ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Home Office: Valuemark Service Center:
1750 Hennepin Avenue 300 Berwyn Park
Minneapolis, MN 55403-2195 P.O. Box 3031
(800) 542-5427 Berwyn, PA 19312-0031
(800) 624-0197
INDIVIDUAL FLEXIBLE PAYMENT
VARIABLE ANNUITY CONTRACTS
issued by
ALLIANZ LIFE VARIABLE ACCOUNT B
and
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
May 1, 1996
The Individual Flexible Payment Variable Annuity Contracts (the "Contracts")
described in this Prospectus provide for accumulation of Contract Values and
eventual payment of monthly annuity payments. The Contracts are designed to
aid individuals in long-term planning for retirement or other long-term
purposes. This is not appropriate as a trading vehicle.
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 Plans") and for retirement plans which do qualify for the
federal tax advantages available under the Internal Revenue Code ("Qualified
Plans"). (See "Tax Status - Qualified Plans.") However, because of the
minimum purchase requirements, these Contracts may not be appropriate for some
periodic payment retirement plans.
Purchase payments 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") or to the Company's Fixed Account. THE FIXED ACCOUNT
MAY NOT BE AVAILABLE IN ALL STATES. 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: the
Money Market Fund, the Adjustable U.S. Government Fund, the High Income
Fund, the Investment Grade Intermediate Bond Fund, the Templeton Global
Income Securities Fund, The U.S. Government Securities Fund, the
Zero Coupon Funds - 2000, 2005 and 2010, the Growth and Income
Fund, the Income Securities Fund,the Real Estate Securities Fund, the
Rising Dividends Fund, the Templeton Global Asset Allocation Fund, the
Utility Equity Fund, the Capital Growth Fund, the Precious Metals
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. SUBJECT TO REGULATORY APPROVAL, SHARES
OF THE U.S. GOVERNMENT SECURITIES FUND WILL BE SUBSTITUTED FOR SHARES OF
THE ADJUSTABLE U.S. GOVERNMENT FUND AND THE INVESTMENT GRADE INTERMEDIATE
BOND FUND ON OCTOBER 25, 1996, OR AS SOON AS POSSIBLE THEREAFTER.
THUS, FOLLOWING THE SUBSTITUTION, THE ADJUSTABLE U.S. GOVERNMENT FUND AND
THE INVESTMENT GRADE INTERMEDIATE BOND FUND WILL NO LONGER BE AVAILABLE
AS ELIGIBLE INVESTMENTS FOR CONTRACT OWNERS. SEE "FRANKLIN VALUEMARK
FUNDS - PROPOSED SUBSTITUTION TRANSACTION." Prior to May 1, 1996, the
Templeton Global Income Securities Fund was known as the Global Income
Fund. See "Highlights" and "Tax Status" for a discussion of owner
control of the underlying investments in a variable annuity 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 CONTRACTS IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF
THE CONTRACT OWNER'S INVESTMENT TO FLUCTUATE, AND WHEN THE CONTRACTS ARE
SURRENDERED, THE VALUE MAY BE HIGHER OR LOWER THAN THE PURCHASE PAYMENTS.
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 Home Office address shown above.
INQUIRIES: Any inquiries can be made by telephone or in writing to the Company
at the Home 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.
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.
IN THE STATE OF OREGON, ALL REFERENCES TO FRANKLIN VALUEMARK II REFER TO
VALUEMARK II.
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 Contingent Deferred Sales Charge (Sales Load)
Reduction or Elimination of Contingent Deferred Sales Charge
Deduction for Mortality and Expense Risk Charge
Deduction for Administrative Expense Charge
Deduction for Contract Maintenance Charge
Deduction for Premium Taxes
Deduction for Income Taxes
Deduction for Trust Expenses
Deduction for Transfer Fee
THE CONTRACTS
Ownership
Assignment
Beneficiary
Change of Beneficiary
Annuitant
Death of the Contract Owner Before the Income Date
Death of the Annuitant Prior to the Income Date
Death of the Annuitant After the Income Date
ANNUITY PROVISIONS
Income Date
Change in Income Date and Annuity Option
Annuity Options
Annuity Units
Annuity Unit Value
PURCHASE PAYMENTS AND CONTRACT VALUE
Purchase Payments
Allocation of Purchase Payments
Transfer of Contract Values
Dollar Cost Averaging
Automatic Investment Plan
Contract Value
Accumulation Unit
DISTRIBUTOR
SURRENDERS
Systematic Withdrawal
Delay of Payments
ADMINISTRATION OF THE CONTRACTS
PERFORMANCE DATA
Money Market Sub-Account
Other Sub-Accounts
Performance Ranking
TAX STATUS
General
Diversification
Multiple Contracts
Contracts Owned by Other than Natural Persons
Tax Treatment of Assignments
Income Tax Withholding
Tax Treatment of Withdrawals - Non-Qualified Contracts
Qualified Plans
Tax Treatment of Withdrawals - Qualified Contracts
Tax-Sheltered Annuities - Withdrawal Limitations
FINANCIAL STATEMENTS
LEGAL PROCEEDINGS
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
DEFINITIONS
Accumulation Unit - An accounting unit of measure used to calculate the
Contract Value prior to the Income Date.
Annuitant - The person upon whose continuation of life any annuity payment
involving life contingencies depends. The Annuitant may be changed at any
time prior to the Income Date unless the Contract Owner is not a natural
person.
Annuity Option - An arrangement under which annuity payments are made under
the Contract.
Annuity Period - The period starting on the Income Date.
Annuity Unit - An accounting unit of measure used to calculate annuity
payments after the Income Date.
Company - Allianz Life Insurance Company of North America at its Valuemark
Service Center shown on the cover page of this Prospectus.
Contingent Owner - In those Contracts containing Contingent Owner provisions,
the Contingent Owner is named in the application, unless changed. Only the
spouse of the Owner may be the Contingent Owner.
Contract Anniversary - An anniversary of the Effective Date of the Contract.
Contract Owner - The Contract Owner is named in the application, unless
changed, and has all rights under the Contract. If Joint Owners are named, all
references to Contract Owner shall mean the Joint Owners.
Contract Value - The dollar value as of any Valuation Date of all amounts
accumulated under the Contract.
Contract Year - Any period of twelve (12) months commencing with the Effective
Date and each Contract Anniversary thereafter.
Effective Date - The date on which the first Contract Year begins.
Eligible Investment(s) - An investment entity which can be selected by the
Contract Owner to be the underlying investment of the Contract.
Fixed Account - The Company's general investment account which contains all
the assets of the Company with the exception of the Variable Account and other
segregated asset accounts.
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 commence.
Joint Owner - In Contracts containing Joint Owner provisions, 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. Any Joint Owner must be the spouse of the other Joint Owner (except
in Pennsylvania).
Non-Qualified Contracts - Contracts issued under Non-Qualified Plans which do
not receive favorable tax treatment under Sections 401, 403(b) or 408 of the
Internal Revenue Code.
Qualified Contracts - Contracts issued under Qualified Plans which receive
favorable tax treatment under Sections 401, 403(b) or 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.
Surrender Value - The Contract Value for the Valuation Period next
following the Valuation Period during which the written request to the
Company for surrender is received, reduced by the sum of: (i) any applicable
premium taxes not previously deducted; (ii) any applicable Contract
Maintenance Charge; and (iii) any applicable Contingent Deferred Sales Charge.
Valuation Date - The Variable Account will be valued each day that the New
York Stock Exchange is open for trading, which is Monday through Friday,
except for normal business holidays.
Valuation Period - The period commencing at the close of business of the New
York Stock Exchange on each Valuation Date and ending at the close of business
for the next succeeding Valuation Date.
Variable Account - A separate investment account of the Company, designated as
Allianz Life Variable Account B, into which purchase payments may be
allocated.
HIGHLIGHTS
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") or to the Company's Fixed Account. SUBJECT TO
REGULATORY APPROVAL, SHARES OF THE U.S. GOVERNMENT SECURITIES FUND WILL BE
SUBSTITUTED FOR SHARES OF THE ADJUSTABLE U.S. GOVERNMENT FUND AND THE
INVESTMENT GRADE INTERMEDIATE BOND FUND ON OCTOBER 25, 1996, OR AS SOON AS
POSSIBLE THEREAFTER. THUS, FOLLOWING THE SUBSTITUTION, THE ADJUSTABLE U.S.
GOVERNMENT FUND AND THE INVESTMENT GRADE INTERMEDIATE BOND FUND WILL NO
LONGER BE AVAILABLE AS ELIGIBLE INVESTMENTS FOR CONTRACT OWNERS. SEE
"FRANKLIN VALUEMARK FUNDS - PROPOSED SUBSTITUTION TRANSACTION" BELOW .
THE FIXED ACCOUNT MAY NOT BE AVAILABLE IN ALL STATES. 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 for a longer period in states
where required) after it is received ("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 Contract Value in
states where permitted. This may be more or less than the purchase payments.
In states where required and where the Contract is purchased pursuant to an
Individual Retirement Annuity, the Company will promptly refund the purchase
payments, less any withdrawals. The Company has reserved the right to
allocate initial purchase payments to the Money Market Sub-Account (except
those allocated to the Fixed Account) until the expiration of the Free Look
Period. If the Company does so allocate the initial purchase payment to the
Money Market Sub-Account, it will refund the greater of the purchase payments,
less any withdrawals, or the Contract Value. It is the Company's current
practice to directly allocate the initial purchase payments to the
Sub-Accounts and/or to the Fixed Account as selected by the Contract
Owner.
A Contingent Deferred Sales Charge (sales load) may be deducted in the event
of a surrender. The Contingent Deferred Sales Charge is imposed on surrenders
of purchase payments within five (5) years after their being made. Once each
Contract Year, Contract Owners may surrender up to fifteen percent (15%) of
purchase payments paid less any prior surrenders without incurring a
Contingent Deferred Sales Charge. If no withdrawal is made during a Contract
Year, the 15% is cumulative into future years. If less than 15% is withdrawn
in a Contract Year, the remaining percentage is not available in future years.
The Contingent Deferred Sales Charge will vary in amount, depending upon the
Contract Year in which the purchase payment being surrendered was made. The
Company currently makes available a systematic withdrawal plan which allows
for additional options in some instances. (See "Surrenders - Systematic
Withdrawal.") The Contingent Deferred Sales Charge is found in the Fee Table.
(See also "Charges and Deductions - Deduction for Contingent Deferred Sales
Charge (Sales Load).") The maximum Contingent Deferred Sales Charge is 5% of
purchase payments. For purposes of determining the applicability of the
Contingent Deferred Sales Charge, surrenders are deemed to be on a first-in,
first-out basis.
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
Contract and the Variable Account. (See "Charges and Deductions - Deduction
for Administrative Expense Charge.")
There is an annual Contract Maintenance Charge of $30 each Contract Year. (See
"Charges and Deductions - Deduction for Contract Maintenance Charge.")
Premium taxes or other taxes payable to a state or other governmental entity
will be charged against Contract Values. (See "Charges and Deductions -
Deduction for Premium Taxes.")
Under certain circumstances there may be assessed a transfer fee when a
Contract Owner transfers Contract Values. (See "Charges and Deductions -
Deduction for Transfer Fee.")
There is a ten percent (10%) federal income tax penalty that may be applied
to the income portion of any distribution from the Contracts. However, the
penalty is not imposed under certain circumstances. See "Tax Status - Tax
Treatment of Withdrawals - Non-Qualified Contracts" and "Tax Treatment of
Withdrawals - Qualified Contracts." For a further discussion of the taxation
of the Contracts, see "Tax Status."
Withdrawals of amounts attributable to contributions made pursuant to a salary
reduction agreement (as defined in Section 403(b)(11) of the Code) are limited
to circumstances only when the Contract Owner: (1) attains age 59 1/2; (2)
separates from service; (3) dies; (4) becomes disabled (within the meaning of
Section 72(m)(7) of the Code); or (5) in the case of hardship. However,
withdrawals for hardship are restricted to the portion of the Contract Owner's
Contract Value which represents contributions made by the Contract Owner and
does not include any investment results. The limitations on withdrawals
became effective on January 1, 1989 and only apply to (i) salary reduction
contributions made after December 31, 1988; (ii) to income attributable to
such contributions; and (iii) to amounts held as of December 31, 1988. The
limitations on withdrawals do not affect rollovers or transfers between
certain Qualified Plans. Contract Owners should consult their own tax counsel
or other tax adviser regarding distributions. (See "Tax Status - Tax
Sheltered Annuities - Withdrawal Limitations.")
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
investment underlying the contract. The issuance of such guidelines may
require the Company to impose limitations on a Contract Owner's right to
control the investment. It is not known whether any such guidelines would
have a retroactive effect (see "Tax Status - Diversification").
The Company offers other deferred variable annuity contracts but does not
permit exchange of those contracts for the Contracts offered by this
Prospectus.
Because of certain exemptive and exclusionary provisions, interests in the
Fixed Account are not registered under the Securities Act of 1933 and the
Fixed Account is not registered as an investment company under the Investment
Company Act of 1940, as amended. Accordingly, neither the Fixed Account nor
any interests therein are subject to the provisions of these Acts, and the
Company has been advised that the staff of the Securities and Exchange
Commission has not reviewed the disclosures in the Prospectus relating to the
Fixed Account. Disclosures regarding the Fixed Account may, however, be
subject to certain generally applicable provisions of the federal securities
laws relating to the accuracy and completeness of statements made in
prospectuses.
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B FEE TABLE*
______________________________________________________________
<S> <C> <C>
Contract Owner Transaction Fees
Contingent Deferred Sales Charge** Years Since
(as a percentage of purchase payments) Payment Charge
___________ _______
0-1 5%
1-2 5%
2-3 4%
3-4 3%
4-5 1.5%
5+ 0%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Current Transfer Fee*** First 12 transfers in a
Contract Year are free.
Thereafter, the fee is $25
(or 2% of the amount
transferred, if less).
Prescheduled automatic
dollar cost averaging
transfers are not counted.
Contract Maintenance Charge $30 per Contract per year
(Prior to the Income Date the charge is
waived for Contracts having Contract Values
or purchase payments less withdrawals of
$100,000 or more.)
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%
</TABLE>
<TABLE>
<CAPTION>
<C> <S>
* Applies to all twenty-three Sub-Accounts of the Variable Account.
** Once each Contract Year, a Contract Owner may surrender up to fifteen
percent (15%) of purchase payments paid less any prior surrenders
without incurring a Contingent Deferred Sales Charge. If no withdrawal
is made during a Contract Year, the 15% is cumulative into future
years. If less than 15% is withdrawn in a Contract Year, the remaining
percentage is not available in future years. See also "Surrenders -
Systematic Withdrawal" for additional options.
*** The Contract provides that if more than three transfers have been made
in a Contract Year, the Company reserves the right to deduct a transfer
fee which shall not exceed the lesser of $25 or 2% of the amount
transferred.
</TABLE>
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" include investment
advisory, other management and administrative fees not included as
"Other Expenses" below that were paid to the Managers and Business
Managers to the Trust for the 1995 calendar year (except for
the Money Market Fund, the Zero Coupon Fund-2000, the Zero Coupon
Fund-2005, the Zero Coupon Fund-2010, 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%
Precious Metals Fund .61% .05% .66%
Real Estate Securities Fund .56% .03% .59%
Utility Equity Fund .47% .03% .50%
High Income Fund .53% .03% .56%
Templeton Global Income Securities
Fund (3/) .55% .09% .64%
Investment Grade Intermediate Bond Fund .58% .03% .61%
Income Securities Fund .47% .04% .51%
The U.S. Government Securities Fund .49% .03% .52%
Adjustable U.S. Government Fund .56% .03% .59%
Zero Coupon Fund-2000 (4/) .37% .03% .40%
Zero Coupon Fund-2005 (4/) .37% .03% .40%
Zero Coupon Fund-2010 (4/) .37% .03% .40%
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 (5/) .80% .10% .90%
Small Cap Fund (6/) .75% .15% .90%
Templeton International Smaller Companies
Fund (7/) 1.00% .10% 1.10%
Capital Growth Fund (7/) .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; the 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/ Prior to May 1, 1996, the Templeton Global Income Securities Fund was
known as the Global Income Fund.
4/ Net of management fees waived and/or expense reimbursements.
Although not obligated to, Franklin Advisers, Inc. has agreed in advance to
waive a portion of its management fees and to make certain payments to reduce
expenses of the three Zero Coupon Funds through at least December 31, 1996
such that the aggregate expenses of the Zero Coupon Fund-2000, the Zero Coupon
Fund-2005 and the Zero Coupon Fund-2010 will not exceed 0.40% of each Fund's
net assets. Absent the management fee waivers and expense payments, for the
year ended December 31, 1995, the Total Annual Expenses and Management and
Business Management Fees would have been as follows: Zero Coupon Fund-2000,
.63% and .60%; Zero Coupon Fund-2005, .66% and .63%; and Zero Coupon
Fund-2010, .66% and .63%.
5/ The Templeton Global Asset Allocation Fund commenced operations May 1,
1995. The expenses shown are estimated expenses for the Fund for 1996.
6/ The Small Cap Fund commenced operations November 1, 1995. The
expenses shown are estimated expenses for the Fund for 1996.
7/ The Templeton International Smaller Companies Fund and the Capital
Growth Fund have not yet commenced operations. The expenses shown are
estimated expenses for the Funds for 1996.
</TABLE>
The following Tables reflect expenses of the Variable Account as well as of
the Trust. The dollar figures should not be considered a representation of
past or future expenses. Actual expenses may be greater or less than those
shown. The $30 Contract Maintenance Charge is included in the Examples as
a prorated charge of $1. Since the average Contract account size for
the Contracts described in this Prospectus is greater than $1,000, the expense
effect of the Contract Maintenance Charge is reduced accordingly. For
additional information, see "Charges and Deductions" in this Prospectus and
"Management" in the Trust Prospectus.
Premium taxes are not reflected in the Tables. Premium taxes may apply.
EXAMPLE
If the Contract is fully surrendered at the end of the applicable time period
and no prior surrenders have occurred, the Contract Owner would have incurred
the following expenses on a $1,000 investment, assuming a 5% annual return on
assets compounded semi-annually:
<TABLE>
<CAPTION>
1 3 5 10
Year Years Years Years
____ _____ _____ ______
<S> <C> <C> <C> <C>
Money Market Fund $ 63 $ 89 $ 125 $ 292
Growth and Income Fund $ 64 $ 89 $ 124 $ 291
Precious Metals Fund $ 65 $ 93 $ 132 $ 310
Real Estate Securities Fund $ 64 $ 91 $ 128 $ 300
Utility Equity Fund $ 63 $ 88 $ 123 $ 288
High Income Fund $ 64 $ 90 $ 126 $ 296
Templeton Global Income Securities Fund $ 65 $ 93 $ 131 $ 307
Investment Grade Intermediate Bond Fund $ 65 $ 92 $ 129 $ 303
Income Securities Fund $ 63 $ 88 $ 123 $ 290
The U.S. Government Securities Fund $ 64 $ 89 $ 124 $ 291
Adjustable U.S. Government Fund $ 64 $ 91 $ 128 $ 300
Zero Coupon Fund-2000# $ 62 $ 85 $ 117 $ 275
Zero Coupon Fund-2005# $ 62 $ 85 $ 117 $ 275
Zero Coupon Fund-2010# $ 62 $ 85 $ 117 $ 275
Rising Dividends Fund $ 66 $ 97 $ 139 $ 325
Templeton International Equity Fund $ 68 $ 102 $ 147 $ 344
Templeton Pacific Growth Fund $ 69 $ 104 $ 152 $ 355
Templeton Global Growth Fund $ 68 $ 103 $ 150 $ 350
Templeton Developing Markets Equity Fund $ 73 $ 117 $ 174 $ 405
Templeton Global Asset Allocation Fund* $ 67 $ 101 $ 146 $ 341
Small Cap Fund* $ 67 $ 101 $ 146 $ 341
Templeton International Smaller Companies
Fund** $ 69 $ 107 $ 157 $ 367
Capital Growth Fund** $ 66 $ 97 $ 139 $ 327
<FN>
* Annualized
** Estimated
# Calculated with waiver of fees and reimbursement of expenses
</TABLE>
If the Contract is not surrendered at the end of the applicable time period
and no prior surrenders have occurred, the Contract Owner would have incurred
the following expenses on a $1,000 investment, assuming a 5% annual return on
assets compounded semi-annually:
<TABLE>
<CAPTION>
1 3 5 10
Year Years Years Years
____ ______ ______ ______
<S> <C> <C> <C> <C>
Money Market Fund $ 21 $ 67 $ 121 $ 292
Growth and Income Fund $ 21 $ 67 $ 120 $ 291
Precious Metals Fund $ 22 $ 71 $ 128 $ 310
Real Estate Securities Fund $ 21 $ 69 $ 124 $ 300
Utility Equity Fund $ 20 $ 66 $ 119 $ 288
High Income Fund $ 21 $ 68 $ 122 $ 296
Templeton Global Income Securities Fund $ 22 $ 71 $ 127 $ 307
Investment Grade Intermediate Bond Fund $ 22 $ 70 $ 125 $ 303
Income Securities Fund $ 20 $ 66 $ 119 $ 290
The U.S. Government Securities Fund $ 21 $ 67 $ 120 $ 291
Adjustable U.S. Government Fund $ 21 $ 69 $ 124 $ 300
Zero Coupon Fund-2000# $ 19 $ 63 $ 113 $ 275
Zero Coupon Fund-2005# $ 19 $ 63 $ 113 $ 275
Zero Coupon Fund-2010# $ 19 $ 63 $ 113 $ 275
Rising Dividends Fund $ 23 $ 75 $ 135 $ 325
Templeton International Equity Fund $ 25 $ 80 $ 143 $ 344
Templeton Pacific Growth Fund $ 26 $ 82 $ 148 $ 355
Templeton Global Growth Fund $ 25 $ 81 $ 146 $ 350
Templeton Developing Markets Equity Fund $ 30 $ 95 $ 170 $ 405
Templeton Global Asset Allocation Fund* $ 24 $ 79 $ 142 $ 341
Small Cap Fund* $ 24 $ 79 $ 142 $ 341
Templeton International Smaller Companies
Fund** $ 26 $ 85 $ 153 $ 367
Capital Growth Fund** $ 23 $ 75 $ 135 $ 327
<FN>
* Annualized
** Estimated
# Calculated with waiver of fees and reimbursement of expenses
</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
Precious Metals Fund
Unit value at beginning of period $ 13.979 $14.464 $9.424
$10.635 $10.387
Unit value at end of period $ 14.109 $13.979 $14.464
$9.424 $10.635
Number of units outstanding at end of period 6,919 8,285 4,685
1,419 833
High Income Fund
Unit value at beginning of period $ 14.608 $15.155 $13.278
$11.583 $9.026
Unit value at end of period $ 17.252 $14.608 $15.155
$13.278 $11.583
Number of units outstanding at end of period 18,756 15,679 11,787
4,780 1,923
Real Estate Securities Fund
Unit value at beginning of period $ 15.594 $15.369 $13.095
$11.848 $9.000
Unit value at end of period $ 18.073 $15.594 $15.369
$13.095 $11.848
Number of units outstanding at end of period 10,998 11,645 5,589
1,052 394
The U.S. Government Securities Fund
Unit value at beginning of period $ 13.835 $14.698 $13.586
$12.798 $11.199
Unit value at end of period $ 16.298 $13.835 $14.698
$13.586 $12.798
Number of units outstanding at end of period 34,313 36,490 40,402
25,054 14,426
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
Zero Coupon Fund - 2000
Unit value at beginning of period $ 15.373 $16.717 $14.595
$13.570 $11.446
Unit value at end of period $ 18.294 $15.373 $16.717
$14.595 $13.570
Number of units outstanding at end of period 6,066 4,953 3,787
2,886 2,012
Zero Coupon Fund - 2005
Unit value at beginning of period $ 16.096 $18.050 $14.975
$13.705 $11.545
Unit value at end of period $ 20.914 $16.096 $18.050
$14.975 $13.705
Number of units outstanding at end of period 3,504 2,780 2,020
1,090 795
Zero Coupon Fund - 2010
Unit value at beginning of period $ 15.930 $18.144 $14.670
$13.482 $11.390
Unit value at end of period $ 22.431 $15.930 $18.144
$14.670 $13.482
Number of units outstanding at end of period 3,437 2,589 1,405
849 1,150
Templeton Global Income Securities Fund*
Unit value at beginning of period $ 13.726 $14.650 $12.733
$12.962 $11.706
Unit value at end of period $ 15.522 $13.726 $14.650
$12.733 $12.962
Number of units outstanding at end of period 14,181 16,855 13,054
5,487 2,979
Investment Grade Intermediate Bond Fund
Unit value at beginning of period $ 14.257 $14.389 $13.442
$12.879 $11.281
Unit value at end of period $ 15.463 $14.257 $14.389
$13.442 $12.879
Number of units outstanding at end of period 9,692 9,772 7,677
3,333 1,311
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
Adjustable U.S. Government Fund
Unit value at beginning of period $ 11.077 $11.254 $11.020
$10.698 $9.999
Unit value at end of period $ 11.951 $11.077 $11.254
$11.020 $10.698
Number of units outstanding at end of period 14,600 19,865 24,975
21,858 12,077
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
Precious Metals Fund
Unit value at beginning of period $12.247 $10.000
Unit value at end of period $10.387 $12.247
Number of units outstanding at end of period 1,015 167
High Income Fund
Unit value at beginning of period $10.021 $10.000
Unit value at end of period $9.026 $10.021
Number of units outstanding at end of period 1,056 612
Real Estate Securities Fund
Unit value at beginning of period $10.368 $10.000
Unit value at end of period $9.000 $10.368
Number of units outstanding at end of period 200 57
The U.S. Government Securities Fund
Unit value at beginning of period $10.427 $10.000
Unit value at end of period $11.199 $10.427
Number of units outstanding at end of period 5,450 1,102
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
Zero Coupon Fund - 2000
Unit value at beginning of period $10.961 $10.000
Unit value at end of period $11.446 $10.961
Number of units outstanding at end of period 1,041 162
Zero Coupon Fund - 2005
Unit value at beginning of period $11.406 $10.000
Unit value at end of period $11.545 $11.406
Number of units outstanding at end of period 406 86
Zero Coupon Fund - 2010
Unit value at beginning of period $11.486 $10.000
Unit value at end of period $11.390 $11.486
Number of units outstanding at end of period 581 194
Templeton Global Income Securities Fund
Unit value at beginning of period $10.813 $10.000
Unit value at end of period $11.706 $10.813
Number of units outstanding at end of period 1,322 278
Investment Grade Intermediate Bond Fund
Unit value at beginning of period $10.635 $10.000
Unit value at end of period $11.281 $10.635
Number of units outstanding at end of period 595 200
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
Adjustable U.S. Government Fund
Unit value at beginning of period $10.000** NA
Unit value at end of period $9.999 NA
Number of units outstanding at end of period 75 NA
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.
* Prior to May 1, 1996, the Templeton Global Income Securities Fund
was known as the Global Income Fund.
** 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, Templeton Global Income
Securities, High Income, Income Securities, Precious Metals, Real Estate
Securities, Utility Equity, Investment Grade Intermediate Bond and Money
Market Funds; 3/13/89 for The U.S. Government Securities and the three
Zero Coupon Funds; 12/3/90 for the Adjustable U.S. Government Fund; 1/24/92
for the Rising Dividends, Templeton International Equity and the
Templeton Pacific Growth Funds; 3/15/94 for the Templeton Global Growth
and Templeton Developing Markets Equity Funds; 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 had been owned by Allianz since 1979. Over the last decade there
has been a gradual consolidation of operations. On May 31, 1993, Fidelity
Union was consolidated into the Company. The Company offers fixed and variable
life insurance and annuities, and group life, accident and health insurance.
NALAC Financial Plans, Inc. is a wholly-owned subsidiary of the Company. It
provides marketing services for the Company and is the principal underwriter
of the Contracts. NALAC Financial Plans, Inc. is reimbursed for expenses
incurred in the distribution of the Contracts.
Administration for the Contracts is provided at the Company's Valuemark
Service Center: 300 Berwyn Park, P.O. Box 3031, Berwyn, Pennsylvania
19312-0031, (800) 624-0197.
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.
Currently, there are twenty-three Funds available under Franklin
Valuemark Funds.
FRANKLIN VALUEMARK FUNDS
Each of the twenty-three Sub-Accounts of the Variable Account is
invested solely in the shares of one of the twenty-three Funds of
Franklin Valuemark Funds ("Trust"). The Trust is an open-end management
investment company registered under the 1940 Act. While a brief summary of
the investment objectives is set forth below, more comprehensive information,
including a discussion of potential risks, is found in the 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 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 CURRENT INCOME
Adjustable U.S. Government Fund
The Adjustable U.S. Government Fund seeks a high level of current income,
consistent with lower volatility of principal, by investing primarily in
adjustable rate securities which are issued or guaranteed by the U.S.
government, its agencies or instrumentalities. SUBJECT TO REGULATORY
APPROVAL, SHARES OF THE U.S. GOVERNMENT SECURITIES FUND WILL BE
SUBSTITUTED FOR SHARES OF THE FUND ON OCTOBER 25, 1996, OR AS SOON AS
POSSIBLE THEREAFTER, AND THUS, FOLLOWING THE SUBSTITUTION, THE FUND
WOULD NO LONGER BE AVAILABLE AS AN ELIGIBLE INVESTMENT FOR CONTRACT
OWNERS. SEE "FRANKLIN VALUEMARK FUNDS - PROPOSED SUBSTITUTION
TRANSACTION" BELOW.
High Income Fund
The High Income Fund seeks a high level of current income, with capital
appreciation as a secondary objective, by investing in debt obligations and
dividend-paying common and preferred stocks. Debt obligations include high
yield, high risk, lower rated obligations (commonly referred to as
"junk bonds"), which involve increased risks related to the
creditworthiness of their issuers.
Investment Grade Intermediate Bond Fund
The Investment Grade Intermediate Bond Fund seeks current income, consistent
with preservation of capital, primarily through investment in
intermediate-term, investment grade corporate obligations and in U.S.
government securities. SUBJECT TO REGULATORY APPROVAL, SHARES OF THE U.S.
GOVERNMENT SECURITIES FUND WILL BE SUBSTITUTED FOR SHARES OF THE FUND ON
OCTOBER 25, 1996, OR AS SOON AS POSSIBLE THEREAFTER, AND THUS, FOLLOWING THE
SUBSTITUTION, THE FUND WOULD NO LONGER BE AVAILABLE AS AN ELIGIBLE INVESTMENT
FOR CONTRACT OWNERS. SEE "FRANKLIN VALUEMARK FUNDS - PROPOSED
SUBSTITUTION TRANSACTION" BELOW.
Templeton Global Income Securities Fund
The Templeton Global Income Securities Fund (formerly the Global Income
Fund) seeks a high level of current income, consistent with preservation
of capital, with capital appreciation as a secondary consideration,
through investing in foreign and domestic debt obligations, including up
to 25% in high yield, high risk, lower rated debt obligations (commonly
referred to as "junk bonds"), and related currency transactions.
Investing in a non-diversified fund of global securities including those
of developing markets issuers, involves increased susceptibility to the
special risks associated with foreign investing.
The U.S. Government Securities Fund
The U.S. Government Securities Fund seeks current income and safety of
capital by investing exclusively in obligations issued or guaranteed by
the U.S. government or its agencies or instrumentalities.
Zero Coupon Funds
There are three Zero Coupon Funds. Each of the Funds mature in
the specified target year as follows:
Zero Coupon Fund - 2000
Zero Coupon Fund - 2005
Zero Coupon Fund - 2010
The three Zero Coupon Funds seek a high investment return consistent
with the preservation of capital, by investing primarily in zero coupon
securities. In response to interest rate changes, these securities may
experience greater fluctuations in market value than interest-paying
securities of similar maturities. The Funds may not be appropriate for
short-term investors or those who intend to withdraw money before the
maturity date.
Additional Zero Coupon Funds may be added to the Trust in the future. Should
any such Funds be available for investment at the maturity date of any
existing Zero Coupon Fund, such Funds will be available as an investment
option for Contract Owners who select such option. If no selection has been
made by a Contract Owner prior to the maturity date of a Zero Coupon Fund, the
Account Value held in the Sub-Account underlying the Owner's Contract will be
automatically transferred to the Money Market Sub-Account. The Company will
notify the Owner of a maturing Zero Coupon Fund in writing at least 30 days
prior to the maturity. Included with the notification will be investment
options available at that time as well as the automatic Money Market option.
The Zero Coupon Funds may not be appropriate for Contract Owners who
do not plan to have their purchase payments invested in the Zero Coupon
Sub-Accounts for the long-term or until maturity of the portfolio.
FUNDS SEEKING GROWTH AND INCOME
Growth and Income Fund
The Growth and Income Fund seeks capital appreciation, with current income
return as a secondary objective, by investing primarily in U.S. common
stocks, securities convertible into common stocks, and preferred stocks.
Income Securities Fund
The Income Securities Fund seeks to maximize income while maintaining
prospects for capital appreciation by investing in a diversified portfolio of
domestic and foreign, including developing markets, debt obligations
and/or equity securities. Debt obligations include high yield, high risk,
lower rated obligations (commonly referred to as "junk bonds") which involve
increased risks related to the creditworthiness of their issuers.
Real Estate Securities Fund
The Real Estate Securities Fund seeks capital appreciation, with current
income return as a secondary objective, by concentrating its investments in
publicly traded securities of U.S. companies in the real estate industry.
Rising Dividends Fund
The Rising Dividends Fund seeks capital appreciation, primarily through
investment in the equity securities of companies that have paid consistently
rising dividends over the past ten years. Preservation of capital is also an
important consideration. The Fund seeks current income incidental to capital
appreciation.
Templeton Global Asset Allocation Fund
The Templeton Global Asset Allocation Fund seeks a high level of total return
through a flexible policy of investing in equity securities, debt obligations,
including up to 25% in high yield, high risk, lower rated debt obligations,
(commonly referred to as "junk bonds") and money market instruments of issuers
in any nation, including developing markets nations. The mix of investments
among the three market segments will be adjusted in an attempt to capitalize
on total return potential produced by changing economic conditions throughout
the world. Foreign investing involves special risks.
Utility Equity Fund
The Utility Equity Fund seeks both capital appreciation and current income by
investing in securities of domestic and foreign issuers, 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.
Precious Metals Fund
The Precious Metals Fund seeks capital appreciation, with current income
return as a secondary objective, by concentrating its investments in
securities of U.S. and foreign companies, including those in developing
markets, engaged in mining, processing or dealing in gold and other
precious metals.
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 United States 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, TEMPLETON GLOBAL INCOME
SECURITIES FUND, GROWTH AND INCOME FUND, INCOME SECURITIES FUND, INVESTMENT
GRADE INTERMEDIATE BOND FUND, TEMPLETON INTERNATIONAL EQUITY FUND,
TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND, MONEY MARKET FUND, TEMPLETON
PACIFIC GROWTH FUND, PRECIOUS METALS 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 HIGH INCOME FUND AND THE INCOME SECURITIES FUND MAY INVEST UP TO 100% OF
THEIR RESPECTIVE 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 INVEST. 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 for Contract Values
allocated to a Sub-Account.
Additional Funds and/or additional Eligible Investments may, from time to
time, be made available as investments to underlie the 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 Purchase Payments.")
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.
Proposed Substitution Transaction
1. Description. Under its authority described above, the Company has
proposed a substitution transaction (the "Substitution") such that shares of
The U.S. Government Securities Fund ("Government Fund") would be substituted
for all shares of both the Adjustable U.S. Government Fund ("Adjustable
Fund") and the Investment Grade Intermediate Bond Fund ("Bond Fund") held by
Sub-Accounts of the Variable Account. Contract Owners' interests in the
Adjustable and Bond Funds Sub-Accounts would be replaced by interests of
equivalent value in the Government Fund Sub-Account. As a result, following
the Substitution, the Adjustable Fund and Bond Fund Sub-Accounts would no
longer be available to Contract Owners.
In April 1996, the Company and the Variable Account filed an application with
the Securities and Exchange Commission requesting an order approving the
Substitution. Upon obtaining the order, and subject to any prior approval by
applicable state insurance authorities, the Company and the Variable Account
propose to complete the Substitution on October 25, 1996 , or as soon as
possible thereafter.
2. Reasons for Substitution. The Company has proposed the Substitution for
several reasons: the similarity of the affected Funds' investment objectives,
strategies and risks; the limited recent demand by Contract Owners for
fixed-income investment choices; and the potential to benefit Contract Owners
through economies of scale, including potentially lower operating expenses,
by consolidating the affected Funds' assets.
3. Effect on Contract Owners. Except as stated in this paragraph, Contract
Owners may continue to redeem or transfer their Contract Values as stated
under "PURCHASE PAYMENTS AND CONTRACT VALUE - Transfer of Contract Values."
Within five days after the Substitution, the Company will send to Contract
Owners a written notice showing the shares of the Adjustable Fund and the
Bond Fund that have been eliminated and the shares of the Government Fund
that have been substituted (the "Notice"). For a 30-day period beginning on
the date following the mailing of the Notice, transfers out of the Government
Fund Sub-Account to any other available Sub-Account will not count toward the
limit on the annual number of free transfers. However, transfers pursuant
to a "market timing" strategy will continue to be subject to the applicable
restrictions on such transfers as described under "Transfer of Contract
Values."
Contract Owners considering new purchases or transfers to either the Adjustable
or Bond Funds may also wish to consider the Government Fund, which has similar
investment objectives and policies, and to consult with their investment
representatives. See the accompanying Franklin Valuemark Funds prospectus.
Immediately following the Substitution, the Company will treat the Sub-Accounts
invested in shares of the Adjustable Fund, Bond Fund and Government Fund as a
single Sub-Account of the Variable Account for administrative purposes. The
Company will effect the Substitution by simultaneously placing orders to redeem
all shares of the Adjustable Fund and Bond Fund and to purchase shares of the
Government Fund equal in value to the shares redeemed. The net asset values of
all affected shares will be determined as of the close of the business day
immediately before the date of these orders. The Company will bear the
expenses of the Substitution, and will send affected Contract Owners a notice
within five days after the Substitution. The Company believes, based on its
review of existing federal income tax laws and regulations, that the
Substitution will not have any tax consequences to Contract Owners.
Effective immediately, Contract Owners may elect to use the Government Fund
Sub-Account as the source account for investments in other Funds through the
Dollar Cost Averaging ("DCA") program. If the Adjustable Fund Sub-Account is
a Contract Owner's DCA source account at the time of the Substitution, the
Government Fund Sub-Account will automatically become the DCA source account
after the Substitution. If a Contract Owner is using DCA to invest in the
Bond Fund Sub-Account, his or her DCA program will be adjusted to reflect
DCA into the Government Fund Sub-Account using the same allocation
percentages when the Substitution occurs, unless he or she has previously
contacted the Company to select other Sub-Accounts. For further
information, please contact the Company's Valuemark Service Center at
(800) 624-0197.
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 Contract Values, the Variable
Account and the Fixed Account. These charges and deductions are:
Deduction for Contingent Deferred Sales Charge (Sales Load)
If all or a portion of the Surrender Value (see " Definitions ") is
surrendered, a Contingent Deferred Sales Charge (sales load) will be
calculated at the time of each surrender and will be deducted from the Contract
Value. This charge reimburses the Company for expenses incurred in connection
with the promotion, sale and distribution of the Contracts. The Contingent
Deferred Sales Charge applies only to those purchase payments received within
five (5) years of the date of surrender. In calculating the Contingent Deferred
Sales Charge, purchase payments are allocated to the amount surrendered on a
first-in, first-out basis. The amount of the Contingent Deferred Sales Charge
is calculated by: (a) allocating purchase payments to the amount surrendered;
(b) multiplying each such allocated purchase payment that has been held under
the Contract for the period shown below by the charge shown below:
<TABLE>
<CAPTION>
<S> <C>
Years Since Payment Charge
___________________ _______
0-1 5%
1-2 5%
2-3 4%
3-4 3%
4-5 1.5%
5+ 0
</TABLE>
and (c) adding the products of each multiplication in (b) above. The charge
will not exceed 5% of the purchase payments.
Once each Contract Year, Contract Owners may surrender up to fifteen percent
(15%) of purchase payments paid less any prior surrenders without incurring a
Contingent Deferred Sales Charge. If no withdrawal is made during a Contract
Year, the 15% is cumulative into future years. If less than 15% is withdrawn
in a Contract Year, the remaining percentage is not available in future years.
No Contingent Deferred Sales Charge will be deducted from purchase payments
which have been held under the Contract for more than five (5) Contract Years
or as annuity payments. See also "Surrenders - Systematic Withdrawal." The
Company may also eliminate or reduce the Contingent Deferred Sales Charge
under the Company procedures then in effect. (See "Charges and Deductions -
Reduction or Elimination of Contingent Deferred Sales Charge.")
For a partial surrender, the Contingent Deferred Sales Charge will be deducted
from the remaining Contract Value, if sufficient; otherwise it will be
deducted from the amount surrendered. The amount deducted from the Contract
Value will be determined by canceling Accumulation Units from each applicable
Sub-Account and/or subtracting values from the Fixed Account in the ratio that
the value of each Sub-Account and/or the Fixed Account bears to the total
Contract Value. The Contract Owner must specify in writing in advance which
units are to be canceled or values are to be reduced if other than the above
method of cancellation is desired.
To the extent that the Contingent Deferred Sales Charge is insufficient to
cover the actual costs of distribution, the Company may use any of its
corporate assets, including potential profit which may arise from the
Mortality and Expense Risk Charge, to make up any difference.
Reduction or Elimination of Contingent Deferred Sales Charge
The amount of the Contingent Deferred Sales Charge on the Contracts may be
reduced or eliminated when sales of the Contracts are made to individuals or
to a group of individuals in a manner that results in savings of sales
expenses. The entitlement to a reduction of the Contingent Deferred Sales
Charge will be determined by the Company after examination of the following
factors: (1) the size of the group; (2) the total amount of purchase payments
expected to be received from the group; (3) the nature of the group for which
the Contracts are purchased, and the persistency expected in that group; (4)
the purpose for which the Contracts are purchased and whether that purpose
makes it likely that expenses will be reduced; and (5) any other circumstances
which the Company believes to be relevant to determining whether reduced
sales or administrative expenses may be expected. None of the reductions
in charges for sales is contractually guaranteed.
The Contingent Deferred Sales Charge may be eliminated when the Contracts are
issued to an officer, director or employee of the Company or any of its
affiliates. The Contingent Deferred Sales Charge may also be eliminated when
the Contract is sold by an agent of the Company to any members of his or her
family and the commission is reduced. In no event will reductions or
elimination of the Contingent Deferred Sales Charge be permitted where
reductions or elimination will unfairly discriminate against any person.
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 risk borne by the
Company arises from its contractual obligation to make annuity payments after
the Income Date for the life of the Annuitant in accordance with annuity rates
guaranteed in the Contracts. In addition, the Company assumes a mortality risk
for the guaranteed minimum death benefit provided under the Contract. 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 Contract Maintenance Charge and 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.
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, together with the Contract Maintenance
Charge (see below), 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 Owner
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 Owner
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 Contract Maintenance Charge
The Company deducts an annual Contract Maintenance Charge of $30 from the
Contract Value on each Contract Anniversary. Prior to the Income Date the
charge is waived for Contracts having Contract Values or purchase payments
less withdrawals of $100,000 or more. This charge is to reimburse the Company
for its administrative expenses (see above). Prior to the Income Date, this
charge is deducted by canceling Accumulation Units from each applicable
Sub-Account and/or by subtracting values from the Fixed Account in the ratio
that the value of each Sub-Account or the Fixed Account bears to the total
Contract Value. When the Contract is surrendered for its full Surrender Value
on other than a Contract Anniversary, the entire Contract Maintenance Charge
will be deducted at the time of surrender. On and after the Income Date, the
Contract Maintenance Charge will be collected pro rata on a monthly basis
($2.50 per month) and will result in a reduction of the monthly annuity
payments.
Deduction for Premium Taxes
Premium taxes or other taxes payable to a state, municipality or other
governmental entity will be charged against the Contract Values. Premium
taxes currently imposed by certain states on the Contracts offered hereby
range from 0% to 3.5% of premiums paid. Some states assess premium taxes at
the time purchase payments are made; others assess premium taxes at the time
annuity payments begin. The Company will, in its sole discretion, determine
when taxes have resulted from: the investment experience of the Variable
Account; receipt by the Company of the purchase payment(s); or commencement of
annuity payments. The Company may, at its sole discretion, pay taxes when due
and deduct that amount from the Contract Value at a later date. Payment at an
earlier date does not waive any right the Company may have to deduct amounts
at a later date.
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. Currently, no federal income taxes are assessed against
the Variable Account. However, if the tax laws should change, the Company
reserves the right to deduct the amount of such taxes from the Variable
Account. The Company will deduct any withholding taxes required by applicable
law.
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 .
Deduction for Transfer Fee
Prior to the Income Date, a Contract Owner may transfer all or a part of the
Contract Owner's interest without the imposition of any fee or charge if there
have been no more than three transfers made in the Contract Year. The
Contract provides that if more than three transfers have been made in the
Contract Year, the Company reserves the right to deduct a transfer fee. The
maximum transfer fee that the Company may deduct, per transfer, is the lesser
of $25 or 2% of the amount transferred. Currently twelve transfers may be
made in a Contract Year without a charge. Thereafter, the charge is $25 (or
2% of the amount transferred, if less). Currently, prescheduled automatic
dollar cost averaging transfers are not counted. The Company reserves the
right to charge a fee for all transfers after the Income Date, which fee,
per transfer, will not exceed the lesser of $25 or 2% of the amount
transferred. The transfer fee at any given time will not be set at a
level greater than its cost and will contain no element of profit.
THE CONTRACTS
Ownership
The Contract Owner and if provided for in the Contract, any Joint Owner as
named on the Contract Schedule, have all rights and may receive all benefits
under the Contract. The Contract Owner if provided for in the Contract, may
name a Contingent Owner or change the Contract Owner at any time. Any Joint
Owner must be the spouse of the other Joint Owner (except in Pennsylvania) and
any Contingent Owner must be the spouse of the Contract Owner. Upon the death
of the Contract Owner, the Contingent Owner or the surviving Joint Owner, as
applicable, may elect to keep the Contract in force and become the new
Contract Owner, if they are the spouse of the Contract Owner. In those states
where a non-spousal Joint Owner is permitted, the death benefit must be paid
in accordance with the Internal Revenue Code and the Joint Owner cannot
continue the Contract in force. A change of Contract Owner or Contingent
Owner will automatically revoke any prior designation of Contract Owner or
Contingent Owner. A request for change must be: (1) made in writing; and (2)
received by the Company at its Valuemark Service Center. After the transfer
is recorded, the change will become effective as of the date the written
request is signed. A new designation of Contract Owner, Joint Owner or
Contingent Owner (as applicable) will not apply to any payment made or action
taken by the Company prior to the time it was received.
For Non-Qualified Contracts, in accordance with Code Section 72(u), a deferred
annuity contract held by a corporation or other entity that is not a natural
person is not treated as an annuity contract for tax purposes. Income on the
contract is treated as ordinary income received by the owner during the
taxable year. However, for purposes of Code Section 72(u), an annuity contract
held by a trust or other entity as agent for a natural person is considered
held by a natural person and treated as an annuity contract for tax purposes.
Tax advice should be sought prior to purchasing a Contract which is to be
owned by a trust or other non-natural person.
Assignment
The Contract Owner may assign the Contract at any time during his or her
lifetime. The Company will not be bound by any assignment until written
notice is received by the Company at its Valuemark Service Center. The
Company is not responsible for the validity of any assignment. 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 the Company may take before such assignment has been recorded at
its Valuemark 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 in the
application and, unless changed, are entitled to receive any death benefits to
be paid. Upon the death of the Contract Owner, the Contingent Owner or
surviving Joint Owner (as applicable), will be the designated Beneficiary and
any other Beneficiary named will be treated as a Contingent Beneficiary,
unless otherwise indicated.
Change of Beneficiary
The Contract Owner may change a Beneficiary or Contingent Beneficiary by
filing a written request with the Company at its Valuemark 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 Valuemark Service Center after the Annuitant or
Contract Owner, as applicable, dies but before any payment 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.
Annuitant
The Annuitant must be a natural person. The maximum age of the Annuitant on
the Effective Date is 80 years old. The Annuitant may be changed at any time
prior to the Income Date unless the Contract is owned by a non-natural person.
(See "Death of the Annuitant Prior to the Income Date".) Joint Annuitants
are allowed at the time of annuitization only. The Annuitant has no rights or
privileges prior to the Income Date. When an Annuity Option is elected, the
amount payable as of the Income Date is based on the age (and sex, where
permissible) of the Annuitant, as well as the Option selected and the Contract
Value. The Annuitant becomes the Contract Owner on or after the Income Date.
Death of the Contract Owner Before the Income Date
In those Contracts where a Contingent Owner has been named, in the event of
the death of the Contract Owner prior to the Income Date, the Contingent
Owner, if any, becomes the designated Beneficiary and any other Beneficiary
named will be treated as a Contingent Beneficiary, unless otherwise indicated.
In those Contracts where Joint Owners have been named, upon the death of
either Joint Owner prior to the Income Date, the surviving Joint Owner, if
any, becomes the designated Beneficiary and any other Beneficiary named will
be treated as a Contingent Beneficiary, unless otherwise indicated. Only the
Owner's spouse may be the Contingent Owner or a Joint Owner (except in
Pennsylvania). If there is no surviving Contingent Owner or Joint Owner, a
death benefit is payable to the Beneficiary designated by the Contract Owner.
The death benefit paid will be the greater of the Surrender Value or the
guaranteed death benefit. The value of the death benefit will be
determined as of the Valuation Period next following the date both due proof
of death and a payment election are received by the Company. The guaranteed
death benefit is:
1. On the date of issue, the guaranteed death benefit is equal to the
purchase payment.
2. On each Contract Anniversary, but not beyond the Contract Anniversary
following the Contract Owner's 80th birthday, the guaranteed death benefit
will be determined as follows:
a. the guaranteed death benefit as of the previous Contract
Anniversary;
b. plus any purchase payments made during the previous Contract
Year;
c. minus any amounts surrendered during the previous Contract Year;
d. the sum of a, b and c multiplied by 1.05.
3. On dates other than a Contract Anniversary and on Contract
Anniversaries following the Contract Owner's 81st birthday, the guaranteed
death benefit equals the guaranteed death benefit on the previous Contract
Anniversary, plus purchase payments made since the previous Contract
Anniversary, less amounts surrendered since the previous Contract Anniversary.
For purposes of the guaranteed death benefit calculation, reference to the
Contract Owner's age shall be the age of the oldest Joint Owner when
applicable. The guaranteed death benefit will always be calculated as in
point (3) above after the date of death of the Contract Owner.
The Beneficiary may, at any time before the end of a sixty (60) day period
following receipt of proof of death, elect the death benefit to be paid under
one of the following options:
A. Lump sum payment of the death benefit;
(The value of the death benefit is equal to the greater of the guaranteed death
benefit or the Surrender Value as of the Valuation Period next following the
date due proof of death and a payment election are received by the Company.)
B. The payment of the entire death benefit within 5 years of the date of
the Contract Owner's death; (The value of the death benefit under Option B is
determined by comparing the guaranteed death benefit to the Contract Value
as of the Valuation Period next following the date both due proof of death
and a payment election are received by the Company. If the Contract Value
is the greater, it will be the death benefit. If the guaranteed death benefit
is the greater, it will be the death benefit and any distribution of such
death benefit will be reduced by the sum of any applicable premium taxes,
Contract Maintenance Charges and Contingent Deferred Sales Charges.)
The death benefit will no longer be guaranteed by the Company.
C. Payment over the lifetime of the designated Beneficiary or over a
period not extending beyond the life expectancy of the designated Beneficiary
with distribution beginning within one year of the death of the Contract Owner
(See "Annuity Provisions - Annuity Options"). (The value of the death benefit
under Option C is determined by comparing the guaranteed death benefit to the
Contract Value as of the Valuation Period next following the date both due
proof of death and a payment election are received by the Company. If
the Contract Value is greater , it will be treated as the death
benefit.If the guaranteed death benefit is the greater, it will be the death
benefit.)
D. If the Beneficiary is the Contract Owner's spouse, he/she can continue
the Contract in his/her own name. (The value of the death benefit under
Option D is determined by comparing the guaranteed death benefit to the
Contract Value as of the Valuation Period next following the date both due
proof of death and a payment election are received by the Company. If the
Contract Value is greater, it will remain the Contract Value. If the
guaranteed death benefit is greater, it will become the new Contract Value.
Any distribution by the new Owner will be reduced by the sum of any applicable
premium taxes, Contract Maintenance Charges and Contingent Deferred Sales
Charges.)
If no payment option is elected, a single sum settlement will be made at the
end of the sixty (60) day period following receipt of proof of death.
Death of the Annuitant Prior to the Income Date
If the Annuitant dies on or before the Income Date and the Annuitant is
different from the Contract Owner, the Contract Owner may designate a new
Annuitant. If one is not designated, the Contract Owner will be the
Annuitant, provided the Contract Owner is a natural person. If the Contract
Owner is a non-natural person, then for the purposes of the death benefit,
the Annuitant shall be treated as the Contract Owner and the death of the
Annuitant shall be treated as a death of the Contract Owner.
Death of the Annuitant After the Income Date
If the Annuitant dies after the Income Date, the death benefit, if any, will
be payable to the Beneficiary as specified in the Annuity Option elected. The
Company will require proof of the Annuitant's death. Death benefits will be
paid at least as rapidly as under the method of distribution in effect at the
Annuitant's death.
ANNUITY PROVISIONS
Income Date
The Contract Owner selects an Income Date at the time of application (or at
the time of issue for certain Contracts). The Income Date must always be the
first day of a calendar month. The Income Date may not be later than the
month following the Annuitant's 85th birthday or 10 years from the Effective
Date, if later. If no Income Date is selected on the application, the date
will be the later of the Annuitant's 65th birthday (or 85th birthday for
certain Contracts) or 10 years from the Effective Date.
Change in Income Date and Annuity Option
The Contract Owner may, upon at least thirty (30) days prior written notice to
the Company, at any time prior to the Income Date, change the Income Date. The
Income Date must always be the first day of a calendar month. The Income Date
may not be later than the month following the Annuitant's 85th birthday (or 10
years from the Effective Date, if later).
The Contract Owner may, upon at least thirty (30) days prior written notice to
the Company, at any time prior to the Income Date, select and/or change the
Annuity Option.
Annuity Options
Instead of having the proceeds paid in one sum, the Contract Owner may select
one of the Annuity Options. The Annuity Options are available on a fixed or
variable basis or a combination of fixed and variable (not available in all
states), except the LIFE ANNUITY WITH CASH REFUND Option which is only
available on a fixed basis.
The amount of the initial annuity payment is dependent on (i) the Contract
Value at the time of annuitization, (ii) the Annuity Option selected, (iii)
the Age of the Annuitant and any joint Annuitant, and (iv) the sex of the
Annuitant and any joint Annuitant where allowed (see "Tax Status - Qualified
Plans"). Under a fixed option, the dollar value of subsequent annuity payments
will not vary. Under a variable option, subsequent annuity payments will vary
based on the investment performance of the Sub-Accounts selected. Current
purchase rates available may be more favorable than those guaranteed in the
Contract.
The following Annuity Options are available:
LIFE ANNUITY. Monthly annuity payments are paid during the life of an
Annuitant, ceasing with the last annuity payment due prior to the Annuitant's
death.
LIFE ANNUITY WITH GUARANTEE FOR A MINIMUM PERIOD. The Company will make
monthly payments during the life of the Annuitant, but at least for the
minimum period shown in the annuity tables contained in the Contract. The
amount of each monthly payment per $1,000 of proceeds is based on the age (and
sex, where permissible) of the Annuitant when the first payment is made and on
the guaranteed period chosen. If the Annuitant dies within the guaranteed
period, the discounted value of the unpaid guaranteed payments will be paid by
the Company as a final payment.
JOINT AND LAST SURVIVOR ANNUITY. Monthly annuity payments are paid during the
joint lifetime of the Annuitant and a designated second person and are paid
thereafter during the remaining lifetime of the survivor, ceasing with the
last annuity payment due prior to the survivor's death.
LIFE ANNUITY WITH CASH REFUND. The Company will pay equal monthly payments
during the life of the Annuitant. Upon the death of the Annuitant, after
payments have started, the Company will pay in one sum any excess of the
amount of the proceeds applied under this Option over the total of all
payments made under this Option. The amount of each monthly payment per
$1,000 of proceeds is based on the age (and sex, where permissible) of the
Annuitant when the first payment is made.
Annuity Units
The dollar amount of the first monthly variable annuity payment is determined
by applying the available value (after deduction of any premium taxes not
previously deducted) to the table using the age (and sex, where permissible)
of the Annuitant and any joint Annuitant. The number of Annuity Units is then
determined by dividing this dollar amount by the then current Annuity Unit
value. Thereafter, the number of Annuity Units remains unchanged during the
period of annuity payments. This determination is made separately for each
Sub-Account of the Variable Account. The number of Annuity Units is
determined for each Sub-Account and is based upon the available value in each
Sub-Account as of the date annuity payments are to begin.
The dollar amount determined for each Sub-Account will then be aggregated for
purposes of making payments. The pro rata portion of the Contract Maintenance
Charge is deducted.
The dollar amount of the second and later variable annuity payments is equal
to the number of Annuity Units determined for each Sub-Account times the
Annuity Unit value for that Sub-Account as of the due date of the payment.
This amount may increase or decrease from month to month. The pro rata
portion of the Contract Maintenance Charge is deducted each month.
The annuity tables contained in the Contract are based on a five percent (5%)
assumed investment rate. If the actual net investment rate exceeds five
percent (5%), payments will increase. Conversely, if the actual rate is less
than five percent (5%), annuity payments will decrease. If a higher assumed
investment rate were used, the initial payment would be higher, but the
actual net investment rate would have to be higher in order for annuity
payments to increase.
The Annuitant receives the value of a fixed number of Annuity Units each
month. The value of a fixed number of Annuity Units will reflect the
investment performance of the Sub-Account selected and the amount of each
annuity payment will vary accordingly.
Annuity Unit Value
The value of an Annuity Unit for a Sub-Account is determined (see below) by
subtracting (2) from (1) and dividing the result by (3) and multiplying the
result by .999866337248 (.999866337248 is the daily factor to neutralize the
assumed net investment rate, discussed above, of 5% per annum which is built
into the annuity rate table) where:
1. is the net result of
a. the assets of the Sub-Account attributable to the Annuity Units;
plus or minus
b. the cumulative charge or credit for taxes reserved which is
determined by the Company to have resulted from the operation
of the Sub-Account;
2. is the cumulative unpaid charge for the Mortality and Expense Risk
Charge and for the Administrative Expense Charge; and
3. is the number of Annuity Units outstanding at the end of the Valuation
Period.
The value of an Annuity Unit may increase or decrease from Valuation Period to
Valuation Period.
PURCHASE PAYMENTS AND CONTRACT VALUE
Purchase Payments
The Contracts may be purchased under a flexible purchase payment plan.
Purchase payments are payable in the frequency and in the amount selected by
the Contract Owner. The initial purchase payment is due on the Effective
Date. The initial purchase payment must be at least $2,000. Subsequent
purchase payments must be at least $250. These minimum amounts are not waived
for Qualified Plans. The Company reserves the right to decline any
application (except in New Jersey) or purchase payment. Amounts in excess of
$1 million require preapproval by the Company. The Company may, at its sole
discretion, waive the minimum payment requirements. The Contract Owner may
elect to increase, decrease or change the frequency of purchase payments.
Allocation of Purchase Payments
Purchase payments are allocated to one or more of the Sub-Accounts within the
Variable Account or to the Fixed Account as selected by the Contract Owner.
SUBJECT TO REGULATORY APPROVAL, SHARES OF THE U.S. GOVERNMENT SECURITIES FUND
WILL BE SUBSTITUTED FOR SHARES OF THE ADJUSTABLE U.S. GOVERNMENT FUND AND THE
INVESTMENT GRADE INTERMEDIATE BOND FUND ON OCTOBER 25, 1996, OR AS SOON AS
POSSIBLE THEREAFTER. THUS, FOLLOWING THE SUBSTITUTION, THE ADJUSTABLE U.S.
GOVERNMENT FUND AND THE INVESTMENT GRADE INTERMEDIATE BOND FUND WILL NO
LONGER BE AVAILABLE AS ELIGIBLE INVESTMENTS FOR CONTRACT OWNERS.
SEE "FRANKLIN VALUEMARK FUNDS - PROPOSED SUBSTITUTION TRANSACTION." THE
FIXED ACCOUNT MAY NOT BE AVAILABLE IN ALL STATES. 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.) For each Sub-Account,
the purchase payments are converted into Accumulation Units. The number of
Accumulation Units credited to the Contract is determined by dividing
the purchase payment allocated to the Sub-Account by the value of the
Accumulation Unit for the Sub-Account. Purchase payments allocated
to the Fixed Account are credited in dollars.
The Company has reserved the right to allocate initial purchase payments to
the Money Market Sub-Account (except those allocated to the Fixed Account)
until the expiration of the Free Look Period. In the event that the Company
does so allocate initial purchase payments to the Money Market Sub-Account, at
the end of the Free Look Period the Contract Value will be allocated to the
Sub-Account(s) selected by the Contract Owner. Currently, however, the
Company will allocate the initial purchase payment directly to the
Sub-Account(s) and/or the Fixed Account as selected by the Contract Owner.
Transfers do not change the allocation instructions for payments. Subsequent
payments will be allocated as directed by the Contract Owner in instructions
accompanying a payment; if no direction is given, the allocation will be that
which has been most recently directed for payments by the Contract Owner. The
Contract Owner may change the allocation of future payments without fee,
penalty or other charge upon written notice or telephone instructions to the
Valuemark Service Center. A change will be effective for payments received on
or after receipt of the written notice or telephone instructions.
The Company reserves the right to limit the number of Sub-Accounts that
a Contract Owner may invest in at any one time. Currently, the Contract Owner
may initially select up to nine Sub-Accounts. The Company reserves
the right to change the maximum number of Sub-Accounts in the future.
For initial purchase payments, if the forms required to issue a Contract are
received in good order, the Company will apply the purchase payment to the
Variable Account and credit the Contract with Accumulation Units and/or to the
Fixed Account and credit the Contract with dollars 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). If the forms required to
issue a Contract are not in good order, the Company will attempt to get them
in good order or the Company will return the forms and the purchase payment
within five business days. The Company will not retain purchase payments for
more than five business days while processing incomplete forms unless it has
been so authorized by the purchaser.
For subsequent purchase payments, the Company will apply purchase payments to
the Variable Account and credit the Contract with Accumulation Units and/or to
the Fixed Account and credit the Contract with dollars during the
Valuation Period next following the Valuation Period during which the purchase
payment was received in good order.
Transfer of Contract Values
Prior to the Income Date, the Contract Owner may transfer all or part of the
Contract Owner's interest in a Sub-Account to another Sub-Account or to or
from the Fixed Account without the imposition of any fee or charge if there
have been no more than three transfers made in the Contract Year. If more
than three transfers have been made in the Contract Year, the Company reserves
the right to deduct a transfer fee. Currently, 12 transfers may be made in a
Contract Year without a charge. (See "Charges and Deductions - Deduction for
Transfer Fee.") Upon regulatory approval of the proposed Substitution
transaction, Contract Owners who have selected the Adjustable U.S.
Government Fund or the Investment Grade Intermediate Bond Fund may be entitled
to certain special transfer rights. See "Franklin Valuemark Funds -
Proposed Substitution Transaction."
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.
After the Income Date, provided a variable annuity option was selected, the
Contract Owner may make transfers. The Company reserves the right to charge
for all transfers after the Income Date.
All transfers are subject to the following:
a. The deduction of any transfer fee that may be imposed. The transfer
fee will be deducted from the amount which is transferred if the entire amount
in the Sub-Account or the Fixed Account is being transferred; otherwise from
the amount remaining in the Sub-Account or the Fixed Account from which the
transfer is made.
b. The minimum amount which may be transferred is the lesser of (i) $1,000
from each Sub-Account or the Fixed Account; or (ii) the Contract Owner's
entire interest in the Sub-Account or the Fixed Account.
c. No partial transfer will be made if the Contract Owner's remaining
Contract Value in the Sub-Account or the Fixed Account will be less than
$1,000.
d. 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. However, no transfer may be
made effective within seven calendar days prior to the date on which the first
annuity payment is due. No transfers may occur until the end of the Free-Look
Period. (See "Highlights.")
e. On or after the Income Date, the Contract Owner may not make a transfer
from the Fixed Account to the Variable Account. Currently, on or after the
Income Date, one transfer to the Fixed Account will be allowed.
f. After Income Date, no transfer may be made if it will result in any
selected Sub-Account or the Fixed Account providing less than 10% of the
annuity benefits under the Contract.
g. Any transfer direction must clearly specify the amount which is to be
transferred and the Accounts which are to be affected.
h. The Company reserves the right at any time and without prior notice to
any party to terminate, suspend or modify the transfer privileges 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.
Transfers do not change the allocation instructions for future payments. (See
"Purchase Payments and Contract Value - Allocation of Purchase Payments.")
Dollar Cost Averaging
Dollar Cost Averaging is a program which, if elected, enables a Contract Owner
to systematically allocate specified dollar amounts from the Money Market
Sub-Account, the Adjustable U.S. Government Sub-Account, The U.S. Government
Securities Sub-Account or the Fixed Account to the Contract's other
Sub-Accounts (maximum of eight) at regular intervals. By allocating amounts
on a regularly scheduled basis as opposed to allocating the total amount at
one particular time, a Contract Owner may be less susceptible to the impact of
market fluctuations. Upon regulatory approval of the proposed Substitution
transaction, the Adjustable U.S. Government Fund and the Investment Grade
Intermediate Bond Fund will no longer be available in the Dollar Cost
Averaging program. See "Franklin Valuemark Funds - Proposed Substitution
Transaction."
Dollar Cost Averaging may be selected for 12 to 36 months. The minimum amount
per period to allocate is $1,000. All Dollar Cost Averaging transfers will be
made effective the tenth of the month (or the next Valuation Date if the tenth
of the month is not a Valuation Date). Election into this program may occur
at any time by properly completing the Dollar Cost Averaging election form,
returning it to the Company by the first of the month, to be effective that
month, and insuring that sufficient value is in either the Money Market
Sub-Account, the Adjustable U.S. Government Sub-Account, The U.S. Government
Securities Sub-Account or the Fixed Account.
When utilizing the Dollar Cost Averaging program, a Contract Owner must be
invested in either the Money Market Sub-Account, the Adjustable U.S.
Government Sub-Account, The U.S. Government Securities Sub-Account or the
Fixed Account and may invest in a maximum of eight of the other Sub-Accounts.
Dollar Cost Averaging will terminate when any of the following occurs: (1) the
number of designated transfers has been completed; (2) the value of the Money
Market Sub-Account, the Adjustable U.S. Government Sub-Account, The U.S.
Government Securities Sub-Account or the Fixed Account (as applicable) is
insufficient to complete the next transfer; (3) the Contract Owner requests
termination in writing and such writing is received by the first of the month
in order to cancel the transfer scheduled to take effect that month; or (4)
the Contract is terminated. The Dollar Cost Averaging program may not be
active following the Income Date. There is no current charge for Dollar Cost
Averaging but the Company reserves the right to charge for this program.
In the event there are additional transfers, the transfer fee may be charged.
The Company does not intend to profit from any such charge. Transfers made
pursuant to the Dollar Cost Averaging Program are not counted in determining
the applicability of the transfer fee.
Automatic Investment Plan
The Automatic Investment Plan (AIP) is a program by which a contract Owner may
make monthly or quarterly investments by electronic funds transfer from their
checking or savings account if their bank is a member of an Automatic Clearing
House. Election of this program may occur at the time a contract is issued,
or at any time thereafter by completing and signing the appropriate form and
returning it to the Company. The form must be received in good order by the
first of the month in order for AIP to begin that same month.
Investments take place on the 20th of the month, or the next business day.
AIP may not be used for the initial purchase payment. The minimum investment
that may be made by AIP is $250.
AIP is subject to any regulations that may govern the bank account, the
Automatic Clearing House, or the Contract. The Company may correct any error
by a debit or credit to the contract Owner's bank account and/or Contract.
Participation in AIP may be stopped at any time at the request of the Contract
Owner. When the Company is advised to stop AIP, no automatic investments will
be processed until signed authorization is received to initiate the plan
again. The Company will need to be notified by the first of the month in order
to stop or change AIP within that month. If a transaction is rejected or
returned to the Company for any reason, including stop payment, insufficient
funds, or account closed, the respective number of units will be removed from
the Contract Owner's account, and AIP will be discontinued .
If AIP is used for a tax-qualified Contract, the contract Owner should contact
his or her tax advisor for maximum contributions.
Contract Value
The value of the Contract is the sum of the values attributable to the
Contract for each Sub-Account and the Fixed Account. The value of each
Sub-Account is determined by multiplying the number of Accumulation Units
attributable to the Contract in the Sub-Account by the value of an
Accumulation Unit for the Sub-Account.
Accumulation Unit
For each Sub-Account, purchase payments are converted into Accumulation Units.
This is done by dividing each purchase payment by the value of an
Accumulation Unit for the Valuation Period during which the purchase payment
is allocated to the Sub-Account. The Accumulation Unit value for each
Sub-Account was arbitrarily set initially at $10. The Accumulation Unit value
for any later Valuation Period is determined by subtracting (b) from (a) and
dividing the result by (c) where:
a. is the net result of
1) the assets of the Sub-Account attributable to Accumulation 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 Accumulation Units outstanding at the end of such
Valuation Period.
The Accumulation Unit value may increase or decrease from Valuation Period to
Valuation Period.
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, up to an amount currently equal to
6.0% of purchase payments, for promotional or distribution expenses associated
with the marketing of the Contracts. 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
6.0% of purchase payments). 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. Commissions may be recovered from broker-dealers if a full
or partial surrender occurs within 12 months of a purchase payment.
SURRENDERS
While the Contract is in force and before the Income Date, the Company will,
upon request to the Company by the Contract Owner, allow the surrender
of all or a portion of the Contract for its Surrender Value. Surrenders will
result in the cancellation of Accumulation Units from each applicable
Sub-Account and/or a reduction in the Fixed Account value in the ratio that
the value of each Sub-Account and/or the Fixed Account value bears to the
total Contract Value. The Contract Owner must specify which units
are to be canceled or values are to be reduced if other than the above
mentioned method of cancellation is desired. The Company will pay the amount
of any surrender from the Variable Account within seven (7) days of receipt
of a valid request, unless the "Delay of Payments" provision is in effect.
(See "Surrenders - Delay of Payments.")
Certain tax withdrawal penalties and restrictions may apply to surrenders from
the Contracts. (See "Tax Status.") For Contracts purchased in connection
with 403(b) plans, the Code limits the withdrawal of amounts attributable to
contributions made pursuant to a salary reduction agreement (as defined in
Section 403(b)(11) of the Code) to circumstances only when the Contract Owner:
(1) attains age 59 1/2; (2) separates from service; (3) dies; (4) becomes
disabled (within the meaning of Section 72(m)(7) of the Code); or (5) in the
case of hardship.
However, withdrawals for hardship are restricted to the portion of the
Contract Owner's Contract Value which represents contributions made by the
Contract Owner and does not include any investment results. The limitations
on withdrawals became effective on January 1, 1989 and apply only to salary
reduction contributions made after December 31, 1988, to income attributable
to such contributions and to income attributable to amounts held as of
December 31, 1988. The limitations on withdrawals do not affect rollovers or
transfers between certain Qualified Plans. Contract Owners should consult
their own tax counsel or other tax adviser regarding any distributions.
Systematic Withdrawal
The Company permits a systematic withdrawal plan which enables a Contract
Owner to pre-authorize a periodic exercise of the contractual withdrawal
rights described above. Systematic withdrawal is not available for
Non-Qualified Contracts where the Contract Owner is under age 59 1/2. Certain
tax penalties and restrictions may apply to systematic withdrawals from the
Contracts. (See "Tax Status - Tax Treatment of Withdrawals - Qualified
Contracts.") Contract Owners entering into such a plan instruct the Company to
withdraw a level dollar amount from the Contract on a monthly or quarterly
basis. Currently, systematic withdrawal on a monthly or quarterly basis is
available to Contract Owners who have a Contract Value of $50,000 or more and
on a quarterly basis only to Contract Owners who have a Contract Value of at
least $20,000 but less than $50,000. The amount deducted will result in the
cancellation of Accumulation Units from each applicable Sub-Account and/or
the reduction of values in the Fixed Account in the ratio that the
value of each Sub-Account and/or the Fixed Account bears to the total Contract
Value. The Contract Owner must specify in writing in advance which units
are to be canceled or values are to be reduced if other than the above
mentioned method of cancellation is desired. The Company reserves the right
to modify the eligibility rules at any time, without notice. The total
systematic withdrawal in a Contract Year which can be made without incurring
a Contingent Deferred Sales Charge is limited to not more than 9% of the
Contract Value. However, the 9% limit may be increased to allow systematic
withdrawals to meet the applicable minimum distribution requirements for
Qualified Contracts. The exercise of the systematic withdrawal plan in any
Contract Year replaces the 15% amount which is allowable per year without
incurring a Contingent Deferred Sales Charge. Any other withdrawal in a
year when the systematic withdrawal plan has been utilized will be subject
to the Contingent Deferred Sales Charge.
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.
The Company reserves the right to defer payment for a withdrawal or transfer
from the Fixed Account for the period permitted by law but not for more than
six months after written election is received by the Company.
ADMINISTRATION OF THE CONTRACTS
While the Company has primary responsibility for all administration of the
Contracts, it has retained the services of Delaware Valley Financial Services,
Inc. ("DVFS" or "Valuemark Service Center") 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 DVFS. DVFS serves as the administrator to various insurance
companies offering variable and fixed annuity and variable life insurance
contracts. The Company's ability to administer the Contracts could be
adversely affected should DVFS elect to terminate the Agreement.
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,
the Administrative Expense Charge and the Contract Maintenance Charge.
Other Sub-Accounts
From time to time, the Company or NFP may publish the current
yields and total returns for the other Sub-Accounts 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
Accumulation 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 Accumulation
Units acquired through a hypothetical $1,000 investment at the Accumulation
Unit value at the beginning of the specified period and the value of the
Accumulation Unit at the end of such period, assuming reinvestment of
all distributions and the deduction of the Mortality and Expense Risk
Charge, Administrative Expense Charge and the prorated Contract
Maintenance 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, the Administrative Expense Charge and the
Contract Maintenance Charge for the applicable time period. The Company or
NFP may, in addition, advertise or present yield or total return performance
information computed on a 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 advertisements 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 comparisons, 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 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 Settlement Option elected. For a lump sum payment received as a total
surrender (total redemption) or death benefit, the recipient is taxed on the
portion of the payment that exceeds the cost basis of the Contract. For
Non-Qualified Contracts, this cost basis is generally the purchase payments,
while for Qualified Contracts there may be no cost basis. The taxable portion
of the lump sum payment is taxed at ordinary income tax rates.
For annuity payments, a portion of each payment in excess of an exclusion
amount is includible in taxable income. The exclusion amount for payments
based on a fixed annuity option is determined by multiplying the payment by
the ratio that the cost basis of the Contract (adjusted for any period certain
or refund feature) bears to the expected return under the Contract. The
exclusion amount for payments based on a variable annuity option is determined
by dividing the cost basis of the Contract (adjusted for any period certain or
refund guarantee) by the number of years over which the annuity is expected to
be paid. Payments received after the investment in the Contract has been
recovered (i.e. when the total of the excludable amounts equal the investment
in the Contract) are fully taxable. The taxable portion 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 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
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. Contract Owners
should consult a tax adviser prior to purchasing more than one non-qualified
annuity contract in any calendar year period.
Contracts Owned by Other than Natural Persons
Under Section 72(u) of the Code, the investment earnings on premiums for the
Contracts will be taxed currently to the Contract Owner if the Owner is a
non-natural person, e.g., a corporation, or certain other entities. Such
Contracts generally will not be treated as annuities for federal income tax
purposes. However, this treatment is not applied to Contracts held by a
trust or other entity as an agent for a natural person nor to Contracts held
by Qualified Plans. Purchasers should consult their own tax counsel or other
tax adviser before purchasing a Contract to be owned by a non-natural person.
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.
Effective January 1, 1993, certain distributions from retirement plans
qualified under Section 401 or Section 403(b) of the Code, which are not
directly rolled over to another eligible retirement plan or individual
retirement account or individual retirement annuity, are subject to a
mandatory 20% withholding for federal income tax. The 20% withholding
requirement generally does not apply to: a) a series of substantially equal
payments made at least annually for the life or life expectancy of the
participant or joint and last survivor expectancy of the participant and
a designated beneficiary, or for a specified period of 10 years or
more; or b) distributions which are required minimum distributions; or c)
the portion of the distributions not includible in gross income (i.e.
returns of after-tax contributions). Participants should consult their own
tax counsel or other tax adviser regarding withholding requirements.
Tax Treatment of Withdrawals - 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 includible 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 or for the joint lives (or
joint life expectancies) of the taxpayer and his Beneficiary; (e) 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 Withdrawals - Qualified Contracts.")
Qualified Plans
The Contracts offered by this Prospectus are designed to be suitable for use
under various types of Qualified Plans. Because of the minimum purchase
payment requirements, these Contracts may not be appropriate for some periodic
payment retirement plans. Taxation of participants in each Qualified Plan
varies with the type of plan and terms and conditions of each specific plan.
Contract Owners, Annuitants and Beneficiaries are cautioned that benefits
under a Qualified Plan 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. Some retirement plans are subject to distribution and other
requirements that are not incorporated into the Company's administrative
procedures. Contract Owners, participants and Beneficiaries are responsible
for determining that contributions, distributions and other transactions with
respect to the Contracts comply with applicable law. Following are general
descriptions of the types of Qualified Plans with which the Contracts may be
used. Such descriptions are not exhaustive and are for general informational
purposes only. The tax rules regarding Qualified Plans are very complex and
will have differing applications, depending on individual facts and
circumstances. Each purchaser should obtain competent tax advice prior to
purchasing a Contract issued under a Qualified Plan.
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. The Contracts sold by the Company in connection
with Qualified Plans will utilize annuity tables which do not differentiate on
the basis of sex. Such annuity tables will also be available for use in
connection with certain non-qualified deferred compensation plans.
Contracts issued pursuant to Qualified Plans include special provisions
restricting Contract provisions that may otherwise be available and described
in this Prospectus. Generally, Contracts issued pursuant to Qualified Plans
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 surrenders from Qualified Contracts. (See "Tax
Treatment of Withdrawals - Qualified Contracts.")
a. H.R. 10 Plans
Section 401 of the Code permits self-employed individuals to establish
Qualified Plans for themselves and their employees, commonly referred to as
"H.R. 10" or "Keogh" plans. Contributions made to the Plan for the benefit of
the employees will not be included in the gross income of the employees until
distributed from the Plan. The tax consequences to participants may vary,
depending upon the particular Plan design. However, the Code places
limitations and restrictions on all Plans, including on such items as:
amounts of allowable contributions; form, manner and timing of distributions;
transferability of benefits; vesting and nonforfeitability of interests;
nondiscrimination in eligibility and participation; and the tax treatment of
distributions, withdrawals and surrenders. (See "Tax Treatment of Withdrawals
- - Qualified Contracts.") Purchasers of Contracts for use with an H.R. 10 Plan
should obtain competent tax advice as to the tax treatment and suitability of
such an investment.
b. Tax-Sheltered Annuities
Section 403(b) of the Code permits the purchase of "tax-sheltered annuities"
by public schools and certain charitable, educational and scientific
organizations described in Section 501(c)(3) of the Code. These qualifying
employers may make contributions to the Contracts for the benefit of their
employees. Such contributions are not includable in the gross income of the
employee until the employee receives distributions from the Contract. The
amount of contributions to the tax-sheltered annuity is limited to certain
maximums imposed by the Code. Furthermore, the Code sets forth additional
restrictions governing such items as transferability, distributions,
nondiscrimination and withdrawals. (See "Tax Treatment of Withdrawals -
Qualified Contracts" and "Tax-Sheltered Annuities - Withdrawal Limitations.")
Employee loans are not allowed under these Contracts. Any employee should
obtain competent tax advice as to the tax treatment and suitability of such
an investment.
c. Individual Retirement Annuities
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity"
("IRA"). Under applicable limitations, certain amounts may be contributed to
an IRA which may be deductible from the individual's gross income. These IRAs
are subject to limitations on eligibility, contributions, transferability and
distributions. (See "Tax Treatment of Withdrawals - Qualified 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.
Sales of Contracts for use with IRAs 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.
d. Corporate Pension and Profit-Sharing Plans
Sections 401(a) and 401(k) of the Code permit corporate employers to establish
various types of retirement plans for employees. These retirement plans may
permit the purchase of the Contracts to provide benefits under the Plan.
Contributions to the Plan for the benefit of employees will not be includable
in the gross income of the employee until distributed from the Plan. The tax
consequences to participants may vary, depending upon the particular Plan
design. However, the Code places limitations and restrictions on all Plans,
including on such items as: amount of allowable contributions; form, manner
and timing of distributions; transferability of benefits; vesting and
nonforfeitability of interests; nondiscrimination in eligibility and
participation; and the tax treatment of distributions, withdrawals and
surrenders. Participant loans are not allowed under the Contracts purchased
in connection with these Plans. (See "Tax Treatment of Withdrawals -
Qualified Contracts.") Purchasers of Contracts for use with Corporate Pension
or Profit- Sharing Plans should obtain competent tax advice as to the tax
treatment and suitability of such an investment.
Tax Treatment of Withdrawals - Qualified 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 Contracts issued and qualified under Code Sections 401 (H.R.
10 and Corporate Pension and Profit-Sharing Plans), 403(b) (Tax-Sheltered
Annuities) and 408(b) (Individual Retirement Annuities). To the extent
amounts are not includable in gross income because they have been properly
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
Contract Owner or Annuitant (as applicable) reaches age 59 1/2; (b)
distributions following the death or disability of the Contract Owner or
Annuitant (as applicable) (for this purpose disability is as defined in
Section 72(m)(7) of the Code); (c) after separation from service,
distributions that are part of substantially equal periodic payments made not
less frequently than annually for the life (or life expectancy) of the
Contract Owner or Annuitant (as applicable) or the joint lives (or joint life
expectancies) of such Contract Owner or Annuitant (as applicable) and his
designated beneficiary; (d) distributions to a Contract Owner or Annuitant (as
applicable) who has separated from service after he has attained age 55; (e)
distributions made to the Contract Owner or Annuitant (as applicable) to the
extent such distributions do not exceed the amount allowable as a deduction
under Code Section 213 to the Contract Owner or Annuitant (as applicable) for
amounts paid during the taxable year for medical care; and (f) distributions
made to an alternate payee pursuant to a qualified domestic relations order.
The exceptions stated in items (d), (e) and (f) above do not apply in the case
of an Individual Retirement Annuity. The exception stated in item (c) applies
to an Individual Retirement Annuity without the requirement that there be a
separation from service.
Generally, distributions from a Qualified Plan must commence no later than
April 1 of the calendar year following the year in which the employee attains
age 70 1/2. 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, distributions in excess of $150,000 per year may be
subject to an additional 15% excise tax unless an exception applies.
Tax-Sheltered Annuities - Withdrawal Limitations
The Code limits the withdrawal of amounts attributable to contributions made
pursuant to a salary reduction agreement (as defined in Section 403(b)(11) of
the Code) to circumstances only when the Contract Owner: (1) attains age 59
1/2; (2) separates from service; (3) dies; (4) becomes disabled (within the
meaning of Section 72(m)(7) of the Code); or (5) in the case of hardship.
However, withdrawals for hardship are restricted to the portion of the
Contract Owner's Contract Value which represents contributions by the Contract
Owner and does not include any investment results. The limitations on
withdrawals became effective on January 1, 1989 and apply only to salary
reduction contributions made after December 31, 1988, and to income
attributable to such contributions and to income attributable to amounts held
as of December 31, 1988. The limitations on withdrawals do not affect
rollovers and transfers between certain Qualified Plans. Contract Owners
should consult their own tax counsel or other tax adviser regarding any
distributions.
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.
TABLE OF CONTENTS OF
THE STATEMENT OF ADDITIONAL INFORMATION
Item Page
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Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Opinions. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distributor . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Calculation of Performance Data . . . . . . . . . . . . . . . . . . .
Annuity Provisions. . . . . . . . . . . . . . . . . . . . . . . . . .
Variable Annuity Payout. . . . . . . . . . . . . . . . . . . . . .
Fixed Annuity Payout . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . .
