ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
HOME OFFICE: VIP SERVICE CENTER:
1750 Hennepin Avenue P.O. Box 30343
Minneapolis, MN 55403-2195 Tampa, FL 33630-3343
(800) 542-5427 (800) 774-5001
INDIVIDUAL IMMEDIATE
VARIABLE ANNUITY CONTRACTS
issued by
ALLIANZ LIFE VARIABLE ACCOUNT B
and
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
MAY 1, 1996
The Individual Immediate Variable Annuity Contracts (the "Contracts")
described in this Prospectus provide lifetime income to the Annuitant and
Joint Annuitant, if any, under the Annuity Option selected. The Annuitant is
the Contract Owner. The Contract Owner selects the Annuity Option and the
frequency of payment (e.g., monthly, quarterly, semi-annual, annual).
The Contracts are available for retirement plans which do not qualify for the
special federal tax advantages available under the Internal Revenue Code
("Non-Qualified Contracts"). They can also be purchased as a "Qualified
Contract" that is an Individual Retirement Annuity with contributions
rolled-over from tax-qualified plans such as 403(b) plans, 401 plans, or IRAs.
The Contracts are acquired by the payment of a single purchase payment.
Some states assess premium taxes (see "Charges and Deductions - Premium
Taxes"). The Single Purchase Payment less the premium tax is referred to as
the Net Purchase Payment. The Single Purchase Payment for the Contracts will
be allocated to a segregated investment account of Allianz Life Insurance
Company of North America (the "Company") which account has been designated
Allianz Life Variable Account B (the "Variable Account"). IN CALIFORNIA,
THE TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND AND THE CAPITAL GROWTH FUND
ARE NOT AVAILABLE UNTIL APPROVED BY THE CALIFORNIA INSURANCE DEPARTMENT.
(CHECK WITH YOUR AGENT REGARDING AVAILABILITY). Prior to May 1, 1993, the
Variable Account was known as NALAC Variable Account B.
The Variable Account invests in shares of Franklin Valuemark Funds (the
"Trust"). The Trust is a series fund with twenty-three Funds , thirteen of
which are currently available in connection with the Contracts offered under
this Prospectus : the Money Market Fund, the Growth and Income Fund,
the Income Securities Fund, the Rising Dividends Fund, the
Templeton Global Asset Allocation Fund, the Utility Equity Fund, the Capital
Growth Fund, the Small Cap Fund, the Templeton Developing Markets
Equity Fund, the Templeton Global Growth Fund, the Templeton International
Equity Fund, the Templeton International Smaller Companies Fund and the
Templeton Pacific Growth Fund. See "Highlights" and "Tax Status" for a
discussion of owner control of the underlying investments in a variable
annuity contract.
Under certain circumstances, Contract Owners may make withdrawals after
the Income Date other than the Annuity Payments they will receive
under the Contract. See "Annuity Provisions - Contract Withdrawals
(Liquidations)" for more information regarding the ability to make
withdrawals under the Contract.
THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY FINANCIAL INSTITUTION AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
INVESTMENT IN THE CONTRACT IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF THE
CONTRACT OWNER'S INVESTMENT TO FLUCTUATE, AND WHEN THE CONTRACTS ARE RETURNED
WITHIN THE FREE LOOK PERIOD, THE REFUND MAY BE HIGHER OR LOWER THAN THE
PURCHASE PAYMENT.
This Prospectus concisely sets forth the information a prospective investor
should know before investing. Additional information about the Contracts is
contained in the "Statement of Additional Information," which is available at
no charge. The Statement of Additional Information has been filed with the
Securities and Exchange Commission and is incorporated herein by reference.
The Table of Contents of the Statement of Additional Information can be found
on the last page of this Prospectus. For the Statement of Additional
Information, call or write the Annuity Service Office address shown above.
INQUIRIES: Any inquiries can be made by telephone or in writing to the Company
at the Annuity Service Office phone number or address listed above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THIS PROSPECTUS MUST BE ACCOMPANIED BY OR PRECEDED BY A CURRENT PROSPECTUS FOR
FRANKLIN VALUEMARK FUNDS.
IN THE STATE OF OREGON, ALL REFERENCES TO "FRANKLIN TEMPLETON VALUEMARK INCOME
PLUS" REFER TO "VALUEMARK INCOME PLUS."
This Prospectus and the Statement of Additional Information are dated May 1,
1996, and may be amended from time to time.
This Prospectus should be kept for future reference.
TABLE OF CONTENTS
Page
DEFINITIONS
HIGHLIGHTS
FEE TABLE
CONDENSED FINANCIAL INFORMATION
THE COMPANY
THE VARIABLE ACCOUNT
FRANKLIN VALUEMARK FUNDS
Description of The Funds
General
Substitution of Securities
Proposed Substitution Transaction
Voting Rights
CHARGES AND DEDUCTIONS
Deduction for Mortality and Expense Risk Charge
Deduction for Administrative Expense Charge
Deduction for Premium Taxes
Deduction for Income Taxes
Deduction for Trust Expenses
ANNUITY PROVISIONS
Income Date
Annuity Options
Contract Withdrawals (Liquidations)
Determination of Annuity Payments
THE CONTRACTS
Ownership
Assignment
Beneficiary
Change of Beneficiary
Death of Beneficiary
Annuitant
PROCEEDS PAYABLE AT DEATH
PURCHASE PAYMENTS AND CONTRACT VALUE
Single Purchase Payment
Net Purchase Payment
Allocation of Net Purchase Payment
Contract Value
VIP Unit
Transfers
DISTRIBUTOR
Delay of Payments
ADMINISTRATION OF THE CONTRACTS
PERFORMANCE DATA
Money Market Sub-Account
Other Sub- Accounts
Performance Ranking
TAX STATUS
General
Diversification
Multiple Contracts
Tax Treatment of Distributions - Non-Qualified Contracts
Qualified Plans
Tax Treatment of Distributions - IRA Contracts
Tax Treatment of Assignments
Income Tax Withholding
FINANCIAL STATEMENTS
LEGAL PROCEEDINGS
APPENDIX - ILLUSTRATION OF VALUES
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
DEFINITIONS
Age - Age to the nearest month unless otherwise specified.
Annuitant - The primary person upon whose continuation of life any annuity
payment involving life contingencies depends. The Contract Owner is the
Annuitant. See also, Joint Annuitant.
Annuity Calculation Date - The date on which the first annuity payment is
calculated which will be no more than 10 business days prior to the Income
Date.
Annuity Option - An arrangement under which annuity payments are made under
the Contract.
Annuity Unit - An accounting unit of measure used to calculate annuity
payments after the Annuity Calculation Date.
Assumed Investment Return - The investment return upon which the annuity
payments in the Contract are based.
Company - Allianz Life Insurance Company of North America at its VIP Service
Center shown on the cover page of this Prospectus.
Contract Anniversary - An anniversary of the Effective Date of the Contract.
Contract Owner - The person who owns the Contract as named in the Company's
records. The Annuitant is the Contract Owner.
Contract Value - The dollar value as of any Valuation Date prior to the
Annuity Calculation Date of all amounts accumulated under the Contract.
Effective Date - The date on which the Net Purchase Payment is allocated to
the Variable Account.
Eligible Investment(s) - An investment entity which can be selected by the
Contract Owner to be the underlying investment of the Contract.
Fund - A segment of an Eligible Investment which constitutes a separate and
distinct class of interests under an Eligible Investment.
Income Date - The date on which annuity payments are to begin.
Joint Annuitant - A person other than the Annuitant on whose life annuity
payments may also be based.
Joint Owner - If there is more than one Contract Owner, each Contract Owner
shall be a Joint Owner of the Contract. Joint Owners have equal ownership
rights and must both authorize any exercising of those ownership rights unless
otherwise allowed by the Company. Each Joint Owner must be either an
Annuitant or Joint Annuitant.
Net Asset Value - The total value of the shares of the Eligible Investment or
Fund less the liabilities of the Eligible Investment or Fund held by the
Sub-Account, as of the close of trading on a Valuation Date.
Non-Qualified Contracts - As used herein, Contracts issued under Non-Qualified
Plans which do not receive favorable tax treatment under Section 408 of the
Internal Revenue Code.
Qualified Contracts - As used herein, Contracts issued under Qualified Plans
which receive favorable tax treatment under Section 408 of the Internal
Revenue Code.
Sub-Account - A segment of the Variable Account. Each Sub-Account is invested
in shares of a Fund of an Eligible Investment.
Valuation Date - The Variable Account will be valued each day that the New
York Stock Exchange is open for trading, which is Monday through Friday,
except for normal business holidays.
Valuation Period - The period beginning at the close of business of the New
York Stock Exchange on each Valuation Date and ending at the close of business
for the next succeeding Valuation Date.
Variable Account - A separate investment account of the Company, designated as
Allianz Life Variable Account B, in which a portion of the Company's assets
has been allocated for the Contracts and certain other contracts.
VIP Unit - An accounting unit of measure used to calculate the Contract Value
prior to the Annuity Calculation Date.
HIGHLIGHTS
Net Purchase Payments for the Contracts will be allocated to a segregated
investment account of Allianz Life Insurance Company of North America (the
"Company") which has been designated Allianz Life Variable Account B (the
"Variable Account"). IN CALIFORNIA, THE TEMPLETON INTERNATIONAL
SMALLER COMPANIES FUND AND THE CAPITAL GROWTH FUND ARE NOT AVAILABLE UNTIL
APPROVED BY THE CALIFORNIA INSURANCE DEPARTMENT. (CHECK WITH YOUR AGENT
REGARDING AVAILABILITY).
On April 1, 1993, the Company changed its name from North American Life and
Casualty Company to its present name. Prior to May 1, 1993, the Variable
Account was known as NALAC Variable Account B. The Variable Account invests
in shares of Franklin Valuemark Funds (the "Trust"). (See "Franklin Valuemark
Funds.") Contract Owners bear the investment risk for all amounts allocated
to the Variable Account.
The Contract may be returned within 10 days (or longer in states where
required) after it is received (the "Free-Look Period"). It can be mailed or
delivered to either the Company or the agent who sold it. Return of the
Contract by mail is effective on being postmarked, properly addressed and
postage prepaid. The returned Contract will be treated as if the Company had
never issued it. The Company will promptly refund the net amount allocated to
the Variable Account modified for investment experience plus any taxes
deducted less any benefits paid in states where permitted. This may be more
or less than the Single Purchase Payment. Once the Free-Look Period expires,
under certain circumstances, Contract Owners may make withdrawals after the
Income Date other than the Annuity Payments they will receive under the
Contract. See "Annuity Provisions - Contract Withdrawals (Liquidations)" for
more information regarding the ability to make withdrawals under the
Contract. The Company has the right to allocate the Single Purchase
Payment to the Money Market Sub-Account until the expiration of the Free-Look
Period. If the Company does so allocate the purchase payment, it will refund
the Single Purchase Payment, less any benefits paid. It is the Company's
current practice to directly allocate the purchase payment to the Sub-
Account(s) (see "Purchase Payments and Contract Value - Allocation of Net
Purchase Payment") designated by the Contract Owner.
There is a Mortality and Expense Risk Charge which is equal, on an annual
basis, to 1.25% of the average daily net assets of the Variable Account.
This Charge compensates the Company for assuming the mortality and expense
risks under the Contracts. (See "Charges and Deductions - Deduction for
Mortality and Expense Risk Charge.")
There is an Administrative Expense Charge which is equal, on an annual basis,
to 0.15% of the average daily net assets of the Variable Account. This Charge
compensates the Company for costs associated with the administration of the
Contracts and the Variable Account. (See "Charges and Deductions -
Deduction for Administrative Expense Charge.")
Under certain circumstances, there is a ten percent (10%) federal income
tax penalty that may be applied to the income portion of any distribution from
the Contracts. See "Tax Status - Tax Treatment of Distributions - Non-
Qualified Contracts" and "Tax Status - Tax Treatment of Distributions - IRA
Contracts." For a further discussion of the taxation of the Contracts, see
"Tax Status."
The Treasury Department has indicated that guidelines may be forthcoming under
which a variable annuity contract will not be treated as an annuity contract
for tax purposes if the owner of the contract has excessive control over the
investments underlying the contract. The issuance of such guidelines may
require the Company to impose limitations on a Contract Owner's right to
control the investments. It is not known whether any such guidelines would
have a retroactive effect (See "Tax Status- Diversification").
Premium taxes or other taxes payable to a state or other governmental entity
will be charged against the Single Purchase Payment. (See "Charges and
Deductions - Deduction for Premium Taxes.")
The Company also offers deferred variable annuity contracts and reserves the
right to permit exchange of those contracts for the Contracts offered by this
Prospectus.
ALLIANZ LIFE VARIABLE ACCOUNT B FEE TABLE*
______________________________________________________________
CONTRACT OWNER TRANSACTION FEES
NONE
VARIABLE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Charge 1.25%
Administrative Expense Charge .15%
_____
Total Variable Account Annual Expenses 1.40%
* Applies to all thirteen Sub- Accounts of the Variable
Account.
The effects of the charges shown above are reflected in the illustrations
of annuity income contained in the Appendix on Page 21 . The
illustrations are intended to assist the purchaser in assessing the effects
of these charges and the effect of investment performance on the amount of
variable annuity income.
FRANKLIN VALUEMARK FUNDS' ANNUAL EXPENSES
(as a percentage of Franklin Valuemark Funds' average net assets).
The Management Fees for each Fund are based on a percentage of that Fund's
assets under management. See "Franklin Valuemark Funds" in this Prospectus
and "Management" in the Trust prospectus.
The "Management and Business Management Fees" below include investment
advisory, other management, and administrative fees not included as "Other
Expenses" that were paid to the Managers and Business Managers by each
Fund for the 1995 calendar year (except for the Money Market Fund,
the Small Cap Fund, the Templeton Global Asset Allocation Fund, the
Templeton International Smaller Companies Fund and the Capital Growth Fund).
The purpose of the Table is to assist the Contract Owner in understanding the
various costs and expenses that a Contract Owner will incur, directly or
indirectly, on amounts allocated to the Variable Account.
<TABLE>
<CAPTION>
MANAGEMENT
AND BUSINESS TOTAL
MANAGEMENT OTHER ANNUAL
FEES(1/) EXPENSES EXPENSES
____________ ________ ________
<S> <C> <C> <C>
Money Market Fund (2/) .51% .02% .53%
Growth and Income Fund .49% .03% .52%
Utility Equity Fund .47% .03% .50%
Income Securities Fund .47% .04% .51%
Rising Dividends Fund .75% .03% .78%
Templeton International Equity Fund .83% .09% .92%
Templeton Pacific Growth Fund .90% .11% 1.01%
Templeton Global Growth Fund .93% .04% .97%
Templeton Developing Markets Equity Fund 1.25% .16% 1.41%
Templeton Global Asset Allocation Fund (3/) .80% .10% .90%
Small Cap Fund (4/) .75% .15% .90%
Templeton International Smaller Companies 1.00% .10% 1.10%
Fund (5/)
Capital Growth Fund (5/) .75% .04% .79%
<FN>
1/ The Business Management Fee is a direct expense for the Templeton
Global Asset Allocation Fund and the Templeton International Smaller
Companies Fund; other Funds pay for similar services indirectly
through the Management Fee. See "Management" in the Trust Prospectus for
further information regarding Management and Business Management Fees.
2/ Franklin Advisers, Inc. agreed in advance to waive a portion of its
Management Fee and to make certain payments to reduce expenses of the Money
Market Fund during 1995 and is currently continuing this arrangement in 1996.
This arrangement may be terminated at any time. With this reduction,
Management Fees and Total Annual Expenses of the Money Market Fund represented
0.38% and 0.40%, respectively of the average daily net assets of the Fund.
3/ The Templeton Global Asset Allocation Fund commenced operations
May 1, 1995. The expenses shown are estimated expenses for the Fund for 1996.
4/ The Small Cap Fund commenced operations November 1, 1995. The
expenses shown are estimated expenses for the Fund for 1996.
5/ The Templeton International Smaller Companies Fund and Capital
Growth Fund have not yet commenced operations. The expenses shown are
estimated expenses for the Funds for 1996.
</TABLE>
CONDENSED FINANCIAL INFORMATION
The consolidated financial statements of Allianz Life Insurance Company of
North America and the financial statements of Allianz Life Variable Account B
may be found in the Statement of Additional Information.
The table below gives per unit information about the financial history of each
Fund from the inception of each to December 31, 1995#.
This information should be read in conjunction with the financial statements
and related notes to the Variable Account included in the Statement of
Additional Information.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
<C>
(NUMBER OF UNITS IN THOUSANDS)
YEAR ENDED YEAR ENDED YEAR ENDED YEAR
ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
DECEMBER 31, DECEMBER 31,
FRANKLIN VALUEMARK FUNDS: 1995 1994 1993 1992
1991
_____________ _____________ ____________
____________ ___________
Money Market Fund
Unit value at beginning of period $ 12.354 $12.066 $11.932
$11.742 $11.288
Unit value at end of period $ 12.883 $12.354 $12.066
$11.932 $11.742
Number of units outstanding at end of period 31,040 39,437 10,247
6,951 5,682
Growth and Income Fund
Unit value at beginning of period $ 13.215 $13.677 $12.574
$11.949 $9.803
Unit value at end of period $ 17.310 $13.215 $13.677
$12.574 $11.949
Number of units outstanding at end of period 46,893 35,695 24,719
17,144 9,671
Utility Equity Fund
Unit value at beginning of period $ 15.104 $17.319 $15.889
$14.821 $12.062
Unit value at end of period $ 19.565 $15.104 $17.319
$15.889 $14.821
Number of units outstanding at end of period 66,669 70,082 84,217
39,387 16,188
Income Securities Fund
Unit value at beginning of period $ 16.392 $17.734 $15.163
$13.580 $9.842
Unit value at end of period $ 19.785 $16.392 $17.734
$15.163 $13.580
Number of units outstanding at end of period 59,309 56,569 38,967
11,397 4,472
Templeton Pacific Growth Fund
Unit value at beginning of period $ 12.802 $14.233 $9.761
$10.000* NA
Unit value at end of period $ 13.630 $12.802 $14.233
$9.761 NA
Number of units outstanding at end of period 22,483 27,231 14,240
534 NA
Rising Dividends Fund
Unit value at beginning of period $ 9.769 $10.327 $10.848
$10.000* NA
Unit value at end of period $ 12.498 $9.769 $10.327
$10.848 NA
Number of units outstanding at end of period 33,789 28,778 26,256
8,388 NA
Templeton International Equity Fund
Unit value at beginning of period $ 12.161 $12.226 $9.642
$10.000* NA
Unit value at end of period $ 13.263 $12.161 $12.226
$9.642 NA
Number of units outstanding at end of period 59,883 60,464 24,026
1,329 NA
Templeton Developing Markets Equity Fund
Unit value at beginning of period $ 9.454 $10.000* NA NA
NA
Unit value at end of period $ 9.582 $9.454 NA NA
NA
Number of units outstanding at end of period 15,618 9,774 NA NA
NA
Templeton Global Growth Fund
Unit value at beginning of period $ 10.201 $10.000* NA NA
NA
Unit value at end of period $ 11.339 $10.201 NA NA
NA
Number of units outstanding at end of period 28,309 14,637 NA NA
NA
Templeton Global Asset Allocation Fund
Unit value at beginning of period $ 10.000* NA NA NA
NA
Unit value at end of period $ 10.591 NA NA NA
NA
Number of units outstanding at end of period 1,338 NA NA NA
NA
Small Cap Fund
Unit value at beginning of period $ 10.000* NA NA NA
NA
Unit value at end of period $ 10.146 NA NA NA
NA
Number of units outstanding at end of period 1,302 NA NA NA
NA
<S> <C> <C>
(NUMBER OF UNITS IN THOUSANDS) JANUARY 9,
YEAR ENDED 1989 TO
DECEMBER 31, DECEMBER 31,
FRANKLIN VALUEMARK FUNDS: 1990 1989
____________ ___________
Money Market Fund
Unit value at beginning of period $10.637 $10.000
Unit value at end of period $11.288 $10.637
Number of units outstanding at end of period 5,768 1,199
Growth and Income Fund
Unit value at beginning of period $10.180 $10.000
Unit value at end of period $9.803 $10.180
Number of units outstanding at end of period 5,356 1,662
Utility Equity Fund
Unit value at beginning of period $12.010 $10.000
Unit value at end of period $12.062 $12.010
Number of units outstanding at end of period 6,300 1,173
Income Securities Fund
Unit value at beginning of period $10.783 $10.000
Unit value at end of period $9.842 $10.783
Number of units outstanding at end of period 3,011 1,508
Templeton Pacific Growth Fund
Unit value at beginning of period NA NA
Unit value at end of period NA NA
Number of units outstanding at end of period NA NA
Rising Dividends Fund
Unit value at beginning of period NA NA
Unit value at end of period NA NA
Number of units outstanding at end of period NA NA
Templeton International Equity Fund
Unit value at beginning of period NA NA
Unit value at end of period NA NA
Number of units outstanding at end of period NA NA
Templeton Developing Markets Equity Fund
Unit value at beginning of period NA NA
Unit value at end of period NA NA
Number of units outstanding at end of period NA NA
Templeton Global Growth Fund
Unit value at beginning of period NA NA
Unit value at end of period NA NA
Number of units outstanding at end of period NA NA
Templeton Global Asset Allocation Fund
Unit value at beginning of period NA NA
Unit value at end of period NA NA
Number of units outstanding at end of period NA NA
Small Cap Fund
Unit value at beginning of period NA NA
Unit value at end of period NA NA
Number of units outstanding at end of period NA NA
<FN>
# As of December 31, 1995, the Templeton International Smaller
Companies Fund and Capital Growth Fund had not yet commenced
operations.
* Unit Value at inception was $10.00.
</TABLE>
The Accumulation Unit Value at the inception was $10.00 for each Fund.
Inception was 1/24/89 for the Growth and Income, Income Securities,
Utility Equity, and Money Market Funds; 1/24/92 for the
Rising Dividends , the Templeton International Equity and the
Templeton Pacific Growth Fund s ; 3/15/94 for the Templeton Global
Growth and Templeton Developing Markets Equity Fund s ;
5/1/95 for the Templeton Global Asset Allocation Fund; and 11/1/95
for the Small Cap Fund. The Templeton International Smaller Companies Fund and
the Capital Growth Fund are new in 1996.
THE COMPANY
Allianz Life Insurance Company of North America (the "Company") is a stock
life insurance company organized under the laws of the state of Minnesota in
1896. On April 1, 1993, the Company changed its name from North American Life
and Casualty Company ("NALAC") to its present name. The Company is a
wholly-owned subsidiary of Allianz Versicherungs-AG Holding ("Allianz").
Allianz is headquartered in Munich, Germany, and has sales outlets throughout
the world. Both NALAC and Fidelity Union Life Insurance Company of Dallas,
Texas have been owned by Allianz since 1979. Over the last decade there has
been a gradual consolidation of operations. On May 31, 1993, Fidelity Union
was consolidated into the Company. The Company offers fixed and variable life
insurance and annuities, and group life, accident and health insurance.
NALAC Financial Plans, Inc. is a wholly-owned subsidiary of the Company. It
provides marketing services for the Company and is the principal underwriter
of the Contracts. NALAC Financial Plans, Inc. is reimbursed for expenses
incurred in the distribution of the Contracts.
Administration for the Contract is provided at the Company's VIP Service
Center: P.O. Box 30343, Tampa, FL 33630-3343, (800) 774-5001.
THE VARIABLE ACCOUNT
The Variable Account was established pursuant to a resolution of the Board of
Directors on May 31, 1985. The Variable Account is registered with the
Securities and Exchange Commission as a unit investment trust under the
Investment Company Act of 1940, as amended (the "1940 Act").
The assets of the Variable Account are the property of the Company. However,
the assets of the Variable Account equal to the reserves, and other contract
liabilities with respect to the Variable Account, are not chargeable with
liabilities arising out of any other business the Company may conduct. Income,
gains and losses, whether or not realized, are, in accordance with the
Contracts, credited to or charged against the Variable Account without regard
to other income, gains or losses of the Company. The Company's obligations
arising under the Contracts are general corporate obligations.
The Variable Account meets the definition of a "separate account" under the
federal securities laws.
The Variable Account is divided into Sub-Accounts with the assets of each
Sub-Account invested in one of the Funds of Franklin Valuemark Funds.
FRANKLIN VALUEMARK FUNDS
THIRTEEN OF THE TWENTY-THREE FUNDS CURRENTLY AVAILABLE CONSTITUTING
THE FRANKLIN VALUEMARK FUNDS ARE AVAILABLE UNDER THE CONTRACTS DESCRIBED IN
THIS PROSPECTUS. Franklin Valuemark Funds (the "Trust") is an open-end
management investment company registered under the 1940 Act. While a brief
summary of the investment objectives is set forth below, more comprehensive
information, including a discussion of potential risks, is found in the
accompanying prospectus for the Trust, which is included with this
Prospectus. PURCHASERS SHOULD READ THIS PROSPECTUS AND THE ACCOMPANYING
PROSPECTUS FOR THE TRUST CAREFULLY BEFORE INVESTING.
Franklin Advisers, Inc. ("Advisers"), 777 Mariners Island Blvd., San Mateo,
California 94404 , serves as each Fund's (except the Templeton Global Growth
Fund, the Templeton Developing Markets Equity Fund, the Templeton Global
Asset Allocation Fund and the Templeton International Smaller Companies Fund)
investment manager. The investment manager for the Templeton Global Growth
Fund and the Templeton Global Asset Allocation Fund is Templeton Global
Advisors Limited, formerly known as Templeton, Galbraith & Hansberger, Ltd.,
Lyford Cay Nassau, N.P. Bahamas. As of October 1, 1995, the investment
manager for the Templeton Developing Markets Equity Fund is Templeton Asset
Management Ltd., formerly known as Templeton Investment Management (Singapore)
Pte Ltd., 20 Raffles Place, Ocean Towers, Singapore. The investment manager
for the Templeton International Smaller Companies Fund is Templeton
Investment Counsel, Inc., Broward Financial Centre, Fort Lauderdale, Florida.
All investment managers, advisers or subadvisers are referred to
collectively as "Managers." The Managers are direct or indirect wholly-owned
subsidiaries of Franklin Resources, Inc., a publicly-owned holding company.
The Managers, subject to the overall policies, control and direction and
review of the Board of Trustees of the Trust, are responsible for recommending
and providing advice with respect to each Fund's investments, and for
determining which securities will be purchased, retained or sold as well as
for execution of portfolio transactions. Certain Managers have retained one or
more subadvisers. Advisers act as investment manager or administrator to
36 U.S. registered investment companies ( 119 separate series)
with aggregate assets of over $ 81 billion.
Templeton Global Investors, Inc.("Business Manager"), Broward Financial
Centre, Suite 2100, Ft. Lauderdale, Florida, provides certain administrative
facilities and services for certain of the Funds.
Franklin Templeton Investor Services, Inc., 777 Mariners Island Blvd., San
Mateo, California 94404, also a wholly-owned subsidiary of Franklin Resources,
Inc., maintains the records of the Trust's shareholder accounts, processes
purchases and redemptions of shares, and serves as each Fund's dividend paying
agent.
Description of The Funds
FUND SEEKING STABILITY
OF PRINCIPAL AND INCOME
Money Market Fund
The Money Market Fund seeks high current income, consistent with capital
preservation and liquidity. The Fund will pursue its objective by investing
exclusively in high quality money market instruments. An investment in the
Money Market Fund is neither insured nor guaranteed by the U.S. Government.
The Money Market Fund attempts to maintain a stable net asset value of $1.00
per share, although no assurances can be given that the Fund will be able to
do so.
FUNDS SEEKING GROWTH AND INCOME
Growth and Income Fund
The Growth and Income Fund seeks capital appreciation, with current income
return as a secondary objective, by investing primarily in U.S. common stocks,
securities convertible into common stocks , and preferred stocks.
Income Securities Fund
The Income Securities Fund seeks to maximize income while maintaining
prospects for capital appreciation by investing in a diversified portfolio of
domestic and foreign, including developing markets, debt obligations and/or
equity securities. Debt obligations include high yield, high risk, lower
rated obligations (commonly referred to as "junk bonds") which involve
increased risks related to the creditworthiness of their issuers.
Rising Dividends Fund
The Rising Dividends Fund seeks capital appreciation, primarily through
investment in the equity securities of companies that have paid consistently
rising dividends over the past ten years. Preservation of capital is also an
important consideration. The Fund seeks current income incidental to capital
appreciation.
Templeton Global Asset Allocation Fund
The Templeton Global Asset Allocation Fund seeks a high level of total return
through a flexible policy of investing in equity securities, debt obligations,
including up to 25% in high yield, high risk, lower rated debt obligations,
(commonly referred to as "junk bonds"), and money market instruments of
issuers in any nation, including developing markets nations. The mix of
investments among the three market segments will be adjusted in an attempt
to capitalize on total return potential produced by changing economic
conditions throughout the world. Foreign investing involves special risks.
Utility Equity Fund
The Utility Equity Fund seeks both capital appreciation and current income by
investing in securities of domestic and foreign, including developing markets,
issuers engaged in the public utilities industry.
FUNDS SEEKING CAPITAL GROWTH
Capital Growth Fund
The Capital Growth Fund seeks capital appreciation, with current income as a
secondary consideration. The Fund invests primarily in equity securities,
including common stocks and securities convertible into common stocks.
Small Cap Fund
The Small Cap Fund seeks long-term capital growth. The Fund seeks to
accomplish its objective by investing primarily in equity securities of small
capitalization growth companies. The Fund may also invest in foreign
securities, including those of developing markets issuers. Because of the
Fund's investments in small capitalization companies, an investment in the
Fund may involve greater risks and higher volatility and should not be
considered a complete investment program.
Templeton Developing Markets Equity Fund
The Templeton Developing Markets Equity Fund seeks long-term capital
appreciation. The Fund seeks to achieve this objective by investing primarily
in equities of issuers in countries having developing markets. The Fund is
subject to the heightened foreign securities investment risks that accompany
foreign developing markets and an investment in the Fund may be considered
speculative.
Templeton Global Growth Fund
The Templeton Global Growth Fund seeks long-term capital growth. The Fund
hopes to achieve its objective through a flexible policy of investing in
stocks and debt obligations of companies and governments of any nation,
including developing markets. The realization of income, if any, is only
incidental to accomplishment of the Fund's objective of long-term capital
growth. Foreign investing involves special risks.
Templeton International Equity Fund
The Templeton International Equity Fund seeks long-term growth of capital.
Under normal conditions, the Templeton International Equity Fund
will invest at least 65% of its total assets in an internationally mixed
portfolio of foreign equity securities which trade on markets in countries
other than the U.S., including developing markets, and are (i) issued by
companies domiciled in countries other than the U.S., or (ii) issued by
companies that derive at least 50% of either their revenues or pre-tax
income from activities outside of the U.S. Foreign investing involves special
risks.
Templeton International Smaller Companies Fund
The Templeton International Smaller Companies Fund seeks long-term capital
appreciation. The Fund seeks to achieve this objective by investing
primarily in equity securities of smaller companies outside the U.S.,
including developing markets. Foreign investing involves special risks
and smaller company investments may involve higher volatility. An
investment in the Fund may not be considered a complete investment program.
Templeton Pacific Growth Fund
The Templeton Pacific Growth Fund seeks long-term growth of capital, primarily
through investing at least 65% of its total assets in equity securities which
trade on markets in the Pacific Rim, including developing markets, and are (i)
issued by companies domiciled in the Pacific Rim or (ii) issued by companies
that derive at least 50% of either their revenues or pre-tax income from
activities in the Pacific Rim. Investing in a portfolio of geographically
concentrated foreign securities, including developing markets, involves
increased susceptibility to the special risks of foreign investing and an
investment in the Fund may be considered speculative.
THE TEMPLETON GLOBAL ASSET ALLOCATION FUND, TEMPLETON DEVELOPING MARKETS
EQUITY FUND, TEMPLETON GLOBAL GROWTH FUND, GROWTH AND INCOME FUND,
INCOME SECURITIES FUND, TEMPLETON INTERNATIONAL EQUITY FUND, TEMPLETON
INTERNATIONAL SMALLER COMPANIES FUND, MONEY MARKET FUND, TEMPLETON PACIFIC
GROWTH FUND, SMALL CAP FUND, AND UTILITY EQUITY FUND MAY INVEST MORE
THAN 10% OF THEIR TOTAL NET ASSETS IN FOREIGN SECURITIES WHICH ARE SUBJECT TO
SPECIAL AND ADDITIONAL RISKS RELATED TO CURRENCY FLUCTUATIONS, MARKET
VOLATILITY AND ECONOMIC, SOCIAL AND POLITICAL UNCERTAINTY; INVESTING IN
DEVELOPING MARKETS INVOLVES SIMILAR BUT HEIGHTENED RISKS RELATED TO THE
RELATIVELY SMALL SIZE AND LESSER LIQUIDITY OF THESE MARKETS. SEE "HIGHLIGHTED
RISK CONSIDERATIONS, FOREIGN TRANSACTIONS" IN THE TRUST PROSPECTUS.
THE INCOME SECURITIES FUND MAY INVEST UP TO 100% OF ITS
NET ASSETS IN DEBT OBLIGATIONS RATED BELOW INVESTMENT GRADE, COMMONLY KNOWN AS
"JUNK BONDS", OR IN OBLIGATIONS WHICH HAVE NOT BEEN RATED BY ANY RATING
AGENCY. INVESTMENTS RATED BELOW INVESTMENT GRADE INVOLVE GREATER RISKS,
INCLUDING PRICE VOLATILITY AND RISK OF DEFAULT THAN INVESTMENTS IN HIGHER
RATED OBLIGATIONS. INVESTORS SHOULD CAREFULLY CONSIDER THE RISKS ASSOCIATED
WITH AN INVESTMENT IN THESE FUNDS IN LIGHT OF THE SECURITIES IN WHICH THEY
NVEST. SEE "HIGHLIGHTED RISK CONSIDERATIONS, LOWER RATED DEBT OBLIGATIONS"
IN THE TRUST PROSPECTUS.
General
There is no assurance that the investment objectives of any of the Funds will
be met. Contract Owners bear the complete investment risk.
Additional Funds and/or additional Eligible Investments may, from time to
time, be made available as investments to underlie the Contract. However, the
right to make such selections will be limited by the terms and conditions
imposed on such transactions by the Company. (See "Purchase Payments and
Contract Value - Allocation of Net Purchase Payment.")
Substitution of Securities
If the shares of any Fund of the Trust should no longer be available for
investment by the Variable Account or if, in the judgment of the Company,
further investment in such shares should become inappropriate in view of the
purpose of the Contract, the Company may substitute shares of another Eligible
Investment (or Fund within the Trust). No substitution of securities in any
Sub-Account may take place without prior approval of the Securities and
Exchange Commission and under such requirements as it may impose.
Voting Rights
In accordance with its view of present applicable law, the Company will vote
the shares of the Trust held in the Variable Account at special meetings of
the shareholders of the Trust in accordance with instructions received from
persons having the voting interest in the Variable Account. The Company will
vote shares for which it has not received instructions, as well as shares
attributable to it, in the same proportion as it votes shares for which it has
received instructions. The Trust does not hold regular meetings of
shareholders.
The number of shares which a person has a right to vote will be determined as
of a date to be chosen by the Company not more than sixty (60) days prior to
the meeting of the Trust. Voting instructions will be solicited by written
communication at least fourteen (14) days prior to the meeting.
Trust shares are issued and redeemed only in connection with variable annuity
contracts and variable life insurance policies issued through separate
accounts of the Company and its affiliates. The Trust does not foresee any
disadvantage to Contract Owners arising out of the fact that the Trust may be
made available to separate accounts which are used in connection with both
variable annuity and variable life insurance products. Nevertheless, the
Trust's Board of Trustees intends to monitor events in order to identify any
material irreconcilable conflicts which may possibly arise and to determine
what action, if any, should be taken in response thereto. If such a conflict
were to occur, one of the separate accounts might withdraw its investment in
the Trust. This might force the Trust to sell portfolio securities at
disadvantageous prices.
CHARGES AND DEDUCTIONS
Various charges and deductions are made from the single Purchase Payment and
the Variable Account. These charges and deductions are:
Deduction for Mortality and Expense Risk Charge
The Company deducts on each Valuation Date a Mortality and Expense Risk Charge
which is equal, on an annual basis, to 1.25% of the average daily net assets
of the Variable Account (consisting of approximately .90% for mortality risks
and approximately .35% for expense risks). The mortality risks assumed by the
Company arise from its contractual obligation to make annuity payments for the
life of the Annuitant in accordance with annuity rates guaranteed in the
Contracts. The expense risk assumed by the Company is that all actual
expenses involved in administering the Contracts, including Contract
maintenance costs, administrative costs, mailing costs, data processing costs,
legal fees, accounting fees, filing fees, and the costs of other services may
exceed the amount recovered from the Administrative Expense Charge.
If the Mortality and Expense Risk Charge is insufficient to cover the actual
costs, the loss will be borne by the Company. Conversely, if the amount
deducted proves more than sufficient, the excess will be a profit to the
Company. The Company expects to profit from this charge.
The Mortality and Expense Risk Charge is guaranteed by the Company and cannot
be increased.
The Mortality and Expense Risk Charge is assessed both before and after the
Income Date. The Company will continue to assess the Mortality and Expense
Risk Charge during payment of an Annuity Option that does not involve a life
contingency even though it no longer bears any mortality risk on such payment
obligation.
Deduction for Administrative Expense Charge
The Company deducts on each Valuation Date an Administrative Expense Charge
which is equal, on an annual basis, to 0.15% of the average daily net assets
of the Variable Account. This charge is to reimburse the Company for the
expenses it incurs in the establishment and maintenance of the Contracts and
the Variable Account. These expenses include, but are not limited to:
preparation of the Contracts, confirmations, annual reports and statements,
maintenance of Contract records, maintenance of Variable Account records,
administrative personnel costs, mailing costs, data processing costs, legal
fees, accounting fees, filing fees, the costs of other services necessary for
Contract servicing, and all accounting, valuation, regulatory and reporting
requirements. The Company does not intend to profit from this charge. This
charge will be reduced to the extent that the amount of this charge is in
excess of that necessary to reimburse the Company for its administrative
expenses. Should this charge prove to be insufficient, the Company will not
increase this charge and will incur the loss.
Deduction for Premium Taxes
Premium taxes or other taxes payable to a state, municipality or other
governmental entity will be charged against the Single Purchase Payment.
Premium taxes currently imposed by certain states on the Contracts offered
hereby range from 0% to 3.5% of premiums paid. For information regarding a
particular state's premium tax a purchaser should contact his or her agent or
the Company's VIP Service Center.
Deduction for Income Taxes
While the Company is not currently maintaining a provision for federal income
taxes, the Company has reserved the right to establish a provision for income
taxes if it determines, in its sole discretion, that it will incur a tax as a
result of the operation of the Variable Account. The Company will deduct for
any income taxes incurred by it as a result of the operation of the Variable
Account whether or not there was a provision for taxes and whether or not it
was sufficient.
Deduction for Trust Expenses
There are other deductions from, and expenses paid out of, the assets of
Franklin Valuemark Funds , which are described in the accompanying
Trust Prospectus.
ANNUITY PROVISIONS
Income Date
The Income Date is the date on which annuity payments begin. The
Contract Owner selects an Income Date at the time of issue. The Income Date
must be the first or fifteenth day of a calendar month and not later than 60
days from the Effective Date.
Annuity Options
The Contract provides for an Annuity under any of the Annuity Options
described below, provided the Annuitant or any Joint Annuitant is alive on the
Income Date. Except for Annuity Option 6, once selected the Option is
irrevocable. The amount of each payment depends upon the Annuity Option chosen
and for Annuity Options 1-5, the Annuitant's and any Joint Annuitant's Age on
the Annuity Calculation Date. Additionally, annuity payments under all Options
will vary with the investment experience of the Sub-Accounts of the Variable
Account and may be either higher or lower than the first payment.
The Annuity Options currently available are:
Option 1 - Life Annuity. Monthly annuity payments are paid during the life of
the Annuitant ceasing with the last annuity payment due prior to the
Annuitant's death.
Option 2 - Life Annuity with 60, 120, 180, or 240 Monthly Payments Guaranteed.
Monthly annuity payments are paid during the life of an Annuitant with a
guarantee that if, at the Annuitant's death, annuity payments have been made
for less than a 60, 120, 180 or 240 month period as elected, then annuity
payments will be continued thereafter to the Beneficiary for the remainder of
the guaranteed period. The Beneficiary may elect to have the present value
(determined as set forth in the Contract) of the guaranteed annuity payments
remaining commuted at the Assumed Investment Return and paid in a lump sum,
less the applicable commutation fee of 5% of the proceeds in Contract Years
1 and 2 reducing by 1% per year until it is 1% for Contract Year 6 and
thereafter (subject to applicable state law and regulation). The Company
will require the return of the Contract and proof of death prior to the
payment of any commuted values.
Option 3 - Joint and Last Survivor Annuity. Monthly annuity payments are paid
during the joint lifetime of the Annuitant and the Joint Annuitant. Upon the
death of the Annuitant, if the Joint Annuitant is then living, payments will
be paid thereafter during the remaining lifetime of the Joint Annuitant at a
level of 100%, 75% or 50% of the original level as elected. Monthly payments
cease with the final annuity payment due prior to the survivor's death.
Option 4 - Joint and Last Survivor Annuity with 60, 120, 180 or 240 Monthly
Payments Guaranteed. Monthly annuity payments are paid during the joint
lifetime of the Annuitant and the Joint Annuitant. Monthly payments are paid
thereafter during the remaining lifetime of the Joint Annuitant at 100% of the
original level. If, after the death of both the Annuitant and the Joint
Annuitant, annuity payments have been made for less than a 60, 120, 180 or 240
month period as elected then annuity payments will be continued thereafter to
the Beneficiary for the remainder of the guaranteed period. The Beneficiary
may elect to have the present value (determined as set forth in the Contract)
of the guaranteed annuity payments remaining commuted at the Assumed
Investment Rate and paid in a lump sum, less the applicable commutation fee
of 5% of the proceeds in Contract Years 1 and 2 reducing by 1% per year until
it is 1% for Contract Year 6 and thereafter (subject to applicable state law
and regulation). The Company will require the return of the Contract and
proof of death prior to the payment of any commuted values.
Option 5 - Unit Refund Life Annuity. Monthly annuity payments are paid
during the life of the Annuitant ceasing with the last annuity payment due
prior to the Annuitant's death with a guarantee that at the Annuitant's death,
the Beneficiary will receive a single cash payment (refund) equal to the then
dollar value of the number of Annuity Units equal to (1) the total net amount
applied to purchase the Annuity divided by the Annuity Unit value used to
determine the first annuity payment, minus (2) the product of the number of
the Annuity Units represented by each payment and the number of payments made.
This calculation will be made based upon the assumption that the allocation
of Annuity Units actually in-force at the time of the Annuitant's death had
been the allocation of Annuity Units at issue and at all times thereafter. If
this value is negative, a zero result occurs.
Option 6 - Specified Period Certain Annuity. Monthly annuity payments are
paid for a specified period of time. The Specified Period Certain is elected
by the Contract Owner and must be specified as a whole number of years from
5 to 30. If at the time of the death of the last Annuitant and any Joint
Annuitant, the annuity payments actually made have been for less than the
Specified Period Certain, then annuity payments will be continued thereafter
to the Beneficiary for the remainder of the Specified Period Certain. OPTION
6 MAY NOT BE AVAILABLE IN ALL STATES.
After the first Contract Anniversary, an Option 6 payout can be exchanged
for a life contingent payout (Options 1-5) if the Total Withdrawal Value
is at least $25,000 and in the case of a Non-Qualified Contract the Contract
Owner has attained age 59 1/2 and in the case of a Qualified Contract the
exchange is made after the later of the Contract Owner attaining age 59 1/2
or 5 years from the date of the first annuity payment, and prior to the year
in which the Contract Owner reaches age 70 1/2. The annuity purchase
rates used will be those that were in effect as of the original Effective
Date of the Option 6 Contract. A new Contract will be exchanged for the
existing Contract which must be returned to the Company. The Contract
Owner/Annuitant and Joint Annuitant, if any, must be the same under both
Contracts.
Contract Withdrawals (Liquidations)
Annuity Options 2 and 4
If the Contract Owner has selected Annuity Option 2 or 4, partial withdrawals
from the Contract may be made after the first Contract Year as follows.
During the lifetime of the Annuitant(s) and while the number of annuity
payments made is less than the guaranteed number of payments elected, the
Contract Owner may once each Contract Year request a withdrawal representing
a partial liquidation of the Total Withdrawal Value. The Total Withdrawal
Value is equal to the present value of the remaining guaranteed annuity
payments, to the end of the period certain, commuted at the Assumed
Investment Return less a commutation fee of 5% of the amount withdrawn in
Contract Year 2 and reducing by 1% per year until it is 1% for Contract
Year 6 and thereafter. The commutation fee is a charge collected by
the Company equal to a percentage of the Total Withdrawal Value liquidated.
Partial liquidations will be processed on the next Annuity Calculation Date
following the Contract Owner's written request. After a partial liquidation,
the subsequent monthly annuity payment during the guaranteed period certain
will be reduced by the percentage of the Total Withdrawal Value liquidated,
including the commutation fee. After the guaranteed number of payments has
been paid, the number of Annuity Units used in calculating the monthly
payments will be restored to their original value as if no liquidations had
taken place. The total amount allowed to be liquidated as a cumulative
percentage of the Total Withdrawal Value cannot exceed 25% of the Total
Withdrawal Value. The minimum allowable partial liquidation is the
lesser of $2,500 or the remaining portion of the Total Withdrawal Value
available to be liquidated. PARTIAL WITHDRAWALS MAY NOT BE AVAILABLE IN
ALL STATES.
Annuity Option 6
If the Contract Owner has selected Annuity Option 6, withdrawals from
the Contract may be made as follows. A withdrawal may be made at least once
per Contract year up to the Total Withdrawal Value in the Contract. The
Total Withdrawal Value is equal to the present value of the remaining
annuity payments, to the end of the Specified Period Certain, commuted at
the Assumed Investment Return, less a commutation fee of 1% of the amount
withdrawn in the first Contract Year. The Company reserves the right to
restrict the amount of a partial withdrawal to a minimum of $2,500. The
Company may require a complete withdrawal if the remaining Total Withdrawal
Value after a requested partial withdrawal would be less than
$35,000. Partial withdrawals will be processed on the next Annuity
Calculation Date following the Contract Owner's written request. The
Company will require the return of the Contract prior to the payment of the
entire commuted value.
See "Tax Status - Tax Treatment of Distributions - Non-Qualified
Contracts" and "Tax Status - Tax Treatment of Distributions - IRA
Contracts" for a discussion of the tax treatment of withdrawals from
the Contracts.
Determination of Annuity Payments
On the Annuity Calculation Date, a fixed number of Annuity Units will be
purchased, determined as follows:
The first annuity payment is equal to the Contract Value allocated to the
Variable Account divided first by $1,000 and then multiplied by the
appropriate annuity payment amount for each $1,000 of value for the Annuity
Option selected. In each Sub-Account the fixed number of Annuity Units is
determined by dividing the amount of the initial annuity payment determined
for each Sub-Account by the Annuity Unit value on the Annuity Calculation
Date. Thereafter, the number of Annuity Units in each Sub-Account remains
unchanged unless the Contract Owner elects to transfer between Sub-Accounts.
All calculations will appropriately reflect the annuity payment frequency
selected.
On each subsequent annuity payment date, the total annuity payment is the sum
of the annuity payments determined for each Sub-Account. The annuity payment
in each Sub-Account is determined by multiplying the number of Annuity Units
then allocated to such Sub-account by the Annuity Unit value for that
Sub-Account.
For each Sub-Account, the value of an Annuity Unit was initially established
at $1.00. On each subsequent Valuation Date the value of an Annuity Unit is
determined in the following way:
FIRST: The Net Investment Factor is determined by dividing (a) by (b) and
adding (c) to the result, where:
a. is the net increase or decrease in the Net Asset Value per share of
the Fund (or other Eligible Investment) plus the per share amount of any
dividend or capital gain distribution paid by the Fund (or Eligible
Investment) during the Valuation Period, plus or minus a per share charge or
credit for any Taxes incurred by or reserved for in the Sub-Account as of the
end of the current Valuation Period which the Company determines to have
resulted from maintenance of the Sub-Account; and
b. is the Net Asset Value per share of the Fund (or other Eligible
Investment) at the beginning of the Valuation Period, plus or minus a per
share charge or credit for any Taxes incurred by or reserved for in the
Sub-Account as of the end of the immediately preceding Valuation Period which
the Company determines to have resulted from maintenance of the Sub-Account;
and
c. is the net result of 1.000 less the Valuation Period deduction for
the charges to the Sub-Account.
The Net Investment Factor may be more or less than one.
SECOND: The value of an Annuity Unit for a Valuation Date is equal to:
a. the value of the Annuity Unit on the immediately preceding Valuation
Date;
b. multiplied by the Net Investment Factor for the Valuation Period
ending on the current Valuation Date;
c. divided by the Assumed Net Investment Factor (see below) for the
Valuation Period.
The Assumed Net Investment Factor is equal to one plus the Assumed Investment
Return which is used in determining the basis for the purchase of an Annuity,
adjusted to reflect the particular Valuation Period. For example, with a 5%
Assumed Investment Return, the Assumed Net Investment Factor for a one-year
Valuation Period would be 1.05. For a one-day Valuation Period, the Assumed
Net Investment Factor would be 1.00013368062.
The Assumed Investment Return is the investment return upon which annuity
payments are based. Income will increase from one annuity Income Date to the
next if the annualized Net Rate of Return during that time is greater than the
Assumed Investment Return and will decrease if the annualized Net Rate of
Return is less than the Assumed Investment Return.
A Contract Owner may choose either a 5% or a 3% Assumed Investment Return. If
the Contract Owner does not choose one, the 5% Assumed Investment Return
automatically applies. Choosing the 5% Assumed Investment Return instead of
the 3% Assumed Investment Return will result in a higher initial amount of
income, but income will increase more slowly during periods of good investment
performance of the Trust and decrease more rapidly during periods of poor
investment performance.
The variable annuity benefits provided for under the Contract are based upon:
(a) the 1983(a) Blended Unisex Mortality Table with 50% female content,
projected to the year 2000 with Projection Scale G; (b) the Assumed Investment
Return, and (c) any applicable taxes.
THE CONTRACTS
Ownership
The Annuitant is the Contract Owner. The Contract Owner exercises all the
rights of the Contract, subject to the rights of (1) any assignee under an
assignment filed with the Company's VIP Service Center, and (2) any
irrevocably named Beneficiary.
Upon the death of the Contract Owner, the Joint Annuitant, if not already a
Joint Owner, will become the Contract Owner. On or after the Income Date, if
there is no Joint Annuitant or upon the death of the Joint Annuitant, the
Beneficiary(ies) become the Owner(s) of their respective shares.
If the Contract Owner dies before the Income Date and there is no Joint
Annuitant, the Contract will be treated as if it had never been issued and the
Company will return the Single Purchase Payment to the Contract Owner's
Estate.
Assignment
The Contract Owner may assign the Contract. A copy of any assignment must be
filed with the Company's VIP Service Center. The Company is not responsible
for the validity of any assignment. If the Contract is assigned, the Contract
Owner's rights and those of any revocably-named person will be subject to the
assignment. An assignment will not affect any payments the Company may make
or actions it may take before such assignment has been recorded at its VIP
Service Center.
If the Contract is issued pursuant to a qualified plan, it may not be
assigned, pledged or otherwise transferred except as may be allowed under
applicable law.
Beneficiary
One or more Beneficiaries and/or Contingent Beneficiaries are named by the
Contract Owner and are entitled to receive any death benefits to be paid.
Change of Beneficiary
The Contract Owner may change a Beneficiary or Contingent Beneficiary by
filing a written request with the Company at its VIP Service Center unless an
irrevocable Beneficiary designation was previously filed. After the change is
recorded, it will take effect as of the date the request was signed. If the
request reaches the VIP Service Center after the Contract Owner dies but
before any payment to a Beneficiary is made, the change will be valid. The
Company will not be liable for any payment made or action taken before it
records the change.
Death of Beneficiary
Unless the Contract Owner provided otherwise, any amount payable after his/her
death and that of any Joint Annuitant will be payable:
(1) in equal shares to such Beneficiaries as are then living;
(2) if no Beneficiary is then living, payment will be made in equal
shares to such Contingent Beneficiaries as are then living;
(3) if no Beneficiary or Contingent Beneficiary is then living, payment
will be made to the Contract Owner's estate.
Annuitant
The Annuitant is the primary person upon whose continuation of life any
annuity payment involving life contingencies depends. The Contract Owner is
the Annuitant. A Joint Annuitant is a person other than the Annuitant on
whose life annuity payments may also be based. The Annuitant, and any Joint
Annuitant, must be a natural person.
PROCEEDS PAYABLE AT DEATH
If the Contract Owner dies before the Income Date and there is no Joint
Annuitant, the Contract will be treated as if it had never been issued and the
Company will return the Single Purchase Payment to the Contract Owner's
estate.
If the Contract Owner has chosen either Option 3, Option 4 or Option 6 with
a Joint Annuitant and either the Contract Owner or the Joint Annuitant dies
before the Income Date, the Annuity Option will be changed to Option 2
with 120 monthly payments guaranteed. If the life expectancy of the
survivor is less than 120 months, the period of guaranteed payments will be
60 months.
If the Contract Owner or Joint Annuitant die on or after the Income Date, the
death benefit, if any, will be payable under the selected Annuity Option. The
Company will require proof of death.
PURCHASE PAYMENTS AND CONTRACT VALUE
Single Purchase Payment
The Single Purchase Payment is paid to the Company at its VIP Service Center.
The minimum purchase payment the Company will accept is $35,000. Contract
Owners can acquire more than one Contract and the Single Purchase Payment for
each need not be $35,000 if the average purchase payment for each Contract is
$35,000 or more.
Net Purchase Payment
The Net Purchase Payment is equal to the Single Purchase Payment less any
Taxes levied on the purchase payment.
Allocation of Net Purchase Payment
The Net Purchase Payment is allocated to one or more of the Sub-Accounts of
the Variable Account on the Effective Date. IN CALIFORNIA, THE
TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND AND THE CAPITAL GROWTH FUND ARE
NOT AVAILABLE UNTIL APPROVED BY THE CALIFORNIA INSURANCE DEPARTMENT. (CHECK
WITH YOUR AGENT REGARDING AVAILABILITY). The requested allocation to each
Sub-Account is made in percentages of the Net Purchase Payment. Whole
percentages must be used and each must be at least 10%. The Company has the
right to allocate the Net Purchase Payment to the Money Market Sub-Account
until the expiration of the Free-Look Period. Thereafter, the allocations
will be made to one or more of the Sub-Accounts as selected by the Contract
Owner. The Company reserves the right to limit the number of allocations that
a Contract Owner can have at any one time (except in Texas).
When all forms required to issue the Contract are received and in good order,
the Company will apply the Net Purchase Payment to the Variable Account and
credit the Contract with VIP Units within two business days of receipt.
In addition to the underwriting requirements of the Company, good order means
that the Company has received federal funds (monies credited to a bank's
account with its regional Federal Reserve Bank). The Company requires proof,
satisfactory to it, of the Age of the Annuitant and any Joint Annuitant. The
Company will not issue a Contract if either the Annuitant or the Joint
Annuitant are over Age 90. If the required forms for the Contract are not in
good order, the Company will attempt to get them in good order or the Company
will return the form(s) and the purchase payment within five business days.
The Company will not retain the Net Purchase Payment for more than five
business days while processing incomplete forms unless it has been so
authorized by the purchaser.
Contract Value
The Net Purchase Payment is allocated among the various Sub-Accounts within
the Variable Account. For each Sub-Account, the Net Purchase Payment is
converted into VIP Units. The Contract Value on or before the Annuity
Calculation Date is the sum of the values for the Contract within each
Sub-Account. The value within each Sub-Account is determined by multiplying
the number of VIP Units attributable to the Contract in the Sub-Account by the
VIP Unit value for the Sub-Account. On the Annuity Calculation Date, the
Contract Value is converted to annuity payments.
VIP Unit
When the Net Purchase Payment is allocated to the Variable Account, the amount
allocated to each Sub-Account is converted to VIP Units. The number of VIP
Units credited to each Sub-Account is determined by dividing the portion of
the Net Purchase Payment that is allocated to the Sub-Account by the value of
the VIP Unit for the Sub-Account as of the Effective Date. The VIP Unit value
for each Sub-Account was arbitrarily set initially at $10. The VIP Unit value
for any later Valuation Period on or before the Annuity Calculation Date is
determined by subtracting (b) from (a) and dividing the result by (c) where:
<TABLE>
<CAPTION>
<C> <S>
a. is the net result of
1) the assets of the Sub-Account attributable to VIP Units (i.e.,
the aggregate value of the underlying Eligible Investments held
at the end of such Valuation Period); plus or minus
2) the cumulative charge or credit for Taxes reserved which is
determined by the Company to have resulted from the operation of
the Sub-Account;
b. is the cumulative unpaid charge for the Mortality and Expense Risk
Charge and for the Administrative Expense Charge (See "Charges and
Deductions"); and
c. is the number of VIP Units outstanding at the end of such Valuation
Period.
</TABLE>
The VIP Unit value may increase or decrease from Valuation Period to Valuation
Period.
Transfers
The Contract Owner may transfer all or part of the Contract Owner's interest
in a Sub-Account to another Sub-Account without the imposition of any fee or
charge.
Neither the Variable Account nor the Trust are designed for professional
market timing organizations, other entities or individuals using programmed,
large, or frequent transfers. A pattern of exchanges that coincides with a
"market timing" strategy may be disruptive to the Fund and may be
refused. Accounts under common ownership or control may be aggregated for
purposes of transfer limits. In coordination with the Trust, the Company
reserves the right to restrict the transfer privilege or reject any specific
purchase payment allocation request for any person whose transactions seem to
follow a timing pattern.
All transfers are subject to the following:
a. no partial transfer will be made if it would result in any selected
Sub-Account providing less than 10% of the benefits under the Contract.
b. transfers will be effected during the Valuation Period next following
receipt by the Company of a written transfer request (or by telephone, if
authorized) containing all required information. No transfers may occur until
the end of the Free-Look Period. (See "Highlights.")
c. any transfer direction must clearly specify the new allocation
percentage(s) and the Sub-Accounts which are to be re-allocated.
d. the Company reserves the right to limit the number of transfers among
Sub-Accounts to not fewer than 6 transfers per calendar year. The Company
also reserves the right at any time and without prior notice to any party to
modify the transfer provisions described above, subject to applicable state
law and regulation.
A Contract Owner may elect to make transfers by telephone. To elect this
option the Contract Owner must do so in writing to the Company. If there are
Joint Owners, unless the Company is informed to the contrary, instructions
will be accepted from either one of the Joint Owners. The Company will use
reasonable procedures to confirm that instructions communicated by telephone
are genuine. If it does not, the Company may be liable for any losses due to
unauthorized or fraudulent instructions. The Company tape records all
telephone instructions.
DISTRIBUTOR
NALAC Financial Plans, Inc. ("NFP"), 1750 Hennepin Avenue,
Minneapolis, Minnesota, acts as the distributor of the Contracts. NFP
is a wholly-owned subsidiary of the Company. The Contracts are offered
on a continuous basis. NFP has subcontracted with Franklin Advisers, Inc.
("Advisers") for it and/or certain of its affiliates to provide certain
marketing support services and NFP compensates these entities for their
services. Commissions will be paid to broker-dealers who sell the
Contracts. Broker-dealers will be paid commissions at the time of purchase
up to 4% of the Single Purchase Payment. Broker-dealers are also paid
a trail commission of up to 40 basis points on the net single premium
reserve for the Contract. The Company may, by agreement with the
broker/dealer, pay commissions as a combination of a certain percentage
amount at the time of sale and a trail commission (which when combined
could exceed 4% of the Single Purchase Payment). Amounts paid to
broker-dealers by the Company will be paid out of general assets of the
Company which may include proceeds derived from the Mortality and Expense Risk
Charge the Company deducts from the Variable Account. In addition under
certain circumstances, the Company and/or Advisers or certain of its
affiliates, under a marketing support agreement with NFP , may pay
certain sellers for other services not directly related to the sale of the
Contracts such as special marketing support allowances.
Delay of Payments
The Company reserves the right to suspend or postpone payments 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 securities held
in the Variable Account is not reasonably practicable or it is not reasonably
practicable to determine the value of the Variable Account's net assets; or
4. during any other period when the Securities and Exchange Commission,
by order, so permits for the protection of Contract Owners.
The applicable rules and regulations of the Securities and Exchange Commission
will govern as to whether the conditions described in 2 and 3 exist.
ADMINISTRATION OF THE CONTRACTS
While the Company has primary responsibility for all administration of the
Contracts, it has retained the services of Templeton Funds Annuity Company
("TFAC" or "VIP Service Center") (in California d.b.a. Templeton Funds Life &
Annuity Insurance Company) pursuant to an Administration Agreement. Such
administrative services include issuance of the Contracts and maintenance of
Contract Owners' records. The Company pays all fees and charges of TFAC.
TFAC is an indirect wholly-owned subsidiary of Franklin Resources, Inc. which
is also the ultimate parent of all Managers to the Trust. TFAC has also
entered into a reinsurance agreement with the Company with respect to certain
risks under the Contracts.
PERFORMANCE DATA
Money Market Sub-Account
From time to time, the Company or NFP may advertise the "yield" and "effective
yield" of the Money Market Sub-Account. Both yield figures will be based on
historical earnings and are not intended to indicate future performance. The
"yield" of the Money Market Sub-Account refers to the income generated by
Contract Values in the Money Market Sub-Account over a seven-day period (which
period will be stated in the advertisement). This income is then
"annualized." That is, the amount of income generated by the investment
during that week is assumed to be generated each week over a 52-week period
and is shown as a percentage of the Contract Values in the Money Market
Sub-Account. The "effective yield" is calculated similarly but, when
annualized, the income earned by Contract Values in the Money Market
Sub-Account is assumed to be reinvested. The "effective yield" will be
slightly higher than the "yield" because of the compounding effect of this
assumed reinvestment. The computation of the yield calculation includes a
deduction for the Mortality and Expense Risk Charge and Administrative Expense
Charge.
Other Sub-Accounts
From time to time, the other Sub-Accounts or NFP may publish their current
yields and total returns in advertisements and communications to Contract
Owners. The current yield for each Sub-Account will be calculated by dividing
the annualization of the interest income earned by the underlying Fund during
a recent 30-day period by the maximum VIP Unit value at the end of such
period. Total return information will include the underlying Fund's average
annual compounded rate of return over the most recent four calendar quarters
and the period from the underlying Fund's inception of operations, based upon
the value of the VIP Units acquired through a hypothetical $1,000 investment
at the VIP Unit value at the beginning of the specified period and the value
of the VIP Unit at the end of such period, assuming reinvestment of all
distributions and the deduction of the Mortality and Expense Risk Charge and
the Administrative Expense Charge. Each Sub-Account may also advertise
aggregate and average total return information over different periods
of time.
In each case, the yield and total return figures will reflect all recurring
charges against the Sub-Account's income, including the deduction for the
Mortality and Expense Risk Charge and Administrative Expense Charge for the
applicable time period. The Company or NFP may, in addition, advertise or
present yield or total return performance information computed on different
basis, or for the Funds. Contract Owners should note that the investment
results of each Sub-Account will fluctuate over time, and any presentation of
a Sub-Account's current yield or total return for any prior period should not
be considered as a representation of what an investment may earn or what a
Contract Owner's yield or total return may be in any future period.
Hypothetical performance illustrations for a hypothetical contract may be
prepared for sales literature or advertisements. See "Calculation of
Performance Data" in the Statement of Additional Information.
Performance Ranking
The performance of each or all of the Sub-Accounts of the Variable Account may
be compared in its advertising and sales literature to the performance of
other variable annuity issuers in general or to the performance of particular
types of variable annuities investing in mutual funds, or series of mutual
funds with investment objectives similar to each of the Sub-Accounts of the
Variable Account or indices. Lipper Analytical Services, Inc. ("Lipper") and
the Variable Annuity Research and Data Service ("VARDS") are independent
services which monitor and rank the performance of variable annuity issuers in
each of the major categories of investment objectives on an industry-wide
basis.
Lipper's rankings include variable life issuers as well as variable annuity
issuers. VARDS rankings compare only variable annuity issuers. The
performance analyses prepared by Lipper and VARDS rank such issuers on the
basis of total return, assuming reinvestment of distributions, but do not take
sales charges, redemption fees or certain expense deductions at the separate
account level into consideration. In addition, VARDS prepares risk adjusted
rankings, which consider the effects of market risk on total return
performance. This type of ranking may address the question as to which funds
provide the highest total return with the least amount of risk. Other ranking
services may be used as sources of performance comparison, such as
CDA/Weisenberger and Morningstar.
TAX STATUS
NOTE: The following description is based upon the Company's understanding of
current federal income tax law applicable to annuities in general. The
Company cannot predict the probability that any changes in such laws will be
made. Purchasers are cautioned to seek competent tax advice regarding the
possibility of such changes. The Company does not guarantee the tax status of
the Contracts. Purchasers bear the complete risk that the Contracts may not
be treated as "annuity contracts" under federal income tax laws. It should be
further understood that the following discussion is not exhaustive and that
special rules not described in this Prospectus may be applicable in certain
situations. Moreover, no attempt has been made to consider any applicable
state or other tax laws.
General
Section 72 of the Internal Revenue Code of 1986, as amended (the "Code")
governs taxation of annuities in general. A Contract Owner is not taxed on
increases in the value of a Contract until distribution occurs, either in the
form of a lump sum payment or as annuity payments under the Annuity Option
elected.
For annuity payments, the portion of a payment includable in income equals the
excess of the payment over the exclusion amount. The exclusion amount for
payments based on a variable annuity option is determined by dividing the
investment in the Contract (adjusted for any period certain or refund
guarantee) by the number of years over which the annuity is expected to be
paid (determined by Treasury Regulations). Payments received after the
investment in the Contract has been recovered (i.e. the total of the
excludable amounts equal the investment in the Contract) are fully taxable.
The taxable portion of an annuity payment is taxed at ordinary income rates.
For certain types of Qualified Plans there may be no cost basis in the
Contract within the meaning of Section 72 of the Code. Contract Owners,
Annuitants and Beneficiaries under the Contracts should seek competent
financial advice about the tax consequences of any distributions.
The Company is taxed as a life insurance company under the Code. For federal
income tax purposes, the Variable Account is not a separate entity from the
Company, and its operations form a part of the Company.
Diversification
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not
adequately diversified in accordance with regulations prescribed by the United
States Treasury Department ("Treasury Department"). Disqualification of the
Contract as an annuity contract would result in the imposition of federal
income tax to the Contract Owner with respect to earnings allocable to the
Contract prior to the receipt of payments under the Contract. The Code
contains a safe harbor provision which provides that annuity contracts such as
the Contracts meet the diversification requirements if, as of the end of each
quarter, the underlying assets meet the diversification standards for a
regulated investment company and no more than fifty-five percent (55%) of the
total assets consist of cash, cash items, U.S. government securities and
securities of other regulated investment companies.
On March 2, 1989, the Treasury Department issued regulations (Treas. Reg.
1.817-5) which established diversification requirements for the investment
portfolios underlying variable contracts such as the Contracts. The
regulations amplify the diversification requirements for variable contracts
set forth in the Code and provide an alternative to the safe harbor provision
described above. Under the regulations, an investment portfolio will be
deemed adequately diversified if: (1) no more than 55% of the value of the
total assets of the portfolio is represented by any one investment; (2) no
more than 70% of the value of the total assets of the portfolio is represented
by any two investments; (3) no more than 80% of the value of the total assets
of the portfolio is represented by any three investments; and (4) no more than
90% of the value of the total assets of the portfolio is represented by any
four investments.
The Code provides that for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable
contracts by Section 817(h) of the Code have been met, "each United States
government agency or instrumentality shall be treated as a separate issuer."
The Company intends that all Funds of the Trust underlying the Contracts will
be managed by the Managers for the Trust in such a manner as to comply with
these diversification requirements.
The Treasury Department has indicated that the diversification Regulations do
not provide guidance regarding the circumstances in which Contract Owner
control of the investments of the Variable Account will cause the Contract
Owner to be treated as the owner of the assets of the Variable Account,
thereby resulting in the loss of favorable tax treatment for the Contract. At
this time it cannot be determined whether additional guidance will be provided
and what standards may be contained in such guidance.
The amount of Contract Owner control which may be exercised under the Contract
is different in some respects from the situations addressed in published
rulings issued by the Internal Revenue Service in which it was held that the
policy owner was not the owner of the assets of the separate account. It is
unknown whether these differences, such as the Contract Owner's ability to
transfer among investment choices or the number and type of investment choices
available, would cause the Contract Owner to be considered as the owner of the
assets of the Variable Account resulting in the imposition of federal income
tax to the Contract Owner with respect to earnings allocable to the Contract
prior to receipt of payments under the Contract.
In the event any forthcoming guidance or ruling is considered to set forth a
new position, such guidance or ruling will generally be applied only
prospectively. However, if such ruling or guidance was not considered to set
forth a new position, it may be applied retroactively resulting in the
Contract Owner being retroactively determined to be the owner of the assets of
the Variable Account.
Due to the uncertainty in this area, the Company reserves the right to modify
the Contract in an attempt to maintain favorable tax treatment.
Multiple Contracts
Section 72(e)(11) of the Code provides that multiple non-qualified annuity
contracts which are issued within a calendar year period to the same contract
owner by one company or its affiliates are treated as one annuity contract for
purposes of determining the tax consequences of any distribution. Such
treatment may result in adverse tax consequences, including more rapid
taxation of the distributed amounts from such combination of contracts. The
legislative history of Section 72(e)(11) indicates that it was not intended to
apply to immediate annuities. However, the legislative history also states
that no inference is intended as to whether the Treasury Department, under its
authority to prescribe rules to enforce the tax laws, may treat the
combination purchase of a deferred annuity contract with an immediate annuity
contract as a single contract for purposes of determining the tax consequences
of any distribution.
Tax Treatment of Distributions - Non-Qualified Contracts
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the Contract Value exceeds the aggregate
purchase payments made, any amount withdrawn will be treated as coming first
from the earnings and then, only after the income portion is exhausted, as
coming from the principal. Withdrawn earnings are includable in gross income.
It further provides that a ten percent (10%) penalty will apply to the income
portion of any distribution. However, the penalty is not imposed on amounts
received: (a) after the taxpayer reaches age 59 1/2; (b) after the death of
the Contract Owner; (c) if the taxpayer is totally disabled (for this purpose
disability is as defined in Section 72(m)(7) of the Code); (d) in a
series of substantially equal periodic payments made not less frequently than
annually for the life (or life expectancy) of the taxpayer and his
Beneficiary; (e) as an annuity payment under an immediate annuity; or (f)which
are allocable to purchase payments made prior to August 14, 1982.
The above information does not apply to Qualified Contracts. However, separate
tax withdrawal penalties and restrictions may apply to such Qualified
Contracts. (See "Tax Treatment of Distributions - IRA Contracts.")
The availability of total or partial withdrawals from an immediate annuity is
not expressly provided for in the Code or Treasury Regulations. The only tax
guidance currently available for such issue is a Private Letter Ruling holding
that the right to make withdrawals does not prevent a contract from qualifying
as an immediate annuity. However, the Private Letter Ruling does not address
the issue of whether the making of a withdrawal would adversely affect
the favorable tax treatment of annuity payments made before or after such
partial withdrawal because of the requirement that all immediate annuity
payments must be "substantially equal". The loss of favorable tax treatment
would mean that the income portion of each annuity payment received prior to
the taxpayer's attaining age 59 1/2 would be subject to a 10% penalty tax
unless another exception to the penalty tax applies. While the Company
currently believes that such withdrawals will not adversely affect the
favorable tax treatment of annuity payments received before or after a
withdrawal and the Company intends to perform its tax reporting functions
accordingly, there can be no assurance that the Internal Revenue Service
will not take a contrary position. Contract Owners should obtain competent
tax advice prior to making a partial or total withdrawal.
Qualified Plans
The Contracts offered by this Prospectus may also be used with a plan
qualified under Section 408(b) of the Code ("IRA Contracts"). Owners,
Annuitants and Beneficiaries are cautioned that benefits under an IRA Contract
may be subject to the terms and conditions of the plan regardless of the terms
and conditions of the Contracts issued pursuant to the plan. The following
discussion of IRA Contracts is not exhaustive and is for general informational
purposes only. The tax rules regarding IRA Contracts are very complex and
will have differing applications depending on individual facts and
circumstances. Each purchaser should obtain competent tax advice prior to
purchasing IRA Contracts.
IRA Contracts include special provisions restricting Contract provisions that
may otherwise be available as described in this Prospectus. Generally, IRA
Contracts are not transferable except upon surrender or annuitization.
Various penalty and excise taxes may apply to contributions or distributions
made in violation of applicable limitations. Furthermore, certain withdrawal
penalties and restrictions may apply to distributions from IRA Contracts.
(See "Tax Treatment of Distributions - IRA Contracts".)
On July 6, 1983, the Supreme Court decided in ARIZONA GOVERNING COMMITTEE V.
NORRIS that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. IRA Contracts will utilize annuity tables which
do not differentiate on the basis of sex because of the use of the IRA
Contracts in a Simplified Employee Pension. Such annuity tables will also be
available for use in connection with certain non-qualified deferred
compensation plans.
Under applicable limitations, certain amounts may be contributed to an IRA
Contract which will be deductible from the individual's gross income. These
IRAs are subject to limitations on eligibility, contributions, transferability
and distributions. (See " Tax Treatment of Distributions - IRA Contracts".)
Under certain conditions, distributions from other IRAs and other qualified
plans may be rolled over or transferred on a tax-deferred basis into an IRA
Contract. Sales of Contracts for use as IRA Contracts are subject to special
requirements imposed by the Code, including the requirement that certain
informational disclosure be given to persons desiring to establish an IRA.
Purchasers of Contracts to be qualified as Individual Retirement Annuities
should obtain competent tax advice as to the tax treatment and suitability of
such an investment.
Tax Treatment of Distributions - IRA Contracts
In the case of a withdrawal under a Qualified Contract, a ratable portion
of the amount received is taxable, generally based on the ratio of the
individual's cost basis to the individual's total accrued benefit under the
retirement plan. Special tax rules may be available for certain distributions
from a Qualified Contract.
Section 72(t) of the Code imposes a 10% penalty tax on the taxable portion of
any distribution from qualified retirement plans, including IRA Contracts. To
the extent amounts are not includible in gross income because they have been
rolled over to an IRA or to another eligible qualified plan, no tax penalty
will be imposed. The tax penalty will not apply to the following
distributions: (a) if distribution is made on or after the date on which the
Annuitant reaches age 59 1/2; (b) distributions following the death or
disability of the Annuitant (for this purpose disability is as defined in
Section 72(m)(7) of the Code); (c) distributions that are part of a series of
substantially equal periodic payments made not less frequently than annually
for the life (or life expectancy) of the Annuitant or the joint lives (or
joint life expectancies) of the Annuitant and his or her designated
Beneficiary. If the series of substantially equal periodic payments is
modified before the later of the annuitant attaining age 59 1/2 or 5 years
from the date of the first annuity payment, then the tax for the year of the
modification is increased by an amount equal to the tax which would have been
imposed (the 10% penalty tax) but for the exception, plus interest for the tax
years in which the exception was used. A partial withdrawal may result in the
modification of the series of annuity payments made after such withdrawal and
therefore could result in the imposition of the 10% penalty tax and interest
for the period as described above. Competent tax advice should be obtained
prior to making any withdrawals from an IRA Contract. Any amounts
distributed will only be paid to the Annuitant, Joint Annuitant or
Beneficiary. The Company will not transfer or pay such amounts to another IRA
or tax qualified plan.
Generally, distributions from an IRA Contract must commence no later than
April 1 of the calendar year, following the year in which the employee attains
age 70 1/2. Generally, required distributions must be over a period not
exceeding the life expectancy of the individual or the joint lives or life
expectancies of the individual and his or her designated beneficiary. If the
required minimum distributions are not made, a 50% penalty tax is imposed as
to the amount not distributed. In addition, certain distributions in excess
of $150,000 per year may be subject to an additional 15% excise tax unless an
exemption applies.
Tax Treatment of Assignments
An assignment or pledge of a Contract may be a taxable event. Contract Owners
should therefore consult competent tax advisers should they wish to assign
their Contracts.
Income Tax Withholding
All distributions or the portion thereof which is includible in the gross
income of the Contract Owner are subject to federal income tax withholding.
Generally, amounts are withheld from periodic payments at the same rate as
wages and at the rate of 10% from non-periodic payments. However, the
Contract Owner, in most cases, may elect not to have taxes withheld or to have
withholding done at a different rate.
FINANCIAL STATEMENTS
Audited consolidated financial statements of the Company and audited financial
statements of the Variable Account as of and for the year ended December 31,
1995 are included in the Statement of Additional Information.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Variable Account or the
Distributor is a party or to which the assets of the Variable Account are
subject. The Company is not involved in any litigation that is of material
importance in relation to its total assets or that relates to the Variable
Account.
APPENDIX - ILLUSTRATION OF VALUES
The following tables have been prepared to show how investment performance
affects variable annuity income over time. The variable annuity income
amounts reflect three different assumptions for a constant investment return
before all expenses: 0%, 6% and 12%. These are hypothetical rates of return
and, of course, the Company does not guarantee that the Contract will earn
these returns for any one year or any sustained period of time. The tables
are for illustrative purposes only and do not represent past or future
investment returns.
The variable annuity income may be more or less than the income shown if the
actual returns of the Eligible Investments are different than those
illustrated. Since it is very likely that investment returns will fluctuate
over time, the amount of variable annuity income will also fluctuate. The
total amount of annuity income ultimately received will depend on cumulative
investment returns and how long the Annuitant lives and the option chosen.
Another factor which determines the amount of variable annuity income is the
Assumed Investment Return. Income will increase from one annuity Income Date
to the next if the annualized Net Rate of Return during that time is greater
than the Assumed Investment Return, and will decrease if the annualized Net
Rate of Return is less than the Assumed Investment Return.
Two illustrations follow. The first is based on a 3% Assumed Investment
Return, and the second is based on a 5% Assumed Investment Return.
The income amounts shown reflect the deduction of all fees and expenses.
Actual Trust fees and expenses will vary from year to year and from Fund to
Fund and may thus be higher or lower than the assumed rate. The illustrations
assume that each Fund of the Trust will incur expenses at an annual rate of
0.76% of the average daily net assets of the Fund. This is the average in
1995, weighted by Fund net assets as of 12/31/95. The Mortality and Expense
Risk Charge and Administrative Expense Charge are calculated, in the
aggregate, at an annual rate of 1.40% of the average daily net assets of the
Variable Account. After taking these expenses and charges into consideration,
the illustrated gross investment returns of 0%, 6% and 12% are approximately
equal to net rates of -2.14%, 3.73% and 9.60%, respectively.
VALUEMARK INCOME PLUS ILLUSTRATION
ANNUITANT: John Doe ANNUITY PURCHASE AMOUNT: $100,000
DATE OF BIRTH: 1/1/27 EFFECTIVE DATE: 12/1/96
ANNUITY INCOME FIRST ANNUITY INCOME DATE: 1/1/97
OPTION: Single Life Annuity FREQUENCY OF ANNUITY INCOME: Monthly
PREMIUM TAX: 0% ASSUMED INVESTMENT RETURN: 3%
The amount of monthly variable annuity income shown in the table below and the
graph that follows assumes a constant annual investment return. The amount of
variable annuity income that is actually received will depend on the
investment performance of the underlying Fund(s) selected. The variable
annuity income can go up or down and no minimum dollar amount of variable
annuity income is guaranteed. The amounts shown are based on a 3% Assumed
Investment Return. Income will remain constant at $625 per month when the
annualized net rate of return after expenses is 3%.
<TABLE>
<CAPTION>
MONTHLY ANNUITY PAYMENTS
Annual rate of return before expenses: 0% 6% 12%
Annuity Income Date Age Annual rate of return after expenses: -2.14% 3.73% 9.60%
- ------------------- --- -------------------------------------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
January 1, 1997 70 $ 622 $ 625 $ 628
January 1, 1998 71 591 629 668
January 1, 1999 72 561 634 711
January 1, 2000 73 533 638 757
January 1, 2001 74 507 643 805
January 1, 2006 79 392 666 1,099
January 1, 2011 84 304 690 1,499
January 1, 2016 89 235 715 2,045
January 1, 2021 94 182 741 2,790
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY AND
SHOULD NOT BE DEEMED TO REPRESENT PAST OR FUTURE INVESTMENT PERFORMANCE.
ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS.
<TABLE>
<CAPTION>
The following table summarizes Annuity Income with an Assumed Investment
Return of 3%. This table is presented graphically in the printed prospectus.
Monthly Payment Amount
---------------- ---------------- ----------------
-2.14% 3.73% 9.60%
Annual Rate Annual Rate Annual Rate
of Return of Return of Return
Year After Expenses After Expenses After Expenses
- ---- ---------------- ---------------- ----------------
<S> <C> <C> <C>
1 $ 622 $ 625 $ 628
2 591 629 668
3 561 634 711
4 533 638 757
5 507 643 805
6 481 647 857
7 457 652 912
8 435 657 970
9 413 661 1,032
10 392 666 1,099
11 373 671 1,169
12 354 675 1,244
13 336 680 1,324
14 320 685 1,409
15 304 690 1,499
16 288 695 1,595
17 274 700 1,697
18 260 705 1,806
19 247 710 1,922
20 235 715 2,045
21 223 720 2,176
22 212 725 2,316
23 202 730 2,464
24 192 735 2,622
25 182 741 2,790
</TABLE>
VALUEMARK INCOME PLUS ILLUSTRATION
ANNUITANT: John Doe ANNUITY PURCHASE AMOUNT: $100,000
DATE OF BIRTH: 1/1/27 EFFECTIVE DATE: 12/1/96
ANNUITY INCOME FIRST ANNUITY INCOME DATE: 1/1/97
OPTION: Single Life Annuity FREQUENCY OF ANNUITY INCOME: Monthly
PREMIUM TAX: 0% ASSUMED INVESTMENT RETURN: 5%
The amount of monthly variable annuity income shown in the table below and the
graph that follows assumes a constant annual investment return. The amount of
variable annuity income that is actually received will depend on the
investment performance of the underlying Fund(s) selected. The variable
annuity income can go up or down and no minimum dollar amount of variable
annuity income is guaranteed. The amounts shown are based on a 5% Assumed
Investment Return. Income will remain constant at $742 per month when the
annual rate of return after expenses is 5%.
<TABLE>
<CAPTION>
MONTHLY ANNUITY PAYMENTS
Annual rate of return before expenses: 0% 6% 12%
Annuity Income Date Age Annual rate of return after expenses: -2.14% 3.73% 9.60%
- ------------------- --- -------------------------------------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
January 1, 1997 70 $ 738 $ 741 $ 745
January 1, 1998 71 687 732 778
January 1, 1999 72 641 724 812
January 1, 2000 73 597 715 847
January 1, 2001 74 557 706 884
January 1, 2006 79 391 664 1,096
January 1, 2011 84 275 625 1,358
January 1, 2016 89 193 588 1,683
January 1, 2021 94 136 554 2,086
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY AND
SHOULD NOT BE DEEMED TO REPRESENT PAST OR FUTURE INVESTMENT PERFORMANCE.
ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS.
<TABLE>
<CAPTION>
The following table summarizes Annuity Income with an Assumed Investment
Return of 5%. This table is presented graphically in the printed prospectus.
Monthly Payment Amount
---------------- ---------------- ----------------
-2.14% 3.73% 9.60%
Annual Rate Annual Rate Annual Rate
of Return of Return of Return
Year After Expenses After Expenses After Expenses
- ---- ---------------- ---------------- ----------------
<S> <C> <C> <C>
1 $ 738 $ 741 $ 745
2 687 732 778
3 641 724 812
4 597 715 847
5 557 706 884
6 519 698 923
7 483 689 964
8 451 681 1,006
9 420 673 1,050
10 391 664 1,096
11 365 656 1,144
12 340 648 1,194
13 317 641 1,247
14 295 633 1,301
15 275 625 1,358
16 256 618 1,418
17 239 610 1,480
18 223 603 1,545
19 208 596 1,613
20 193 588 1,683
21 180 581 1,757
22 168 574 1,834
23 157 567 1,914
24 146 560 1,998
25 136 554 2,086
</TABLE>
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
ITEM PAGE
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distributor . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Calculation of Performance Data . . . . . . . . . . . . . . . . . . .
Annuity Provisions. . . . . . . . . . . . . . . . . . . . . . . . . .
Variable Annuity Payout . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . .
