Registration Nos. 33-15464
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 23
TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUST
REGISTERED ON FORM N-8B-2
ALLIANZ LIFE VARIABLE ACCOUNT A
- -------------------------------
(Exact Name of Trust)
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
- -----------------------------------------------
(Name of Depositor)
1750 Hennepin Avenue, Minneapolis, MN 55403-2195
- ------------------------------------- ----------
(Address of Depositor's Principal Executive Offices) (Zip Code)
Name and Address of Agent for Service
Michael T. Westermeyer
Allianz Life Insurance Company of North America
1750 Hennepin Avenue
Minneapolis, MN 55403-2195
Copies to:
Judith A. Hasenauer
Blazzard, Grodd & Hasenauer, P.C.
P.O. Box 5108
Westport, CT 06881
(203) 226-7866
It is proposed that this filing will become effective:
_____ immediately upon filing pursuant to paragraph (b) of Rule 485
__X__ on November 12, 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
- -------------------------------------------------------------------------------
This prospectus describes the Single Premium Variable Life Insurance Policy
(Policy) offered by Allianz Life Insurance Company of North America (Allianz
Life). All references to "we," "us" and "our" refer to 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 the Variable Options listed below. Each Variable Option
invests in a Portfolio of the corresponding fund company 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. Some of the Variable Options
may not be available in your state. 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.
Variable Options:
AIM VARIABLE INSURANCE FUNDS, INC.:
PORTFOLIO SEEKING CAPITAL GROWTH
AIM V.I. Growth Fund
THE ALGER AMERICAN FUND:
PORTFOLIOS SEEKING LONG-TERM
CAPITAL GROWTH
Alger American Growth Fund
Alger American Leveraged AllCap Fund
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST:
PORTFOLIO SEEKING CAPITAL PRESERVATION AND INCOME
Franklin Money Market Fund
PORTFOLIOS SEEKING INCOME
Franklin High Income Fund
Franklin U.S. Government Securities Fund
Franklin Zero Coupon Funds - 2000, 2005 and 2010
Templeton Global Income Securities Fund
PORTFOLIOS SEEKING GROWTH AND INCOME
Franklin Global Communications Securities Fund*
Franklin Growth and Income Fund
Franklin Income Securities Fund
Franklin Real Estate Securities Fund
Franklin Rising Dividends Fund
Franklin Value Securities Fund
Mutual Shares Securities Fund
Templeton Global Asset Allocation Fund
PORTFOLIOS SEEKING CAPITAL GROWTH
Franklin Capital Growth Fund
Franklin Global Health Care Securities Fund
Franklin Natural Resources Securities Fund
Franklin S&P 500 Index Fund
Franklin Small Cap Fund
Mutual Discovery Securities Fund
Templeton Developing Markets Equity Fund
Templeton Global Growth Fund
Templeton International Equity Fund
Templeton International Smaller Companies Fund
Templeton Pacific Growth Fund
USALLIANZ VARIABLE INSURANCE PRODUCTS TRUST:
PORTFOLIO SEEKING CAPITAL GROWTH
USAllianz VIP Growth Fund
PORTFOLIO SEEKING GROWTH AND INCOME
USAllianz VIP Diversified Assets Fund
PORTFOLIO SEEKING INCOME
USAllianz VIP Fixed Income Fund
*Prior to November 15, 1999, this was the Franklin Global Utilities Securities
Fund.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT AP PROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The portfolios are described in the attached fund prospectuses. 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:
- -IS NOT A BANK DEPOSIT
- -IS NOT FEDERALLY INSURED
- -IS NOT ENDORSED BY ANY BANK OR GOVERNMENT AGENCY
- -IS NOT GUARANTEED AND MAY BE SUBJECT TO LOSS OF PRINCIPAL
This prospectus is not an offering of the securities in any state, country, or
jurisdiction in which we are not authorized to sell the Policy. You should rely
only on the information contained in this prospectus or that we have referred
you to. We have not authorized anyone to provide you with information that is
different.
Dated November 12, 1999
TABLE OF CONTENTS
Special Terms 4
Summary 4
Part I 7
1. The Variable Life
Insurance Policy 7
2. Purchases 7
Single Premium 7
Application for a Policy 7
Allocation of Single Premium 7
Free Look 8
Grace Period 8
Reinstatement 8
Policy Values 8
Exchange Provision 8
3. Investment Options 8
Transfers 10
Substitution 10
4. Expenses 11
Insurance Charges 11
Cost of Insurance Charge 11
Deferred Issue Charge 11
Transfer Fee 12
Taxes 12
Portfolio Expenses 12
5. Death Benefit 14
6. Taxes 14
Life Insurance in General 14
Taking Money Out of Your Policy 14
Diversification 14
7. Access to Your Money 15
Loans 15
Total Surrender and Termination of the Policy 15
8. Other Information 15
Allianz Life 15
Year 2000 16
The Separate Account 16
Distributor 16
Suspension of Payments or Transfers 16
Ownership 16
Part II 17
Management of Allianz Life 17
Administration of the Policies 17
Voting 17
The Separate Account 18
Legal Opinions 18
Misstatement of Age or Sex 18
Right to Contest 18
Settlement Options 18
Tax Status 18
Reports to Owners 21
Legal Proceedings 21
Experts 21
Financial Statements 21
Appendix A - Illustration of
Policy Values 115
Appendix B - Table of Net
Single Premium Factors 122
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. The page
indicated here is where we believe you will find the best explanation for the
word or term. These words or terms are in italics on the indicated page.
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 Variable Options.
Page
Beneficiary 16
Business Day. 8
Insured. 4
Issue Date. 7
Joint Owner. 16
Loan Account. 15
Owner. 16
Portfolio. 8
Premium 7
Variable Option. 8
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.
<PAGE>
SUMMARY
1.THE VARIABLE LIFE
INSURANCE POLICY
- -------------------------------------------------------------------------------
The variable life insurance policy that we are offering is a contract between
you, the owner, and Allianz Life, an insurance company. 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 variable options. Each variable option invests in one
portfolio of a fund. 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
- -------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------
The variable options each invest in a portfolio of a fund. You can put your
money in the portfolios listed below which are described in the accompanying
fund prospectuses.
Variable Options:
AIM VARIABLE INSURANCE
FUNDS, INC.
PORTFOLIO SEEKING CAPITAL GROWTH
AIM V.I. Growth Fund
THE ALGER AMERICAN FUND:
PORTFOLIOS SEEKING LONG-TERM CAPITAL GROWTH
Alger American Growth Fund
Alger American Leveraged AllCap Fund
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST:
PORTFOLIO SEEKING CAPITAL PRESERVATION AND INCOME
Franklin Money Market Fund
PORTFOLIOS SEEKING INCOME
Franklin High Income Fund
Franklin U.S. Government Securities Fund
Franklin Zero Coupon Funds - 2000, 2005 and 2010
Templeton Global Income Securities Fund
PORTFOLIOS SEEKING GROWTH AND INCOME
Franklin Global Communications Securities Fun
* Franklin Growth and Income Fund
Franklin Income Securities Fund
Franklin Real Estate Securities Fund
Franklin Rising Dividends Fund
Franklin Value Securities Fund
Mutual Shares Securities Fund
Templeton Global Asset Allocation Fund
PORTFOLIOS SEEKING CAPITAL GROWTH
Franklin Capital Growth Fund
Franklin Global Health Care Securities Fund
Franklin Natural Resources Securities Fund
Franklin S&P 500 Index Fund
Franklin Small Cap Fund
Mutual Discovery Securities Fund
Templeton Developing Markets Equity Fund
Templeton Global Growth Fund
Templeton International Equity Fund
Templeton International Smaller Companies Fund
Templeton Pacific Growth Fund
USALLIANZ VARIABLE INSURANCE PRODUCTS TRUST:
PORTFOLIO SEEKING CAPITAL GROWTH
USAllianz VIP Growth Fund
PORTFOLIO SEEKING GROWTH AND INCOME
USAllianz VIP Diversified Assets Fund
PORTFOLIO SEEKING INCOME
USAllianz VIP Fixed Income Fund
*Prior to November 15, 1999, this was the Franklin Global Utilities Securities
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
- -------------------------------------------------------------------------------
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.
5.DEATH BENEFIT
- -------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
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(0)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
- --------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------
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 Franklin 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:
- -create or conserve his/her estate;
- -retain access to cash through loans and surrenders; and
- -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
- -------------------------------------------------------------------------------
If you need more information, please contact us at:
Allianz Life Insurance Company of North America
1750 Hennepin Ave.
Minneapolis, MN 55403
1-800-542-5427
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 19312-0031
1-800-624-0197
PART I
1. THE VARIABLE LIFE
INSURANCE POLICY
- -------------------------------------------------------------------------------
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 32 variable options each of which
invests in a portfolio of a fund. 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(0)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
- -------------------------------------------------------------------------------
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 re quires 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 Franklin
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:
- -We must receive a properly executed application for reinstatement. It must be
sent to our Service Office.
- -You must provide us with satisfactory evidence of insurability of the insured.
- -You must pay a premium sufficient to keep the Policy in force through 3
Processing Dates.
- -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
- -------------------------------------------------------------------------------
The Contract offers VARIABLE OPTIONS, which invest in Portfolios of AIM Variable
Insurance Funds, Inc., The Alger American Fund, Franklin Templeton Variable
Insurance Products Trust, and the USAllianz Variable Insurance Products Trust.
Additional Portfolios may be available in the future.
You should read the fund prospectuses (which are attached to this prospectus)
carefully before investing.
AIM Variable Insurance Funds, Inc., The Alger American Fund, Franklin Templeton
Variable Insurance Products Trust and USAllianz Variable Insurance Products
Trust are the mutual funds underlying your Policy. Each portfolio has its own
investment objective.
Franklin Templeton Variable Insurance Products Trust (formerly, Franklin
Valuemark Funds) issues two classes of shares which are described in the
attached prospectus for Franklin Templeton Variable Insurance Products Trust.
Only Class 1 shares are available in connection with your Policy.
Investment advisers for each portfolio are listed in the table below and are as
follows: A I M Advisors, Inc.; Allianz of America, Inc.; Fred Alger Management,
Inc.; Franklin Advisers, Inc.; Franklin Advisory Services, LLC; Franklin Mutual
Advisers, LLC; Templeton Asset Management Ltd.; Templeton Global Advisors
Limited; and Templeton Investment Counsel, Inc. Certain advisers have retained
one or more subadvisers to help them manage the Portfolios.
The investment objectives and policies of certain portfolios are similar to the
investment objectives and policies of other mutual funds that certain of the
investment advisers manage. Although the objectives and policies may be similar,
the investment results of the Portfolios may be higher or lower than the results
of such other mutual funds. The investment advisers cannot guarantee, and make
no representation, that the investment results of similar funds will be
comparable even though the funds have the same investment advisers.
The following is a list of the Portfolios available under the Policy:
<TABLE>
<CAPTION>
Investment
Available Portfolios Advisers
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
AIM Variable Insurance Funds, Inc.:
PORTFOLIO SEEKING CAPITAL GROWTH
AIM V.I. Growth Fund A I M Advisors, Inc.
THE ALGER AMERICAN FUND:
Portfolios Seeking Long-Term Capital Growth
Alger American Growth Fund Fred Alger Management, Inc.
Alger American Leveraged AllCap Fund Fred Alger Management, Inc.
FRANKLIN TEMPLETON VARIABLE
INSURANCE PRODUCTS TRUST:
Portfolio Seeking Capital Preservation and Income
Franklin Money Market Fund Franklin Advisers, Inc.
Portfolios Seeking Income
Franklin High Income Fund Franklin Advisers, Inc.
Franklin U.S. Government Securities Fund Franklin Advisers, Inc.
Franklin Zero Coupon Funds - 2000, 2005 and 2010 Franklin Advisers, Inc.
Templeton Global Income Securities Fund Franklin Advisers, Inc.
Portfolios Seeking Growth And Income
Franklin Global Communications Securities Fund* Franklin Advisers, Inc.
Franklin Growth and Income Fund Franklin Advisers, Inc.
Franklin Income Securities Fund Franklin Advisers, Inc.
Franklin Real Estate Securities Fund Franklin Advisers, Inc.
Franklin Rising Dividends Fund Franklin Advisory Services, LLC
Franklin Value Securities Fund Franklin Advisory Services, LLC
Mutual Shares Securities Fund Franklin Mutual Advisers, LLC
Templeton Global Asset Allocation Fund Templeton Global Advisors Limited
Portfolios Seeking Capital Growth
Franklin Capital Growth Fund Franklin Advisers, Inc.
Franklin Global Health Care Securities Fund Franklin Advisers, Inc.
Franklin Natural Resources Securities Fund Franklin Advisers, Inc.
Franklin S&P 500 Index Fund Franklin Advisers, Inc.
Franklin Small Cap Fund Franklin Advisers, Inc.
Mutual Discovery Securities Fund Franklin Mutual Advisers, LLC
Templeton Developing Markets Equity Fund Templeton Asset Management Ltd.
Templeton Global Growth Fund Templeton Global Advisors Limited
Templeton International Equity Fund Franklin Advisers, Inc.
Templeton International Smaller Companies Fund Templeton Investment Counsel, Inc.
Templeton Pacific Growth Fund Franklin Advisers, Inc.
</TABLE>
<TABLE>
<CAPTION>
Investment
Available Portfolios Advisers
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
USALLIANZ VARIABLE INSURANCE
PRODUCTS TRUST:
Portfolio Seeking Capital Growth
USAllianz VIP Growth Fund Allianz of America, Inc.
Portfolio Seeking Growth and Income
USAllianz VIP Diversified Assets Fund Allianz of America, Inc.
Portfolio Seeking Income
USAllianz VIP Fixed Income Fund Allianz of America, Inc.
<FN>
*Prior to November 15, 1999, this was the Franklin Global Utilities Securities
Fund.
</FN>
</TABLE>
Shares of the funds may be offered in connection with certain variable annuity
contracts and variable life insurance policies of various insurance companies
which may or may not be affiliated with Allianz Life. Certain funds may also be
sold directly to qualified plans. The funds believe that offering their shares
in this manner will not be disadvantageous to you.
Allianz Life may enter into certain arrangements under which it is reimbursed by
the funds' advisers, distributors and/or affiliates for the administrative
services which it provides to the Portfolios.
TRANSFERS
You can transfer money among the variable options. You 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
- -------------------------------------------------------------------------------
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 annu al basis, to .15% of the
Policy Value of the 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 De ferred
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 ex
penses 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 in sufficient 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
accompanying fund prospectuses for a complete description.
<PAGE>
<TABLE>
<CAPTION>
FUNDS ANNUAL EXPENSES:
(as a percentage of the fund's average net assets for the most recent fiscal year). See the accompanying fund prospectuses for
more information.
MANAGEMENT
AND PORTFOLIO TOTAL ANNUAL
ADMINISTRATION FEES1 12B-1 FEES OTHER EXPENSES EXPENSES
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM V.I. Growth Fund .64% -- .08% .72%
Alger American Growth Fund .75% -- .04% .79%
Alger American Leveraged AllCap Fund2 .85% -- .11% .96%
Franklin Capital Growth Fund .75% -- .02% .77%
Franklin Global Health Care Securities Fund3 .75% -- .09% .84%
Franklin Global Communications Securities Fund4 .47% -- .03% .50%
Franklin Growth and Income Fund .47% -- .02% .49%
Franklin High Income Fund .50% -- .03% .53%
Franklin Income Securities Fund .47% -- .02% .49%
Franklin Money Market Fund .51% -- .02% .53%
Franklin Natural Resources Securities Fund .62% -- .02% .64%
Franklin Real Estate Securities Fund .52% -- .02% .54%
Franklin Rising Dividends Fund .70% -- .02% .72%
Franklin S&P 500 Index Fund5 .15% -- .38% .53%
Franklin Small Cap Fund .75% -- .02% .77%
Franklin U.S. Government Securities Fund .48% -- .02% .50%
Franklin Value Securities Fund3 .75% -- .08% .83%
Franklin Zero Coupon Fund - 2000 .63% -- .03% .66%
Franklin Zero Coupon Fund - 2005 .63% -- .03% .66%
Franklin Zero Coupon Fund - 2010 .62% -- .04% .66%
Mutual Discovery Securities Fund .95% -- .05% 1.00%
Mutual Shares Securities Fund .74% -- .03% .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%
USAllianz VIP Diversified Assets Fund5 .55% .25% .40% 1.20%
USAllianz VIP Fixed Income Fund5 .50% .25% .30% 1.05%
USAllianz VIP Growth Fund5 .75% .25% .28% 1.28%
<FN>
1. The Portfolio Administration Fee is a direct expense for the Franklin Global Health Care Securities Fund, the Franklin Value
Securities Fund, the Mutual Discovery Securities Fund, the Mutual Shares Securities Fund, the Templeton Global Asset Allocation
Fund, and the Templeton International Smaller Companies Fund. Other Portfolios of Franklin Templeton Variable Insurance Products
Trust pay for similar services indirectly through the Management Fee. See the Franklin Templeton Variable Insurance Products Trust
prospectus for further information regarding these fees.
2. Other expenses for the Alger American Leveraged AllCap Fund include 0.03% of interest expense.
3. The Franklin Global Health Care Securities Fund and the Franklin Value Securities Fund commenced operations May 1, 1998. The
expenses shown above for these Portfolios are therefore estimated for 1999.
4. Prior to November 15, 1999, this was the Franklin Global Utilities Securities Fund.
5. The Franklin S&P 500 Index Fund, the US Allianz VIP Diversified Assets Fund, the US Allianz VIP Fixed Income Fund, and the US
Allianz VIP Growth Fund commenced operations as of the date of this prospectus. The expenses shown above for these portfolios are
therefore estimated for 1999.
</FN>
</TABLE>
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 any 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 IN TENDED 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(0)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 retro
actively. 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 port fo lio(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.
USAllianz Investor Services, LLC (formerly NALAC Financial Plans, LLC) is a
wholly-owned subsidiary of Allianz Life. It provides marketing services and is
the principal underwriter of the Policy. USAllianz Investor Services, 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, PA 19312-0031
1-800-624-0197
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
USAllianz Investor Services, LLC, 1750 Hennepin Ave., Minneapolis, MN 55403,
acts as the distributor of the Policies. USAllianz Investor Services, LLC 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 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
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MANAGEMENT OF ALLIANZ LIFE
As of November 12, 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
- -------------------------------------------------------------------------------
<S> <C>
Robert W. MacDonald Chief Executive Officer and Director. Previously Chief
Executive Officer of LifeUSA.
Margery G. Hughes President and Chief Administrative Officer. Previously
President and Chief Administrative Officer of LifeUSA.
Mark A. Zesbaugh Senior Vice President and Chief Financial Officer.
Previously Chief Financial Officer of LifeUSA.
Lowell C. Anderson Chairman of the Board. Previously 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 President, Special Markets Division. Previoulsy
Executive Vice President - Chief Financial Officer and
Treasurer of the Company since 1993.
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.
</TABLE>
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. The funds do 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 is determined as follows:
- -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.
- -The number of shares which a person has a right to vote will be determined as
of the date chosen by us.
- -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:
- -is reasonable and is based on a good faith determination by us that the change
would violate state or federal law;
- -the change would not be consistent with the investment objectives of the
portfolios; or
- -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 Ex change Commission as a unit investment trust under the
Investment Company Act of 1940. The Separate Account is divided into variable
options (also known as sub-accounts). Each variable option invests in one
portfolio.
The 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 ap proval 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 advisers in such a manner as to comply with these diversification
requirements.
The Treasury Department has indicated that the diversification Regulations do
not provide guidance regarding the circumstances 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 regu lations 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, in cluding 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 en dowment 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(0)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.
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT A
OF
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
FINANCIAL STATEMENTS
JUNE 30, 1999 (UNAUDITED)
ALLIANZ LIFE VARIABLE ACCOUNT A
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL GLOBAL HEALTHGLOBAL UTILITIESGROWTHANDHIGH INCOME MONEY
GROWTHCARE SECURITIESSECURITIESINCOME 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,
34,179 shares, cost $527,142 $617,278 - - - - - -
Global Health Care Securities Fund,
3,484 shares, cost $35,819 - 31,773 - - - - -
Global Utilities Securities Fund,
82,991 shares, cost $1,295,650 - - 1,849,880 - - - -
Growth and Income Fund,
153,428 shares, cost $2,675,225 - - - 3,369,282 - - -
High Income Fund,
144,463 shares, cost $1,860,636 - - - - 1,943,023 - -
Income Securities Fund,
89,217 shares, cost $1,478,201 - - - - - 1,536,317 -
Money Market Fund,
1,761,101 shares, cost $1,761,101 - - - - - - 1,761,101
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets 617,278 31,773 1,849,880 3,369,282 1,943,023 1,536,317 1,761,101
Liabilities:
Accrued mortality and expense risk charges 1,921 106 7,458 10,678 6,633 3,049 7,028
Accrued administrative charges 480 27 1,865 2,670 1,658 762 1,757
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 2,401 133 9,323 13,348 8,291 3,811 8,785
Net assets $614,877 31,640 1,840,557 3,355,934 1,934,732 1,532,506 1,752,316
- ------------------------------------------------------------------------------------------------------------------------------------
Policy owners' equity (note 4) $614,877 31,640 1,840,557 3,355,934 1,934,732 1,532,506 1,752,316
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited 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.)
JUNE 30, 1999 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
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,
35,910 shares, cost $427,844 $454,258 - - - - - -
Mutual Shares Securities Fund,
95,699 shares, cost $1,139,214 - 1,311,083 - - - - -
Natural Resources Securities Fund,
16,164 shares, cost $191,653 - - 175,217 - - - -
Real Estate Securities Fund,
28,135 shares, cost $588,454 - - - 591,678 - - -
Rising Dividends Fund,
60,156 shares, cost $1,014,930 - - - - 1,120,096 - -
Small Cap Fund,
56,716 shares, cost $800,650 - - - - - 906,315 -
Templeton Developing Markets Equity Fund,
78,842 shares, cost $789,834 - - - - - - 740,325
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets 454,258 1,311,083 175,217 591,678 1,120,096 906,315 740,325
Liabilities:
Accrued mortality and expense risk charges 1,948 5,495 1,915 2,683 3,496 3,676 3,629
Accrued administrative charges 487 1,374 478 671 874 919 907
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 2,435 6,869 2,393 3,354 4,370 4,595 4,536
Net assets $451,823 1,304,214 172,824 588,324 1,115,726 901,720 735,789
- ------------------------------------------------------------------------------------------------------------------------------------
Policy owners' equity (note 4) $451,823 1,304,214 172,824 588,324 1,115,726 901,720 735,789
<FN>
See accompanying notes to unaudited 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.)
JUNE 30, 1999 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
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,
18,670 shares, cost $215,377 $248,687 - - - - - -
Templeton Global Growth Fund,
136,101 shares, cost $1,903,153 - 2,251,105 - - - - -
Templeton Global Income Securities Fund,
16,797 shares, cost $213,982 - - 204,919 - - - -
Templeton International Equity Fund,
112,563 shares, cost $1,695,275 - - - 1,946,208 - - -
Templeton International Smaller Companies Fund,
1,962 shares, cost $23,356 - - - - 21,131 - -
Templeton Pacific Growth Fund,
38,371 shares, cost $426,291 - - - - - 371,046 -
U.S. Government Securities Fund,
74,750 shares, cost $935,469 - - - - - - 1,024,822
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets 248,687 2,251,105 204,919 1,946,208 21,131 371,046 1,024,822
Liabilities:
Accrued mortality and expense risk charges 1,261 10,833 1,491 6,343 217 2,364 3,885
Accrued administrative charges 315 2,708 373 1,586 54 591 971
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,576 13,541 1,864 7,929 271 2,955 4,856
Net assets $247,111 2,237,564 203,055 1,938,279 20,860 368,091 1,019,966
- ------------------------------------------------------------------------------------------------------------------------------------
Policy owners' equity (note 4) $247,111 2,237,564 203,055 1,938,279 20,860 368,091 1,019,966
<FN>
See accompanying notes to unaudited 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.)
JUNE 30, 1999 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
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, 395 shares, cost $3,365 $3,415 - - -
Zero Coupon Fund - 2000, 23,693 shares, cost $272,702 - 354,453 - -
Zero Coupon Fund - 2005, 21,942 shares, cost $262,801 - - 369,936 -
Zero Coupon Fund - 2010, 23,787 shares, cost $355,864 - - - 413,186
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets 3,415 354,453 369,936 413,186 23,616,534
Liabilities:
Accrued mortality and expense risk charges 17 1,575 1,606 1,728 91,035
Accrued administrative charges 4 394 401 432 22,758
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 21 1,969 2,007 2,160 113,793
Net assets $3,394 352,484 367,929 411,026 23,502,741
- ------------------------------------------------------------------------------------------------------------------------------------
Policy owners' equity (note 4) $3,394 352,484 367,929 411,026 23,502,741
<FN>
See accompanying notes to unaudited 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 PERIOD ENDED JUNE 30, 1999 (UNAUDITED)
AND THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- ------------------------------------------------------------------------------------------------------------------------------------
GLOBAL HEALTH CARE GLOBAL UTILITIES
CAPITAL GROWTH FUND SECURITIES FUND SECURITIES FUND
1999 1998 1997 1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ - 833 7 - - - - 63,845 66,211
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges 1,417 1,287 96 101 54 - 6,191 10,459 9,862
Administrative charges 354 322 24 25 13 - 1,548 2,615 2,466
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses 1,771 1,609 120 126 67 - 7,739 13,074 12,328
Investment income (loss), net (1,771) (776) (113) (126) (67) - (7,739) 50,771 53,883
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions on mutual funds - - - - - - - 93,096 91,611
Realized gains (losses) on sales of investments, net327 989 (11) (37) 2 - 65,068 56,812 59,135
- ------------------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on investments, net 327 989 (11) (37) 2 - 65,068 149,908 150,746
Net change in unrealized appreciation
(depreciation) on investments 55,912 34,912 (548) (5,740) 1,694 - 103,611 (40,828) 116,553
- ------------------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments, net56,239 35,901 (559) (5,777) 1,696 - 168,679 109,080 267,299
Net increase (decrease) in net assets from
operations $54,468 35,125 (672) (5,903) 1,629 160,940 159,851 321,182
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited 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 PERIOD ENDED JUNE 30, 1999 (UNAUDITED)
AND THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- ------------------------------------------------------------------------------------------------------------------------------------
GROWTH AND INCOME FUND HIGH INCOME FUND INCOME SECURITIES FUND
1999 1998 1997 1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ - 86,614 61,679 - 160,598 153,512 - 111,419 71,443
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges 9,221 16,628 14,386 5,438 10,568 12,094 1,823 8,671 7,189
Administrative charges 2,305 4,157 3,597 1,360 2,642 3,023 456 2,168 1,797
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses 11,526 20,785 17,983 6,798 13,210 15,117 2,279 10,839 8,986
Investment income (loss), net (11,526) 65,829 43,696 (6,798) 147,388 138,395 (2,279)100,580 62,457
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions
on mutual funds - 203,765 59,819 - 9,531 5,036 - 26,313 15,347
Realized gains (losses) on sales of
investments, net 30,147 27,735 75,044 1,993 29,193 43,795 6,803 3,544 7,042
- ------------------------------------------------------------------------------------------------------------------------------------
Realized gains (losses)
on investments, net 30,147 231,500 134,863 1,993 38,724 48,831 6,803 29,857 22,389
Net change in unrealized appreciation
(depreciation) on investments 215,369(118,668)283,057 19,148 (177,480) 4,999 25,585(115,794)68,874
- ------------------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses) and unrealized
appreciation (depreciation) on
investments, net 245,516 112,832 417,920 21,141 (138,756)53,830 32,388 (85,937)91,263
Net increase (decrease) in net
assets from operations $233,990 178,661 461,616 14,343 8,632 192,225 30,109 14,643 153,720
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited 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 PERIOD ENDED JUNE 30, 1999 (UNAUDITED)
AND THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- ------------------------------------------------------------------------------------------------------------------------------------
MUTUAL DISCOVERY MUTUAL SHARES
MONEY MARKET FUND SECURITIES FUND SECURITIES FUND
1999 1998 1997 1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $38,805 62,012 35,286 - 5,534 40 - 11,623 72
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges 5,206 7,539 4,368 1,437 2,229 1,140 4,354 6,003 2,067
Administrative charges 1,302 1,885 1,092 359 557 285 1,089 1,501 517
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses 6,508 9,424 5,460 1,796 2,786 1,425 5,443 7,504 2,584
Investment income (loss), net 32,297 52,588 29,826 (1,796) 2,748 (1,385) (5,443) 4,119 (2,512)
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions
on mutual funds - - - - 5,149 - - 10,153 -
Realized gains (losses) on sales
of investments, net - - - 660 5,744 166 9,611 10,137 2,034
- ------------------------------------------------------------------------------------------------------------------------------------
Realized gains (losses)
on investments, net - - - 660 10,893 166 9,611 20,290 2,034
Net change in unrealized appreciation
(depreciation) on investments - - - 49,061 (49,861) 26,719 153,765(35,219) 51,689
- ------------------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses)
and unrealized appreciation
(depreciation) on investments, net - - - 49,721 (38,968) 26,885 163,376(14,929) 53,723
Net increase (decrease) in net
assets from operations $32,297 52,588 29,826 47,925 (36,220) 25,500 157,933(10,810) 51,211
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited 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 PERIOD ENDED JUNE 30, 1999 (UNAUDITED)
AND THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- ------------------------------------------------------------------------------------------------------------------------------------
NATURAL RESOURCES REAL ESTATE
SECURITIES FUND SECURITIES FUND RISING DIVIDENDS FUND
1999 1998 1997 1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ - 2,271 1,844 - 26,119 12,965 - 9,265 5,990
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges 836 461 416 1,584 3,282 3,466 2,310 5,177 3,657
Administrative charges 209 115 104 396 821 867 578 1,294 914
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses 1,045 576 520 1,980 4,103 4,333 2,888 6,471 4,571
Investment income (loss), net (1,045) 1,695 1,324 (1,980) 22,016 8,632 (2,888) 2,794 1,419
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions
on mutual funds - - - - 16,168 6,191 -113,543 10,229
Realized gains (losses) on sales
of investments, net (2,407) (8,058) (1,936) (4,926) 15,172 17,125 1,474 6,199 18,073
- ------------------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on
investments, net (2,407) (8,058) (1,936) (4,926) 31,340 23,316 1,474119,742 28,302
Net change in unrealized appreciation
(depreciation) on investments 40,079 (35,420)(25,118) 35,253 (179,557) 57,737 28,652(77,635) 93,007
- ------------------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses)
and unrealized appreciation
(depreciation) on investments, net 37,672 (43,478)(27,054) 30,327 (148,217) 81,053 30,126 42,107 121,309
Net increase (decrease) in net
assets from operations $36,627 (41,783)(25,730) 28,347 (126,201) 89,685 27,238 44,901 122,728
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited 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 PERIOD ENDED JUNE 30, 1999 (UNAUDITED)
AND THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- ------------------------------------------------------------------------------------------------------------------------------------
TEMPLETON DEVELOPING MARKETS TEMPLETON GLOBAL
SMALL CAP FUND EQUITY FUND ASSET ALLOCATION FUND
1999 1998 1997 1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ - 386 384 - 19,038 10,159 - 10,932 7,863
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges 2,515 3,458 1,277 2,571 2,862 3,802 759 1,629 2,512
Administrative charges 629 865 319 643 715 950 190 407 628
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses 3,144 4,323 1,596 3,214 3,577 4,752 949 2,036 3,140
Investment income (loss), net (3,144) (3,937) (1,212) (3,214) 15,461 5,407 (949) 8,896 4,723
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions
on mutual funds - 49,628 4,546 - 61,907 16,114 - 13,002 2,268
Realized gains (losses) on sales
of investments, net 994 (1,660) 2,723 (28,866) (23,346) 1,960 325 11,507 23,197
- ------------------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on
investments, net 994 47,968 7,269 (28,866) 38,561 18,074 325 24,509 25,465
Net change in unrealized appreciation
(depreciation) on investments 128,377 (48,794) 22,458 217,890 (198,108)(127,265) 11,868(31,637) 11,716
- ------------------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses)
and unrealized appreciation
(depreciation) on investments, net 129,371 (826) 29,727 189,024 (159,547)(109,191) 12,193 (7,128) 37,181
Net increase (decrease) in net
assets from operations $126,227 (4,763) 28,515 185,810 (144,086)(103,784) 11,244 1,768 41,904
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited 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 PERIOD ENDED JUNE 30, 1999 (UNAUDITED)
AND THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- ------------------------------------------------------------------------------------------------------------------------------------
TEMPLETON GLOBAL TEMPLETON GLOBAL TEMPLETON INTERNATIONAL
GROWTH FUND INCOME SECURITIES FUND EQUITY FUND
1999 1998 1997 1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ - 39,344 15,984 - 12,826 10,037 - 55,115 33,230
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges 9,608 9,684 7,051 514 1,127 903 5,035 10,176 8,366
Administrative charges 2,402 2,421 1,763 129 282 226 1,259 2,544 2,092
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses 12,010 12,105 8,814 643 1,409 1,129 6,294 12,720 10,458
Investment income (loss), net (12,010) 27,239 7,170) (643) 11,417 8,908 (6,294)42,395 22,772
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions
on mutual funds - 143,312 5,328 - - - - 110,714 50,952
Realized gains (losses) on sales
of investments, net 18,655 13,548 15,707 (112) (315) 668 17,474 9,119 13,328
- ------------------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on
investments, net 18,655 156,860 21,035 (112) (315) 668 17,474 119,833 64,280
Net change in unrealized appreciation
(depreciation) on investments 222,959 (70,051) 80,562 (10,570) (521) (6,915) 191,377(97,026)25,384
- ------------------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses)
and unrealized appreciation
(depreciation) on investments, net 241,614 86,809 101,597 (10,682) (836) (6,247) 208,851 22,807 89,664
Net increase (decrease) in net
assets from operations $229,604 114,048 108,767 (11,325) 10,581 2,661 202,557 65,202 112,436
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited 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 PERIOD ENDED JUNE 30, 1999 (UNAUDITED)
AND THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- ------------------------------------------------------------------------------------------------------------------------------------
TEMPLETON INTERNATIONAL
SMALLER COMPANIES FUND TEMPLETON PACIFIC GROWTH FUNDU.S. GOVERNMENT SECURITIES FUND
1999 1998 1997 1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ - 488 17 - 10,966 8,455 - 64,457 52,576
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges 85 99 29 1,358 1,388 214 2,811 5,484 5,796
Administrative charges 21 25 7 340 347 53 703 1,371 1,449
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses 106 124 36 1,698 1,735 267 3,514 6,855 7,245
Investment income (loss), net (106) 364 (19) (1,698) 9,231 8,188 (3,514)57,602 45,331
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions
on mutual funds - 565 - - 3,337 - - - -
Realized gains (losses) on sales
of investments, net (60) (121) (2) (7,356) (38,525) 907 1,537 17,179 27,003
- ------------------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on
investments, net (60) 444 (2) (7,356) (35,188) 907 1,537 17,179 27,003
Net change in unrealized appreciation
(depreciation) on investments 3,145 (4,295) (1,075) 87,614 (7,500)(164,185) (14,888)(18,101) 136
- ------------------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses)
and unrealized appreciation
(depreciation) on investments, net 3,085 (3,851) (1,077) 80,258 (42,688)(163,278) (13,351) (922) 27,139
Net increase (decrease) in net
assets from operations $2,979 (3,487) (1,096) 78,560 (33,457)(155,090) (16,865)56,680 72,470
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited 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 PERIOD ENDED JUNE 30, 1999 (UNAUDITED)
AND THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- ------------------------------------------------------------------------------------------------------------------------------------
VALUE SECURITIES FUND ZERO COUPON FUND - 2000 ZERO COUPON FUND - 2005
1999 1998 1997 1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ - - - - 27,976 24,296 - 22,733 25,018
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges - - - 1,060 2,236 2,223 1,075 2,431 2,373
Administrative charges - - - 265 559 556 269 608 593
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses - - - 1,325 2,795 2,779 1,344 3,039 2,966
Investment income (loss), net - - - (1,325) 25,181 21,517 (1,344)19,694 22,052
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions
on mutual funds - - - - 4,476 550 - 5,259 87
Realized gains (losses) on sales
of investments, net (2) (3) - 522 4,953 5,922 680 2,463 11,706
- ------------------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on
investments, net (2) (3) - 522 9,429 6,472 680 7,722 11,793
Net change in unrealized appreciation
(depreciation) on investments 339 (289) - 3,041 (11,643) (6,554) (20,083)13,788 1,480
- ------------------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses)
and unrealized appreciation
(depreciation) on investments, net 337 (292) - 3,563 (2,214) (82) (19,403)21,510 13,273
Net increase (decrease) in net
assets from operations $337 (292) - 2,238 22,967 21,435 (20,747)41,204 35,325
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited 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 PERIOD ENDED JUNE 30, 1999 (UNAUDITED)
AND THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- ------------------------------------------------------------------------------------------------------------------------------------
ZERO COUPON FUND - 2010 TOTAL ALL FUNDS
1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ - 25,369 22,065 38,805 829,763 619,133
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges 1,184 2,862 2,535 68,493 115,794 95,822
Administrative charges 296 716 634 17,127 28,950 23,956
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses 1,480 3,578 3,169 85,620 144,744 119,778
Investment income (loss), net (1,480) 21,791 18,896 (46,815) 685,019 499,355
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions
on mutual funds - 3,510 176 - 873,428 268,254
Realized gains (losses) on sales
of investments, net 557 2,415 1,074 113,061 144,683 324,660
- ------------------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on
investments, net 557 5,925 1,250 113,061 1,018,111 592,914
Net change in unrealized appreciation
(depreciation) on investments (40,761) 27,536 35,571 1,501,003(1,240,497) 548,282
- ------------------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses)
and unrealized appreciation
(depreciation) on investments, net (40,204) 33,461 36,821 1,614,064 (222,386) 1,141,196
Net increase (decrease) in net
assets from operations ($41,684) 55,252 55,717 1,567,249 462,633 1,640,551
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited 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 PERIOD ENDED JUNE 30, 1999 (UNAUDITED)
AND THE YEARS ENDED DECEMBER 31, 1998 AND 1997
GLOBAL HEALTH CARE GLOBAL UTILITIES
CAPITAL GROWTH FUND SECURITIES FUND SECURITIES FUND
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net ($1,771) (776) (113) (126) (67) - (7,739) 50,771 53,883
Realized gains (losses) on investments, net 327 989 (11) (37) 2 - 65,068 149,908 150,746
Net change in unrealized appreciation
(depreciation) on investments 55,912 34,912 (548) (5,740) 1,694 - 103,611 (40,828) 116,553
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations 54,468 35,125 (672) (5,903) 1,629 - 160,940 159,851 321,182
Policy transactions (note 4):
Purchase payments - - - - - - 47,346 104,584 116,828
Transfers between funds 238,728 194,912 94,715 30,027 6,656 - (17,357) (38,007) (67,788)
Surrenders and terminations - - - - - - (27,914) (46,228) (8,311)
Policy loan transactions - - - - - - (31,248) 32,511 (60,609)
Other transactions (note 2) (3,112) (3,276) (429) (749) (20) - (32,961) (65,057) (60,143)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from policy transactions 235,616 191,636 94,286 29,278 6,636 - (62,134) (12,197) (80,023)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 290,084 226,761 93,614 23,375 8,265 - 98,806 147,654 241,159
Net assets at beginning of period 324,793 98,032 4,418 8,265 - - 1,741,751 1,594,097 1,352,938
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period $614,877 324,793 98,032 31,640 8,265 - 1,840,557 1,741,751 1,594,097
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited 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 PERIOD ENDED JUNE 30, 1999 (UNAUDITED)
AND THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- ------------------------------------------------------------------------------------------------------------------------------------
GROWTH AND INCOME FUND HIGH INCOME FUND INCOME SECURITIES FUND
1999 1998 1997 1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net ($11,526) 65,829 43,696 (6,798) 147,388 138,395 (2,279) 100,580 62,457
Realized gains (losses) on investments,net30,147 231,500 134,863 1,993 38,724 48,831 6,803 29,857 22,389
Net change in unrealized appreciation
(depreciation) on investments 215,369 (118,668) 283,057 19,148 (177,480) 4,999 25,585 (115,794) 68,874
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations 233,990 178,661 461,616 14,343 8,632 192,225 30,109 14,643 153,720
Policy transactions (note 4):
Purchase payments 229,514 427,399 387,084 23,172 55,984 50,642 98,765 219,675 255,347
Transfers between funds 227,624 282,965 194,269 155,039 (12,125)(140,178) (25,097) 295,129 46,671
Surrenders and terminations (117,159) (66,385)(271,440) (2,911) (21,000) (67,891) (61,685) (50,336) (11,918)
Policy loan transactions (12,896) (31,446) 3,110 113,408 (168,452) (33,557) (13,162) (12,262) (25,240)
Other transactions (note 2) (111,080)(202,446)(163,700) (22,270) (43,702) (41,580) (53,439) (101,921) (96,044)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from policy transactions 216,003 410,087 149,323 266,438 (189,295)(232,564) (54,618) 350,285 168,816
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 449,993 588,748 610,939 280,781 (180,663) (40,339) (24,509) 364,928 322,536
Net assets at beginning of period 2,905,941 2,317,193 1,706,254 1,653,951 1,834,614 1,874,953 1,557,015 1,192,087 869,551
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period $3,355,934 2,905,941 2,317,193 1,934,732 1,653,951 1,834,614 1,532,506 1,557,015 1,192,087
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited 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 PERIOD ENDED JUNE 30, 1999 (UNAUDITED)
AND THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- ------------------------------------------------------------------------------------------------------------------------------------
MUTUAL DISCOVERY MUTUAL SHARES
MONEY MARKET FUND SECURITIES FUND SECURITIES FUND
1999 1998 1997 1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $32,297 52,588 29,826 (1,796) 2,748 (1,385) (5,443) 4,119 (2,512)
Realized gains (losses) on investments, net - - - 660 10,893 166 9,611 20,290 2,034
Net change in unrealized appreciation
(depreciation) on investments - - - 49,061 (49,861) 26,719 153,765 (35,219) 51,689
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations 32,297 52,588 29,826 47,925 (36,220) 25,500 157,933 (10,810) 51,211
Policy transactions (note 4):
Purchase payments 861,8073,668,9911,996,782 - - - 44,401 74,363 16,585
Transfers between funds (1,025,196)(2,423,871)(2,136,510)(504)155,186 281,309 91,069 214,033 776,453
Surrenders and terminations (2,012) (25,503) (52,158) - - - (2,884) (3,707) -
Rescissions - (29,369) - - - - - - -
Policy loan transactions (46) (9,864) (25,633) (184)(56,263) - 2,078 (111,671) (1,956)
Other transactions (note 2) (18,670) (39,778) 168,886 (5,538) (7,963) (1,893) (27,019) (41,817) (9,654)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from policy transactions (184,117)1,140,606 (48,633) (6,226) 90,960 279,416 107,645 131,201 781,428
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (151,820)1,193,194 (18,807) 41,699 54,740 304,916 265,578 120,391 832,639
Net assets at beginning of period 1,904,136 710,942 729,749 410,124 355,384 50,468 1,038,636 918,245 85,606
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period $1,752,3161,904,136 710,942 451,823 410,124 355,384 1,304,214 1,038,636 918,245
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited 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 PERIOD ENDED JUNE 30, 1999 (UNAUDITED)
AND THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- ------------------------------------------------------------------------------------------------------------------------------------
NATURAL RESOURCES SECURITIES FUNDREAL ESTATE SECURITIES FUNDRISING DIVIDENDS FUND
1999 1998 1997 1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net ($1,045) 1,695 1,324 (1,980) 22,016 8,632 (2,888) 2,794 1,419
Realized gains (losses) on investments, net(2,407)(8,058) (1,936) (4,926) 31,340 23,316 1,474 119,742 28,302
Net change in unrealized appreciation
(depreciation) on investments 40,079 (35,420)(25,118) 35,253 (179,557) 57,737 28,652 (77,635) 93,007
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations 36,627 (41,783)(25,730) 28,347 (126,201) 89,685 27,238 44,901 122,728
Policy transactions (note 4):
Purchase payments 3,791 13,268 15,837 44,333 115,546 92,480 76,244 161,902 108,408
Transfers between funds 13,526 59,479 (5,829) (51,381) 37,909 176,166 93,238 244,722 193,808
Surrenders and terminations (2,427) (5,593) (52) (7,547) (10,028) (2,795) (42,040) (14,872) (17,668)
Policy loan transactions (417) 789 172 (1,049) (4,950)(15,416) (1,345) (4,345) (5,874)
Other transactions (note 2) (3,339) (6,590) (6,922) (27,062) (55,881)(43,348) (46,212) (78,620) (51,398)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from policy transactions 11,134 61,353 3,206 (42,706) 82,596 207,087 79,885 308,787 227,276
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 47,761 19,570 (22,524) (14,359)(43,605) 296,772 107,123 353,688 350,004
Net assets at beginning of period 125,063 105,493 128,017 602,683 646,288 349,516 1,008,603 654,915 304,911
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period $172,824 125,063 105,493 588,324 602,683 646,288 1,115,726 1,008,603 654,915
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited 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 PERIOD ENDED JUNE 30, 1999 (UNAUDITED)
AND THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- ------------------------------------------------------------------------------------------------------------------------------------
TEMPLETON DEVELOPING MARKETS TEMPLETON GLOBAL
SMALL CAP FUND EQUITY FUND ASSET ALLOCATION FUND
1999 1998 1997 1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net ($3,144) (3,937) (1,212) (3,214) 15,461 5,407 (949) 8,896 4,723
Realized gains (losses) on investments, net 994 47,968 7,269 (28,866) 38,561 18,074 325 24,509 25,465
Net change in unrealized appreciation
(depreciation) on investments 128,377 (48,794) 22,458 217,890 (198,108)(127,265) 11,868 (31,637) 11,716
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations 126,227 (4,763) 28,515 185,810 (144,086)(103,784) 11,244 1,768 41,904
Policy transactions (note 4):
Purchase payments 54,769 113,167 44,998 58,308 159,440 191,340 385 1,438 430
Transfers between funds (52,907)400,975 248,658 (32,699) 5,954 2,200 - 5,929 (108,898)
Surrenders and terminations (6,256) (9,697) (965) (8,626) (19,910)(24,839) - - (108)
Policy loan transactions (701) (575) - (3,344) (16,461)(20,884) (249) (77,494) -
Other transactions (note 2) (29,172)(47,188)(19,801) (27,120) (56,866)(77,790) (2,867) (4,852) (5,240)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from policy transactions (34,267)456,682 272,890 (13,481) 72,157 70,027 (2,731) (74,979)(113,816)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 91,960 451,919 301,405 172,329 (71,929)(33,757) 8,513 (73,211) (71,912)
Net assets at beginning of period 809,760 357,841 56,436 563,460 635,389 669,146 238,598 311,809 383,721
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period $901,720 809,760 357,841 735,789 563,460 635,389 247,11 238,59 311,809
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited 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 PERIOD ENDED JUNE 30, 1999 (UNAUDITED)
AND THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- -----------------------------------------------------------------------------------------------------------------------------------
TEMPLETON GLOBAL TEMPLETON GLOBAL TEMPLETON INTERNATIONAL
GROWTH FUND INCOME SECURITIES FUND EQUITY FUND
1999 1998 1997 1999 1998 1997 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net ($12,010) 27,239 7,170 (643) 11,417 8,908 (6,294) 42,395 22,772
Realized gains (losses) on investments,net18,655 156,860 21,035 (112) (315) 668 17,474 119,833 64,280
Net change in unrealized appreciation
(depreciation) on investments 222,959 (70,051) 80,562 (10,570) (521) (6,915) 191,377 (97,026) 25,384
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations 229,604 114,048 108,767 (11,325) 10,581 2,661 202,557 65,202 112,436
Policy transactions (note 4):
Purchase payments 148,576 318,275 317,636 19,294 43,650 42,795 154,352 343,054 359,829
Transfers between funds 230,787 262,188 272,672 21,007 8,645 (1,929) (78,909) 214,070 170,913
Surrenders and terminations (73,760)(42,480) (35,910) (2,732) (2,203) (1,422) (73,702) (77,537) (30,410)
Policy loan transactions (9,188)(11,353) (19,640) (2,066) (4,262) (2,728) (15,883) (14,359) (37,789)
Other transactions (note 2) (71,826)(144,669)(131,055)(10,458)(18,506)(17,463) (77,001) (150,458)(138,095)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from policy transactions 224,589 381,961 403,703 25,045 27,324 19,253 (91,143) 314,770 324,448
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 454,193 496,009 512,470 13,720 37,905 21,914 111,414 379,972 436,884
Net assets at beginning of period 1,783,3711,287,362 774,892 189,335 151,430 129,516 1,826,865 1,446,893 1,010,009
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period $2,237,564 1,783,371 1,287,362 203,055 189,335 151,430 1,938,279 1,826,865 1,446,893
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited 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 PERIOD ENDED JUNE 30, 1999 (UNAUDITED)
AND THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- ------------------------------------------------------------------------------------------------------------------------------------
TEMPLETON INTERNATIONAL
SMALLER COMPANIES FUND TEMPLETON PACIFIC GROWTH FUNDU.S. GOVERNMENT SECURITIES FUND
1999 1998 1997 1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net ($106) 364 (19) (1,698) 9,231 8,188 (3,514)57,602 45,331
Realized gains (losses) on investments, net (60) 444 (2) (7,356)(35,188) 907 1,537 17,179 27,003
Net change in unrealized appreciation
(depreciation) on investments 3,145 (4,295) (1,075) 87,614 (7,500)(164,185) (14,888)(18,101) 136
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations 2,979 (3,487) (1,096) 78,560 (33,457)(155,090) (16,865)56,680 72,470
Policy transactions (note 4):
Purchase payments - - - 35,040 91,236 134,478 18,910 36,225 40,913
Transfers between funds - 9,480 13,608 (1,612) (25,732)(41,449) 131,807 2,433 (108,226)
Surrenders and terminations - - - (2,145) (15,757)(10,217) (3,173)(28,787)(20,318)
Policy loan transactions - - - 450 (2,091)(13,651) (2,969)(7,674) ( 7,823)
Other transactions (note 2) (222) (360) (42) (16,524) (29,702)(52,839) (15,980)(28,339)(27,460)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from policy transactions (222) 9,120 13,566 15,209 17,954 16,322 128,595(26,142)(122,914)
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 2,757 5,633 12,470 93,769 (15,503)(138,768) 111,730 30,538 (50,444)
Net assets at beginning of period 18,103 12,470 - 274,322 289,825 428,593 908,236877,698 928,142
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period $20,860 18,103 12,470 368,091 274,322 289,825 1,019,966908,236 877,698
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited 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 PERIOD ENDED JUNE 30, 1999 (UNAUDITED)
AND THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- -----------------------------------------------------------------------------------------------------------------------------------
VALUE SECURITIES FUND ZERO COUPON FUND - 2000 ZERO COUPON FUND - 2005
1999 1998 1997 1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ - - - (1,325) 25,181 21,517 (1,344)19,694 22,052
Realized gains (losses) on investments, net (2) (3) - 522 9,429 6,472 680 7,722 11,793
Net change in unrealized appreciation
(depreciation) on investments 339 (289) - 3,041 (11,643) (6,554) (20,083)13,788 1,480
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations 337 (292) - 2,238 22,967 21,435 (20,747)41,204 35,325
Policy transactions (note 4):
Purchase payments - - - - - - - - -
Transfers between funds - 3,405 - - - (17,434) - - (61,213)
Surrenders and terminations - - - - (9,045) - - - -
Policy loan transactions - - - (539) (7,106) (73) - - -
Other transactions (note 2) (41) (15) - (1,771) (4,490) (4,421) (2,291)(4,874) (4,798)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from policy transactions (41) 3,390 - (2,310) (20,641)(21,928) (2,291)(4,874)(66,011)
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 296 3,098 - (72) 2,326 (493) (23,038)36,330 (30,686)
Net assets at beginning of period 3,098 - - 352,556 350,230 350,723 390,967 354,637 385,323
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period $3,394 3,098 - 352,484 352,556 350,230 367,929 390,967 354,637
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited 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 PERIOD ENDED JUNE 30, 1999 (UNAUDITED)
AND THE YEARS ENDED DECEMBER 31, 1998 AND 1997
ZERO COUPON FUND - 2010 TOTAL ALL FUNDS
- -----------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net ($1,480) 21,791 18,896 (46,815) 685,019 499,355
Realized gains (losses) on investments, net 557 5,925 1,250 113,061 1,018,111 592,914
Net change in unrealized appreciation
(depreciation) on investments (40,761) 27,536 35,571 1,501,003 (1,240,497) 548,282
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations (41,684) 55,252 55,717 1,567,249 462,633 1,640,551
Policy transactions (note 4):
Purchase payments - - - 1,919,007 5,948,197 4,172,412
Transfers between funds - - 3,652 (52,810) (95,665) (214,360)
Surrenders and terminations - - - (436,973) (449,068) (556,422)
Rescissions - - - - (29,369) -
Policy loan transactions (211) (1,739) (183) 20,439 (509,067) (267,774)
Other transactions (note 2) (3,266) (6,849) (5,717) (609,990) (1,144,239) (790,946)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from policy transactions (3,477) (8,588) (2,248) 839,673 3,720,789 2,342,910
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (45,161) 46,664 53,469 2,406,922 4,183,422 3,983,461
Net assets at beginning of period 456,187 409,523 356,054 21,095,819 16,912,397 12,928,936
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period $411,026 456,187 409,523 23,502,741 21,095,819 16,912,397
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT A
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements
June 30, 1999 (unaudited)
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. 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.
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT A OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH
AMERICA Notes to Financial Statements (CONTINUED) June 30, 1999 (unaudited)
2.SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 period
ended June 30, 1999 (unaudited) and the years ended December 31, 1998 and 1997
were $513,638, $939,693 and $832,417, 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 period ended June 30,
1999 (unaudited) and the years ended December 31, 1998 and 1997 were $25,133,
$40,600, and $37,629, 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 period ended June
30, 1999 (unaudited) and the years ended December 31, 1998 and 1997 were
$89,315, $213,159, and $211,485, 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 period ended June 30, 1999 (unaudited) and the
years ended December 31, 1998 and 1997, respectively. Net transfers to the Fixed
Account during the period ended June 30, 1999 (unaudited) and the years ended
December 31, 1998 and 1997 were $52,810, $95,665, and $214,360, 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>
ALLIANZ LIFE VARIABLE ACCOUNT A of ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Financial Statements (CONTINUED)
June 30, 1999 (unaudited)
4.POLICY TRANSACTIONS - UNIT ACTIVITY
Transactions in units for each fund for the period ended June 30, 1999 (unaudited) and the years ended December 31, 1998 and 1997,
were as follows:
GLOBAL GLOBAL ` MUTUAL MUTUAL
CAPITALHEALTHCAREUTILITIESGROWTHAND HIGH INCOME MONEY DISCOVERY SHARES
GROWTHSECURITIESSECURITIESINCOME INCOMESECURITIES MARKET SECURITIESSECURITIES
FUND FUND FUND FUND FUND FUND FUND FUND FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Units outstanding at December 31, 1996 391 - 54,519 54,351 84,503 39,985 46,930 4,95 8,280
Policy transactions:
Purchase payments - - 4,451 10,974 2,141 11,090 125,344 - 1,460
Transfers between funds 7,029 - (2,894) 5,516 (5,679) 1,881(120,861) 24,650 67,284
Surrenders and terminations - - (304) (7,932) (3,022) (513) (3,267) - -
Policy loan transactions - - (2,428) (68) (1,471) (1,113) (1,621) - (184)
Other transactions (34) - (2,288) (4,624) (1,789) (4,161) (2,758) (164) (841)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in units
resulting from policy transactions 6,995 - (3,463) 3,866 (9,820) 7,184 (3,163) 24,486 67,719
Units outstanding at December 31, 1997 7,386 - 51,056 58,217 74,683 47,169 43,767 29,439 75,999
===================================================================================================================================
Policy transactions:
Purchase payments - - 3,254 10,356 2,263 8,710 216,819 - 6,140
Transfers between funds 13,340 778 (1,327) 6,612 (511) 11,713(142,026) 11,424 16,707
Surrenders and terminations - - (1,451) (1,628) (852) (1,996) (1,535) - (307)
Rescissions - - - - - - (1,784) - -
Policy loan transactions - - 1,042 (754) (6,603) (481) (599) (4,187) (8,559)
Other transactions (230) (2) (2,025) (4,902) (1,762) (4,044) (2,394) (647) (3,446)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in units
resulting from policy transactions 13,110 776 (507) 9,684 (7,465) 13,902 68,481 6,590 10,535
- -----------------------------------------------------------------------------------------------------------------------------------
Units outstanding at December 31, 1998 20,496 776 50,549 67,901 67,218 61,071 112,248 36,029 86,534
====================================================================================================================================
Policy transactions (unaudited):
Purchase payments - - 1,369 5,290 932 3,909 47,170 - 3,498
Transfers between funds 14,371 2,801 (100) 5,287 6,242 (814)(56,787) 1 7,372
Surrenders and terminations - - (782) (2,662) (118) (2,396) (118) - (226)
Policy loan transactions - - (909) (300) 4,544 (516) (3) (15) 153
Other transactions (191) (77) (962) (2,544) (893) (1,971) (1,088) (458) (2,117)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in units
resulting from policy transactions 14,180 2,724 (1,384) 5,071 10,707 (1,788)(10,826) (472) 8,680
- -----------------------------------------------------------------------------------------------------------------------------------
Units outstanding at June 30, 1999(unaudited)34,676 3,500 49,165 72,972 77,925 59,283 101,422 35,557 95,214
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT A OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Financial Statements (CONTINUED)
June 30, 1999 (unaudited)
4.POLICY TRANSACTIONS - UNIT ACTIVITY (CONTINUED)
TEMPLETONTEMPLETON TEMPLETONTEMPLETON
NATURAL REAL DEVELOPINGGLOBAL TEMPLETON GLOBAL INTER-
RESOURCESESTATE RISING SMALL MARKETS ASSET GLOBAL INCOME NATIONAL
SECURITIESSECURITIESDIVIDENDS CAP EQUITYALLOCATION GROWTH SECURITIES EQUITY
FUND FUND FUND FUND FUND FUND FUND FUND FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Units outstanding at December 31, 1996 8,152 12,678 19,304 4,338 59,260 30,332 58,157 7,75 60,849
Policy transactions:
Purchase payments 1,090 3,106 5,847 3,088 15,655 31 21,703 2,567 19,816
Transfers between funds (400) 5,867 10,275 17,595 (2,887) (7,728) 18,498 (108) 9,327
Surrenders and terminations (6) (93) (909) (74) (1,900) (9) (2,308) (85) (1,686)
Policy loan transactions (7) (534) (334) - (1,728) - (1,348) (164) (2,099)
Other transactions (475) (1,455) (2,780) (1,348) (6,291) (396) (8,935) (1,050) (7,573)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in units
resulting from policy transactions 202 6,891 12,099 19,261 2,849 (8,102) 27,610 1,160 17,785
Units outstanding at December 31, 1997 8,354 19,569 31,403 23,599 62,109 22,230 85,767 8,916 78,634
- -----------------------------------------------------------------------------------------------------------------------------------
Policy transactions:
Purchase payments 1,227 3,889 7,667 7,774 18,632 102 20,228 2,504 17,692
Transfers between funds 4,888 1,042 11,079 26,906 714 445 16,458 502 10,775
Surrenders and terminations (544) (354) (668) (631) (2,188) - (2,700) (129) (3,966)
Policy loan transactions 57 (163) (199) (47) (1,902) (5,298) (677) (244) (733)
Other transactions (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 5,019 2,534 14,168 30,736 8,684 (5,086) 24,080 1,571 16,127
Units outstanding at December 31, 1998 13,373 22,103 45,571 54,335 70,793 17,144 109,847 10,487 94,761
- -----------------------------------------------------------------------------------------------------------------------------------
Policy transactions (unaudited):
Purchase payments 374 1,630 3,604 3,565 6,668 28 8,862 1,094 7,769
Transfers between funds 1,202 (1,916) 4,272 (3,424) (4,870) - 13,976 1,194 (3,833)
Surrenders and terminations (210) (272) (2,052) (424) (923) - (4,097) (157) (3,549)
Policy loan transactions (42) (37) (61) (46) (383) (17) (540) (113) (770)
Other transactions (340) (984) (2,121) (1,863) (3,004) (203) (4,514) (596) (3,794)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in units
resulting from policy transactions 984 (1,579) 3,642 (2,192) (2,512) (192) 13,687 1,422 (4,177)
Units outstanding at June 30, 1999(unaudited 14,357 20,524 49,213 52,143 68,281 16,952 123,534 11,909 90,584
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT A OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Financial Statements (CONTINUED)
June 30, 1999 (unaudited)
4.POLICY TRANSACTIONS - UNIT ACTIVITY (CONTINUED)
TEMPLETON
INTERNATIONALTEMPLETONU.S. ZERO ZERO ZERO
SMALLER PACIFICGOVERNMENT VALUE COUPON COUPON COUPON TOTAL
COMPANIES GROWTH SECURITIESSECURITIESFUND - 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, 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
- ------------------------------------------------------------------------------------------------------------------------------------
Policy transactions (unaudited):
Purchase payments - 3,876 799 - - - - 100,437
Transfers between funds - (401) 5,567 - - - - (9,860)
Surrenders and terminations - (222) (137) - - - - (18,345)
Policy loan transactions - 44 (126) - (20) - (6) 837
Other transactions (23) (1,804) (674) (3) (65) (72) (89) (30,450)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in units
resulting from policy transactions (23) 1,493 5,429 (3) (85) (72) (95) 42,619
Units outstanding at June 30, 1999 (unaudited) 1,876 33,967 43,662 396 12,931 11,706 11,502 1,093,251
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT A OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Financial Statements (CONTINUED)
June 30, 1999 (unaudited)
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 the six-month period ended June 30, 1999 (unaudited) and each of the five years in the period ended December
31, 1998 follows.
RATIO OF
EXPENSES
UNITS TO AVERAGE
OUTSTANDING UNIT VALUE NET ASSETS NET ASSETS*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CAPITAL GROWTH FUND
June 30, 1999 (unaudited) 34,676 $17.732 $614,877 1.52%
December 31,
1998 20,496 15.847 324,793 1.52
1997 7,386 13.273 98,032 1.52
19961 391 11.303 4,418 1.52
GLOBAL HEALTH CARE SECURITIES FUND
June 30, 1999 (unaudited) 3,500 9.041 31,640 1.56
December 31, 19982 776 10.656 8,265 1.59
GLOBAL UTILITIES SECURITIES FUND
June 30, 1999 (unaudited) 49,165 37.436 1,840,557 1.26
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
June 30, 1999 (unaudited) 72,972 45.989 3,355,934 1.24
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
June 30, 1999 (unaudited) 77,925 24.828 1,934,732 1.30
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>
ALLIANZ LIFE VARIABLE ACCOUNT A OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Financial Statements (CONTINUED)
June 30, 1999 (unaudited)
5.UNIT VALUES (CONTINUED)
RATIO OF
EXPENSES
UNITS TO AVERAGE
OUTSTANDING UNIT VALUE NET ASSETS NET ASSETS*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income Securities Fund
June 30, 1999 (unaudited) 59,283 $25.852 $1,532,506 1.27%
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
MONEY MARKET FUND
June 30, 1999 (unaudited) 101,422 17.277 1,752,316 1.27
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
June 30, 1999 (unaudited) 35,557 12.707 451,823 1.73
December 31,
1998 36,029 11.383 410,124 1.75
1997 29,439 12.072 355,384 1.81
19963 4,953 10.190 50,468 2.12
MUTUAL SHARES SECURITIES FUND
June 30, 1999 (unaudited) 95,214 13.697 1,304,214 1.53
December 31,
1998 86,534 12.002 1,038,636 1.52
1997 75,999 12.082 918,245 1.55
19963 8,280 10.339 85,606 1.75
NATURAL RESOURCES SECURITIES FUND
June 30, 1999 (unaudited) 14,357 12.040 172,824 1.42
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>
ALLIANZ LIFE VARIABLE ACCOUNT A OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Financial Statements (CONTINUED)
June 30, 1999 (unaudited)
5.UNIT VALUES (CONTINUED)
RATIO OF
EXPENSES
UNITS TO AVERAGE
OUTSTANDING UNIT VALUE NET ASSETS NET ASSETS*
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REAL ESTATE SECURITIES FUND
June 30, 1999 (unaudited) 20,524 $28.665 $588,324 1.32%
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
June 30, 1999 (unaudited) 49,213 22.671 1,115,726 1.49
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
June 30, 1999 (unaudited) 52,143 17.294 901,720 1.55
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
19954 - 10.157 - 1.65
TEMPLETON DEVELOPING MARKETS EQUITY FUND
June 30, 1999 (unaudited) 68,281 10.776 735,789 2.15
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
19945 6,099 9.173 55,951 2.28
TEMPLETON GLOBAL ASSET ALLOCATION FUND
June 30, 1999 (unaudited) 16,952 14.576 247,111 1.58
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
19956 21 10.637 220 1.65
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT A OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Financial Statements (CONTINUED)
June 30, 1999 (unaudited)
5.UNIT VALUES (CONTINUED)
RATIO OF
EXPENSES
UNITS TO AVERAGE
OUTSTANDING UNIT VALUE NET ASSETS NET ASSETS*
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TEMPLETON GLOBAL GROWTH FUND
June 30, 1999 (unaudited) 123,534 $18.113 $2,237,564 1.63%
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
19945 6,748 9.894 66,760 1.89
TEMPLETON GLOBAL INCOME SECURITIES FUND
June 30, 1999 (unaudited) 11,909 17.049 203,055 1.41
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
June 30, 1999 (unaudited) 90,584 21.397 1,938,279 1.66
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
June 30, 1999 (unaudited) 1,876 11.113 20,860 1.88
December 31,
1998 1,899 9.528 18,103 1.85
1997 1,139 10.943 12,470 1.81
19961 - 11.194 - 1.53
TEMPLETON PACIFIC GROWTH FUND
June 30, 1999 (unaudited) 33,967 10.837 368,091 1.84
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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT A OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Financial Statements (CONTINUED)
June 30, 1999 (unaudited)
5.UNIT VALUES (CONTINUED)
RATIO OF
EXPENSES
UNITS TO AVERAGE
OUTSTANDING UNIT VALUE NET ASSETS NET ASSETS*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT SECURITIES FUND
June 30, 1999 (unaudited) 43,662 $23.360 $1,019,966 1.29%
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
June 30, 1999 (unaudited) 396 8.565 3,394 1.62
December 31,
19982 399 7.751 3,098 1.87
ZERO COUPON FUND - 2000
June 30, 1999 (unaudited) 12,931 27.259 352,484 1.41
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
June 30, 1999 (unaudited) 11,706 31.432 367,929 1.41
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
June 30, 1999 (unaudited) 11,502 35.734 411,026 1.41
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
* For the period ended June 30, 1999 (unaudited) or the year ended December 31, including the effect of the expenses of the
underlying funds.
<FN>
U Annualized.
1 Period from May 1, 1996 (fund commencement) to December 31, 1996. 2 Period from May 1, 1998 (fund commencement) to December 31,
1998. 3 Period from November 8, 1996 (fund commencement) to December 31, 1996. 4 Period from November 1, 1995 (fund commencement)
to December 31, 1995. 5 Period from July 1, 1994 (fund commencement) to December 31, 1994. 6 Period from May 1, 1995 (fund
commencement) to December 31, 1995.
</FN>
</TABLE>
<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>
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 de ductions against the Policy. These
tables assume that the cost of insurance rates for the Policy are based on the
cur rent 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 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
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> <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 IN VEST MENT 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 LIFE OR THE FUND 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
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 IN VEST MENT 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 LIFE OR THE FUNDS 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
VALUEMARK
SINGLE PREMIUM VARIABLE LIFE INSURANCE
FEMALE NON-SMOKER
Initial Face Amount: $448,956 Single Premium: $100,000
Issue Age: 35 State: MN
- ------------------------------------------------------------------------------------------------------------------------------------
Summaryof 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 IN VEST MENT 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 LIFE OR THE FUND THAT THIS ASSUMED INVESTMENT RATE OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
</FN>
</TABLE>
<TABLE>
<CAPTION>
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA DESIGNED FOR: JOHN DOE
MINNEAPOLIS, MINNESOTA PREPARED BY: ANY REPRESENTATIVE
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 IN VEST MENT 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 LIFE OR THE FUND 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
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 IN VEST MENT 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 LIFE OR THE FUND 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
VALUEMARK
SINGLE PREMIUM VARIABLE LIFE INSURANCE
MALE NON-SMOKER
Initial Face Amount: $400,205 Single Premium: $100,000
Issue Age: 35 State: MN
- -----------------------------------------------------------------------------------------------------------------------------------
Summaryof 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 LIFE OR THE FUND 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 122 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.(i)Form of Fund Participation Agreement between AIM Variable
Insurance Funds, Inc., Allianz Life Insurance Company of North
America and NALAC Financial Plans LLC.
(ii)Form of Fund Participation Agreement between Alger American Fund,
Allianz Life Insurance Company of North America and Fred Alger and
Company.
(iii)Form of Fund Participation Agreement between USAllianz Variable
Insurance Products Trust, Allianz Life Insurance Company of North
America and BISYS Fund Services Limited Partnership.
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
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 8th day of November, 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>
Lowell C. Anderson* Chairman of the Board 11-08-99
Lowell C. Anderson
Robert W. MacDonald* Director and 11-08-99
Robert W. MacDonald Chief Executive Officer
Margery G. Hughes President and 11-08-99
Margery G. Hughes Chief Administrative Officer
Mark A. Zesbaugh Chief Financial Officer 11-08-99
Mark A. Zesbaugh Senior Vice President
Herbert F. Hansmeyer* Director 11-08-99
Herbert F. Hansmeyer
Michael P. Sullivan* Director 11-08-99
Michael P. Sullivan
Dr. Gerhard Rupprecht* Director 11-08-99
Dr. Gerhard Rupprecht
Rev. Dennis Dease* Director 11-08-99
Rev. Dennis Dease
James R. Campbell* Director 11-08-99
James R. Campbell
Robert M. Kimmitt* Director 11-08-99
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. 23
TO
FORM S-6
ALLIANZ LIFE VARIABLE ACCOUNT A
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
INDEX TO EXHIBITS
Exhibit
EX99.A9b(i) Form of Fund Participation Agreement-AIM
EX99.A9b(ii) Form of Fund Participation Agreement-Alger
EX99.A9b(iii) Form of Fund Participation Agreement-USAllianz
EX99.A13 Powers of Attorney
EX99.B Opinion and Consent of Counsel
EX99.D Independent Auditors' Consent
PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE FUNDS, INC.,
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS,
AND
NALAC FINANCIAL PLANS, LLC
PA-ALZ_AGR.doc
071599 (2) dmr
<PAGE>
TABLE OF CONTENTS
DESCRIPTION PAGE
- ----------- ----
Section 1. Available Funds....................................................2
1.1 Availability.................................................2
1.2 Addition, Deletion or Modification of Funds..................2
1.3 No Sales to the General Public...............................2
Section 2. Processing Transactions............................................2
2.1 Timely Pricing and Orders....................................2
2.2 Timely Payments..............................................3
2.3 Applicable Price.............................................3
2.4 Dividends and Distributions..................................4
2.5 Book Entry...................................................4
Section 3. Costs and Expenses.................................................4
3.1 General......................................................4
3.2 Parties To Cooperate.........................................4
Section 4. Legal Compliance...................................................4
4.1 Tax Laws.....................................................4
4.2 Insurance and Certain Other Laws.............................7
4.3 Securities Laws..............................................7
4.4 Notice of Certain Proceedings and Other Circumstances........8
4.5 LIFE COMPANY To Provide Documents; Information About AVIF....9
4.6 AVIF To Provide Documents; Information About LIFE COMPANY...10
Section 5. Mixed and Shared Funding..........................................11
5.1 General.....................................................11
5.2 Disinterested Directors.....................................12
5.3 Monitoring for Material Irreconcilable Conflicts............12
5.4 Conflict Remedies...........................................13
5.5 Notice to LIFE COMPANY......................................14
5.6 Information Requested by Board of Directors.................14
5.7 Compliance with SEC Rules...................................14
5.8 Other Requirements..........................................15
Section 6. Termination.......................................................15
6.1 Events of Termination.......................................15
6.2 Notice Requirement for Termination..........................16
6.3 Funds To Remain Available...................................16
6.4 Survival of Warranties and Indemnifications.................17
6.5 Continuance of Agreement for Certain Purposes...............17
Section 7. Parties To Cooperate Respecting Termination.......................17
Section 8. Assignment........................................................17
Section 9. Notices...........................................................17
Section 10. Voting Procedures................................................18
Section 11. Foreign Tax Credits..............................................19
Section 12. Indemnification..................................................19
12.1 Of AVIF by LIFE COMPANY and UNDERWRITER.....................19
12.2 Of A LIFE COMPANY and UNDERWRITER by AVIF...................21
12.3 Effect of Notice............................................23
12.4 Successors..................................................24
Section 13. Applicable Law...................................................24
Section 14. Execution in Counterparts........................................24
Section 15. Severability.....................................................24
Section 16. Rights Cumulative................................................24
Section 17. Headings.........................................................24
Section 18. Confidentiality..................................................24
Section 19. Trademarks and Fund Names........................................25
Section 20. Parties to Cooperate.............................................26
Section 21. Amendments.......................................................26
<PAGE>
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the 27th day of July,
1999 ("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland
corporation ("AVIF"), Allianz Life Insurance Company of North America, a
Minnesota life insurance company (ALIFE COMPANY@), on behalf of itself and each
of its segregated asset accounts listed in Schedule A hereto, as the parties
hereto may amend from time to time (each, an "Account," and collectively, the
"Accounts"); and NALAC Financial Plans, LLC, an affiliate of LIFE COMPANY and
the principal underwriter of the Contracts ("UNDERWRITER") (collectively, the
AParties@).
WITNESSETH THAT:
WHEREAS, AVIF is registered with the Securities and Exchange Commission
("SEC") as an open-end management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, AVIF currently consists of fifteen separate series ("Series"),
shares ("Shares") of each of which are registered under the Securities Act of
1933, as amended (the "1933 Act") and are currently sold to one or more separate
accounts of life insurance companies to fund benefits under variable annuity
contracts and variable life insurance contracts; and
WHEREAS, AVIF will make Shares of each Series listed on Schedule A
hereto as the Parties hereto may amend from time to time (each a "Fund";
reference herein to "AVIF" includes reference to each Fund, to the extent the
context requires) available for purchase by the Accounts; and
WHEREAS, LIFE COMPANY will be the issuer of certain variable annuity
contracts and variable life insurance contracts ("Contracts") as set forth on
Schedule A hereto, as the Parties hereto may amend from time to time, which
Contracts (hereinafter collectively, the "Contracts"), if required by applicable
law, will be registered under the 1933 Act; and
WHEREAS, LIFE COMPANY will fund the Contracts through the Accounts,
each of which may be divided into two or more subaccounts ("Subaccounts";
reference herein to an "Account" includes reference to each Subaccount thereof
to the extent the context requires); and
WHEREAS, LIFE COMPANY will serve as the depositor of the Accounts, each
of which is registered as a unit investment trust investment company under the
1940 Act (or exempt therefrom), and the security interests deemed to be issued
by the Accounts under the Contracts will be registered as securities under the
1933 Act (or exempt therefrom); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, LIFE COMPANY intends to purchase Shares in one or more of the Funds
on behalf of the Accounts to fund the Contracts; and
WHEREAS, UNDERWRITER is a broker-dealer registered with the SEC under
the Securities Exchange Act of 1934 ("1934 Act") and a member in good standing
of the National Association of Securities Dealers, Inc. ("NASD");
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Parties hereto agree as follows:
SECTION 1. AVAILABLE FUNDS
1.1 AVAILABILITY.
AVIF will make Shares of each Fund available to LIFE COMPANY for
purchase and redemption at net asset value and with no sales charges, subject to
the terms and conditions of this Agreement. The Board of Directors of AVIF may
refuse to sell Shares of any Fund to any person, or suspend or terminate the
offering of Shares of any Fund if such action is required by law or by
regulatory authorities having jurisdiction or if, in the sole discretion of the
Directors acting in good faith and in light of their fiduciary duties under
federal and any applicable state laws, such action is deemed in the best
interests of the shareholders of such Fund.
1.2 ADDITION, DELETION OR MODIFICATION OF FUNDS.
The Parties hereto may agree, from time to time, to add other Funds to
provide additional funding media for the Contracts, or to delete, combine, or
modify existing Funds, by amending Schedule A hereto. Upon such amendment to
Schedule A, any applicable reference to a Fund, AVIF, or its Shares herein shall
include a reference to any such additional Fund. Schedule A, as amended from
time to time, is incorporated herein by reference and is a part hereof.
1.3 NO SALES TO THE GENERAL PUBLIC.
AVIF represents and warrants that no Shares of any Fund have been or
will be sold to the general public.
SECTION 2. PROCESSING TRANSACTIONS
2.1 TIMELY PRICING AND ORDERS.
(a) AVIF or its designated agent will use its best efforts to provide
LIFE COMPANY with the net asset value per Share for each Fund by 6:00 p.m.
Central Time on each Business Day. As used herein, "Business Day" shall mean any
day on which (i) the New York Stock Exchange is open for regular trading, (ii)
AVIF calculates the Fund's net asset value, and (iii) LIFE COMPANY is open for
business.
(b) LIFE COMPANY will use the data provided by AVIF each Business Day
pursuant to paragraph (a) immediately above to calculate Account unit values and
to process transactions that receive that same Business Day's Account unit
values. LIFE COMPANY will perform such Account processing the same Business Day,
and will place corresponding orders to purchase or redeem Shares with AVIF by
9:00 a.m. Central Time the following Business Day; provided, however, that AVIF
shall provide additional time to LIFE COMPANY in the event that AVIF is unable
to meet the 6:00 p.m. time stated in paragraph (a) immediately above. Such
additional time shall be equal to the additional time that AVIF takes to make
the net asset values available to LIFE COMPANY.
(c) With respect to payment of the purchase price by LIFE COMPANY and
of redemption proceeds by AVIF, LIFE COMPANY and AVIF shall net purchase and
redemption orders with respect to each Fund and shall transmit one net payment
per Fund in accordance with Section 2.2, below.
(d) If AVIF provides materially incorrect Share net asset value
information (as determined under SEC guidelines), LIFE COMPANY shall be entitled
to an adjustment to the number of Shares purchased or redeemed to reflect the
correct net asset value per Share. Any material error in the calculation or
reporting of net asset value per Share, dividend or capital gain information
shall be reported promptly upon discovery to LIFE COMPANY.
2.2 TIMELY PAYMENTS.
LIFE COMPANY will wire payment for net purchases to a custodial account
designated by AVIF by 1:00 p.m. Central Time on the same day as the order for
Shares is placed, to the extent practicable. AVIF will wire payment for net
redemptions to an account designated by LIFE COMPANY by 1:00 p.m. Central Time
on the same day as the Order is placed, to the extent practicable, but in any
event within five (5) calendar days after the date the order is placed in order
to enable LIFE COMPANY to pay redemption proceeds within the time specified in
Section 22(e) of the 1940 Act or such shorter period of time as may be required
by law.
2.3 APPLICABLE PRICE.
(a) Share purchase payments and redemption orders that result from
purchase payments, premium payments, surrenders and other transactions under
Contracts (collectively, "Contract transactions") and that LIFE COMPANY receives
prior to the close of regular trading on the New York Stock Exchange on a
Business Day will be executed at the net asset values of the appropriate Funds
next computed after receipt by AVIF or its designated agent of the orders. For
purposes of this Section 2.3(a), LIFE COMPANY shall be the designated agent of
AVIF for receipt of orders relating to Contract transactions on each Business
Day and receipt by such designated agent shall constitute receipt by AVIF;
provided that AVIF receives notice of such orders by 9:00 a.m. Central Time on
the next following Business Day or such later time as computed in accordance
with Section 2.1(b) hereof.
(b) All other Share purchases and redemptions by LIFE COMPANY will be
effected at the net asset values of the appropriate Funds next computed after
receipt by AVIF or its designated agent of the order therefor, and such orders
will be irrevocable.
2.4 DIVIDENDS AND DISTRIBUTIONS.
AVIF will furnish notice by wire or telephone (followed by written
confirmation) on or prior to the payment date to LIFE COMPANY of any income
dividends or capital gain distributions payable on the Shares of any Fund. LIFE
COMPANY hereby elects to reinvest all dividends and capital gains distributions
in additional Shares of the corresponding Fund at the ex-dividend date net asset
values until LIFE COMPANY otherwise notifies AVIF in writing, it being agreed by
the Parties that the ex-dividend date and the payment date with respect to any
dividend or distribution will be the same Business Day. LIFE COMPANY reserves
the right to revoke this election and to receive all such income dividends and
capital gain distributions in cash.
2.5 BOOK ENTRY.
Issuance and transfer of AVIF Shares will be by book entry only. Stock
certificates will not be issued to LIFE COMPANY. Shares ordered from AVIF will
be recorded in an appropriate title for LIFE COMPANY, on behalf of its Account.
SECTION 3. COSTS AND EXPENSES
3.1 GENERAL.
Except as otherwise specifically provided in Schedule B, attached
hereto and made a part hereof, each Party will bear, or arrange for others to
bear, all expenses incident to its performance under this Agreement.
3.2 PARTIES TO COOPERATE.
Each Party agrees to cooperate with the others, as applicable, in
arranging to print, mail and/or deliver, in a timely manner, combined or
coordinated prospectuses or other materials of AVIF and the Accounts.
SECTION 4. LEGAL COMPLIANCE
4.1 TAX LAWS.
(a) AVIF represents and warrants that each Fund is currently qualified
as a regulated investment company ("RIC") under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), and represents that it will use
its best efforts to qualify and to maintain qualification of each Fund as a RIC.
AVIF will notify LIFE COMPANY immediately upon having a reasonable basis for
believing that a Fund has ceased to so qualify or that it might not so qualify
in the future.
(b) AVIF represents that it will use its best efforts to comply and to
maintain each Fund's compliance with the diversification requirements set forth
in Section 817(h) of the Code and Section 1.817-5(b) of the regulations under
the Code. AVIF will notify LIFE COMPANY immediately upon having a reasonable
basis for believing that a Fund has ceased to so comply or that a Fund might not
so comply in the future. In the event of a breach of this Section 4.1(b) by
AVIF, it will take all reasonable steps to adequately diversify the Fund so as
to achieve compliance within the grace period afforded by Section 1.817-5 of the
regulations under the Code.
(c) LIFE COMPANY agrees that if the Internal Revenue Service ("IRS")
asserts in writing in connection with any governmental audit or review of LIFE
COMPANY or, to LIFE COMPANY'S knowledge, of any Participant, that any Fund has
failed to comply with the diversification requirements of Section 817(h) of the
Code or LIFE COMPANY otherwise becomes aware of any facts that could give rise
to any claim against AVIF or its affiliates as a result of such a failure or
alleged failure:
(i) LIFE COMPANY shall promptly notify AVIF of such assertion or
potential claim (subject to the Confidentiality provisions
of Section 18 as to any Participant);
(ii) LIFE COMPANY shall consult with AVIF as to how to minimize
any liability that may arise as a result of such failure or
alleged failure;
(iii)LIFE COMPANY shall use its best efforts to minimize any
liability of AVIF or its affiliates resulting from such
failure, including, without limitation, demonstrating,
pursuant to Treasury Regulations Section 1.817-5(a)(2), to
the Commissioner of the IRS that such failure was
inadvertent;
(iv) LIFE COMPANY shall permit AVIF, its affiliates and their
legal and accounting advisors to participate in any
conferences, settlement discussions or other administrative
or judicial proceeding or contests (including judicial
appeals thereof) with the IRS, any Participant or any other
claimant regarding any claims that could give rise to
liability to AVIF or its affiliates as a result of such a
failure or alleged failure; provided, however, that LIFE
COMPANY will retain control of the conduct of such
conferences discussions, proceedings, contests or appeals;
(v) any written materials to be submitted by LIFE COMPANY to the
IRS, any Participant or any other claimant in connection
with any of the foregoing proceedings or contests
(including, without limitation, any such materials to be
submitted to the IRS pursuant to Treasury Regulations
Section 1.817-5(a)(2)), (a) shall be provided by LIFE
COMPANY to AVIF (together with any supporting information or
analysis); subject to the confidentiality provisions of
Section 18, at least ten (10) business days or such shorter
period to which the Parties hereto agree prior to the day on
which such proposed materials are to be submitted, and (b)
shall not be submitted by LIFE COMPANY to any such person
without the express written consent of AVIF which shall not
be unreasonably withheld;
(vi) LIFE COMPANY shall provide AVIF or its affiliates and their
accounting and legal advisors with such cooperation as AVIF
shall reasonably request (including, without limitation, by
permitting AVIF and its accounting and legal advisors to
review the relevant books and records of LIFE COMPANY) in
order to facilitate review by AVIF or its advisors of any
written submissions provided to it pursuant to the preceding
clause or its assessment of the validity or amount of any
claim against its arising from such a failure or alleged
failure;
(vii)LIFE COMPANY shall not with respect to any claim of the IRS
or any Participant that would give rise to a claim against
AVIF or its affiliates (a) compromise or settle any claim,
(b) accept any adjustment on audit, or (c) forego any
allowable administrative or judicial appeals, without the
express written consent of AVIF or its affiliates, which
shall not be unreasonably withheld, provided that LIFE
COMPANY shall not be required, after exhausting all
administrative penalties, to appeal any adverse judicial
decision unless AVIF or its affiliates shall have provided
an opinion of independent counsel to the effect that a
reasonable basis exists for taking such appeal; and provided
further that the costs of any such appeal shall be borne
equally by the Parties hereto; and
(viii) AVIF and its affiliates shall have no liability as a
result of such failure or alleged failure if LIFE COMPANY
fails to comply with any of the foregoing clauses (i)
through (vii), and such failure could be shown to have
materially contributed to the liability.
Should AVIF or any of its affiliates refuse to give its written consent
to any compromise or settlement of any claim or liability hereunder, LIFE
COMPANY may, in its discretion, authorize AVIF or its affiliates to act in the
name of LIFE COMPANY in, and to control the conduct of, such conferences,
discussions, proceedings, contests or appeals and all administrative or judicial
appeals thereof, and in that event AVIF or its affiliates shall bear the fees
and expenses associated with the conduct of the proceedings that it is so
authorized to control; provided, that in no event shall LIFE COMPANY have any
liability resulting from AVIF's refusal to accept the proposed settlement or
compromise with respect to any failure caused by AVIF. As used in this
Agreement, the term "affiliates" shall have the same meaning as "affiliated
person" as defined in Section 2(a)(3) of the 1940 Act.
(d) LIFE COMPANY represents and warrants that the Contracts currently
are and will be treated as annuity contracts or life insurance contracts under
applicable provisions of the Code and that it will use its best efforts to
maintain such treatment; LIFE COMPANY will notify AVIF immediately upon having a
reasonable basis for believing that any of the Contracts have ceased to be so
treated or that they might not be so treated in the future.
(e) LIFE COMPANY represents and warrants that each Account is a
"segregated asset account" and that interests in each Account are offered
exclusively through the purchase of or transfer into a "variable contract,"
within the meaning of such terms under Section 817 of the Code and the
regulations thereunder. LIFE COMPANY will use its best efforts to continue to
meet such definitional requirements, and it will notify AVIF immediately upon
having a reasonable basis for believing that such requirements have ceased to be
met or that they might not be met in the future.
4.2 INSURANCE AND CERTAIN OTHER LAWS.
(a) AVIF will use its best efforts to comply with any applicable state
insurance laws or regulations, to the extent specifically requested in writing
by LIFE COMPANY, including, the furnishing of information not otherwise
available to LIFE COMPANY which is required by state insurance law to enable
LIFE COMPANY to obtain the authority needed to issue the Contracts in any
applicable state.
(b) LIFE COMPANY represents and warrants that (i) it is an insurance
company duly organized, validly existing and in good standing under the laws of
the State of Minnesota and has full corporate power, authority and legal right
to execute, deliver and perform its duties and comply with its obligations under
this Agreement, (ii) it has legally and validly established and maintains each
Account as a segregated asset account under Minnesota Insurance Law and the
regulations thereunder, and (iii) the Contracts comply in all material respects
with all other applicable federal and state laws and regulations.
(c) AVIF represents and warrants that it is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Maryland and has full power, authority, and legal right to execute, deliver, and
perform its duties and comply with its obligations under this Agreement.
4.3 SECURITIES LAWS.
(a) LIFE COMPANY represents and warrants that (i) interests in each
Account pursuant to the Contracts will be registered under the 1933 Act to the
extent required by the 1933 Act, (ii) the Contracts will be duly authorized for
issuance and sold in compliance with all applicable federal and state laws,
including, without limitation, the 1933 Act, the 1934 Act, the 1940 Act and
Minnesota law, (iii) each Account is and will remain registered under the 1940
Act, to the extent required by the 1940 Act, (iv) each Account does and will
comply in all material respects with the requirements of the 1940 Act and the
rules thereunder, to the extent required, (v) each Account's 1933 Act
registration statement relating to the Contracts, together with any amendments
thereto, will at all times comply in all material respects with the requirements
of the 1933 Act and the rules thereunder, (vi) LIFE COMPANY will amend the
registration statement for its Contracts under the 1933 Act and for its Accounts
under the 1940 Act from time to time as required in order to effect the
continuous offering of its Contracts or as may otherwise be required by
applicable law, and (vii) each Account Prospectus will at all times comply in
all material respects with the requirements of the 1933 Act and the rules
thereunder.
(b) AVIF represents and warrants that (i) Shares sold pursuant to this
Agreement will be registered under the 1933 Act to the extent required by the
1933 Act and duly authorized for issuance and sold in compliance with Maryland
law, (ii) AVIF is and will remain registered under the 1940 Act to the extent
required by the 1940 Act, (iii) AVIF will amend the registration statement for
its Shares under the 1933 Act and itself under the 1940 Act from time to time as
required in order to effect the continuous offering of its Shares, (iv) AVIF
does and will comply in all material respects with the requirements of the 1940
Act and the rules thereunder, (v) AVIF's 1933 Act registration statement,
together with any amendments thereto, will at all times comply in all material
respects with the requirements of the 1933 Act and rules thereunder, and (vi)
AVIF's Prospectus will at all times comply in all material respects with the
requirements of the 1933 Act and the rules thereunder.
(c) AVIF will at its expense register and qualify its Shares for sale
in accordance with the laws of any state or other jurisdiction if and to the
extent reasonably deemed advisable by AVIF.
(d) AVIF currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it reserves the right to make such payments in the future. To the
extent that it decides to finance distribution expenses pursuant to Rule 12b-1,
AVIF undertakes to have its Board of Directors, a majority of whom are not
"interested" persons of the Fund, formulate and approve any plan under Rule
12b-1 to finance distribution expenses.
(e) AVIF represents and warrants that all of its trustees, officers,
employees, investment advisers, and other individuals/entities having access to
the funds and/or securities of the Fund are and continue to be at all times
covered by a blanket fidelity bond or similar coverage for the benefit of the
Fund in an amount not less than the minimal coverage as required currently by
Rule 17g-(1) of the 1940 Act or related provisions as may be promulgated from
time to time. The aforesaid bond includes coverage for larceny and embezzlement
and is issued by a reputable bonding company.
4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES.
(a) AVIF will immediately notify LIFE COMPANY of (i) the issuance by
any court or regulatory body of any stop order, cease and desist order, or other
similar order with respect to AVIF's registration statement under the 1933 Act
or AVIF Prospectus, (ii) any request by the SEC for any amendment to such
registration statement or AVIF Prospectus that may affect the offering of Shares
of AVIF, (iii) the initiation of any proceedings for that purpose or for any
other purpose relating to the registration or offering of AVIF's Shares, or (iv)
any other action or circumstances that may prevent the lawful offer or sale of
Shares of any Fund in any state or jurisdiction, including, without limitation,
any circumstances in which (a) such Shares are not registered and, in all
material respects, issued and sold in accordance with applicable state and
federal law, or (b) such law precludes the use of such Shares as an underlying
investment medium of the Contracts issued or to be issued by LIFE COMPANY. AVIF
will make every reasonable effort to prevent the issuance, with respect to any
Fund, of any such stop order, cease and desist order or similar order and, if
any such order is issued, to obtain the lifting thereof at the earliest possible
time.
(b) LIFE COMPANY will immediately notify AVIF of (i) the issuance by
any court or regulatory body of any stop order, cease and desist order, or other
similar order with respect to each Account's registration statement under the
1933 Act relating to the Contracts or each Account Prospectus, (ii) any request
by the SEC for any amendment to such registration statement or Account
Prospectus that may affect the offering of Shares of AVIF, (iii) the initiation
of any proceedings for that purpose or for any other purpose relating to the
registration or offering of each Account's interests pursuant to the Contracts,
or (iv) any other action or circumstances that may prevent the lawful offer or
sale of said interests in any state or jurisdiction, including, without
limitation, any circumstances in which said interests are not registered and, in
all material respects, issued and sold in accordance with applicable state and
federal law. LIFE COMPANY will make every reasonable effort to prevent the
issuance of any such stop order, cease and desist order or similar order and, if
any such order is issued, to obtain the lifting thereof at the earliest possible
time.
4.5 LIFE COMPANY TO PROVIDE DOCUMENTS; INFORMATION ABOUT AVIF.
(a) LIFE COMPANY will provide to AVIF or its designated agent at least
one (1) complete copy of all SEC registration statements, Account Prospectuses,
reports, any preliminary and final voting instruction solicitation material,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to each Account or the Contracts,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
(b) LIFE COMPANY will provide to AVIF or its designated agent at least
one (1) complete copy of each piece of sales literature or other promotional
material in which AVIF or any of its affiliates is named, at least five (5)
Business Days prior to its use or such shorter period as the Parties hereto may,
from time to time, agree upon. No such material shall be used if AVIF or its
designated agent objects to such use within five (5) Business Days after receipt
of such material or such shorter period as the Parties hereto may, from time to
time, agree upon. AVIF hereby designates AIM as the entity to receive such sales
literature, until such time as AVIF appoints another designated agent by giving
notice to LIFE COMPANY in the manner required by Section 9 hereof.
(c) Neither LIFE COMPANY nor any of its affiliates, will give any
information or make any representations or statements on behalf of or concerning
AVIF or its affiliates in connection with the sale of the Contracts other than
(i) the information or representations contained in the registration statement,
including the AVIF Prospectus contained therein, relating to Shares, as such
registration statement and AVIF Prospectus may be amended from time to time; or
(ii) in reports or proxy materials for AVIF; or (iii) in published reports for
AVIF that are in the public domain and approved by AVIF for distribution; or
(iv) in sales literature or other promotional material approved by AVIF, except
with the express written permission of AVIF.
(d) LIFE COMPANY shall adopt and implement procedures reasonably
designed to ensure that information concerning AVIF and its affiliates that is
intended for use only by brokers or agents selling the Contracts (i.e.,
information that is not intended for distribution to Participants) ("broker only
materials") is so used, and neither AVIF nor any of its affiliates shall be
liable for any losses, damages or expenses relating to the improper use of such
broker only materials.
(e) For the purposes of this Section 4.5, the phrase Asales literature
or other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media, (e.g.,
on-line networks such as the Internet or other electronic messages), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act.
4.6 AVIF TO PROVIDE DOCUMENTS; INFORMATION ABOUT LIFE COMPANY.
(a) AVIF will provide to LIFE COMPANY at least one (1) complete copy of
all SEC registration statements, AVIF Prospectuses, reports, any preliminary and
final proxy material, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to AVIF or the
Shares of a Fund, contemporaneously with the filing of such document with the
SEC or other regulatory authorities.
(b) AVIF will provide to LIFE COMPANY a camera ready copy of all AVIF
prospectuses and printed copies, in an amount specified by LIFE COMPANY, of AVIF
statements of additional information, proxy materials, periodic reports to
shareholders and other materials required by law to be sent to Participants who
have allocated any Contract value to a Fund. AVIF will provide such copies to
LIFE COMPANY in a timely manner so as to enable LIFE COMPANY, as the case may
be, to print and distribute such materials within the time required by law to be
furnished to Participants.
(c) AVIF will provide to LIFE COMPANY or its designated agent at least
one (1) complete copy of each piece of sales literature or other promotional
material in which LIFE COMPANY, or any of its respective affiliates is named, or
that refers to the Contracts, at least five (5) Business Days prior to its use
or such shorter period as the Parties hereto may, from time to time, agree upon.
No such material shall be used if LIFE COMPANY or its designated agent objects
to such use within five (5) Business Days after receipt of such material or such
shorter period as the Parties hereto may, from time to time, agree upon. LIFE
COMPANY shall receive all such sales literature until such time as it appoints a
designated agent by giving notice to AVIF in the manner required by Section 9
hereof.
(d) Neither AVIF nor any of its affiliates will give any information or
make any representations or statements on behalf of or concerning LIFE COMPANY,
each Account, or the Contracts other than (i) the information or representations
contained in the registration statement, including each Account Prospectus
contained therein, relating to the Contracts, as such registration statement and
Account Prospectus may be amended from time to time; or (ii) in published
reports for the Account or the Contracts that are in the public domain and
approved by LIFE COMPANY for distribution; or (iii) in sales literature or other
promotional material approved by LIFE COMPANY or its affiliates, except with the
express written permission of LIFE COMPANY.
(e) AVIF shall cause its principal underwriter to adopt and implement
procedures reasonably designed to ensure that information concerning LIFE
COMPANY, and its respective affiliates that is intended for use only by brokers
or agents selling the Contracts (i.e., information that is not intended for
distribution to Participants) ("broker only materials") is so used, and neither
LIFE COMPANY, nor any of its respective affiliates shall be liable for any
losses, damages or expenses relating to the improper use of such broker only
materials.
(f) For purposes of this Section 4.6, the phrase Asales literature or
other promotional material@ includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media, (e.g.,
on-line networks such as the Internet or other electronic messages), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act.
SECTION 5. MIXED AND SHARED FUNDING
5.1 GENERAL.
The SEC has granted an order to AVIF exempting it from certain
provisions of the 1940 Act and rules thereunder so that AVIF may be available
for investment by certain other entities, including, without limitation,
separate accounts funding variable annuity contracts or variable life insurance
contracts, separate accounts of insurance companies unaffiliated with LIFE
COMPANY, and trustees of qualified pension and retirement plans (collectively,
"Mixed and Shared Funding"). The Parties recognize that the SEC has imposed
terms and conditions for such orders that are substantially identical to many of
the provisions of this Section 5. Sections 5.2 through 5.8 below shall apply
pursuant to such an exemptive order granted to AVIF. AVIF hereby notifies LIFE
COMPANY that, in the event that AVIF implements Mixed and Shared Funding, it may
be appropriate to include in the prospectus pursuant to which a Contract is
offered disclosure regarding the potential risks of Mixed and Shared Funding.
5.2 DISINTERESTED DIRECTORS.
AVIF agrees that its Board of Directors shall at all times consist of
directors a majority of whom (the "Disinterested Directors") are not interested
persons of AVIF within the meaning of Section 2(a)(19) of the 1940 Act and the
rules thereunder and as modified by any applicable orders of the SEC, except
that if this condition is not met by reason of the death, disqualification, or
bona fide resignation of any director, then the operation of this condition
shall be suspended (a) for a period of forty-five (45) days if the vacancy or
vacancies may be filled by the Board;(b) for a period of sixty (60) days if a
vote of shareholders is required to fill the vacancy or vacancies; or (c) for
such longer period as the SEC may prescribe by order upon application.
5.3 MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS.
AVIF agrees that its Board of Directors will monitor for the existence
of any material irreconcilable conflict between the interests of the
Participants in all separate accounts of life insurance companies utilizing AVIF
("Participating Insurance Companies"), including each Account, and participants
in all qualified retirement and pension plans investing in AVIF ("Participating
Plans"). LIFE COMPANY agrees to inform the Board of Directors of AVIF of the
existence of or any potential for any such material irreconcilable conflict of
which it is aware. The concept of a "material irreconcilable conflict" is not
defined by the 1940 Act or the rules thereunder, but the Parties recognize that
such a conflict may arise for a variety of reasons, including, without
limitation:
(a) an action by any state insurance or other regulatory authority;
(b) a change in applicable federal or state insurance, tax or
securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretative letter, or any similar action by insurance, tax or
securities regulatory authorities;
(c) an administrative or judicial decision in any relevant proceeding;
(d) the manner in which the investments of any Fund are being managed;
(e) a difference in voting instructions given by variable annuity
contract and variable life insurance contract Participants or by Participants of
different Participating Insurance Companies;
(f) a decision by a Participating Insurance Company to disregard the
voting instructions of Participants; or
(g) a decision by a Participating Plan to disregard the voting
instructions of Plan participants.
Consistent with the SEC's requirements in connection with exemptive
orders of the type referred to in Section 5.1 hereof, LIFE COMPANY will assist
the Board of Directors in carrying out its responsibilities by providing the
Board of Directors with all information reasonably necessary for the Board of
Directors to consider any issue raised, including information as to a decision
by LIFE COMPANY to disregard voting instructions of Participants. LIFE COMPANY=s
responsibilities in connection with the foregoing shall be carried out with a
view only to the interests of Participants.
5.4 CONFLICT REMEDIES.
(a) It is agreed that if it is determined by a majority of the members
of the Board of Directors or a majority of the Disinterested Directors that a
material irreconcilable conflict exists, LIFE COMPANY will, if it is a
Participating Insurance Company for which a material irreconcilable conflict is
relevant, at its own expense and to the extent reasonably practicable (as
determined by a majority of the Disinterested Directors), take whatever steps
are necessary to remedy or eliminate the material irreconcilable conflict, which
steps may include, but are not limited to:
(i) withdrawing the assets allocable to some or all of the
Accounts from AVIF or any Fund and reinvesting such assets
in a different investment medium, including another Fund of
AVIF, or submitting the question whether such segregation
should be implemented to a vote of all affected Participants
and, as appropriate, segregating the assets of any
particular group (e.g., annuity Participants, life insurance
Participants or all Participants) that votes in favor of
such segregation, or offering to the affected Participants
the option of making such a change; and
(ii) establishing a new registered investment company of the type
defined as a "management company" in Section 4(3) of the
1940 Act or a new separate account that is operated as a
management company.
(b) If the material irreconcilable conflict arises because of LIFE
COMPANY's decision to disregard Participant voting instructions and that
decision represents a minority position or would preclude a majority vote, LIFE
COMPANY may be required, at AVIF's election, to withdraw each Account's
investment in AVIF or any Fund. No charge or penalty will be imposed as a result
of such withdrawal. Any such withdrawal must take place within six (6) months
after AVIF gives notice to LIFE COMPANY that this provision is being
implemented, and until such withdrawal AVIF shall continue to accept and
implement orders by LIFE COMPANY for the purchase and redemption of Shares of
AVIF.
(c) If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to LIFE COMPANY conflicts with
the majority of other state regulators, then LIFE COMPANY will withdraw each
Account's investment in AVIF within six (6) months after AVIF's Board of
Directors informs LIFE COMPANY that it has determined that such decision has
created a material irreconcilable conflict, and until such withdrawal AVIF shall
continue to accept and implement orders by LIFE COMPANY for the purchase and
redemption of Shares of AVIF. No charge or penalty will be imposed as a result
of such withdrawal.
(d) LIFE COMPANY agrees that any remedial action taken by it in
resolving any material irreconcilable conflict will be carried out at its
expense and with a view only to the interests of Participants.
(e) For purposes hereof, a majority of the Disinterested Directors will
determine whether or not any proposed action adequately remedies any material
irreconcilable conflict. In no event, however, will AVIF or any of its
affiliates be required to establish a new funding medium for any Contracts. LIFE
COMPANY will not be required by the terms hereof to establish a new funding
medium for any Contracts if an offer to do so has been declined by vote of a
majority of Participants materially adversely affected by the material
irreconcilable conflict.
5.5 NOTICE TO LIFE COMPANY.
AVIF will promptly make known in writing to LIFE COMPANY the Board of
Directors' determination of the existence of a material irreconcilable conflict,
a description of the facts that give rise to such conflict and the implications
of such conflict.
5.6 INFORMATION REQUESTED BY BOARD OF DIRECTORS.
LIFE COMPANY and AVIF (or its investment adviser) will at least
annually submit to the Board of Directors of AVIF such reports, materials or
data as the Board of Directors may reasonably request so that the Board of
Directors may fully carry out the obligations imposed upon it by the provisions
hereof or any exemptive order granted by the SEC to permit Mixed and Shared
Funding, and said reports, materials and data will be submitted at any
reasonable time deemed appropriate by the Board of Directors. All reports
received by the Board of Directors of potential or existing conflicts, and all
Board of Directors actions with regard to determining the existence of a
conflict, notifying Participating Insurance Companies and Participating Plans of
a conflict, and determining whether any proposed action adequately remedies a
conflict, will be properly recorded in the minutes of the Board of Directors or
other appropriate records, and such minutes or other records will be made
available to the SEC upon request.
5.7 COMPLIANCE WITH SEC RULES.
If, at any time during which AVIF is serving as an investment medium
for variable life insurance Contracts, 1940 Act Rules 6e-3(T) or, if applicable,
6e-2 are amended or Rule 6e-3 is adopted to provide exemptive relief with
respect to Mixed and Shared Funding, AVIF agrees that it will comply with the
terms and conditions thereof and that the terms of this Section 5 shall be
deemed modified if and only to the extent required in order also to comply with
the terms and conditions of such exemptive relief that is afforded by any of
said rules that are applicable.
5.8 OTHER REQUIREMENTS.
AVIF will require that each Participating Insurance Company and
Participating Plan enter into an agreement with AVIF that contains in substance
the same provisions as are set forth in Sections 4.1(b), 4.1(d), 4.3(a), 4.4(b),
4.5(a), 5, and 10 of this Agreement.
SECTION 6. TERMINATION
6.1 EVENTS OF TERMINATION.
Subject to Section 6.4 below, this Agreement will terminate as to a
Fund:
(a) at the option of any party, with or without cause with respect to
the Fund, upon six (6) months advance written notice to the other parties, or,
if later, upon receipt of any required exemptive relief from the SEC, unless
otherwise agreed to in writing by the parties; or
(b) at the option of AVIF upon institution of formal proceedings
against LIFE COMPANY or its affiliates by the NASD, the SEC, any state insurance
regulator or any other regulatory body regarding LIFE COMPANY'S obligations
under this Agreement or related to the sale of the Contracts, the operation of
each Account, or the purchase of Shares, if, in each case, AVIF reasonably
determines that such proceedings, or the facts on which such proceedings would
be based, have a material likelihood of imposing material adverse consequences
on the Fund with respect to which the Agreement is to be terminated; or
(c) at the option of LIFE COMPANY upon institution of formal
proceedings against AVIF, its principal underwriter, or its investment adviser
by the NASD, the SEC, or any state insurance regulator or any other regulatory
body regarding AVIF's obligations under this Agreement or related to the
operation or management of AVIF or the purchase of AVIF Shares, if, in each
case, LIFE COMPANY reasonably determines that such proceedings, or the facts on
which such proceedings would be based, have a material likelihood of imposing
material adverse consequences on LIFE COMPANY, or the Subaccount corresponding
to the Fund with respect to which the Agreement is to be terminated; or
(d) at the option of any Party in the event that (i) the Fund's Shares
are not registered and, in all material respects, issued and sold in accordance
with any applicable federal or state law, or (ii) such law precludes the use of
such Shares as an underlying investment medium of the Contracts issued or to be
issued by LIFE COMPANY; or
(e) upon termination of the corresponding Subaccount's investment in
the Fund pursuant to Section 5 hereof; or
(f) at the option of LIFE COMPANY if the Fund ceases to qualify as a
RIC under Subchapter M of the Code or under successor or similar provisions, or
if LIFE COMPANY reasonably believes that the Fund may fail to so qualify; or
(g) at the option of LIFE COMPANY if the Fund fails to comply with
Section 817(h) of the Code or with successor or similar provisions, or if LIFE
COMPANY reasonably believes that the Fund may fail to so comply; or
(h) at the option of AVIF if the Contracts issued by LIFE COMPANY cease
to qualify as annuity contracts or life insurance contracts under the Code
(other than by reason of the Fund's noncompliance with Section 817(h) or
Subchapter M of the Code) or if interests in an Account under the Contracts are
not registered, where required, and, in all material respects, are not issued or
sold in accordance with any applicable federal or state law; or
(i) upon another Party's material breach of any provision of this
Agreement.
6.2 NOTICE REQUIREMENT FOR TERMINATION.
No termination of this Agreement will be effective unless and until the
Party terminating this Agreement gives prior written notice to the other Party
to this Agreement of its intent to terminate, and such notice shall set forth
the basis for such termination. Furthermore:
(a) in the event that any termination is based upon the provisions of
Sections 6.1(a) or 6.1(e) hereof, such prior written notice shall be given at
least six (6) months in advance of the effective date of termination unless a
shorter time is agreed to by the Parties hereto;
(b) in the event that any termination is based upon the provisions of
Sections 6.1(b) or 6.1(c) hereof, such prior written notice shall be given at
least ninety (90) days in advance of the effective date of termination unless a
shorter time is agreed to by the Parties hereto; and
(c) in the event that any termination is based upon the provisions of
Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, such prior written
notice shall be given as soon as possible within twenty-four (24) hours after
the terminating Party learns of the event causing termination to be required.
6.3 FUNDS TO REMAIN AVAILABLE.
Notwithstanding any termination of this Agreement, AVIF will, at the
option of LIFE COMPANY, continue to make available additional shares of the Fund
pursuant to the terms and conditions of this Agreement, for all Contracts in
effect on the effective date of termination of this Agreement (hereinafter
referred to as AExisting Contracts"). Specifically, without limitation, the
owners of the Existing Contracts will be permitted to reallocate investments in
the Fund (as in effect on such date), redeem investments in the Fund and/or
invest in the Fund upon the making of additional purchase payments under the
Existing Contracts. The parties agree that this Section 6.3 will not apply to
any terminations under Section 5 and the effect of such terminations will be
governed by Section 5 of this Agreement.
6.4 SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS.
All warranties and indemnifications will survive the termination of
this Agreement.
6.5 CONTINUANCE OF AGREEMENT FOR CERTAIN PURPOSES.
If any Party terminates this Agreement with respect to any Fund
pursuant to Sections 6.1(b), 6.1(c), 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i)
hereof, this Agreement shall nevertheless continue in effect as to any Shares of
that Fund that are outstanding as of the date of such termination (the "Initial
Termination Date"). This continuation shall extend to the earlier of the date as
of which an Account owns no Shares of the affected Fund or a date (the "Final
Termination Date") six (6) months following the Initial Termination Date, except
that LIFE COMPANY may, by written notice shorten said six (6) month period in
the case of a termination pursuant to Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or
6.1(i).
SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION
The Parties hereto agree to cooperate and give reasonable assistance to
one another in taking all necessary and appropriate steps for the purpose of
ensuring that an Account owns no Shares of a Fund after the Final Termination
Date with respect thereto, or, in the case of a termination pursuant to Section
6.1(a), the termination date specified in the notice of termination. Such steps
may include combining the affected Account with another Account, substituting
other mutual fund shares for those of the affected Fund, or otherwise
terminating participation by the Contracts in such Fund.
SECTION 8. ASSIGNMENT
This Agreement may not be assigned by any Party, except with the
written consent of each other Party.
SECTION 9. NOTICES
Notices and communications required or permitted will be given by means
mutually acceptable to the Parties concerned. Each other notice or communication
required or permitted by this Agreement will be given to the following persons
at the following addresses and facsimile numbers, or such other persons,
addresses or facsimile numbers as the Party receiving such notices or
communications may subsequently direct in writing:
AIM VARIABLE INSURANCE FUNDS, INC.
11 Greenway Plaza, Suite 100
Houston, Texas 77046
Facsimile: (713) 993-9185
Attn: Nancy L. Martin, Esq.
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
NALAC FINANCIAL PLANS, LLC
1750 Hennepin Avenue
Minneapolis, MN 55403-2195
Facsimile: (612) 337-6136
Attn: Thomas B. Clifford
SECTION 10. VOTING PROCEDURES
Subject to the cost allocation procedures set forth in Section 3
hereof, LIFE COMPANY will distribute all proxy material furnished by AVIF to
Participants to whom pass-through voting privileges are required to be extended
and will solicit voting instructions from Participants. LIFE COMPANY will vote
Shares in accordance with timely instructions received from Participants. LIFE
COMPANY will vote Shares that are (a) not attributable to Participants to whom
pass-through voting privileges are extended, or (b) attributable to
Participants, but for which no timely instructions have been received, in the
same proportion as Shares for which said instructions have been received from
Participants, so long as and to the extent that the SEC continues to interpret
the 1940 Act to require pass through voting privileges for Participants. Neither
LIFE COMPANY nor any of its affiliates will in any way recommend action in
connection with or oppose or interfere with the solicitation of proxies for the
Shares held for such Participants. LIFE COMPANY reserves the right to vote
shares held in any Account in its own right, to the extent permitted by law.
LIFE COMPANY shall be responsible for assuring that each of its Accounts holding
Shares calculates voting privileges in a manner consistent with that of other
Participating Insurance Companies or in the manner required by the Mixed and
Shared Funding exemptive order obtained by AVIF. AVIF will notify LIFE COMPANY
of any changes of interpretations or amendments to Mixed and Shared Funding
exemptive order it has obtained. AVIF will comply with all provisions of the
1940 Act requiring voting by shareholders, and in particular, AVIF either will
provide for annual meetings (except insofar as the SEC may interpret Section 16
of the 1940 Act not to require such meetings) or will comply with Section 16(c)
of the 1940 Act (although AVIF is not one of the trusts described in Section
16(c) of that Act) as well as with Sections 16(a) and, if and when applicable,
16(b). Further, AVIF will act in accordance with the SEC=s interpretation of the
requirements of Section 16(a) with respect to periodic elections of directors
and with whatever rules the SEC may promulgate with respect thereto.
SECTION 11. FOREIGN TAX CREDITS
AVIF agrees to consult in advance with LIFE COMPANY concerning any
decision to elect or not to elect pursuant to Section 853 of the Code to pass
through the benefit of any foreign tax credits to its shareholders.
SECTION 12. INDEMNIFICATION
12.1 OF AVIF BY LIFE COMPANY AND UNDERWRITER.
(a) Except to the extent provided in Sections 12.1(b) and 12.1(c),
below, LIFE COMPANY and UNDERWRITER agree to indemnify and hold harmless AVIF,
its affiliates, and each person, if any, who controls AVIF, or its affiliates
within the meaning of Section 15 of the 1933 Act and each of their respective
directors and officers, (collectively, the "Indemnified Parties" for purposes of
this Section 12.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of LIFE COMPANY
and UNDERWRITER) or actions in respect thereof (including, to the extent
reasonable, legal and other expenses), to which the Indemnified Parties may
become subject under any statute, regulation, at common law or otherwise;
provided, the Account owns shares of the Fund and insofar as such losses,
claims, damages, liabilities or actions:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
any Account's 1933 Act registration statement, any Account
Prospectus, the Contracts, or sales literature or
advertising for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading;
provided, that this agreement to indemnify shall not apply
as to any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reliance upon
and in conformity with information furnished to LIFE COMPANY
or UNDERWRITER by or on behalf of AVIF for use in any
Account's 1933 Act registration statement, any Account
Prospectus, the Contracts, or sales literature or
advertising or otherwise for use in connection with the sale
of Contracts or Shares (or any amendment or supplement to
any of the foregoing); or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations
contained in AVIF's 1933 Act registration statement, AVIF
Prospectus, sales literature or advertising of AVIF, or any
amendment or supplement to any of the foregoing, not
supplied for use therein by or on behalf of LIFE COMPANY,
UNDERWRITER or their respective affiliates and on which such
persons have reasonably relied) or the negligent, illegal or
fraudulent conduct of LIFE COMPANY, UNDERWRITER or their
respective affiliates or persons under their control
(including, without limitation, their employees and "persons
associated with a member," as that term is defined in
paragraph (q) of Article I of the NASD's By-Laws), in
connection with the sale or distribution of the Contracts or
Shares; or
(iii)arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
AVIF's 1933 Act registration statement, AVIF Prospectus,
sales literature or advertising of AVIF, or any amendment or
supplement to any of the foregoing, or the omission or
alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading if such a statement or omission was
made in reliance upon and in conformity with information
furnished to AVIF, or its affiliates by or on behalf of LIFE
COMPANY, UNDERWRITER or their respective affiliates for use
in AVIF's 1933 Act registration statement, AVIF Prospectus,
sales literature or advertising of AVIF, or any amendment or
supplement to any of the foregoing; or
(iv) arise as a result of any failure by LIFE COMPANY or
UNDERWRITER to perform the obligations, provide the services
and furnish the materials required of them under the terms
of this Agreement, or any material breach of any
representation and/or warranty made by LIFE COMPANY or
UNDERWRITER in this Agreement or arise out of or result from
any other material breach of this Agreement by LIFE COMPANY
or UNDERWRITER; or
(v) arise as a result of failure by the Contracts issued by LIFE
COMPANY to qualify as annuity contracts or life insurance
contracts under the Code, otherwise than by reason of any
Fund's failure to comply with Subchapter M or Section 817(h)
of the Code.
(b) Neither LIFE COMPANY nor UNDERWRITER shall be liable under this
Section 12.1 with respect to any losses, claims, damages, liabilities or actions
to which an Indemnified Party would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance by that
Indemnified Party of its duties or by reason of that Indemnified Party's
reckless disregard of obligations or duties (i) under this Agreement, or (ii) to
AVIF.
(c) Neither LIFE COMPANY nor UNDERWRITER shall be liable under this
Section 12.1 with respect to any action against an Indemnified Party unless AVIF
shall have notified LIFE COMPANY and UNDERWRITER in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the action shall have been served upon such Indemnified Party (or
after such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify LIFE COMPANY and UNDERWRITER of any
such action shall not relieve LIFE COMPANY and UNDERWRITER from any liability
which they may have to the Indemnified Party against whom such action is brought
otherwise than on account of this Section 12.1. Except as otherwise provided
herein, in case any such action is brought against an Indemnified Party, LIFE
COMPANY and UNDERWRITER shall be entitled to participate, at their own expense,
in the defense of such action and also shall be entitled to assume the defense
thereof, with counsel approved by the Indemnified Party named in the action,
which approval shall not be unreasonably withheld. After notice from LIFE
COMPANY or UNDERWRITER to such Indemnified Party of LIFE COMPANY's or
UNDERWRITER=s election to assume the defense thereof, the Indemnified Party will
cooperate fully with LIFE COMPANY and UNDERWRITER and shall bear the fees and
expenses of any additional counsel retained by it, and neither LIFE COMPANY nor
UNDERWRITER will be liable to such Indemnified Party under this Agreement for
any legal or other expenses subsequently incurred by such Indemnified Party
independently in connection with the defense thereof, other than reasonable
costs of investigation.
12.2 OF LIFE COMPANY AND UNDERWRITER BY AVIF.
(a) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e), below, AVIF agrees to indemnify and hold harmless LIFE COMPANY,
UNDERWRITER, their respective affiliates, and each person, if any, who controls
LIFE COMPANY, UNDERWRITER or their respective affiliates within the meaning of
Section 15 of the 1933 Act and each of their respective directors and officers,
(collectively, the "Indemnified Parties" for purposes of this Section 12.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of AVIF) or actions in respect thereof
(including, to the extent reasonable, legal and other expenses), to which the
Indemnified Parties may become subject under any statute, regulation, at common
law, or otherwise; provided, the Account owns shares of the Fund and insofar as
such losses, claims, damages, liabilities or actions:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
AVIF's 1933 Act registration statement, AVIF Prospectus or
sales literature or advertising of AVIF (or any amendment or
supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading;
provided, that this agreement to indemnify shall not apply
as to any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reliance upon
and in conformity with information furnished to AVIF or its
affiliates by or on behalf of LIFE COMPANY, UNDERWRITER or
their respective affiliates for use in AVIF's 1933 Act
registration statement, AVIF Prospectus, or in sales
literature or advertising or otherwise for use in connection
with the sale of Contracts or Shares (or any amendment or
supplement to any of the foregoing); or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations
contained in any Account's 1933 Act registration statement,
any Account Prospectus, sales literature or advertising for
the Contracts, or any amendment or supplement to any of the
foregoing, not supplied for use therein by or on behalf of
AVIF, or its affiliates and on which such persons have
reasonably relied) or the negligent, illegal or fraudulent
conduct of AVIF, or its affiliates or persons under its
control (including, without limitation, their employees and
"persons associated with a member" as that term is defined
in Section (q) of Article I of the NASD By-Laws), in
connection with the sale or distribution of AVIF Shares; or
(iii)arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
any Account's 1933 Act registration statement, any Account
Prospectus, sales literature or advertising covering the
Contracts, or any amendment or supplement to any of the
foregoing, or the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, if
such statement or omission was made in reliance upon and in
conformity with information furnished to LIFE COMPANY,
UNDERWRITER or their respective affiliates by or on behalf
of AVIF or AIM for use in any Account's 1933 Act
registration statement, any Account Prospectus, sales
literature or advertising covering the Contracts, or any
amendment or supplement to any of the foregoing; or
(iv) arise as a result of any failure by AVIF to perform the
obligations, provide the services and furnish the materials
required of it under the terms of this Agreement, or any
material breach of any representation and/or warranty made
by AVIF in this Agreement or arise out of or result from any
other material breach of this Agreement by AVIF.
(b) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e) hereof, AVIF agrees to indemnify and hold harmless the Indemnified
Parties from and against any and all losses, claims, damages, liabilities
(including amounts paid in settlement thereof with, the written consent of AVIF)
or actions in respect thereof (including, to the extent reasonable, legal and
other expenses) to which the Indemnified Parties may become subject directly or
indirectly under any statute, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or actions directly or indirectly result
from or arise out of the failure of any Fund to operate as a regulated
investment company in compliance with (i) Subchapter M of the Code and
regulations thereunder, or (ii) Section 817(h) of the Code and regulations
thereunder, including, without limitation, any income taxes and related
penalties, rescission charges, liability under state law to Participants
asserting liability against LIFE COMPANY pursuant to the Contracts, the costs of
any ruling and closing agreement or other settlement with the IRS, and the cost
of any substitution by LIFE COMPANY of Shares of another investment company or
portfolio for those of any adversely affected Fund as a funding medium for each
Account that LIFE COMPANY reasonably deems necessary or appropriate as a result
of the noncompliance.
(c) AVIF shall be liable under this Section 12.2 with respect to any
losses, claims, damages, liabilities or actions to which an Indemnified Party
would otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance by that Indemnified Party of its duties or by
reason of such Indemnified Party's reckless disregard of its obligations and
duties (i) under this Agreement, or (ii) to LIFE COMPANY, UNDERWRITER, each
Account or Participants.
(d) AVIF shall be liable under this Section 12.2 with respect to any
action against an Indemnified Party unless the Indemnified Party shall have
notified AVIF in writing within a reasonable time after the summons or other
first legal process giving information of the nature of the action shall have
been served upon such Indemnified Party (or after such Indemnified Party shall
have received notice of such service on any designated agent), but failure to
notify AVIF of any such action shall not relieve AVIF from any liability which
it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this Section 12.2. Except as otherwise provided
herein, in case any such action is brought against an Indemnified Party, AVIF
will be entitled to participate, at its own expense, in the defense of such
action and also shall be entitled to assume the defense thereof (which shall
include, without limitation, the conduct of any ruling request and closing
agreement or other settlement proceeding with the IRS), with counsel approved by
the Indemnified Party named in the action, which approval shall not be
unreasonably withheld. After notice from AVIF to such Indemnified Party of
AVIF's or AIM=s election to assume the defense thereof, the Indemnified Party
will cooperate fully with AVIF and shall bear the fees and expenses of any
additional counsel retained by it, and AVIF will not be liable to such
Indemnified Party under this Agreement for any legal or other expenses
subsequently incurred by such Indemnified Party independently in connection with
the defense thereof, other than reasonable costs of investigation.
(e) In no event shall AVIF be liable under the indemnification
provisions contained in this Agreement to any individual or entity, including,
without limitation, LIFE COMPANY, UNDERWRITER or any other Participating
Insurance Company or any Participant, with respect to any losses, claims,
damages, liabilities or expenses that arise out of or result from (i) a breach
of any representation, warranty, and/or covenant made by LIFE COMPANY or
UNDERWRITER hereunder or by any Participating Insurance Company under an
agreement containing substantially similar representations, warranties and
covenants; (ii) the failure by LIFE COMPANY or any Participating Insurance
Company to maintain its segregated asset account (which invests in any Fund) as
a legally and validly established segregated asset account under applicable
state law and as a duly registered unit investment trust under the provisions of
the 1940 Act (unless exempt therefrom); or (iii) the failure by LIFE COMPANY or
any Participating Insurance Company to maintain its variable annuity or life
insurance contracts (with respect to which any Fund serves as an underlying
funding vehicle) as annuity contracts or life insurance contracts under
applicable provisions of the Code.
12.3 EFFECT OF NOTICE.
Any notice given by the indemnifying Party to an Indemnified Party
referred to in Sections 12.1(c) or 12.2(d) above of participation in or control
of any action by the indemnifying Party will in no event be deemed to be an
admission by the indemnifying Party of liability, culpability or responsibility,
and the indemnifying Party will remain free to contest liability with respect to
the claim among the Parties or otherwise.
12.4 SUCCESSORS.
A successor by law of any Party shall be entitled to the benefits of
the indemnification contained in this Section 12.
SECTION 13. APPLICABLE LAW
This Agreement will be construed and the provisions hereof interpreted
under and in accordance with Maryland law, without regard for that state's
principles of conflict of laws.
SECTION 14. EXECUTION IN COUNTERPARTS
This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together will constitute one and the same
instrument.
SECTION 15. SEVERABILITY
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
SECTION 16. RIGHTS CUMULATIVE
The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, that the Parties are entitled to under federal and state
laws.
SECTION 17. HEADINGS
The Table of Contents and headings used in this Agreement are for
purposes of reference only and shall not limit or define the meaning of the
provisions of this Agreement.
SECTION 18. CONFIDENTIALITY
AVIF acknowledges that the identities of the customers of LIFE COMPANY
or any of its affiliates (collectively, the ALIFE COMPANY Protected Parties@ for
purposes of this Section 18), information maintained regarding those customers,
and all computer programs and procedures or other information developed by the
LIFE COMPANY Protected Parties or any of their employees or agents in connection
with LIFE COMPANY=s performance of its duties under this Agreement are the
valuable property of the LIFE COMPANY Protected Parties. AVIF agrees that if it
comes into possession of any list or compilation of the identities of or other
information about the LIFE COMPANY Protected Parties= customers, or any other
information or property of the LIFE COMPANY Protected Parties, other than such
information as may be independently developed or compiled by AVIF from
information supplied to it by the LIFE COMPANY Protected Parties= customers who
also maintain accounts directly with AVIF, AVIF will hold such information or
property in confidence and refrain from using, disclosing or distributing any of
such information or other property except: (a) with LIFE COMPANY=s prior written
consent; or (b) as required by law or judicial process. LIFE COMPANY
acknowledges that the identities of the customers of AVIF or any of its
affiliates (collectively, the AAVIF Protected Parties@ for purposes of this
Section 18), information maintained regarding those customers, and all computer
programs and procedures or other information developed by the AVIF Protected
Parties or any of their employees or agents in connection with AVIF=s
performance of its duties under this Agreement are the valuable property of the
AVIF Protected Parties. LIFE COMPANY agrees that if it comes into possession of
any list or compilation of the identities of or other information about the AVIF
Protected Parties= customers or any other information or property of the AVIF
Protected Parties, other than such information as may be independently developed
or compiled by LIFE COMPANY from information supplied to it by the AVIF
Protected Parties= customers who also maintain accounts directly with LIFE
COMPANY, LIFE COMPANY will hold such information or property in confidence and
refrain from using, disclosing or distributing any of such information or other
property except: (a) with AVIF=s prior written consent; or (b) as required by
law or judicial process. Each party acknowledges that any breach of the
agreements in this Section 18 would result in immediate and irreparable harm to
the other parties for which there would be no adequate remedy at law and agree
that in the event of such a breach, the other parties will be entitled to
equitable relief by way of temporary and permanent injunctions, as well as such
other relief as any court of competent jurisdiction deems appropriate.
SECTION 19. TRADEMARKS AND FUND NAMES
(a) Except as may otherwise be provided in a License Agreement among A
I M Management Group, Inc., LIFE COMPANY and UNDERWRITER, neither LIFE COMPANY
nor UNDERWRITER or any of their respective affiliates, shall use any trademark,
trade name, service mark or logo of AVIF, AIM or any of their respective
affiliates, or any variation of any such trademark, trade name, service mark or
logo, without AVIF=s or AIM=s prior written consent, the granting of which shall
be at AVIF=s or AIM=s sole option.
(b) Except as otherwise expressly provided in this Agreement, neither
AVIF, its investment adviser, its principal underwriter, or any affiliates
thereof shall use any trademark, trade name, service mark or logo of LIFE
COMPANY, UNDERWRITER or any of their affiliates, or any variation of any such
trademark, trade name, service mark or logo, without LIFE COMPANY=s or
UNDERWRITER=s prior written consent, the granting of which shall be at LIFE
COMPANY=s or UNDERWRITER=s sole option.
SECTION 20. PARTIES TO COOPERATE
Each party to this Agreement will cooperate with each other party and
all appropriate governmental authorities (including, without limitation, the
SEC, the NASD and state insurance regulators) and will permit each other and
such authorities reasonable access to its books and records (including copies
thereof) in connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
SECTION 21. AMENDMENTS
No provision of this Agreement may be amended or modified in any manner
except by a written agreement executed by all parties hereto.
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed in their names and on their behalf by and through their duly authorized
officers signing below.
AIM VARIABLE INSURANCE FUNDS, INC.
/s/P. Michelle Grace /s/ Robert H Graham
Attest: _______________________ By: ___________________________________
Name: P. Michelle Grace Name: Robert H. Graham
Title Assistant Secretary Title: President
ALLIANZ LIFE INSURANCE COMPANY OF
NORTH AMERICA, on behalf of itself and its
separate accounts
/s/ Michael D Engel /s/ Thomas B. Clifford
Attest: ________________________ By: __________________________________
Michael D Engel Thomas B. Clifford
Name: ________________________ Name: __________________________________
Senior Counsel Assistand Vice President
Title: ________________________ Title: __________________________________
NALAC FINANCIAL PLANS, LLC
/s/ Michael D Engel /s/ Thomas B. Clifford
Attest: ________________________ By: __________________________________
Michael D Engel Thomas B Clifford
Name: ________________________ Name: __________________________________
Senior Counsel President
Title: ________________________ Title: __________________________________
<PAGE>
SCHEDULE A
FUNDS AVAILABLE UNDER THE CONTRACTS
- -----------------------------------
$ AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Growth Fund
SEPARATE ACCOUNTS UTILIZING THE FUNDS
- -------------------------------------
CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS
- -----------------------------------------
SCHEDULE B
EXPENSE ALLOCATIONS
================================================================================
LIFE COMPANY AVIF / AIM
================================================================================
Preparing and filing the Account=s preparing and filing the Fund=s
registration statement registration statement
- --------------------------------------------------------------------------------
text composition for Account text composition for Fund prospectuses
prospectuses and supplements and supplements
- --------------------------------------------------------------------------------
text alterations of prospectuses text alterations of prospectuses
(Account) and supplements (Account) (Fund) and supplements (Fund)
- --------------------------------------------------------------------------------
printing Account and Fund prospectuses a camera ready Fund prospectus
and supplements
- --------------------------------------------------------------------------------
text composition and printing Account text composition and printing Fund
SAIs SAIs
- --------------------------------------------------------------------------------
mailing and distributing Account SAIs mailing and distributing Fund SAIs to
to policy owners upon request by policy owners upon request by policy
policy owners owners
- --------------------------------------------------------------------------------
mailing and distributing prospectuses
(Account and Fund) and supplements
(Account and Fund) to policy owners of
record as required by Federal Securities
Laws and to prospective purchasers
- --------------------------------------------------------------------------------
text composition (Account), printing, text composition of annual and
mailing, and distributing annual and semi-annual reports (Fund)
semi-annual reports for Account (Fund
and Account as, applicable)
- --------------------------------------------------------------------------------
text composition, printing, mailing, text composition, printing, mailing,
distributing, and tabulation of proxy distributing and tabulation of proxy
statements and voting instruction statements and voting instruction
solicitation materials to policy owners solicitation materials to policy
with respect to proxies related to the owners with respect to proxies
Account related to the Fund
- --------------------------------------------------------------------------------
Preparation, printing and distributing
sales material and advertising relating
to the Funds, insofar as such materials
relate to the Contracts and filing such
materials with and obtaining approval
from, the SEC, the NASD, any state
insurance regulatory authority, and any
other appropriate regulatory authority,
to the extent Required
- --------------------------------------------------------------------------------
PARTICIPATION AGREEMENT
THIS AGREEMENT is made this 16th day of July, 1999, by and among The
Alger American Fund (the "Trust"), an open-end management investment company
organized as a Massachusetts business trust, Allianz Life Insurance Company of
North America, a life insurance company organized as a corporation under the
laws of the State of Minnesota, (the "Company"), on its own behalf and on behalf
of each segregated asset account of the Company set forth in Schedule A, as may
be amended from time to time (the "Accounts"), and Fred Alger & Company,
Incorporated, a Delaware corporation, the Trust's distributor (the
"Distributor").
WHEREAS, the Trust is registered with the Securities and Exchange
Commission (the "Commission") as an open-end management investment company under
the Investment Company Act of 1940, as amended (the "1940 Act"), and has an
effective registration statement relating to the offer and sale of the various
series of its shares under the Securities Act of 1933, as amended (the "1933
Act");
WHEREAS, the Trust and the Distributor desire that Trust shares be used
as an investment vehicle for separate accounts established for variable life
insurance policies and variable annuity contracts to be offered by life
insurance companies which have entered into fund participation agreements with
the Trust (the "Participating Insurance Companies");
WHEREAS, shares of beneficial interest in the Trust are divided into
the following series which are available for purchase by the Company for the
Accounts: Alger American Small Capitalization Portfolio, Alger American Growth
Portfolio, Alger American Income and Growth Portfolio, Alger American Balanced
Portfolio, Alger American MidCap Growth Portfolio, and Alger American Leveraged
AllCap Portfolio;
WHEREAS, the Trust has received an order from the Commission, dated
February 17, 1989 (File No. 812-7076), granting Participating Insurance
Companies and their separate accounts exemptions from the provisions of Sections
9(a), 13(a), 15(a) and 15(b) of the 1940 Act, and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the
Portfolios of the Trust to be sold to and held by variable annuity and variable
life insurance separate accounts of both affiliated and unaffiliated life
insurance companies (the "Shared Funding Exemptive Order");
WHEREAS, the Company has registered or will register under the 1933 Act
certain variable life insurance policies and variable annuity contracts to be
issued by the Company under which the Portfolios are to be made available as
investment vehicles (the "Contracts");
<PAGE>
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act unless an exemption from registration
under the 1940 Act is available and the Trust has been so advised;
WHEREAS, the Company desires to use shares of the Portfolios indicated on
Schedule A as investment vehicles for the Accounts;
NOW THEREFORE, in consideration of their mutual promises, the parties
agree as follows:
ARTICLE I.
Purchase and Redemption of Trust Portfolio Shares
1.1. For purposes of this Article I, the Company shall be the Trust's agent
for the receipt from each account of purchase orders and requests for
redemption pursuant to the Contracts relating to each Portfolio,
provided that the Company notifies the Trust of such purchase orders
and requests for redemption by 9:30 a.m. Eastern time on the next
following Business Day, as defined in Section 1.3.
1.2. The Trust shall make shares of the Portfolios available to the Accounts
at the net asset value next computed after receipt of a purchase order
by the Trust (or its agent), as established in accordance with the
provisions of the then current prospectus of the Trust describing
Portfolio purchase procedures. The Company will transmit orders from
time to time to the Trust for the purchase and redemption of shares of
the Portfolios. The Trustees of the Trust (the "Trustees") may refuse
to sell shares of any Portfolio to any person, or suspend or terminate
the offering of shares of any Portfolio if such action is required by
law or by regulatory authorities having jurisdiction or if, in the sole
discretion of the Trustees acting in good faith and in light of their
fiduciary duties under federal and any applicable state laws, such
action is deemed in the best interests of the shareholders of such
Portfolio.
1.3. The Company shall pay for the purchase of shares of a Portfolio on
behalf of an Account with federal funds to be transmitted by wire to
the Trust, with the reasonable expectation of receipt by the Trust by
2:00 p.m. Eastern time on the next Business Day after the Trust (or its
agent) receives the purchase order. Upon receipt by the Trust of the
federal funds so wired, such funds shall cease to be the responsibility
of the Company and shall become the responsibility of the Trust for
this purpose. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which the Trust calculates
its net asset value pursuant to the rules of the Commission.
1.4. The Trust will redeem for cash any full or fractional shares of any
Portfolio, when requested by the Company on behalf of an Account, at
the net asset value next computed after receipt by the Trust (or its
agent) of the request for redemption, as established in accordance with
the provisions of the then current prospectus of the Trust describing
Portfolio redemption procedures. The Trust shall make payment for such
shares in the manner established from time to time by the Trust.
Proceeds of redemption with respect to a Portfolio will normally be
paid to the Company for an Account in federal funds transmitted by wire
to the Company by order of the Trust with the reasonable expectation of
receipt by the Company by 2:00 p.m. Eastern time on the next Business
Day after the receipt by the Trust (or its agent) of the request for
redemption. Such payment may be delayed if, for example, the
Portfolio's cash position so requires or if extraordinary market
conditions exist, but in no event shall payment be delayed for a
greater period than is permitted by the 1940 Act. The Trust reserves
the right to suspend the right of redemption, consistent with Section
22(e) of the 1940 Act and any rules thereunder.
1.5. Payments for the purchase of shares of the Trust's Portfolios by the
Company under Section 1.3 and payments for the redemption of shares of
the Trust's Portfolios under Section 1.4 on any Business Day may be
netted against one another for the purpose of determining the amount of
any wire transfer.
1.6. Issuance and transfer of the Trust's Portfolio shares will be by book
entry only. Stock certificates will not be issued to the Company or the
Accounts. Portfolio Shares purchased from the Trust will be recorded in
the appropriate title for each Account or the appropriate subaccount of
each Account.
1.7. The Trust shall furnish, on or before the ex-dividend date, notice to
the Company of any income dividends or capital gain distributions
payable on the shares of any Portfolio of the Trust. The Company hereby
elects to receive all such income dividends and capital gain
distributions as are payable on a Portfolio's shares in additional
shares of that Portfolio. The Trust shall notify the Company of the
number of shares so issued as payment of such dividends and
distributions.
1.8. The Trust shall calculate the net asset value of each Portfolio on each
Business Day, as defined in Section 1.3. The Trust shall make the net
asset value per share for each Portfolio available to the Company or
its designated agent on a daily basis as soon as reasonably practical
after the net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available to the
Company by 6:30 p.m. Eastern time each Business Day. If the Trust
provides materially incorrect share net asset value information, the
number of shares purchased or redeemed shall be adjusted to reflect the
correct net asset value per share, unless the Distributor corrects such
error by reimbursing the Fund for any losses. Any material error in the
calculation or reporting of net asset value per share, dividend or
capital gain information shall be reported promptly upon discovery to
the Company.
1.9. The Trust agrees that its Portfolio shares will be sold only to
Participating Insurance Companies and their segregated asset accounts,
to the Fund Sponsor or its affiliates and to such other entities as may
be permitted by Section 817(h) of the Code, the regulations hereunder,
or judicial or administrative interpretations thereof. No shares of any
Portfolio will be sold directly to the general public. The Company
agrees that it will use Trust shares only for the purposes of funding
the Contracts through the Accounts listed in Schedule A, as amended
from time to time.
1.10. The Trust agrees that all Participating Insurance Companies shall have
the obligations and responsibilities regarding pass-through voting and
conflicts of interest corresponding materially to those contained in
Section 2.9 and Article IV of this Agreement.
ARTICLE II.
Obligations of the Parties
2.1. The Trust shall prepare and be responsible for filing with the
Commission and any state regulators requiring such filing all
shareholder reports, notices, proxy materials (or similar materials
such as voting instruction solicitation materials), prospectuses and
statements of additional information of the Trust. The Trust shall bear
the costs of registration and qualification of shares of the
Portfolios, preparation and filing of the documents listed in this
Section 2.1 and all taxes to which an issuer is subject on the issuance
and transfer of its shares.
2.2. The Company shall distribute such prospectuses, proxy statements and
periodic reports of the Trust to the Contract owners as required to be
distributed to such Contract owners under applicable federal or state
law.
2.3. The Trust shall provide such documentation (including a final copy of
the Trust's prospectus as set in type or in camera-ready copy) and
other assistance as is reasonably necessary in order for the Company to
print together in one document the current prospectus for the Contracts
issued by the Company and the current prospectus for the Trust. The
Trust shall bear the expense of printing copies of its current
prospectus that will be distributed to existing Contract owners, and
the Company shall bear the expense of printing copies of the Trust's
prospectus that are used in connection with offering the Contracts
issued by the Company.
2.4. The Trust and the Distributor shall provide (1) at the Trust's expense,
one copy of the Trust's current Statement of Additional Information
("SAI") to the Company and to any Contract owner who requests such SAI,
(2) at the Company's expense, such additional copies of the Trust's
current SAI as the Company shall reasonably request and that the
Company shall require in accordance with applicable law in connection
with offering the Contracts issued by the Company.
2.5. The Trust, at its expense, shall provide the Company with copies of its
proxy material, periodic reports to shareholders and other
communications to shareholders in such quantity as the Company shall
reasonably require for purposes of distributing to Contract owners. The
Trust, at the Company's expense, shall provide the Company with copies
of its periodic reports to shareholders and other communications to
shareholders in such quantity as the Company shall reasonably request
for use in connection with offering the Contracts issued by the
Company. If requested by the Company in lieu thereof, the Trust shall
provide such documentation (including a final copy of the Trust's proxy
materials, periodic reports to shareholders and other communications to
shareholders, as set in type or in camera-ready copy) and other
assistance as reasonably necessary in order for the Company to print
such shareholder communications for distribution to Contract owners.
2.6. The Company agrees and acknowledges that the Distributor is the sole
owner of the name and mark "Alger" and that all use of any designation
comprised in whole or part of such name or mark under this Agreement
shall inure to the benefit of the Distributor. Except as provided in
Section 2.5, the Company shall not use any such name or mark on its own
behalf or on behalf of the Accounts or Contracts in any registration
statement, advertisement, sales literature or other materials relating
to the Accounts or Contracts without the prior written consent of the
Distributor. Upon termination of this Agreement for any reason, the
Company shall cease all use of any such name or mark as soon as
reasonably practicable.
2.7. The Company shall furnish, or cause to be furnished, to the Trust or
its designee a copy of each Contract prospectus and/or statement of
additional information describing the Contracts, each report to
Contract owners, proxy statement, application for exemption or request
for no-action letter in which the Trust or the Distributor is named
contemporaneously with the filing of such document with the Commission.
The Company shall furnish, or shall cause to be furnished, to the Trust
or its designee each piece of sales literature or other promotional
material in which the Trust or the Distributor is named, at least five
Business Days prior to its use. No such material shall be used if the
Trust or its designee reasonably objects to such use within three
Business Days after receipt of such material.
2.8. The Company shall not give any information or make any representations
or statements on behalf of the Trust or concerning the Trust or the
Distributor in connection with the sale of the Contracts other than
information or representations contained in and accurately derived from
the registration statement or prospectus for the Trust shares (as such
registration statement and prospectus may be amended or supplemented
from time to time), annual and semi-annual reports of the Trust,
Trust-sponsored proxy statements, or in sales literature or other
promotional material approved by the Trust or its designee, except as
required by legal process or regulatory authorities or with the prior
written permission of the Trust, the Distributor or their respective
designees. The Trust and the Distributor agree to respond to any
request for approval on a prompt and timely basis. The Company shall
adopt and implement procedures reasonably designed to ensure that
"broker only" materials including information therein about the Trust
or the Distributor are not distributed to existing or prospective
Contract owners.
2.9. The Trust shall use its best efforts to provide the Company, on a
timely basis, with such information about the Trust, the Portfolios and
the Distributor, in such form as the Company may reasonably require, as
the Company shall reasonably request in connection with the preparation
of registration statements, prospectuses and annual and semi-annual
reports pertaining to the Contracts.
2.10. The Trust and the Distributor shall not give, and agree that no
affiliate of either of them shall give, any information or make any
representations or statements on behalf of the Company or concerning
the Company, the Accounts or the Contracts other than information or
representations contained in and accurately derived from the
registration statement or prospectus for the Contracts (as such
registration statement and prospectus may be amended or supplemented
from time to time), or in materials approved by the Company for
distribution including sales literature or other promotional materials,
except as required by legal process or regulatory authorities or with
the prior written permission of the Company. The Company agrees to
respond to any request for approval on a prompt and timely basis.
2.11. So long as, and to the extent that, the Commission interprets the 1940
Act to require pass-through voting privileges for Contract owners, the
Company will provide pass-through voting privileges to Contract owners
whose cash values are invested, through the registered Accounts, in
shares of one or more Portfolios of the Trust. The Trust shall require
all Participating Insurance Companies to calculate voting privileges in
the same manner and the Company shall be responsible for assuring that
the Accounts calculate voting privileges in the manner established by
the Trust. With respect to each registered Account, the Company will
vote shares of each Portfolio of the Trust held by a registered Account
and for which no timely voting instructions from Contract owners are
received in the same proportion as those shares for which voting
instructions are received. The Company and its agents will in no way
recommend or oppose or interfere with the solicitation of proxies for
Portfolio shares held to fund the Contacts without the prior written
consent of the Trust, which consent may be withheld in the Trust's sole
discretion. The Company reserves the right, to the extent permitted by
law, to vote shares held in any Account in its sole discretion.
2.12. The Company and the Trust will each provide to the other information
about the results of any regulatory examination relating to the
Contracts or the Trust, including relevant portions of any "deficiency
letter" and any response thereto.
2.13. No compensation shall be paid by the Trust to the Company, or by the
Company to the Trust, under this Agreement (except for specified
expense reimbursements). However, nothing herein shall prevent the
parties hereto from otherwise agreeing to perform, and arranging for
appropriate compensation for, other services relating to the Trust, the
Accounts or both.
ARTICLE III.
Representations and Warranties
3.1. The Company represents and warrants that it is an insurance company
duly organized and in good standing under the laws of the State of
Minnesota and that it has legally and validly established each Account
as a segregated asset account under such law as of the date set forth
in Schedule A, and that NALAC Financial Plans LLC, the principal
underwriter for the Contracts, is registered as a broker-dealer under
the Securities Exchange Act of 1934 and is a member in good standing of
the National Association of Securities Dealers, Inc.
3.2. The Company represents and warrants that it has registered or, prior to
any issuance or sale of the Contracts, will register each Account as a
unit investment trust in accordance with the provisions of the 1940 Act
and cause each Account to remain so registered to serve as a segregated
asset account for the Contracts, unless an exemption from registration
is available.
3.3. The Company represents and warrants that the Contracts will be
registered under the 1933 Act unless an exemption from registration is
available prior to any issuance or sale of the Contracts; the Contracts
will be issued and sold in compliance in all material respects with all
applicable federal and state laws; and the sale of the Contracts shall
comply in all material respects with state insurance law suitability
requirements.
3.4. The Trust represents and warrants that it is duly organized and validly
existing under the laws of the Commonwealth of Massachusetts and that
it does and will comply in all material respects with the 1940 Act and
the rules and regulations thereunder.
3.5. The Trust and the Distributor represent and warrant that the Portfolio
shares offered and sold pursuant to this Agreement will be registered
under the 1933 Act and sold in accordance with all applicable federal
and state laws, and the Trust shall be registered under the 1940 Act
prior to and at the time of any issuance or sale of such shares. The
Trust shall amend its registration statement under the 1933 Act and the
1940 Act from time to time as required in order to effect the
continuous offering of its shares. The Trust shall register and qualify
its shares for sale in accordance with the laws of the various states
only if and to the extent deemed advisable by the Trust.
3.6. The Trust represents and warrants that the investments of each
Portfolio will comply with the diversification requirements for
variable annuity, endowment or life insurance contracts set forth in
Section 817(h) of the Internal Revenue Code of 1986, as amended (the
"Code"), and the rules and regulations thereunder, including without
limitation Treasury Regulation 1.817-5, and will notify the Company
immediately upon having a reasonable basis for believing any Portfolio
has ceased to comply or might not so comply and will immediately take
all reasonable steps to adequately diversify the Portfolio to achieve
compliance within the grace period afforded by Regulation 1.817-5.
3.7. The Trust represents and warrants that it is currently qualified as a
"regulated investment company" under Subchapter M of the Code, that it
will make every effort to maintain such qualification and will notify
the Company immediately upon having a reasonable basis for believing it
has ceased to so qualify or might not so qualify in the future.
3.8. The Trust represents and warrants that it, its directors, officers,
employees and others dealing with the money or securities, or both, of
a Portfolio shall at all times be covered by a blanket fidelity bond or
similar coverage for the benefit of the Trust in an amount not less
than the minimum coverage required by Rule 17g-1 or other applicable
regulations under the 1940 Act. Such bond shall include coverage for
larceny and embezzlement and be issued by a reputable bonding company.
3.9. The Distributor represents and warrants that it is duly organized and
validly existing under the laws of the State of Delaware and that it is
registered, and will remain registered, during the term of this
Agreement, as a broker-dealer under the Securities Exchange Act of 1934
and is a member in good standing of the National Association of
Securities Dealers, Inc.
ARTICLE IV.
Potential Conflicts
4.1. The parties acknowledge that a Portfolio's shares may be made available
for investment to other Participating Insurance Companies. In such
event, the Trustees will monitor the Trust for the existence of any
material irreconcilable conflict between the interests of the contract
owners of all Participating Insurance Companies. A material
irreconcilable conflict may arise for a variety of reasons, including:
(a) an action by any state insurance regulatory authority; (b) a change
in applicable federal or state insurance, tax or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar action by insurance, tax, or
securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in
voting instructions given by variable annuity contract and variable
life insurance contract owners; or (f) a decision by an insurer to
disregard the voting instructions of contract owners. The Trust shall
promptly inform the Company of any determination by the Trustees that a
material irreconcilable conflict exists and of the implications
thereof.
4.2. The Company agrees to report promptly any potential or existing
conflicts of which it is aware to the Trustees. The Company will assist
the Trustees in carrying out their responsibilities under the Shared
Funding Exemptive Order by providing the Trustees with all information
reasonably necessary for and requested by the Trustees to consider any
issues raised including, but not limited to, information as to a
decision by the Company to disregard Contract owner voting
instructions. All communications from the Company to the Trustees may
be made in care of the Trust.
4.3. If it is determined by a majority of the Trustees, or a majority of the
disinterested Trustees, that a material irreconcilable conflict exists
that affects the interests of contract owners, the Company shall, in
cooperation with other Participating Insurance Companies whose contract
owners are also affected, at its own expense and to the extent
reasonably practicable (as determined by the Trustees) take whatever
steps are necessary to remedy or eliminate the material irreconcilable
conflict, which steps could include: (a) withdrawing the assets
allocable to some or all of the Accounts from the Trust or any
Portfolio and reinvesting such assets in a different investment medium,
including (but not limited to) another Portfolio of the Trust, or
submitting the question of whether or not such segregation should be
implemented to a vote of all affected Contract owners and, as
appropriate, segregating the assets of any appropriate group (i.e.,
annuity contract owners, life insurance contract owners, or variable
contract owners of one or more Participating Insurance Companies) that
votes in favor of such segregation, or offering to the affected
Contract owners the option of making such a change; and (b)
establishing a new registered management investment company or managed
separate account.
4.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard Contract owner voting instructions and that
decision represents a minority position or would preclude a majority
vote, the Company may be required, at the Trust's election, to withdraw
the affected Account's investment in the Trust and terminate this
Agreement with respect to such Account; provided, however that such
withdrawal and termination shall be limited to the extent required by
the foregoing material irreconcilable conflict as determined by a
majority of the disinterested Trustees. Any such withdrawal and
termination must take place within six (6) months after the Trust gives
written notice that this provision is being implemented. Until the end
of such six (6) month period, the Trust shall continue to accept and
implement orders by the Company for the purchase and redemption of
shares of the Trust.
4.5. If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw
the affected Account's investment in the Trust and terminate this
Agreement with respect to such Account within six (6) months after the
Trustees inform the Company in writing that the Trust has determined
that such decision has created a material irreconcilable conflict;
provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested Trustees.
Until the end of such six (6) month period, the Trust shall continue to
accept and implement orders by the Company for the purchase and
redemption of shares of the Trust.
4.6. For purposes of Section 4.3 through 4.6 of this Agreement, a majority
of the disinterested Trustees shall determine whether any proposed
action adequately remedies any material irreconcilable conflict, but in
no event will the Trust be required to establish a new funding medium
for any Contract. The Company shall not be required to establish a new
funding medium for the Contracts if an offer to do so has been declined
by vote of a majority of Contract owners materially adversely affected
by the material irreconcilable conflict. In the event that the Trustees
determine that any proposed action does not adequately remedy any
material irreconcilable conflict, then the Company will withdraw the
Account's investment in the Trust and terminate this Agreement within
six (6) months after the Trustees inform the Company in writing of the
foregoing determination; provided, however, that such withdrawal and
termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested Trustees.
4.7. The Company shall at least annually submit to the Trustees such
reports, materials or data as the Trustees may reasonably request so
that the Trustees may fully carry out the duties imposed upon them by
the Shared Funding Exemptive Order, and said reports, materials and
data shall be submitted more frequently if reasonably deemed
appropriate by the Trustees.
4.8. If and to the extent that Rule 6e-3(T) is amended, or Rule 6e-3 is
adopted, to provide exemptive relief from any provision of the 1940 Act
or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Shared
Funding Exemptive Order, then the Trust and/or the Participating
Insurance Companies, as appropriate, shall take such steps as may be
necessary to comply with Rule 6e-3(T), as amended, or Rule 6e-3, as
adopted, to the extent such rules are applicable.
ARTICLE V.
Indemnification
5.1. Indemnification By the Company. The Company agrees to indemnify and
hold harmless the Distributor, the Trust and each of its Trustees,
officers, employees and agents and each person, if any, who controls
the Trust within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section
5.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Company, which consent shall not be unreasonably withheld) or expenses
(including the reasonable costs of investigating or defending any
alleged loss, claim, damage, liability or expense and reasonable legal
counsel fees incurred in connection therewith) (collectively,
"Losses"), to which the Indemnified Parties may become subject under
any statute or regulation, or at common law or otherwise, insofar as
such Losses are related to the sale or acquisition of the Contracts or
Trust shares and:
(a) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in a
registration statement or prospectus for the Contracts or in
the Contracts themselves or in sales literature generated or
approved by the Company on behalf of the Contracts or Accounts
(or any amendment or supplement to any of the foregoing)
(collectively, "Company Documents" for the purposes of this
Article V), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading, provided that this indemnity shall not
apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in
reliance upon and was accurately derived from written
information furnished to the Company by or on behalf of the
Trust for use in Company Documents or otherwise for use in
connection with the sale of the Contracts or Trust shares; or
(b) arise out of or result from statements or representations
(other than statements or representations contained in and
accurately derived from Trust Documents as defined in Section
5.2(a)) or wrongful conduct of the Company or persons under
its control, with respect to the sale or acquisition of the
Contracts or Trust shares; or
(c) arise out of or result from any untrue statement or
alleged untrue statement of a material fact contained in Trust
Documents as defined in Section 5.2(a) or the omission or
alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein
not misleading if such statement or omission was made in
reliance upon and accurately derived from written information
furnished to the Trust by or on behalf of the Company; or
(d) arise out of or result from any failure by the Company to
provide the services or furnish the materials required under
the terms of this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company; or
(f) arise out of or result from the provision by the Company
to the Trust of insufficient or incorrect information
regarding the purchase or sale of shares of any Portfolio, or
the failure of the Company to provide such information on a
timely basis.
5.2. Indemnification by the Distributor. The Distributor agrees to indemnify
and hold harmless the Company and each of its directors, officers,
employees, and agents and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for the purposes of this Section 5.2) against any
and all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Distributor, which consent
shall not be unreasonably withheld) or expenses (including the
reasonable costs of investigating or defending any alleged loss, claim,
damage, liability or expense and reasonable legal counsel fees incurred
in connection therewith) (collectively, "Losses"), to which the
Indemnified Parties may become subject under any statute or regulation,
or at common law or otherwise, insofar as such Losses are related to
the sale or acquisition of the Contracts or Trust shares and:
(a) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
the registration statement or prospectus for the Trust (or any
amendment or supplement thereto) (collectively, "Trust
Documents" for the purposes of this Article V), or arise out
of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading,
provided that this indemnity shall not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and
was accurately derived from written information furnished to
the Distributor or the Trust by or on behalf of the Company
for use in Trust Documents or otherwise for use in connection
with the sale of the Contracts or Trust shares; or
(b) arise out of or result from statements or representations
(other than statements or representations contained in and
accurately derived form Company Documents) or wrongful conduct
of the Distributor or persons under its control, with respect
to the sale or acquisition of the Contracts or Portfolio
shares; or
(c) arise out of or result from any untrue statement or
alleged untrue statement of a material fact contained in
Company Documents or the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading if
such statement or omission was made in reliance upon and
accurately derived from written information furnished to the
Company by or on behalf of the Trust; or
(d) arise out of or result from any failure by the Distributor
or the Trust to provide the services or furnish the materials
required under the terms of this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Distributor or the
Trust in this Agreement or arise out of or result from any
other material breach of this Agreement by the Distributor or
the Trust.
5.3. None of the Company, the Trust or the Distributor shall be liable under
the indemnification provisions of Sections 5.1 or 5.2, as applicable,
with respect to any Losses incurred or assessed against an Indemnified
Party that arise from such Indemnified Party's willful misfeasance, bad
faith or negligence in the performance of such Indemnified Party's
duties or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this Agreement.
5.4. None of the Company, the Trust or the Distributor shall be liable under
the indemnification provisions of Sections 5.1 or 5.2, as applicable,
with respect to any claim made against an Indemnified party unless such
Indemnified Party shall have notified the other party in writing within
a reasonable time after the summons, or other first written
notification, giving information of the nature of the claim shall have
been served upon or otherwise received by such Indemnified Party (or
after such Indemnified Party shall have received notice of service upon
or other notification to any designated agent), but failure to notify
the party against whom indemnification is sought of any such claim
shall not relieve that party from any liability which it may have to
the Indemnified Party in the absence of Sections 5.1 and 5.2.
5.5. In case any such action is brought against an Indemnified Party, the
indemnifying party shall be entitled to participate, at its own
expense, in the defense of such action. The indemnifying party also
shall be entitled to assume the defense thereof, with counsel
reasonably satisfactory to the party named in the action. After notice
from the indemnifying party to the Indemnified Party of an election to
assume such defense, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the indemnifying
party will not be liable to the Indemnified Party under this Agreement
for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than
reasonable costs of investigation.
ARTICLE VI.
Termination
6.1. This Agreement shall terminate:
(a) at the option of any party upon 6 months advance written
notice to the other parties, unless a shorter time is agreed
to by the parties;
(b) at the option of the Trust or the Distributor if the
Contracts issued by the Company cease to qualify as annuity
contracts or life insurance contracts, as applicable, under
the Code ( unless disqualification is caused by the Trust or
the Distributor) or if the Contracts are not registered,
issued or sold in accordance with applicable state and/or
federal law; or
(c) at the option of any party upon a determination by a
majority of the Trustees of the Trust, or a majority of its
disinterested Trustees, that a material irreconcilable
conflict exists; or
(d) at the option of the Company upon institution of formal
proceedings against the Trust or the Distributor by the NASD,
the SEC, or any state securities or insurance department or
any other regulatory body regarding the Trust's or the
Distributor's duties under this Agreement or related to the
sale of Trust shares or the operation of the Trust; or
(e) at the option of the Company if the Trust or a Portfolio
fails to meet the diversification requirements specified in
Section 3.6 hereof; or
(f) at the option of the Company if shares of the Series are
not reasonably available to meet the requirements of the
Variable Contracts issued by the Company, as determined by the
Company, and upon prompt notice by the Company to the other
parties; or
(g) at the option of the Company in the event any of the
shares of the Portfolio are not registered, issued or sold in
accordance with applicable state and/or federal law, or such
law precludes the use of such shares as the underlying
investment media of the Variable Contracts issued or to be
issued by the Company; or
(h) at the option of the Company, if the Portfolio fails to
qualify as a Regulated Investment Company under Subchapter M
of the Code; or
(i) at the option of the Distributor if it shall determine in
its sole judgment exercised in good faith, that the Company
and/or its affiliated companies has suffered a material
adverse change in its business, operations, financial
condition or prospects since the date of this Agreement or is
the subject of material adverse publicity.
6.2. Notwithstanding any termination of this Agreement, the Trust shall, at
the option of the Company, continue to make available additional shares
of any Portfolio and redeem shares of any Portfolio pursuant to the
terms and conditions of this Agreement for all Contracts in effect on
the effective date of termination of this Agreement.
6.3. The provisions of Article V and all warranties under Article III shall
survive the termination of this Agreement, and the provisions of
Article IV and Section 2.9 shall survive the termination of this
Agreement as long as shares of the Trust are held on behalf of Contract
owners in accordance with Section 6.2.
ARTICLE VII.
Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Trust or its Distributor:
Fred Alger Management, Inc.
30 Montgomery Street
Jersey City, NJ 07302
Attn: Gregory S. Duch
If to the Company:
Allianz Life Insurance Company of North America
1750 Hennepin Avenue
Minneapolis, MN 55403
Attn: Thomas B. Clifford
ARTICLE VIII.
Miscellaneous
8.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
8.2. This Agreement may be executed in two or more counterparts, each of
which taken together shall constitute one and the same instrument.
8.3. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
8.4. This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of Minnesota. It
shall also be subject to the provisions of the federal securities laws
and the rules and regulations thereunder and to any orders of the
Commission granting exemptive relief therefrom and the conditions of
such orders.
Copies of any such orders shall be promptly forwarded by the Trust to
the Company.
8.5. All liabilities of the Trust arising, directly or indirectly, under
this Agreement, of any and every nature whatsoever, shall be satisfied
solely out of the assets of the Trust and no Trustee, officer, agent or
holder of shares of beneficial interest of the Trust shall be
personally liable for any such liabilities.
8.6. Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the Commission,
the National Association of Securities Dealers, Inc. and state
insurance regulators) and shall permit such authorities reasonable
access to its books and records in connection with any investigation or
inquiry relating to this Agreement or the transactions contemplated
hereby.
8.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled
to under state and federal laws.
8.8. This Agreement shall not be exclusive in any respect.
8.9. Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the prior written approval of the
other party.
8.10. No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed
by both parties.
8.11. Each party hereto shall, except as required by law or otherwise
permitted by this Agreement, treat as confidential the names and
addresses of the owners of the Contracts and all information reasonably
identified as confidential in writing by any other party hereto, and
shall not disclose such confidential information without the written
consent of the affected party unless such information has become
publicly available.
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Participation Agreement as of the date and year first
above written.
Fred Alger & Company, Incorporated
By:__/s/ Gregory S. Duch_________
Name: Gregory S. Duch
Title: Executive Vice President
The Alger American Fund
By:_/s/ Gregory S. Duch _________
Name: Gregory S. Duch
Title: Treasurer
Allianz Life Insurance Company of North America
By:_/s/ Thomas B. Clifford_________
Name: Thomas B. Clifford
Title: Assistant Vice President
<PAGE>
PARTICIPATION AGREEMENT
THIS AGREEMENT is made this 6th day of October, 1999, by and among
USAllianz Variable Insurance Products Trust (the "Trust"), an open-end
management investment company organized as a Delaware Business Trust, Allianz
Life Insurance Company of North America, a life insurance company organized as a
corporation under the laws of the State of Minnesota, (the "Company"), on its
own behalf and on behalf of each segregated asset account of the Company set
forth in Schedule A, as may be amended from time to time (the "Accounts"), and
BISYS Fund Services Limited Partnership, the Trust's distributor (the
"Distributor").
WHEREAS, the Trust is registered with the Securities and Exchange
Commission (the "Commission") as an open-end management investment company under
the Investment Company Act of 1940, as amended (the "1940 Act").
WHEREAS, the Trust and the Distributor desire that Trust shares be used
as an investment vehicle for separate accounts established for variable life
insurance policies and variable annuity contracts to be offered by life
insurance companies which have entered into fund participation agreements with
the Trust (the "Participating Insurance Companies");
WHEREAS, the Company has registered or will register under the 1940 Act
certain variable life insurance policies and variable annuity contracts, set
forth in Schedule A, to be issued by the Company under which the Portfolios are
to be made as investment vehicles (the "Contracts);
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act unless an exemption from registration
under the 1940 Act is available and the Trust has been so advised;
WHEREAS, the Company desires to use shares of the Portfolios indicated
on Schedule A as investment vehicles for the Accounts;
NOW THEREFORE, in consideration of their mutual promises, the parties
agree as follows:
ARTICLE I.
Purchase and Redemption of Trust Portfolio Shares
1.1. For purposes of this Article I, the Company shall be the Trust's agent
for the receipt from each account of purchase orders and requests for
redemption pursuant to the Contracts relating to each Portfolio, provided
that the Company notifies the Trust of such purchase orders and requests
for redemption by 8:30 a.m. Eastern time on the next following Business
Day, as defined in Section 1.3.
1.2. The Trust shall make shares of the Portfolios available to the Accounts
at the net asset value next computed after receipt of a purchase order by
the Trust ( or its agent), as established in accordance with the
provisions of the then current prospectus of the Trust describing
Portfolio purchase procedures. The Company will transmit orders from time
to time to the Trust for the purchase and redemption of shares of the
Portfolios. The Trustees of the Trust (the "Trustees") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the
offering of shares of any Portfolio if such action is required by law or
by regulatory authorities having jurisdiction or if, in the sole
discretion of the Trustees acting in good faith and in light of their
fiduciary duties under Federal and any applicable state laws, such action
is deemed in the best interests of the shareholders of such Portfolio.
1.3. The Company shall pay for the purchase of shares of a Portfolio on behalf
of an Account with federal funds to be transmitted by wire to the Trust,
with the reasonable expectation of receipt by the Trust by 4:00 p.m.
Eastern time on the same Business Day that the Trust (or its agent)
receives the purchase order. Upon receipt by the Trust of the federal
funds so wired, such funds shall cease to be the responsibility of the
Company and shall become the responsibility of the Trust for this
purpose. "Business Day" shall mean any day on which the New York Stock
Exchange is open for trading and on which the Trust calculates its net
asset value pursuant to the rules of the Commission.
1.4. The Trust will redeem for cash any full or fractional shares of any
Portfolio, when requested by the Company on behalf of an Account, at the
net asset value next computed after receipt by the Trust (or its agent)
of the request for redemption, as established in accordance with the
provisions of the then current prospectus of the Trust describing
Portfolio redemption procedures. The Trust shall make payment for such
shares in the manner established from time to time by the Trust. Proceeds
of redemption with respect to a Portfolio will normally be paid to the
Company for an Account in federal funds transmitted by wire to the
Company by order of the Trust with the reasonable expectation of receipt
by the Company by 4:00 p.m. Eastern time on the same Business Day that
the Trust (or its agent) receives the request for redemption. Such
payment may be delayed if, for example, the Portfolio's cash position so
requires or if extraordinary market conditions exist, but in no event
shall payment be delayed for a greater period than is permitted by the
1940 Act. The Trust reserves the right to suspend the right of
redemption, consistent with Section 22(3) of the 1940 Act and any rules
thereunder.
1.5. Payments for the purchase of shares of the Trust's Portfolios by the
Company under Section 1.3 and payments for the redemption of shares of
the Trust's Portfolios under Section 1.4 on any Business Day may be
netted against one another for the purpose of determining the amount of
any wire transfer.
1.6. Issuance and transfer of the Trust's Portfolio shares will be by book
entry only. Stock certificates will not be issued to the Company or the
Accounts. Portfolio Shares purchased from the Trust will be recorded in
the appropriate title for each Account or the appropriate subaccount of
each account.
1.7. The Trust shall furnish, on or before the ex-dividend date, notice to the
Company of any income dividends or capital gain distributions payable on
the shares of any Portfolio of the Trust. The Company hereby elects to
receive all such income dividends and capital gain distributions as are
payable on a Portfolio's shares in additional shares of that Portfolio.
The Trust shall notify the Company of the number of shares so issued as
payment of such dividends and distributions.
1.8. The Trust shall calculate the net asset value of each Portfolio on each
Business Day, as defined in Section 1.3. The Trust shall make the net
asset value per share for each Portfolio available to the Company or its
designated agent on a daily basis as soon as reasonably practical after
the net asset value per share is calculated and shall use its best
efforts to make such net asset value per share available to the Company
by 6:30 p.m. Eastern time each Business Day. If the Trust provides
materially incorrect share net asset value information, the number of
shares purchased or redeemed shall be adjusted to reflect the correct net
asset value per share. Any material error in the calculation or reporting
of net asset value per share, dividend or capital gain information shall
be reported promptly upon discovery to the Company.
1.9. The Trust agrees that its Portfolio shares will be sold only to
Participating Insurance Companies and their segregated asset accounts, to
the Fund Sponsor or its affiliates and to such other entities as any be
permitted by Section 817(h) of the Code, the regulations hereunder, or
judicial or administrative interpretations thereof. No shares of any
Portfolio will be sold directly to the general public. The Company agrees
that it will use Trust shares only for the purposes of funding the
Contracts through the Accounts listed in Schedule A, as amended from time
to time.
1.10. The Trust agrees that all Participating Insurance Companies shall have
the obligations and responsibilities regarding pass-through voting and
conflicts of interest corresponding materially to those contained in
Section 2.11 and Article IV of this Agreement.
ARTICLE II.
Obligations of the Parties
2.1. The Trust shall prepare and file with the Commission a registration
statement under the Securities Act of 1933 as amended (the "1933 Act")
and this Agreement shall not be effective until such registration has
been declared effective by the Commission.
2.2. The Trust shall prepare and be responsible for filing with the Commission
and any state regulators requiring such filing all shareholder reports,
notices, proxy materials (or similar materials such as voting instruction
solicitation materials), prospectuses and statements of additional
information of the Trust. The Trust shall bear the costs of registration
and qualification of shares of the Portfolios, preparation and filing of
the documents listed in this Section 2.1 and all taxes to which an issuer
is subject on the issuance and transfer of its shares.
2.3. The Company shall distribute such prospectuses, proxy statements and
periodic reports of the Trust to the Contract owners as required to be
distributed to such Contract owners under applicable federal or state
law.
2.4. The Trust shall provide such documentation (including a final copy of the
Trust's prospectus as set in type or in camera-ready copy) and other
assistance as is reasonably necessary in order for the Company to print
together in one document the current prospectus for the Contracts issued
by the Company and the current prospectus for the Trust. The Trust shall
bear the expense of printing copies of its current prospectus that will
be distributed to existing Contract owners, and the Company shall bear
the expense of printing copies of the Trust's prospectus that are used in
connection with offering the Contracts issued by the Company.
2.5. The Trust and the Distributor shall provide (1) at the Trust's expense,
one copy of the Trust's current Statement of Additional Information
("SAI") to the Company and to any Contract owner who requests such SAI,
(2) at the Company's expense, such additional copies of the Trust's
current SAI as the Company shall reasonably request and that the Company
shall require in accordance with applicable law in connection with
offering the Contracts issued by the Company.
2.6. The Trust, at its expense, shall provide the Company with copies of its
proxy material, periodic reports to shareholders and other communications
to shareholders in such quantity as the Company shall reasonably require
for purposes of distributing to Contract owners. The Trust, at the
Company's expense, shall provide the Company with copies of its periodic
reports to shareholders and other communications to shareholders in such
quantity as the Company shall reasonably request for use in connection
with offering the Contracts issued by the Company. If requested by the
Company in lieu thereof, the Trust shall provide such documentation
(including a final copy of the Trust's proxy materials, periodic reports
to shareholders and other communications to shareholders, as set in type
or in camera-ready copy) and other assistance as reasonably necessary in
order for the Company to print such shareholder communications for
distribution to Contract owners.
2.7. The Company shall furnish, or cause to be furnished, to the Trust or its
designee a copy of each Contract prospectus and/or statement of
additional information describing the Contracts, each report to Contract
owners, proxy statement, application for exemption or request for
no-action letter in which the Trust or the Distributor is named
contemporaneously with the filing of such document with the Commission.
The Company shall furnish, or shall cause to be furnished, to the Trust
or its designee each piece of sales literature or other promotional
material in which the Trust or the Distributor is named, at least five
Business Days prior to its use. No such material shall be used if the
Trust or its designee reasonably objects to such use within three
Business Days after receipt of such material.
2.8. The Company shall not give any information or make any representations or
statements on behalf of the Trust or concerning the Trust or the
Distributor in connection with the sale of the Contracts other than
information or representations contained in and accurately derived from
the registration statement or prospectus for the Trust shares (as such
registration statement and prospectus may be amended or supplemented from
time to time), annual and semi-annual reports of the Trust,
Trust-sponsored proxy statements, or in sales literature or other
promotional material approved by the Trust or its designee, except as
required by legal process or regulatory authorities or with the prior
written permission of the Trust, the Distributor or their respective
designees. The Trust and the Distributor agree to respond to any request
for approval on a prompt and timely basis. The Company shall adopt and
implement procedures reasonably designed to ensure that "broker only"
materials including information therein about the Trust or the
Distributor are not distributed to existing or prospective Contract
owners.
2.9. The Trust shall use its best efforts to provide the Company, on a timely
basis, with such information about the Trust, the Portfolios and the
Distributor, in such form as the Company may reasonably require, as the
Company shall reasonably request in connection with the preparation of
registration statements, prospectuses and annual and semi-annual reports
pertaining to the Contracts.
2.10. The Trust and the Distributor shall not give, and agree that no affiliate
of either of them shall give, any information or make any representations
or statements on behalf of the Company or concerning the Company, the
Accounts or the Contracts other than information or representations
contained in and accurately derived from the registration statement or
prospectus for the Contracts (as such registration statement and
prospectus may be amended or supplemented from time to time), or in
materials approved by the Company for distribution including sales
literature or other promotional materials, except as required by legal
process or regulatory authorities or with the prior written permission of
the Company. The Company agrees to respond to any request for approval on
a prompt and timely basis.
2.11. So long as, and to the extent that,the Commission interprets the 1940 Act
to require pass-through voting privileges for Contract owners, the
Company will provide pass-through voting privileges to Contract owners
whose cash values are invested, through the registered Accounts, in
shares of one or more Portfolios of the Trust. The Trust shall require
all Participating Insurance Companies to calculate voting privileges in
the same manner and the Company shall be responsible for assuring that
the Accounts calculate voting privileges in the manner established by the
Trust. With respect to each registered Account, the Company will vote
shares of each Portfolio of the Trust held by a registered Account and
for which no timely voting instructions from Contract owners are received
in the same proportion as those shares for which voting instructions are
received. The Company and its agents will in no way recommend or oppose
or interfere with the solicitation of proxies for Portfolio shares held
to fund the Contracts without the prior written consent of the Trust,
which consent may be withheld in the Trust's sole discretion. The Company
reserves the right, to the extent permitted by law, to vote shares held
in any Account in its sole discretion.
2.12. The Company and the Trust will each provide to the other information
about the results of any regulatory examination relating to the Contracts
or the Trust, including relevant portions of any "deficiency letter" and
any response thereto.
2.13. No compensation shall be paid by the Trust to the Company, or by the
Company to the Trust, under this Agreement (except for specified expense
reimbursements). However, nothing herein shall prevent the parties hereto
from otherwise agreeing to perform, and arranging for appropriate
compensation for, other services relating to the Trust, the Accounts or
both.
2.14. The Company shall take all such actions as are necessary under applicable
federal and state law to permit the sale of the Contracts issued by the
Company, including registering each Account as an investment company to
the extent required under the 1940 Act, and registering the Contracts or
interests in the Accounts under the Contracts to the extent required
under the 1933 Act, and obtaining all necessary approvals to offer the
Contracts from state insurance commissioners.
2.15. The Company shall make every effort to maintain the treatment of the
Contracts issued by the Company as annuity contracts or life insurance
policies, whichever is appropriate, under applicable provisions of the
Code, and shall notify the Trust and the Distributor immediately upon
having a reasonable basis for believing that such Contracts have ceased
to be so treated or that they might not be so treated in the future.
2.16. The Company shall offer and sell the Contracts issued by the Company in
accordance with the applicable provisions of the 1933 Act, the Securities
Exchange Act of 1934, as amended (the "1934 Act"), the 1940 Act, the NASD
Rules of Fair Practice, and state law respecting the offering of variable
life insurance policies and variable annuity contracts.
2.17. The Distributor shall sell and distribute the shares of the Portfolios of
the Fund in accordance with the applicable provisions of the 1933 Act,
the 1934 Act, the 1940 Act, the NASD Rules of Fair Practice, and state
law.
2.18. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities having jurisdiction (including,
without limitation, the SEC, the NASD, and state insurance regulators)
and shall permit such authorities reasonable access to its books and
records in connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
ARTICLE III.
Representations and Warranties
3.1. The Company represents and warrants that it is an insurance company duly
organized and in good standing under the laws of the State of Minnesota
and that it has legally and validly established each Account as a
segregated asset account under such law as of the date set forth in
Schedule A, and that USAllianz Investor Services, LLC, the principal
underwriter for the Contracts, is registered as a broker-dealer under the
1934 Act and is a member in good standing of the National Association of
Securities Dealers, Inc.
3.2. The Company represents and warrants that it has registered or, prior to
any issuance or sale of the Contracts, will register each Account as a
unit investment trust in accordance with the provisions of the 1940 Act
and cause each Account to remain so registered to serve as a segregated
asset account for the Contracts, unless an exemption from registration is
available.
3.3. The Company represents and warrants that the Contracts will be registered
under the 1933 Act unless an exemption from registration is available
prior to any issuance or sale of the Contracts; the Contracts will be
issued and sold in compliance in all material respects with all
applicable federal and state laws; and the sale of the Contracts shall
comply in all material respects with state insurance law suitability
requirements.
3.4. the Trust represents and warrants that it is duly organized and validly
existing under the laws of the State of Delaware and that it does and
will comply in all material respects with the 1940 Act and the rules and
regulations thereunder.
3.5. The Trust represents and warrants that the Portfolio shares offered and
sold pursuant to this Agreement will be registered under the 1933 Act and
sold in accordance with all applicable federal and state laws, and the
Trust shall be registered under the 1940 Act prior to and at the time of
any issuance or sale of such shares. The Trust shall amend its
registration statement under the 1933 Act and the 1940 Act from time to
time as required in order to effect the continuous offering of its
shares. The Trust shall register and qualify its shares for sale in
accordance with the laws of the various states only if and to the extent
deemed advisable by the Trust.
3.6. The Trust represents and warrants that the investments of each Portfolio
will comply with the diversification requirements for variable annuity,
endowment or life insurance contracts set forth in Section 817(h) of the
Internal Revenue Code of 1986, as amended (the "Code", and the rules and
regulations thereunder, including without limitation Treasury Regulation
1.817-5), and will notify the Company immediately upon having a
reasonable basis for believing any Portfolio has ceased to comply or
might not so comply and will immediately take all reasonable steps to
adequately diversify the Portfolio to achieve compliance within the grace
period afforded by Regulation 1.817-5.
3.7. The Trust represents and warrants that it is currently qualified as a
"regulated investment company" under Subchapter M of the Code, that it
will make every effort to maintain such qualification and will notify the
Company immediately upon having a reasonable basis for believing it has
ceased to so qualify or might not so qualify in the future.
3.8. The Trust represents and warrants that it, its directors, officers,
employees and others dealing with the money or securities, or both, of a
Portfolio shall at all times be covered by a blanket fidelity bond or
similar coverage for the benefit of the Trust in an amount not less than
the minimum coverage required by Rule 17g-1 or other applicable
regulations under the 1940 Act. Such bond shall include coverage for
larceny and embezzlement and be issued by a reputable bonding company.
3.9. The Distributor represents and warrants that it is duly organized and
validly existing under the laws of the State of Ohio and that it is
registered, and will remain registered, during the term of this
Agreement, as a broker-dealer under the 1934 Act and is a member in good
standing of the National Association of Securities Dealers, Inc.
ARTICLE IV.
Potential Conflicts
(This article intentionally left blank)
ARTICLE V.
Indemnification
5.1. Indemnification By the Company. The Company agrees to indemnify and hold
harmless the Distributor, the Trust and each of its Trustees, officers,
employees and agents and each person, if any, who controls the Trust
within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 5.1) against any and
all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Company, which consent shall
not be unreasonably withheld) or expenses (including the reasonable costs
of investigating or defending any alleged loss, claim, damage, liability
or expense and reasonable legal counsel fees incurred in connection
therewith) (collectively, "Losses"), to which the Indemnified Parties may
become subject under any statute or regulation, or at common law or
otherwise, insofar as such Losses are related to the sale or acquisition
of the Contracts or Trust shares and:
(a) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in a registration
statement or prospectus for the Contracts or in the Contracts
themselves or in sales literature generated or approved by the
Company on behalf of the Contracts or accounts (or any amendment
or supplement to any of the foregoing) (collectively, "Company
Documents" for the purposes of this Article V), or arise out of or
are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, provided that this
indemnity shall not apply as to any Indemnified party if such
statement or omission or such alleged statement or omission was
made in reliance upon and was accurately derived from written
information furnished to the Company by or on behalf of the Trust
for use in Company Documents or otherwise for use in connection
with the sale of the Contracts or Trust shares; or
(b) arise out of or result from statements or representations (other
than statements or representations contained in and accurately
derived from Trust Documents as defined in Section 5.2(a)) or
wrongful conduct of the Company or persons under its control, with
respect to the sale or acquisition of the Contracts or Trust
shares; or
(c) arise out of or result from any untrue statement or alleged untrue
statement of a material fact contained in Trust Documents as
defined in Section 5.2(a) or the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading if such
statement or omission was made in reliance upon and accurately
derived from written information furnished to the Trust by or on
behalf of the Company; or
(d) arise out of or result from any failure by the Company to provide
the services or furnish the materials required under the terms of
this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material breach
of this Agreement by the Company; or
(f) arise out of or result from the provision by the Company to the
Trust of insufficient or incorrect information regarding the
purchase or sale of shares of any Portfolio, or the failure of the
Company to provide such information on a timely basis.
5.2. Indemnification by the Distributor. The Distributor agrees to indemnify
and hold harmless the Company and each of its directors, officers,
employees, and agents and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" "or the purposes of this Section 5.2) against any
and all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Distributor, which consent
shall not be unreasonably withheld) or expenses (including the reasonable
costs of investigating or defending any alleged loss, claim, damage,
liability or expense and reasonable legal counsel fees incurred in
connection therewith) (collectively, "Losses"), to which the Indemnified
Parties may become subject under any statute or regulation, or at common
law or otherwise, insofar as such Losses are related to the sale or
acquisition of the Contracts or Trust shares and:
(a) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the
registration statement or prospectus for the Trust (or any
amendment or supplement thereto) (collectively, "Trust Documents"
for the purposes of this Article V), or arise out of or are based
upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading, provided that this
indemnity shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was
made in reliance upon and was accurately derived from written
information furnished to the Distributor or the Trust by or on
behalf of the Company for use in Trust documents or otherwise for
use in connection with the sale of the Contracts or Trust shares;
or
(b) arise out of or result from statements or representations (other
than statements or representations contained in and accurately
derived from Company Documents) or wrongful conduct of the
Distributor or persons under its control, with respect to the sale
or acquisition of the Contracts or Portfolio shares; or
(c) arise out of or result from any untrue statement or alleged untrue
statement of a material fact contained in Company Documents or the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading if such statement or omission was made in
reliance upon and accurately derived from written information
furnished to the Company by or on behalf of the Distributor; or
(d) arise out of or result from any failure by the Distributor to
provide the services or furnish the materials required under the
terms of this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Distributor in this
Agreement or arise out of or result from any other material breach
of this Agreement by the Distributor.
5.3. None of the Company, the Trust or the Distributor shall be liable under
the indemnification provisions of Sections 5.1 or 5.2, as applicable,
with respect to any Losses incurred or assessed against an Indemnified
Party that arise from such Indemnified Party's willful misfeasance, bad
faith or negligence in the performance of such Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this Agreement.
5.4. None of the Company, the Trust or the Distributor shall be liable under
the indemnification provisions of Sections 5.1 or 5.2, as applicable,
with respect to any claim made against an Indemnified party unless such
Indemnified Party shall have notified the other party in writing within a
reasonable time after the summons, or other first written notification,
giving information of the nature of the claim shall have been served upon
or otherwise received by such Indemnified Party (or after such
Indemnified Party shall have received notice of service upon or other
notification to any designated agent), but failure to notify the party
from any liability which it may have to the Indemnified party in the
absence of Sections 5.1 and 5.2.
5.5. In case any such action is brought against an Indemnified Party, the
indemnifying party shall be entitled to participate, at its own expense,
in the defense of such action. The indemnifying party also shall be
entitled to assume the defense thereof, with counsel reasonably
satisfactory to the party named in the action. After notice from the
indemnifying party to the Indemnified Party of an election to assume such
defense, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the indemnifying party will not be
liable to the Indemnified Party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
ARTICLE VI.
Termination
6.1 This Agreement shall terminate:
(a) at the option of any party upon 6 months advance written notice to
the other parties, unless a shorter time is agreed to by the
parties;
(b) at the option of the Trust or the Distributor if the Contracts
issued by the Company cease to qualify as annuity contracts or
life insurance contracts, as applicable, under the Code (unless
disqualification is caused by the Trust or the Distributor) or if
the Contracts are not registered, issued or sold in accordance
with applicable state and/or federal law; or
(c) at the option of any party upon a determination by a majority of
the Trustees of the Trust, or a majority of its disinterested
Trustees, that a material irreconcilable conflict exists; or
(d) at the option of the Company upon institution of formal
proceedings against the Trust or the Distributor by the NASD, the
SEC, or any state securities or insurance department or any other
regulatory body regarding the Trust's or the Distributor's duties
under this Agreement or related to the sale of Trust shares or the
operation of the Trust; or
(e) at the option of the Company if the Trust or a Portfolio fails to
meet the diversification requirements specified in Section 3.6
hereof; or
(f) at the option of the Company if shares of the Series are not
reasonably available to meet the requirements of the Variable
Contracts issued by the Company, as determined by the Company, and
upon prompt notice by the Company to the other parties; or
(g) at the option of the Company in the event any of the shares of the
Portfolio are not registered, issued or sold in accordance with
applicable state and/or federal law, or such law precludes the use
of such shares as the underlying investment media of the Variable
Contracts issued or to be issued by the Company; or
(h) at the option of the Company, if the Portfolio fails to qualify as
a Regulated investment Company under Subchapter M of the Code: or
(i) at the option of the Distributor if it shall determine in its sole
judgment exercised in good faith, that the Company and/or its
affiliated companies has suffered a material adverse change in its
business, operations, financial condition or prospects since the
date of this Agreement or is the subject of material adverse
publicity.
(j) immediately, in the event the Distributor ceases, for any reason,
to act in the capacity of distributor for the Trust and its
shares.
6.2. Notwithstanding any termination of this Agreement, the Trust shall, at
the option of the Company, continue to make available additional shares
of any Portfolio and redeem shares of any Portfolio pursuant to the terms
and conditions of this Agreement for all Contracts in effect on the
effective date of termination of this Agreement.
6.3. The provisions of Article V and all warranties under Article III shall
survive the termination of this Agreement, and the provisions of Article
IV and Section 2.11 shall survive the termination of this Agreement as
long as shares of the Trust are held on behalf of Contract owners in
accordance with Section 6.2.
ARTICLE VII.
Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth
below or at such other address as such party may from time to time
specify in writing to the other party.
If to the Trust:
USAllianz Variable Insurance Products Trust
55 Greens Farms Road
Westport, CT 06881-5160
Attn: David P. Marks
President
If to the Distributor:
BISYS Fund Services Limited Partnership
3435 Stelzer Road
Columbus, Ohio 43219
Attn: William J. Tomko
If to the Company:
Allianz Life Insurance Company of North America
1750 Hennepin Avenue
Minneapolis, MN 55403
Attn: Thomas B. Clifford
Assistant Vice President
ARTICLE VIII.
Miscellaneous
8.1. The captions in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
8.2. This Agreement may be executed in two or more counterparts, each of which
taken together shall constitute one and the same instrument.
8.3. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
8.4. This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of Minnesota. It shall
also be subject to the provisions of the federal securities laws and the
rules and regulations thereunder and to any orders of the Commission
granting exemptive relief therefrom and the conditions of such orders.
Copies of any such orders shall be promptly forwarded by the Trust to the
Company.
8.5. All liabilities of the Trust arising, directly or indirectly, under this
Agreement, of any and every nature whatsoever, shall be satisfied solely
out of the assets of the Trust and no Trustee, officer, agent or holder
of shares of beneficial interest of the Trust shall be personally liable
for any such liabilities.
8.6. Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the Commission,
the National Association of Securities Dealers, Inc. and state insurance
regulators) and shall permit such authorities reasonable access to its
books and records in connection with any investigation or inquiry
relating to this Agreement or the transactions contemplated hereby.
8.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled
to under state and federal laws.
8.8. This Agreement shall not be exclusive in any respect.
8.9. Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without prior written approval of the other
party.
8.10. No provisions of this Agreement may be amended or modified in any manner
except by a written agreement properly authorized and executed by both
parties.
8.11. Each party hereto shall, except as required by law or otherwise permitted
by this Agreement, treat as confidential the names and addresses of the
owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto, and shall not disclose
such confidential information without the written consent of the affected
party unless such information has become publicly available.
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Participation Agreement as of the date and year
first above written.
BISYS Fund Service Limited Partnership
BISYS Fund Services,Inc.,its General Partner
By: /s/ Irimga Mckay
____________________________________
Name: Irimga Mckay
Title: Senior Vice President
USAllianz Variable Insurance Products Trust
By: /s/ Greg Maddox
_____________________________________
Name: Greg Maddox
Title: Vice President
Allianz Life Insurance Company of North America
By: /s/ Michael Westermeyer
______________________________________
Name: Michael Westermeyer
Title: Vice President and Corporate Legal
Officer
SCHEDULE A
Funds Available Under the Contracts
o Diversified Assets Fund, a portfolio of USAllianz Variable Insurance
Products Trust
o Intermediate Fixed Income Fund, a portfolio of USAllianz Variable
Insurance Products Trust
o Growth Fund, a portfolio of USAllianz Variable Insurance
Products Trust
Separate Accounts Utilizing the Funds
o Allianz Life Variable Account A
o Allianz Life Variable Account B
Contracts Funded By the Separate Accounts
Allianz Variable Account A
o Allianz Value Life
o Franklin Valuemark Life
Allianz Variable Account B
o Franklin Valuemark II
o Franklin Valuemark III
o Franklin Valuemark IV
o Valuemark Income Plus
o Franklin Valuemark Charter
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Margery G. Hughes, President and
Chief Administrative Officer of Allianz Life Insurance Company of North America
(Allianz Life), a corporation duly organized under the laws of Minnesota, do
hereby appoint Robert W. MacDonald and Michael T. Westermeyer, each individually
as my attorney and agent, for me, and in my name as President and Chief
Administrative Officer on behalf of Allianz Life, with full power to execute,
deliver and file with the Securities and Exchange Commission all documents
required for registration of a security under the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, and to do and
perform each and every act that said attorney may deem necessary or advisable to
comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 7th day of October 1999.
WITNESS
/s/ illegible /s/ Margery G. Hughes
___________________________ _____________________________
Margery G. Hughes
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Robert W. MacDonald, Chief
Executive Officer and a Director of Allianz Life Insurance Company of North
America (Allianz Life), a corporation duly organized under the laws of
Minnesota, do hereby appoint Michael T. Westermeyer, as my attorney and agent,
for me, and in my name as Chief Executive Officer and a Director of Allianz Life
on behalf of Allianz Life, with full power to execute, deliver and file with the
Securities and Exchange Commission all documents required for registration of a
security under the Securities Act of 1933, as amended, and the Investment
Company Act of 1940, as amended, and to do and perform each and every act that
said attorney may deem necessary or advisable to comply with the intent of
aforesaid Acts.
WITNESS my hand and seal this 12th day of October 1999.
WITNESS
/s/ Stacey Thiele /s/ Robert W. MacDonald
___________________________ _____________________________
Robert W. MacDonald
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Mark A.Zesbaugh, Senior Vice
President and Chief Financial Officer of Allianz Life Insurance Company of North
America (Allianz Life), a corporation duly organized under the laws of
Minnesota, do hereby appoint Robert W. MacDonald and Michael T. Westermeyer,
each individually as my attorney and agent, for me, and in my name as Senior
Vice President and Chief Financial Officer of Allianz Life on behalf of Allianz
Life, with full power to execute, deliver and file with the Securities and
Exchange Commission all documents required for registration of a security under
the Securities Act of 1933, as amended, and the Investment Company Act of 1940,
as amended, and to do and perform each and every act that said attorney may deem
necessary or advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 6th day of October 1999.
WITNESS
/s/ Stacey Thiele /s/ Mark A. Zesbaugh
___________________________ _____________________________
Mark A. Zesbaugh
Blazzard, Grodd & Hasenauer, P.C.
943 Post Road East
Westport, CT 06880
(203) 226-7866
November 8, 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
KPMG, 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, LLP
Minneapolis, Minnesota
November 8, 1999
