major categories of net investment income for the respective years ended
December 31 are:
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Interest:
Fixed maturities $155,397 211,335 178,664
Mortgage loans 34,449 25,232 19,267
Policy loans 497 6,526 7,013
Short-term investments 15,022 12,804 10,688
Dividends:
Preferred stock 668 748 818
Common stock 5,190 4,603 4,527
Interest on assets held by reinsurers 8,272 8,858 9,709
Other invested assets 8,637 9,438 5,344
- ---------------------------------------------------------------------------------------------------------------------------
Total investment income 228,132 279,544 236,030
Investment expenses related to coinsurance agreement (note 6) 2,689 98,417 0
Investment expenses 8,377 18,777 13,408
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income $217,066 162,350 222,622
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(in thousands, except share data)
(3) Summary Table of Fair Value Disclosures
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets Fixed maturities, at market:
U.S. Government $ 311,296 311,296 528,657 528,657
States and political subdivisions 101,121 101,121 85,829 85,829
Foreign governments 36,731 36,731 37,734 37,734
Public utilities 71,982 71,982 48,237 48,237
Corporate securities 1,546,342 1,546,342 1,250,532 1,250,532
Mortgage backed securities 380,664 380,664 663,891 663,891
Collateralized mortgage obligations 90,155 90,155 90,330 90,330
Equity securities 512,404 512,404 442,607 442,607
Mortgage loans 457,128 495,202 318,683 333,540
Short term investments 166,366 166,366 117,124 117,124
Policy loans 7,118 7,118 5,695 5,695
Other long term investments 95,746 95,746 51,863 51,863
Investment in LifeUSA Holdings Inc. 80,928 68,290 0 0
Receivables 323,971 323,971 262,676 262,676
Separate accounts assets 9,915,150 9,915,150 10,756,92910,756,929
Financial liabilities
Investment contracts 3,645,657 3,035,787 3,536,690 2,945,366
Separate account liabilities 9,915,150 9,765,791 10,756,92910,565,205
Dollar reverse repurchase agreements 0 0 369,664 369,664
See Note 1 "Summary of Significant Accounting Policies" for description of the
methods and significant assumptions used to estimate fair values.
(4) Receivables
Receivables at December 31 consist of the following:
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Premiums due $270,657 207,293
Agents balances 10,088 3,186
Related party receivables 3,852 1,445
Reinsurance commission receivable 8,022 23,921
Scholarship enrollment fees 12,010 8,401
Due from administrators 13,271 13,630
Other 6,071 4,800
- ---------------------------------------------------------------------------------------------------------------------------
Total receivables $323,971 262,676
</TABLE>
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(in thousands, except share data)
(5) Accident and Health Claims Reserves
Accident and health claims reserves are based on estimates which are subject to
uncertainty. Uncertainty regarding reserves of a given accident year is
gradually reduced as new information emerges each succeeding year, thereby
allowing more reliable re-evaluations of such reserves. While management
believes that reserves as of December 31, 1998 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 $9,918, $12,479, and $14,348 in
1998, 1997 and 1996, respectively, is summarized as follows:
<TABLE>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, net of reinsurance recoverables of $141,033,
$124,320, and $99,292 $312,886 273,813 240,602
Incurred related to:
Current year 417,042 346,901 279,717
Prior years (12,217) (12,087) (11,642)
- ---------------------------------------------------------------------------------------------------------------------------
Total incurred 404,825 334,814 268,075
Paid related to:
Current year 204,100 150,942 107,842
Prior years 147,186 144,798 127,022
- ---------------------------------------------------------------------------------------------------------------------------
Total paid 351,286 295,740 234,864
Balance at December 31, net of reinsurance recoverables of $128,764,
$141,033, and $124,320 $366,425 312,887 273,813
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Due to lower than anticipated losses related to prior years, the provision for
claims and claim adjustment expenses decreased.
(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. 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.
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(in thousands, except share data)
(6) Reinsurance (cont.)
<TABLE>
Life insurance, annuities and accident and health business assumed from and
ceded to other companies is as follows:
Percentage
Assumed Ceded of amount
Direct from other to other Net assumed
Year ended amount companies companies amount to net
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
December 31, 1998:
Life insurance in force $34,118,554 98,832,792 19,483,581 113,467,765 87.1%
- ---------------------------------------------------------------------------------------------------------------------------
Premiums:
Life 244,416 224,451 93,812 375,055 59.8%
Annuities 220,812 1,820 50,385 172,247 1.1%
Accident and health 479,237 294,333 267,119 506,451 58.1%
- ---------------------------------------------------------------------------------------------------------------------------
Total premiums 944,465 520,604 411,316 1,053,753 49.4%
December 31, 1997:
Life insurance in force $32,234,241 72,682,842 19,873,094 85,043,989 85.5%
- ---------------------------------------------------------------------------------------------------------------------------
Premiums:
Life 252,859 170,798 110,579 313,078 54.6%
Annuities 217,353 1,910 30,789 188,474 1.0%
Accident and health 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 235,837 133,994 37,986 331,845 40.4%
Annuities 169,503 1,153 12,769 157,887 0.7%
Accident and health 396,051 207,179 226,408 376,822 55.0%
- ---------------------------------------------------------------------------------------------------------------------------
Total premiums 801,391 342,326 277,163 866,554 39.5%
- ---------------------------------------------------------------------------------------------------------------------------
Included in reinsurance receivables at December 31, 1998 are $1,170,697,
$863,477 and $307,228 recoverable from three insurers who, as of December 31,
1998, were rated A+, A- and A+, respectively, by A.M. 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.
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. During 1998
and 1997, $15,965 and $22,647, respectively, was amortized and included in other
revenue in the consolidated statements of income. Effective January 1, 1998, the
coinsurance agreement was amended to include another block of business with
future benefit reserves of $66,000, capitalized deferred acquisition costs of
$1,935 and deferred income of $750.
</TABLE>
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(in thousands, except share data)
(6) Reinsurance (cont.)
Of the amounts ceded to others, the Company ceded life insurance inforce of
$2,067,664, $1,163,533, and $381,381 in 1998, 1997 and 1996, respectively, and
life insurance premiums earned of $4,165, $2,538, and $1,293 in 1998, 1997 and
1996, respectively, to its ultimate parent Allianz Aktiengesellshaft. The
Company also ceded accident and health premiums earned to Allianz
Aktiengesellshaft of $2,817, $2,467, and $1,922 in 1998, 1997 and 1996.
<TABLE>
(7) Income Taxes
Income Tax Expense
Total income tax expense (benefit) for the years ended December 31 are as
follows:
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense attributable to operations:
Current tax expenses $48,410 31,571 21,936
Deferred tax expense 2,822 28,283 30,559
- ---------------------------------------------------------------------------------------------------------------------------
Total income tax expense attributable to operations $51,232 59,854 52,495
Income tax effect on equity:
Income tax allocated to stockholder's equity:
Attributable to unrealized gains and losses for the year 26,127 49,748 (19,967)
- ---------------------------------------------------------------------------------------------------------------------------
Total income tax effect on equity $77,359 109,602 32,528
- ---------------------------------------------------------------------------------------------------------------------------
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:
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Income tax expense computed at the statutory rate $52,980 60,735 53,782
Dividends received deductions and tax-exempt interest (3,294) (2,792) (650)
Foreign tax (133) 916 (2,723)
Interest on tax deficiency 900 1,100 261
Other 779 (105) 1,824
- ---------------------------------------------------------------------------------------------------------------------------
Income tax expense as reported $51,232 59,854 52,494
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(in thousands, except share data)
<TABLE>
(7) Income Taxes (cont.)
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:
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Provision for post retirement benefits $ 2,223 2,100
Allowance for uncollectible accounts 929 929
Policy reserves 173,414 177,442
- ---------------------------------------------------------------------------------------------------------------------------
Total deferred tax assets 176,566 180,471
Deferred tax liabilities:
Deferred acquisition costs 272,815 277,627
Net unrealized gain 128,883 102,756
Other 32,771 28,949
- ---------------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 434,469 409,332
Net deferred tax liability $257,903 228,861
- ---------------------------------------------------------------------------------------------------------------------------
Although realization is not assured, the Company believes it is not necessary to
establish a valuation allowance for the deferred tax asset as it is more likely
than not the deferred tax asset will be realized principally through future
reversals of existing taxable temporary differences and future taxable income.
The amount of the deferred tax asset considered realizable, however, could be
reduced in the near term if estimates of future reversals of existing taxable
temporary differences and future taxable income are reduced.
The Company files a consolidated federal income tax return with AZOA and all of
its wholly owned subsidiaries. The consolidated tax allocation agreement
stipulates that each company participating in the return will bear its share of
the tax liability pursuant to United States Treasury Department regulations. The
Company 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 $30,808, $39,914, and
$30,946 in 1998, 1997 and 1996, respectively. At December 31, 1998 and 1997 the
Company had a tax recoverable from AZOA of $3,030 and $20,689, respectively.
(8) Related Party Transactions
The Company reimbursed AZOA $2,495, $2,519, and $1,743 in 1998, 1997 and 1996,
respectively, for certain administrative and investment management services
performed. The Company's liability to AZOA for such services was $490 and $437
at December 31, 1998 and 1997, respectively.
The Company shares a data center with affiliated insurance companies. Usage
charges paid to the data center by the Company were $1,019, $2,826, and $3,275
in 1998, 1997 and 1996, respectively. The Company's liability for data center
charges was $377
and $292 at December 31, 1998 and 1997, 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.
The Company had 25 million shares of Series A preferred stock outstanding held
by AZOA with a dividend rate of 6.4% and a book value of $25,000. In March 1998,
the Company redeemed and canceled the 25 million shares of Series A preferred
stock issued to AZOA.
</TABLE>
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(in thousands, except share data)
(8) Related Party Transactions (cont.)
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) Investment in LifeUSA
In 1995, in conjunction with an expanded marketing agreement, the Company
provided LifeUSA 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 converted its debenture
to equity, extended the existing marketing agreement between the two companies
to December 31, 2000, and agreed to acquire up to a 35% equity ownership in Life
USA. Two members of the Company's management were named to LifeUSA's board of
directors in January 1998. The Company also retains additional rights of
nomination to LifeUSA's board of directors in the future based on the Company's
proportional ownership.
Acquisition of the Company's equity ownership during 1998 was accomplished
through the following:
o Conversion of the $30,000 debenture for 2.43 million shares of common stock
(conversion price of $12.34 per share);
o Exercise of the Company's preemptive right to purchase 241,846 shares of
common stock at $12.36 per share;
o Purchase of 925,000 shares of common stock from certain members of LifeUSA
management at $16.44 per share;
o Acquisition of an additional 1.3 million shares of common stock in open
market purchases.
o Acquisition of 406,092 shares of common stock at $24.63 per share as part of
a commitment to purchase $100,000 in newly issued common stock in increments of
$10,000 semi-annually over a five year period beginning in August 1998.
As of December 31, 1998, the company held 21.41% of the outstanding common stock
of LifeUSA with an approximate market value of $68,290. The carrying value of
the LifeUSA investment at year-end 1998 is $80,928, which is $20,983 higher than
the current equity in net assets of $59,945.
In February 1999, the Company purchased 395,062 shares of LifeUSA common stock
at $25.31 per share. In addition, the stock purchase agreement was amended to
allow the Company to purchase an additional 300,000 shares on the open market
for one year beyond the original agreement date.
Effective April 1, 1998, the Company began assuming business from LifeUSA. Under
this arrangement, the Company assumes 12.5% of annuity business and 16.7% of
universal life business sold by LifeUSA. As of December 31, 1998, the Company
assumed $40,000 of life and annuity reserves from LifeUSA.
The company has also guaranteed a credit agreement between LTC America Holding,
Inc., a LifeUSA subsidiary, and Norwest Bank. The agreement is for a $15,000
revolving credit line with an interest rate of LIBOR +.75% per annum and a
maturity date of December 21, 2003.
(10) Employee Benefit Plans
The Company participates in the Allianz Primary Retirement Plan (Primary
Retirement Plan), a defined contribution plan. The Company makes contributions
to a money purchase pension plan on behalf of eligible participants. All
employees, excluding agents, are eligible to participate in the Primary
Retirement Plan after two years of service. The contributions are based on a
percentage of the participant's salary with the participants being 100% vested
upon eligibility. It is the Company's policy to fund the plan costs as accrued.
Total pension contributions were $756, $810, and $808 in 1998, 1997 and 1996,
respectively.
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(in thousands, except share data)
(10) 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 75% 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 75%, 90% and 100% in 1998, 1997 and
1996, respectively. All employees are eligible to participate after one year of
service and are fully vested in the Company's matching contribution after three
years of service. The Allianz Plan will accept participants' pretax or after-tax
contributions up to 15% of the participant's compensation. It is the Company's
policy to fund the Allianz Plan costs as accrued. The Company has accrued $868,
$1,057, and $1,105 in 1998, 1997 and 1996, respectively, toward planned
contributions.
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, 1998 and 1997 was $6,352 and $6,001, respectively.
This liability is included in "Other liabilities" in the accompanying balance
sheet.
(11) Statutory Financial Data and Dividend Restrictions
Statutory accounting is directed toward insurer solvency and protection of
policyholders. Accordingly, certain items recorded in financial statements
prepared under GAAP are excluded 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>
Stockholder's equity Net income
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Statutory basis $ 654,371 635,711 35,188 72,343 67,995
Adjustments:
Change in reserve basis (226,145) (255,816) 13,787 (85,110) 13,324
Deferred acquisition costs 930,059 927,080 2,979 63,742 36,344
Net deferred taxes (257,903) (228,861) (2,822) (28,283) (30,559)
Statutory asset valuation reserve 178,011 151,675 0 0 0
Statutory interest maintenance reserve 48,697 34,336 14,361 7,994 1,183
Modified coinsurance reinsurance (2,358) (31,953) 29,595 81,790 5,435
Unrealized gains on investments 158,391 124,754 0 0 0
Nonadmitted assets 14,943 14,824 0 0 0
Deferred income on reinsurance (105,465) (115,688) 0 0 0
Other (52,077) (38,470) 7,051 1,197 7,446
- ---------------------------------------------------------------------------------------------------------------------------
As reported in the accompanying consolidated
financial statements $1,340,524 1,217,592 100,139 113,673 101,168
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company is required to meet minimum statutory capital and surplus
requirements. The Company's statutory capital and surplus as of December 31,
1998 and 1997 were in compliance with these requirements. The maximum amount of
dividends that 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,
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(in thousands, except share data)
(11) Statutory Financial Data and Dividend Restrictions (cont.)
for the 12-month period ending the 31st day of the next preceding year. In 1998
and 1997, the Company paid AZOA dividends on preferred stock in the amount of
$729 and $1,600, respectively. A common stock dividend of $551 was paid in 1997.
Dividends of $63,678 could
be paid in 1999 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's adjusted capital is in excess of the Company action level as of
December 31, 1998 and 1997.
Permitted Statutory Accounting Practices
The Company is required to file annual statements with insurance regulatory
authorities which are prepared on an accounting basis prescribed or permitted by
such authorities. Currently, prescribed statutory accounting practices include
state laws, regulations, and general administrative rules, as well as a variety
of publications of the NAIC. Permitted statutory accounting practices encompass
all accounting practices that are not prescribed; such practices differ from
state to state, may differ from company to company within a state, and may
change in the future. The Company does not currently use permitted statutory
accounting practices that have a significant impact on its statutory financial
statements. Furthermore, the NAIC has completed a project to codify statutory
accounting practices, the result of which will constitute the only source of
"prescribed" statutory accounting practices. Accordingly, that project which is
currently in the process of state adoption, will change the definition of what
comprises prescribed versus permitted statutory accounting practices, and may
result in changes to existing accounting policies insurance enterprises use to
prepare their statutory financial statements.
(12) Commitments and Contingencies
The Company and its subsidiaries are involved in various pending or threatened
legal proceedings arising from the conduct of their business. In the opinion of
management, the ultimate resolution of such litigation will not have a material
effect on the consolidated financial position of the Company.
The Company is contingently liable for possible future assessments under
regulatory requirements pertaining to insolvencies and impairments of
unaffiliated insurance companies. Provision has been made for assessments
currently received and assessments anticipated for known insolvencies.
(13) Year 2000
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. Additional costs associated with this effort are not
expected to be material and will be expensed as incurred. This "Year 2000
Computer Problem" creates risk for the Company from unforeseen problems in its
own computer systems and
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(in thousands, except share data)
(13) Year 2000 (cont.)
from third parties with whom the Company deals on financial transactions
worldwide. 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 data and funds
electronically.
(14) 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>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning amount of cumulative translation adjustments $(4,448) (3,473) (3,455)
- ---------------------------------------------------------------------------------------------------------------------------
Aggregate adjustment for the period resulting from translation adjustments (2,710) (1,500) (28)
Amount of income tax benefit for period related to aggregate adjustment 949 525 10
- ---------------------------------------------------------------------------------------------------------------------------
Net aggregate translation included in equity (1,761) (975) (18)
Ending amount of cumulative translation adjustments $(6,209) (4,448) (3,473)
Canadian foreign exchange rate at end of year 0.6535 0.6992 0.7297
</TABLE>
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(in thousands, except share data)
<TABLE>
(15) Supplementary Insurance Information
The following table summarizes certain financial information by line of business
for 1998, 1997 and 1996:
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
acquisitio claims and Unearned benefits contract investment settlement acquisition operating
costs loss expense premiums payable considerations income expenses costs (a) expenses
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998:
Life $217,262 1,445,844 3,859 97,647 375,055 34,731 306,318 (27,291) 141,705
Annuities 694,388 3,588,491 0 1,727 172,247 158,458 135,356 23,333 151,719
Accident and health 18,409 0 49,919 671,472 506,451 23,877 393,601 979
161,128
- ---------------------------------------------------------------------------------------------------------------------------
$930,059 5,034,335 53,778 770,846 1,053,753 217,066 835,275 (2,979) 454,552
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
<FN>
(a) See note 1 for total gross amortization.
</FN>
</TABLE>
<PAGE>
APPENDIX A
- --------------------------------------------------------------------------------
ILLUSTRATION OF POLICY VALUES
The following tables show you how Policy Values, Cash Surrender Values and death
benefits of your Policy will change with the investment experience of the
portfolios. The Policy Values, Cash Surrender 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 shown. These tables also
assume that you paid a $100,000 single premium. For premiums of other than
$100,000, the tables shown can be adjusted (i.e. for a $20,000 premium, multiply
the tables by $20,000 divided by 100,000 or for a $200,000 premium, multiply the
attached tables by $200,000 divided by 100,000). These tables all assume that
the insured, both male and female, is in the most favorable 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 therefore Policy Values will
be less given the same assumed hypothetical gross annual investment rates of
return.
The tables assume gross investment returns of 0%, 6% and 12% 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 daily management and portfolio administration fees are assumed to be .67% on
an annual basis, of the net assets of the Class 1 portfolios of Franklin
Valuemark Funds (Trust) (which is the arithmetic average of the management and
portfolio administration fees assessed in 1998). The values also assume that
each Class 1 portfolio of the Trust will incur expenses annually which are
assumed to be .05% of the average net assets of the portfolio. This is the
average in 1998. The variable options will be assessed for mortality and expense
risks at an annual rate of 0.60% of the average daily net assets of the variable
options and for administrative expenses at an annual rate of 0.15% of the
average daily net assets of the variable options. 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 -1.46%, 4.45% and 10.37%.
Allianz Life deducts the cost of insurance for a Policy Processing Period from
the Policy Values. The cost of insurance rate is based on the sex (where
permitted by state law), attained age and rate class of the insured.
Upon request, we 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 Designed For: Jane Doe
Minneapolis, Minnesota Prepared By: Any Representative
FRANKLIN VALUEMARK
SINGLE PREMIUM VARIABLE LIFE INSURANCE
FEMALE NON-SMOKER
Initial Face Amount: $448,956 Single Premium: . $100,000
Issue Age: 35 State: MN
- ---------------------------------------------------------------------------------------------------------------------------
Summary of end of year values assuming 0.00% gross rate of return.
This illustration is based on CURRENT mortality costs.
PREMIUM CASH
POLICY ACCUM POLICY POLICY SURRENDER DEATH
YEAR PAYMENT @ 5.00% LOAN VALUE VALUE BENEFIT
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 $100,000 $105,000 0 97,439 91,139 448,956
2 0 110,250 0 94,886 89,286 448,956
3 0 115,763 0 92,336 87,436 448,956
4 0 121,551 0 89,785 85,585 448,956
5 0 127,628 0 87,231 83,731 448,956
10 0 162,889 0 74,250 74,250 448,956
15 0 207,893 0 64,097 64,097 448,956
20 0 265,330 0 52,337 52,337 448,956
25 0 338,635 0 37,959 37,959 448,956
30 0 432,194 0 18,962 18,962 448,956
Summary of end of year values assuming 0.00% gross rate of return.
This illustration is based on GUARANTEED mortality costs.
PREMIUM CASH
POLICY ACCUM POLICY POLICY SURRENDER DEATH
YEAR PAYMENT @ 5.00% LOAN VALUE VALUE BENEFIT
- ---------------------------------------------------------------------------------------------------------------------------
1 $100,000 $105,000 0 97,304 91,004 448,956
2 0 110,250 0 94,610 89,010 448,956
3 0 115,763 0 91,908 87,008 448,956
4 0 121,551 0 89,195 84,995 448,956
5 0 127,628 0 86,467 82,967 448,956
10 0 162,889 0 72,390 72,390 448,956
15 0 207,893 0 60,695 60,695 448,956
20 0 265,330 0 46,660 46,660 448,956
25 0 338,635 0 28,872 28,872 448,956
30 0 432,194 0 4,483 4,483 448,956
<FN>
It is emphasized that the assumed investment rates of return shown above and elsewhere are illustrative only. They 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 on a number of factors, including the investment allocations made by an owner and rates of return for the
portfolios. The death benefit, policy value and cash surrender value for a policy would be different from those shown if the
actual gross rates of return averaged the rate shown above over a period of years, but fluctuated above or below those averages
for individual policy years. No representations can be made by Allianz or the trust that this assumed investment rate of return
can be achieved for any one year or sustained over any period of time.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Allianz Life Insurance Company of North America Designed For: Jane Doe
Minneapolis, Minnesota Prepared By: Any Representative
FRANKLIN VALUEMARK
SINGLE PREMIUM VARIABLE LIFE INSURANCE
FEMALE NON-SMOKER
Initial Face Amount: $448,956 Single Premium: $100,000
Issue Age: 35 State: MN
- ---------------------------------------------------------------------------------------------------------------------------
Summary of end of year values assuming 6.00% gross rate of return.
This illustration is based on CURRENT mortality costs.
PREMIUM CASH
POLICY ACCUM POLICY POLICY SURRENDER DEATH
YEAR PAYMENT @ 5.00% LOAN VALUE VALUE BENEFIT
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 $100,000 $105,000 0 103,338 97,038 452,928
2 0 110,250 0 106,798 101,198 456,745
3 0 115,763 0 110,380 105,480 460,424
4 0 121,551 0 114,086 109,886 463,973
5 0 127,628 0 117,920 114,420 467,405
10 0 162,889 0 139,093 139,093 483,132
15 0 207,893 0 167,929 167,929 497,959
20 0 265,330 0 201,955 201,955 513,783
25 0 338,635 0 241,925 241,925 530,650
30 0 432,194 0 288,549 288,549 548,659
Summary of end of year values assuming 6.00% gross rate of return.
This illustration is based on GUARANTEED mortality costs.
PREMIUM CASH
POLICY ACCUM POLICY POLICY SURRENDER DEATH
YEAR PAYMENT @ 5.00% LOAN VALUE VALUE BENEFIT
- ---------------------------------------------------------------------------------------------------------------------------
1 $100,000 $105,000 0 103,200 96,900 452,284
2 0 110,250 0 106,508 100,908 455,434
3 0 115,763 0 109,920 105,020 458,419
4 0 121,551 0 113,439 109,239 461,244
5 0 127,628 0 117,068 113,568 463,922
10 0 162,889 0 136,856 136,856 475,360
15 0 207,893 0 163,611 163,611 485,156
20 0 265,330 0 194,586 194,586 495,034
25 0 338,635 0 230,214 230,214 504,964
30 0 432,194 0 270,795 270,795 514,900
<FN>
It is emphasized that the assumed investment rates of return shown above and elsewhere are illustrative only. They 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 on a number of factors, including the investment allocations made by an owner and rates of return for the
portfolios. The death benefit, policy value and cash surrender value for a policy would be different from those shown if the
actual gross rates of return averaged the rate shown above over a period of years, but fluctuated above or below those averages
for individual policy years. No representations can be made by Allianz or the trust that this assumed investment rate of return
can be achieved for any one year or sustained over any period of time.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Allianz Life Insurance Company of North America Designed For: Jane Doe
Minneapolis, Minnesota Prepared By: Any Representative
FRANKLIN VALUEMARK
SINGLE PREMIUM VARIABLE LIFE INSURANCE
FEMALE NON-SMOKER
Initial Face Amount: $448,956 Single Premium: $100,000
Issue Age: 35 State: MN
- ---------------------------------------------------------------------------------------------------------------------------
Summary of end of year values assuming 12.00% gross rate of return.
This illustration is based on CURRENT mortality costs.
PREMIUM CASH
POLICY ACCUM POLICY POLICY SURRENDER DEATH
YEAR PAYMENT @ 5.00% LOAN VALUE VALUE BENEFIT
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 $100,000 $105,000 0 109,235 102,935 480,449
2 0 110,250 0 119,370 113,770 513,489
3 0 115,763 0 130,490 125,590 548,208
4 0 121,551 0 142,687 138,487 584,737
5 0 127,628 0 156,064 152,564 623,219
10 0 162,889 0 244,855 244,855 850,490
15 0 207,893 0 389,536 389,536 1,155,092
20 0 265,330 0 617,385 617,385 1,570,651
25 0 338,635 0 974,832 974,832 2,138,246
30 0 432,194 0 1,532,926 1,532,926 2,914,767
Summary of end of year values assuming 12.00% gross rate of return.
This illustration is based on GUARANTEED mortality costs.
PREMIUM CASH
POLICY ACCUM POLICY POLICY SURRENDER DEATH
YEAR PAYMENT @ 5.00% LOAN VALUE VALUE BENEFIT
- ---------------------------------------------------------------------------------------------------------------------------
1 $100,000 $105,000 0 109,091 102,791 479,779
2 0 110,250 0 119,051 113,451 512,046
3 0 115,763 0 129,955 125,055 545,872
4 0 121,551 0 141,891 137,691 581,374
5 0 127,628 0 154,952 151,452 618,680
10 0 162,889 0 241,001 241,001 837,102
15 0 207,893 0 379,729 379,729 1,126,011
20 0 265,330 0 595,323 595,323 1,514,526
25 0 338,635 0 928,651 928,651 2,036,949
30 0 432,194 0 1,440,699 1,440,699 2,739,403
<FN>
It is emphasized that the assumed investment rates of return shown above and elsewhere are illustrative only. They 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 on a number of factors, including the investment allocations made by an owner and rates of return for the
portfolios. The death benefit, policy value and cash surrender value for a policy would be different from those shown if the
actual gross rates of return averaged the rate shown above over a period of years, but fluctuated above or below those averages
for individual policy years. No representations can be made by Allianz or the trust that this assumed investment rate of return
can be achieved for any one year or sustained over any period of time.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Allianz Life Insurance Company of North America Designed For: John Doe
Minneapolis, Minnesota Prepared By: Any Representative
FRANKLIN VALUEMARK
SINGLE PREMIUM VARIABLE LIFE INSURANCE
MALE NON-SMOKER
Initial Face Amount: $400,205 Single Premium: $100,000
Issue Age: 35 State: MN
- ---------------------------------------------------------------------------------------------------------------------------
Summary of end of year values assuming 0.00% gross rate of return.
This illustration is based on CURRENT mortality costs.
PREMIUM CASH
POLICY ACCUM POLICY POLICY SURRENDER DEATH
YEAR PAYMENT @ 5.00% LOAN VALUE VALUE BENEFIT
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 $100,000 $105,000 0 97,443 91,143 400,205
2 0 110,250 0 94,900 89,300 400,205
3 0 115,763 0 92,364 87,464 400,205
4 0 121,551 0 89,831 85,631 400,205
5 0 127,628 0 87,300 83,800 400,205
10 0 162,889 0 74,485 74,485 400,205
15 0 207,893 0 64,329 64,329 400,205
20 0 265,330 0 52,044 52,044 400,205
25 0 338,635 0 35,349 35,349 400,205
30 0 432,194 0 10,284 10,284 400,205
Summary of end of year values assuming 0.00% gross rate of return.
This illustration is based on GUARANTEED mortality costs.
PREMIUM CASH
POLICY ACCUM POLICY POLICY SURRENDER DEATH
YEAR PAYMENT @ 5.00% LOAN VALUE VALUE BENEFIT
- ---------------------------------------------------------------------------------------------------------------------------
1 $100,000 $105,000 0 97,310 91,010 400,205
2 0 110,250 0 94,629 89,029 400,205
3 0 115,763 0 91,945 87,045 400,205
4 0 121,551 0 89,257 85,057 400,205
5 0 127,628 0 86,559 83,059 400,205
10 0 162,889 0 72,703 72,703 400,205
15 0 207,893 0 60,998 60,998 400,205
20 0 265,330 0 46,239 46,239 400,205
25 0 338,635 0 25,240 25,240 400,205
30 0 432,194 0 0 0 400,205
<FN>
It is emphasized that the assumed investment rates of return shown above and elsewhere are illustrative only. They 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 on a number of factors, including the investment allocations made by an owner and rates of return for the
portfolios. The death benefit, policy value and cash surrender value for a policy would be different from those shown if the
actual gross rates of return averaged the rate shown above over a period of years, but fluctuated above or below those averages
for individual policy years. No representations can be made by Allianz or the trust that this assumed investment rate of return
can be achieved for any one year or sustained over any period of time.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Allianz Life Insurance Company of North America Designed For: John Doe
Minneapolis, Minnesota Prepared By: Any Representative
FRANKLIN VALUEMARK
SINGLE PREMIUM VARIABLE LIFE INSURANCE
MALE NON-SMOKER
Initial Face Amount: $400,205 Single Premium: $100,000
Issue Age: 35 State: MN
- ---------------------------------------------------------------------------------------------------------------------------
Summary of end of year values assuming 6.00% gross rate of return.
This illustration is based on CURRENT mortality costs.
PREMIUM CASH
POLICY ACCUM POLICY POLICY SURRENDER DEATH
YEAR PAYMENT @ 5.00% LOAN VALUE VALUE BENEFIT
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 $100,000 $105,000 0 103,343 97,043 403,737
2 0 110,250 0 106,815 101,215 407,123
3 0 115,763 0 110,414 105,514 410,379
4 0 121,551 0 114,144 109,944 413,515
5 0 127,628 0 118,011 114,511 416,538
10 0 162,889 0 139,461 139,461 430,296
15 0 207,893 0 168,588 168,588 443,303
20 0 265,330 0 202,732 202,732 457,351
25 0 338,635 0 241,876 241,876 472,854
30 0 432,194 0 285,806 285,806 490,168
Summary of end of year values assuming 6.00% gross rate of return.
This illustration is based on GUARANTEED mortality costs.
PREMIUM CASH
POLICY ACCUM POLICY POLICY SURRENDER DEATH
YEAR PAYMENT @ 5.00% LOAN VALUE VALUE BENEFIT
- ---------------------------------------------------------------------------------------------------------------------------
1 $100,000 $105,000 0 103,207 96,907 403,169
2 0 110,250 0 106,530 100,930 405,977
3 0 115,763 0 109,966 105,066 408,636
4 0 121,551 0 113,517 109,317 411,156
5 0 127,628 0 117,187 113,687 413,543
10 0 162,889 0 137,338 137,338 423,747
15 0 207,893 0 164,469 164,469 432,471
20 0 265,330 0 195,584 195,584 441,226
25 0 338,635 0 230,153 230,153 449,935
30 0 432,194 0 267,364 267,364 458,540
<FN>
It is emphasized that the assumed investment rates of return shown above and elsewhere are illustrative only. They 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 on a number of factors, including the investment allocations made by an owner and rates of return for the
portfolios. The death benefit, policy value and cash surrender value for a policy would be different from those shown if the
actual gross rates of return averaged the rate shown above over a period of years, but fluctuated above or below those averages
for individual policy years. No representations can be made by Allianz or the trust that this assumed investment rate of return
can be achieved for any one year or sustained over any period of time.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Allianz Life Insurance Company of North America Designed For: John Doe
Minneapolis, Minnesota Prepared By: Any Representative
FRANKLIN VALUEMARK
SINGLE PREMIUM VARIABLE LIFE INSURANCE
MALE NON-SMOKER
Initial Face Amount: $400,205 Single Premium: $100,000
Issue Age: 35 State: MN
- ---------------------------------------------------------------------------------------------------------------------------
Summary of end of year values assuming 12.00% gross rate of return.
This illustration is based on CURRENT mortality costs.
PREMIUM CASH
POLICY ACCUM POLICY POLICY SURRENDER DEATH
YEAR PAYMENT @ 5.00% LOAN VALUE VALUE BENEFIT
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 $100,000 $105,000 0 109,240 102,940 428,269
2 0 110,250 0 119,389 113,789 457,703
3 0 115,763 0 130,531 125,631 488,622
4 0 121,551 0 142,761 138,561 521,146
5 0 127,628 0 156,184 152,684 555,394
10 0 162,889 0 245,497 245,497 757,465
15 0 207,893 0 391,063 391,063 1,028,299
20 0 265,330 0 619,789 619,789 1,398,207
25 0 338,635 0 974,878 974,878 1,905,829
30 0 432,194 0 1,519,373 1,519,373 2,605,786
Summary of end of year values assuming 12.00% gross rate of return.
This illustration is based on GUARANTEED mortality costs.
PREMIUM CASH
POLICY ACCUM POLICY POLICY SURRENDER DEATH
YEAR PAYMENT @ 5.00% LOAN VALUE VALUE BENEFIT
- ---------------------------------------------------------------------------------------------------------------------------
1 $100,000 $105,000 0 109,098 102,798 427,679
2 0 110,250 0 119,076 113,476 456,442
3 0 115,763 0 130,009 125,109 486,593
4 0 121,551 0 141,989 137,789 518,241
5 0 127,628 0 155,111 151,611 551,494
10 0 162,889 0 241,845 241,845 746,194
15 0 207,893 0 381,715 381,715 1,003,719
20 0 265,330 0 598,418 598,418 1,349,994
25 0 338,635 0 928,708 928,708 1,815,568
30 0 432,194 0 1,423,726 1,423,726 2,441,746
<FN>
It is emphasized that the assumed investment rates of return shown above and elsewhere are illustrative only. They 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 on a number of factors, including the investment allocations made by an owner and rates of return for the
portfolios. The death benefit, policy value and cash surrender value for a policy would be different from those shown if the
actual gross rates of return averaged the rate shown above over a period of years, but fluctuated above or below those averages
for individual policy years. No representations can be made by Allianz or the trust that this assumed investment rate of return
can be achieved for any one year or sustained over any period of time.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
APPENDIX B
TABLE OF NET SINGLE PREMIUM FACTORS
Attained FACTORS Attained FACTORS Attained FACTORS
Age Male* Female* Age Male* Female* Age Male* Female*
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0 12.62467 14.69383 35 4.30327 4.82748 70 1.52757 1.66607
1 12.50646 14.48692 36 4.16038 4.66752 71 1.49533 1.62425
2 12.16372 14.08281 37 4.02237 4.51338 72 1.46481 1.58427
3 11.82118 13.67851 38 3.88934 4.36506 73 1.43608 1.54629
4 11.48209 13.27838 39 3.76113 4.22232 74 1.40915 1.51041
5 11.14463 12.88451 40 3.63755 4.08498 75 1.38398 1.47664
6 10.80849 12.49577 41 3.51861 3.95303 76 1.36040 1.44488
7 10.47450 12.11263 42 3.40410 3.82624 77 1.33828 1.41498
8 10.14347 11.73553 43 3.29382 3.70425 78 1.31741 1.38673
9 9.81784 11.36605 44 3.18765 3.58674 79 1.29764 1.35999
10 9.49960 11.00434 45 3.08543 3.47344 80 1.27888 1.33468
11 9.19034 10.65053 46 2.98710 3.36425 81 1.26112 1.31079
12 8.89337 10.30762 47 2.89249 3.25897 82 1.24440 1.28836
13 8.61119 9.97611 48 2.80143 3.15749 83 1.22879 1.26746
14 8.34507 9.65635 49 2.71381 3.05962 84 1.21434 1.24807
15 8.09470 9.34852 50 2.62950 2.96530 85 1.20100 1.22998
16 7.85593 9.04683 51 2.54845 2.87445 86 1.18868 1.21335
17 7.62788 8.75962 52 2.47062 2.78696 87 1.17723 1.19789
18 7.40829 8.48131 53 2.39595 2.70281 88 1.16647 1.18342
19 7.19529 8.21157 54 2.32443 2.62191 89 1.15617 1.16975
20 6.98773 7.95007 55 2.25594 2.54404 90 1.14612 1.15668
21 6.78427 7.69599 56 2.19040 2.46904 91 1.13609 1.14399
22 6.58380 7.44915 57 2.12767 2.39670 92 1.12581 1.13142
23 6.38615 7.20889 58 2.06757 2.32674 93 1.11497 1.11871
24 6.19122 6.97553 59 2.01001 2.25900 94 1.10328 1.10559
25 5.99922 6.74889 60 1.95494 2.19345 95 1.09064 1.09192
26 5.81010 6.52878 61 1.90230 2.13013 96 1.07717 1.07777
27 5.62462 6.31538 62 1.85199 2.06916 97 1.06337 1.06359
28 5.44313 6.10815 63 1.80404 2.01067 98 1.05029 1.05034
29 5.26593 5.90723 64 1.75842 1.95479 99 1.04000 1.04000
30 5.09324 5.71269 65 1.71504 1.90144
31 4.92522 5.52403 66 1.67380 1.85048
32 4.76215 5.34132 67 1.63456 1.80168
33 4.60408 5.16433 68 1.59713 1.75478
34 4.45114 4.99306 69 1.56150 1.70960
<FN>
*In states requiring unisex rates, male rates should apply.
</FN>
</TABLE>
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 Compnay 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
Under its Bylaws, Article XI, the Company indemnifies, to the extent permitted
by the laws of the State of Minnesota, 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 Company (or by reason of serving any other organization at
the request of the Company).
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to such provisions of the bylaws or statutes 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 said
Act and is, 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 such 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 said 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 86 pages
The undertaking to file reports
The signatures
Written consents of the following persons:
Counsel
Actuary
Independent Auditor
Part II
Other Information
Page 2
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)
2. Not Applicable
3.a. Principal Underwriter's Agreement (4)
3.b. General Agency Agreement (4)
4. Not Applicable
5. Individual Single Premium Variable Life Insurance Policy (3)
6.a. Articles of Incorporation of the Company (2)
6.b. Bylaws of the Company (2)
7. Not Applicable
8. Not Applicable
9.a. Administrative Agreement (1)
9.b. Fund Participation Agreement (3)
10. Application Form (3)
12. Illustrative Calculations for the Exchange of the Single Premium
Variable Life Insurance Policy for a Whole Life Policy (5)
13. Powers of Attorney (5)
27. Not Applicable
B. Opinion and Consent of Counsel
C. Consent of Actuary
D. Independent Auditors' Consent
(1) incorporated by reference to Pre-Effective Amendment No. 1 to Form S-6, File
No. 33-11158 filed on October 19, 1987
(2) incorporated by reference to Post-Effective Amendment No. 14 to Registrants
Form S-6 electronically filed on November 1, 1995.
(3) incorporated by reference to Post-Effective Amendment No. 15 to Registrants
Form S-6 electronically filed on April 23, 1996.
(4) incorporated by reference to Post-Effective Amendment No. 17 to Registrants
Form S-6 electronically filed on April 29, 1997.
(5) incorporated by reference to Post-Effective Amendment No. 19 to Registrants
Form S-6 electronically filed on April 29, 1998.
SIGNATURES
As required by the Securities Act of 1933, the Registrant certifies that it
meets all of 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 26th day of April, 1999.
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/ Catherine Mielke
---------------------------
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
Signature and Title
<TABLE>
<CAPTION>
<S> <C> <C>
Chairman of the Board,
Lowell C. Anderson* President 04-26-99
Lowell C. Anderson and Chief Executive Officer
Herbert F. Hansmeyer* Director 04-26-99
Herbert F. Hansmeyer
Michael P. Sullivan* Director 04-26-99
Michael P. Sullivan
Dr. Gerhard Rupprecht* Director 04-26-99
Dr. Gerhard Rupprecht
Edward J. Bonach* Chief Financial Officer 04-26-99
Edward J. Bonach
Rev. Dennis J. Dease* Director 04-26-99
Rev. Dennis J. Dease
James R. Campbell* Director 04-26-99
James R. Campbell
Robert M. Kimmitt* Director 04-26-99
Robert M. Kimmitt
</TABLE>
*By Power of Attorney
By: /S/ Michael T. Westermeyer
---------------------------------
Michael T. Westermeyer
Attorney-in-Fact
EXHIBITS
TO
POST-EFFECTIVE AMENDMENT NO. 22
TO
FORM S-6
ALLIANZ LIFE VARIABLE ACCOUNT A
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
INDEX TO EXHIBITS
Exhibit Page
EX99.B Opinion and Consent of Counsel
EX99.C Consent of Actuary
EX99.D Independent Auditors' Consent
Blazzard, Grodd & Hasenauer, P.C.
943 Post Road East
Westport, CT 06880
(203) 226-7866
April 19, 1999
Board of Directors
Allianz Life Insurance Company of North America
1750 Hennepin Avenue
Minneapolis, MN 55403-2195
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 Single
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
March 5, 1999
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 and the Table of Net Single Premium Factors contained
in Appendix B in a Registration Statement Form S-6 registering Single 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 males and females at a variety of
underwriting classifications.
Sincerely,
/s/Jack L. Baumer
Jack L. Baumer, FSA, MAAA
JLB/saf
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 29, 1999, on the financial
statements of Allianz Life Variable Account A and our report dated February 5,
1999, 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 23, 1999
